<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1994
FILE NOS. 2-87036
811-3871
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 13
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
[X]
AMENDMENT NO. 14
----------------
MERRILL LYNCH FUND FOR TOMORROW, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH FUND FOR TOMORROW, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
COUNSEL FOR THE FUND: JOEL H. PHILIP L. KIRSTEIN, ESQ.
GOLDBERG, ESQ. MERRILL LYNCH ASSET MANAGEMENT
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN P.O. BOX 9011
919 THIRD AVENUE PRINCETON, NEW JERSEY 08543-9011
NEW YORK, NEW YORK 10022
----------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a) of rule 485.
----------------
CALCULATION OF REGISTRATION FEE UNDER
THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER UNIT PRICE* FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock par
value $.10 per share..... 8,969,844 $14.64 $289,989.12 $100
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
*The calculation of the maximum aggregate offering price was made pursuant to
Rule 24e-2 and was based upon an offering price of $14.64 per share, equal to
the net asset value per share as of the close of business on May 23, 1994
pursuant to Rule 457(c). The total number of shares redeemed during the fiscal
year ended January 31, 1994 amounted to 8,950,036 shares. Of this number, no
shares have been used for reduction pursuant to paragraph (a) of Rule 24e-2 in
all previous filings of post-effective amendments during the current year, and
no shares have been used for reduction pursuant to paragraph (c) of Rule 24f-2
in all previous filings during the current year. All of the redeemed shares
for the fiscal year ended January 31, 1994 are being used for the reduction of
the registration fee in the post-effective amendment being filed herein.
REGISTRANT HAS PREVIOUSLY ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES
OF CLASS A AND CLASS B COMMON STOCK PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT. A RULE 24F-2 NOTICE WAS LAST FILED ON MARCH 15, 1994.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH FUND FOR TOMORROW, INC.
POST-EFFECTIVE AMENDMENT NO. 13 ON FORM N-1A
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(A))
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------- --------
<S> <C>
PART A
Item 1.Cover Page........................ Cover Page
Item 2.Synopsis.......................... Fee Table
Item 3.Condensed Financial Information... Financial Highlights; Additional
Information
Item 4.General Description of Registrant. Investment Objective and Policies;
The Fund and Its Management;
Investment Practices and
Restrictions
Item 5.Management of the Fund............ The Fund and Its Management;
Additional Information
Item 5A.Management's Discussion of Fund
Performance..................... Not Applicable
Item 6.Capital Stock and Other Cover Page; Fee Table; Alternative
Securities...................... Sales Arrangements; Purchase of
Shares; Dividends, Distributions
and Taxes; Additional Information
Item 7.Purchase of Securities Being Cover Page; Fee Table; Alternative
Offered......................... Sales Arrangements; Purchase of
Shares; Repurchase and Redemption
of Shares; Shareholder Services
Item 8.Redemption or Repurchase.......... Cover Page; Fee Table; Alternative
Sales Arrangements; Repurchase
and Redemption of Shares
Item 9.Pending Legal Proceedings......... Not Applicable
PART B
Item 10.Cover Page........................ Cover Page
Item 11.Table of Contents................. Table of Contents
Item 12.General Information and History... Not Applicable
Item 13.Investment Objectives and Investment Objective and Policies;
Policies........................ Investment Practices and
Restrictions
Item 14.Management of the Fund............ Management of the Fund; Directors
and Officers
Item 15.Control Persons and Principal
Holders of Securities........... Directors and Officers
Item 16.Investment Advisory and Other Management of the Fund; Additional
Services........................ Information
Item 17.Brokerage Allocation and Other Investment Practices and
Practices....................... Restrictions
Item 18.Capital Stock and Other Cover Page; Purchase of Shares;
Securities...................... Additional Information
Item 19.Purchase, Redemption and Pricing Cover Page; Purchase of Shares;
of Securities Being Offered..... Determination of Net Asset Value;
Redemptions; Shareholder Services
Item 20.Tax Status........................ Dividends, Distributions and Taxes
Item 21.Underwriters...................... Cover Page; Purchase of Shares
Item 22.Calculations of Performance Data.. Additional Information
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>
PROSPECTUS
MAY 26, 1994
MERRILL LYNCH FUND FOR TOMORROW, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Fund For Tomorrow, Inc. (the "Fund") is a diversified, open-
end management investment company (commonly known as a mutual fund), seeking
long-term growth of capital by investing in a quality-oriented portfolio of
securities, primarily common stocks, of companies that the Fund's management
believes are particularly well positioned to benefit from demographic and
cultural changes, primarily as they affect future consumer markets. The Fund
is designed primarily, but not exclusively, for younger investors who desire a
long-term investment in the stock market.
The Fund offers two classes of shares which may be purchased at a price
equal to the next determined net asset value per share, plus a sales charge
which, at the election of the purchaser, may be imposed (i) at the time of
purchase (the "Class A shares"), or (ii) on a deferred basis (the "Class B
shares"). The deferred sales charges to which the Class B shares are subject
shall consist of a contingent deferred sales charge which may be imposed on
redemptions made within four years of purchase and an ongoing account
maintenance fee and distribution fee. Class A shares pay no ongoing fees;
Class B shares pay ongoing fees at an annual rate of 1.00% of the Fund's
average daily net assets attributable to the Class B shares, comprised of a
0.25% account maintenance fee for account maintenance services and a 0.75% fee
for distribution services. These alternatives permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and other
circumstances. Investors should understand that the purpose and function of
the deferred sales charges with respect to the Class B shares are the same as
those of the initial sales charge with respect to the Class A shares.
Investors should also understand that over time the deferred sales charges
related to Class B shares may exceed the initial sales charge with respect to
Class A shares. See "Alternative Sales Arrangements" on page 4.
Each share of Class A and Class B represents identical interests in the
investment portfolio of the Fund and has the same rights, except that Class B
shares bear the expenses of the account maintenance fee and the distribution
fee and certain other costs resulting from the deferred sales charge
arrangement, which will cause Class B shares to have a higher expense ratio
and to pay lower dividends than those related to Class A shares, and that
Class B shares have exclusive voting rights with respect to the account
maintenance fee and the distribution fee. The two classes also have different
exchange privileges.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor" or "MLFD"), Box 9011, Princeton, New Jersey 08543-9011,
(609) 282-2800, or from securities dealers which have entered into selected
dealer agreements with the Distributor, including Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"). The minimum initial purchase is
$1,000 and the minimum subsequent purchase is $50, except that for retirement
plans, the minimum initial purchase is $250, and the minimum subsequent
purchase is $1. Merrill Lynch may charge its customers a processing fee
(presently $4.85) for confirming purchases and repurchases. Purchases and
redemptions directly through the Fund's Transfer Agent are not subject to the
processing fee. See "Purchase of Shares" and "Repurchase and Redemption of
Shares."
----------------
This Prospectus tells you briefly the information you should know before
investing in the Fund. You should read it and keep it for future reference. A
Statement of Additional Information, dated May 26, 1994, has been filed with
the Securities and Exchange Commission and contains further information about
the Fund. You can obtain a copy without charge by contacting your broker or by
calling or writing the Fund at the telephone number and address printed above.
The statement of additional information is hereby incorporated by reference
into this Prospectus.
----------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HASTHE 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.
----------------
MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to Class A shares and Class B shares follows:
<TABLE>
<CAPTION>
CLASS A SHARES
INITIAL SALES CLASS B SHARES DEFERRED
CHARGE ALTERNATIVE SALES CHARGE ALTERNATIVE
-------------------- --------------------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EX-
PENSES:
Maximum Sales Charge Imposed
on Purchases (as a percent-
age of offering price)...... 6.50%(a) None
Sales Charge Imposed on Div-
idend Reinvestments......... None None
Deferred Sales Charge (as a 4.0% during the first
percentage of original pur- None year decreasing 1.0%
chase price or redemption annually to 0.0% after
proceeds, whichever is low- the fourth year(b)
er).........................
Exchange Fee................. None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE
NET ASSETS) FOR THE YEAR
ENDED JANUARY 31, 1994:
Investment Advisory Fees(c).. 0.65% 0.65%
12b-1 Fees................... None 1.00%(d)
Other Expenses
Custodian Fees............. 0.02% 0.02%
Shareholder Servicing
Fees(e)................... 0.13% 0.16%
Other...................... 0.08% 0.08%
------- ------------
Total Other Expenses..... 0.23% 0.26%
----------- -------------------------
Total Fund Operating Expenses. 0.88% 1.91%
=========== =========================
</TABLE>
- --------
(a) Reduced for purchases of $10,000 and over, decreasing to 0.75% for
purchases of $1,000,000 and over. Certain purchases of Class A shares
investing $1,000,000 or more may, in lieu of a front-end sales load, be
assessed a deferred sales charge on redemptions within the first year of
such investment. See "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares"--page 11.
(b) See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares"--page 12.
(c) See "The Fund and Its Management"--page 7.
(d) Includes both the 0.25% account maintenance fee and the 0.75% distribution
fee. See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares--Distribution Plan"--page 14.
(e) See "The Fund and Its Management--Transfer Agency Services Fee"--page 9.
2
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR
THE PERIOD OF
-----------------------------
3 10
1 YEAR YEARS 5 YEARS YEARS
------ ------ ------- -------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on
a $1,000 investment including, for Class A
shares, the maximum $65 front-end sales charge
and assuming (1) an operating expense ratio of
0.88% for Class A shares and 1.91% for Class B
shares, (2) a 5% annual return throughout the
periods and (3) redemption at the end of the
period:
Class A....................................... $73.40 $91.24 $110.59 $166.38
Class B....................................... $59.40 $80.00 $103.16 $223.27
An investor would pay the following expenses on
the same $1,000 investment assuming no redemp-
tion at the end of the period:
Class A....................................... $73.40 $91.24 $110.59 $166.38
Class B....................................... $19.40 $60.00 $103.16 $223.27
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission regulations. The Example should not be
considered a representation of past or future expenses or annual rate of
return, and actual expenses or annual rate of return may be more or less than
those assumed for purposes of the Example. Class B shareholders who own their
shares for an extended period of time may pay more in account maintenance and
distribution fees than the economic equivalent of the maximum front-end sales
charge permitted under the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. Merrill Lynch may charge its customers a processing
fee (presently $4.85) for confirming purchases and repurchases. Purchases and
redemptions directly through the Fund's Transfer Agent are not subject to the
processing fee. See "Purchase of Shares" and "Repurchase and Redemption of
Shares."
3
<PAGE>
ALTERNATIVE SALES ARRANGEMENTS
Shares of the Fund may be purchased at a price equal to the next determined
net asset value per share, plus a sales charge which, at the election of the
purchaser, may be imposed either (i) at the time of the purchase (the "initial
sales charge alternative"), or (ii) on a deferred basis (the "deferred sales
charge alternative").
Class A Shares. An investor who elects the initial sales charge alternative
acquires Class A shares. Although Class A shares incur a sales charge when they
are purchased, they enjoy the benefit of not being subject to any ongoing
account maintenance fee or distribution fee or, with the exception of certain
purchases for which initial sales charges may be waived, any sales charge when
they are redeemed. Certain purchases of Class A shares qualify for reduced
initial sales charges. See "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares."
Class B Shares. An investor who elects the deferred sales charge alternative
acquires Class B shares. Class B shares do not incur a sales charge when they
are purchased, but they are subject to ongoing account maintenance and
distribution fees and a sales charge if they are redeemed within four years of
purchase. Class B shares enjoy the benefit of permitting all of the investor's
dollars to work from the time the investment is made. The ongoing account
maintenance and distribution fees paid by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than those related to
Class A shares. Payment of the distribution fee is subject to certain
limitations set forth under "Purchase of Shares--Deferred Sales Charge
Alternative--Class B Shares."
As an illustration, investors who qualify for significantly reduced sales
charges might elect the initial sales charge alternative because similar sales
charge reductions are not available for purchases under the deferred sales
charge alternative. See "Purchase of Shares--Initial Sales Charge Alternative--
Class A Shares." Moreover, shares acquired under the initial sales charge
alternative would not be subject to ongoing account maintenance and
distribution fees. However, because initial sales charges are deducted at the
time of purchase, such investors would not have all their funds invested
initially. Investors not qualifying for reduced initial sales charges who
expect to maintain their investment for an extended period of time might also
elect the initial sales charge alternative because over time the accumulated
continuing account maintenance and distribution fees may exceed the initial
sales charge. Again, however, such investors must weigh this consideration
against the fact that not all their funds will be invested initially.
Furthermore, the ongoing account maintenance and distribution fees will be
offset to the extent any return is realized on the additional funds initially
invested under the deferred sales charge alternative. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. Certain other investors might determine it to be more advantageous to
have all their funds invested initially, although remaining subject to
continued account maintenance and distribution fees and, for a four-year period
of time, a contingent deferred sales charge.
The distribution expenses incurred by the Distributor and dealers (primarily
Merrill Lynch) in connection with the sale of the shares will be paid, in the
case of the Class A shares, from the proceeds of the initial sales charge and,
in the case of the Class B shares, from the proceeds of the ongoing
distribution fee and, if applicable, the contingent deferred sales charge
incurred upon redemption within four years of purchase. Expenses incurred by
the Distributor and dealers (primarily Merrill Lynch) in connection with
account maintenance activities with respect to Class B shares will be paid from
the proceeds of the account
4
<PAGE>
maintenance fee. Sales personnel may receive different compensation for selling
Class A or Class B shares. Investors should understand that the purpose and
function of the deferred sales charges with respect to the Class B shares are
the same as those of the initial sales charge with respect to the Class A
shares. The account maintenance fees to which Class B shareholders are subject
will be used to compensate consultants and other personnel for providing
personal services to shareholders and to pay administration costs related to
maintenance of shareholder accounts.
Dividends paid by the Fund with respect to Class A and Class B shares, to the
extent any dividends are paid, will be calculated in the same manner at the
same time on the same day and will be in the same amount, except that the
account maintenance and distribution fees and any incremental transfer agency
costs relating to Class B shares will be borne exclusively by that class. See
"Additional Information--Determination of Net Asset Value." Class A and Class B
shareholders of the Fund each have an exchange privilege for Class A and Class
B shares, respectively, with certain other mutual funds sponsored by Merrill
Lynch. Class A and Class B shareholders of the Fund also may exchange their
shares for shares of certain money market funds sponsored by Merrill Lynch. See
"Shareholder Services--Exchange Privilege."
The Directors of the Fund have determined that currently no conflict of
interest exists between the Class A and Class B shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties under the
Investment Company Act of 1940 and state law, will seek to assure that no such
conflict arises.
THE ALTERNATIVE SALES ARRANGEMENTS PERMIT AN INVESTOR TO CHOOSE THE METHOD
OF PURCHASING SHARES THAT IS MOST BENEFICIAL GIVEN THE AMOUNT OF THE
PURCHASE, THE LENGTH OF TIME THE INVESTOR EXPECTS TO HOLD THE SHARES AND
OTHER CIRCUMSTANCES. INVESTORS SHOULD DETERMINE WHETHER UNDER THEIR
PARTICULAR CIRCUMSTANCES IT IS MORE ADVANTAGEOUS TO INCUR AN INITIAL SALES
CHARGE AND NOT BE SUBJECT TO ONGOING CHARGES, OR TO HAVE THE ENTIRE
INITIAL PURCHASE PRICE INVESTED IN THE FUND WITH THE INVESTMENT THEREAFTER
BEING SUBJECT TO ONGOING CHARGES. TO ASSIST INVESTORS IN MAKING THIS
DETERMINATION, THE FEE TABLE ON PAGE 2 SETS FORTH THE CHARGES APPLICABLE
TO EACH CLASS OF SHARES AND A DISCUSSION OF RELEVANT FACTORS IN MAKING
SUCH DETERMINATION IS SET FORTH UNDER "PURCHASE OF SHARES--ALTERNATIVE
SALES ARRANGEMENTS" ON PAGE 10.
5
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the Fund by Deloitte & Touche, independent auditors.
Financial statements for the year ended January 31, 1994 and the independent
auditors' report thereon are included in the Statement of Additional
Information.
THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION
PROVIDED IN THE FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
------------------------------------------------
1994 1993 1992 1991 1990 1989+
<S> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN NET
ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of $ 16.29 $ 16.84 $15.49 $15.26 $14.96 $16.05
year............ ------- ------- ------ ------ ------ ------
Investment
income (loss)--
net............. .15 .25 .36 .41 .30 .08
Realized and
unrealized gain
on investments
and foreign
currency
transactions-- 2.18 .49 3.74 .59 1.45 .43
net(/1/) ------- ------- ------ ------ ------ ------
Total from
investment 2.33 .74 4.10 1.00 1.75 .51
operations...... ------- ------- ------ ------ ------ ------
Less dividends
and
distributions:
Investment
income--net..... -- (.23) (.35) (.40) (.41) (.13)
Realized gain on (2.23) (1.06) (2.40) (.37) (1.04) (1.47)
investments--net ------- ------- ------ ------ ------ ------
Total dividends
and (2.23) (1.29) (2.75) (.77) (1.45) (1.60)
distributions... ------- ------- ------ ------ ------ ------
Net asset value, $ 16.39 $ 16.29 $16.84 $15.49 $15.26 $14.96
end of year..... ------- ------- ------ ------ ------ ------
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per 15.78% 4.79% 28.35% 6.64% 10.92% 3.90%++++
share........... ------- ------- ------ ------ ------ ------
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
distribution .88% .90% .95% .96% .89% .91%+++
fees............ ------- ------- ------ ------ ------ ------
Expenses........ .88% .90% .95% .96% .89% .91%+++
------- ------- ------ ------ ------ ------
Investment
income (loss)-- .95% 1.35% 1.81% 2.58% 2.20% 1.87%+++
net............. ------- ------- ------ ------ ------ ------
SUPPLEMENTAL
DATA:
Net assets, end
of year (in $10,942 $11,394 $8,846 $5,478 $4,466 $ 476
thousands)...... ------- ------- ------ ------ ------ ------
Portfolio 48.63% 40.58% 48.28% 25.57% 15.23% 10.26%
turnover........ ------- ------- ------ ------ ------ ------
<CAPTION>
CLASS B
------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
------------------------------------------------------------------------------------------------------
1994* 1993 1992 1991 1990 1989 1988 1987 1986 1985++
<S> <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 $ 16.28 $ 16.82 $ 15.48 $ 15.24 $ 14.94 $ 13.78 $ 16.74 $ 13.34 $ 11.89 $ 10.00
year............ --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
Investment
income (loss)--
net............. (.01) .06 .14 .24 .21 .20 .15 .09 .11 .22
Realized and
unrealized gain
on investments
and foreign
currency
transactions-- 2.17 .52 3.77 .60 1.36 2.72 (1.51) 3.49 1.72 1.80
net(/1/) --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
Total from
investment 2.16 .58 3.91 .84 1.57 2.92 (1.36) 3.58 1.83 2.02
operations...... --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
Less dividends
and
distributions:
Investment
income--net..... -- (.06) (.17) (.23) (.23) (.20) (.16) (.10) (.13) (.13)
Realized gain on (2.14) (1.06) (2.40) (.37) (1.04) (1.56) (1.44) (.08) (.25) --
investments--net --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
Total dividends
and (2.14) (1.12) (2.57) (.60) (1.27) (1.76) (1.60) (.18) (.38) (.13)
distributions... --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
Net asset value, $ 16.30 $ 16.28 $ 16.82 $ 15.48 $ 15.24 $ 14.94 $ 13.78 $ 16.74 $ 13.34 $ 11.89
end of year..... --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per 14.60% 3.75% 26.96% 5.59% 9.77% 22.11% (8.63%) 26.99% 15.87% 24.33%++++
share........... --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
distribution .91% .92% .98% 1.00% .93% .96% .87% .87% .98% 1.25%+++
fees............ --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
Expenses........ 1.91% 1.92% 1.98% 2.00% 1.93% 1.96% 1.87% 1.87% 1.98% 2.25%+++
--------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
Investment
income (loss)-- (.07%) .36% .83% 1.53% 1.20% 1.18% .92% .65% 1.30% 2.64%+++
net............. --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
SUPPLEMENTAL
DATA:
Net assets, end
of year (in $396,424 $447,186 $476,106 $442,944 $516,402 $562,899 $669,402 $723,907 $348,147 $110,366
thousands)...... --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
Portfolio 48.63% 40.58% 48.28% 25.57% 15.23% 10.26% 23.03% 30.03% 6.69% 18.28%
turnover........ --------- --------- --------- --------- --------- --------- --------- --------- --------- ------------
</TABLE>
* Based on average shares outstanding during the period.
** Total investment returns exclude the effects of sales loads.
+ Class A shares commenced operations on October 26, 1988.
++ Class B shares commenced operations on March 5, 1984.
+++Annualized.
++++Aggregate total investment return.
(/1/)Foreign currency transaction amounts have been reclassified to conform to
the 1994 presentation.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital. The Fund
seeks to achieve its objective by investing in a quality-oriented portfolio of
securities of companies that the Fund's management believes are particularly
well positioned to benefit from demographic and cultural changes, primarily as
they affect future consumer markets in the United States and, to a lesser
extent, foreign consumer markets. Management will seek to identify and analyze
demographic trends, such as the aging of the "baby boom" generation and shifts
in geographical population growth rates, as well as cultural trends, such as
the changing composition and needs of the work force, and to evaluate the
effect of such factors on the demand for particular products and services.
Based on such analysis, management will seek to identify companies whose
products and services respond to the changing needs of consumers, and thus are
believed to represent attractive investment opportunities. It is anticipated
that the Fund will invest primarily in common stocks of such companies.
However, when management believes it is advisable to do so, the Fund may invest
in other securities, including, but not limited to, convertible securities,
preferred stocks and bonds. The Fund does not presently intend to purchase
bonds rated lower than BBB by Standard & Poor's Corporation ("S&P") or Baa by
Moody's Investor Service, Inc. ("Moody's"). See "Investment Practices and
Restrictions--Investment Grade Debt Securities." While no one can predict the
prices of securities from day to day, the Fund attempts to reduce overall
exposure to risk from declines in securities prices by spreading its
investments over many different companies in a variety of industries. No
assurance can be given that the Fund will be able to achieve its investment
objective.
In seeking to identify quality companies, particular emphasis is placed by
management on common stocks of companies which, in addition to being considered
well positioned to benefit from cultural and demographic factors, are believed
to have internal strengths, such as good financial resources, a satisfactory
rate of return on capital, a good industry position and superior management
skills. Management believes that companies with these characteristics have a
good chance of achieving consistent earnings growth, which in turn should make
it likely that the prices of their stocks will increase over time.
The Fund may invest up to 25% of its assets in the securities of foreign
issuers. The Fund reserves the right to invest, temporarily, all or a portion
of its assets in high quality money market securities (such as U.S. Treasury
bills, bank certificates of deposit, commercial paper and repurchase
agreements) for purposes of enhancing liquidity and avoiding the effects of
declining stock prices when it seems advisable to do so in light of prevailing
market or economic conditions. The proportion of the Fund's assets that is
invested in money market securities will vary from time to time.
THE FUND AND ITS MANAGEMENT
The Fund is a mutual fund, technically known as an open-end, diversified,
management investment company. The Fund was incorporated under the laws of the
State of Maryland on October 5, 1983. When you buy shares in the Fund your
investment is combined with the investments of others and used to buy various
securities, mainly common stocks. Through your ownership of shares, you
participate in the investment performance of those securities. The Fund is
designed primarily, but not exclusively, for younger investors who desire a
long-term investment in the stock market.
7
<PAGE>
The Board of Directors of the Fund consists of five individuals, four of whom
are not "interested persons" of the Fund as defined in the Investment Company
Act of 1940. The Board of Directors of the Fund is responsible for the overall
supervision of the operations of the Fund and performs the various duties
imposed on the directors of investment companies by the Investment Company Act
of 1940.
The Directors of the Fund are:
Arthur Zeikel*--President and Chief Investment Officer of Merrill Lynch Asset
Management, L.P., (the "Investment Adviser" or "MLAM") and Fund Asset
Management, L.P. ("FAM"); President and Director of Princeton Services, Inc.
since 1993; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co."),
and Executive Vice President of Merrill Lynch since 1990 and Senior Vice
President thereof from 1985 to 1990; Director of Merrill Lynch Funds
Distributor, Inc.
Ronald W. Forbes--Professor of Finance, School of Business, State University
of New York at Albany.
Charles C. Reilly--Self-employed financial consultant; Adjunct Professor,
Columbia University School of Business; Former President and Chief Investment
Officer of Verus Capital, Inc.; Former Senior Vice President of Arnhold and S.
Bleichroeder, Inc.
Kevin A. Ryan--Professor of Education at Boston University since 1982;
Founder and current Director of The Boston University Center for the
Advancement of Ethics and Character.
Richard R. West--Professor of Finance, and Dean from 1984 to 1993, of New
York University, Leonard N. Stern School of Business Administration.
- --------
*Interested person, as defined in the Investment Company Act of 1940, of the
Fund.
The Investment Adviser, with offices at 800 Scudders Mill Road, Plainsboro,
New Jersey (mailing address: Box 9011, Princeton, New Jersey 08543-9011), is a
Delaware limited partnership and is owned and controlled by ML & Co., the
parent of Merrill Lynch. The Investment Adviser manages the investment of the
Fund's assets, provides administrative services and manages the Fund's business
affairs. These services are subject to general oversight by the Fund's Board of
Directors. The Investment Adviser or its affiliate, FAM, currently serves as
the investment adviser to over 90 other registered investment companies, as
well as to numerous pension plans and other institutions. As of March 31, 1994,
the Investment Adviser and FAM had a total of approximately $163.6 billion in
investment company and other portfolio assets under management, including
accounts of certain affiliates of the Investment Adviser.
ML & Co., Merrill Lynch Investment Management, Inc. and Princeton Services,
Inc. may be deemed "controlling persons" of the Investment Adviser as defined
under the Investment Company Act of 1940 because of their power to exercise a
controlling influence over its management policies.
Vincent P. Dileo is the portfolio manager for the Fund. Mr. Dileo is a Vice
President of the Investment Adviser and has been employed by the Investment
Adviser in this capacity since 1984. For the past five years, Mr. Dileo has
acted as portfolio manager of one or more other registered investment companies
sponsored by the Investment Adviser, and continues to act in such capacity.
Advisory Fee. The shareholders have approved an Investment Advisory Agreement
(the "Advisory Agreement") pursuant to which the Fund pays the Investment
Adviser a monthly fee based upon the average
8
<PAGE>
daily value of the portfolio's net assets at the following annual rates: 0.65%
of the average daily net assets not exceeding $750 million; 0.60% of the
average daily net assets exceeding $750 million but not exceeding $1 billion;
and 0.55% of the average daily net assets exceeding $1 billion. For the fiscal
year ended January 31, 1994, the fee paid by the Fund to the Investment
Adviser was $2,782,877 (based on average net assets of approximately $425.8
million). For the fiscal year ended January 31, 1994, the ratio of total
expenses to average net assets was 0.88% for the Class A shares and 1.91% for
the Class B shares.
Transfer Agency Services Fee. Financial Data Services, Inc. (the "Transfer
Agent"), which is a wholly-owned subsidiary of ML & Co., acts as the Fund's
Transfer Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible
for the issuance, transfer and redemption of shares and the opening and
maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreement, the Transfer Agent receives a fee of $7.00 per Class A shareholder
account and $9.00 per Class B shareholder account and is entitled to
reimbursement for out-of-pocket expenses incurred by it under the Transfer
Agency Agreement. For the year ended January 31, 1994, the total fee paid by
the Fund to the Transfer Agent was $674,885.
Reimbursement for Portfolio Accounting Services. Accounting services are
provided to the Fund by the Investment Adviser, and the Fund reimburses the
Investment Adviser for its costs in connection with such services on a semi-
annual basis. For the fiscal year ended January 31, 1994, the Fund reimbursed
the Investment Adviser $88,054 for accounting services.
PURCHASE OF SHARES
The Distributor, a subsidiary of the Investment Adviser and an affiliate of
Merrill Lynch acts as the Distributor of the Class A and Class B shares of the
Fund. Shares of the Fund are offered continuously for sale by the Distributor
and other eligible securities dealers (including Merrill Lynch). Shares of the
Fund may be purchased from securities dealers or by mailing a purchase order
directly to the Transfer Agent. The minimum initial purchase is $1,000 and the
minimum subsequent purchase is $50, except that for retirement plans, the
minimum initial purchase is $250, and the minimum subsequent purchase is $1.
Different minimums may apply to purchases through the Merrill Lynch
Blueprint SM Program. See "Purchase of Shares--Reduced Initial Sales Charges--
Class A Shares--Merrill Lynch Blueprint SM Program" in the Statement of
Additional Information.
The Fund is offering its shares at a public offering price equal to the next
determined net asset value per share plus sales charges which, at the option
of the purchaser, may be imposed either at the time of purchase (the "initial
sales charge alternative") or on a deferred basis (the "deferred sales charge
alternative"), as described below. The applicable offering price for purchase
orders is based on the net asset value of the Fund next determined after
receipt of the purchase order by the Distributor. As to purchase orders
received by securities dealers prior to 4:15 P.M., New York time, which
include orders received after the determination of net asset value on the
previous day, the applicable offering price will be based on the net asset
value determined as of 4:00 P.M., New York time, on the day the order is
placed with the Distributor, provided the order is received by the Distributor
prior to 4:30 P.M., New York time, on that day. If the purchase orders are not
received by the Distributor prior to 4:30 P.M., New York time, such orders
shall be deemed
9
<PAGE>
received on the next business day. Any order may be rejected by the Distributor
or the Fund. The Fund or the Distributor may suspend the continuous offering of
the Fund's shares at any time in response to conditions in the securities
markets or otherwise and may thereafter resume such offering from time to time.
Neither the Distributor nor the dealers are permitted to withhold placing
orders to benefit themselves by a price change. Merrill Lynch may charge its
customers a processing fee (presently $4.85) to confirm a sale of shares to
such customers. Purchases directly through the Fund's Transfer Agent are not
subject to the processing fee.
The Fund issues two classes of shares: Class A shares are sold to investors
choosing the initial sales charge alternative and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares each represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B shares bear the expenses of the account maintenance fee and the distribution
fee and any expenses (including incremental transfer agency costs) resulting
from the deferred sales arrangement, and have exclusive voting rights with
respect to the Rule 12b-1 distribution plan pursuant to which the account
maintenance and distribution fees are paid. The two classes also have different
exchange privileges. See "Shareholder Services--Exchange Privilege." The net
income attributable to Class B shares and the dividends payable on Class B
shares will be reduced by the amount of the account maintenance and
distribution fees and the incremental expenses associated with such account
maintenance and distribution fees; likewise, the net asset value of the Class B
shares will be reduced by such amount to the extent the Fund has undistributed
net income. Sales personnel may receive different compensation for selling
Class A or Class B shares. Investors are advised that only Class A shares may
be available for purchase through securities dealers, other than Merrill Lynch,
which are eligible to sell shares.
ALTERNATIVE SALES ARRANGEMENTS
The alternative sales arrangements of the Fund permit investors to choose the
method of purchasing shares that is most beneficial given the amount of their
purchase, the length of time the investor expects to hold the shares and other
relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur an initial sales
charge and not be subject to ongoing charges, as discussed below, or to have
the entire initial purchase price invested in the Fund with the investment
thereafter being subject to ongoing account maintenance and distribution fees.
As an illustration, investors who qualify for significantly reduced sales
charges, as described below, might elect the initial sales charge alternative
because similar sales charge reductions are not available for purchases under
the deferred sales charge alternative. Moreover, shares acquired under the
initial sales charge alternative would not be subject to ongoing account
maintenance and distribution fees as described below. However, because initial
sales charges are deducted at the time of purchase, such investors would not
have all their funds invested initially.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might also elect the
initial sales charge alternative because over time the accumulated continuing
account maintenance and distribution fees may exceed the initial sales charge.
Again, however, such investors must weigh this consideration against the fact
that not all their funds will be invested initially. Furthermore, the ongoing
account maintenance and distribution fees will be offset to the extent any
return is realized on the additional funds initially invested under the
deferred sales charge alternative. Another factor that may be applicable under
certain circumstances is that payment of the Class B distribution fee and
contingent deferred sales charge is subject to certain limits as set forth
under "Deferred Sales Charge Alternative--Class B Shares."
10
<PAGE>
Certain other investors might determine it to be more advantageous to have
all their funds invested initially, although remaining subject to continued
account maintenance and distribution fees and, for a four-year period of time,
a contingent deferred sales charge as described below. For example, an investor
subject to the Class A 6.50% initial sales charge will have to hold his
investment at least 6 1/2 years for the aggregate 0.25% account maintenance fee
and the 0.75% distribution fee of the Class B shares to exceed the initial
sales charge of the Class A shares. This example does not take into account the
time value of money which further reduces the impact of the account maintenance
and distribution fees on the investment, fluctuations in the net asset value,
the effect of the return on the investment over this period of time or the
effect of any limits that may be imposed upon payment of the distribution fee
and the contingent deferred sales charge.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The public offering price of Class A shares for purchasers choosing the
initial sales charge alternative is the next determined net asset value plus
varying sales charges (i.e., sales load), as set forth below:
<TABLE>
<CAPTION>
SALES CHARGE AS DISCOUNT TO
SALES CHARGE AS PERCENTAGE* OF SELECTED DEALERS
PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------ --------------- --------------- ------------------
<S> <C> <C> <C>
Less than $10,000........... 6.50% 6.95% 6.25%
$10,000 but less than
$25,000.................... 6.00 6.38 5.75
$25,000 but less than
$50,000.................... 5.00 5.26 4.75
$50,000 but less than
$100,000................... 4.00 4.17 3.75
$100,000 but less than
$250,000................... 3.00 3.09 2.75
$250,000 but less than
$1,000,000................. 2.00 2.04 1.80
$1,000,000 and over......... .75 .76 .65
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
Initial sales charges may be waived for shareholders purchasing $1 million or
more in a single transaction by an investor (other than an employer sponsored
retirement or savings plan, such as a tax qualified retirement plan under
Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), a
deferred compensation plan under Section 403(b) and Section 457 of the Code),
other deferred compensation arrangements, VEBA plans and non-qualified After-
Tax Savings and Investment programs on the Merrill Lynch Group Employee
Services system (hereinafter referred to as "Employer Sponsored Retirement or
Savings Plans"), or a purchase by a TMASM Managed Trust, of Class A shares of
the Fund. In addition, purchases of Class A shares of the Fund made in
connection with a single investment of $1 million or more under the Merrill
Lynch Mutual Fund Adviser Program will not be subject to an initial sales
charge. Purchases described in this paragraph will be subject to a contingent
deferred sales charge if the shares are redeemed within one year after purchase
at the following rates:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
AMOUNT OF PURCHASE DOLLAR AMOUNT OF PURCHASE
------------------ -------------------------
<S> <C>
$1 million up to $2.5 million................... 1.00%
Over $2.5 million up to $3.5 million............ .60%
Over $3.5 million up to $5 million.............. .40%
Over $5 million................................. .25%
</TABLE>
11
<PAGE>
The Distributor may reallow discounts to such dealers and retain the balance
over such discounts. At times the Distributor may reallow the entire sales
charge to such dealers. Since securities dealers selling Class A shares of the
Fund will receive a concession equal to most of the sales charge, they may be
deemed to be underwriters under the Securities Act of 1933, as amended.
Reduced Initial Sales Charges. Sales charges are reduced under a Right of
Accumulation and a Letter of Intention. Class A shares of the Fund are offered
at net asset value to Directors of the Fund, to directors or trustees of
certain other Merrill Lynch-sponsored investment companies, to an investor who
has a business relationship with a financial consultant who joined Merrill
Lynch from another investment firm within six months prior to the date of
purchase if certain conditions set forth in the Statement of Additional
Information are met, to directors of ML & Co. and to employees of ML & Co. and
its subsidiaries. Class A shares are offered with reduced sales charges and,
in certain circumstances at net asset value, to participants in the Merrill
Lynch BlueprintSM Program. A transaction of $1,000,000 or more by a TMASM
Managed Trust to purchase Class A shares of the Fund will not be subject to an
initial sales charge. Class A shares are offered at a net asset value to
certain Employer Sponsored Retirement or Savings Plans (as defined above),
provided such plans meet the required minimum number of eligible employees or
required amount of assets advised by the Investment Adviser or any of its
affiliates. Also, Class A shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies. Class
A shares of the Fund are also offered at net asset value to shareholders of
certain closed-end funds advised by the Investment Adviser or FAM who wish to
reinvest the net proceeds from a sale of their closed-end fund shares of
common stock in shares of the Fund, provided certain conditions are met. No
initial sales charges are imposed upon Class A shares issued as a result of
the automatic reinvestment of dividends or capital gains distributions.
Class A shares of the Fund are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by
a non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer, provided certain conditions are met.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employer Sponsored Retirement
or Savings Plans, is set forth in the Statement of Additional Information.
Additional information concerning these reduced sales charges may also be
obtained from your financial consultant.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Investors choosing the deferred sales charge alternative purchase Class B
shares at net asset value per share without the imposition of a sales charge
at the time of purchase. The Class B shares are being sold without an initial
sales charge so that the Fund will receive the full amount of the investor's
purchase payment. Merrill Lynch compensates its financial consultants for
selling Class B shares at the time of purchase from its own funds. The
proceeds of the contingent deferred sales charge and the ongoing distribution
fee discussed below are used to defray Merrill Lynch's expenses, including
compensating its financial consultants. The proceeds from the account
maintenance fee are used to compensate Merrill Lynch for providing continuing
account maintenance activities.
Proceeds from the contingent deferred sales charge are paid to the
Distributor and are used in whole or in part by the Distributor to defray the
expenses of dealers (including Merrill Lynch) related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to financial consultants
for selling Class B shares, from its own funds. Payments of the distribution
fee by the Fund to the Distributor under the distribution plan described below
also may be used
12
<PAGE>
in whole or in part by the Distributor for this purpose. The combination of the
contingent deferred sales charge and the ongoing account maintenance and
distribution fee facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of purchase. Class B
shareholders of the Fund exercising the exchange privilege described under
"Shareholder Services--Exchange Privilege" will continue to be subject to the
Fund's contingent deferred sales charge schedule if such schedule is higher
than the deferred sales charge schedule relating to the Class B shares acquired
as a result of the exchange.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
four years of purchase may be subject to a contingent deferred sales charge at
the rates set forth below charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the lesser of the
current market value or the cost of the shares being redeemed. Accordingly, no
contingent deferred sales charge will be imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge will be
assessed on shares derived from reinvestment of dividends or capital gains
distributions. For the year ended January 31, 1994, the Distributor received
contingent deferred sales charges of $172,596 with respect to redemptions of
Class B shares, all of which was paid to Merrill Lynch.
The following table sets forth the rates of the contingent deferred sales
charge:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE PAYMENT MADE SUBJECT TO CHARGE
-------------------------------- -------------------
<S> <C>
0-1................................................... 4.0%
1-2................................................... 3.0%
2-3................................................... 2.0%
3-4................................................... 1.0%
4 and thereafter...................................... None
</TABLE>
In determining whether a contingent deferred sales charge is applicable to a
redemption, the calculation will be determined in the manner that results in
the lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares held
longest during the four-year period. The charge will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase. A transfer from a shareholder's account to another will be assumed to
be made in the same order as a redemption.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor
makes his first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to original costs of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The contingent deferred sales charge is waived on redemptions of shares in
connection with certain post-retirement withdrawals from an IRA or other
retirement plan or following the death or disability (as defined in the
Internal Revenue Code) of a shareholder.
13
<PAGE>
The contingent deferred sales charge also is waived on redemptions of shares
in connection with certain group plans placing orders through Merrill Lynch
BlueprintSM Program and on redemptions of shares by certain eligible 401(a) and
eligible 401(k) plans. In addition, the contingent deferred sales charge is
waived for any Class B shares which are purchased by an eligible 401(a) or
eligible 401(k) plan and are rolled over into a Merrill Lynch or Merrill Lynch
Trust Company custodied Individual Retirement Account and held in such account
at the time of redemption. Additional information concerning the waiver of the
contingent deferred sales charge is set forth in the Statement of Additional
Information.
Distribution Plan. Pursuant to a distribution plan adopted by the Fund
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"Distribution Plan"), the Fund pays the Distributor an ongoing account
maintenance fee and distribution fee, which are accrued daily and paid monthly,
at the annual rate of 0.25% and 0.75%, respectively, of the average daily net
assets of the Class B shares of the Fund. Pursuant to a sub-agreement with the
Distributor, Merrill Lynch provides account maintenance and distribution
services to the Fund with respect to Class B shares. The ongoing account
maintenance fee compensates the Distributor and Merrill Lynch for providing
account maintenance services to Class B shareholders. Account maintenance fees
will be used to compensate financial consultants and other personnel for
providing personal service to shareholders and to pay administrative costs
related to the maintenance of the shareholder accounts. The ongoing
distribution fee compensates the Distributor and Merrill Lynch for providing
shareholder and distribution services and bearing certain distribution-related
expenses of the Fund, including payments to financial consultants for selling
Class B shares of the Fund.
Prior to July 6, 1993, the Fund paid the Distributor an ongoing distribution
fee, accrued daily and payable monthly, at the annual rate of 1.00% of average
daily net assets of the Class B shares of the Fund under a distribution plan
previously adopted by the Fund (the "Prior Plan") to compensate the Distributor
and Merrill Lynch for providing account maintenance and distribution-related
activities and services to the Class B shareholders. The fee payable and the
services provided under the Prior Plan are identical to the aggregate fee rate
payable and the services provided under the Distribution Plan, the difference
being that the account maintenance and distribution services have been
unbundled. For the fiscal year ended January 31, 1994, the Fund paid the
Distributor $4,173,391 (based on average net assets relating to the Class B
shares of approximately $415.1 million) pursuant to the Distribution Plan, all
of which was paid to Merrill Lynch for providing account maintenance and
distribution-related services in connection with the Class B shares. Both the
Distribution Plan and the Prior Plan were designed to permit an investor to
purchase Class B shares through dealers without the assessment of a front-end
sales load and at the same time permit the dealer to compensate its financial
consultants in connection with the sale of the Class B shares. In this regard,
the purpose and function of the ongoing account maintenance and distribution
fees under either the Distribution Plan or the Prior Plan and the contingent
deferred sales charge are the same as those of the initial sales charge with
respect to the Class A shares of the Fund in that the deferred sales charges
provide for the financing of the distribution of the Fund's Class B shares.
Because the deferred sales charges provide an alternative method of financing
the distribution of the Fund's shares, the Directors believe that there is a
reasonable likelihood that the Distribution Plan benefits the Fund and its
shareholders.
The payments under the Distribution Plan are based upon a percentage of
average daily net assets of Class B shares regardless of the amount of expenses
incurred and, accordingly, distribution-related revenues may be more or less
than distribution-related expenses. Information with respect to the
distribution-related revenues and expenses is presented to the Directors for
their consideration in connection with their deliberations as to the
continuance of the Distribution Plan. This information is presented annually as
of
14
<PAGE>
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
contingent deferred sales charges and certain other related revenues, and
expenses consist of financial consultant compensation, branch office and
regional operation center selling and transaction processing expenses,
advertising, sales promotion and marketing expenses, corporate overhead and
interest expense. On the direct expense and revenue/cash basis, revenues
consist of the account maintenance fees, distribution fees and contingent
deferred sales charges and the expenses consist of financial consultant
compensation. As of December 31, 1993, the fully allocated accrual revenues
incurred by the Distributor and Merrill Lynch since the commencement of the
offering of the Class B shares exceeded fully allocated accrual expenses for
such period by approximately $9,534,000 (2.43% of net assets at that date). As
of December 31, 1993, direct cash revenues for the same period exceeded direct
cash expenses by approximately $41,538,762 (10.57% of net assets at that date).
As of January 31, 1994, direct cash revenues for the period since commencement
of the offering of Class B shares exceeded direct cash expenses by $41,852,310
(10.56% of net assets at that date).
The Fund has no obligation with respect to distribution-related expenses
incurred by the Distributor and Merrill Lynch in connection with the Class B
shares and there is no assurance that the Directors of the Fund will approve
the continuance of the Distribution Plan from year to year. However, the
Distributor intends to seek annual continuation of the Distribution Plan. In
their review of the Distribution Plan, the Directors will not be asked to take
into consideration expenses incurred in connection with the distribution of
Class A shares of other funds for which the Distributor acts as distributor.
The account maintenance fee, distribution fee and the contingent deferred sales
charge in the case of the Class B shares will not be used to subsidize the sale
of Class A shares.
LIMITATIONS ON THE PAYMENT OF 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 Fund's distribution fee and the
contingent deferred sales charge, but not the account maintenance fee. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and contingent deferred sales charges payable by the
Fund to (1) 6.25% of eligible gross sales of Class B shares (defined to exclude
shares issued pursuant to dividend reinvestment and exchanges) plus (2)
interest on the unpaid balance at the prime rate plus 1% (the unpaid balance
being the maximum amount payable minus amounts received from the payment of the
distribution fee and the contingent deferred sales charge). The Distributor has
voluntarily agreed to waive interest charges on the unpaid balance in excess of
0.50% of eligible gross sales. Consequently, the maximum amount payable to the
Distributor (referred to as the "voluntary maximum") is 6.75% of eligible gross
sales. The Distributor retains the right to stop waiving the interest charges
at any time. To the extent payments would exceed the voluntary maximum, the
Fund will not make further payments of the distribution fee and any contingent
deferred sales charges will be paid to the Fund rather than to the Distributor;
however, the Fund will continue to make payments of the account maintenance
fee. Under 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 January 31, 1994
with respect to the Class B shares of the Fund indicating the maximum allowable
payments that can be made under the NASD
15
<PAGE>
maximum sales charge rule and the Distributor's voluntary maximum for the
period March 5, 1984 (commencement of operations of the Class B shares) to
January 31, 1994.
DATA CALCULATED AS OF JANUARY 31, 1994 (IN THOUSANDS)
<TABLE>
<CAPTION>
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
---------- --------- ----------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule As
Adopted................ $1,127,843 $70,490 $38,887 $109,377 $51,114 $58,264 $2,973
Under Distributor's Vol-
untary Waiver.......... $1,127,843 $70,490 $5,639 $ 76,129 $51,114 $25,016 $2,973
</TABLE>
- --------
(1) Purchase price of all eligible Class B shares sold since March 5, 1984
(commencement of operations of the Class B shares) 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 contingent deferred sales charge payments, distribution fee
payments and accruals. Of the distribution fee payments made prior to July
6, 1993 under the Prior Plan at the 1.0% rate, 0.75% of average daily net
assets has been treated as a distribution fee and 0.25% of average daily
net assets has been deemed to have been a service fee and not subject to
the NASD maximum sales charge rule.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any contingent deferred sales
charge payments) is amortizing the unpaid balance. No assurance can be
given that payments of the distribution fee will reach either the
voluntary maximum or the NASD maximum.
REPURCHASE AND REDEMPTION OF SHARES
The Fund is required to redeem for cash all full and fractional shares of
the Fund upon receipt of a written request in proper form. The redemption
price is the net asset value per share next determined after the initial
receipt of proper notice of redemption. Except for any contingent deferred
sales charge which may be applicable to Class B shares, there will be no
charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption. The value
of shares at the time of redemption may be more or less than the shareholder's
cost, depending on the market value of the securities held by the Fund at such
time.
REPURCHASE
The Fund will repurchase shares through a shareholder's listed securities
dealer. The Fund will normally accept orders to repurchase shares by wire or
telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, less any contingent
deferred sales charge applicable to Class B shares, provided that the request
for repurchase is received by the dealer prior to the close of business on the
New York Stock Exchange on the day received.
Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 4:30 P.M., New York time, in order to obtain that
day's closing price. These repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any
applicable contingent deferred sales charge in the case of the Class B
shares); however non-affiliated securities dealers may impose
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a service charge on the shareholder for effecting such repurchases. Merrill
Lynch may charge its customers a processing fee (presently $4.85) to confirm
the repurchase of shares to such customers. Redemptions directly through the
Fund's Transfer Agent are not subject to the processing fee. The Fund reserves
the right to reject any order for repurchase, which right of rejection might
adversely affect shareholders seeking redemption through the repurchase
procedure. However, a shareholder whose order for repurchase is rejected by the
Fund may redeem shares as set forth below.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering
the shares directly to the Fund's Transfer Agent, Financial Data Services,
Inc., Transfer Agency Operations Department, P.O. Box 45289, Jacksonville,
Florida 32232-5289. Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., Transfer Agency Operations
Department, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Redemption requests should not be sent to the Fund. Except for any contingent
deferred sales charge which may be applicable to Class B shares (see pages 13-
14), there will be no charge for redemption if you send your request directly
to the Transfer Agent.
To redeem through the Transfer Agent you must send a written request in
proper form. The request for redemption must be signed by all persons in whose
names the shares are registered, and the names must be exactly the same as the
names which were signed when the shares were bought. The signatures must also
be guaranteed. A "guaranteed" signature does not mean the same thing as a
"notarized" signature. The signature(s) on the redemption request must be
guaranteed by an "eligible guarantor institution" as such is defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, the existence and validity
of which may be verified by the Transfer Agent through the use of industry
publications.
Generally, the properly signed written request, with the signatures
guaranteed, will be all you need to send to redeem your shares. In some cases,
however, other documents may be necessary. For example, although the Fund
normally does not issue certificates for shares, it will do so if you make a
special request to the Transfer Agent. If you have asked for and received
certificates for your shares, certificates for the shares being redeemed must
accompany your redemption request. In other cases, the Transfer Agent might
require additional documents, such as trust instruments, death certificates,
appointments as executor or administrator of an estate or certificates of
corporate authority.
The payment for your redemption will be mailed to you within seven days after
the Transfer Agent receives the request in proper form. Exceptions to this are
if normal trading is not taking place on the New York Stock Exchange, or if the
shares to be redeemed have recently been purchased by check and the check has
not yet cleared. If the purchase check has not yet cleared, the Transfer Agent
may delay mailing a redemption check until the purchase check has cleared,
which is usually within ten days after payment of the purchase price.
REINSTATEMENT PRIVILEGE--CLASS A SHARES
Shareholders who have redeemed their Class A shares have a one-time privilege
to reinstate their accounts by purchasing Class A shares of the Fund at net
asset value without a sales charge up to the dollar amount redeemed. The
reinstatement privilege may be exercised by sending a notice of exercise along
with a check for the amount to be reinstated to the Transfer Agent within 30
days after the date the request for
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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. A redemption and subsequent purchase that qualify for
the reinstatement privilege will otherwise be processed in the same manner as
other redemptions and purchases of Fund shares. The reinstatement privilege is
a one-time privilege and may be exercised by the Class A shareholder only the
first time such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. 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 plans and services, or to change options
with respect thereto, can be obtained from the Fund by calling the telephone
number on the cover page of this Prospectus or from the Distributor or Merrill
Lynch. Included in such services are the following:
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive quarterly statements
from the Transfer Agent. These quarterly statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of income
dividends and long-term capital gain distributions. The quarterly statements
will also show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestment of income dividends and long-term capital gain distributions.
Shareholders may make additions to their Investment Account at any time by
mailing a check directly to the Transfer Agent. Shareholders may also maintain
their accounts through Merrill Lynch. Upon the transfer of shares out of a
Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name may be opened at the Transfer Agent. Shareholders
considering transferring their Class A shares from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class A shares are to be transferred will not take delivery of shares
of the Fund, a shareholder either must redeem the Class A shares so that the
cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A shares. Shareholders interested in transferring their
Class B shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the Transfer Agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder. If the new brokerage
firm is willing to accommodate the shareholder in this manner, the shareholder
must request that he be issued certificates for his shares, and then must turn
the certificates over to the new firm for re-registration as described in the
preceding sentence. Shareholders considering transferring a tax-deferred
retirement account such as an individual retirement account from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the retirement account is to be transferred will not take
delivery of shares of the Fund, a shareholder must either redeem the shares
(paying any applicable contingent deferred sales charge) so that the cash
proceeds can be transferred to the account at the new firm, or such shareholder
must continue to maintain a retirement account at Merrill Lynch for those
shares.
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Automatic Reinvestment of Dividends and Capital Gains Distributions. All
dividends and capital gains distributions are reinvested automatically in full
and fractional shares of the Fund 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 or by telephone (1-800-MER-FUND) to the Transfer Agent,
elect to have subsequent dividends or both dividends and capital gains
distributions paid in cash, rather than reinvested, in which event payment will
be mailed on or about the payment date. No contingent deferred sales charge
will be imposed on redemption of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.
Automatic Investment Plan. An Automatic Investment Plan is available under
which a shareholder can authorize the Transfer Agent to charge the
shareholder's bank account on a regular basis to invest predetermined amounts
(minimum of $50) in the Fund. Shareholders are advised that further information
with respect to this plan can be obtained from the shareholder's securities
dealer or the Distributor.
Shareholders whose shares of the Fund are maintained in a CMA(R) account may
participate in the CMA Automated Investment Program, through which investments
in the Fund may be made on a regularly scheduled basis ranging from weekly to
semi-annually in amounts of $100 or more. 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).
Systematic Withdrawal Plans. A Class A shareholder may elect to receive
systematic withdrawal payments from such shareholder's Investment Account in
the form of payments by check or through automatic payment by direct deposit to
such shareholder's bank account on either a monthly or quarterly basis. A Class
A shareholder whose shares are held within a CMA(R), CBA(R) or Retirement
Account may elect to have shares redeemed on a monthly, bi-monthly, quarterly,
semiannual or annual basis through the Systematic Redemption Program, subject
to certain conditions.
Retirement Plans. Self-directed individual retirement accounts and other
retirement plans are available from Merrill Lynch. Under these plans,
investments may be made in the Fund and certain other mutual funds whose shares
are distributed by the Distributor, as well as in other securities. Merrill
Lynch charges an initial establishment fee and an annual custodial fee for each
account. The minimum initial purchase to establish any such plan is $250 and
the minimum subsequent purchase is $1.00.
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 being transferred will not take delivery of shares of the
Fund, the shareholder must either redeem the shares (paying any applicable
contingent deferred sales charge) so that the cash proceeds can be transferred
to the account at the new firm, or continue to maintain a retirement account at
Merrill Lynch for those shares.
Exchange Privilege. Shareholders of the Fund each have an exchange privilege
with certain other mutual funds sponsored by Merrill Lynch. There is currently
no limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated at any time on
60 days' notice to shareholders. Class A shareholders of the Fund may exchange
their shares ("outstanding Class A shares") for Class A shares of another fund
("new Class A shares") on the basis of relative net asset value per Class A
share, plus an amount equal to the difference, if any, between the sales charge
previously
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paid on the outstanding Class A shares and the sales charge payable at the time
of the exchange on the new Class A shares. The Fund's exchange privilege is
modified with respect to purchases of Class A shares under the Merrill Lynch
Mutual Fund Adviser Program. First, the initial allocation of assets is made
under the program. Then, any subsequent exchange under the program of Class A
shares of a fund for Class A shares of the Fund will be made solely on the
basis of the relative net asset values of the shares being exchanged.
Therefore, there will not be a charge for any difference between the sales
charge previously paid on the shares of the other fund and the sales charge
payable on the shares of the Fund being acquired in the exchange under this
program.
Class B shareholders of the Fund may exchange their shares ("outstanding
Class B shares") for Class B shares of another fund ("new Class B shares") on
the basis of relative net asset value per share, without the payment of any
contingent deferred sales charge that might otherwise be due upon redemption of
the outstanding Class B shares. Class B shareholders of the Fund exercising the
exchange privilege will continue to be subject to the Fund's contingent
deferred sales charge schedule relating to the new Class B shares if such
schedule is higher than the contingent deferred sales charge schedule of the
fund into which the exchange has been made. In addition, Class B shares of the
Fund acquired through use of the exchange privilege will continue to be subject
to the contingent deferred sales charge schedule relating to the Class B shares
of the fund from which the exchange has been made if such schedule is higher
than the Fund's contingent deferred sales charge schedule. For purposes of
computing the contingent deferred sales charge that may be payable upon a
disposition of the new Class B shares, the holding period for the outstanding
Class B shares is "tacked" to the holding period of the new Class B shares.
Class A and Class B shareholders of the Fund may also exchange their shares for
shares of certain money market funds, but in the case of an exchange from Class
B shares the period of time that shares are held in a money market fund will
not count toward satisfaction of the holding period requirement for purposes of
reducing the contingent deferred sales charge. Exercise of the exchange
privilege is treated as a sale for Federal income tax purposes. The exchange
privilege is available only in states where the exchange legally may be made.
For further information, see "Shareholder Services-- Exchange Privilege" in the
Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
In addition to any increase in the value of your shares, you may receive two
kinds of return from the Fund: dividends and capital gains distributions.
Dividends. Dividends from stocks and interest earned from other investments
are the Fund's main sources of income. Substantially all of this income, less
expenses, is distributed at least semi-annually to shareholders.
The per share dividends and distributions on Class B shares will be lower
than the per share dividends and distributions on Class A shares as a result of
the account maintenance, distribution and higher transfer agency fees
applicable with respect to the Class B shares. See "Additional Information--
Determination of Net Asset Value."
Your dividends will be automatically applied to purchase additional shares of
the Fund through our shareholder reinvestment program at the net asset value
per share on the ex-dividend date, unless you notify your Merrill Lynch
financial consultant or the Transfer Agent in writing that you would rather
receive
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dividends in cash. There is no sales charge for purchases of additional shares
through our reinvestment program. If you give instructions to pay your
dividends in cash, your instructions will take effect 10 days after Merrill
Lynch or the Transfer Agent receives them.
Capital Gains. When the Fund sells securities from its portfolio, it can
realize capital gains or losses, depending on whether the prices for which the
securities are sold are higher or lower than the prices the Fund paid to
purchase them. Net realized capital gains represent the total profit from sales
of securities, minus total losses from sales of securities, including any
losses carried forward from prior years. The Fund distributes any net realized
capital gains to shareholders at least annually. As in the case of income
dividends, capital gains distributions will be automatically reinvested in
additional shares of the Fund at the net asset value per share in effect on the
ex-dividend date, without a sales charge, unless you give your Merrill Lynch
financial consultant or the Transfer Agent 10 days' prior instructions to pay
them in cash.
Taxes. The Fund intends to continue to elect to qualify as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as amended
(the "Code") and as a condition of such election the Fund intends to distribute
substantially all of its net investment income and net capital gains to
shareholders. If the Fund qualifies as a RIC, it will not be required to pay
Federal income tax on the portion of its investment company taxable income and
net capital gains which is distributed to its shareholders.
Shareholders will be subject to tax on ordinary income dividends (dividends
paid from the Fund's ordinary income and distributions of net realized short
term capital gains) and net capital gains distributions from the Fund even
though a shareholder chooses to reinvest any dividends and distributions in
additional shares of the Fund. A portion of the Fund's ordinary income
dividends may be eligible for the 70% dividends received deduction allowed to
corporate shareholders under the Code. If the Fund pays a dividend in January
which was declared in the previous October, November or December to
shareholders of record on a date during such month, then such dividend or
distribution will be treated for tax purposes as being paid by the Fund and
received by its shareholders on December 31 of the year in which the dividend
was declared.
In addition, all RICs are required to pay a nondeductible 4% excise tax to
the extent the RIC does not distribute, during each calendar year, (i) 98% of
its ordinary income, determined on a calendar year basis, (ii) 98% of its
capital gains, determined, in general, on an October 31 year end, and (iii) all
ordinary income and net capital gains for previous years that were not
distributed during such years. While the Fund intends to distribute its income
and capital gains in the manner necessary to avoid imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of a taxable income and
gain will be distributed to avoid imposition of the tax. In such event, the
Fund will be liable for the excise tax only on the amount by which the Fund
does not meet the foregoing distribution requirement.
Pursuant to the Fund's investment objectives, the Fund may invest in foreign
securities. Foreign taxes may be paid by the Fund as a result of tax laws of
countries in which the Fund may invest. It is impossible to determine the
amount of any such withholding at this time. Because the Fund limits its
investments in foreign securities, shareholders will not be entitled to claim
foreign tax credits with respect to their share of foreign taxes paid by the
Fund on income from investments of foreign securities held by the Fund.
To avoid being subject to a 31% Federal back-up withholding tax on reportable
dividend and capital gains distributions and on the proceeds of redemptions, a
shareholder must furnish the Fund with his taxpayer identification number and
must certify under penalty of perjury that such number is correct. The taxpayer
identification number of a shareholder who is an individual is his social
security number. An investor
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must also certify whether he or she is currently subject to back-up withholding
or has been notified by the IRS that he or she will be subject to back-up
withholding.
Generally, a shareholder's basis in Class A shares of the Fund includes the
load charge incurred on purchase of such shares. If a Class A shareholder
exercises an exchange privilege within 90 days of acquiring shares of the Fund,
then any loss recognized on the exchange will be reduced (or any gain
increased) to the extent the load charge paid to the Fund reduces any load
charge that would have been owed upon the purchase of the new shares in the
absence of the exchange privilege. Instead, the load charge will be treated as
an amount paid for the new shares and will be included in the basis of such new
shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. The laws
of the various states may vary as to the taxation of distributions of the Fund.
Shareholders are urged to consult their own tax advisers regarding specific
questions regarding the Federal, state or local taxation of distributions from
the Fund. For a further discussion of the tax considerations with respect to
owning Fund shares, see the discussion in the Statement of Additional
Information under "Dividends, Distributions and Taxes."
INVESTMENT PRACTICES AND RESTRICTIONS
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio, with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions. This practice is
intended to help the Fund increase the yield on its portfolio.
Writing of Covered Call Options. The Fund may, from time to time, sell (i.e.,
"write") covered call options where the Investment Adviser determines that such
transactions will further the Fund's investment objective. A covered call
option is an option where the Fund, in return for a premium, gives another
party a right to buy particular securities owned by the Fund at a specified
price for a certain period of time. By writing a covered call option, the Fund,
in return for the premium income realized from the sale of the option, gives up
the opportunity to profit from a price increase in the underlying security
above the option exercise price, where the price increase occurs while the
option is in effect. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect. The Fund may not write
covered call options on underlying securities having a value exceeding 15% of
the value of its total assets.
Foreign Securities. Investments in the securities of foreign issuers involve
certain considerations and risks not ordinarily associated with investments in
securities of domestic issuers. Foreign companies are not generally subject to
uniform accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. companies. Foreign securities exchanges,
brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may
be subject to withholding and other foreign taxes which may adversely affect
the net return on such investments. In addition, with respect to certain
countries, there are risks of expropriation, confiscatory taxation, political
or social instability or diplomatic developments which could affect assets of
the Fund held in foreign countries.
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There may be less publicly available information about a foreign company than
a U.S. company. Foreign securities markets may have substantially less volume
than U.S. securities markets and some foreign company securities are less
liquid and more volatile than comparable securities of U.S. companies. A
portfolio of foreign securities may also be adversely affected by fluctuations
in the rates of exchange between the currencies of different nations and by
exchange control regulations. Foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of such portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. In addition, a portfolio which includes foreign
securities can expect to have a higher expense ratio because of the increased
transaction costs on non-U.S. securities markets and the increased costs of
maintaining the custody of foreign securities.
Portfolio Brokerage. Orders for transactions in portfolio securities are
placed for the Fund with a number of brokers and dealers, including Merrill
Lynch. Merrill Lynch has advised the Fund that, in transactions with Merrill
Lynch, the Fund receives a commission rate at least as favorable as the rate
Merrill Lynch charges its other customers in similar transactions.
Investment Grade Debt Securities. The Fund has no present intention of
investing in bonds rated lower than BBB by S&P or Baa by Moody's. Bonds rated
BBB (or Baa) may have speculative characteristics. In addition, changes in
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade bonds. If the rating of an instrument held by the Fund is changed
so that the instrument would no longer qualify for investment by the Fund, the
Fund will seek to dispose of that instrument as soon as practicable in light of
the circumstances and consistent with the interests of the Fund.
Investment Restrictions. The Fund has adopted certain investment restrictions
which may not be changed without a vote of the Fund's shareholders. Those
restrictions provide, among other things, that the Fund may not:
--Invest more than 5% of its assets in the securities of any one issuer
(except for government securities); or purchase more than 10% of the
outstanding voting securities of any one company or more than 10% of any
class of a company's securities.
--Pledge any of its assets, except that the Fund may pledge securities
having a value of not more than 10% of its total assets in order to secure
permitted borrowings from banks. Such borrowings may not exceed 5% of the
value of the Fund's assets.
--Purchase a restricted security or a security for which there is no
readily available market if as a result of such purchase more than 5% of
the Fund's assets would be invested in such securities.
--The additional investment restrictions adopted by the Fund, which may
be changed by the Board of Directors without a vote of shareholders,
provide that the Fund may not: (1) invest in securities of foreign issuers
if at the time of acquisition more than 25% of the value of the Fund's
total assets would be invested in such securities; or (2) invest more than
5% of its assets in companies having a record, together with predecessors,
of less than three years of continuous operation.
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ADDITIONAL INFORMATION
Determination of Net Asset Value. Net asset value per share is computed as of
the close of business each day the New York Stock Exchange is open (4:00 P.M.,
New York time). Net asset value is determined by adding together the total
market value of all portfolio securities, cash and other assets held by the
Fund, and interest and dividends accrued. All liabilities, including accrued
expenses, are subtracted. The resulting amount is divided by the total number
of shares outstanding to arrive at the net asset value of each share. In order
to determine the price you will pay for your shares, the Fund uses the first
net asset value figure computed after the Distributor receives your order. The
per share net asset value of the Class B 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 transfer agency fees
applicable with respect to the Class B shares. It is expected, however, that
the per share net asset value of the two classes will tend to converge
immediately after the payment of dividends or distributions which will differ
by approximately the amount of the expense accrual differential between the
classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price 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 quoted bid prices
as of the close of trading on the New York Stock Exchange on each day by
brokers that make markets in the securities. 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. Foreign investments
initially expressed in terms of non-U.S. dollar currencies will be translated
into U.S. dollars at the prevailing market rates quoted by one or more banks or
dealers on the day of valuation. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund.
Performance Data. The Fund may from time to time include its average annual
total return in advertisements or information furnished to present or
prospective shareholders. Average annual total return is computed separately
for Class A and Class B shares in accordance with a formula specified by the
Securities and Exchange Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including the maximum initial sales charge in the case of Class A shares and
any contingent deferred sales charge that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B shares. Dividends paid by the Fund with respect to Class A and Class B
shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount, except
that account maintenance and distribution charges and any incremental transfer
agency costs relating to Class B shares will be borne exclusively by that
class. The Fund will include performance data for both Class A and Class B
shares of the Fund in any advertisement or information including performance
data of the Fund.
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<PAGE>
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charge will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual
or annualized total return data generally will be lower than average annual
total return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time. In advertisements directed to investors whose purchases
are subject to reduced sales charges in the case of Class A shares or waiver of
the contingent deferred sales charge in the case of Class B shares (such as
investors in certain retirement plans), performance data may take into account
the reduced, and not the maximum, sales charge or may not take into account the
contingent deferred sales charge and therefore may reflect greater total return
since, due to the reduced sales charges or waiver of the contingent deferred
sales charge, a lower amount of expenses may be deducted. See "Purchase of
Shares." The Fund's total return may be expressed either as a percentage or as
a dollar amount in order to illustrate the effect of such total return on a
hypothetical $1,000 investment in the Fund at the beginning of each specified
period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to that of the Standard &
Poor's 500 Composite Stock Price Index, the Value Line Composite Index, the Dow
Jones Industrial Average, Lipper Analytical Services, Inc., or performance data
published by Morningstar Publications, Inc., Money Magazine, U.S. News & World
Report, Business Week, CDA Investment Technology, Inc., Forbes Magazine and
Fortune Magazine. From time to time, the Fund may include the Fund's
Morningstar risk-adjusted performance ratings in advertisements or supplemental
sales literature. As with other performance data, performance comparisons
should not be considered representative of the Fund's relative performance for
any future period.
The Fund's average annual total return will vary depending upon market
conditions, the securities comprising the Fund's portfolio, the Fund's
operating expenses and the amount of net capital gains or losses realized by
the Fund during the period. An investment in the Fund will fluctuate and an
investor's shares, when redeemed, may be worth more or less than their original
cost.
The Fund's annual report contains additional performance information and is
available upon request, without charge.
Organization of the Fund. The Fund was incorporated under Maryland law on
October 5, 1983. It has an authorized capital of 200,000,000 shares of Common
Stock, par value $0.10 per share, divided into two classes, designated Class A
and Class B Common Stock, each of which consists of 100,000,000 shares. Both
Class A and Class B Common Stock represent an interest in the same assets of
the Fund and are identical in all respects except that the Class B shares bear
certain expenses related to the account maintenance and
25
<PAGE>
distribution of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and distribution expenditures. See
"Purchase of Shares." The Fund has received an order from the Securities and
Exchange Commission permitting the issuance and sale of two classes of Common
Stock. The Directors of the Fund may classify and reclassify the shares of the
Fund into additional classes of Common Stock at a future date. The creation of
additional classes would require an additional order from the Securities and
Exchange Commission. There is no assurance that such an additional order would
be issued.
Shareholders are entitled to one vote for each share held and to fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act
of 1940 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; or (iv) ratification of selection
of independent auditors. Voting rights for Directors are not cumulative. Shares
issued are fully paid and non-assessable and have no preemptive or conversion
rights. Each share of Class A and Class B Common Stock is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction
of outstanding liabilities, except that, as noted above, the Class B shares
bear certain expenses related to the account maintenance and distribution of
such shares.
Shareholder Inquiries. Shareholder inquiries should be directed to the Fund
at the telephone number or address set forth on the cover page of this
Prospectus.
Shareholder Reports. Only one copy of each shareholder report and certain
shareholder communications will be mailed to each identified shareholder
regardless of the number of accounts such shareholder has. If a shareholder
wishes to receive separate copies of each report and communication for each of
the shareholder's related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: Document Evaluation Unit
P.O. Box 45209
Jacksonville, Florida 32232-5290
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, and/or Fund account number. If you
have any questions regarding this please call your Merrill Lynch financial
consultant or Financial Data Services, Inc. at 800-637-3863.
26
<PAGE>
MERRILL LYNCH FUND FOR TOMORROW, INC.--AUTHORIZATION FORM
- -------------------------------------------------------------------------------
NOTE: This form may not be used for purchases through the Merrill Lynch
BlueprintSM Program. You may request a Merrill Lynch BlueprintSM Program
application by calling toll free (800) 637-3766.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase ..... Class A shares or ..... Class
B shares (choose one) of Merrill Lynch Fund For Tomorrow, Inc. and establish
an Investment Account as described in the Prospectus.
Basis for establishing an Investment Account:
A. I enclose a check for $.......... payable to Financial Data Services,
Inc., as an initial investment (minimum $1,000) (subsequent investments $50
or more). I understand that this purchase will be executed at the applicable
offering price next to be determined after this Application is received by
you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information:
1. ............................ 4. ...............................
2. ............................ 5. ...............................
3. ............................ 6. ...............................
(Please list all Funds. Use a separate sheet of paper if necessary.)
Until you are notified by me in writing, the following options with respect to
dividends and distributions are elected:
DistributionElect[_]reinvest dividends Elect[_]reinvest capital gains
Options One [_]pay dividends in cashOne [_]pay capital gains in cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
(Please Print)
Name.............................................
First Name Initial Last Name [_][_][_][_][_][_][_][_][_]
Name of Co-Owner (if any)........................ Social Security
First Name Initial Last Name No.
Address.......................................... or Taxpayer
............................................. Identification
(Zip Code) No.
.......... 19..
Date
Occupation................... Name and Address of Employer....................
...............................................................................
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security No. or Taxpayer Identification No. and (2) that I
am not subject to back-up withholding (as discussed under "Dividends,
Distributions and Taxes" in the Prospectus) either because I have not been
notified that I am subject thereto as a result of a failure to report all
interest or dividends, or the Internal Revenue Service ("IRS") has notified me
that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING, AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH-SPONSORED MUTUAL FUNDS.
Signature of Owner.............. Signature of Co-Owner (if any) ...............
IN THE CASE OF CO-OWNERS, A JOINT TENANCY WITH RIGHT OF SURVIVORSHIP WILL BE
PRESUMED UNLESS OTHERWISE SPECIFIED.
- -------------------------------------------------------------------------------
2. LETTER OF INTENTION--CLASS A SHARES ONLY (SEE TERMS AND CONDITIONS IN THE
STATEMENT OF ADDITIONAL INFORMATION)
Gentlemen: ......, 19....
Date of
initial
purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Fund For Tomorrow, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as a distributor over the next 13-month period which
will equal or exceed:
[_] $10,000[_] $25,000[_] $50,000[_] $100,000[_] $250,000[_] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Fund prospectus.
I agree to the terms and conditions of the Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Fund For Tomorrow, Inc. held as security.
By .............................. By ..............................
Signature of Owner Signature (If registered in joint
names, both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name ........................ (2) Name ........................
27
<PAGE>
MERRILL LYNCH FUND FOR TOMORROW, INC.--AUTHORIZATION FORM
- -------------------------------------------------------------------------------
3. SYSTEMATIC WITHDRAWAL PLAN--CLASS A SHARES ONLY (SEE TERMS AND CONDITIONS
IN THE STATEMENT OF ADDITIONAL INFORMATION)
Minimum Requirements: $10,000 for monthly disbursements, $5,000 for
quarterly, of shares in Merrill Lynch Fund for Tomorrow, Inc., at cost or
current offering price.
Begin systematic withdrawal Withdrawals to be made either (check one) [_]
on ......., 19 ... Monthly [_] Quarterly.
Quarterly withdrawals are made on the 24th day
of March, June, September and December.
Specify withdrawal amount (check one): [_] $....... or [_] .......% of the
current value of Class A shares in the account.
Specify withdrawal method: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
(A) I HEREBY AUTHORIZE PAYMENT BY (B) I HEREBY AUTHORIZE PAYMENT BY
CHECK DIRECT DEPOSIT TO BANK ACCOUNT and
(if necessary) debit entries and
adjustments for any credit entries
Draw checks payable made in error to my account
(check one)
[_] as indicated in item 1. Specify type of account (check
one): [_] checking [_] savings
[_] to the order of .........
Mail to (check one) I agree that this authorization
will remain in effect until I
[_] the address indicated in item provide written notification to
1. Financial Data Services, Inc.
amending or terminating this
[_] Name (Please Print)...... service.
Address........................
Signature of Owner.............
Signature of Co-Owner (if any)...... Name on your Account...........
Bank...........................
Bank #....... Account #........
Bank Address...................
Signature of Depositor..............
Date..........
Signature of Depositor (if joint
account).......................
Note: If Automatic Direct Deposit
is elected, your blank, unsigned
check marked "VOID" or a deposit
slip from your savings account
should accompany this Application.
- -------------------------------------------------------------------------------
4. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw a check or an
automated clearing-house ("ACH") debit on my checking account described below
each month to purchase .... Class A shares or .... Class B shares (choose one)
of Merrill Lynch Fund For Tomorrow, Inc. subject to the terms set forth below.
FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR CHECKS OR
ACH
You are hereby authorized to draw DEBITS DRAWN BY FINANCIAL DATA
checks or an ACH debit each month SERVICES, INC.
on my bank account for investment To ............................ Bank
in Merrill Lynch Fund For Tomorrow, (Investor's Bank)
Inc. as indicated below: Bank Address .......................
Amount of each check or ACH
debit $.......................... City ..... State .....Zip.....
Account No.......................
Please date and invest checks or
draw ACH debits on the 20th day of As a convenience to me, I hereby
each month beginning ............... request and authorize you to pay
(Month) and charge to my account checks or
or as soon thereafter as possible. ACH debits drawn on my account by
and payable to Financial Data Serv-
I agree that you are preparing ices, Inc., Transfer Agency Mutual
these checks or drawing these deb- Fund Operations, Jacksonville,
its voluntarily at my request and Florida 32232-5289. I agree that
that you shall not be liable for your rights in respect to each such
any loss arising from any delay in check or debit shall be the same as
preparing or failure to prepare any if it were a check drawn on you and
such check or debit. If I change signed personally by me. This au-
banks or desire to terminate or thority is to remain in effect un-
suspend this program, I agree to til revoked by me in writing. Until
notify you promptly in writing. you receive such notice, you shall
be fully protected in honoring any
I further agree that if a check such check or debit. I further
or debit is not honored upon pre- agree that if any such check or
sentation, Financial Data Services, debit be dishonored, whether with
Inc. is authorized to discontinue or without cause and whether inten-
immediately the Automatic Invest- tionally or inadvertently, you
ment Plan and to liquidate suffi- shall be under no liability.
cient shares held in my account to ....................................
offset the purchase made with the Date Signature of
returned check or dishonored debit. Depositor
....................................
Bank Account Number
Signature of Depositor
....................................
Date Signature of Depositor (IF JOINT ACCOUNT, BOTH MUST SIGN)
....................................
Signature of Depositor NOTE: IF AUTOMATIC INVESTMENT PLAN
(If joint account, both must sign) IS ELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" SHOULD ACCOM-
PANY THIS APPLICATION.
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
We hereby authorize Merrill Lynch
BRANCH OFFICE, ADDRESS, STAMP 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
This form when completed should be [_][_][_] [_][_][_][_] .............
mailed to: Branch-Code F/C No. F/C Last Name
[_][_][_] [_][_][_][_][_]
Merrill Lynch Fund For Tomorrow, Inc. Dealer's Customer A/C No.
c/o Financial Data Services, Inc.
Transfer Agency Operations Department
P.O. Box 45290, Jacksonville, Florida 32232-5290
28
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
29
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
30
<PAGE>
Investment Adviser
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
Distributor
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
Custodian
The Bank of New York
110 Washington Street
New York, New York 10286
Transfer Agent
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Operations Department
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
Independent Auditors
Deloitte & Touche
117 Campus Drive
Princeton, New Jersey 08540
Counsel
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, New York 10022
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMA-
TION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE FUND, THE INVESTMENT ADVISER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Alternative Sales Arrangements............................................. 4
Financial Highlights....................................................... 6
Investment Objective and Policies.......................................... 7
The Fund and Its Management................................................ 7
Purchase of Shares......................................................... 9
Alternative Sales Arrangements............................................ 10
Initial Sales Charge Alternative
--Class A Shares......................................................... 11
Deferred Sales Charge Alternative
--Class B Shares......................................................... 12
Limitations on Payment of Sales Charges................................... 15
Repurchase and Redemption of Shares........................................ 16
Repurchase................................................................ 16
Redemption................................................................ 17
Reinstatement Privilege
--Class A Shares......................................................... 17
Shareholder Services....................................................... 18
Dividends, Distributions and Taxes......................................... 20
Investment Practices and Restrictions...................................... 22
Additional Information..................................................... 24
Determination of Net Asset Value.......................................... 24
Performance Data.......................................................... 24
Organization of the Fund.................................................. 25
Shareholder Inquiries..................................................... 26
Shareholder Reports....................................................... 26
Authorization Form......................................................... 27
</TABLE>
CODE # 10227-0594
Prospectus
[ART]
- ----------------------------------------
MERRILL LYNCH
FUND FOR
TOMORROW, INC.
MAY 26, 1994
DISTRIBUTOR:
MERRILL LYNCH FUNDS
DISTRIBUTOR, INC.
THIS PROSPECTUS SHOULD BE
RETAINED FOR FUTURE REFERENCE.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 26, 1994
MERRILL LYNCH FUND FOR TOMORROW, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
Merrill Lynch Fund For Tomorrow, Inc. (the "Fund") is a mutual fund that has
as its primary investment objective long-term growth of capital. In seeking to
accomplish its objective the Fund invests in a quality-oriented portfolio of
securities, primarily common stocks, of companies that the Fund's management
believes are well positioned to benefit from demographic and cultural changes,
primarily as they affect future consumer markets. The Fund is designed
primarily, but not exclusively, for younger investors who desire a long-term
investment in the stock market.
The Fund offers two classes of shares which may be purchased at a price equal
to the next determined net asset value per share, plus a sales charge which, at
the election of the purchaser, may be imposed (i) at the time of purchase (the
"Class A shares"), or (ii) on a deferred basis (the "Class B shares"). These
alternatives permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other circumstances. Investors should
understand that the purpose and function of the deferred sales charges with
respect to the Class B shares are the same as those of the initial sales charge
with respect to the Class A shares. Each share of Class A and Class B
represents identical interests in the investment portfolio of the Fund and has
the same rights, except that Class B shares bear the expenses of the account
maintenance fee and the distribution fee and certain other costs resulting from
the deferred sales charge arrangement and have exclusive voting rights with
respect to the account maintenance and distribution fee. The two classes also
have different exchange privileges.
----------------
A Prospectus for the Fund dated May 26, 1994, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from Merrill Lynch Funds Distributor, Inc. (the "Distributor" or
"MLFD"), P.O. Box 9011, Princeton, New Jersey 08543-9011, (609) 282-2800 or
from your securities dealer. This Statement of Additional Information contains
information in addition to and more detailed than that set forth in the
Prospectus. It is intended to provide you additional information regarding the
activities and operations of the Fund, and should be read in conjunction with
the Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
As discussed in the Prospectus, the Fund may invest in convertible
securities, preferred stocks and bonds when management determines it is
advisable to do so. Such securities will be issued by companies which satisfy
the criteria, set forth in the Prospectus, utilized by management in
identifying quality companies. The Fund has no present intention of investing
in bonds rated lower than BBB by Standard & Poor's Corporation ("S&P") or Baa
by Moody's Investors Service, Inc. ("Moody's"). See "Investment Practices and
Restrictions--Investment Grade Debt Securities" in the Prospectus.
As also discussed in the Prospectus, the Fund may, under certain
circumstances, invest all or a portion of its assets in high quality money
market securities which, for this purpose, shall include the following: (1)
U.S. Treasury bills; (2) bankers' acceptances and certificates of deposit of
the 50 largest commercial banks in the United States, measured by total assets
as shown by their most recent annual financial statements; (3) commercial paper
rated A-1 or A-2 by S&P or P-1 or P-2 by Moody's, or, if not rated, issued by
companies having an outstanding debt issue rated AA or better by S&P or Aa or
better by Moody's; and (4) repurchase agreements with respect to the foregoing.
MANAGEMENT OF THE FUND
Reference is made to "The Fund and Its Management" in the Prospectus for
certain information concerning management and advisory arrangements of the
Fund.
The Investment Adviser. Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Investment Adviser") is the investment adviser of the Fund. The Investment
Adviser or its affiliate, Fund Asset Management, L.P. ("FAM"), is also the
investment adviser to over 90 other registered investment companies as well as
to numerous pension plans and other institutions.
The Investment Adviser is a Delaware limited partnership and is owned and
controlled by Merrill Lynch & Co., Inc. ("ML & Co."). ML & Co., Merrill Lynch
Investment Management, Inc. and Princeton Services, Inc. ("Princeton Services")
may be deemed "controlling persons" of the Investment Adviser as defined under
the Investment Company Act of 1940 because of their power to exercise a
controlling influence over its management policies.
The Advisory Agreement. Under its investment advisory agreement with the Fund
(the "Advisory Agreement"), the Investment Adviser is responsible for the
actual management of the Fund's portfolio. Responsibility for making decisions
to buy, sell or hold a particular security rests with the Investment Adviser,
subject to review by the Board of Directors. The Investment Adviser provides
the portfolio managers for the Fund, who make investment decisions and place
orders to effect portfolio transactions for the Fund. In this regard, the
Investment Adviser has access to the total securities research and economic
research facilities of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"). Pursuant to the Advisory Agreement, the Investment Adviser
also performs certain administrative and management services for the Fund. The
Advisory Agreement obligates the Investment Adviser to pay all compensation of
and furnish office space for officers and employees of the Fund connected with
investment and economic research, trading and investment management of the
Fund, and to pay the fees of all Directors of the Fund who are affiliated with
ML & Co. or any of its subsidiaries. Portfolio accounting services are provided
for the Fund by the Investment Adviser and the Fund reimburses the Investment
Adviser for its costs in connection with such services.
The Advisory Agreement will continue in effect until March 31, 1995.
Thereafter, it may continue in effect from year to year if approved at least
annually by the vote of a majority of Directors of the Fund or by the holders
of a majority of the Fund's outstanding shares. Any such continuation also
requires approval by
2
<PAGE>
a majority of the Directors who are not parties to the Advisory Agreement or
"interested persons" of any such party as defined in the Investment Company Act
of 1940 (the "Act") by vote cast in person at a meeting called for such
purpose. The Advisory Agreement may be terminated at any time, without penalty,
on sixty days' written notice by the Fund's Board of Directors, by the holders
of a majority of the Fund's outstanding voting securities or by the Investment
Adviser. The Advisory Agreement automatically terminates in the event of its
assignment (as defined in the Act and the rules thereunder).
The Advisory Agreement provides that the Fund will pay the Investment Adviser
a monthly fee based upon the average daily value of the Fund's net assets at
the following annual rate: 0.65% of the average daily net assets not exceeding
$750 million; 0.60% of the average daily net assets exceeding $750 million but
not exceeding $1 billion; and 0.55% of the average daily net assets exceeding
$1 billion. Certain states in which the shares of the Fund are qualified for
sale impose limitations on the expenses of the Fund. At the date of this
Statement of Additional Information, the most restrictive annual expense
limitations require that the Investment Adviser reimburse the Fund in any
amount necessary (up to the amount of the advisory fee) to prevent the Fund's
aggregate ordinary operating expenses (excluding interest, taxes, distribution
and brokerage fees and commissions, and extraordinary charges such as
litigation costs) from exceeding in any fiscal year 2.5% of the Fund's first
$30,000,000 of average net assets, 2.0% of the next $70,000,000 of average net
assets and 1.5% of the remaining average net assets. No payment of the
investment advisory fee will be made to the Investment Adviser which would
result in Fund expenses exceeding on a cumulative annualized basis the most
restrictive applicable expense limitation in effect at the time of such
payment. To date, no reimbursement of expenses has been required pursuant to
the applicable expense limitation provisions discussed above. For the Fund's
fiscal years ended January 31, 1994, January 31, 1993 and January 31, 1992, the
Investment Adviser earned a fee of $2,782,877, $3,019,482 and $2,998,337,
respectively, from the Fund.
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each Director and executive officer is P.O. Box
9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel--President and Director(1)(2)--President of the Investment
Adviser since 1977 and Director and Chief Investment Officer thereof since
1976; President and Chief Investment Officer of FAM since 1977; President and
Director of Princeton Services since 1993; Executive Vice President of ML & Co.
since 1990; Executive Vice President of Merrill Lynch since 1990 and Senior
Vice President from 1985 to 1990; Director of Merrill Lynch Funds Distributor,
Inc. ("MLFD" or the "Distributor").
Ronald W. Forbes--Director(2)--School of Business, BA 309, SUNY Albany, 1400
Washington Avenue, Albany, New York 12222. Professor of Finance, School of
Business, State University of New York at Albany, since 1989, and Associate
Professor prior thereto; Member, Task Force on Municipal Securities Markets,
Twentieth Century Fund.
Charles C. Reilly--Director(2)--9 Hampton Harbor Road, Hampton Bays, New York
11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979-1990; Senior Vice President
of Arnhold and S. Bleichroeder, Inc. from 1973-1990; Adjunct Professor,
Columbia University Graduate School of Business since 1990; Adjunct Professor,
Wharton School, University of Pennsylvania, 1990; Director, Harvard Business
School Alumni Association.
3
<PAGE>
Kevin A. Ryan--Director(2)--127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Professor of Education at Boston University since 1982;
Founder and current Director of The Boston University Center for the
Advancement of Ethics and Character; Formerly taught on the faculties of the
University of Chicago, Stanford University and The Ohio State University.
Richard R. West--Director(2)--482 Tepi Drive, Southbury, Connecticut 06488.
Professor of Finance, and Dean from 1984 to 1993, of New York University
Leonard N. Stern School of Business Administration since 1984; Professor of
Finance at the Amos Tuck School of Business Administration, Dartmouth College,
from 1976-1984 and Dean from 1976-1983; Director of Bowne & Co., Inc., Vornado,
Inc. (real estate holding company), Smith Corona Inc. (manufacturer of
typewriters and word processors) and Alexander's, Inc. (retailer).
Terry K. Glenn--Executive Vice President(1)(2)--Executive Vice President of
the Investment Adviser and FAM since 1983; Executive Vice President of
Princeton Services since 1993; President of Distributor since 1986 and Director
thereof since 1991.
Norman R. Harvey--Senior Vice President(1)(2)--Senior Vice President of the
Investment Adviser and FAM since 1982.
Vincent P. Dileo--Vice President(1)--Portfolio Manager of the Investment
Adviser since 1984.
Donald C. Burke--Vice President(1)(2)--Vice President and Director of
Taxation of the Investment Adviser since 1990; Employee with Deloitte & Touche
from 1982 until 1990.
Gerald M. Richard--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Investment Adviser and FAM; Senior Vice President and Treasurer of
Princeton Services since 1993; Vice President of the Distributor since 1981,
and Treasurer since 1984.
Susan B. Baker--Secretary(1)(2)--Vice President of the Investment Adviser
since 1993; attorney associated with the Investment Adviser since 1987;
attorney in private practice from 1985-1987.
- ---------------------
(1) Interested person, as defined in the Act, of the Fund.
(2) Such Director or officer is a director, trustee or officer of other
investment companies for which the Investment Adviser or FAM acts as
investment adviser.
Mr. Zeikel, a Director of the Fund, and the officers of the Fund owned on May
1, 1994 an aggregate of less than 1/4 of 1% of the outstanding shares of Common
Stock of ML & Co.
The Fund has an Audit and Nominating Committee consisting of all of the
Directors of the Fund who are not interested persons of the Fund.
As of the date of this Statement of Additional Information, the officers and
Directors of the Fund as a group (11 persons) owned less than 1/4 of 1% of the
outstanding shares of the Fund. Each unaffiliated Director is paid a fee by the
Fund of $1,000 per year plus $400 per meeting, plus actual out-of-pocket
expenses for each meeting of the Board of Directors attended. The Fund also
compensates each member of the Audit and Nominating Committee of the Board of
Directors, including the Chairman, with a fee of $1,000 per year. These fees
and expenses aggregated $31,896 for the fiscal year ended January 31, 1994.
4
<PAGE>
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
ALTERNATIVE SALES ARRANGEMENTS
The Fund issues two classes of shares: Class A shares are sold to investors
choosing the initial sales charge alternative and Class B shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares each represent interests in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects, except that Class
B shares bear the expenses of the deferred sales arrangements and any expenses
(including incremental transfer agency costs) resulting from such sales
arrangements, and have exclusive voting rights with respect to the Rule 12b-1
distribution plan pursuant to which the account maintenance and distribution
fees are paid. The two classes also have different exchange privileges. See
"Shareholder Services--Exchange Privilege."
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of Class A and Class B
shares of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the
offering of the Class A and Class B shares of the Fund. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, the Distributor pays for the printing
and distribution of copies thereof used in connection with the offering to
dealers and investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to
the same renewal requirements and termination provisions as the Advisory
Agreement described above.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The gross sales charges for the sale of Class A shares for the fiscal years
ended January 31, 1994, 1993 and 1992 were $44,720, $83,818 and $69,135, of
which the Distributor received $2,638, $5,098 and $3,593 and Merrill Lynch
received $42,082, $78,720 and $65,542, respectively.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A shares of
the Fund, refers to a single purchase by an individual, or to concurrent
purchases, which in the aggregate are at least equal to the prescribed amounts,
by an individual, his spouse and their children under the age of 21 years
purchasing shares for his or their own account and to single purchases by a
trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account although more than one beneficiary is involved. The
term "purchase" also includes purchases by any "company," as that term is
defined in the Act, but does not include purchases by any such company which
has not been in existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other registered
investment companies at a discount; provided, however, that it shall not
include purchases by any group of individuals whose sole organizational nexus
is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or broker-
dealer or clients of an investment adviser.
REDUCED INITIAL SALES CHARGES--CLASS A SHARES
Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase Class
A shares of the Fund at the offering price applicable to the total of (a) the
dollar amount then being purchased plus (b) an amount equal to the then current
net
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asset value or cost, whichever is higher, of the purchaser's combined holdings
of the Class A shares and Class B shares of the Fund and of any other
investment company with an initial sales charge or a deferred sales charge for
which the Distributor acts as the distributor. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $10,000 or more of the Class A shares of the Fund, or any other
investment company with an initial sales charge or a deferred sales charge for
which the Distributor acts as the distributor, made within a thirteen-month
period starting with the first purchase pursuant to a Letter of Intention in
the form provided in the Prospectus. The Letter of Intention is available only
to investors whose accounts are maintained at Financial Data Services, Inc.,
the Fund's transfer agent (the "Transfer Agent"). The Letter of Intention is
not available to employee benefit plans for which Merrill Lynch provides plan
participant record-keeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A shares; however, its execution
will result in the purchaser paying a lower sales charge at the appropriate
quantity purchase level. A purchase not originally made pursuant to a Letter of
Intention may be included under a subsequent Letter of Intention executed
within 90 days of such purchase if the Distributor is informed in writing of
this intent within such 90-day period. The value of Class A shares of the Fund
and of other investment companies with an initial sales charge or a deferred
sales charge for which the Distributor acts as the distributor presently held,
at cost or maximum offering price (whichever is higher), on the date of the
first purchase under the Letter of Intention, may be included as a credit
toward the completion of such Letter, but the reduced sales charge applicable
to the amount covered by such Letter will be applied only to new purchases. If
the total amount of shares does not equal the amount stated in the Letter of
Intention (minimum of $10,000), the investor will be notified and must pay,
within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A shares purchased at the reduced rate and the sales
charge applicable to the shares actually purchased through the Letter. Class A
shares equal to at least five percent of the intended amount will be held in
escrow during the thirteen-month period (while remaining registered in the name
of the purchaser) for this purpose. The first purchase under the Letter of
Intention must be at least five percent of the dollar amount of such Letter. If
a purchase during the term of such Letter would otherwise be subject to a
further reduced sales charge based on the right of accumulation, the purchaser
will be entitled on that purchase and subsequent purchases to the reduced
percentage sales charge which would be applicable to a single purchase equal to
the total dollar value of the Class A shares then being purchased under such
Letter, but there will be no retroactive reduction of the sales charges on any
previous purchase. The value of any shares redeemed or otherwise disposed of by
the purchaser prior to termination or completion of the Letter of Intention
will be deducted from the total purchases made under such Letter. An exchange
from Merrill Lynch Government Fund, Merrill Lynch Treasury Fund, Merrill Lynch
Institutional Fund, Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement
Reserves Money Fund, Merrill Lynch U.S.A. Government Reserves or Merrill Lynch
U.S. Treasury Money Fund into the Fund that creates a sales charge will count
toward completing a new or existing Letter of Intention from the Fund.
Merrill Lynch BlueprintSM Program. Class A shares of the Fund are offered to
participants in the Merrill Lynch BlueprintSM Program ("Blueprint"). Blueprint
is directed to small investors, group IRAs and participants in certain affinity
groups such as benefit plans, credit unions and trade associations. Investors
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<PAGE>
placing orders to purchase Class A shares of the Fund through Blueprint will
acquire the Class A shares at net asset value plus a sales charge calculated
in accordance with the Blueprint sales charge schedule (i.e., up to $300 at
5.50%, $300.01 to $5,000 at 4.50% plus $3.00, and $5,000.01 or more at the
standard sales charge rates disclosed in the Prospectus). In addition, Class A
shares of the Fund are being offered at net asset value plus a sales charge of
1/2 of 1% for corporate or group IRA programs placing orders to purchase their
Class A shares through Blueprint. Services, including the exchange privilege,
available to Class A investors through Blueprint, however, may differ from
those available to other investors in Class A shares.
Class A shares are offered at net asset value, with a waiver of the front-
end sales charge, to participants in Blueprint through the Merrill Lynch
Directed IRA Rollover Program ("IRA Rollover Program") available from Merrill
Lynch Business Financial Services, a business unit of Merrill Lynch. The IRA
Rollover Program is available to custodian to custodian rollover assets from
Eligible Retirement Plans (see definition below) whose Trustee and/or Plan
Sponsor offers the Merrill Lynch Directed IRA Rollover Program. Eligible
Retirement Plans include: (a) plans qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code") with a salary reduction
feature offering a menu of investments to plan participants, provided such
plan initially has 1,000 or more employees eligible to participate in the plan
(employees eligible to participate in retirement plans of the same sponsoring
employer or its affiliates may be aggregated); or (b) tax qualified retirement
plans within the meaning of Section 401(a) of the Code or deferred
compensation plans within the meaning of Section 403(b) of the Code, provided
the plan (i) initially invested $5 million or more in existing plan assets in
portfolios, mutual funds or trusts advised by MLAM or its subsidiaries or (ii)
has accumulated $5 million or more in existing plan assets invested in mutual
funds advised by MLAM or its subsidiaries, which charge a front-end sales
charge or contingent deferred sales charge (assets of retirement plans with
the same sponsor or an affiliated sponsor may be aggregated).
Orders for purchases and redemptions of Class A shares of the Fund may be
grouped for execution purposes which, in some circumstances, may involve the
execution of such orders two business days following the day such orders are
placed. The minimum initial purchase price is $100, with a $50 minimum for
subsequent purchases through Blueprint. There are no minimum initial or
subsequent purchase requirements for participants who are part of an automatic
investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available
from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint SM
Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Employer Sponsored Retirement and Savings Plans. Class A shares are offered
at net asset value to employer sponsored retirement or savings plans, such as
tax qualified retirement plans within the meaning of Section 401(a) of the
Code, deferred compensation plans within the meaning of Sections 403(b) and
457 of the Code, other deferred compensation arrangements, VEBA plans, and
non-qualified After-Tax Savings and Investment programs maintained on the
Merrill Lynch Group Employee Services system (herein referred to as "Employer
Sponsored Retirement or Savings Plans") provided the Employer Sponsored
Retirement or Savings Plan has $5 million or more in existing plan assets
initially invested in portfolios, mutual funds or trusts advised by the
Investment Adviser either directly or through an affiliate. Class A shares are
also offered at net asset value to Employer Sponsored Retirement or Savings
Plans, provided the plan has accumulated $5 million or more in existing plan
assets invested in mutual funds advised by the Investment Adviser
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<PAGE>
charging a front-end sales charge or contingent deferred sales charge. In
either case, assets of Employer Sponsored Retirement or Savings Plans
sponsored by the same sponsor or an affiliated sponsor may be aggregated. The
Class A share reduced load breakpoints also apply to these aggregated assets.
Employer Sponsored Retirement or Savings Plans are also offered Class A shares
at net asset value, provided any such plan initially has 1,000 or more
employees eligible to participate in the plan. Employees eligible to
participate in Employer Sponsored Retirement or Savings Plans of the same
sponsoring employer or its affiliates may be aggregated. Tax qualified
retirement plans within the meaning of Section 401(a) of the Code meeting any
of the foregoing requirements and which are provided specialized services
(e.g., plans whose participants may direct on a daily basis their plan
allocations among a wide range of investments including individual corporate
equities and other securities in addition to mutual fund shares) by the
Merrill Lynch Blueprint SM Program, are offered Class A shares at a price
equal to net asset value per share plus a reduced sales charge of 0.50%. Any
Employer Sponsored Retirement or Savings Plan which does not meet the above
described qualifications to purchase Class A shares at net asset value has the
option of purchasing Class A shares at the sales charge schedule disclosed in
the Prospectus, or if the Employer Sponsored Retirement or Savings Plan is a
tax qualified retirement plan and meets the specified requirements, then it
may purchase Class B shares with a waiver of the contingent deferred sales
charge upon redemption. (See "Redemptions--Contingent Deferred Sales Charge--
Class B Shares.") The minimum initial and subsequent purchase requirements are
waived in connection with all the above referenced Employer Sponsored
Retirement or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Fund, directors and
trustees of certain other Merrill Lynch-sponsored investment companies,
directors of ML & Co., employees of ML & Co. and its subsidiaries and any
trust, pension, profit-sharing or other benefit plan for such persons, may
purchase Class A shares of the Fund at net asset value. Under such programs,
the Fund realizes economies of scale and reduction of sales-related expenses
by virtue of familiarity with the Fund.
Employees and directors or trustees wishing to purchase shares of the Fund
must satisfy the Fund's suitability standards.
Class A shares of the Fund are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by
a non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied. First, the investor must purchase Class A shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and such fund
imposed a sales charge either at the time of purchase or on a deferred basis.
Second, such purchase of Class A shares must be made within 90 days after
notice.
Class A shares of the Fund will be offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied. First, the investor must purchase Class A shares of
the Fund with proceeds from a redemption of shares of a mutual fund that was
sponsored by the financial consultant's previous firm and imposed a sales
charge either at the time of purchase or on a deferred basis. Second, such
redemption must have been made within 60 days prior to the investment in the
Fund, and the proceeds from the redemption must have been maintained in the
interim in cash or a money market fund.
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Closed-End Fund Investment Option. Class A shares of the Fund and certain
other mutual funds advised by the Investment Adviser or FAM (the "Eligible
Class A Shares") are offered at net asset value to shareholders of certain
closed-end funds advised by the Investment Adviser or FAM who 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. First,
the sale of the closed-end fund shares must be made through Merrill Lynch, and
the net proceeds therefrom must be immediately reinvested in Eligible Class A
Shares. Second, the closed-end fund shares must have been either acquired in
the initial public offering or be shares representing dividends from shares of
common stock acquired in such offering. Third, the closed-end fund shares must
have been continuously maintained in a Merrill Lynch securities account.
Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option. Class A shares of the Fund are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. (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 Fund. In order to exercise
this investment option, Senior Floating Rate Fund shareholders must sell their
Senior Floating Rate Fund shares to the Senior Floating Rate Fund in connection
with a tender offer conducted by the Senior Floating Rate Fund and reinvest the
proceeds immediately in the Fund. This investment option is available only with
respect to the proceeds of Senior Floating Rate Fund shares as to which no
Early Withdrawal Charge (as defined in the Senior Floating Rate Fund
prospectus) is applicable. Purchase orders from Senior Floating Rate Fund
shareholders wishing to exercise this investment option will be accepted only
on the day that the related Senior Floating Rate Fund tender offer terminates
and will be effected at the net asset value of the Fund at such day.
Acquisition of Certain Investment Companies. The public offering price of
Class A shares may be reduced to the net asset value per Class A share in
connection with the acquisition of the assets of or merger or consolidation
with a personal holding company or a public or private investment company. The
value of the assets or company acquired in a tax-free transaction may be
adjusted in appropriate cases to reduce possible adverse tax consequences to
the Fund which might result from an acquisition of assets having net unrealized
appreciation which is disproportionately higher at the time of acquisition than
the realized or unrealized appreciation of the Fund.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Distribution Plan. Reference is made to "Purchase of Shares--Deferred Sales
Charge Alternative--Class B Shares--Distribution Plan" in the Prospectus for
certain information with respect to the distribution plan of the Fund (the
"Distribution Plan").
During the fiscal year ended January 31, 1994, the Fund paid $4,173,391 under
the Plan, an amount equal to 1% of the average daily net assets of the Class B
shares for such fiscal year. All such amounts were paid to the Distributor and
in turn were paid by the Distributor to Merrill Lynch to defray a portion of
its costs incurred in rendering account maintenance and distribution services
to the Fund, including advancement of sales commissions to its account
executives for the sale of the Class B shares of the Fund.
The payment of the account maintenance fee and the distribution fee is
subject to the provisions of Rule 12b-1 under the Act. Among other things, the
Distribution Plan provides that the Distributor shall provide and the Directors
shall review quarterly reports of the disbursement of the account maintenance
and distribution fees paid to the Distributor. In their consideration of the
Distribution Plan, the Directors must
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<PAGE>
consider all factors they deem relevant including information as to the
benefits of the Distribution Plan to the Fund and its Class B shareholders. The
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund, as defined in the Act (the "Independent
Directors"), shall be committed to the discretion of the Independent Directors
then in office. In approving the Distribution Plan in accordance with Rule 12b-
1, the Independent Directors concluded that there is reasonable likelihood that
the Distribution Plan will benefit the Fund and its Class B shareholders. The
Distribution Plan can be terminated at any time, without penalty, by the vote
of a majority of the Independent Directors or by the holders of a majority of
the outstanding Class B voting securities of the Fund. The Distribution Plan
cannot be amended to increase materially the amount to be spent by the Fund
without Class B shareholder approval, and all material amendments are required
to be approved by the vote of Directors, including a majority of the
Independent Directors who have no direct or indirect financial interest in the
Distribution Plan, cast in person at a meeting called for that purpose. Rule
12b-1 further requires that the Fund preserve copies of the Distribution Plan
and any report made pursuant to such plan for a period of not less than six
years from the date of the Distribution Plan or such report, the first two
years in an easily accessible place.
REDEMPTIONS
Reference is made to "Repurchase and Redemption of Shares" in the Prospectus
for certain information as to the redemption and repurchase of Fund shares.
Redemption Payments. Payment for shares presented for redemption will be made
by check sent within seven days after receipt by the Transfer Agent of a
shareholder's written request in proper form and, if issued, certificates for
the shares being redeemed. Such payment may be postponed or the right of
redemption suspended: (a) when the New York Stock Exchange is closed for other
than customary weekends and holidays; (b) when trading on that Exchange is
restricted; (c) 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 (d) during any other period when the Securities and Exchange
Commission by order so permits. Applicable rules and regulations of the
Securities and Exchange Commission govern as to whether the conditions
described in (b) or (c) above exist.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares--Alternative Sales
Arrangements--Deferred Sales Charge Alternative--Class B Shares," while Class B
shares redeemed within four years of purchase are subject to a contingent
deferred sales charge 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 distribution following retirement under a tax-deferred
retirement plan which is permitted to be made without tax penalty under the
Internal Revenue Code of 1986, as amended (the "Code"), or attaining age 59 1/2
in the case of an IRA or other retirement plan, or any redemption resulting
from the tax-free return of an excess contribution to an IRA; or (b) any
partial or complete redemption following the death or disability (as defined in
the Code) of a Class B shareholder (including one who owns the Class B shares
as joint tenant with his or her spouse), provided the redemption is requested
within one year of the death or initial determination of
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disability. For the years ended January 31, 1994, 1993 and 1992, the
Distributor received contingent deferred sales charges of $172,596, $218,627
and $304,110, respectively, all of which was paid to Merrill Lynch.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in the Merrill Lynch BlueprintSM Program ("Blueprint"). Blueprint
is directed to small investors and participants in certain affinity groups such
as trade associations and credit unions. Class B shares of the Fund are offered
through Blueprint only to members of certain affinity groups. The contingent
deferred sales charge is waived in connection with purchase orders placed
through Blueprint. Services, including the exchange privilege, available to
Class B investors through Blueprint, however, may differ from those available
to other Class B investors. Orders for purchases and redemptions of Class B
shares of the Fund will be grouped for execution purposes which, in some
circumstances, may involve the execution of such orders two business days
following the day such orders are placed. The minimum initial purchase price is
$100, with a $50 minimum for subsequent purchases through Blueprint. There is
no minimum initial or subsequent purchase requirement for investors who are
part of 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 Employer Sponsored Retirement or Savings Plan which
does not meet the above-described qualifications to purchase Class A shares at
net asset value has the option of purchasing Class A shares at the sales charge
schedule disclosed in the Prospectus, or if a retirement plan meets the
following requirements, then it may purchase Class B shares with a waiver of
the contingent deferred sales charge upon redemption. The contingent deferred
sales charge is waived for any Eligible 401(k) Plan redeeming Class B shares.
An "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 contingent deferred sales charge is also
waived for redemptions from 401(a) plans qualified under the Code, provided
however, such plan has the same or an affiliated sponsoring employer as an
Eligible 401(k) Plan purchasing MLAM or FAM-advised mutual fund Class B shares
("Eligible 401(a) Plan"). The contingent deferred sales charge is waived for
any Class B shares which are purchased by an Eligible 401(k) Plan or Eligible
401(a) Plan and are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied Individual Retirement Account and held in such account at the
time of redemption. The contingent deferred sales charge is also waived for any
Class B shares which are purchased by a Merrill Lynch rollover IRA, that was
funded by a rollover from a terminated 401(k) plan managed by a 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.
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information--Determination of Net Asset
Value" in the Prospectus for certain information concerning the determination
of net asset value.
The net asset value of shares of the Fund is determined once daily as of the
time of the close of trading on the New York Stock Exchange on each day during
which such Exchange is open for trading. The New York Stock Exchange is open
weekdays except New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value will also be calculated on each other day on which there is a sufficient
degree of trading in the Fund's portfolio securities that the net asset value
per share might be materially affected, but only if on such day the Fund
receives a
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request to purchase or redeem its shares. The net asset value is computed by
dividing the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses of the Fund, including investment advisory
fees payable to the Investment Adviser, are accrued daily. The per share net
asset value of the Class B shares generally will be lower than the per share
net asset value of the Class A shares reflecting the daily expense accruals of
the account maintenance, distribution and transfer agency fees applicable with
respect to the Class B shares. It is expected, however, that the per share net
asset value of the two classes will tend to converge immediately after the
payment of dividends or distributions, which will differ by approximately the
amount of the expense accrual differential between the classes.
In determining net asset value per share, portfolio securities which are
traded on stock exchanges are valued at their last sale prices as of the close
of business on the day the securities are being valued or, lacking any sales on
that day, at the last available bid price. Securities traded in the over-the-
counter market are valued at the last bid prices quoted by brokers that make
markets in the securities at the close of trading on the New York Stock
Exchange. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued based upon the prices or quotes
obtained from the broadest and most representative market. Foreign investments
initially expressed in terms of non-U.S. dollar currencies will be translated
into U.S. dollars at the prevailing market rates quoted by one or more banks or
dealers on the day of valuation. Securities for which market quotations are not
readily available and other assets are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Fund, the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive quarterly statements from the Transfer
Agent. These quarterly statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of income dividends and
long-term capital gain distributions. The quarterly statements will also show
any other activity in the account since the preceding statement. Shareholders
will receive separate transaction confirmations for each purchase or sale
transaction other than automatic investment purchases and the reinvestment of
income dividends and long-term capital gain distributions. Shareholders may
make additions to their Investment Account at any time by mailing a check
directly to the Transfer Agent.
Share certificates are issued only for full shares and only upon the specific
request of the shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
Account may be requested by a shareholder directly from the Transfer Agent.
AUTOMATIC INVESTMENT PLAN
A shareholder may make additions to an Investment Account at any time by
purchasing Class A or Class B 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 can
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<PAGE>
also be made through a service known as the Automatic Investment Plan whereby
the Transfer Agent is authorized through pre-authorized checks of $50 or more
to charge the regular bank account of the shareholder on a regular basis to
provide systematic additions to the Investment Account of such shareholder. For
investors who buy shares of the Fund through the Merrill Lynch BlueprintSM
Program, no minimum charge to the investor's bank account is required.
Investors who maintain CMA(R) accounts may arrange to have periodic investments
made in the Fund, in CMA(R) accounts or in certain related accounts in the
amounts of $100 or more through the CMA Automatic Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund, without sales charge, as
of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed on the payment date.
Shareholders may, at any time, notify the Transfer Agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or capital gains distributions reinvested in shares of the Fund or vice
versa and, commencing ten days after the receipt by the Transfer Agent of such
notice, those instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A SHARES
A Class A shareholder may elect to make systematic withdrawals from an
Investment Account in the form of payments by check or through automatic
payment by direct deposit to such shareholder's bank account, on either a
monthly or quarterly basis as provided below. Quarterly withdrawals are
available for shareholders who have acquired Class A shares of the Fund having
a value, based on cost or the current offering price of $5,000 or more, and
monthly withdrawals for shareholders with Class A shares with such a value of
$10,000 or more.
At the time of each withdrawal payment, sufficient Class A shares are
redeemed from those on deposit in the shareholder's account to provide the
withdrawal payment specified by the shareholder. The shareholder may specify
either a dollar amount or a percentage of the value of his Class A shares.
Redemptions will be made at net asset value as determined at the close of
business on the New York Stock Exchange on the 24th day of each month or the
24th day of the last month of each calendar quarter, whichever is applicable.
If the Exchange is not open for business on such date, the Class A shares will
be redeemed at the close of business on the following business day. The check
for the withdrawal payment will be mailed or the direct deposit for withdrawal
payment will be made on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and distributions on
all Class A shares in the Investment Account are reinvested automatically in
Fund Class A shares. A shareholder's Systematic Withdrawal Plan may be
terminated at any time, without charge or penalty, by the shareholder, the
Fund, the Transfer Agent or the Distributor. Withdrawal payments should not be
considered as dividends, yield or income. Each withdrawal is a taxable event.
If periodic withdrawals continuously exceed reinvested dividends, the
shareholder's original investment may be reduced correspondingly. Purchases of
additional Class A shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax
liabilities.
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The Fund will not knowingly accept purchase orders for Class A shares of the
Fund from investors who maintain a Systematic Withdrawal Plan unless such
purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.
A Class A shareholder whose shares are held within a CMA(R), CBA(R) or
Retirement Account may elect to have shares redeemed on a monthly, bi-monthly,
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,
bi-monthly 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 value on the next business day. The
Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automatic Investment Program. For
more information on the Systematic Redemption Program, eligible shareholders
should contact their financial consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and certain of the other mutual funds sponsored by Merrill Lynch as well
as in other securities. Merrill Lynch charges an initial establishment fee and
an annual custodial fee for each account. Information with respect to these
plans is available on request from Merrill Lynch. The minimum initial purchase
to establish any such plan is $250 (except that the minimum initial purchase
through the Merrill Lynch BlueprintSM Program is $100) and the minimum
subsequent purchase is $1.
Capital gains and income received in each of the plans referred to above are
exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Class A and Class B shareholders of the Fund may exchange their Class A or
Class B shares of the Fund for shares of the same class of Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund,
Inc., Merrill Lynch Arizona Limited Maturity Municipal Bond Fund, Merrill Lynch
Arizona Municipal Bond Fund, Merrill Lynch Balanced Fund for Investment and
Retirement, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Insured Municipal Bond Fund, Merrill Lynch California Limited Maturity
Municipal Bond Fund, Merrill Lynch California Municipal Bond Fund, Merrill
Lynch Capital Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill
Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Colorado Municipal
Bond Fund, Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Federal Securities Trust, Merrill Lynch Florida Limited Maturity
Municipal Bond Fund, Merrill Lynch Florida Municipal Bond Fund, Merrill Lynch
Fundamental Growth Fund, 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. (residents
of Arizona
14
<PAGE>
must meet investor suitability standards), Merrill Lynch Global Resources Trust
(formerly Merrill Lynch Natural Resources Trust), Merrill Lynch Global Utility
Fund, Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill
Lynch Healthcare Fund, Inc. (residents of Wisconsin must meet investor
suitability standards), Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Maryland Municipal Bond Fund, Merrill
Lynch Massachusetts Limited Maturity Municipal Bond Fund, Merrill Lynch
Massachusetts Municipal Bond Fund, Merrill Lynch Michigan Limited Maturity
Municipal Bond Fund, Merrill Lynch Michigan Municipal Bond Fund, Merrill Lynch
Minnesota Municipal Bond Fund, Merrill Lynch Municipal Bond Fund, Inc., Merrill
Lynch Municipal Intermediate Term Fund, Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund, Merrill Lynch New Jersey Municipal Bond Fund,
Merrill Lynch New York Limited Maturity Municipal Bond Fund, Merrill Lynch New
York Municipal Bond Fund, Merrill Lynch North Carolina Municipal Bond Fund,
Merrill Lynch Ohio Municipal Bond Fund, Merrill Lynch Oregon Municipal Bond
Fund, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund, Merrill Lynch Pennsylvania Municipal Bond Fund,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Merrill Lynch Texas Municipal Bond Fund,
Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch World Income Fund,
Inc., on the basis described below. In addition, Class A shareholders of the
Fund may exchange their Class A shares for shares of Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch U.S. Treasury Money Fund and Merrill Lynch
Ready Assets Trust (or Merrill Lynch Retirement Reserves Money Fund if the
exchange occurs within certain retirement plans) (together the "Class A money
market funds") and Class B shareholders of the Fund may exchange their Class B
shares for shares of Merrill Lynch Government Fund, Merrill Lynch Institutional
Fund, Merrill Lynch Institutional Tax-Exempt Fund, Merrill Lynch Treasury Fund
(together the "Class B money market funds") on the basis described below. It is
contemplated that the exchange privilege may be applicable to other new mutual
funds whose shares may be distributed by the Distributor. The exchange
privilege available to participants in the Merrill Lynch BlueprintSM Program
may be different from that available to other investors.
Under the exchange privilege, each of the funds with Class A shares
outstanding offers to exchange its Class A shares ("outstanding Class A
shares") for Class A shares ("new Class A shares") of any of the other funds,
on the basis of relative net asset value per Class A share, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the outstanding Class A shares and the sales charge payable at the time of the
exchange on the new Class A shares. With respect to outstanding Class A shares
as to which previous exchanges have taken place, the "sales charge previously
paid" shall include the aggregate of the sales charges paid with respect to
such Class A shares in the initial purchase and any subsequent exchange. Class
A shares issued pursuant to dividend reinvestment are sold on a no-load basis
in each of the funds offering Class A shares. For purposes of the exchange
privilege, dividend reinvestment Class A shares shall be exchanged into the
Class A shares of the other funds or into shares of the Class A money market
funds without a sales charge.
The Fund's exchange privilege is modified with respect to purchases of Class
A shares under the Merrill Lynch Mutual Fund Adviser Program. First, the
initial allocation of assets is made under the program. Then, any subsequent
exchange under the program of Class A shares of a fund for Class A shares of
the Fund will be made solely on the basis of the relative net asset values of
the shares being exchanged. Therefore, there will not be a charge for any
difference between the sales charge previously paid on the shares of the other
fund and the sales charge payable on the shares of the Fund being acquired in
the exchange under this program.
15
<PAGE>
In addition, each of the funds with Class B shares outstanding offers to
exchange its Class B shares ("outstanding Class B shares") for Class B shares
("new Class B shares") of any of the other funds on the basis of relative net
asset value per Class B share, without the payment of any contingent deferred
sales charge that might otherwise be due on redemption of the outstanding
shares. Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's contingent deferred sales charge schedule
if such schedule is higher than the deferred sales charge schedule relating to
the new Class B shares acquired through use of the exchange privilege. In
addition, Class B shares of the Fund acquired through use of the exchange
privilege will be subject to the Fund's contingent deferred sales charge
schedule if such schedule is higher than the deferred sales charge schedule
relating to the Class B shares of the fund from which the exchange has been
made. For purposes of computing the contingent deferred sales charge that may
be payable on a disposition of the new Class B shares, the holding period for
the outstanding Class B shares is "tacked" to the holding period of the new
Class B shares. For example, an investor may exchange Class B shares of the
Fund for those of Merrill Lynch Global Resources Trust after having held the
Fund Class B shares for two and a half years. The 2% sales charge that
generally would apply to a redemption would not apply to the exchange. Three
years later the investor may decide to redeem the Class B shares of Merrill
Lynch Global Resources Trust and receive cash. There will be no contingent
deferred sales charge due on this redemption, since by "tacking" the two and a
half year holding period of Fund Class B shares to the three year holding
period for the Merrill Lynch Global Resources Trust Class B shares, the
investor will be deemed to have held the new Class B shares for more than five
years.
Shareholders also may exchange Class A shares and Class B shares from any of
the funds into shares of the Class A money market funds and Class B money
market funds, respectively, but the period of time that Class B shares are held
in a Class B money market fund will not count towards satisfaction of the
holding period requirement for purposes of reducing the contingent deferred
sales charge. However, shares of a Class B money market fund which were
acquired as a result of an exchange for Class B shares of a fund may, in turn,
be exchanged back into Class B shares of any fund offering such shares, in
which event the holding period for Class B shares of the fund will be
aggregated with previous holding periods for purposes of reducing the
contingent deferred sales charge. Thus, for example, an investor may exchange
Class B shares of the Fund for shares of Merrill Lynch Institutional Fund after
having held the Fund Class B shares for two and a half years and three years
later decide to redeem the shares of Merrill Lynch Institutional Fund for cash.
At the time of this redemption, the 2% contingent deferred sales charge that
would have been due had the Class B shares of the Fund been redeemed for cash
rather than exchanged for shares of Merrill Lynch Institutional Fund will be
payable. If, instead of such redemption the shareholder exchanged such shares
for Class B shares of a fund which the shareholder continues to hold for an
additional two and a half years, any subsequent redemption will not incur a
contingent deferred sales charge.
The investment objectives of the other funds into which exchanges can be made
are as follows:
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, con-
sisting principally of mortgage-
backed and asset-backed securities.
16
<PAGE>
Merrill Lynch Americas Income Fund,
Inc. .............................
A high level of current income, con-
sistent 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 surround-
ing 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 con-
sistent with prudent investment
management through investment in a
portfolio primarily of intermedi-
ate-term investment grade Arizona
Municipal Bonds.
Merrill Lynch Arizona Municipal Bond
Fund...................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a se-
ries fund, whose objective is to
provide investors with as high a
level of income exempt from Federal
and Arizona income taxes as is con-
sistent with prudent investment
management.
Merrill Lynch Balanced Fund for
Investment and Retirement..............
As high a level of total investment
return as is consistent with a rel-
atively low level of risk through
investment in common stocks and
other types of securities, includ-
ing fixed income securities and
convertible securities.
Merrill Lynch Basic Value Fund, Inc..... Capital appreciation and, secondari-
ly, income by investing in securi-
ties, primarily equities, that are
undervalued and therefore represent
basic investment value.
Merrill Lynch California Insured
Municipal Bond Fund...............
A portfolio of Merrill Lynch Cali-
fornia Municipal Series Trust, a
series fund, whose objective is as
high a level of insured income ex-
empt from Federal and California
income taxes as is consistent with
prudent investment management.
17
<PAGE>
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 sharehold-
ers with as high a level of income
exempt from Federal and California
income taxes as is consistent with
prudent investment management
through investment in a portfolio
primarily of intermediate-term in-
vestment grade California Municipal
Bonds.
Merrill Lynch California Municipal Bond
Fund...................................
A portfolio of Merrill Lynch Cali-
fornia Municipal Series Trust, a
series fund whose objective is as
high a level of income exempt from
Federal and California income taxes
as is consistent with prudent in-
vestment 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 se-
ries fund, whose objective is as
high a level of income exempt from
Federal and Colorado income taxes
as is consistent with prudent in-
vestment management.
Merrill Lynch Corporate Bond Fund, Current income from three separate
Inc.................................... diversified portfolios of fixed in-
come securities.
Merrill Lynch Developing Capital
Markets Fund, Inc......................
Long-term appreciation through in-
vestment in securities, principally
equities, of issuers in countries
having smaller capital markets.
Merrill Lynch Dragon Fund, Inc..........
Capital appreciation primarily
through investment in equity and
debt securities of companies domi-
ciled in developing countries lo-
cated in Asia and Pacific Basin
other than Japan, Australia and New
Zealand.
Merrill Lynch EuroFund.................. Capital appreciation primarily
through investment in equity secu-
rities of corporations domiciled in
Europe.
18
<PAGE>
Merrill Lynch Federal Securities Trust.. High current return through invest-
ments in U.S. Government and Gov-
ernment agency securities, includ-
ing GNMA mortgage-backed certifi-
cates 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 as high a level of in-
come exempt from Federal income
taxes as is consistent with prudent
investment management while seeking
to offer shareholders the opportu-
nity to own securities exempt from
Florida intangible personal prop-
erty taxes through investment in a
portfolio primarily of intermedi-
ate-term investment grade Florida
Municipal Bonds.
Merrill Lynch Florida Municipal Bond
Fund...................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a se-
ries fund, whose objective is as
high a level of income exempt from
Federal income taxes as is consis-
tent with prudent investment man-
agement while seeking to offer
shareholders the opportunity to own
securities exempt from Florida in-
tangible personal property taxes.
Merrill Lynch Fundamental Growth Fund,
Inc....................................
Long-term growth through investment
in a diversified portfolio of eq-
uity securities in placing particu-
lar emphasis on companies that have
exhibited an above-average growth
rate in earnings.
Merrill Lynch Global Allocation Fund,
Inc....................................
High total return consistent with
prudent risk, through a fully man-
aged investment policy utilizing
United States and foreign equity,
debt and money market securities,
the combination of which will be
varied from time to time both with
respect to types of securities and
markets in response to changing
market and economic trends.
Merrill Lynch Global Bond Fund for
Investment and Retirement..............
High total investment return from
investment in government and corpo-
rate bonds denominated in various
currencies and multi-national cur-
rency units.
19
<PAGE>
Merrill Lynch Global Convertible Fund,
Inc....................................
High total return from investment
primarily in an internationally di-
versified portfolio of convertible
debt securities, convertible pre-
ferred stock and "synthetic" con-
vertible securities consisting of a
combination of debt securities or
preferred stock and warrants or op-
tions.
Merrill Lynch Global Holdings,
Inc.(resident of Arizona must meet
investor suitability standards)...
The highest total investment return
consistent with prudent risk
through worldwide investment in an
internationally diversified portfo-
lio of securities.
Merrill Lynch Global Resources Trust.... Long-term growth and protection of
capital from investment in securi-
ties of domestic and foreign compa-
nies that possess substantial natu-
ral resource assets.
Merrill Lynch Global Utility Fund, Capital appreciation and current in-
Inc.................................... come through investment in equity
and debt securities of domestic and
foreign companies primarily engaged
in the utilities industries.
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 li-
quidity and security of principal
from investment in securities is-
sued or guaranteed by the U.S. Gov-
ernment and its agencies and in re-
purchase agreements secured by such
obligations.
Merrill Lynch Growth Fund for
Investment and Retirement..............
Growth of capital and, secondarily,
income from investment in a diver-
sified portfolio of equity securi-
ties placing principal emphasis on
those securities which management
of the fund believes to be under-
valued.
Merrill Lynch Healthcare Fund, Inc.
(residents of Wisconsin must meet
investor suitability standards)........
Long-term capital appreciation
through worldwide investment in eq-
uity securities of companies that,
in the opinion of management, de-
rive or are expected to derive a
substantial portion of their sales
from products and services in
healthcare.
20
<PAGE>
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 capi-
tal and liquidity available from
investing in a diversified portfo-
lio of short-term, high-quality mu-
nicipal bonds.
Merrill Lynch International Equity Capital appreciation and, secondari-
Fund.............................. ly, income by investing in a diver-
sified portfolio of equity securi-
ties of issuers located in coun-
tries other than the United States.
Merrill Lynch Latin America Fund, Capital appreciation by investing
Inc. ............................. 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 se-
ries 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 as high a level of in-
come exempt from Federal and Massa-
chusetts income taxes as is consis-
tent with prudent investment man-
agement through investment in a
portfolio primarily of intermedi-
ate-term investment grade Massachu-
setts Municipal Bonds.
Merrill Lynch Massachusetts Municipal
Bond Fund..............................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a se-
ries fund, whose objective is to
provide investors with as high a
level of income exempt from both
Federal and Massachusetts income
taxes as is consistent with prudent
investment management.
21
<PAGE>
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 as high a level of in-
come exempt from Federal and Michi-
gan income taxes as is consistent
with prudent investment management
through investment in a portfolio
primarily of intermediate-term in-
vestment grade Michigan Municipal
Bonds.
Merrill Lynch Michigan Municipal Bond
Fund...................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a se-
ries 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 se-
ries fund, whose objective is as
high a level of income exempt from
Federal and Minnesota income taxes
as is consistent with prudent in-
vestment management.
Merrill Lynch Municipal Bond Fund, Inc.. Tax-exempt income from three sepa-
rate diversified portfolios of mu-
nicipal bonds.
Merrill Lynch Municipal Intermediate
Term Fund......................... Currently the only portfolio of Mer-
rill Lynch Municipal Series Trust,
a series fund, whose objective is
to provide as high a level as pos-
sible of income exempt from Federal
income taxes by investing in in-
vestment 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 as high a level of in-
come exempt from Federal and New
Jersey income taxes as is consis-
tent with prudent investment man-
agement through a portfolio primar-
ily of intermediate-term investment
grade New Jersey Municipal Bonds.
22
<PAGE>
Merrill Lynch New Jersey Municipal Bond
Fund...................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a se-
ries fund, whose objective is as
high a level of income exempt from
Federal and New Jersey state income
taxes as is consistent with prudent
investment management.
Merrill Lynch New York Limited Maturity
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
objective is as high a level of in-
come exempt from Federal, New York
State and New York City income
taxes as is consistent with prudent
investment management through in-
vestment 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 se-
ries fund, whose objective is as
high a level of income exempt from
Federal, New York State and New
York City income taxes as is con-
sistent with prudent investment
management.
Merrill Lynch North Carolina Municipal
Bond Fund..............................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a se-
ries fund, whose objective is as
high a level of income exempt from
Federal and North Carolina income
taxes as is consistent with prudent
investment management.
Merrill Lynch Ohio Municipal Bond Fund..
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a se-
ries fund, whose objective is to
provide investors with as high a
level of income exempt from both
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 se-
ries fund, whose objective is to
provide investors with as high a
level of income exempt from both
Federal and Oregon income taxes as
is consistent with prudent invest-
ment management.
23
<PAGE>
Merrill Lynch Pacific Fund, Inc......... Capital appreciation by investing in
equity securities of corporations
domiciled in Far Eastern and West-
ern Pacific countries, including
Japan, Australia, Hong Kong, Singa-
pore and the Philippines.
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 in-
vestment grade Pennsylvania Munici-
pal Bonds.
Merrill Lynch Pennsylvania Municipal
Bond Fund..............................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a se-
ries fund, whose objective is as
high a level of income exempt from
Federal and Pennsylvania state in-
come taxes as is consistent with
prudent investment management.
Merrill Lynch Phoenix Fund, Inc......... Long-term growth of capital by in-
vesting in equity and fixed income
securities, including tax-exempt
securities, of issuers in weak fi-
nancial condition or experiencing
poor operating results believed to
be undervalued relative to the cur-
rent or prospective condition of
such issuer.
Merrill Lynch Ready Assets Trust........ Preservation of capital, liquidity
and the highest possible current
income consistent with the forego-
ing objectives from the short-term
money market securities in which
the Trust invests.
Merrill Lynch Retirement Reserves Money
Fund (available only if the exchange
occurs within certain retirement
plans).................................
Currently the only portfolio of Mer-
rill 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 mar-
ket securities.
24
<PAGE>
Merrill Lynch Short-Term Global Income
Fund, Inc..............................
As high a level of current income as
is consistent with prudent invest-
ment management from a global port-
folio of high quality debt securi-
ties denominated in various curren-
cies and multi-currency units hav-
ing remaining maturities not ex-
ceeding three years.
Merrill Lynch Special Value Fund, Inc...
Long-term growth of capital from in-
vestments in securities, primarily
common stocks, 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 invest-
ment in dividend paying common
stocks which yield more than Stan-
dard & Poor's 500 Composite Stock
Price Index.
Merrill Lynch Technology Fund........... Long-term capital appreciation
through worldwide investment in eq-
uity securities of companies that,
in the opinion of management, de-
rive or are expected to derive a
substantial portion of their sales
from products and services in tech-
nology.
Merrill Lynch Texas Municipal Bond A portfolio of Merrill Lynch Multi-
Fund................................... State Municipal Series Trust, a se-
ries fund, whose objective is to
provide investors with as high a
level of income exempt from Federal
income taxes as is consistent with
prudent investment management by
investing primarily in a portfolio
of long-term, investment grade ob-
ligations issued by the State of
Texas, its political subdivisions,
agencies and instrumentalities.
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 li-
quidity and security of principal
from investment in direct obliga-
tions of the U.S. Treasury and up
to 10% of its total assets in re-
purchase agreements secured by such
obligations.
Merrill Lynch U.S.A. Government Preservation of capital, current in-
Reserves............................... come and liquidity available from
investing in direct obligations of
the U.S. Government and repurchase
agreements relating to such securi-
ties.
25
<PAGE>
Merrill Lynch U.S. Treasury Money Fund.. Preservation of capital, liquidity
and current income through invest-
ment exclusively in a diversified
portfolio of short-term marketable
securities which are direct obliga-
tions of the U.S. Treasury.
Merrill Lynch Utility Income Fund, High current income through invest-
Inc............................... ment primarily in equity and debt
securities issued by companies pri-
marily 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.
Before effecting an exchange, shareholders of the Fund should obtain a
currently effective prospectus of the fund into which the exchange is to be
made. Exercise of the exchange privilege is treated as a sale for Federal
income tax purposes and, depending on the circumstances, a short- or long-term
capital gain or loss may be realized. In addition, a shareholder exchanging
shares of any of the funds may be subject to a back-up withholding tax unless
such shareholder certifies under penalty of perjury that the taxpayer
identification number on file with any such fund is correct and that he is not
otherwise subject to back-up withholding. See "Dividends, Distributions and
Taxes" below.
To exercise the exchange privilege, shareholders should contact their Merrill
Lynch financial consultant, who will advise the Fund of the exchange, or, if
the exchange does not involve a money market fund, the shareholder may write to
the Transfer Agent requesting that the exchange be effected. Such letter must
be signed exactly as the account is registered with signatures guaranteed by an
"eligible guarantor institution" as such is defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934, the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated in accordance with the rules of the
Securities and Exchange Commission. The Fund reserves the right to limit the
number of times an investor may exercise the exchange privilege. Certain funds
may suspend the continuous offering of their shares to the general public at
any time and may thereafter resume such offering from time to time. The
exchange privilege is available only to U.S. Shareholders in states where the
exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to continue to elect to qualify as a regulated investment
company (a "RIC") under the provisions of the Code. If so qualified, the Fund
will not be subject to Federal income tax on that part of its net investment
income and net realized capital gains which it distributes to shareholders. To
qualify for
26
<PAGE>
such tax treatment, the Fund must, among other things and in general, derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of securities, and certain other related income and derive less
than 30% of its gross income from gains (without deduction for losses) from the
sale or other disposition of securities held for less than three months.
Even if reinvested in additional Fund shares, dividends paid by the Fund from
its ordinary income and distributions of the Fund's net realized short-term
capital gains are taxable to Class A and Class B shareholders as ordinary
income but may be eligible in part for the 70% dividends received deduction
allowed to corporations provided under the Code if certain requirements are
met. Not later than sixty days after the end of each fiscal year, the Fund will
send to its shareholders a written notice required by the Code designating the
amount of any distributions made during such year which may be taken into
account by corporate shareholders for purposes of that deduction. For this
purpose, the Fund will allocate dividends eligible for the dividends received
deduction between the Class A and Class B shareholders according to a method
(which it believes is consistent with the Securities and Exchange Commission's
exemptive order permitting the issuance and sale of two classes of stock) that
is based on the average daily net assets of each class (taking into account the
incremental expenses of the Class B shares) during the taxable year, or such
other method as the Internal Revenue Service may prescribe.
Under the Code, any distributions attributable to the Fund's net realized
long-term capital gains are taxable to shareholders (even if reinvested in
additional Fund shares) as long-term capital gains, regardless of the holding
period of shares of the Fund. However, a loss incurred by the shareholder upon
the sale or other disposition of shares of the Fund held for six months or less
will, to the extent the shareholder has received capital gains distributions,
be treated as a long-term capital loss. Such distributions of long-term capital
gains will be designated as a capital gains distribution in a written notice to
shareholders which accompanies the distribution payment.
Shareholders will not be entitled to a loss on the sale or disposition of
Class A or Class B shares of the Fund to the extent they acquire other Class A
or Class B shares within a 61-day period beginning 30 days before and ending 30
days after such sale or disposition.
Under certain provisions of the Code, some shareholders may be subject to 31%
withholding on reportable dividends, capital gains distributions and redemption
payments ("back-up withholding"). Generally, shareholders subject to back-up
withholding will be those for whom a certified taxpayer identification number
is not on file with the Fund or who, to the Fund's knowledge, have furnished an
incorrect number. When establishing an account, an investor must certify under
penalty of perjury that such number is correct and that he is not otherwise
subject to back-up withholding.
Dividends and short-term capital gains distributions paid by the Fund to
shareholders who are non-resident aliens or foreign entities generally are
subject to withholding at the rate of 30% unless a reduced rate of withholding
or a withholding exemption is provided under applicable treaty law.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
27
<PAGE>
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, state and local taxes. Qualification as a regulated
investment company under the Code for income tax purposes does not entail
government supervision of management or investment policies.
INVESTMENT PRACTICES AND RESTRICTIONS
Lending of Portfolio Securities. As discussed in the Prospectus, the Fund may
from time to time lend its portfolio securities in order to increase the total
yield on its portfolio. Such loans will be effected in accordance with
applicable regulatory guidelines and will at all times be secured by cash
collateral or securities issued or guaranteed by the United States government
in an amount that is at least equal to the market value, determined daily, of
the loaned securities. Cash collateral received by the Fund is invested in
short-term money market securities, and a portion of the yield earned on such
securities is retained by the Fund. Where securities, instead of cash, are
delivered to the Fund as collateral, the Fund earns its return in the form of a
loan premium paid by the borrower. The Fund retains the right to regain record
ownership of loaned securities to exercise beneficial rights such as voting
rights, subscription rights and rights to dividends, interest or other
distributions. Securities loans can be terminated by the Fund at any time. The
Fund may pay reasonable finders', administrative and custodial fees in
connection with such loans. In the event that the borrower defaults on its
obligation to return borrowed securities, because of insolvency or otherwise,
the Fund could experience delays and costs in gaining access to collateral and
could suffer a loss to the extent that the value of the collateral falls below
the market value of the securities.
Writing of Covered Call Options. As discussed in the Prospectus, the Fund may
from time to time sell (i.e., "write") covered call options on its portfolio
securities. The term option, as used herein, means a call option issued by The
Options Clearing Corporation (the "Clearing Corporation") and traded on a
national securities exchange. A call option gives the purchaser of the option
the right to buy and obligates the writer (seller) to sell the underlying
security at the exercise price during the option period. When the Fund writes
an option it receives a premium. This premium is the price of such option on
the exchange on which it is traded. At the time the option is written, the
exercise price of the option may be lower, equal to or higher than the market
price of the security on which the option is written.
A covered call option is an option where the Fund already owns securities
subject to the option ("underlying securities") or has an absolute and
immediate right to acquire that security without additional cash consideration
upon conversion or exchange of other securities held in its portfolio. By
writing a covered call option, the Fund, in return for the premium income
realized from the sale of the option, gives up the opportunity to profit from
any increase in the price of the underlying security above the option exercise
price during the period until the option expires, is exercised or the Fund
effects a "closing purchase transaction" as described below. For example,
assume that the Fund owned 100 shares of stock that was trading at $50. If the
Fund were to write a call option on such stock with an exercise price of $50
for which it received premium income of $500, in the event that the price of
the underlying stock were to increase to $55 during the term of the option, the
option would most likely be exercised and the Fund would be required to sell
the underlying stock at $50 per share. If the price of the stock were to
decline to below $50, however, the option would most likely expire unexercised
in which case the Fund would be able to retain the underlying stock. In
addition, the Fund will not be able to sell the security during the period of
the option without taking special steps
28
<PAGE>
described below which will involve expense. If the option expires unexercised,
the Fund realizes a gain (short-term capital gain for Federal income tax
purposes) in the amount of the premium received for the option. This gain may
be offset by a decline in the market price of the underlying security during
the option period.
The Fund can terminate its obligation under an option prior to the expiration
date of the option by effecting a "closing purchase transaction." This is done
by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. This can be done, however, only on an exchange which
provides a secondary market for an option of the same series and there is no
assurance that a secondary market will exist for any particular option. In the
event the Fund is unable to effect a closing purchase transaction, it will not
be able to dispose of the underlying securities until the option expires or
until the underlying securities are delivered upon exercise of the option, with
the result that the Fund will be subject to the risk of decline in the price of
the underlying securities during such period. The Fund writes options on
securities only if management believes that secondary markets will exist on an
exchange for options of the same series which will permit the Fund to effect
closing purchase transactions. Depending on the premium paid by the Fund in
effecting a closing transaction and transaction costs, the cost of a closing
purchase transaction may exceed the premium received by the Fund from writing
the original option, in which case the transaction will result in a loss to the
Fund.
The Fund may not write a covered call option on any of its portfolio's
securities if, as a result of writing such option, portfolio securities having
a value in excess of 15% of the Fund's total assets would be subject to such
options.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S.
Government securities. Under such agreements, the bank or primary dealer
agrees, upon entering into the contract, to repurchase the security at a
mutually agreed upon time and price, thereby determining the yield during the
term of the agreement. This results in a fixed rate of return insulated from
market fluctuations during such period. Repurchase agreements usually cover
short periods, such as under one week. Repurchase agreements may be construed
to be collateralized loans by the purchaser to the seller secured by the
securities transferred to the purchaser. The Fund will require the seller to
provide additional collateral if the market value of the securities falls below
the repurchase price at any time during the term of the repurchase agreement.
In the event of default by the seller under a repurchase agreement construed to
be a collateralized loan, the underlying securities are not owned by the Fund
but only constitute collateral for the seller's obligation to pay the
repurchase price. Therefore, the Fund may suffer time delays and incur costs or
possible losses in connection with the disposition of the collateral.
Portfolio Turnover. The Fund has not placed any limit on its rate of
portfolio turnover and securities may be sold without regard to the time they
have been held when, in the opinion of the Investment Adviser, investment
considerations warrant such action. As a result, the portfolio turnover rate
may vary greatly from year to year or during periods within a year. Also, the
use of covered call options at times when the underlying securities are
appreciating in value may result in higher portfolio turnover than would
otherwise be the case. The Fund pays brokerage commissions in connection with
writing call options and effecting closing purchase transactions, as well as in
connection with purchases and sales of portfolio securities. A high rate of
portfolio turnover would result in correspondingly greater brokerage commission
expenses. The Fund's portfolio turnover rate for the fiscal years ended January
31, 1994 and January 31, 1993 were 48.63% and 40.58%, respectively. Portfolio
turnover rate is calculated by dividing the lesser of the Fund's annual sales
or purchases
29
<PAGE>
of portfolio securities (exclusive of securities, including options, whose
maturities or expiration dates, at the time of acquisition, were one year or
less) by the monthly average value of the securities in the Fund's portfolio
during the year.
Portfolio Brokerage. Subject to policies established by the Board of
Directors of the Fund, the Investment Adviser is responsible for the Fund's
portfolio decisions and the placing of orders to effect the Fund's portfolio
transactions. With respect to such transactions, the Investment Adviser seeks
to obtain the best net results for the Fund taking into account such factors as
price (including the applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the firm involved
and the firm's risk in positioning a block of securities. While the Investment
Adviser generally seeks reasonably competitive commission rates, the Fund will
not necessarily be paying the lowest commission or spread available. The Fund
has no obligation to deal with any broker or dealer in the execution of its
portfolio transactions. The Fund has been informed by Merrill Lynch that it
will not attempt to influence or control the placing by the Investment Adviser
or by the Fund of orders for brokerage transactions. Consistent with the Rules
of Fair Practice of the National Association of Securities Dealers, Inc., the
Investment Adviser may consider sales of shares of the Fund as a factor in the
selection of brokers or dealers to execute portfolio transactions of the Fund.
Brokers and dealers, including Merrill Lynch, who provide supplemental
investment research (such as economic data and market forecasts) to the
Investment Adviser may receive orders for transactions by the Fund. Information
so received is in addition to, and not in lieu of, the services required to be
performed by the Investment Adviser under the Advisory Agreement with the Fund.
If in the judgment of the Investment Adviser the Fund will be benefitted by
supplemental research services, the Investment Adviser is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. The expenses of the Investment Adviser are not necessarily reduced
as a result of the receipt of such supplemental information. Supplemental
investment research received by the Investment Adviser may also be used in
connection with other investment advisory accounts of the Investment Adviser
and its affiliates.
The Fund may invest in securities traded in the over-the-counter market.
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, the Fund deals directly with dealers who make markets in the
securities involved where possible, except in circumstances where better prices
and execution are available elsewhere. Under the Act, Merrill Lynch and its
affiliates are generally prohibited from dealing with the Fund as principal in
the purchase and sale of securities. Since transactions in the over-the-counter
market usually involve transactions with dealers acting as principal for their
own account, neither Merrill Lynch nor any affiliate of Merrill Lynch may serve
as the Fund's dealer in connection with such transactions. However, such
companies may serve as broker for the Fund in over-the-counter transactions
conducted on an agency basis.
The aggregate dollar amounts of brokerage commissions paid by the Fund for
the fiscal years ended January 31, 1994, January 31, 1993 and January 31, 1992
were $526,282, $539,478 and $547,753, respectively. For these periods, brokers
providing research services received $508,466, $461,717 and $462,807,
respectively, in commissions on portfolio transactions effected for the Fund.
The aggregate dollar amounts of such portfolio transactions were $310,251,162,
$319,206,559 and $360,708,239, respectively. During those periods, the
aggregate dollar amounts of brokerage commissions paid by the Fund to Merrill
Lynch were $29,058,
30
<PAGE>
$25,500 and $12,000, respectively. These amounts represent 5.5%, 4.7% and 2.1%,
respectively, of the Fund's aggregate brokerage commissions paid to all brokers
during those periods. The Fund's aggregate dollar amounts of transactions
involving the payment of commissions effected through Merrill Lynch during
those periods were 4.9%, 5.7% and 2.3%, respectively, of the aggregate dollar
amount of all Fund transactions involving the payment of commissions.
The Fund, and one or more of the other investment companies or accounts which
the Investment Adviser or its affiliate FAM manage, may own the same
investments from time to time. Similarly, a particular security may be bought
for one or more companies or accounts at the same time that one or more
companies or accounts are selling the same security. If purchases or sales of
securities for the Fund and other companies or accounts arise for consideration
at or about the same time, transactions in such securities will be made,
insofar as feasible, for the respective companies and accounts in a manner
deemed equitable to all. To the extent that transactions on behalf of more than
one company or account during the same period may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on the price of the security being purchased or sold for the
Fund.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as recently
amended, Merrill Lynch may execute transactions for the Fund on the floor of
any national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to the Fund at
least annually setting forth the compensation it has received in connection
with such transactions. Pursuant to prior Section 11(a) and Rule 11a2-2(T)
thereunder, Merrill Lynch was not permitted to execute transactions for the
Fund on the floor of any national securities exchange, but was allowed to
effect such transactions through transmitting orders for execution, providing
for clearance and settlement and arranging for the performance of such
functions. Under prior Section 11(a) and as permitted by the Rule, the Fund
entered into an agreement with the Investment Adviser and Merrill Lynch which
permitted Merrill Lynch to retain compensation for effecting transactions for
the Fund on national securities exchanges, and provided, among other things,
that Merrill Lynch must furnish the Fund at least annually with a statement
setting forth the total amount of all compensation retained by Merrill Lynch
under the agreement. For the fiscal year ended January 31, 1994, the Fund
effected 12 such portfolio transactions pursuant to such contract and received
$29,058 as compensation in connection with such transactions. Because the
recent amendments to Section 11(a) obviate the need for this type of agreement,
the agreement has been terminated.
Investment Restrictions. The Fund has adopted certain fundamental investment
restrictions which may not be changed without the prior approval of the holders
of the majority of the Fund's outstanding shares. A majority for this purpose
means: (a) more than 50% of the outstanding shares, or (b) 67% of the shares
represented at a meeting where more than 50% of the outstanding shares are
represented, whichever is less. These fundamental investment restrictions
include three restrictions set forth in the Prospectus, as well as the 12
restrictions set forth below. For purposes of the following restrictions and
the restrictions set forth in the Prospectus, all percentage limitations apply
immediately after a purchase or initial investment and any subsequent change in
any applicable percentage resulting from market fluctuations does not require
elimination of any security from the Fund's portfolio. Under its fundamental
investment restrictions, the Fund may not:
1. Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry.
2. Invest in companies for the purpose of exercising control or
management.
31
<PAGE>
3. Purchase or sell real estate, except that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which invest in real
estate or interests therein.
4. Purchase or sell commodities or commodity contracts.
5. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities.
6. Make short sales of securities or maintain a short position in any
security.
7. Lend money to other persons, except through the purchase of debt
obligations and repurchase agreements consistent with the Fund's investment
policies.
8. Lend securities in an amount exceeding 33 1/3% of the value of the
Fund's total assets, taken at market value at the time any such loan is
made.
9. Enter into a repurchase agreement maturing in more than seven days
if, as a result, such repurchase agreement, together with restricted
securities and securities for which there are no readily available markets,
would constitute more than 10% of the value of the Fund's total assets.
10. Underwrite securities of other issuers except insofar as the Fund may
technically be deemed an underwriter under the Securities Act of 1933 in
selling portfolio securities.
11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
12. Issue senior securities as defined in the Act, except that this
restriction shall not be deemed to prohibit the Fund from borrowing money,
lending its portfolio securities or entering into repurchase agreements.
The following additional investment restrictions have been adopted by the
Fund and may be changed by the Board of Directors. Under these restrictions,
the Fund may not:
1. Purchase or sell interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in such interests or sponsor such programs.
2. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except that the Fund may write "covered call options"
as described in the Prospectus.
3. Invest in warrants if at the time of acquisition more than 2% of the
value of the Fund's assets, taken at market value, would be invested in
warrants. (For purposes of this restriction, warrants acquired by the Fund
in units or attached to securities are deemed to have no value.)
4. Invest in the securities of any issuer if, to the knowledge of the
Fund, any officer or Director of the Fund or its Investment Adviser owns
more than 1/2 of 1% of the outstanding securities of such issuer and such
officers and directors who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such issuer. (The Fund has a
policy of not purchasing securities of companies in which Directors or
management personnel of the Fund, ML & Co. or any subsidiary thereof have a
substantial beneficial interest.)
5. Enter into a repurchase agreement if, as a result, more than 5% of its
assets are invested in repurchase agreements.
6. Invest in the securities of a foreign issuer if at the time of the
acquisition more than 25% of the value of the Fund's total assets would be
invested in such securities.
32
<PAGE>
In addition, the Fund has undertaken with a State Securities Commission that
it will not invest in real estate limited partnerships or in oil, gas or other
mineral leases.
ADDITIONAL INFORMATION
Performance Data. From time to time the Fund may include its average annual
total return and other total return data in advertisements or information
furnished to present or prospective investors. Total return figures are based
on the Fund's historical performance and are not intended to indicate future
performance. Average annual total return is determined separately for Class A
and Class B shares in accordance with a formula specified by the Securities and
Exchange Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the sales charge in the case of Class A
shares and the maximum contingent deferred sales charge that would be
applicable to a complete redemption of the investment at the end of each
specified period in the case of Class B shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) the rates of return calculated will not be average annual
rates, but rather, actual annual, annualized or aggregate total 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 calculation 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 a longer period of time.
Set forth below is total return information for both Class A and Class B
shares of the Fund for the periods indicated:
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<TABLE>
<CAPTION>
EXPRESSED AS A REDEEMABLE VALUE OF A
PERIOD PERCENTAGE BASED HYPOTHETICAL
------ ON A HYPOTHETICAL $1,000 INVESTMENT AT
CLASS A SHARES $1,000 INVESTMENT THE END OF THE PERIOD
-------------- ----------------- ---------------------
<S> <C> <C>
One Year Ended January 31, 1994...... 8.25% $1,082.50
Five Years Ended January 31, 1994.... 11.48% $1,722.10
*Commencement of Operations to Janu-
ary 31, 1994......................... 11.68% $1,789.20
<CAPTION>
CLASS B SHARES
--------------
<S> <C> <C>
One Year Ended January 31, 1994...... 10.60% $1,106.00
Five Years Ended January 31, 1994.... 11.84% $1,749.70
**Commencement of Operations to Janu-
ary 31, 1994......................... 13.32% $3,456.40
</TABLE>
- --------
*Commencement of Operations of Class A shares was October 26, 1988.
**Commencement of Operations of Class B shares was March 5, 1984.
33
<PAGE>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------- -------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS HYPOTHETICAL EXPRESSED AS HYPOTHETICAL
A PERCENTAGE $1,000 A PERCENTAGE $1,000
BASED ON A INVESTMENT BASED ON A INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
$1,000 OF THE $1,000 OF THE
INVESTMENT PERIOD INVESTMENT PERIOD
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Year Ended January 31,
1994....................... 15.78% $1,157.80 14.60 % $1,146.00
1993....................... 4.79% 1,047.90 3.75 % 1,037.50
1992....................... 28.35% 1,283.50 26.96 % 1,269.60
1991....................... 6.64% 1,066.40 5.59 % 1,055.90
1990....................... 10.92% 1,109.20 9.77 % 1,097.70
1989....................... 3.90%* 1,039.00 22.11 % 1,221.10
1988....................... (8.63)% 913.70
1987....................... 26.99 % 1,269.90
1986....................... 15.87 % 1,158.70
1985....................... 20.33 %** 1,203.30
</TABLE>
- --------
*Commencement of Operations of Class A shares was October 26, 1988.
**Commencement of Operations of Class B shares was March 5, 1984.
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<TABLE>
<S> <C> <C> <C> <C>
Commencement of Operations*
to January 31, 1994.......................... 78.92% $1,789.20
Commencement of Operations**
to January 31, 1994.......................... 245.64% $3,456.40
</TABLE>
- --------
*Commencement of Operations for Class A shares was October 26, 1988.
**Commencement of Operations of Class B shares was March 5, 1984.
In order to reflect reduced sales charges in the case of Class A shares or
the waiver of the contingent deferred sales charge in the case of Class B
shares applicable to certain investors, as described under "Purchase of
Shares," the total return data quoted by the Fund, in advertisements directed
to such investors, may not take into account the contingent deferred sales
charge and therefore may reflect greater total return since, due to the reduced
sales charges or the waiver of sales charges, a lower amount of expenses may be
deducted.
From time to time, the Fund may include the Fund's Morningstar's risk-
adjusted performance rating in advertisements or supplemental sales literature.
Common Stock. The Fund has authorized capital of 200,000,000 shares of Common
Stock, par value $0.10 per share, divided into two classes, designated Class A
and Class B Common Stock, each of which
34
<PAGE>
consists of 100,000,000 shares. Both Class A and Class B Common Stock represent
an interest in the same assets of the Fund and are identical in all respects
except that the Class B shares bear certain expenses related to the account
maintenance and distribution of such shares and have exclusive voting rights
with respect to matters relating to such account maintenance and distribution
expenditures. Voting rights are not cumulative. This means that the holders of
more than 50% of the shares can elect all of the Directors of the Fund if they
choose to do so and, in such event, the holders of the remaining less than 50%
of the shares voting will not be able to elect any person or persons to the
Board of Directors. The Fund does not intend to hold meetings of shareholders
in any year in which the 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; or
(iv) ratification of selection of independent auditors. Generally, under
Maryland law, a meeting of shareholders may be called for any purpose on the
written request of the holders of at least 25% of the outstanding shares of the
Fund. Shares are issued fully paid and nonassessable and have no preemptive or
conversion rights.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on January 31, 1994.
Computation of Offering Price per Share. The offering price for Class A and
Class B shares of the Fund, based on the value of the Fund's net assets as of
January 31, 1994, is calculated as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
----------- ------------
<S> <C> <C>
Net Assets......................................... $10,942,174 $396,423,811
=========== ============
Number of Shares Outstanding....................... 667,410 24,322,986
=========== ============
Net Asset Value Per Share (net assets divided by
number of shares outstanding)..................... $ 16.39 $ 16.30
Sales Charge (for Class A shares: 6.50% of offering
price (6.95% of net asset value per share))*...... $ 1.14 $ **
----------- ------------
Offering Price..................................... $ 17.53 $ 16.30
=========== ============
</TABLE>
- --------
*Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
**Class B shares are not subject to an initial sales charge but may be subject
to a contingent deferred sales charge on redemption of shares within four
years of purchase. See "Purchase of Shares--Deferred Sales Charge
Alternative--Class B Shares" in the Prospectus.
Independent Auditors. Deloitte & Touche, 117 Campus Drive, Princeton, New
Jersey 08540, has been selected as the independent auditors of the Fund. The
independent auditors are responsible for auditing the annual financial
statements of the Fund.
Custodian. The Bank of New York, 110 Washington Street, New York, New York
10286, acts as custodian of the Fund's assets. The Custodian is responsible
for, among other things, safeguarding and controlling the Fund's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Fund's investments.
Transfer Agent. Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's 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
"The Fund and Its Management--Transfer Agency Services Fee" in the Prospectus.
35
<PAGE>
Reports to Shareholders. The Fund's fiscal year ends on January 31 of each
year. The Fund distributes reports at least semi-annually to its shareholders.
Each year an annual report, containing financial statements audited by the
Fund's independent auditors, is sent to shareholders.
Legal Counsel. Shereff, Friedman, Hoffman & Goodman, 919 Third Avenue, New
York, New York 10022, is counsel for the Fund.
Registration Statement. This Statement of Additional Information and the
Prospectus do not contain all of the information set forth in the Registration
Statement the Fund has filed with the Securities and Exchange Commission. The
complete Registration Statement may be obtained from the Securities and
Exchange Commission upon payment of the fee prescribed by the rules and
regulations of the Commission.
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Fund For Tomorrow, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Fund For Tomorrow, Inc., as of
January 31, 1994, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at January
31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Fund
For Tomorrow, Inc. as of January 31, 1994, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche
Deloitte & Touche
Princeton, New Jersey
March 4, 1994
37
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Concept Tomorrow Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Computer Technologies
Personal Computer 150,000 Apple Computer, Inc. $ 7,677,505 $ 4,912,500 1.2%
Components 70,000 ++Creative Technology, Ltd. (Ordinary) 1,965,000 2,362,500 0.6
Semiconductor 100,000 Intel Corp. 6,537,500 6,525,000 1.6
Components 50,000 ++Valence Technology, Inc. 1,003,374 987,500 0.2
Information Systems 100,000 ++Wonderware Corp. 2,050,000 2,300,000 0.6
------------ ------------ ----
19,233,379 17,087,500 4.2
Demographic Trends
Insurance 100,000 AFLAC Inc. 1,219,738 2,787,500 0.7
Personal Healthcare 43,100 Bausch & Lomb Inc. 1,962,798 2,268,138 0.6
Health & Fitness 307,350 CML Group Inc. 5,535,775 5,570,719 1.4
Insurance 324,400 Capital Holding Corp. 12,447,224 11,759,500 2.9
Health & Fitness 16,600 ++Cobra Golf Inc. 348,600 535,350 0.1
Specialty Services 100,000 Sotheby's Holdings, Inc. (Class A) 1,228,352 1,650,000 0.4
Financial Services 50,000 SunAmerica Inc. 2,276,925 2,043,750 0.5
Leisure & Entertainment 50,000 ++Video Lottery Technologies, Inc. 811,885 1,087,500 0.3
Leisure & Entertainment 100,000 ++WMS Industries Inc. 2,696,774 2,487,500 0.6
------------ ------------ ----
28,528,071 30,189,957 7.5
Developing Foreign Economies
Automotive 43,500 Brilliance China Automotive Holdings Ltd. 969,269 712,313 0.2
Construction 50,000 ++Bufete Industrial S.A. (ADR)* 1,213,155 2,525,000 0.6
Food & Beverage 150,000 Compania Cervecerias Unidas S.A. (ADR)* 2,182,500 4,762,500 1.2
Food & Beverage 4,500 ++Cristalerias de Chile S.A. (ADR)* 107,437 128,250 0.0
Automotive 25,000 Ek Chor China Motorcycle Co., Ltd. 525,000 871,875 0.2
Multi-Industry 390,000 Grupo Carso S.A. de C.V. A1 1,512,623 4,510,631 1.1
Leisure & Entertainment 50,000 ++Grupo Televisa, S.A. de C.V. (GDS)** 3,200,000 3,550,000 0.9
Home Furnishings 115,000 ++Industrie Natuzzi S.p.A. (ADR)* 1,725,000 3,047,500 0.7
Telecommunications 140,000 Telefonos de Mexico, S.A. de C.V. (ADR)* 4,245,211 10,342,500 2.5
Energy 100,000 YPF S.A. (ADR)* 2,698,460 2,887,500 0.7
------------ ------------ ----
18,378,655 33,338,069 8.1
Environmental Solutions
Pollution Technology 200,000 ++Molten Metal Technology, Inc. 3,085,894 5,050,000 1.2
Pollution Technology 100,000 ++Purus Inc. 1,414,126 1,175,000 0.3
Pollution Technology 180,000 ++Thermo Electron Corp. 6,840,000 7,717,500 1.9
------------ ------------ ----
11,340,020 13,942,500 3.4
Future Retailing
Specialty Retail 50,000 Authentic Fitness Corp. 1,556,250 1,381,250 0.3
Specialty Retail 105,700 ++Barnes & Noble, Inc. 2,517,000 2,272,550 0.6
Specialty Retail 50,000 ++Books-A-Million, Inc. 1,150,000 1,012,500 0.2
Private Label 160,000 ++Cott Corp. 5,005,001 4,300,000 1.1
Specialty Retail 70,000 ++Discount Auto Parts, Inc. 1,788,375 1,925,000 0.5
Private Label 119,100 ++Nutramax Products, Inc. 1,598,300 1,458,975 0.3
Private Label 170,000 ++The Perrigo Company, Inc. 3,787,810 5,142,500 1.3
Specialty Retail 50,000 ++Sports & Recreation, Inc. 1,225,000 1,950,000 0.5
Specialty Retail 200,000 Wal-Mart Stores, Inc. 5,258,570 5,300,000 1.3
------------ ------------ ----
23,886,306 24,742,775 6.1
</TABLE>
38
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Value Percent of
Concept Tomorrow Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Global Market Expansion
Financial Services 335,000 American Express Co. $ 10,153,775 $ 10,971,250 2.7%
Food & Beverage 199,600 CPC International, Inc. 8,965,425 9,755,450 2.4
Household Products 74,600 Colgate-Palmolive Co. 1,548,919 4,448,025 1.1
Food & Beverage 5,000 Nestle AG 2,943,330 4,878,549 1.2
Food & Beverage 180,000 PepsiCo, Inc. 4,562,124 7,267,500 1.8
Multi-Industry 100,000 York International Corp. 3,950,630 3,775,000 0.9
------------ ------------ ----
32,124,203 41,095,774 10.1
Healthcare Cost Containment
Health Maintenance 100,000 ++FHP International Corp. 2,275,000 2,675,000 0.6
Medical Products 100,000 United States Surgical Corp. 6,799,013 3,187,500 0.8
------------ ------------ ----
9,074,013 5,862,500 1.4
Healthcare Technology
Biotechnology 25,000 ++Amgen Inc. 1,043,750 1,212,500 0.3
Biotechnology 197,200 ++Cambridge Biotech Corp. 1,683,640 640,900 0.2
Biotechnology 65,000 ++Chiron Corp. 3,681,187 6,191,250 1.5
Pharmaceuticals 100,900 Merck & Co., Inc. 4,232,024 3,682,850 0.9
Pharmaceuticals 100,000 Pfizer, Inc. 3,038,128 6,462,500 1.6
Pharmaceuticals 137,200 Schering-Plough Corp. 3,180,566 8,643,600 2.1
Pharmaceuticals 200,000 Wellcome PLC (ADR)* 3,050,000 2,000,000 0.5
------------ ------------ ----
19,909,295 28,833,600 7.1
Industrial Outsourcing
Automotive Components 81,600 ++Breed Technologies, Inc. 1,384,575 2,152,200 0.5
Automotive Components 50,000 Hayes Wheels International, Inc. 1,176,725 1,618,750 0.4
Specialty Services 32,400 ++Interim Services, Inc. 648,000 814,050 0.2
Automotive Components 210,000 Magna International, Inc. 3,191,250 10,526,250 2.6
------------ ------------ ----
6,400,550 15,111,250 3.7
Industrial Renaissance
Automobile 350,000 Chrysler Corp. 9,780,250 21,525,000 5.3
Automobile 100,000 Ford Motor Co. 4,590,380 6,700,000 1.6
Automobile 200,000 General Motors Corp. 7,896,900 12,275,000 3.0
Information Processing 150,000 International Business Machines Corp. 8,780,004 8,512,500 2.1
------------ ------------ ----
31,047,534 49,012,500 12.0
</TABLE>
39
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Value Percent of
Concept Tomorrow Shares Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Multi-Media
Wireless Cable
Television 55,000 ++American Telecasting, Inc. $ 990,000 $ 1,251,250 0.3%
Wireless Cable
Television 125,000 ++CableMaxx, Inc. 1,506,875 1,562,500 0.4
Leisure &
Entertainment 100,000 ++LodgeNet Entertainment Corp. 1,451,730 1,350,000 0.3
Broadcasting &
Publishing 225,000 The News Corp. Ltd. (ADR)* 9,030,250 12,993,750 3.2
Wireless Cable
Television 44,000 ++Preferred Entertainment, Inc. 821,500 858,000 0.2
Leisure &
Entertainment 125,000 Time Warner, Inc. 3,491,400 5,000,000 1.2
Specialty Retail 50,000 ++ValueVision International, Inc.
(Class A) 663,125 600,000 0.2
Leisure &
Entertainment 175,000 The Walt Disney Co. 4,583,031 8,268,750 2.0
------------ ------------ ----
22,537,911 31,884,250 7.8
Progressive Education
Education 100,000 ++Broderbund Software, Inc. 3,459,375 3,650,000 0.9
Education 71,000 ++Education Alternatives, Inc. 2,607,490 2,556,000 0.6
Education 140,000 ++Scholastic Corporation 6,019,125 5,915,000 1.5
------------ ------------ ----
12,085,990 12,121,000 3.0
Strategic Growth Opportunities
Textile & Apparel 200,000 ++Burlington Industries, Inc. 2,671,075 2,925,000 0.7
Apparel 150,000 ++Chic by H.I.S., Inc. 1,917,934 2,025,000 0.5
Retail Stores 50,000 Dayton Hudson Corp. 3,441,500 3,287,500 0.8
Housing 156,400 Kaufman and Broad Home Corp. 2,809,055 3,636,300 0.9
Housing 120,000 Lennar Corp. 2,831,580 4,230,000 1.0
Specialty Retail 150,000 The Limited, Inc. 3,962,130 2,662,500 0.7
Apparel 150,000 Liz Claiborne, Inc. 5,454,429 3,112,500 0.8
Broadcasting &
Publishing 237,900 The New York Times Co. 7,789,967 6,780,150 1.6
Footwear 100,000 Reebok International Ltd. 2,528,595 3,212,500 0.8
------------ ------------ ----
33,406,265 31,871,450 7.8
Telecommunications
Long Distance Telephone 215,000 ++ALC Communications Corp. 3,216,750 6,880,000 1.7
Components 100,000 ++ANTEC Corp. 2,292,650 2,525,000 0.6
Regional Telephone 100,000 Bell Atlantic Corp. 4,699,600 5,675,000 1.4
Regional Telephone 50,000 BellSouth Corp. 2,384,250 3,075,000 0.8
Components 35,400 ++BroadBand Technologies, Inc. 637,200 1,062,000 0.3
Components 150,000 ++Inter-Tel, Inc. 1,383,862 1,331,250 0.3
Long Distance Telephone 100,000 MCI Communications Corp. 2,764,060 2,750,000 0.7
Regional Telephone 50,000 ++MFS Communications Co., Inc. 1,113,100 1,925,000 0.5
Paging Systems 100,000 ++Metrocall, Inc. 1,347,502 1,725,000 0.4
Components 100,000 Northern Telecom Ltd. 2,771,630 3,250,000 0.8
Regional Telephone 100,000 Pacific Telesis Group 2,791,355 5,762,500 1.4
Cellular Telephone 200,000 ++Pactel Corp. 4,600,000 5,050,000 1.2
------------ ------------ ----
30,001,959 41,010,750 10.1
Total Common Stocks 297,954,151 376,103,875 92.3
</TABLE>
40
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Short-Term Securities Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial $15,000,000 Corporate Asset Funding, Inc., 3.05%
Paper*** due 3/03/1994 $ 14,961,875 $ 14,961,875 3.7%
12,244,000 General Electric Capital Corp., 3.15%
due 2/01/1994 12,244,000 12,244,000 3.0
Total Short-Term Securities 27,205,875 27,205,875 6.7
Total Investments $325,160,026 403,309,750 99.0
============
Other Assets Less Liabilities 4,056,235 1.0
------------ -----
Net Assets $407,365,985 100.0%
============ =====
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Shares (GDS).
***Commercial Paper is traded on a discount basis; the interest rates shown
are the discount rates paid at the time of purchase by the Fund.
++Non-income producing securities.
See Notes to Financial Statements.
</TABLE>
41
<PAGE>
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets and Liabilities as of January 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$325,160,026) (Note 1a) $403,309,750
Receivables:
Securities sold $ 11,571,509
Dividends 540,095
Capital shares sold 221,065 12,332,669
------------
Prepaid registration fees and other assets (Note 1e) 22,723
------------
Total assets 415,665,142
------------
Liabilities: Payables:
Securities purchased 4,682,119
Capital shares redeemed 1,564,587
Distributor (Note 2) 332,822
Investment adviser (Note 2) 222,314 6,801,842
Accrued expenses and other liabilities ------------ 1,497,315
------------
Total liabilities 8,299,157
------------
Net Assets: Net assets $407,365,985
============
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares authorized $ 66,741
Consist of: Class B Common Stock, $0.10 par value, 100,000,000 shares authorized 2,432,299
Paid-in capital in excess of par 309,663,231
Undistributed realized capital gains on investments and foreign currency
transactions--net 17,063,594
Unrealized appreciation on investments and foreign currency
transactions--net 78,140,120
------------
Net assets $407,365,985
============
Net Asset Class A--Based on net assets of $10,942,174 and 667,410 shares outstanding $ 16.39
Value: Class B--Based on net assets of $396,423,811 and 24,322,986 shares ============
outstanding $ 16.30
============
See Notes to Financial Statements.
</TABLE>
42
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Statement of Operations for the Year Ended January 31, 1994
<S> <S> <C> <C>
Investment Dividends (net of $115,733 foreign withholding tax) $ 6,696,939
Income Interest and discount earned 910,396
Notes (1c & 1d): Other income 256,079
------------
Total income 7,863,414
------------
Expenses: Distribution fees--Class B (Note 2) $ 4,173,391
Investment advisory fees (Note 2) 2,782,877
Transfer agent fees--Class B (Note 2) 660,871
Printing and shareholder reports 107,083
Accounting services (Note 2) 88,054
Custodian fees 65,398
Registration fees (Note 1e) 56,799
Professional fees 54,276
Directors' fees and expenses 31,896
Amortization of organization expenses (Note 1e) 23,611
Transfer agent fees--Class A (Note 2) 14,014
Other 9,086
Total expenses ------------ 8,067,356
------------
Investment loss--net (203,942)
------------
Realized & Realized gain (loss) from:
Unrealized Investments--net 46,408,273
Gain (Loss) Foreign currency transactions (123,253) 46,285,020
on Investments Change in unrealized appreciation/depreciation on: ------------
& Foreign Investments--net 9,234,247
Currency Foreign currency transactions (6,804) 9,227,443
Transactions-- Net realized and unrealized gain on investments and ------------ ------------
Net (Notes 1b, foreign currency transactions 55,512,463
1d & 3): ------------
Net Increase in Net Assets Resulting from Operations $ 55,308,521
============
See Notes to Financial Statements.
</TABLE>
43
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
January 31,
1994 1993
Increase (Decrease) in Net Assets:
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ (203,942) $ 1,809,446
Realized gain on investments and foreign currency transactions--net 46,285,020 35,711,125
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net 9,227,443 (21,732,568)
------------ ------------
Net increase in net assets resulting from operations 55,308,521 15,788,003
------------ ------------
Dividends & Investment income--net:
Distributions to Class A -- (140,584)
Shareholders Class B -- (1,649,597)
(Note 1f): Realized gain on investments--net:
Class A (1,437,834) (626,121)
Class B (52,604,277) (28,893,222)
Net decrease in net assets resulting from dividends ------------ ------------
and distributions to shareholders (54,042,111) (31,309,524)
------------ ------------
Capital Share Net decrease in net assets derived from capital share transactions (52,481,091) (10,849,719)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets (51,214,681) (26,371,240)
Beginning of year 458,580,666 484,951,906
------------ ------------
End of year $407,365,985 $458,580,666
============ ============
See Notes to Financial Statements.
</TABLE>
44
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements.
For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 16.29 $ 16.84 $ 15.49 $ 15.26 $ 14.96
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .15 .25 .36 .41 .30
Realized and unrealized gain on investments
and foreign currency transactions--net(1) 2.18 .49 3.74 .59 1.45
-------- -------- -------- -------- --------
Total from investment operations 2.33 .74 4.10 1.00 1.75
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.23) (.35) (.40) (.41)
Realized gain on investments--net (2.23) (1.06) (2.40) (.37) (1.04)
-------- -------- -------- -------- --------
Total dividends and distributions (2.23) (1.29) (2.75) (.77) (1.45)
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.39 $ 16.29 $ 16.84 $ 15.49 $ 15.26
======== ======== ======== ======== ========
Total Based on net asset value per share 15.78% 4.79% 28.35% 6.64% 10.92%
Investment ======== ======== ======== ======== ========
Return:*
Ratios to Expenses .88% .90% .95% .96% .89%
Average ======== ======== ======== ======== ========
Net Assets: Investment income--net .95% 1.35% 1.81% 2.58% 2.20%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 10,942 $ 11,394 $ 8,846 $ 5,478 $ 4,466
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.63% 40.58% 48.28% 25.57% 15.23%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
(1)Foreign currency transaction amounts have been reclassified to conform to the 1994 presentation.
See Notes to Financial Statements.
</TABLE>
45
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements.
For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1994++ 1993 1992 1991 1990
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 16.28 $ 16.82 $ 15.48 $ 15.24 $ 14.94
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.01) .06 .14 .24 .21
Realized and unrealized gain on
investments and foreign currency
transactions--net(1) 2.17 .52 3.77 .60 1.36
-------- -------- -------- -------- --------
Total from investment operations 2.16 .58 3.91 .84 1.57
Less dividends and distributions: -------- -------- -------- -------- --------
Investment income--net -- (.06) (.17) (.23) (.23)
Realized gain on investments--net (2.14) (1.06) (2.40) (.37) (1.04)
-------- -------- -------- -------- --------
Total dividends and distributions (2.14) (1.12) (2.57) (.60) (1.27)
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.30 $ 16.28 $ 16.82 $ 15.48 $ 15.24
======== ======== ======== ======== ========
Total Invest- Based on net asset value per share 14.60% 3.75% 26.96% 5.59% 9.77%
ment Return:* ======== ======== ======== ======== ========
Ratios to Expenses, excluding distribution fees .91% .92% .98% 1.00% .93%
Average ======== ======== ======== ======== ========
Net Assets: Expenses 1.91% 1.92% 1.98% 2.00% 1.93%
======== ======== ======== ======== ========
Investment income (loss)--net (.07%) .36% .83% 1.53% 1.20%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $396,424 $447,186 $476,106 $442,944 $516,402
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.63% 40.58% 48.28% 25.57% 15.23%
======== ======== ======== ======== ========
<FN>
++Based on average shares outstanding during the period.
*Total investment returns exclude the effects of sales loads.
(1)Foreign currency transaction amounts have been reclassified to conform to the 1994 presentation.
See Notes to Financial Statements.
</TABLE>
46
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Fund For Tomorrow, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
investment management company. The Fund offers both Class A and Class
B Shares. Class A Shares are sold with a front-end sales charge. Class
B Shares may be subject to a contingent deferred sales charge. Both
classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class B
Shares bear certain expenses related to the distribution of such shares
and have exclusive voting rights with respect to matters relating to such
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at their last sale prices as of the
close of business on the day the securities are being valued or,
lacking any sales on that day, at the mean between closing bid and
asked prices. Securities traded in the over-the-counter market are
valued at the last bid prices quoted by brokers that make markets
in the securities at the close of trading on the New York Stock
Exchange. Portfolio securities which are traded both in the over-
the-counter market and on a stock exchange are valued based upon the
prices or quotes obtained from the broadest and most representative
market. Securities and other 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 Fund.
Short-term securities are valued at amortized cost which approximates
market.
(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) such
transactions expressed in foreign currencies into US dollars. Realized
and unrealized gains or losses from investments include the effects of
foreign exchange rates on investments.
The Fund is authorized to enter into forward foreign exchange contracts
as a hedge against either specific transactions or portfolio positions.
Such contracts are not entered on the Fund's records. However, the effect
on operations is recorded from the date the Fund enters into such contracts.
Premium or discount is amortized over the life of the contracts.
(c) Income taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute substantially all of its taxable income to its
shareholders. Therefore, no Federal income tax provision is required.
Under the applicable foreign tax law, a withholding tax may be imposed
on interest, dividends and capital gains at various rates.
(d) Security transactions and investment income--Security transactions
are recorded on the dates the transactions are entered into (the trade
dates). Dividend income is recorded on the ex-dividend date except that
if the ex-dividend date has passed, certain dividends from foreign
securities are recorded as soon as the funds are informed of the ex-
dividend date. Interest income (including amortization of discount) is
recognized on the accrual basis. Realized gains and losses on security
transactions are determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--Costs
related to the organization of the second class of shares are charged to
expense over a period not exceeding five years. Prepaid registration fees
are charged to expense as the related shares are issued.
(f) Dividends and distributions to shareholders--Dividends and distributions
paid by the Fund are recorded on the ex-dividend dates.
(g) Reclassifications--Certain 1993 amounts have been reclassified to
conform to the 1994 presentation. Accumulated investment loss--net, in
the amount of $248,221, has been reclassified to undistributed realized
gains.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill
Lynch Asset Management, L.P. ("MLAM"). Effective January 1, 1994, the
investment advisory business of MLAM was reorganized from a corporation
to a limited partnership. Both prior to and after the reorganization,
ultimate control of MLAM
47
<PAGE>
was vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general
partner of MLAM is Princeton Services, Inc., an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Merrill
Lynch Investment Management, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co. The Fund has also entered into a
Distribution Agreement and a Distribution Plan with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of
MLIM.
MLAM is responsible for the management of the Fund's portfolio and pro-
vides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Fund. For such services, the
Fund pays a monthly fee based upon the average daily value of the Fund's
net assets at the following annual rates: 0.65% of the average daily net
assets not exceeding $750 million; 0.60% of the average daily net assets
exceeding $750 million but not exceeding $1 billion; and 0.55% of the
average daily net assets exceeding $1 billion. The Investment Advisory
Agreement obligates MLAM to reimburse the Fund to the extent the Fund's
expenses (excluding interest, taxes, distribution fees, brokerage fees
and commissions, and extraordinary items) exceed 2.5% of the Fund's first
$30 million of average daily net assets, 2.0% of the next $70 million of
average daily net assets, and 1.5% of the average daily net assets in
excess thereof. No fee payment will be made to the Investment Adviser
which would result in Fund expenses exceeding on a cumulative annualized
basis the most restrictive applicable expense limitation in effect at the
time of such payment.
The Fund has adopted a Plan of Distribution (the "Plan") in accordance
with Rule 12b-1 under the Investment Company Act of 1940 pursuant to
which MLFD receives a fee from the Fund at the end of each month at the
annual rate of 1.0% of the average daily net assets of the Class B Shares
of the Fund. This fee is to compensate the Distributor for services it
provides and the expenses borne by the Distributor under the Distribution
Agreement. As authorized by the Plan, the Distributor has entered into
an agreement with Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
which provides for the compensation of MLPF&S for providing distribution-
related services to the Fund.
During the year ended January 31, 1994, MLFD earned underwriting
discounts of $2,638, and MLPF&S earned dealer concessions of $42,082
on sales of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales reporting charges of
$172,596 relating to transactions in Class B Shares and $29,058 in
commissions on the execution of portfolio security transactions for
the Fund during the year.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, MLPF&S, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended January 31, 1994 were $191,934,157 and $295,335,066,
respectively.
Net realized and unrealized gains (losses) as of January 31, 1994 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $46,408,273 $78,149,724
Foreign currency
transactions (123,253) (9,604)
----------- -----------
Total $46,285,020 $78,140,120
=========== ===========
As of January 31, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $78,149,724, of which $95,859,715 related to
appreciated securities and $17,709,991 related to depreciated securities.
The aggregate cost of investments at January 31, 1994 for Federal income
tax purposes was $325,160,026.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$52,481,091 and $10,849,719 for the years ended January 31, 1994 and
January 31, 1993, respectively.
48
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in capital shares for Class A and Class B
Shares were as follows:
Class A Shares for the Year Dollar
Ended January 31, 1994 Shares Amount
Shares sold 188,941 $ 3,088,274
Shares issued to shareholders
in reinvestment of dividends
and distributions 82,693 1,266,935
--------- ------------
Total issued 271,634 4,355,209
Shares redeemed (303,511) (4,894,524)
--------- ------------
Net decrease (31,877) $ (539,315)
========= ============
Class A Shares for the Year Dollar
Ended January 31, 1993 Shares Amount
Shares sold 440,206 $ 7,150,770
Shares issued to shareholders
in reinvestment of dividends
and distributions 42,882 680,591
--------- ------------
Total issued 483,088 7,831,361
Shares redeemed (309,233) (5,086,052)
--------- ------------
Net increase 173,855 $ 2,745,309
========= ============
Class B Shares for the Year Dollar
Ended January 31, 1994 Shares Amount
Shares sold 2,491,455 $ 40,734,290
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,009,988 45,992,774
---------- ------------
Total issued 5,501,443 86,727,064
Shares redeemed (8,646,525) (138,668,840)
---------- ------------
Net decrease (3,145,082) $(51,941,776)
========== ============
Class B Shares for the Year Dollar
Ended January 31, 1993 Shares Amount
Shares sold 3,307,518 $ 54,848,135
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,691,582 26,706,346
---------- ------------
Total issued 4,999,100 81,554,481
Shares redeemed (5,842,097) (95,149,509)
---------- ------------
Net decrease (842,997) $(13,595,028)
========== ============
5. Loaned Securities:
At January 31, 1994, the Fund held US Treasury Notes as collateral
for portfolio securities loaned, each having a market value of
approximately $15,500,000.
49
<PAGE>
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50
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
51
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................... 2
Management of the Fund..................................................... 2
The Investment Adviser.................................................... 2
The Advisory Agreement.................................................... 2
Directors and Officers..................................................... 3
Purchase of Shares......................................................... 5
Alternative Sales Arrangements............................................ 5
Initial Sales Charge Alternative--Class A Shares.......................... 5
Reduced Initial Sales Charge--Class A Shares.............................. 5
Deferred Sales Charge Alternative--Class B Shares......................... 9
Redemptions................................................................ 10
Contingent Deferred Sales Charge--Class B Shares.......................... 10
Determination of Net Asset Value........................................... 11
Shareholder Services....................................................... 12
Investment Account........................................................ 12
Automatic Investment Plan................................................. 12
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 13
Systematic Withdrawal Plans--Class A Shares............................... 13
Retirement Plans.......................................................... 14
Exchange Privilege........................................................ 14
Dividends, Distributions and Taxes......................................... 26
Investment Practices and Restrictions...................................... 28
Additional Information..................................................... 33
Performance Data.......................................................... 33
Common Stock.............................................................. 34
Computation of Offering Price............................................. 35
Independent Auditors...................................................... 35
Custodian................................................................. 35
Transfer Agent............................................................ 35
Reports to Shareholders................................................... 36
Legal Counsel............................................................. 36
Registration Statement.................................................... 36
Independent Auditors' Report............................................... 37
Financial Statements....................................................... 38
</TABLE>
Code # 10228-0594
Statement of
Additional Information
- -------------------------------------------------------------------------------
MERRILL LYNCH
FUND FOR
TOMORROW, INC.
MAY 26, 1994
DISTRIBUTOR:
MERRILL LYNCH
FUNDS DISTRIBUTOR, INC.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a)FINANCIAL STATEMENTS:
(1) Included in Prospectus (Part A):
Financial Highlights (selected per share data and ratios) for each of the
periods in the nine year period ended January 31, 1994 and for the period
March 5, 1984 (commencement of operations) to January 31, 1985.
(2) Included in Statement of Additional Information (Part B):
Schedule of Investments as of January 31, 1994.
Statement of Assets and Liabilities as of January 31, 1994.
Statement of Operations for the year ended January 31, 1994.
Statements of Changes in Net Assets for the years ended January 31, 1994
and January 31, 1993.
Financial Highlights for each of the periods in the five year period
ended January 31, 1994.
Notes to Financial Statements.
(3) Included in Part C:
None.
(b)EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(1)(a)* --Articles of Incorporation of Registrant.
(b).. --Form of Articles of Amendment.
(c)++++++ --Articles Supplementary.
(2)++++++ --By-Laws of Registrant, as amended to date.
(3) --Not applicable.
(4)(a).. --Specimen Certificate for Shares of Class A Common Stock of
Registrant.
(b).. --Specimen Certificate for Shares of Class B Common Stock of
Registrant.
(c) --Instruments Defining Rights of Shareholders.
(5).. --Investment Advisory Agreement between Registrant and Merrill
Lynch Asset Management.
(6)(a)** --Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.
(b).. --Form of Class A Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.
(7) --Not applicable.
(8)** --Form of Custody Agreement between Registrant and The Bank of New
York.
(9). --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data
Services, Inc. (formerly, Merrill Lynch Financial Data Service,
Inc.).
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(10) --Opinion and consent of Shereff, Friedman, Hoffman & Goodman,
counsel for the Registrant.
(11)(a) --Consent of Deloitte & Touche, independent auditors to Registrant.
(b)*** --Consent of Morningstar, Inc.
(12) --Not applicable.
(13)** --Certificate of Merrill Lynch Asset Management.
14 (a)++ --Prototype Individual Retirement Account Plan and Keogh Plan
available from Merrill Lynch, Pierce, Fenner & Smith Incorporated.
(b)++++ --Basic Retirement Plan available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
(15) --Amended and Restated Plan of Distribution pursuant to Rule 12b-1
under the Investment Company Act of 1940 and Distribution Plan
Sub-Agreement.
(16)... --Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22.
(17)++++++ --Other Exhibits
Powers of Attorney for Officers and Directors
Arthur Zeikel
Gerald M. Richard
Ronald W. Forbes
Charles C. Reilly
Kevin A. Ryan
Richard R. West
</TABLE>
- --------
* Incorporated by reference to the identically numbered Exhibit to the initial
Registration Statement, filed October 7, 1983 (File No. 2-87036).
** Incorporated by reference to the identically numbered Exhibit to Pre-
Effective Amendment No. 1 to the Registration Statement (File No. 2-87036).
*** Incorporated by reference to identically numbered Exhibit to Post-Effective
Amendment No. 11 to the Registration Statement (File No. 2-87036).
. Incorporated by reference to the identically numbered Exhibit to Post-
Effective Amendment No. 5 to the Registration Statement (File No. 2-87036).
.. Incorporated by reference to the identically numbered Exhibit to Post-
Effective Amendment No. 6 to the Registration Statement (File No. 2-87036).
... Incorporated by reference to the identically numbered Exhibit to Post-
Effective Amendment No. 8 to the Registration Statement (File No. 2-87036).
++ Incorporated by reference to the Exhibit 14 to Pre-Effective Amendment No. 1
to the Registration Statement under the Securities Act of 1933 on Form N-1
(File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed on
January 26, 1982.
++++Incorporated by reference to the Exhibit 14 to Post-Effective Amendment No.
3 to the Registration Statement under the Securities Act of 1933 on Form N-
1A (File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed on
December 29, 1983.
++++++Incorporated+be+reference to identically numbered Exhibits to Post-
Effective Amendment No. 12 to the Registration Statement (File No. 2-
87036).
C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS MARCH 31, 1994
-------------- ----------------
<S> <C>
Class A Common Stock, par value $.10 per share.............. 85
Class B Common Stock, par value $.10 per share.............. 4,744
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's Amended By-Laws (the "By-Laws") and Section 2-418 of
the Maryland General Corporation Law.
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, 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
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.
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 or purchase insurance to the extent provided in
Article VI on behalf of an employee or agent who is not an officer or director
of the Registrant.
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of: (a) a written
affirmation by the director of the director's good faith belief that the
standard of conduct necessary for indemnification by the corporation as
authorized in this section has been met, and (b) a written promise by, or on
behalf of, the recipient to repay that amount of the advance which exceeds
C-3
<PAGE>
the amount to which it is ultimately determined that he is entitled to receive
from the Registrant by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an equivalent
form of security which assures that any repayments may be obtained by the
Registrant without delay or litigation, which bond, insurance or other form of
security must be provided by the recipient of the advance, or (b) a majority of
a quorum of the Registrant's disinterested, non-party directors, or an
independent legal counsel in a written opinion, shall determine, based upon a
view of readily available facts, that the recipient of the advance ultimately
will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (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 is 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.
See "The Fund and its Management" in the Prospectus and "Management of the
Fund" in the Statement of Additional Information for information regarding the
business of the investment adviser.
Merrill Lynch Asset Management, L.P. (the "Investment Adviser" or "MLAM"),
acts as the investment adviser for the following companies: Convertible
Holdings, Inc., Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Balanced Fund for Investment
and Retirement, Merrill Lynch Capital Fund, Inc., Merrill Lynch Developing
Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund For
Tomorrow, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement,
Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Convertible
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources
Trust, Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch
High Income Municipal Bond Fund, Inc., Merrill Lynch Institutional Intermediate
Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund,
Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury
Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility
Income Fund, Inc. and Merrill Lynch Variable Series Funds, Inc. Fund Asset
Management, L.P. ("FAM"), an affiliate of the Investment Adviser, acts as the
investment adviser for the following registered investment companies: Apex
Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA Money
Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury
C-4
<PAGE>
Fund, The Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial
Institutions Series Trust, Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund,
Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Municipal Series Trust, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., MuniAssets
Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida
Insured Fund, 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, Inc. The address
of each of these investment companies is Box 9011, Princeton, New Jersey 08543-
9011, except that the address of Merrill Lynch Funds for Institutions Series
and Merrill Lynch Institutional Intermediate Fund is One Financial Center, 15th
Floor, Boston, Massachusetts 02111-2646. The address of MLAM and FAM is also
Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
since January 31, 1992, for such person's or entity's own account or in the
capacity of director, officer, partner or trustee. In addition, Mr. Zeikel is
President, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice President
of all or substantially all of the investment companies described in the
preceding paragraph. Mr. Zeikel is a director of substantially all of such
companies, and Mr. Glenn is a director of certain of such companies. Messrs.
Durnin, Giordano, Harvey, Hewitt, and Monagle are directors or officers of one
or more of such companies.
<TABLE>
<CAPTION>
POSITION WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- --------------------- -------------------------------------
<S> <C> <C>
ML & Co................. Limited Partner Financial Services Holding Company
Merrill Lynch Investment
Management, Inc. ...... Limited Partner Investment Advisory Services
Princeton Services, General Partner General Partner of FAM
Inc....................
("Princeton Services")
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
<C> <C> <S>
Arthur Zeikel......... President 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;
President of Princeton
Administrators
Bernard J. Durnin..... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Vincent R. Giordano... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
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;
Secretary Senior Vice President, General
Counsel, Director and Secretary
of Princeton Services; Director
of MLFD
Ronald M. Kloss....... Senior Vice President Senior Vice President and
and Controller Controller of FAM; Senior Vice
President and Controller of
Princeton Services
Joseph T. Monagle, Jr. Senior Vice President Senior Vice President of FAM;
..................... Senior Vice President of
Princeton Services
Gerald M. Richard..... Senior Vice President Senior Vice President and
and Treasurer Treasurer of FAM; Senior Vice
President and Treasurer of
Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener.... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services; Vice
President of FAM
Ronald L. Welburn..... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Anthony Wiseman....... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each of
the open-end investment companies referred to in the first paragraph of Item 28
except Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities
Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
C-6
<PAGE>
Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate
High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income Opportunities Fund
1999, Inc., Income Opportunities Fund 2000, Inc., MuniAssets Fund, Inc.,
MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
New York Insured Fund, Inc., MuniVest Pennsylvania Fund, MuniYield Arizona
Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, 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., Summit Cash Reserves Fund, 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, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Graczyk, Fatseas, Maguire and Wasel and Ms. Schera is 125 High Street,
15th Floor, Boston, Massachusetts 02110-2721.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH THE DISTRIBUTOR WITH REGISTRANT
---- --------------------- ---------------------
<S> <C> <C>
Terry K. Glenn.......... President and Director Executive Vice President
Arthur Zeikel........... Director President and Director
Philip L. Kirstein...... Director None
William E. Aldrich...... Senior Vice President None
Robert W. Crook......... Senior Vice President None
Michael J. Brady........ Vice President None
Vice President and Assistant
Sharon Creveling........ Treasurer None
Mark A. DeSario......... Vice President None
James J. Fatseas........ Vice President None
Debra W. Landsman-Yaros. Vice President None
Stanley Graczyk......... Vice President None
Michelle T. Lau......... Vice President None
Gerald M. Richard....... Vice President and Treasurer Treasurer
Richard L. Rufener...... Vice President None
Salvatore Venezia....... Vice President None
Mark A. Maguire......... Assistant Vice President None
Patricia A. Schera...... Assistant Vice President None
William Wasel........... Vice President None
Robert Harris........... Secretary None
</TABLE>
(c) Not applicable.
C-7
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules thereunder will be
maintained at the offices of the Registrant and its Transfer Agent.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
The Registrant will furnish each person to whom a Prospectus is delivered
with a copy of Registrant's latest annual report to shareholders, upon request
and without charge.
C-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE
485(B) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS POST-EFFECTIVE
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO, AND
STATE OF NEW JERSEY, ON THE 25TH DAY OF MAY, 1994.
Merrill Lynch Fund For Tomorrow,
Inc.
/s/ Arthur Zeikel
By __________________________________
(Arthur Zeikel,
President)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Arthur Zeikel
- ------------------------------------
(Arthur Zeikel) President (Principal
Executive Officer) and
Director May 25, 1994
/s/ Gerald M. Richard
- ------------------------------------
(Gerald M. Richard) Treasurer (Principal
Financial and Accounting
Officer) May 25, 1994
*
- ------------------------------------
(Ronald W. Forbes) Director
*
- ------------------------------------
(Charles C. Reilly) Director
*
- ------------------------------------
(Kevin A. Ryan) Director
*
- ------------------------------------
(Richard R. West) Director
</TABLE>
* This Amendment has been signed by each of the persons so indicated by the
undersigned as Attorney-in-Fact.
/s/ Arthur Zeikel
*By _________________________________
(Arthur Zeikel, Attorney-in-Fact) May 25, 1994
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(4)(c) --Instruments Defining Rights of Shareholders.
(10) --Opinion and consent of Shereff, Friedman, Hoffman & Goodman,
counsel for the Registrant.
(11)(a) --Consent of Deloitte & Touche, independent auditors to Registrant.
(15) --Amended and Restated Plan of Distribution pursuant to Rule 12b-1
under the Investment Company Act of 1940 and Distribution Plan Sub-
Agreement.
</TABLE>
<PAGE>
Page where Description of Graphic
Graphic Appears or Cross-Reference
- --------------- ----------------------
Back Cover of Prospectus Picture of a shopping mall.
and back cover of Statement
of Additional Information
<PAGE>
EXHIBIT 99.4(c)
INSTRUMENTS DEFINING RIGHTS OF SHAREHOLDERS
Copies of instruments defining the rights of shareholders, including the
relevant portions of the Articles of Incorporation, as amended to date, Articles
Supplementary and By-Laws of Registrant:
Excerpts from:
ARTICLES OF INCORPORATION
(AS AMENDED TO DATE)
OF
MERRILL LYNCH FUND FOR TOMORROW, 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) ...
(2) ...
(3) To issue and sell shares of its own capital stock in such amounts and
on such terms and conditions for such purposes and for such amount or kind of
consideration now or hereafter permitted by the General Laws of the State of
Maryland and by these Articles of Incorporation, as its Board of Directors
<PAGE>
may determine, consistent with all applicable laws and regulations, including
the Investment Company Act of 1940, as amended.
(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) ...
ARTICLE V
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Million (100,000,000) shares of the
par value of Ten Cents ($.10) per share and of the aggregate par value of Ten
Million Dollars ($10,000,000). The capital stock initially is classified into
two classes, consisting of Fifty Million (50,000,000) shares of Class A Common
Stock and Fifty Million (50,000,000) shares of Class B Common Stock.
[CAPITALIZATION INCREASED IN ARTICLES SUPPLEMENTARY.]
(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
-2-
<PAGE>
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, 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 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
-3-
<PAGE>
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
-4-
<PAGE>
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.
(6) The Corporation may issue, sell, redeem, repurchase and otherwise deal
in and with said shares of Common Stock in fractional shares, and any such
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, the right to receive
dividends and distributions, and the right to participate upon liquidation of
the Corporation.
(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 __, 1988 shall without further act be considered Class B 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.
-5-
<PAGE>
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE DIRECTORS
AND STOCKHOLDERS
-------------------------------------
(1) ...
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, whether now
or hereafter authorized, for such consideration as the Board of Directors may
deem advisable, subject to such limitations as may be set forth in these
Articles of Incorporation or in the By-Laws of the Corporation or in the General
Laws of the State of Maryland.
(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) ...
(5) ...
-6-
<PAGE>
ARTICLE VII
REDEMPTION
----------
Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be 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 redemption of shares of capital stock of the Corporation or postpone
the date of payment of such redemption price in accordance with the provisions
of applicable law. The redemption price of shares of capital stock of the
Corporation shall be the net asset value thereof as determined by the Board of
Directors of the Corporation from time to time in accordance with the provisions
of applicable law, less such redemption fee or other charge, if any, as may be
fixed by resolution of the Board of Directors of the Corporation. Payment of
the redemption price shall be made in cash by the Corporation at such time and
in such manner as may be determined from time to time by the Board of Directors
of the Corporation.
The Corporation may in its discretion redeem, at such current net
asset value, outstanding shares of its capital stock
-7-
<PAGE>
not offered for redemption which are held by any stockholder whose shares in the
aggregate have a then total net asset value of less than such amount as set
forth in the By-Laws, provided that prior to any such proposed redemption the
Corporation shall have given such stockholder written notice that such then
current net asset value is less than the amount set forth in the By-Laws as
aforesaid and allowed such stockholder to make additional investments in order
to increase such then current net asset value to the amount so set forth. The
Corporation may also in its discretion redeem the shares of its capital stock
held by a stockholder or stockholders to the extent deemed necessary by the
Board of Directors to avoid taxation of the Fund as a "personal holding
company."
ARTICLE VIII
VOTING
------
Notwithstanding any provision of Article 23 of the General Corporation
Law of the State of Maryland requiring a greater proportion than a majority of
the votes of all classes or of any class of capital stock entitled to be cast to
take or authorize any action, the Corporation may take or authorize any such
action upon the concurrence of a majority of the aggregate number of the votes
entitled to be case thereon, all as permitted by Section 2-104(b) of the General
Corporation Law of the State of Maryland or any comparable successor provision.
--------------------------------------
-8-
<PAGE>
Excerpts from:
ARTICLES SUPPLEMENTARY
OF
MERRILL LYNCH FUND FOR TOMORROW, INC.
1. (i) The total number of shares of capital stock which the
Corporation shall have the authority to issue has been increased from One
Hundred Million (100,000,000) shares to Two Hundred Million (200,000,000)
shares.
(ii) The authorized capital stock of the Corporation formerly was
classified into two classes consisting of Fifty Million (50,000,000) shares of
Class A Common Stock and Fifty Million (50,000,000) shares of Class B Common
Stock. The increased authorized shares of capital stock of the Corporation 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.
(iii) The aggregate par value of all shares of all classes of stock
has been increased from One Million dollars ($1,000,000) to Two Million dollars
($2,000,000).
-9-
<PAGE>
Excerpts from:
AMENDED BY-LAWS
OF
MERRILL LYNCH FUND FOR TOMORROW, INC.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Annual Meeting. The annual meeting of the stockholders of
--------------
the Corporation for the election of directors and for the transaction of such
other business as may properly be brought before the meeting shall be held on
such day in June of each year as shall be designated annually by the Board of
Directors; provided however, that an annual meeting of stockholders shall not be
-------- -------
required to be held in any year in which such a meeting is not required under
the laws of the State of Maryland, the Investment Company Act of 1940, as
amended, or other applicable statute.
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 written request of the holders of at least 25% of the
outstanding shares of capital stock of the Corporation entitled to vote at such
meeting.
Section 3. Place of Meetings. The annual meeting and any special
-----------------
meeting of the stockholders shall be held at such
-10-
<PAGE>
place within the United States as the Board of Directors may from time to time
determine.
Section 4. Notice of Meetings; Waiver of Notice. Written notice of
------------------------------------
the place, date and time of the holding of each annual and special meeting of
the stockholders and the purpose or purposes of each special meeting shall be
given by the secretary to each stockholder entitled to vote at such meeting and
to each stockholder entitled to notice of the meeting, not less than ten (10)
nor more than ninety (90) days before the date of such 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 for more than
thirty days, 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
-11-
<PAGE>
the Corporation 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 business 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 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
Corporation 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 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 stockholders, the
------------
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act,
-12-
<PAGE>
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 chairman 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.
Each stockholder entitled to vote at any meeting of stockholders 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
-13-
<PAGE>
states that it is irrevocable and where 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 at which a quorum is present 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 fix in
---------------------
advance a record date not more than ninety (90) nor less than ten (10) days
before the date then fixed for the holding of any 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
-14-
<PAGE>
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 a 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, request or matter determined by them and shall execute
a certificate 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. At every meeting of stockholders where the
voting is not conducted by inspectors, all questions with respect to the
qualifications of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the meeting.
-15-
<PAGE>
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
------------------------------------------
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any annual or special meeting of stockholders, or any
action which may be taken at any annual or special 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 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 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 Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
-16-
<PAGE>
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 officer, 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 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
-17-
<PAGE>
whose name any share or shares stand on the record of stockholders 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 Corporation 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 registration 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, destruction or mutilation of
such certificate, and the Corporation 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 Corporation a bond in such sum, limited or
unlimited, and in such
-18-
<PAGE>
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 Distributions.
-------------------------------------------------------
The Board may fix, in advance, a date not more than ninety (90) 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 or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
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
-19-
<PAGE>
of its affairs, and voting trust agreements on file at its principal office.
-20-
<PAGE>
EXHIBIT 99.10
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN
919 THIRD AVENUE . NEW YORK, N.Y. 10022-9998
(212) 758-9500
CABLE: SHERFRIED TELEX: 237328
WRITER'S DIRECT DIAL: TELECOPIER: (212) 758-9526
May 25, 1994
Merrill Lynch Fund For Tomorrow, Inc.
P.O. Box 9011
Princeton, New Jersey 08540-9011
Dear Sirs:
Merrill Lynch Fund For Tomorrow, Inc. (the "Fund") is filing with the
Securities and Exchange Commission Post-Effective Amendment No. 13 to its
Registration Statement under the Securities Act of 1933 (the "1933 Act") on Form
N-1A (Securities Act File No. 2-87036) relating to the registration under the
1933 Act of 8,969,844 additional shares of its Common Stock, par value $.10 per
share (the "Additional Shares"), which are to be offered and sold by the Fund in
the manner and on the terms set forth in the prospectus of the Fund current at
the time of sale. 8,950,036 of the Additional Shares are previously outstanding
shares of the Fund's Common Stock, par value $.10 per share which were redeemed
by the Fund during its fiscal year ended January 31, 1994. According to Post-
Effective Amendment No. 13 to the Fund's Registration Statement, none of the
Additional Shares have previously been used by the Fund for reduction pursuant
to paragraph (a) of Rule 24e-2 under the Investment Company Act of 1940 ("1940
Act") on previous filings of post-effective amendments to the Fund's
Registration Statement during the current year, or for reduction, pursuant to
paragraph (c) of Rule 24f-2 under the 1940 Act during the Fund's current fiscal
year, of the registration fee payable by the Fund for the registration of shares
for sale under the 1933 Act.
We have, as counsel, participated in various corporate and other
proceedings relating to the Fund and to the proposed issuance of the Additional
Shares. We have examined copies, either certified or otherwise proved to our
satisfaction to be genuine, of its charter and By-Laws, as currently in effect,
and other documents relating to its organization and operation. We have
received written confirmation from the State Department of Assessments and
Taxation of Maryland that the Fund is currently in good standing in that State.
We have also reviewed the above-mentioned Registration Statement, as amended,
and the documents filed as exhibits thereto. We are generally familiar with the
corporate affairs of the Fund.
Based upon the foregoing, it is our opinion that:
1. The Fund has been duly organized and is validly existing under the laws
of the State of Maryland.
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc.
May 25, 1994
Page 2
2. The Fund is authorized to issue two hundred million (200,000,000)
shares of Common Stock. Under Maryland law, (a) the number of authorized shares
may be increased or decreased by action of the Board of Directors and (b) shares
which are issued and subsequently redeemed by the Fund are, by virtue of such
redemption, restored to the status of authorized and unissued shares.
3. Subject to the effectiveness of the above-mentioned Post-Effective
Amendment No. 13 to the Fund's Registration Statement and compliance with
applicable state securities laws, upon the issuance of the Additional Shares for
consideration not less than the par value thereof as required by the laws of
Maryland, and not less than the net asset value thereof as required by the 1940
Act and in accordance with the terms of the Registration Statement, such shares
will be legally issued and outstanding and fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of the above-mentioned Post-Effective Amendment No.
13 to the Registration Statement and with any state securities commission where
such filing is required. In giving this consent we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
1933 Act.
We are members of the Bar of the State of New York and do not hold
ourselves out as being conversant with the laws of any jurisdiction other than
those of the United States of America and the State of New York. We note that
we are not licensed to practice law in the State of Maryland, and to the extent
that any opinion herein involves the law of Maryland, such opinion should be
understood to be based solely upon our review of the documents referred to
above, the published statutes of the State of Maryland and, where applicable,
published cases, rules or regulations of regulatory bodies of that State.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman
Shereff, Friedman, Hoffman & Goodman
SFHG:MKN:LAR:VAZ:ns
<PAGE>
EXHIBIT 99.11(A)
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH FUND FOR TOMORROW, INC.:
We consent to the use in Post-Effective Amendment No. 13 to Registration
Statement No. 2-87036 of our report dated March 4, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ Deloitte & Touche
Deloitte & Touche
Princeton, New Jersey
May 26, 1994
<PAGE>
EXHIBIT 99.15
AMENDED AND RESTATED
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH FUND FOR TOMORROW, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN amended and restated as of September 2, 1992, by and
between Merrill Lynch Fund For Tomorrow, Inc., a Maryland corporation (the
"Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware corporation
("MLFD").
W I T N E S S E T H:
-------------------
WHEREAS, the Fund is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund has entered into a Class B Shares Distribution Agreement
with MLFD, pursuant to which MLFD acts as the exclusive distributor and
representative of the Fund in the offer and sale of Class B shares of common
stock, par value $0.10 per share (the "Class B shares"), of the Fund to the
public;
WHEREAS, the Fund has entered into a Class B Distribution Plan (the "Prior
Plan") pursuant to Rule 12b-1 under the Investment Company Act; and
<PAGE>
WHEREAS, the Fund desires to adopt this Amended and Restated Class B
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account maintenance fee and
a distribution fee to MLFD with respect to the Fund's Class B shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
Class B shareholders;
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms
of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on
the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net assets
of the Fund relating to Class B shares to compensate MLFD and securities firms
with which MLFD enters into related agreements pursuant to Paragraph 3 hereof
("Sub-Agreements") for account maintenance activities with respect to Class B
shareholders of the Fund.
2. The Fund shall pay MLFD a distribution fee under the Plan at the
end of each month at the annual rate of 0.75% of average daily net assets of the
Fund relating to Class B shares to compensate MLFD and securities firms with
which MLFD enters into related Sub-Agreements for providing sales and
promotional activities and services. Such activities and services will relate
to the sale, promotion and marketing of the Class B shares of the Fund. Such
expenditures may consist of sales commissions to financial consultants for
selling Class B shares of the Fund, compensation, sales incentives and payments
to sales and marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising expenditures related to
the Fund and the costs of preparing and distributing promotional materials. The
distribution fee may also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in the applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the
2
<PAGE>
type referred to in Paragraphs 1 and 2 hereof. MLFD may reallocate all or a
portion of its account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and services. Such
Sub-Agreement shall provide that the Securities Firms shall provide MLFD with
such information as is reasonably necessary to permit MLFD to comply with the
reporting requirements set forth in Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period.
5. The Plan will be submitted for approval by a vote of at least a
majority, as defined in the Investment Company Act, of the outstanding Class B
voting securities of the Fund held by the public.
6. The Plan shall not take effect until it has been approved,
together with any related agreements, by (a) the Directors of the Fund and (b)
those Directors of the Fund who are not "interested persons" of the Fund, as
defined in the Investment Company Act, and have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the "Rule
12b-1 Directors"), cast in person at a meeting or meetings called for the
purpose of voting on the Plan and such related agreements.
7. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class B
voting securities of the Fund.
9. The Plan may not be amended to increase materially the rate of
payments by the Fund provided for herein unless such amendment is approved by at
least a majority, as defined in the Investment Company Act, of the outstanding
Class B voting securities of the Fund, and the Directors of the Fund in the
manner provided for in Paragraph 6 hereof, and no
3
<PAGE>
material amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal in Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
11. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the
date first above written.
MERRILL LYNCH FUND FOR TOMORROW, INC.
By___________________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By___________________________________________
4
<PAGE>
AMENDED AND RESTATED
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT amended and restated as of September 2, 1992 by and between
Merrill Lynch Funds Distributor, Inc. ("MLFD") and Merrill Lynch, Pierce, Fenner
& Smith Incorporated (the "Securities Firm").
W I T N E S S E T H
-------------------
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Fund For
Tomorrow, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts
as the exclusive distributor for the sale of Class B shares of common stock, par
value $0.10 per share (the "Class B shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into an Amended and Restated
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "Act") pursuant to which MLFD receives an account
maintenance fee from the Fund at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class B shares for account maintenance activities
related to Class B shares of the Fund and a distribution fee from the Fund at
the annual rate of 0.75% of average daily net assets of the Fund relating to
Class B shares for providing sales and promotional activities and services
related to the distribution of Class B shares of the Fund; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class B shareholders and the Securities Firm is willing to perform such
activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities with
respect to the Class B shares of the Fund of the types referred to in Paragraph
1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities and
services with respect to the sale of the Class B shares of the Fund, and incur
distribution expenditures, of the types referred to in Paragraph 2 of the Plan.
3. As compensation for its activities and services performed under this Sub-
Agreement, MLFD shall pay the Securities Firm an account maintenance fee and a
distribution fee at the end of each calendar month in an amount agreed upon by
the parties hereto.
<PAGE>
4. The Securities Firm shall provide MLFD, at least quarterly, such information
as reasonably requested by MLFD to enable MLFD to comply with the reporting
requirements of Rule 12b-1 regarding the disbursement of the account maintenance
fee and the distribution fee during such period referred to in Paragraph 4 of
the Plan.
5. This Sub-Agreement shall not take effect until it has been approved by votes
of a majority of both (a) the Directors of the Fund and (b) those Directors of
the Fund who are not "interested persons" of the Fund, as defined in the Act,
and have no direct or indirect financial interest in the operation of the Plan,
this Agreement or any agreements related to the Plan or this Agreement (the
"Rule 12b-1 Directors"), cast in person at a meeting or meetings called for the
purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its assignment
or in the event of the termination of the Plan or any amendment of the Plan that
requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By ________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By _______________________________
