<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1997
REGISTRATION 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. [ ]
POST-EFFECTIVE AMENDMENT NO. 17 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 18 [X]
---------------------
MERRILL LYNCH FUND FOR TOMORROW, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
P.O. BOX 9011
PRINCETON, NEW JERSEY 08536-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
JOEL H. GOLDBERG, ESQ. MERRILL LYNCH ASSET MANAGEMENT, L.P.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP P.O. BOX 9011
919 THIRD AVENUE, NEW YORK, NEW YORK 10022 PRINCETON, NEW JERSEY 08543-9011
</TABLE>
---------------------
IT IS PROPOSED THAT THIS FILING BECOME EFFECTIVE:
[X] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
---------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
================================================================================
<TABLE>
<CAPTION>
AMOUNT OF PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES SHARES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE* REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock (par value
$0.10 per share)............... 4,730,791 $17.37 $329,995.26 $100
===========================================================================================================
</TABLE>
*(1) The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940.
(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 7,308,592 shares.
(3) 2,596,799 of the shares described in (2) above have been used for reduction
pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment Company Act
of 1940 in previous filings during Registrant's current fiscal year.
(4) 4,711,793 of the shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.
---------------------
REGISTRANT HAS PREVIOUSLY ELECTED TO REGISTER AN INDEFINITE NUMBER OF
SHARES OF ITS COMMON STOCK PURSUANT TO RULE 24f-2 UNDER THE INVESTMENT COMPANY
ACT. A RULE 24f-2 NOTICE WAS LAST FILED ON MARCH 20, 1997.
================================================================================
<PAGE> 2
MERRILL LYNCH FUND FOR TOMORROW, INC.
POST-EFFECTIVE AMENDMENT NO. 17 ON FORM N-1A
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495(a))
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ----------------------------------------------------- --------------------------------------
<S> <C> <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 Securities.... Cover Page; Fee Table; Merrill Lynch
Select Pricing(SM) System; Purchase of
Shares; Dividends, Distributions and
Taxes; Additional Information
Item 7. Purchase of Securities Being
Offered............................. Cover Page; Fee Table; Merrill Lynch
Select Pricing(SM) System; 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 Policies.... Investment Objective and 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
Services............................ Management of the Fund; Additional
Information
Item 17. Brokerage Allocation.................. Investment Practices and Restrictions
Item 18. Capital Stock and Other Securities.... Cover Page; Purchase of Shares;
Additional Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............ Cover Page; Purchase of Shares;
Determination of Net Asset Value;
Redemptions; Shareholder Services
Dividends, Distributions and Taxes
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 Post-Effective Amendment to the
Registration Statement.
<PAGE> 3
PROSPECTUS
MAY 23, 1997
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. The Fund is designed primarily, but not
exclusively, for younger investors who desire a long-term investment in the
stock market. For more information on the Fund's investment objective and
policies, please see "Investment Objective and Policies" on page 11.
------------------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select Pricing(SM) System" on page 3.
------------------------
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor" or "MLFD"), P.O. Box 9081, Princeton, New Jersey 08543-9081,
(609) 282-2800, or from securities dealers that 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 $100, and the minimum subsequent purchase is $1.
Merrill Lynch may charge its customers a processing fee (presently $5.35) 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 23, 1997, 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.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
------------ ------------------------------------- ------------------ --------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price).................. 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments.................... None None None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower).............. None(d) 4.0% during the first year, 1.0% for one None(d)
decreasing 1.0% annually year(f)
thereafter to 0.0% after the
fourth year(e)
Exchange Fee....................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(g)........ 0.65% 0.65% 0.65% 0.65%
12b-1 Fees(h):
Account Maintenance Fees......... None 0.25% 0.25% 0.25%
Distribution Fees................ None 0.75% 0.75% None
(Class B shares convert to Class D
shares automatically after
approximately
eight years and cease being subject
to
distribution fees)
Other Expenses:
Custodian Fees..................... 0.03% 0.03% 0.03% 0.03%
Shareholder Servicing Fees(i)...... 0.23% 0.29% 0.30% 0.23%
Other.............................. 0.09% 0.09% 0.09% 0.09%
------ --- --- ----
Total Other Expenses......... 0.35% 0.41% 0.42% 0.35%
------ --- --- ----
TOTAL FUND OPERATING EXPENSES........ 1.00% 2.06% 2.07% 1.25%
====== === === ====
</TABLE>
- ---------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain participants in
fee-based programs. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares" -- page 17.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" -- page 19 and
"Shareholder Services -- Fee-Based Programs" -- page 27.
(c) Reduced for purchases of $25,000 and over and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A or Class D purchases of $1,000,000 or
more may not be subject to an initial sales charge. See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares" -- page 17.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a CDSC
of 1.0% of amounts redeemed within the first year after purchase. Such CDSC
may be waived in connection with redemptions to fund participation in
certain fee-based programs. See "Shareholder Services -- Fee-Based
Programs" -- page 27.
(e) The CDSC may be modified in connection with redemptions to fund
participation in certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs" -- page 27.
(f) The CDSC may be waived in connection with redemptions to fund participation
in certain fee-based programs. See "Shareholder Services -- Fee-Based
Programs" -- page 27.
(g) See "The Fund and Its Management -- Advisory Fee" -- page 13.
(h) See "Purchase of Shares -- Distribution Plans" -- page 22.
(i) See "The Fund and Its Management -- Transfer Agency Services Fee" -- page
13.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
-------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales
charge (Class A and Class D shares only) and assuming
(1) the Total Fund Operating Expenses for each class
set forth on page 2, (2) a 5% annual return throughout
the periods and (3) redemption at the end of the
period:
Class A............................................. $ 62 $83 $ 105 $169
Class B............................................. $ 61 $85 $ 111 $220*
Class C............................................. $ 31 $65 $ 111 $240
Class D............................................. $ 65 $90 $ 118 $196
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A............................................. $ 62 $83 $ 105 $169
Class B............................................. $ 21 $65 $ 111 $220*
Class C............................................. $ 21 $65 $ 111 $240
Class D............................................. $ 65 $90 $ 118 $196
</TABLE>
- ---------------
* Assumes conversion to Class D shares approximately eight years after purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly.
The example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission ("Commission") regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF
RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C shareholders who
own their shares for an extended period of time may pay more in Rule 12b-1
distribution fees than the economic equivalent of the maximum front-end sales
charge permitted under the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ("NASD"). Merrill Lynch may charge its customers a
processing fee (presently $5.35) 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."
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing(SM) System is used by more than
50 mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Investment Adviser"), or an affiliate of MLAM, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or
3
<PAGE> 6
FAM that utilize the Merrill Lynch Select Pricing(SM) System are referred to
herein as "MLAM-advised mutual funds."
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges, distribution and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account maintenance fees
that are imposed on the Class D shares, will be imposed directly against those
classes and not against all assets of the Fund and, accordingly, such charges
will not affect the net asset value of any other class or have any impact on
investors choosing another sales charge option. Dividends paid by the Fund for
each class of shares will be calculated in the same manner at the same time and
will differ only to the extent that account maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Each class has different exchange privileges.
See "Shareholder Services -- Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is most beneficial under the investor's particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase of
Shares."
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
- -------------------------------------------------------------------------------------------------
B CDSC for a period of four 0.25% 0.75% B shares convert to
years, at a rate of 4.0% D shares automatically
during the first year, after approximately
decreasing 1.0% annually to eight years(5)
0.0%(4)
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- -------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(3)
- -------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares -- Initial Sales
Charge Alternatives -- Class A and Class D Shares -- Eligible Class A
Investors."
(footnotes continued on next page)
4
<PAGE> 7
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but,
instead may be subject to a 1.0% CDSC if redeemed within one year. Such CDSC
may be waived in connection with certain fee-based programs. A .75% sales
charge for 401(k) purchases over $100,000,000 will apply. See "Class A" and
"Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten-year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for
the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors who currently own Class A shares of the Fund in a
shareholder account are entitled to purchase additional Class A shares
of the Fund in that account. Other eligible investors include certain
retirement plans and participants in certain fee-based programs. In
addition, Class A shares will be offered at net asset value to
directors and employees of Merrill Lynch & Co., Inc. ("ML & Co.") and
its subsidiaries (the term "subsidiaries," when used herein with
respect to ML & Co., includes MLAM, FAM and certain other entities
directly or indirectly wholly-owned and controlled by ML & Co.) and to
members of the Boards of MLAM-advised mutual funds. The maximum
initial sales charge is 5.25%, which is reduced for purchases of
$25,000 and over, and waived for purchases by certain retirement plans
and participants in connection with certain fee-based programs.
Purchases of $1,000,000 or more may not be subject to an initial sales
charge but if the initial sales charge is waived such purchases may be
subject to a CDSC of 1.0% if the shares are redeemed within one year
after purchase. Such CDSC may be waived in connection with redemptions
to fund participation in certain fee-based programs. Sales charges
also are reduced under a right of accumulation that takes into account
the investor's holdings of all classes of all MLAM-advised mutual
funds. See "Purchase of Shares -- Initial Sales Charge Alternatives --
Class A and Class D Shares."
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Fund's average net
assets attributable to the Class B shares, and a CDSC if they are
redeemed within four years of purchase. Such CDSC may be modified in
connection with redemptions to fund participation in certain fee-based
programs. Approximately eight years after issuance, Class B shares
will convert automatically to Class D shares of the Fund, which are
subject to an account maintenance fee of 0.25% but no distribution
fee; Class B shares of certain other MLAM-advised mutual funds into
which exchanges may be made convert to Class D shares automatically
after approximately ten years. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the
exchange will apply, as will the Class D account maintenance fee of
the acquired fund upon the conversion, and the holding period for the
shares exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares to Class D shares
will occur at least once a month on the basis of the relative net
asset values of the shares of the two classes on the conversion date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B
5
<PAGE> 8
shares to Class D shares will not be deemed a purchase or sale of the
shares for Federal income tax purposes. Shares purchased through
reinvestment of dividends on Class B shares also will convert
automatically to Class D shares. The conversion period for dividend
reinvestment shares, and the conversion and holding periods for certain
retirement plans, were modified as described under "Purchase of Shares
-- Deferred Sales Charge Alternatives -- Class B and Class C Shares --
Conversion of Class B Shares to Class D Shares."
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Fund's average net
assets attributable to Class C shares. Class C shares are also subject
to a 1% CDSC if they are redeemed within one year of purchase. Such
CDSC may be waived in connection with certain fee-based programs.
Although Class C shares are subject to a CDSC for only one year (as
compared to four years for Class B), Class C shares have no conversion
feature and, accordingly, an investor who purchases Class C shares
will be subject to higher distribution fees that will be imposed on
Class C shares for an indefinite period subject to annual approval by
the Fund's Board of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived
such purchase may be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. Such CDSC may be waived in
connection with redemptions to fund participation in certain fee-based
programs. The schedule of initial sales charges and reductions for
Class D shares is the same as the schedule for Class A shares, except
that there is no waiver for purchases in connection with certain
fee-based programs. Class D shares also will be issued upon conversion
of Class B shares as described above under "Class B." See "Purchase of
Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares."
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives
Investors who prefer an initial sales charge alternative may elect to
purchase Class D shares or, if an eligible investor, Class A shares. Investors
choosing the initial sales charge alternative who are eligible to purchase Class
A shares should purchase Class A shares rather than Class D shares because of
the account maintenance fee imposed on Class D shares. Investors qualifying for
significantly reduced initial sales charges may find the initial sales charge
alternative particularly attractive because similar sales charge reductions are
not available with respect to the deferred sales charges imposed in connection
with purchases of Class B or Class C shares. Investors not qualifying for
reduced initial sales charges who expect to maintain their investment for an
extended period of time also may elect to purchase Class A or Class D shares,
because over time the accumulated ongoing account maintenance and distribution
fees on Class B or Class C shares may exceed the initial sales charge and, in
the case of Class D shares, the account maintenance fee. Although some investors
who previously purchased Class A shares may no longer be eligible to purchase
Class A shares of other MLAM-advised mutual funds, those previously purchased
Class A shares, together with Class B,
6
<PAGE> 9
Class C and Class D share holdings, will count toward a right of accumulation
which may qualify the investor for reduced initial sales charges on new initial
sales charge purchases. In addition, the ongoing Class B and Class C account
maintenance and distribution fees will cause Class B and Class C shares to have
higher expense ratios, pay lower dividends and have lower total returns than the
initial sales charge shares. The ongoing Class D account maintenance fees will
cause Class D shares to have a higher expense ratio, pay lower dividends and
have a lower total return than Class A shares.
Deferred Sales Charge Alternatives
Because no initial sales charges are deducted at the time of purchase,
Class B and Class C shares provide the benefit of putting all of the investor's
dollars to work from the time the investment is made. The deferred sales charge
alternatives may be particularly appealing to investors who do not qualify for a
reduction in initial sales charges. Both Class B and Class C shares are subject
to ongoing account maintenance fees and distribution fees; however, the ongoing
account maintenance and distribution fees potentially may be offset to the
extent any return is realized on the additional funds initially invested in
Class B or Class C shares. In addition, Class B shares will be converted into
Class D shares of the Fund after a conversion period of approximately eight
years, and thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forgo the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares -- Limitations on the Payment of Deferred
Sales Charges."
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the Fund by Deloitte & Touche LLP, independent
auditors. Financial statements for the fiscal year ended January 31, 1997 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. Further
information about the performance of the Fund is contained in the Fund's most
recent annual report to shareholders which may be obtained, without charge, by
calling or writing the Fund at the telephone number or address on the front
cover of this Prospectus.
The following per share data and ratios have been derived from information
provided in the Fund's audited financial statements.
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
-----------------------------------------------------------------
1997++ 1996++ 1995 1994 1993 1992
------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................... $ 16.26 $ 13.55 $16.39 $ 16.29 $ 16.84 $15.49
------- ------ ------- ------- ------ ------
Investment income -- net....................................... .08 .07 .09 .15 .25 .36
Realized and unrealized gain (loss) on investments and foreign
currency transactions -- net................................. 3.04 4.19 (1.97) 2.18 .49 3.74
------- ------ ------- ------- ------ ------
Total from investment operations................................ 3.12 4.26 (1.88) 2.33 .74 4.10
------- ------ ------- ------- ------ ------
Less dividends and distributions:
Investment income -- net....................................... -- -- -- -- (.23) (.35)
Realized gain on investments -- net............................ (2.22) (1.55) (.96) (2.23) (1.06) (2.40)
------- ------ ------- ------- ------ ------
Total dividends and distributions............................... (2.22) (1.55) (.96) (2.23) (1.29) (2.75)
------- ------ ------- ------- ------ ------
Net asset value, end of period.................................. $ 17.16 $ 16.26 $13.55 $ 16.39 $ 16.29 $16.84
======= ====== ======= ======= ====== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............................. 19.99% 31.82% (11.23)% 15.78% 4.79% 28.35%
======= ====== ======= ======= ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................................... 1.00% 1.07% .98% .88% .90% .95%
======= ====== ======= ======= ====== ======
Investment income -- net....................................... .46% .44% .59% .95% 1.35% 1.81%
======= ====== ======= ======= ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....................... $39,605 $34,231 $8,665 $10,942 $11,394 $8,846
======= ====== ======= ======= ====== ======
Portfolio turnover............................................. 39.96% 67.38% 45.86% 48.63% 40.58% 48.28%
======= ====== ======= ======= ====== ======
Average Commission Rate Paid##................................. $ .0277 -- -- -- -- --
======= ====== ======= ======= ====== ======
<CAPTION>
1991 1990 1989+
------ ------ ------
<S> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................... $15.26 $14.96 $16.05
------ ------ ------
Investment income -- net....................................... .41 .30 .08
Realized and unrealized gain (loss) on investments and foreign
currency transactions -- net................................. .59 1.45 .43
------ ------ ------
Total from investment operations................................ 1.00 1.75 .51
------ ------ ------
Less dividends and distributions:
Investment income -- net....................................... (.40) (.41) (.13)
Realized gain on investments -- net............................ (.37) (1.04) (1.47)
------ ------ ------
Total dividends and distributions............................... (.77) (1.45) (1.60)
------ ------ ------
Net asset value, end of period.................................. $15.49 $15.26 $14.96
====== ====== ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share............................. 6.64% 10.92% 3.90%#
====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................................... .96% .89% .91%*
====== ====== ======
Investment income -- net....................................... 2.58% 2.20% 1.87%*
====== ====== ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)....................... $5,478 $4,466 $ 476
====== ====== ======
Portfolio turnover............................................. 25.57% 15.23% 10.26%
====== ====== ======
Average Commission Rate Paid##................................. -- -- --
====== ====== ======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effect of sales loads.
+ Class A shares commenced operations on October 26, 1988.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted in U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
8
<PAGE> 11
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------
FOR THE YEAR ENDED JANUARY 31,
--------------------------------------------------------------------------------
1997+ 1996+ 1995+ 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 15.79 $ 13.33 $ 16.30 $ 16.28 $ 16.82 $ 15.48 $ 15.24
------- ------- ------- ------- ------- ------- -------
Investment income (loss) -- net............... (.10) (.08) (.06) (.01) .06 .14 .24
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net......................... 2.95 4.09 (1.96) 2.17 .52 3.77 .60
------- ------- ------- ------- ------- ------- -------
Total from investment operations............... 2.85 4.01 (2.02) 2.16 .58 3.91 .84
------- ------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income -- net...................... -- -- -- -- (.06) (.17) (.23)
Realized gain on investments -- net........... (2.05) (1.55) (.95) (2.14) (1.06) (2.40) (.37)
------- ------- ------- ------- ------- ------- -------
Total dividends and distributions.............. (2.05) (1.55) (.95) (2.14) (1.12) (2.57) (.60)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of year................... $ 16.59 $ 15.79 $ 13.33 $ 16.30 $ 16.28 $ 16.82 $ 15.48
======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:*
Based on net asset value per share............ 18.80% 30.43% (12.22)% 14.60% 3.75% 26.96% 5.59%
======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses...................................... 2.06% 2.13% 1.99% 1.91% 1.92% 1.98% 2.00%
======= ======= ======= ======= ======= ======= =======
Investment income (loss) -- net............... (.58)% (.55)% (.38)% (.07)% .36% .83% 1.53%
======= ======= ======= ======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)........ $104,828 $112,239 $119,186 $396,424 $447,186 $476,106 $442,944
======= ======= ======= ======= ======= ======= =======
Portfolio turnover............................ 39.96% 67.38% 45.86% 48.63% 40.58% 48.28% 25.57%
======= ======= ======= ======= ======= ======= =======
Average Commission Rate Paid##................ $ .0277 $ -- -- -- -- -- --
======= ======= ======= ======= ======= ======= =======
<CAPTION>
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 14.94 $ 13.78 $ 16.74
------- ------- -------
Investment income (loss) -- net............... .21 .20 .15
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net......................... 1.36 2.72 (1.51)
------- ------- -------
Total from investment operations............... 1.57 2.92 (1.36)
------- ------- -------
Less dividends and distributions:
Investment income -- net...................... (.23) (.20) (.16)
Realized gain on investments -- net........... (1.04) (1.56) (1.44)
------- ------- -------
Total dividends and distributions.............. (1.27) (1.76) (1.60)
------- ------- -------
Net asset value, end of year................... $ 15.24 $ 14.94 $ 13.78
======= ======= =======
TOTAL INVESTMENT RETURN:*
Based on net asset value per share............ 9.77% 22.11% (8.63)%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses...................................... 1.93% 1.96% 1.87%
======= ======= =======
Investment income (loss) -- net............... 1.20% 1.18% .92%
======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)........ $516,402 $562,899 $669,402
======= ======= =======
Portfolio turnover............................ 15.23% 10.26% 23.03%
======= ======= =======
Average Commission Rate Paid##................ -- -- --
======= ======= =======
</TABLE>
- ---------------
* Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding during the year.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases and
sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted in U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
9
<PAGE> 12
FINANCIAL HIGHLIGHTS (CONCLUDED)
<TABLE>
<CAPTION>
CLASS C++ CLASS D++
------------------------------------------------ ------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JANUARY 31, FOR THE PERIOD JANUARY 31, FOR THE PERIOD
----------------------- OCTOBER 21, 1994+ TO ----------------------- OCTOBER 21, 1994+ TO
1997 1996 JANUARY 31, 1995 1997 1996 JANUARY 31, 1995
--------- --------- -------------------- --------- --------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Asset Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 15.71 $ 13.28 $14.08 $ 16.20 $ 13.54 $ 14.26
-------- -------- -------- -------- -------- --------
Investment income
(loss) -- net........... (.10) (.10) (.04) .04 .03 (.01)
Realized and unrealized
gain (loss) on
investments and foreign
currency
transactions -- net..... 2.94 4.08 (.54) 3.03 4.18 (.49)
-------- -------- -------- -------- -------- --------
Total from investment
operations................ 2.84 3.98 (.58) 3.07 4.21 (.50)
-------- -------- -------- -------- -------- --------
Less distributions from
realized gain on
investments -- net........ (2.08) (1.55) (.22) (2.18) (1.55) (.22)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period.................... $ 16.47 $ 15.71 $13.28 $ 17.09 $ 16.20 $ 13.54
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value
per share............... 18.80% 30.32% (4.12)%# 19.73% 31.47% (3.50)%#
======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses.................. 2.07% 2.14% 2.26%* 1.25% 1.33% 1.43%*
======== ======== ======== ======== ======== ========
Investment income
(loss) -- net........... (.61)% (.67)% (.87)%* .22% .22% (.23)%*
======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands).......... $ 8,430 $ 6,385 $ 80 $ 238,260 $ 227,908 $156,947
======== ======== ======== ======== ======== ========
Portfolio turnover........ 39.96% 67.38% 45.86% 39.96% 67.38% 45.86%
======== ======== ======== ======== ======== ========
Average Commission Rate
Paid## ................. $ .0277 -- -- $ .0277 -- --
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding during the period.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average Commission Rate Paid" includes
commissions paid in foreign currencies, which have been converted in U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
10
<PAGE> 13
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, primarily common stock. Using a thematic approach of investing in
long-term trends, management will seek to identify important investment concepts
of the future and review existing concepts to confirm their validity in meeting
the Fund's objective. As part of this thematic approach, management will seek to
identify companies whose products and services 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 Ratings Group ("S&P") or Baa by Moody's Investors 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. The Fund's investment objective is non-fundamental and may be
changed by the Board of Directors without a vote of the shareholders. 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 in securities issued by large, medium and small
capitalized companies. Investments in securities of smaller capitalized
companies involve special considerations and risks, including risks associated
with limited product lines, markets or financial and management resources; risks
associated with lesser frequency and volume of trading of stocks of smaller
capitalized issuers as compared to larger capitalized issuers and the greater
effect of abrupt or erratic price movements on smaller capitalized issuers; and
risks associated with the sensitivity of smaller capitalized issuers to market
changes.
The Fund may invest up to 25% of its assets in the securities of foreign
issuers, including issuers in foreign countries with smaller capital markets.
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.
11
<PAGE> 14
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.
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of
whom are not "interested persons" of the Fund as defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act"). 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.
The Directors of the Fund are:
ARTHUR ZEIKEL* -- President of the Investment Adviser and its affiliate,
Fund Asset Management, L.P. ("FAM"); President and Director of Princeton
Services, Inc. ("Princeton Services"); Executive Vice President of ML & Co.; and
Director of Merrill Lynch Funds Distributor, Inc. (the "Distributor").
RONALD W. FORBES -- Professor of Finance, School of Business, State
University of New York at Albany.
CYNTHIA A. MONTGOMERY -- Professor of Competition and Strategy, Harvard
Business School.
CHARLES C. REILLY -- Former Adjunct Professor, Columbia University School
of Business.
KEVIN A. RYAN -- Professor of Education, Boston University; Founder and
current Director of the Boston University Center for the Advancement of Ethics
and Character.
RICHARD R. WEST -- Dean Emeritus, 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 08536 (mailing address: P.O. Box 9011, Princeton, New Jersey
08543-9011), is owned and controlled by ML & Co., a financial services holding
company, and 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 an affiliate of the
Investment Adviser, FAM, currently serves as the investment adviser to over 140
registered investment companies. The Investment Adviser also offers portfolio
management and portfolio analysis services to individual and institutional
accounts. As of April 30, 1997, the Investment Adviser and FAM had a total of
approximately $244.2 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Investment
Adviser.
12
<PAGE> 15
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.
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 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, 1997, the fee paid by the Fund to
the Investment Adviser was $2,505,726 (based on average net assets of
approximately $385.5 million). For the fiscal year ended January 31, 1997, the
ratio of total expenses to average net assets was 1.00%, 2.06%, 2.07% and 1.25%
for Class A, Class B, Class C and Class D shares, respectively.
The Investment Adviser has entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with MLAM U.K., an indirect, wholly-owned subsidiary
of ML & Co. and an affiliate of the Investment Adviser pursuant to which the
Investment Adviser pays MLAM U.K. a fee for providing investment advisory
services to the Investment Adviser with respect to the Fund in an amount to be
determined from time to time by the Investment Adviser and MLAM U.K., but in no
event in excess of the amount that the Investment Adviser actually receives for
providing services to the Fund pursuant to the Investment Advisory Agreement.
The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
TRANSFER AGENCY SERVICES FEE
Merrill Lynch 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 up to $11.00 per Class A or Class D shareholder account and up to
$14.00 per Class B or Class C shareholder account and the Transfer Agent is
entitled to reimbursement for out-of-pocket expenses incurred by it under the
Transfer Agency Agreement. For the fiscal year ended January 31, 1997, the total
fee paid by the Fund to the Transfer Agent was $957,172.
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, 1997, the
Fund reimbursed the Investment Adviser $51,247 for accounting services.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
Investment Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on fund
investment personnel.
13
<PAGE> 16
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading in
securities. In addition, no employee may purchase or sell any security which at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" which prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15 or 30
days depending upon the transaction).
PURCHASE OF SHARES
The Distributor, an affiliate of both the Investment Adviser and Merrill
Lynch, acts as the Distributor of the shares of the Fund. Shares of the Fund are
offered continuously for sale by the Distributor and other eligible securities
dealers (including Merrill Lynch). Shares of the Fund may be purchased from
securities dealers or by mailing a purchase order directly to the Transfer
Agent. The minimum initial purchase is $1,000 and the minimum subsequent
purchase is $50, except that for retirement plans, the minimum initial purchase
is $100, and the minimum subsequent purchase is $1.
The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon the
class of shares selected by the investor under the Merrill Lynch Select
Pricing(SM) System, as described below. The applicable offering price for
purchase orders is based upon the net asset value of the Fund next determined
after receipt of the purchase orders by the Distributor. As to purchase orders
received by securities dealers prior to the close of business on the New York
Stock Exchange ("NYSE") (generally 4:00 P.M., New York time), which include
orders received after the close of business on the previous day, the applicable
offering price will be based on the net asset value determined as of 15 minutes
after the close of business on the NYSE on that day, provided the Distributor in
turn receives orders from the securities brokers prior to 30 minutes after the
close of business on the NYSE on that day. If the purchase orders are not
received prior to 30 minutes after the close of business on the NYSE, such
orders shall be deemed received on the next business day. The Fund or the
Distributor may suspend the continuous offering of the Fund's shares of any
class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any order
may be rejected by the Distributor or the Fund. Neither the Distributor nor the
dealers are permitted to withhold placing orders to benefit themselves by a
price change. Merrill Lynch may charge its customers a processing fee (presently
$5.35) 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 four classes of shares under the Merrill Lynch Select
Pricing(SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. Shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives and shares of Class B
and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the
14
<PAGE> 17
investment thereafter being subject to a CDSC and ongoing distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select Pricing(SM) System is
set forth under "Merrill Lynch Select Pricing(SM) System" on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges, distribution and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account maintenance fees
that are imposed on Class D shares, will be imposed directly against those
classes and not against all assets of the Fund and, accordingly, such charges
will not affect the net asset value of any other class or have any impact on
investors choosing another sales charge option. Dividends paid by the Fund for
each class of shares will be calculated in the same manner at the same time and
will differ only to the extent that account maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Class B, Class C and Class D shares each have
exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted
with respect to such class pursuant to which account maintenance and/or
distribution fees are paid. See "Distribution Plans" below. Each class has
different exchange privileges. See "Shareholder Services -- Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Fund. The distribution-related revenues paid
with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
15
<PAGE> 18
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(1) FEE FEE FEATURE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
- -------------------------------------------------------------------------------------------------
B CDSC for a period of 4 0.25% 0.75% B shares convert to
years, at a rate of 4.0% D shares automatically
during the first year, after approximately
decreasing 1.0% annually to eight years(5)
0.0%(4)
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- -------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(3)
- -------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives -- Class A and Class D Shares -- Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans in connection with certain fee-based
programs. Class A and Class D share purchases of $1,000,000 or more may not
be subject to an initial sales charge but if the initial sales charge is
waived, may be subject to a 1.0% CDSC for one year. A .75% sales charge for
401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with redemptions to fund
participation in certain fee-based programs.
(5) The conversion period for dividended reinvestment shares and the conversion
and holding periods for certain retirement plans was modified. Also, Class B
shares of certain other MLAM-advised mutual funds into which exchanges may
be made have a ten-year conversion period. If Class B shares of the Fund are
exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked
onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with redemptions to fund participation
in certain fee-based programs.
16
<PAGE> 19
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A rather than Class D shares
because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below:
<TABLE>
<CAPTION>
SALES LOAD AS DISCOUNT TO
SALES LOAD AS PERCENTAGE* SELECTED DEALERS
PERCENTAGE OF OF THE NET AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED THE OFFERING PRICE
- ---------------------------------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Less than $25,000............................. 5.25% 5.54% 5.00%
$25,000 but less than $50,000................. 4.75 4.99 4.50
$50,000 but less than $100,000................ 4.00 4.17 3.75
$100,000 but less than $250,000............... 3.00 3.09 2.75
$250,000 but less than $1,000,000............. 2.00 2.04 1.80
$1,000,000 and over**......................... 0.00 0.00 0.00
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more and on Class A purchases in connection with certain
investment programs. If the sales charge is waived in connection with a
purchase of $1,000,000 or more of the Fund, such purchases will be subject to
a CDSC of 1.0% if the shares are redeemed within one year after purchase. The
charge is assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. A sales charge of 0.75%
will be charged on purchases of $1,000,000 or more of Class A or Class D
shares by certain Employer Sponsored Retirement or Savings Plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act of 1933,
as amended (the "Securities Act"). During the fiscal year ended January 31,
1997, the Fund sold 1,845,808 Class A shares for aggregate net proceeds of
$31,115,024. The gross sales charges for the sale of Class A shares of the Fund
for that year were $8,522, of which $639 and $7,883 were received by the
Distributor and Merrill Lynch, respectively. No CDSCs were received with respect
to Class A shares for which the initial sales charge was waived during the
fiscal year ended January 31, 1997. During the fiscal year ended January 31,
1997, the Fund sold 299,900 Class D shares for aggregate net proceeds of
$5,100,435. The gross sales charges for the sale of Class D shares of the Fund
for that year were $45,631, of which $2,872 and $42,759 were received by the
Distributor and Merrill Lynch, respectively. For the same period, no CDSCs were
received with respect to Class D shares for which the initial sales charge was
waived.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account, including participants in the Merrill Lynch
Blueprint(SM) Program, are entitled to purchase additional Class A shares of the
Fund in that account. Certain Employer Sponsored
17
<PAGE> 20
Retirement or Savings Plans, including eligible 401(k) plans, may purchase Class
A shares at net asset value provided such plans meet the required minimum number
of eligible employees or required amount of assets advised by MLAM or any of its
affiliates. Class A shares are available at net asset value to corporate
warranty insurance reserve fund programs provided that the program has $3
million or more initially invested in MLAM-advised mutual funds. Also eligible
to purchase Class A shares at net asset value are participants in certain
investment programs including TMA(SM) Managed Trusts to which Merrill Lynch
Trust Company provides discretionary trustee services, collective investment
trusts for which Merrill Lynch Trust Company serves as trustee and certain
purchases made in connection with certain fee-based programs. In addition, Class
A shares are offered at net asset value to ML & Co. and its subsidiaries and
their directors and employees and to members of the Boards of MLAM-advised
investment companies, including the Fund. Certain persons who acquired shares of
certain MLAM-advised closed-end funds in their initial offerings who wish to
reinvest the net proceeds from a sale of their closed-end fund shares of common
stock in shares of the Fund also may purchase Class A shares of the Fund if
certain conditions set forth in the Statement of Additional Information are met
(for closed-end funds that commenced operations prior to October 21, 1994). In
addition, Class A shares of the Fund and certain other MLAM-advised mutual funds
are offered at net asset value to shareholders of Merrill Lynch Senior Floating
Rate Fund, Inc. ("Senior Floating Rate Fund") and if certain conditions set
forth in the Statement of Additional Information are met, to shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. ("Municipal Strategy Fund") and
Merrill Lynch High Income Municipal Bond Fund, Inc. ("High Income Fund") who
wish to reinvest the net proceeds from a sale of certain of their shares of
common stock pursuant to a tender offer conducted by such funds in shares of the
Fund and certain other MLAM-advised mutual funds.
Shareholders already owning Class A shares who wish to reinvest the net
proceeds from a tender of the High Income Fund or the Municipal Strategy Fund
may purchase Class A shares at net asset value rather than Class D shares
provided that (i) the shares to be purchased are held in the same account as the
Class A shares that the shareholder already owns, and (ii) all other
requirements pertaining to the reinvestment privilege are met.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges also
may be reduced under a Right of Accumulation and a Letter of Intention. Class A
shares are offered at net asset value to certain eligible Class A investors as
set forth above under "Eligible Class A Investors." See "Shareholder
Services -- Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A or Class
D shares are offered at net asset value to Employee Access(SM) Accounts
available through authorized employers. Subject to certain conditions, Class A
and Class D shares are offered at net asset value to shareholders of Municipal
Strategy Fund and High Income Fund and Class A shares are offered at net asset
value to shareholders of Senior Floating Rate Fund who wish to reinvest in
shares of the Fund the net proceeds from a sale of certain of their shares of
common stock, pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value 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.
Class D shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies.
18
<PAGE> 21
Class D shares also are offered at net asset value, without sales charge, to an
investor who has a business relationship with a Merrill Lynch Financial
Consultant if certain conditions set forth in the Statement of Additional
Information are met.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES -- CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four-year CDSC,
while Class C shares are subject only to a one year 1.00% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted to Class D shares of the Fund and
thereafter will be subject to lower continuing fees. See "Conversion of Class B
Shares to Class D Shares" below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and a distribution fee of
0.75% of net assets as discussed below under "Distribution Plans."
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares, from its own funds. The combination of the CDSC and
the ongoing distribution fee facilitates the ability of the Fund to sell the
Class B and Class C shares without a sales charge being deducted at the time of
purchase. Approximately eight years after issuance, Class B shares will convert
automatically to Class D shares of the Fund, which are subject to an account
maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert to Class D
shares automatically after approximately ten years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges." The proceeds from the ongoing account
maintenance fee are used to compensate Merrill Lynch for providing continuing
account maintenance activities. Class B shareholders of the Fund exercising the
exchange privilege described
19
<PAGE> 22
under "Shareholder Services -- Exchange Privilege" will continue to be subject
to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges -- Class B Shares. Class B shares which
are redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ----------------------------------------------------------------------------- -----------------
<S> <C>
0-1.......................................................................... 4.00%
1-2.......................................................................... 3.00%
2-3.......................................................................... 2.00%
3-4.......................................................................... 1.00%
4 and thereafter............................................................. 0.00%
</TABLE>
For the fiscal year ended January 31, 1997, the Distributor received CDSCs
of $261,117 with respect to redemptions of Class B shares, all of which were
paid to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over four years or shares acquired pursuant to reinvestment
of dividends or distributions and then of shares held longest during the
four-year period. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase. A transfer from a
shareholder's account to another account will be assumed to be made in the same
order as a redemption.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC because of dividend reinvestment. With respect to
the remaining 40 shares, the CDSC is applied only to original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.00% (the
applicable rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended (the "Code")) of a
shareholder. The Class B CDSC also is waived on redemptions of shares by certain
eligible 401(a) and eligible 401(k) plans and in connection with certain group
plans placing orders through the Merrill Lynch Blueprint(SM) Program. The CDSC
also is waived for any Class B shares that are purchased by eligible 401(k) or
eligible
20
<PAGE> 23
401(a) plans that are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied IRA and held in such account at the time of redemption. The
Class B CDSC also is waived for any Class B shares that are purchased by a
Merrill Lynch rollover IRA that was funded by a rollover from a terminated
401(k) plan managed by the MLAM Private Portfolio Group and held in such account
at the time of redemption. The Class B CDSC also is waived for any Class B
shares which are purchased within qualifying Employee Access(SM) Accounts.
Additional information concerning the waiver of the Class B CDSC is set forth in
the Statement of Additional Information. The terms of the CDSC may be modified
in connection with redemptions to fund participation in certain fee-based
programs. See "Shareholder Services -- Fee-Based Programs."
Contingent Deferred Sales Charges -- Class C Shares. Class C shares that
are redeemed within one year of purchase may be subject to a 1.0% CDSC charged
as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed
on increases in net asset value above the initial purchase price. In addition,
no Class C CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions. No Class C CDSC will be assessed in
connection with redemption to fund participation in certain fee-based programs.
See "Shareholder Services -- Fee-Based Programs."
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
For the fiscal year ended January 31, 1997, the Distributor received CDSCs
of $5,359 with respect to redemptions of Class C shares, all of which were paid
to Merrill Lynch.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
to Class D shares of the Fund. Class D shares are subject to an ongoing account
maintenance fee of 0.25% of net assets but are not subject to the distribution
fee that is borne by Class B shares. Automatic conversion of Class B shares to
Class D shares will occur at least once each month (on the "Conversion Date") on
the basis of the relative net asset values of the shares of the two classes on
the Conversion Date, without the imposition of any sales load, fee or other
charge. Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
21
<PAGE> 24
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be "tacked" onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value per
share.
The Conversion Period also may be modified for retirement plan investors
who participate in certain fee-based programs. See "Shareholder
Services -- Fee-Based Programs."
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each, a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees, and the Class D Distribution Plan provides for the
payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer
22
<PAGE> 25
to compensate its financial consultants in connection with the sale of the Class
B and Class C shares. In this regard, the purpose and function of the ongoing
distribution fees and the CDSC are the same as those of the initial sales charge
with respect to the Class A and Class D shares of the Fund in that the deferred
sales charges provide for the financing of the distribution of the Fund's Class
B and Class C shares.
For the fiscal year ended January 31, 1997, the Fund paid the Distributor
$1,082,188 pursuant to the Class B Distribution Plan (based on average net
assets subject to such Class B Distribution Plan of approximately $108.2
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. For the fiscal year ended January 31, 1997, the Fund paid the
Distributor $77,537 pursuant to the Class C Distribution Plan (based on average
net assets subject to such Class C Distribution Plan of approximately $7.8
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class C shares. For the fiscal year ended January 31, 1997, the Fund paid the
Distributor $576,549 pursuant to the Class D Distribution Plan (based on average
net assets subject to such Class D Distribution Plan of approximately $230.6
million), all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D shares.
The payments under the Distribution Plans are based upon a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSC and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs
and the expenses consist of financial consultant compensation. With respect to
Class B shares, as of December 31, 1996, the last date for which fully allocated
accrual data is available, the fully allocated accrual revenues incurred by the
Distributor and Merrill Lynch since the Class B shares commenced operations on
March 5, 1984 exceeded fully allocated accrual expenses for such period by
approximately $12,923,000 (12.55% of Class B net assets at that date). For the
Class C shares, as of December 31, 1996, the fully allocated accrual revenues
incurred by the Distributor and Merrill Lynch since the Class C shares commenced
operations exceeded fully allocated accrual expenses for such period by
approximately $5,000 (.06% of Class C assets at that date). As of January 31,
1997, direct cash revenues for the period since commencement of the offering of
Class B shares exceeded direct cash expenses by $46,642,692 (44.49% of Class B
net assets at that date). With respect to Class C shares, as of January 31,
1997, direct cash revenues for the period since October 21, 1994 (commencement
of operations) exceeded direct cash expenses by $77,138 (.92% of Class C net
assets at that date).
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Fund will approve the continuance of the Distribution
Plans from year to year. However, the Distributor intends to seek annual
continuation of the Distribution Plans. In
23
<PAGE> 26
their review of the Distribution Plans, the Directors will be asked to take into
consideration expenses incurred in connection with the account maintenance
and/or distribution of each class of shares separately. The initial sales
charges, the account maintenance fee, distribution fee and/or the CDSCs received
with respect to one class will not be used to subsidize the sale of shares of
another class. Payments of the distribution fee on Class B shares will terminate
upon conversion of those Class B shares into Class D shares as set forth under
"Deferred Sales Charge Alternatives -- Class B and Class C Shares -- Conversion
of Class B Shares to Class D Shares."
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the NASD Conduct Rules imposes a
limitation on certain asset-based sales charges such as the distribution fee and
the CDSC borne by the Class B and Class C shares, but not the account
maintenance fee. The maximum sales charge rule is applied separately to each
class. As applicable to the Fund, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend reinvestment
and exchanges), plus (2) interest on the unpaid balance for the respective
class, computed separately, at the prime rate plus 1% (the unpaid balance being
the maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In
certain circumstances, the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances payment
in excess of the amount payable under the NASD formula will not be made.
REPURCHASE AND REDEMPTION OF SHARES
The Fund is required to redeem for cash all 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 CDSC which may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost, depending on
the market value of the securities held by the Fund at such time.
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 applicable CDSC, provided
that the request for repurchase is received by the dealer prior to the close of
business on the NYSE (generally 4:00 P.M., New
24
<PAGE> 27
York time) on the day received, and such request is received by the Fund from
such dealer not later than 30 minutes after the close of business on the NYSE on
the same day.
These repurchase arrangements are for the convenience of shareholders and
do not involve a charge by the Fund (other than any applicable CDSC); however,
non-affiliated securities dealers may impose a service charge on the shareholder
for effecting such repurchases. Merrill Lynch may charge its customers a
processing fee (presently $5.35) to confirm the repurchase of shares to such
customers. Repurchases directly through the Transfer Agent are not subject to
the processing fee. The Fund reserves the right to reject any order for
repurchase, which right of rejection might adversely affect shareholders seeking
redemption through the repurchase procedure. 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 Transfer Agent, Merrill Lynch Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Redemption requests should not be sent to the Fund. Except
for any CDSC which may be applicable, 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.
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REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D shares of
the Fund, as the case may be, at net asset value without a sales charge up to
the dollar amount redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount to be reinstated
to the Transfer Agent within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor's Merrill Lynch
Financial Consultant within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. The reinstatement will be
made at the net asset value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the redemption
proceeds.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
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, at least quarterly, statements from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gain distributions.
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 or Class D shares from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class A or Class D shares are to be transferred will not take delivery
of shares of the Fund, a shareholder either must redeem the Class A or Class D
shares (paying any applicable CDSC) so that the cash proceeds can be transferred
to the account at the new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class A or Class D shares.
Shareholders interested in transferring their Class B or Class C shares from
Merrill Lynch and who do not wish to have an Investment Account maintained for
such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage firm
for the benefit of the shareholder at the Transfer Agent. 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
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shareholder must either redeem the shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement account at Merrill Lynch for
those shares.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
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 whose account is maintained
through the Transfer Agent 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. A shareholder whose account is accepted through Merrill Lynch may, at any
time, by notice to Merrill Lynch, elect to have both dividends and capital gains
distributions paid in cash, rather than reinvested. Cash payments can also be
directly deposited to the shareholder's bank account. No CDSC will be imposed on
redemption of shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions.
SYSTEMATIC WITHDRAWAL PLANS
A Class A or Class D shareholder may elect to receive systematic withdrawal
payments from 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 or Class D shareholder
whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect to
have shares redeemed on a monthly, bi-monthly, quarterly, semi-annual or annual
basis through the Systematic Redemption Program, subject to certain conditions.
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C or Class D shares may be
made to an investor's Investment Account by pre-arranged charges of $50 or more
to his regular bank account. Investors who maintain CMA(R) or CBA(R) accounts
may arrange to have periodic investments made to the Fund in their CMA(R) or
CBA(R) accounts or in certain related accounts in amounts of $100 or more
through the CMA(R) or CBA(R) Automated Investment Program.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares which will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of shares
held therein or the
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<PAGE> 30
automatic exchange thereof to another class at net asset value, which may be
shares of a money market fund. In addition, upon termination of participation in
a Program, shares that have been held for less than specified periods within
such Program may be subject to a fee based upon the current value of such
shares. These Programs also generally prohibit such shares from being
transferred to another account at Merrill Lynch, to another broker-dealer or to
the Transfer Agent. Except in limited circumstances (which may also involve an
exchange as described above), such shares must be redeemed and another class of
shares purchased (which may involve the imposition of initial or deferred sales
charges and distribution and account maintenance fees) in order for the
investment not to be subject to Program fees. Additional information regarding a
specific Program (including charges and limitations on transferability
applicable to shares that may be held in such Program) is available in the
Program's client agreement and from Merrill Lynch Investor Services at (800)
MER-FUND (637-3863).
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 $100 and the minimum subsequent
purchase is $1.
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 CDSC)
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
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated at any time in
accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing(SM) System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his or her account in which the exchange is made at the time of the exchange or
is otherwise eligible to purchase Class A shares of the second fund. If the
Class A shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, and the shareholder does not hold Class A shares of
the second fund in his or her account at the time of the exchange and is not
otherwise eligible to acquire Class A shares of the second fund, the shareholder
will receive Class D shares of the second fund as a result of the exchange.
Class D shares also may be exchanged for Class A shares of a second MLAM-advised
mutual fund at any time as long as, at the time of the exchange, the shareholder
holds Class A shares of the second fund in the account in which the exchange is
made or is otherwise eligible to purchase Class A shares of the second fund.
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Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable for shares of the same
class of other MLAM-advised mutual funds.
Shares of the Fund that are subject to a CDSC are exchangeable on the basis
of relative net asset value per share without the payment of any CDSC that might
otherwise be due upon redemption of the shares of the Fund. For purposes of
computing the CDSC that may be payable upon a disposition of the shares acquired
in the exchange, the holding period for the previously owned shares of the Fund
is 'tacked' to the holding period for the newly acquired shares of the other
fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services -- Exchange Privilege" in the
Statement of Additional Information.
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 each class of shares will be
reduced as a result of any account maintenance, distribution and transfer agency
fees applicable to that class. See "Additional Information -- Determination of
Net Asset Value."
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. Dividends and distributions are taxable to
shareholders as described below whether they are reinvested in shares of the
Fund or received in cash.
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 qualify as a regulated investment company
("RIC") under 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 dividends and distributions even
though a shareholder chooses to reinvest any dividends and distributions in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gains
distributions. A portion of the Fund's ordinary income dividends may be eligible
for the dividends received deduction allowed to corporate shareholders under the
Code, if certain requirements are met. If the Fund pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a date during one of such months, 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
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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 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.
If 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 sales charge paid to the Fund
reduces any sales charge that would have been owed upon the purchase of the new
shares in the absence of the exchange privilege. Instead, such sales will be
treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date the shares are disposed of. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
A loss on the sale or exchange of shares of the Fund held by a shareholder
for less than six months will be a capital loss to the extent of any long-term
capital gains distributions paid with respect to such shares.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
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
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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.
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.
Like investment in foreign markets generally, investment in foreign
countries with smaller capital markets involves risks not involved in domestic
investment, including fluctuations in foreign exchange rates, less liquidity and
greater price volatility in these markets, future political and economic
developments, different legal systems and the existence or possible imposition
of exchange contracts or other foreign or U.S. governmental laws or restrictions
applicable to such investments. However, the risks associated with foreign
investment are heightened for investments in smaller capital markets.
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,
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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.
Illiquid Securities
The Fund may invest up to 15% of its total assets in illiquid securities.
Pursuant to that restriction the Fund may not invest in securities which cannot
be readily resold because of legal or contractual restrictions or which cannot
otherwise be marketed, redeemed, put to the issuer or a third party, or which do
not mature within seven days, or which the Board of Directors has not determined
to be liquid, if, regarding all such securities, more than 15% of its total
assets, taken at market value, would be invested in such securities.
The Fund may purchase, without regard to the above limitation, securities
that are not registered under the Securities Act of 1933, as amended (the
"Securities Act") but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Fund's Board
of Directors, or the Manager pursuant to guidelines adopted by the Board,
continuously determines, based on the trading markets for the specific Rule 144A
security, that it is liquid. The Board of Directors, however, will retain
oversight and is ultimately responsible for the determinations. Since it is not
possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Board of Directors
will carefully monitor the Fund's investments in these securities, focusing on
such factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these securities.
Investment Restrictions
The Fund has adopted certain investment restrictions which may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act. Among
its more significant restrictions, the Fund may not:
- With respect to 75% of its total assets, invest more than 5% of its
assets in the securities of any one issuer 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, except that such restrictions shall not
apply to securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities.
- 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) borrow amounts in excess of
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5% of the value of the Fund's assets; (2) 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; (3)
invest more than 5% of its assets in companies having a record, together
with its predecessors, of less than three years of continuous operation, if
more than 5% of the Fund's assets would be invested in such securities; or
(4) invest in securities which can not be readily resold because of legal
or contractual restrictions, or which can not be marketed, redeemed or put
to the issuer or a third party, if at the time of the acquisition more than
15% of its total assets (or 10% to the extent required by state law) would
be invested in such securities.
The full text of the Fund's investment restrictions is set forth under
"Investment Objective and Policies -- Investment Restrictions" in the Statement
of Additional Information.
ADDITIONAL INFORMATION
DETERMINATION OF NET ASSET VALUE
Net asset value per share for all classes is computed once daily as of 15
minutes after the close of business on the NYSE (generally 4:00 P.M., New York
time) on each day the NYSE is open for trading. Any assets or liabilities
initially expressed in terms of non-U.S. dollar currencies will be translated
into U.S. dollars at the prevailing market rates as quoted by one or more banks
or dealers on the day of valuation. Net asset value per share 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 Class A shares
generally will be higher than the per share net asset value of shares of the
other classes, reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to Class B
and Class C shares and the daily expense accruals of the account maintenance
fees applicable with respect to Class D shares; moreover, the per share net
asset value of Class D shares generally will be higher than the per share net
asset value of Class B and Class C shares, reflecting the daily expense accruals
of the distribution and higher transfer agency fees applicable with respect to
Class B and Class C shares. It is expected, however, that the per share net
asset value of the classes will tend to converge (although not necessarily meet)
immediately after the payment of dividends or distributions which will differ by
approximately the amount of the expense accrual differential among the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of valuation. Portfolio
securities which are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market. When the Fund
writes an option, the amount of the premium received is recorded on the books of
the Fund as an asset and an equivalent liability. The amount of the liability is
subsequently valued to reflect the current market value of the option written,
based upon the last sale price in the case of exchange-traded options or, in
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the case of options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at their last sale price in the case of
exchange-traded options or in the case of options traded in the OTC market, the
last bid price. Other investments, including futures contracts and related
options, are stated at market value. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund
including valuations furnished by a pricing service retained by 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, Class B, Class C
and Class D shares in accordance with a formula specified by the Securities and
Exchange Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B and
Class C shares and the maximum initial sales charge in the case of Class A and
Class D shares. Dividends paid by the Fund with respect to all shares, to the
extent any dividends are paid, will be calculated in the same manner at the same
time on the same day and will be in the same amount, except that account
maintenance fees and distribution charges and any incremental transfer agency
costs relating to each class of shares will be borne exclusively by that class.
The Fund will include performance data for all classes of shares of the Fund in
any advertisement or information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return and (2) the maximum applicable sales 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 waiver of
the CDSC in the case of Class B and Class C shares (such as investors in certain
retirement plans) or reduced sales charges in the case of Class A and Class D
shares, performance data may take into account the reduced, and not the maximum,
sales charge or may not take into account the CDSC and therefore may reflect
greater total return since, due to the reduced sales charges or waiver of the
CDSC, a lower amount of expenses may be deducted. See "Purchase of Shares." The
Fund's total return may be expressed either as a percentage or as a dollar
amount in order to illustrate the effect of such total return on a hypothetical
$1,000 investment in the Fund at the beginning of each specified period.
35
<PAGE> 38
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 indicative 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.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on October 5, 1983. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Class A, Class B,
Class C and Class D Common Stock represent interests in the same assets of the
Fund and are identical in all respects except that Class B, Class C and Class D
shares bear certain expenses related to the account maintenance associated with
such shares and Class B and Class C shares bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with respect
to matters relating to account maintenance and distribution expenditures, as
applicable. See "Purchase of Shares." The Fund has received an order from the
Commission permitting the issuance and sale of multiple classes of Common Stock.
The Directors of the Fund may classify and reclassify the shares of the Fund
into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and 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
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 rights. Shares
have the conversion rights described in this Prospectus. Each share of Common
Stock is entitled to participate equally in dividends and distributions declared
by the Fund and in the net assets of the Fund upon liquidation or dissolution
after satisfaction of outstanding liabilities, except that, as noted above, the
Class B, Class C and Class D shares bear certain additional expenses.
36
<PAGE> 39
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:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
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 Merrill Lynch Financial Data Services, Inc. at 800-637-3863.
37
<PAGE> 40
(This page intentionally left blank)
38
<PAGE> 41
MERRILL LYNCH FUND FOR TOMORROW, INC. -- AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
Note: This form may not be used for purchases through the Merrill Lynch
Blueprint(SM) Program. You may request a Merrill Lynch Blueprint(SM)
Program application by calling toll free (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[ ] Class A shares [ ] Class B shares [ ] Class C shares [ ] Class D
shares
of Merrill Lynch Fund For Tomorrow, Inc. and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $......... payable to Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). I
understand that this purchase will be executed at the applicable
offering price next to be determined after this Application is
received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the
Statement of Additional Information: (Please list all funds. Use a
separate sheet of paper if necessary.)
<TABLE>
<S> <C> <C> <C>
1. ..................................................... 4. ...................................................
2. ..................................................... 5. ...................................................
3. ..................................................... 6. ...................................................
</TABLE>
Name ...........................................................................
First Name Initial Last Name
Name of Co-Owner (if
any) ...........................................................................
First Name Initial Last
Name
<TABLE>
<S> <C>
Address.................................................
........................................................ Name and Address of Employer............................
(Zip Code)
Occupation.............................................. ........................................................
........................................................ ........................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
<TABLE>
<S> <C>
Ordinary Income Dividends Long-Term Capital Gains
------------------------------------ ------------------------------------
Select [ ] Reinvest Select [ ] Reinvest
One: [ ] Cash One: [ ] Cash
------------------------------------ ------------------------------------
</TABLE>
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU:
[ ] Check or [ ] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Fund For Tomorrow, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE): [ ] checking [ ] savings
<TABLE>
<S> <C>
Name on your Account...............................................................................................
Bank Name..........................................................................................................
Bank Number............................................. Account Number..........................................
Bank Address.......................................................................................................
</TABLE>
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
<TABLE>
<S> <C>
Signature of Depositor.............................................................................................
Signature of Depositor.................................. Date....................................................
(If joint account, both must sign)
</TABLE>
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY
THIS APPLICATION.
39
<PAGE> 42
MERRILL LYNCH FUND FOR TOMORROW, INC. --
AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Additional Information -- Taxes") either because I have not been notified that
I am subject thereto as a result of a failure to report all interest or
dividends, or the Internal Revenue Service ("IRS") has notified me that I am no
longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
<TABLE>
<S> <C>
............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
19
------------------- ------
Date of initial purchase
Dear Sir/Madam:
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 the Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13-month period which will
equal or exceed:
[ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Fund For Tomorrow,
Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Fund For Tomorrow, Inc. held as security.
<TABLE>
<S> <C>
By:.............................................................. ...............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint parties, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name ................................................... (2) Name....................................................
Account Number ............................................. Account Number..............................................
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
- --- Branch Office, Address, Stamp ---
- --- ---
This form when completed should be mailed to:
Merrill Lynch Fund For Tomorrow, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases or sales made under a Letter of Intention,
Automatic Investment Plan or Systematic Withdrawal Plan. We guarantee the
Shareholder's signature.
...............................................................
Dealer Name and Address
By ............................................................
Authorized Signature of Dealer
<TABLE>
<S> <C> <C>
- --------- ------------
..............................
- --------- ------------
Branch-Code F/C No. F/C Last Name
- --------- ---------------
- --------- ---------------
Dealer's Customer Account No.
</TABLE>
40
<PAGE> 43
MERRILL LYNCH FUND FOR TOMORROW, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C>
------------------------------------
Name of Owner....................................................................... ------------------------------------
First Name Initial Last Name Social Security No.
or Taxpayer Identification No.
Name of Co-Owner (if any)...........................................................
First Name Initial Last Name
Address.............................................................................
.................................................................................... Account Number...........................
(Zip Code) (if existing account)
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN -- CLASS A AND D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [ ] Class A or [ ] Class D shares in Merrill Lynch Fund For
Tomorrow, Inc. at cost or current offering price. Withdrawals to be made either
(check one) [ ] Monthly on the 24th day of each month, or [ ] Quarterly on the
24th day of March, June, September and December. If the 24th falls on a weekend
or holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on ________________or as soon as possible thereafter.
(month)
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): [ ]
$________ or [ ] ____% of the current value of [ ] Class A or [ ] Class D shares
in the account.
SPECIFY WITHDRAWAL METHOD: [ ] check or [ ] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
[ ] as indicated in Item 1.
[ ] to the order of..........................................................
Mail to (check one)
[ ] the address indicated in Item 1.
[ ] Name (please print)......................................................
Address.........................................................................
...........................................................................
Signature of Owner..............................................................
Date............................................................................
Signature of Co-Owner (if any)..................................................
(b) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): [ ] checking [ ] savings
Name on your Account............................................................
Bank Name.......................................................................
Bank Number .............................................................
Account Number..................................................................
Bank Address....................................................................
......................................................................
Signature of Depositor..........................................................
Date............................................................................
Signature of Depositor..........................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
41
<PAGE> 44
MERRILL LYNCH FUND FOR TOMORROW, INC. --
AUTHORIZATION FORM (PART 2) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase: (choose one)
[ ] Class A shares [ ] Class B shares
[ ] Class C shares [ ] Class D shares
of Merrill Lynch Fund For Tomorrow, Inc. subject to the terms set forth below.
In the event that I am not eligible to purchase Class A shares, I understand
that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Fund For Tomorrow, Inc. as indicated below:
Amount of each ACH debit $...................................................
Account Number...............................................................
Please date and invest ACH debits on the 20th of each month
beginning ________________ or as soon thereafter as possible.
(month)
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such check or debit. If I change banks or desire to
terminate or suspend this program, I agree to notify you promptly in writing. I
hereby authorize you to take any action to correct erroneous ACH debits of my
bank account or purchases of Fund shares including liquidating shares of the
Fund and credit my bank account. I further agree that if a debit is not honored
upon presentation, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS DRAWN BY
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .......... State .......... Zip Code.......................................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
................. .......................................
Date Signature of Depositor
................. .......................................
Bank Account Signature of Depositor
Number (If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
42
<PAGE> 45
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
The Bank of New York
90 Washington Street, 12th Floor
New York, New York 10286
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
<PAGE> 46
- ------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE INVESTMENT ADVISER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................... 2
Merrill Lynch Select Pricing(SM) System...... 3
Financial Highlights......................... 8
Investment Objective and Policies............ 11
The Fund and Its Management.................. 12
Board of Directors......................... 12
Advisory Fee............................... 13
Transfer Agency Services Fee............... 13
Reimbursement for Portfolio Accounting
Services................................. 13
Code of Ethics............................. 13
Purchase of Shares........................... 14
Initial Sales Charge Alternatives --
Class A and Class D Shares............... 17
Deferred Sales Charge Alternatives --
Class B and Class C Shares............... 19
Distribution Plans......................... 22
Limitations on the Payment of Deferred
Sales Charges............................ 24
Repurchase and Redemption of Shares.......... 24
Repurchase................................. 24
Redemption................................. 25
Reinstatement Privilege --
Class A and Class D Shares............... 26
Shareholder Services......................... 26
Investment Account......................... 26
Automatic Reinvestment of Dividends and
Capital Gains Distributions.............. 27
Systematic Withdrawal Plans................ 27
Automatic Investment Plans................. 27
Fee-Based Programs......................... 27
Retirement Plans........................... 28
Exchange Privilege......................... 28
Dividends, Distributions and Taxes........... 29
Investment Practices and Restrictions........ 31
Additional Information....................... 34
Determination of Net Asset Value........... 34
Performance Data........................... 35
Organization of the Fund................... 36
Shareholder Inquiries...................... 37
Shareholder Reports........................ 37
Authorization Form........................... 39
Code #10227-0597
</TABLE>
[MERRILL LYNCH LOGO]
MERRILL LYNCH
FUND FOR
TOMORROW, INC.
PROSPECTUS [MLYNCH COMPASS]
May 23, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 47
STATEMENT OF ADDITIONAL INFORMATION
- ---------------------------------------------------------
MAY 23, 1997
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. The Fund is designed primarily, but not
exclusively, for younger investors who desire a long-term investment in the
stock market.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Fund offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant circumstances.
------------------------
A Prospectus for the Fund dated May 23, 1997, 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 9081, Princeton, New Jersey 08543-9081, (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> 48
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 Ratings Group ("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., doing business as Merrill Lynch Asset
Management ("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 140 registered investment
companies. The Investment Advisor also offers portfolio management and portfolio
analysis services to individual and institutional accounts. The Investment
Adviser is a Delaware limited partnership and is owned and controlled by Merrill
Lynch & Co., Inc., a financial services holding company and the parent company
of Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch") ("ML & Co.").
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.
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
2
<PAGE> 49
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 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 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, as amended (the "Investment
Company 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 Investment Company 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. For the Fund's fiscal years ended January 31, 1997, 1996
and 1995, the Investment Adviser earned a fee of $2,505,726, $2,147,843, and
$2,169,115, respectively, from the Fund.
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. and Princeton Services are
"controlling persons" of the Investment Adviser as defined under the Investment
Company Act because of their ownership of its voting securities or their power
to exercise a controlling influence over its management or policies.
The Investment Adviser has entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with MLAM U.K., an indirect, wholly-owned subsidiary
of ML & Co., and an affiliate of the Investment Adviser pursuant to which the
Investment Adviser pays MLAM U.K. a fee for providing investment advisory
services to the Investment Adviser with respect to the Fund in an amount to be
determined from time to time by the Investment Adviser and MLAM U.K. but in no
event in excess of the amount that the Investment Adviser actually receives for
providing services to the Fund pursuant to the Investment Advisory Agreement.
The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y 9HA, England.
3
<PAGE> 50
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 (64) -- President and Director (1)(2) -- President of the
Investment Adviser (which term as used herein includes its corporate
predecessors) since 1977; President of FAM (which term, as used herein, includes
its corporate predecessors) since 1977; President and Director of Princeton
Services, Inc. ("Princeton Services") since 1993; Executive Vice President of
Merrill Lynch & Co., Inc. ("ML & Co.") since 1990; Director of Merrill Lynch
Funds Distributor, Inc. (the "Distributor") since 1977.
RONALD W. FORBES (56) -- Director (2) -- 1400 Washington Avenue, Albany,
New York 12222. Professor of Finance, School of Business, State University of
New York at Albany, since 1989.
CYNTHIA A. MONTGOMERY (44) -- Director (2) -- Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 20163. Professor, Harvard Business
School since 1989; Associate Professor, J.L. Kellogg Graduate School of
Management, Northwestern University from 1985 to 1989; Assistant Professor,
Graduate School of Business Administration, The University of Michigan from 1979
to 1985; Director, UNUM Corporation since 1990 and Director of Newell Co. since
1995.
CHARLES C. REILLY (65) -- Director (2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to 1990;
Partner, Small Cities Cable Television since 1986.
KEVIN A. RYAN (64) -- Director (2) -- 127 Commonwealth Avenue, Chestnut
Hill, Massachusetts 02167. Founder and current Director of The Boston University
Center for the Advancement of Ethics and Character; Professor of Education at
Boston University since 1982; formerly taught on the faculties of The University
of Chicago, Stanford University and Ohio State University.
RICHARD R. WEST (59) -- Director (2) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, Dean from 1984 to 1993, and currently Dean
Emeritus of New York University Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. (financial printers), Vornado,
Inc. (real estate holding company), and Alexander's, Inc. (real estate company).
TERRY K. GLENN (56) -- Executive Vice President (1)(2) -- Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice President
and Director of Princeton Services since 1993; President of the Distributor
since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
NORMAN R. HARVEY (63) -- Senior Vice President (1)(2) -- Senior Vice
President of the Investment Adviser and FAM since 1982; Senior Vice President of
Princeton Services since 1993.
4
<PAGE> 51
VINCENT P. DILEO (58) -- Vice President (1) -- Portfolio Manager of the
Investment Adviser since 1984.
DONALD C. BURKE (36) -- Vice President (1)(2) -- Vice President and
Director of Taxation of the Investment Adviser since 1990.
GERALD M. RICHARD (48) -- Treasurer (1)(2) -- Senior Vice President and
Treasurer of the Investment Adviser and FAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981; Treasurer since 1984 and employee of the Distributor
since 1978.
SUSAN B. BAKER (39) -- Secretary (1) -- Vice President of the Investment
Adviser since 1993; attorney associated with the Investment Adviser since 1987.
- ---------------
(1) Interested person, as defined in the Investment Company 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
April 30, 1997 an aggregate of less than 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 April 30, 1997, the officers and Directors of the Fund as a group (12
persons) owned less than 1% of the outstanding shares of the Fund. Each
non-interested 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 which consists of all the non-interested Directors a fee of
$1,000 per year. In addition, the Chairman of the Audit Committee receives an
annual fee of $1,000 for serving as Chairman of the Committee. These fees and
expenses aggregated $19,607 for the fiscal year ended January 31, 1997.
The following table sets forth the compensation paid by the Fund to the
non-interested Directors for the fiscal year ended January 31, 1997 and the
aggregate compensation paid by all investment companies advised by MLAM and its
affiliate, FAM ("MLAM/FAM Advised Funds") to the non-interested Directors for
the calendar year ended December 31, 1996.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM FUND AND
AGGREGATE PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS FUNDS PAID TO
NAME OF DIRECTOR FROM FUND PART OF FUND EXPENSES DIRECTORS(1)
- -------------------------------------------- ------------ --------------------- ----------------
<S> <C> <C> <C>
Ronald W. Forbes............................ $3,600 None $142,500
Cynthia A. Montgomery....................... $3,600 None $142,500
Charles C. Reilly........................... $4,600 None $293,833
Kevin A. Ryan............................... $3,600 None $142,500
Richard R. West............................. $3,600 None $269,833
</TABLE>
- ---------------
(1) The Directors serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Forbes (24 registered investment companies consisting of 37 portfolios); Ms.
Montgomery (24 registered investment companies consisting of 37 portfolios);
Mr. Reilly (42 registered investment companies consisting of 55 portfolios);
Mr. Ryan (24 registered investment companies consisting of 37 portfolios);
and Mr. West (42 registered investment companies consisting of 55
portfolios).
5
<PAGE> 52
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights, except that
Class B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which the
account maintenance and/or distribution fees are paid. Each class has different
exchange privileges. See "Shareholder Services -- Exchange Privilege."
The Merrill Lynch Select Pricing(SM) System is used by more than 50
registered investment companies advised by MLAM or its affiliate, FAM. Funds
advised by MLAM or FAM that utilize the Merrill Lynch Select Pricing(SM) System
are referred to herein as "MLAM-advised mutual funds."
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Advisory Agreement described
above.
INITIAL SALES CHARGE ALTERNATIVES -- CLASS A AND CLASS D SHARES
The gross sales charges for the sale of Class A shares for the fiscal year
ended January 31, 1997 was $8,522, of which the Distributor received $639 and
Merrill Lynch received $7,883. The gross sales charges for the sale of Class A
shares for the fiscal year ended January 31, 1996 was $8,672, of which the
Distributor received $546 and Merrill Lynch received $8,126. The gross sales
charges for the sale of Class A shares for the fiscal year ended January 31,
1995 was $6,725, of which the Distributor received $354 and Merrill Lynch
received $6,371. During the fiscal years ended January 31, 1997, 1996 and 1995,
the Distributor received no CDSCs with respect to Class A shares for which the
initial sales charge was waived.
The gross sales charges for the sale of Class D shares of the Fund for the
fiscal year ended January 31, 1997 was $45,631, of which the Distributor
received $2,872 and Merrill Lynch received $42,759. The gross sales charges for
the sale of Class D shares for the fiscal year ended January 31, 1996 was
$29,595, of which the Distributor received $1,825 and Merrill Lynch received
$27,770. The gross sales charge for the sale of Class D shares of the Fund for
the fiscal period October 21, 1994 (commencement of operations) to January 31,
1995 was $9,400, of which the Distributor received $772 and Merrill Lynch
received $8,628. During the fiscal years ended January 31, 1997 and 1996 and the
fiscal period October 21, 1994 to
6
<PAGE> 53
January 31, 1995, the Distributor received no CDSCs with respect to Class D
shares for which the initial sales charge was waived.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company which has not been in existence for at least six months or
which has no purpose other than the purchase of shares of the Fund or shares of
other registered investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders of
a company, policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of other MLAM-advised mutual funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund, or any
other MLAM-advised mutual funds, made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at Merrill Lynch 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 or Class D shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward the
completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares does not equal the amount stated in the Letter
7
<PAGE> 54
of Intention (minimum of $25,000), the investor will be notified and must pay,
within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased at the reduced rate and
the sales charge applicable to the shares actually purchased through the Letter.
Class A or Class D shares equal to at least five percent of the intended amount
will be held in escrow during the 13-month period (while remaining registered in
the name of the purchaser) for this purpose. The first purchase under the Letter
of Intention must be at least five percent of the dollar amount of such Letter.
If a purchase during the term of such Letter would otherwise be subject to a
further reduced sales charge based on the right of accumulation, the purchaser
will be entitled on that purchase and subsequent purchases to that further
reduced percentage sales charge but there will be no retroactive reduction of
the sales charges on any previous purchase. The value of any shares redeemed or
otherwise disposed of by the purchaser prior to termination or completion of the
Letter of Intention will be deducted from the total purchases made under such
Letter. An exchange from a MLAM-advised money market fund into the Fund that
creates a sales charge will count toward completing a new or existing Letter of
Intention from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
The Blueprint Program is directed to small investors, group IRAs and
participants in certain affinity groups such as benefit plans, credit unions and
trade associations. Investors placing orders to purchase Class A or Class D
shares of the Fund through Blueprint will acquire the Class A or Class D shares
at net asset value plus a sales charge calculated in accordance with the
Blueprint sales charge schedule (i.e., up to $300 at 4.25%, $300.01 to $5,000 at
3.25% plus $3.00, and $5,000.01 or more at the standard sales charge rates
disclosed in the Prospectus). In addition, Class A or Class D shares of the Fund
are being offered at net asset value plus a sales charge of 1/2 of 1% for
corporate or group IRA programs placing orders to purchase their Class A or
Class D shares through Blueprint. Services, including the exchange privilege,
available to Class A and Class D investors through Blueprint, however, may
differ from those available to other investors in Class A and Class D shares.
Class A and Class D shares are offered at net asset value, with a waiver of
the front-end sales charge, to participants in Blueprint through the Merrill
Lynch Directed IRA Rollover Program ("IRA Rollover Program") available from
Merrill Lynch Business Financial Services, a business unit of Merrill Lynch. The
IRA Rollover Program is available to custodian rollover assets from Employer
Sponsored Retirement and Savings Plans (see definition below) whose Trustee
and/or Plan Sponsor has entered into a Merrill Lynch Directed IRA Rollover
Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Employee Access(SM) Accounts. Class A or Class D shares are offered at net
asset value to Employer Access(SM) Accounts available through employers with 500
or more eligible employees that provide Employer Sponsored Retirement or Savings
Plans that are eligible to purchase such shares at net asset value. The initial
8
<PAGE> 55
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is $50.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class A or Class D shares at net asset
value, based on the number of employees or number of employees eligible to
participate in the plan, the aggregate amount invested by the plan in specified
investments and/or the services provided by Merrill Lynch to the plan. Certain
other plans may purchase Class B shares with a waiver of the CDSC upon
redemption, based on similar criteria. Such Class B shares will convert into
Class D shares approximately ten years after the plan purchases the first share
of any MLAM-advised mutual fund. Minimum purchase requirements may be waived for
such plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available
toll-free from Merrill Lynch Business Financial Services at (800) 237-7777.
Purchase Privilege of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, directors and employees
of ML & Co. and its subsidiaries (the term "subsidiaries," when used herein with
respect to ML & Co., includes MLAM, FAM and certain other entities directly or
indirectly wholly-owned and controlled by ML & Co.), and any trust, pension,
profit-sharing or other benefit plan for such persons, may purchase Class A
shares of the Fund at net asset value. 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 D shares of the Fund are 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 for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied. First, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from a redemption of such shares of
other mutual funds and that such shares have been outstanding for a period of no
less than 6 months. Second, such purchase of Class D shares must be made within
60 days after the redemption and the proceeds from the redemption must have been
maintained in the interim in cash or a money market fund.
Class D shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis. Second, the investor must also establish that such redemption had been
made within 60 days prior to the investment in the Fund, and the proceeds from
the redemption had been maintained in the interim in cash or a money market
fund.
9
<PAGE> 56
Class D shares of the Fund also are 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 when Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied. First, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and such fund was
subject to a sales charge either at the time of purchase or on a deferred basis.
Second, such purchase of Class D shares must be made within 90 days after such
notice.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Investment
Adviser or FAM who purchased such closed-end fund shares prior to October 21,
1994 and wish to reinvest the net proceeds from a sale of their closed-end fund
shares of common stock in Eligible Class A Shares if the conditions set forth
below are satisfied. Alternatively, closed-end fund shareholders who purchased
such shares on or after October 21, 1994 and wish to reinvest the net proceeds
from a sale of their closed-end fund shares are offered Class A shares (if
eligible to buy Class A shares) or Class D shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class D Shares"), if the following
conditions are met. First, the sale of the closed-end fund shares must be made
through Merrill Lynch, and the net proceeds therefrom must be immediately
reinvested in Eligible Class A or Class D Shares. Second, the closed-end fund
shares must either have been acquired in the initial public offering or be
shares representing dividends from shares of common stock acquired in such
offering. Third, the closed-end fund shares must have been continuously
maintained in a Merrill Lynch securities account. Fourth, there must be a
minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already
owning Class A shares of the Fund will be eligible to purchase additional Class
A shares pursuant to this option, if such additional Class A shares will be held
in the same account as the existing Class A shares and the other requirements
pertaining to the reinvestment privilege are met. In order to exercise this
investment option, a shareholder of one of the above-referenced continuously
offered closed-end funds (an "eligible fund") must sell his or her shares of
common stock of the eligible fund (the "eligible shares") back to the fund in
connection with a tender offer conducted by the eligible fund and reinvest the
proceeds immediately in the designated class of shares of the Fund. This
investment option is available only with respect to eligible shares as to which
no Early Withdrawal Charge or CDSC (each as defined in the eligible fund's
prospectus) is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net asset value
of the designated class of the Fund on such day.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company. The value
of the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible
10
<PAGE> 57
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. The issuance of Class D shares for consideration other than cash is
limited to bona fide reorganizations, statutory mergers or other acquisitions of
portfolio securities which (i) meet the investment objectives and policies of
the Fund; (ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall at
all times remain within its control); and (iii) are liquid securities, the value
of which is readily ascertainable, which are not restricted as to transfer
either by law or liquidity of market (except that the Fund may acquire through
such transactions restricted or illiquid securities to the extent the Fund does
not exceed the applicable limits on acquisition of such securities set forth
under "Investment Objective and Policies" herein).
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares -- Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Act (each, a "Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to such
classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Act. Among other things, each
Distribution Plan provides that the Distributor shall provide and the Directors
shall review quarterly reports of the disbursement of the account maintenance
fees and/or distribution fees paid to the Distributor. In their consideration of
each Distribution Plan, the Directors must consider all factors they deem
relevant, including information as to the benefits of the Distribution Plan to
the Fund and its related class of shareholders. Each Distribution Plan further
provides that, so long as the Distribution Plan remains in effect, the selection
and nomination of Directors who are not "interested persons" of the Fund, as
defined in the Act (the "Independent Directors"), shall be committed to the
discretion of the Independent Directors then in office. In approving each
Distribution Plan in accordance with Rule 12b-1, the Independent Directors
concluded that there is reasonable likelihood that such Distribution Plan will
benefit the Fund and its related class of shareholders. Each Distribution Plan
can be terminated at any time, without penalty, by the vote of a majority of the
Independent Directors or by the holders of a majority of the outstanding related
class of voting securities of the Fund. A Distribution Plan cannot be amended to
increase materially the amount to be spent by the Fund without the approval of
the related class of shareholders, and all material amendments are required to
be approved by the vote of the Directors, including a majority of the
Independent Directors who have no direct or indirect financial interest in such
Distribution Plan, cast in person at a meeting called for that purpose. Rule
12b-1 further requires that the Fund preserve copies of each Distribution Plan
and any report made pursuant to such plan for a period of not less than six
years from the date of such Distribution Plan or such report, the first two
years in an easily accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the National Association of Securities
Dealers, Inc. ("NASD") Conduct Rules imposes a limitation on certain asset-based
sales charges such as the distribution fee and the CDSC borne by the Class B and
Class C shares, but not the account maintenance fee. The maximum sales charge
rule is applied separately to each class. As applicable to the Fund, the maximum
sales charge rule limits the aggregate of distribution fee payments and CDSCs
payable by the Fund to (1) 6.25% of eligible
11
<PAGE> 58
gross sales of Class B shares and Class C shares, computed separately (defined
to exclude shares issued pursuant to dividend reinvestments and exchanges), plus
(2) interest on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). In connection with the Class B shares, the Distributor has
voluntarily agreed to waive interest charges on the unpaid balance in excess of
0.50% of eligible gross sales. Consequently, the maximum amount payable to the
Distributor (referred to as the "voluntary maximum") in connection with the
Class B shares is 6.75% of eligible gross sales. The Distributor retains the
right to stop waiving the interest charges at any time. To the extent payments
would exceed the voluntary maximum, the Fund will not make further payments of
the distribution fee with respect to Class B shares, and any CDSCs will be paid
to the Fund rather than to the Distributor; however, the Fund will continue to
make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable
under the NASD formula. In such circumstances payment in excess of the amount
payable under the NASD formula will not be made.
The following table sets forth comparative information as of January 31,
1997, with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and, with respect to Class B shares only, the Distributor's voluntary
maximum. The information is shown for the period March 5, 1984 (commencement of
operations) to January 31, 1997, with respect to Class B shares, and for the
period October 21, 1994 (commencement of operations) to January 31, 1997, with
respect to Class C shares.
DATA CALCULATED AS OF JANUARY 31, 1997
<TABLE>
<CAPTION>
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL (4)
---------- --------- ---------- -------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B (IN THOUSANDS)
Under NASD Rule as Adopted..... $1,150,292 $71,893 $ 56,252 $128,145 $ 55,353 $72,792 $786
Under Distributor's Voluntary
Waiver....................... $1,150,292 $71,893 $ 5,751 $77,644 $ 55,353 $22,291 $786
CLASS C (IN THOUSANDS)
Under NASD Rule as Adopted..... $ 6,049 $ 378 $ 24 $ 402 $ 83 $ 319 $ 63
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B shares sold since March 5, 1984
(commencement of operations) and all eligible Class C shares sold since
October 21, 1994 (commencement of operations) other than shares acquired
through dividend reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made prior to July 6, 1993 under a prior plan
applicable to Class B shares 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 CDSC 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.
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<PAGE> 59
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.
DEFERRED SALES CHARGES -- CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares," while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of Class B shares in certain
instances, including in connection with certain post-retirement withdrawals from
an Individual Retirement Account ("IRA") or other retirement plan or on
redemptions of Class B shares following the death or disability of a Class B
shareholder. Redemptions for which the waiver applies in the case of such
withdrawal 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 part of series of equal periodic payments (not less
frequently than annually) made for life (or life expectancy) or any redemption
resulting from the tax-free return of an excess contribution to an IRA; or (b)
any partial or complete redemption following the death or disability (as defined
in the Code) of a Class B shareholder (including one who owns the Class B shares
as joint tenant with his or her spouse), provided the redemption is requested
within one year of the death or initial determination of disability.
For the fiscal years ended January 31, 1997, 1996 and 1995, the Distributor
received contingent deferred sales charges of $261,117, $108,712 and $94,070,
respectively, with respect to redemption of Class B shares, all of which were
paid to Merrill Lynch. For the fiscal years ended January 31, 1997 and 1996, the
Distributor received contingent deferred sales charges of $5,359 and $1,548,
respectively, with respect to redemption of Class C shares, all of which were
paid to Merrill Lynch. For the period October 21, 1994 (commencement of
operations) to January 31, 1995, the Distributor received no CDSCs with respect
to redemption of Class C shares.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in 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 CDSC is waived in connection with purchase
orders placed through Blueprint. Services, including the exchange privilege,
available to Class B investors through Blueprint, however, may differ from those
available to other Class B investors. Orders for purchases and redemptions of
Class B shares of the Fund will
13
<PAGE> 60
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 Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
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 the shares of the Fund is determined once daily as
of 15 minutes after the close of business on the New York Stock Exchange
("NYSE") (generally 4:00 P.M., New York time) on each day during which the NYSE
is open for trading. The NYSE is open weekdays except New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies 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. 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 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 and any account maintenance and/or
distribution fees, are accrued daily. The per share net asset value of the Class
B, Class C and Class D shares generally will be lower than the per share net
asset value of the Class A shares reflecting the daily expense accruals of the
account maintenance, distribution and higher transfer agency fees applicable
with respect to the Class B and Class C shares and the daily expense accruals of
the account maintenance fees applicable with respect to the Class D shares;
moreover, the per share net asset value of the Class B and Class C shares
generally will be lower than the per share net asset value of its Class D shares
reflecting the daily expense accruals of the distribution fees and higher
transfer agency fees applicable with respect to the Class B and Class C shares
of the Fund. It is expected, however, that the per share net asset value of the
four classes will tend to converge (although not necessarily meet) immediately
after the payment of dividends or distributions, which will differ by
approximately the amount of the expense accrual differential among the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. Securities traded in the
over-the-counter ("OTC") market are valued at the last bid price in the OTC
market prior to the time of valuation. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange designated by
or under the authority of the Board of Directors as the primary market. When the
Fund writes an option, the amount of the premium received is recorded on the
books of the Fund as an asset and an equivalent liability. The amount of the
liability is subsequently valued to reflect the current market value of the
option written, based upon the last sale price in the case of exchange-traded
options or, in the case of options traded in the
14
<PAGE> 61
OTC market, the last asked price. Options purchased by the Fund are valued at
their last sale price in the case of exchange-traded options or in the case of
options traded in the OTC market, the last bid price. Other investments,
including futures contracts and related options, are stated at market value.
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 that are
designed to facilitate investment in its shares. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Fund, the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gains distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gains 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 PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer, or by mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Transfer Agent is authorized
through pre-authorized checks or automated clearing house debits of $50 or more
to charge the regular bank account of the shareholder on a regular basis to
provide systematic additions to the Investment Account of such shareholder. For
investors who buy shares of the Fund through Blueprint, no minimum charge to the
investors' 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 ($1 for retirement
accounts) through the CMA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund, without sales charge, as
of the close of
15
<PAGE> 62
business on the ex-dividend date of the dividend or distribution. Shareholders
may elect in writing to receive either their dividends or capital gains
distributions, or both, in cash, in which event payment will be mailed or direct
deposited on 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 AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account in the form of payments by check or through automatic
payment by direct deposit to such shareholder's bank account, on either a
monthly or quarterly basis as provided below. Quarterly withdrawals are
available for shareholders who have acquired Class A or Class D shares of the
Fund having a value, based on cost or the current offering price of $5,000 or
more, and monthly withdrawals are available for shareholders with Class A or
Class D shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value determined as
described herein 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 or Class D shares will be redeemed at the
close of business on the following business day. The check for the withdrawal
payment will be mailed, or the direct deposit 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 or
Class D shares in the Investment Account are reinvested automatically in Fund
Class A or Class D shares, respectively. A shareholder's Systematic Withdrawal
Plan may be terminated at any time, without charge or penalty, by the
shareholder, the Fund, the Fund's Transfer Agent or the Distributor. Withdrawal
payments should not be considered as dividends, yield or income. Each withdrawal
is a taxable event. If periodic withdrawals continuously exceed reinvested
dividends, the shareholder's original investment may be reduced correspondingly.
Purchases of additional Class A or Class D shares concurrent with withdrawals
are ordinarily disadvantageous to the shareholder because of sales charges and
tax liabilities. The Fund will not knowingly accept purchase orders for Class A
or Class D shares of the Fund from investors who maintain a Systematic
Withdrawal Plan unless such purchase is equal to at least one year's scheduled
withdrawals or $1,200, whichever is greater. Periodic investments may not be
made into an Investment Account in which the shareholder has elected to make
systematic withdrawals.
A Class A or Class D shareholder whose shares are held within a CMA(R),
CBA(R) or Retirement Account may elect to have shares redeemed on a monthly,
bi-monthly, quarterly, semi-annual or annual basis through the CMA(R)/CBA(R)
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$25. The proceeds of systematic redemptions will be posted to the shareholder's
account three 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, semi-annual or annual
redemptions are made at net asset value
16
<PAGE> 63
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 CMA(R)/CBA(R) Systematic Redemption Program is not
available if Fund shares are being purchased within the account pursuant to the
Automatic Investment Program. For more information on the CMA(R)/CBA(R)
Systematic Redemption Program, eligible shareholders should contact their
financial consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and certain of the other mutual funds sponsored by Merrill Lynch as well as
in other securities. Merrill Lynch charges an initial establishment fee and an
annual custodial fee for each account. Information with respect to these plans
is available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100 and the minimum subsequent purchase is $1.
However, there is no minimum for purchases through Blueprint's systematic
investment plans.
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
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select Pricing(SM) System, Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in his account in
which the exchange is made at the time of the exchange or is otherwise eligible
to purchase Class A shares of the second fund. If the Class A shareholder wants
to exchange Class A shares for shares of a second MLAM-advised mutual fund, and
the shareholder does not hold Class A shares of the second fund in his account
at the time of the exchange and is not otherwise eligible to acquire Class A
shares of the second fund, the shareholder will receive Class D shares of the
second fund as a result of the exchange. Class D shares also may be exchanged
for Class A shares of a second MLAM-advised mutual fund at any time as long as,
at the time of the exchange, the shareholder holds Class A shares of the second
fund in the account in which the exchange is made or is otherwise eligible to
purchase Class A shares of the second fund. Class B, Class C and Class D shares
will be exchangeable with shares of the same class of other MLAM-advised mutual
funds. For purposes of computing the CDSC that may be payable upon a disposition
of the shares acquired in the exchange, the holding period for the previously
owned shares of the Fund is "tacked" to the holding period of the newly acquired
shares of the other Fund as more fully described below. Class A, Class B, Class
C and Class D shares also will be exchangeable for shares of certain
MLAM-advised money market funds specifically designated below as available for
exchange by holders of Class A, Class B, Class C or Class D shares. Shares with
an aggregate net asset value of at least $100 are required to qualify for the
exchange privilege, and any shares utilized in an exchange must have been held
by the shareholder for 15 days.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A shares or Class D shares of another MLAM-advised
mutual fund ("new Class A or Class D shares") are transacted on the basis of
relative net asset value per Class A or Class D share, respectively, plus an
17
<PAGE> 64
amount equal to the difference, if any, between the sales charge previously paid
on the outstanding Class A or Class D shares and the sales charge payable at the
time of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
dividend reinvestment Class A or Class D shares shall be exchanged into the
Class A or Class D shares of the other funds or into shares of the Class A or
Class D money market funds without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively ("new Class B or
Class C shares"), of another MLAM-advised mutual fund on the basis of relative
net asset value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Fund exercising the exchange privilege will continue to be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the new Class B shares acquired through use of the exchange
privilege. In addition, Class B shares of the Fund acquired through use of the
exchange privilege will be subject to the Funds' CDSC schedule if such schedule
is higher than the CDSC schedule relating to the Class B shares of the fund from
which the exchange has been made. For purposes of computing the sales charge
that may be payable on a disposition of the new Class B or Class C shares, the
holding period for the outstanding Class B or Class C shares is "tacked" to the
holding period of the new Class B or Class C shares. For example, an investor
may exchange Class B shares of the Fund for those of Merrill Lynch Special Value
Fund, Inc. ("Special Value Fund") after having held the Fund Class B shares for
two-and-a-half years. The 2% CDSC that generally would apply to a redemption
would not apply to the exchange. Three years later the investor may decide to
redeem the Class B shares of Special Value Fund and receive cash. There will be
no CDSC due on this redemption, since by "tacking" the two and a half year
holding period of Fund Class B shares to the three-year holding period for the
Special Value Fund Class B shares, the investor will be deemed to have held the
new Special Value Fund Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Investment Adviser or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC or, with respect to Class B shares, towards satisfaction of
the conversion period. However, shares of a money market fund that were acquired
as a result of an exchange for Class B or Class C shares of the Fund may, in
turn, be exchanged back into Class B or Class C shares, respectively, of any
fund offering such shares, in which event the holding period for Class B or
Class C shares of that fund will be aggregated with previous holding periods for
purposes of reducing the CDSC. Thus, for example, an investor may exchange Class
B shares of the Fund for shares of Merrill Lynch Institutional Fund
("Institutional Fund") after having held the Fund Class B shares for
two-and-a-half years and three years later decide to redeem the shares of
Institutional Fund for cash. At the time of this redemption, the 2% CDSC that
would have been due had the Class B shares of the Fund been redeemed for cash
rather than exchanged for shares of Institutional Fund will be payable. If
instead of such redemption the shareholder exchanged such shares for Class B
shares of a fund which the shareholder continued to hold for an additional
two-and-a-half years, any subsequent redemption would incur a CDSC.
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<PAGE> 65
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch Financial Consultant who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated in accordance with the rules of the
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 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
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 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 among the Class A, Class
B, Class C and Class D shareholders according to a method (which it believes is
consistent with the Securities and Exchange Commission's exemptive order
permitting the issuance and sale of multiple classes of stock) that is based on
the 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.
The per share dividends on Class B and Class C shares will be lower than
the per share dividends and distributions on Class A and Class D shares as a
result of the account maintenance, distribution and higher transfer agency fees
applicable with respect to the Class B and Class C shares; similarly, the per
share dividends and distributions on Class D shares will be lower than the per
share dividends and distributions on Class A shares as a result of the account
maintenance fees applicable with respect to the Class D shares. See
"Determination of Net Asset Value."
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
19
<PAGE> 66
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.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares for Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period of the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent the sales charge
paid to the Fund reduces any sales charge the shareholder would have owed upon
the purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Under certain provisions of the Code, some shareholders may be subject to
31% withholding on ordinary income 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. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. 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.
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, foreign, 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.
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<PAGE> 67
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
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
21
<PAGE> 68
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 or an affiliate thereof. Under such agreements, the bank or primary
dealer or an affiliate thereof 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.
Illiquid Securities. The Fund may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 as amended
(the "Securities Act"), but can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act. However, the Fund will not
invest more than 15% of its total assets in illiquid investments, which includes
securities for which there is no readily available market, securities subject to
contractual restrictions on resale, certain investments in asset-backed and
receivable-backed securities and restricted securities, unless the Fund's Board
of Directors continuously determines, based on the trading markets for the
specific restricted security, that it is liquid. The Board of Directors may
adopt guidelines and delegate to the Manager the daily function of determining
and monitoring liquidity of restricted securities. The Board of Directors,
however, will retain sufficient oversight and be ultimately responsible for the
determinations.
The Board of Directors monitors the Fund's investments in these securities
purchased pursuant to Rule 144A, focusing on such factors, among others, as
valuation, liquidity and availability of information. These investments in
securities purchased pursuant to Rule 144A could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
22
<PAGE> 69
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, 1997, 1996 and
1995 were 39.96%, 67.38% and 45.86%, respectively. Portfolio turnover rate is
calculated by dividing the lesser of the Fund's annual sales or purchases 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 NASD, 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 benefited 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 Investment Company 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
23
<PAGE> 70
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, 1997, 1996 and 1995 were $332,184, $516,478
and $537,039, respectively. For these periods, brokers providing research
services received $517,724, $370,558 and $470,758, respectively, in commissions
on portfolio transactions effected for the Fund. The aggregate dollar amounts of
such portfolio transactions were $193,852,940, $220,278,211 and $257,925,421,
respectively. During those periods, the aggregate dollar amounts of brokerage
commissions paid by the Fund to Merrill Lynch were $4,891, $36,666 and $16,500,
respectively. These amounts represent 1.5%, 7.1% and 3.1%, 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 1.5%, 4.0%
and 3.2%, 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
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.
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 and under the Investment Company Act 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. 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. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
24
<PAGE> 71
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may, borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act") in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
The Fund has also adopted certain non-fundamental investment restrictions,
which may be changed by the Investment Adviser without approval by the
shareholders, subject to the supervision of the Board of Directors. Under the
non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies except to the
extent permitted by applicable law. As a matter of policy, however, the
Fund will not purchase shares of any registered open-end investment company
or registered unit investment trust, in reliance on Section 12(d)(1)(F) or
(G) (the "fund of funds" provisions) of the Investment Company Act, at any
time its shares are owned by another investment company that is part of the
same group of investment companies as the Fund.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box."
25
<PAGE> 72
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Securities purchased in accordance with Rule 144A under the Securities Act
(a "Rule 144A security") and determined to be liquid by the Fund's Board of
Directors are not subject to the limitations set forth in this investment
restriction.
d. Notwithstanding fundamental restriction (7) above, borrow amounts
in excess of 5% of the Fund's assets. In addition, the Fund may not pledge
any of its assets, except that the Fund may pledge securities having a
value of not more than 10% of the Fund's assets to secure permitted
borrowings.
------------------
Because of the affiliation of Merrill Lynch with the Fund, the Fund is
prohibited from engaging in certain transactions involving Merrill Lynch except
pursuant to a permissive order or otherwise in compliance with the provisions of
the Investment Company Act and the rules and regulations thereunder. Included
among such restricted transactions are purchases from or sales to Merrill Lynch
of securities in transactions in which it acts as principal and purchases of
securities from underwriting syndicates of which Merrill Lynch is a member.
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, Class B, Class C and Class D
shares in accordance with a formula specified by the Securities and Exchange
Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the sales charge in the case of Class A and Class D shares
and the CDSC that would be applicable to a complete redemption of the investment
at the end of each specified period in the case of Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) 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
26
<PAGE> 73
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 Class A, Class B, Class C
and Class D shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------------------------- --------------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF $1,000 THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
- -------------------------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended January 31, 1997......................... 13.69% $1,136.90 14.80% $1,148.00
Five Years Ended January 31, 1997....................... 10.05% $1,613.90 10.90% $1,617.20
Ten Years Ended January 31, 1997........................ 10.26% $2,655.40
Inception (October 26, 1988) to January 31, 1997........ 11.97% $2,545.70
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
FOR YEAR ENDED JANUARY 31, (EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1997.................................................... 19.99% $1,199.90 18.80% $1,188.00
1996.................................................... 31.82% 1,318.20 30.43% 1,304.30
1995.................................................... (11.23)% 887.70 (12.22)% 887.80
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.
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (October 26, 1988) to January 31, 1997........ 154.57% $2,545.70
Inception (March 5, 1984) to January 31, 1997........... 370.13% $4,701.30
</TABLE>
27
<PAGE> 74
<TABLE>
<CAPTION>
CLASS C SHARES* CLASS D SHARES*
-------------------------------- --------------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF $1,000 THE END OF
PERIOD INVESTMENT THE PERIOD INVESTMENT THE PERIOD
- -------------------------------------------------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One year ended January 31, 1997......................... 17.80% $1,178.00 13.45% $1,134.50
Inception (October 21, 1994) to January 31, 1997........ 18.93% $1,484.60 17.32% $1,439.30
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One year ended January 31, 1997......................... 18.80% $1,188.00 19.73% $1,197.30
One year ended January 31, 1996......................... 30.32% $1,303.20 31.47% $1,314.70
Inception (October 21, 1994) to January 31, 1995........ (4.12)% $ 958.80 (3.50)% $ 965.00
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (October 21, 1994) to January 31, 1997........ 48.46% $1,484.60 43.93% $1,439.30
</TABLE>
- ---------------
* Class C shares and D shares commenced operations on October 21, 1994.
In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemptions," respectively, 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 400,000,000 shares of Common Stock, par
value $0.10 per share, divided into four classes, designated Class A, Class B,
Class C and Class D Common Stock, each of which consists of 100,000,000 shares.
Class A, Class B, Class C and Class D Common Stock represent an interest in the
same assets of the Fund and are identical in all respects except that the Class
B, Class C and Class D shares bear certain expenses related to the account
maintenance and/or distribution of such shares and have exclusive voting rights
with respect to matters relating to such account maintenance and/or distribution
expenditures. 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 Investment Company Act does not require shareholders to
act upon any of the following matters: (i) election of Directors; (ii) approval
of an investment advisory agreement; (iii) approval of a distribution agreement;
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
rights.
28
<PAGE> 75
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on May 1, 1997.
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class A, Class B, Class C and Class D shares of the
Fund, based on the value of the Fund's net assets and number of shares
outstanding as of January 31, 1997, is calculated as set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Net Assets......................... $39,604,452 $104,828,358 $8,430,331 $238,259,706
=========== ============ ========== ============
Number of Shares Outstanding....... 2,307,448 6,318,479 511,894 13,941,059
=========== ============ ========== ============
Net Asset Value Per Share (net
assets divided by number of
shares outstanding).............. $ 17.16 $ 16.59 $ 16.47 $ 17.09
Sales Charge* (for Class A and
Class D shares: 5.25% of offering
price; 5.54% of net asset
value)........................... .95 ** ** .95
----------- ------------ ---------- ------------
Offering Price..................... $ 18.11 $ 16.59 $ 16.47 $ 18.04
=========== ============ ========== ============
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" in the Prospectus and
"Redemption of Shares -- Deferred Sales Charges -- Class B and Class C
Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The independent auditors
are responsible for auditing the annual financial statements of the Fund.
CUSTODIAN
The Bank of New York, 90 Washington Street, 12th floor, New York, New York
10286, acts as custodian of the Fund's assets. The Custodian is responsible for,
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
Merrill Lynch 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.
29
<PAGE> 76
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, LLP, 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.
30
<PAGE> 77
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, 1997, 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, 1997, by correspondence with the custodian. 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, 1997, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
March 10, 1997
31
<PAGE> 78
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Computer Technologies
Personal Computers 150,000 ++COMPAQ Computer Corp. $ 5,445,438 $ 13,031,250 3.3%
Components 100,000 Seagate Technology, Inc. 2,750,475 5,150,000 1.3
Systems 300,000 ++Silicon Graphics, Inc. 11,151,240 8,212,500 2.1
Systems 200,000 ++Sun Microsystems, Inc. 5,396,880 6,325,000 1.6
------------ ------------ ------
24,744,033 32,718,750 8.3
Demographic Trends
Medical Devices 100,000 Biomet, Inc. 1,534,375 1,550,000 0.4
Healthcare 100,000 ++HEALTHSOUTH Corp. 3,537,000 4,362,500 1.1
Healthcare 100,000 ++Living Centers of America, Inc. 3,353,090 2,900,000 0.7
Pollution Technology 450,000 Philip Environmental Inc. (ADR)* 3,514,252 7,762,500 2.0
Insurance 150,000 Torchmark Corp. 6,152,112 7,762,500 2.0
Healthcare 50,000 ++United Dental Care, Inc. 1,448,438 1,375,000 0.4
------------ ------------ ------
19,539,267 25,712,500 6.6
Developing Foreign Economies
Telecommunications 2,000,000 CPT Telefonica Del Peru Pacifico S.A. 3,906,300 4,340,909 1.1
Telecommunications 105,000 ++Compania Anonima Nacional Telefonos
de Venezuela (ADR)* 2,415,000 2,966,250 0.8
Telecommunications 463 Korea Mobile Telecommunication Corp. 533,107 524,910 0.2
Specialty Services 1,000,000 National Mutual Asia Ltd. 940,132 961,476 0.2
Telecommunications 150,000 Portugal Telecom, S.A. (ADR)* 3,514,576 5,137,500 1.3
Building Materials 200,000 ++Royal Plastic Group Ltd. 1,866,878 4,009,504 1.0
Electronics 33,034 Samsung Electronics Company (GDR)**++++ 3,280,000 1,531,952 0.4
------------ ------------ ------
16,455,993 19,472,501 5.0
Future Retailing
Specialty Retail 22,000 ++Abercrombie & Fitch Co. 352,000 302,500 0.1
Specialty Retail 200,000 Oakley, Inc. 4,725,175 2,000,000 0.5
Specialty Retail 288,900 OfficeMax, Inc. 2,872,100 3,466,800 0.9
------------ ------------ ------
7,949,275 5,769,300 1.5
Global Market Expansion
Cosmetics 174,400 Avon Products, Inc. 6,259,222 10,943,600 2.8
Food & Beverage 100,000 ConAgra Inc. 3,826,115 5,050,000 1.3
Machinery 10,000 Kubota Corp. (ADR)* 1,285,600 910,000 0.2
Machinery 50,000 Makita Corp. (ADR)* 796,875 656,250 0.2
Food & Beverage 160,000 PepsiCo, Inc. 2,644,800 5,580,000 1.4
Electronics 200,000 ++Philips Electronics N.V. (ADR)* 8,214,486 8,000,000 2.0
Household Products 50,000 The Procter & Gamble Company 4,593,926 5,775,000 1.5
------------ ------------ ------
27,621,024 36,914,850 9.4
</TABLE>
32
<PAGE> 79
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Healthcare Cost Containment
Pharmaceuticals 50,000 Astra AB (ADR)* $ 1,781,250 $ 2,393,750 0.6%
Medical Devices 100,000 ++Boston Scientific Corp. 4,133,851 6,825,000 1.8
Pharmaceuticals 100,000 Bristol-Myers Squibb Co. 7,907,000 12,700,000 3.3
Pharmaceuticals 100,000 Lilly (Eli) and Company 4,572,100 8,712,500 2.2
Pharmaceuticals 100,900 Merck & Co., Inc. 4,001,062 9,156,675 2.3
Pharmaceuticals 50,000 ++Novartis AG (ADR)*(b) 1,942,188 2,843,750 0.7
Information Services 300,000 ++Phamis, Inc. 5,264,378 5,025,000 1.3
Information Services 300,000 ++Physician Computer Network, Inc. 3,074,250 2,475,000 0.6
Pharmaceuticals 274,400 Schering-Plough Corp. 3,180,566 20,751,500 5.3
Pharmaceuticals 100,000 ++Sequus Pharmaceuticals, Inc. 1,734,998 1,337,500 0.4
Medical Devices 100,000 United States Surgical Corp. 6,799,013 4,012,500 1.0
Medical Services 100,000 ++Vencor, Inc. 3,194,630 3,062,500 0.8
------------ ------------ ------
47,585,286 79,295,675 20.3
Industrial Outsourcing
Information Services 50,000 ++Ceridian Corp. 1,959,250 1,887,500 0.5
Systems 50,000 ++Computer Sciences Corporation 3,878,500 3,537,500 0.9
Specialty Services 100,000 Greenwich Air Services Inc. (Class A) 1,113,428 2,475,000 0.6
Specialty Services 100,000 Greenwich Air Services Inc. (Class B) 1,165,198 2,400,000 0.6
Specialty Services 47,028 National Data Corporation (a) 2,127,181 1,928,148 0.5
Specialty Services 150,000 Olsten Corp. 3,190,200 2,643,750 0.7
Aerospace & Defense 18,400 ++Triumph Group, Inc. 498,729 549,700 0.1
------------ ------------ ------
13,932,486 15,421,598 3.9
Industrial Renaissance
Aerospace & Defense 50,000 The Boeing Company 5,287,375 5,356,250 1.4
Transportation 75,000 Delta Air Lines, Inc. 5,782,613 5,925,000 1.5
Automotive 100,000 General Motors Corp. 4,190,900 5,900,000 1.5
Information Systems 100,000 International Business Machines Corp. 5,658,500 15,725,000 4.0
------------ ------------ ------
20,919,388 32,906,250 8.4
Multimedia
Broadcasting Services 200,000 Carlton Communications PLC (ADR)* 7,266,875 9,025,000 2.3
Components 50,000 Harman International Industries Inc. 2,512,038 2,318,750 0.6
Information Services 400,000 ++OzEmail, Ltd. (ADR)* 4,632,341 4,650,000 1.2
Cable Television 150,000 ++Tele-Communications Liberty Media
Group (Class A) 2,675,002 2,831,250 0.7
Publishing Services 300,000 ++World Color Press Inc. 5,906,000 5,925,000 1.5
------------ ------------ ------
22,992,256 24,750,000 6.3
Next Generation Technology
Electronics 146,500 ++Affinity Technology Group, Inc. 1,391,750 1,043,812 0.3
Semiconductors 182,600 ++Gasonics International Corp. 2,303,368 3,263,975 0.8
Pollution Technology 400,000 ++Molten Metal Technology, Inc. 6,605,221 4,600,000 1.2
Medical Devices 70,000 ++Neuromedical Systems Inc. 1,050,000 761,250 0.2
Environmental Equipment 119,400 ++Thermo Ecotek Corp. 1,281,614 1,835,775 0.5
Multi-Industry 155,000 Thermo Electron Corp. 2,617,778 5,289,375 1.4
Medical Devices 48,000 ++ThermoLase Corp. 1,212,000 666,000 0.2
Medical Devices 100,000 ++ThermoSpectra Corp. 1,547,300 1,475,000 0.4
Medical Devices 100,000 ++Thermotrex Corp. 1,586,723 2,875,000 0.7
Components 250,000 ++Voice Control Systems Inc. 1,446,537 1,718,750 0.4
Electronics 48,200 ++Whittaker Corp. 942,792 566,350 0.1
------------ ------------ ------
21,985,083 24,095,287 6.2
</TABLE>
33
<PAGE> 80
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Strategic Growth Opportunities
Pharmaceuticals 100,000 American Home Products Corp. $ 3,875,049 $ 6,337,500 1.6%
Leisure & Entertainment 300,000 ++Galoob (Lewis) Toys, Inc. 4,238,645 5,250,000 1.4
Specialty Services 100,000 Household International, Inc. 6,712,565 9,912,500 2.5
Leisure & Entertainment 125,000 Mattel, Inc. 2,232,740 3,515,625 0.9
------------ ------------ ------
17,058,999 25,015,625 6.4
Telecommunications
Components 100,000 Andrew Corp. 2,973,417 5,725,000 1.5
Telecommunications 30,000 ++Deutsche Telekom AG (ADR)* 566,700 558,750 0.1
Telecommunications 250,000 ++Inter-Tel Inc. 3,075,112 4,125,000 1.1
Wireless Communication 210,000 ++InterCel, Inc. 3,540,000 2,677,500 0.7
Paging Services 305,000 ++Metrocall, Inc. 4,988,845 1,753,750 0.4
Components 249,400 Nokia Corp. AB (ADR)* 9,249,994 16,678,625 4.3
Wireless Communication 200,000 ++Palmer Wireless, Inc. 2,984,487 2,050,000 0.5
Telecommunications 100,000 Vodafone Group PLC (ADR)* 3,643,500 4,300,000 1.1
------------ ------------ ------
31,022,055 37,868,625 9.7
Total Stocks 271,805,145 359,940,961 92.0
<CAPTION>
Face
Amount Short-Term Securities
Commercial $ 8,000,000 Asset Securitization Cooperative
Paper*** Corp., 5.32% due 3/06/1997 7,960,987 7,960,987 2.0
10,485,000 General Electric Capital Corp.,
5.58% due 2/03/1997 10,481,750 10,481,750 2.7
12,000,000 NYNEX Corporation, 5.35% due
2/10/1997 11,983,950 11,983,950 3.1
Total Short-Term Securities 30,426,687 30,426,687 7.8
Total Investments $302,231,832 390,367,648 99.8
============
Other Assets Less Liabilities 755,199 0.2
------------ ------
Net Assets $391,122,847 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***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.
(a)Formerly CIS Technologies, Inc.
(b)Formerly Sandoz AG.
++Non-income producing security.
++++The security may be offered and resold to "qualified
institutional buyers" under Rule 144A of the Securities Act of 1933.
See Notes to Financial Statements.
</TABLE>
34
<PAGE> 81
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of January 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$302,231,832) (Note 1a) $390,367,648
Cash 10,903
Receivables:
Securities sold $ 3,840,812
Capital shares sold 468,063
Dividends 210,795 4,519,670
------------
Prepaid registration fees and other assets (Note 1f) 24,255
------------
Total assets 394,922,476
------------
Liabilities: Payables:
Capital shares redeemed 3,255,574
Investment adviser (Note 2) 212,062
Distributor (Note 2) 144,993 3,612,629
------------
Accrued expenses and other liabilities 187,000
------------
Total liabilities 3,799,629
------------
Net Assets: Net assets $391,122,847
============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 100,000,000 shares authorized $ 230,745
Class B Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 631,848
Class C Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 51,189
Class D Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 1,394,106
Paid-in capital in excess of par 292,798,506
Undistributed realized capital gains on investments
and foreign currency transactions--net 7,880,663
Unrealized appreciation on investments and foreign
currency transactions--net 88,135,790
------------
Net assets $391,122,847
============
Net Asset Value: Class A--Based on net assets of $39,604,452 and 2,307,448
shares outstanding $ 17.16
============
Class B--Based on net assets of $104,828,358 and 6,318,479
shares outstanding $ 16.59
============
Class C--Based on net assets of $8,430,331 and 511,894
shares outstanding $ 16.47
============
Class D--Based on net assets of $238,259,706 and
13,941,059 shares outstanding $ 17.09
============
See Notes to Financial Statements.
</TABLE>
35
<PAGE> 82
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended January 31, 1997
<S> <S> <C> <C>
Investment Dividends (net of $84,174 foreign withholding tax) $ 3,568,754
Income Interest and discount earned 2,106,576
(Notes 1d & 1e): Other income 15,398
------------
Total income 5,690,728
------------
Expenses: Investment advisory fees (Note 2) $ 2,505,726
Account maintenance and distribution fees--Class B (Note 2) 1,082,188
Account maintenance fees--Class D (Note 2) 576,549
Transfer agent fees--Class D (Note 2) 534,160
Transfer agent fees--Class B (Note 2) 309,756
Printing and shareholder reports 159,276
Custodian fees 119,210
Transfer agent fees--Class A (Note 2) 89,782
Account maintenance and distribution fees--Class C (Note 2) 77,537
Registration fees (Note 1f) 68,859
Professional fees 54,636
Accounting services (Note 2) 51,247
Transfer agent fees--Class C (Note 2) 23,474
Directors' fees and expenses 19,607
Pricing fees 1,837
Other 10,800
------------
Total expenses 5,684,644
------------
Investment income--net 6,084
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 52,824,203
(Loss) on Foreign currency transactions--net (16,423) 52,807,780
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 15,690,035
(Notes 1b, 1c, Foreign currency transactions--net (26) 15,690,009
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 68,497,789
------------
Net Increase in Net Assets Resulting from Operations $ 68,503,873
============
See Notes to Financial Statements.
</TABLE>
36
<PAGE> 83
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
January 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ 6,084 $ (46,108)
Realized gain on investments and foreign currency transactions
--net 52,807,780 24,540,178
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 15,690,009 57,218,059
------------ ------------
Net increase in net assets resulting from operations 68,503,873 81,712,129
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (5,337,338) (2,188,438)
(Note 1g): Class B (12,797,082) (9,550,391)
Class C (1,078,464) (338,854)
Class D (28,024,409) (20,640,116)
------------ ------------
Net decrease in net assets resulting from
distributions to shareholders (47,237,293) (32,717,799)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (10,906,448) 46,890,051
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 10,360,132 95,884,381
Beginning of year 380,762,715 284,878,334
------------ ------------
End of year $391,122,847 $380,762,715
============ ============
See Notes to Financial Statements.
</TABLE>
37
<PAGE> 84
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1997++ 1996++ 1995++ 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 16.26 $ 13.55 $ 16.39 $ 16.29 $ 16.84
Operating ------- ------- ------- ------- -------
Performance: Investment income--net .08 .07 .09 .15 .25
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 3.04 4.19 (1.97) 2.18 .49
------- ------- ------- ------- -------
Total from investment operations 3.12 4.26 (1.88) 2.33 .74
------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net -- -- -- -- (.23)
Realized gain on investments--net (2.22) (1.55) (.96) (2.23) (1.06)
------- ------- ------- ------- -------
Total dividends and distributions (2.22) (1.55) (.96) (2.23) (1.29)
------- ------- ------- ------- -------
Net asset value, end of year $ 17.16 $ 16.26 $ 13.55 $ 16.39 $ 16.29
======= ======= ======= ======= =======
Total Investment Based on net asset value per share 19.99% 31.82% (11.23%) 15.78% 4.79%
Return:* ======= ======= ======= ======= =======
Ratios to Average Expenses 1.00% 1.07% .98% .88% .90%
Net Assets: ======= ======= ======= ======= =======
Investment income--net .46% .44% .59% .95% 1.35%
======= ======= ======= ======= =======
Supplemental Net assets, end of year (in thousands) $39,605 $34,231 $ 8,665 $10,942 $11,394
Data: ======= ======= ======= ======= =======
Portfolio turnover 39.96% 67.38% 45.86% 48.63% 40.58%
======= ======= ======= ======= =======
Average commission rate paid+++ $ .0277 -- -- -- --
======= ======= ======= ======= =======
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the period.
+++For fiscal years beginning on or after September 30, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity securities.
The "Average Commission Rate Paid" includes commissions paid
in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date
of the transaction. Such conversions may significantly
affect the rate shown.
See Notes to Financial Statements.
</TABLE>
38
<PAGE> 85
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended January 31,
Increase (Decrease) in Net Asset Value: 1997++ 1996++ 1995++ 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.79 $ 13.33 $ 16.30 $ 16.28 $ 16.82
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.10) (.08) (.06) (.01) .06
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.95 4.09 (1.96) 2.17 .52
-------- -------- -------- -------- --------
Total from investment operations 2.85 4.01 (2.02) 2.16 .58
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- -- (.06)
Realized gain on investments--net (2.05) (1.55) (.95) (2.14) (1.06)
-------- -------- -------- -------- --------
Total dividends and distributions (2.05) (1.55) (.95) (2.14) (1.12)
-------- -------- -------- -------- --------
Net asset value, end of year $ 16.59 $ 15.79 $ 13.33 $ 16.30 $ 16.28
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 18.80% 30.43% (12.22%) 14.60% 3.75%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.06% 2.13% 1.99% 1.91% 1.92%
Net Assets: ======== ======== ======== ======== ========
Investment income(loss)--net (.58%) (.55%) (.38%) (.07%) .36%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $104,828 $112,239 $119,186 $396,424 $447,186
Data: ======== ======== ======== ======== ========
Portfolio turnover 39.96% 67.38% 45.86% 48.63% 40.58%
======== ======== ======== ======== ========
Average commission rate paid+++ $ .0277 -- -- -- --
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
+++For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission rate
per share for purchases and sales of equity securities. The
"Average Commission Rate Paid" includes commissions paid in
foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date
of the transaction. Such conversions may significantly
affect the rate shown.
See Notes to Financial Statements.
</TABLE>
39
<PAGE> 86
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C++++ Class D++++
For the For the
Period Period
The following per share data and ratios have been derived For the Oct. 21, For the Oct. 21,
from information provided in the financial statements. Year Ended 1994++ to Year Ended 1994++ to
January 31, Jan. 31, January 31, Jan. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.71 $ 13.28 $ 14.08 $ 16.20 $ 13.54 $ 14.26
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income(loss)--net (.10) (.10) (.04) .04 .03 (.01)
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net 2.94 4.08 (.54) 3.03 4.18 (.49)
-------- -------- -------- -------- -------- --------
Total from investment operations 2.84 3.98 (.58) 3.07 4.21 (.50)
-------- -------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (2.08) (1.55) (.22) (2.18) (1.55) (.22)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 16.47 $ 15.71 $ 13.28 $ 17.09 $ 16.20 $ 13.54
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 18.80% 30.32% (4.12%)+++ 19.73% 31.47% (3.50%)+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.07% 2.14% 2.26%* 1.25% 1.33% 1.43%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income (loss)--net (.61%) (.67%) (.87%)* .22% .22% (.23%)*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 8,430 $ 6,385 $ 80 $238,260 $227,908 $156,947
======== ======== ======== ======== ======== ========
Portfolio turnover 39.96% 67.38% 45.86% 39.96% 67.38% 45.86%
======== ======== ======== ======== ======== ========
Average commissions rate paid+++++ $ .0277 -- -- $ .0277 -- --
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
+++++For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission rate
per share for purchases and sales of equity securities. The
"Average Commission Rate Paid" includes commissions paid in
foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date
of the transaction. Such conversions may significantly
affect the rate shown.
See Notes to Financial Statements.
</TABLE>
40
<PAGE> 87
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
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Short-term securities are valued at amortized cost,
which approximates market value. Other investments, including
futures contracts and related options, are stated at market value.
Securities and assets for which market value quotations are not
available are valued at their fair value as determined in good faith
by or under the direction of the Fund's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Options--The Fund is authorized to write covered call options. When
the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. When a
security is sold through an exercise of an option, the related
premium received is deducted from the basis of the security sold.
When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the
extent of the premium received (or gain or loss to the extent of the
cost of the closing transaction exceeds the premium received).
Written options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) 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.
(e) 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 dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend
41
<PAGE> 88
date. Interest income (including amortization of discount) is recognized on the
accrual basis. Realized gains and losses on security transactions are determined
on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions to shareholders--Dividends and
distributions paid by the Fund are recorded on the ex-dividend
dates. Distributions in excess of net investment income are due
primarily to differing tax treatments for post-October losses.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$6,084 have been reclassified between undistributed net realized
capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
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"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the general partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's 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.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund.The ongoing account maintenance fee compensates the Distributor
and MLPF&S for providing account maintenance services to Class B,
Class C and Class D shareholders. The ongoing distribution fee
compensates the Distributor and MLPF&S for providing shareholder and
distribution-related services to Class B and Class C shareholders.
For the year ended January 31, 1997, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 639 $ 7,883
Class D $2,872 $42,759
For the year ended January 31, 1997, MLPF&S also received contingent
deferred sales charges of $261,117 and $5,359 relating to
transactions in Class B and C Shares, respectively.
In addition, MLPF&S received $4,891 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
January 31, 1997.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
42
<PAGE> 89
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended January 31, 1997 were $138,540,853 and
$188,718,249, respectively.
Net realized and unrealized gains (losses) as of January 31, 1997
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $52,823,313 $ 88,135,816
Short-term investments 890 --
Foreign currency transactions (16,423) (26)
----------- ------------
Total $52,807,780 $ 88,135,790
=========== ============
As of January 31, 1997, net unrealized appreciation for Federal
income tax purposes aggregated $88,135,816, of which $111,308,143
related to appreciated securities and $23,172,327 related to
depreciated securities. The aggregate cost of investments at January
31, 1997 for Federal income tax purposes was $302,231,832.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(10,906,448) and $46,890,051 for the years ended
January 31, 1997 and January 31, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended January 31, 1997 Shares Amount
Shares sold 1,845,808 $ 31,115,024
Shares issued to shareholders
in reinvestment of distributions 305,672 4,989,091
------------ ------------
Total issued 2,151,480 36,104,115
Shares redeemed (1,949,689) (32,436,435)
------------ ------------
Net increase 201,791 $ 3,667,680
============ ============
Class A Shares for the Year Dollar
Ended January 31, 1996 Shares Amount
Shares sold 1,393,621 $ 32,505,390
Shares issued to shareholders
in reinvestment of
distributions 575,732 279,194
------------ ------------
Total issued 1,969,353 32,784,584
Shares redeemed (503,356) (8,076,845)
------------ ------------
Net increase 1,465,997 $ 24,707,739
============ ============
Class B Shares for the
Year Ended Dollar
January 31, 1997 Shares Amount
Shares sold 1,580,584 $ 26,170,965
Shares issued to shareholders
in reinvestment of
distributions 716,413 11,324,876
------------ ------------
Total issued 2,296,997 37,495,841
Automatic conversion of
shares (510,660) (8,450,651)
Shares redeemed (2,575,080) (42,132,286)
------------ ------------
Net decrease (788,743) $(13,087,096)
============ ============
Class B Shares for the
Year Ended Dollar
January 31, 1996 Shares Amount
Shares sold 4,089,726 $ 66,223,229
Shares issued to shareholders
in reinvestment of
distributions 158,829 2,492,023
------------ ------------
Total issued 4,248,555 68,715,252
Automatic conversion of
shares (3,949,127) (58,686,533)
Shares redeemed (2,131,722) (32,142,062)
------------ ------------
Net decrease (1,832,294) $(22,113,343)
============ ============
Class C Shares for the
Year Ended Dollar
January 31, 1997 Shares Amount
Shares sold 389,112 $ 6,432,736
Shares issued to shareholders
in reinvestment of
distributions 62,177 974,884
------------ ------------
Total issued 451,289 7,407,620
Shares redeemed (345,702) (5,592,847)
------------ ------------
Net increase 105,587 $ 1,814,773
============ ============
Class C Shares for the
Year Ended Dollar
January 31, 1996 Shares Amount
Shares sold 491,734 $ 7,944,948
Shares issued to shareholders
in reinvestment of
distributions 441 6,884
------------ ------------
Total issued 492,175 7,951,832
Shares redeemed (91,881) (1,480,882)
------------ ------------
Net increase 400,294 $ 6,470,950
============ ============
43
<PAGE> 90
Class D Shares for the Year Dollar
Ended January 31, 1997 Shares Amount
Shares sold 299,900 $ 5,100,435
Automatic conversion of
shares 496,702 8,450,651
Shares issued to shareholders
in reinvestment of distributions 1,512,537 24,588,964
------------ ------------
Total issued 2,309,139 38,140,050
Shares redeemed (2,438,121) (41,441,855)
------------ ------------
Net decrease (128,982) $ (3,301,805)
============ ============
Class D Shares for the Year Dollar
Ended January 31, 1996 Shares Amount
Shares sold 998,100 $ 16,043,134
Automatic conversion of
shares 3,879,032 58,686,533
Shares issued to shareholders
in reinvestment of
distributions 399,482 6,391,707
------------ ------------
Total issued 5,276,614 81,121,374
Shares redeemed (2,800,501) (43,296,669)
------------ ------------
Net increase 2,476,113 $ 37,824,705
============ ============
44
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<PAGE> 92
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<PAGE> 93
- ------
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.................. 4
Purchase of Shares...................... 6
Initial Sales Charge Alternatives --
Class A and Class D Shares.......... 6
Reduced Initial Sales Charges......... 7
Distribution Plans.................... 11
Limitations on the Payment of
Deferred Sales Charges.............. 11
Redemptions............................. 13
Deferred Sales Charges --
Class B and Class C Shares.......... 13
Determination of Net Asset Value........ 14
Shareholder Services.................... 15
Investment Account.................... 15
Automatic Investment Plans............ 15
Automatic Reinvestment of Dividends
and Capital Gains Distributions..... 15
Systematic Withdrawal Plans -- Class A
and Class D Shares.................. 16
Retirement Plans...................... 17
Exchange Privilege.................... 17
Dividends, Distributions and Taxes...... 19
Investment Practices and Restrictions... 21
Additional Information.................. 26
Performance Data...................... 26
Common Stock.......................... 28
Computation of Offering Price Per
Share............................... 29
Independent Auditors.................. 29
Custodian............................. 29
Transfer Agent........................ 29
Reports to Shareholders............... 30
Legal Counsel......................... 30
Registration Statement................ 30
Independent Auditors' Report............ 31
Financial Statements.................... 32
Code #10228-0597
</TABLE>
[MERRILL LYNCH LOGO]
MERRILL LYNCH
FUND FOR
TOMORROW, INC.
STATEMENT OF [MLYNCH COMPASS]
ADDITIONAL
INFORMATION
May 23, 1997
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 94
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission File due to ASCII-incompatibility and
cross-references this material to the location of each occurrence in the text.
<TABLE>
<CAPTION>
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
<S> <C>
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull.
</TABLE>
<PAGE> 95
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 years in the ten-year period ended January 31, 1997.
(2) Included in Statement of Additional Information (Part B):
Financial Statements:
Schedule of Investments as of January 31, 1997.
Statement of Assets and Liabilities as of January 31, 1997.
Statement of Operations for the year ended January 31, 1997.
Statements of Changes in Net Assets for each of the years in the
two-year period ended January 31, 1997.
Financial Highlights for each of the years in the five-year period
ended January 31, 1997.
(3) Included in Part C:
None.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ ------------------------------------------------------------------------------
<C> <S> <C> <C>
1(a)* -- Articles of Incorporation of Registrant.
(b)-- -- Articles of Amendment dated October, 1988.
(c)++ -- Articles Supplementary dated April 18, 1990.
(d)+++ -- Articles of Amendment dated October 18, 1994.
(e)+++ -- Articles Supplementary dated October 18, 1994.
2degrees++ -- Amended and Restated By-Laws of Registrant.
3 -- Not applicable.
4(a) -- Instruments Defining Rights of Shareholders. Incorporated by reference to
Exhibits 1 and 2 above.
5(a)-- -- Investment Advisory Agreement between Registrant and Merrill Lynch Asset
Management.
(b) -- Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P. and
Merrill Lynch Asset Management U.K. Limited.
6(a)** -- Distribution Agreement between Registrant and Merrill Lynch Funds Distributor,
Inc.
(b)+ -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.
(c)+ -- Class C Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.
(d)+ -- Class D 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 Merrill Lynch Financial Data Services, Inc.
10 -- Opinion and consent of Shereff, Friedman, Hoffman & Goodman, LLP, counsel for
Registrant.
11(a) -- Consent of Deloitte & Touche LLP, independent auditors to Registrant.
(b)*** -- Consent of Morningstar, Inc.
12 -- Not applicable.
13** -- Certificate of Merrill Lynch Asset Management.
14 -- Not applicable.
</TABLE>
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<PAGE> 96
<TABLE>
<C> <S> <C> <C>
15 (a) -- Amended and Restated Plan of Distribution pursuant to Rule 12b-1 under the
degrees Investment Company Act of 1940 and Distribution Plan Sub-Agreement.
(b)+ -- Class C Distribution Plan and Class C Distribution Plan Sub-Agreement.
(c)+ -- Class D Distribution Plan and Class D Distribution Plan Sub-Agreement.
16 (a)-- -- Schedule for computation of each performance quotation for Class A and Class B
shares provided in the Registration Statement in response to Item 22.
(b)+++ -- Schedules for computation of each performance quotation for Class C and Class
D shares provided in the Registration Statement in response to Item 22.
17 (a) -- Other Exhibits
Powers of Attorney for Officers and Directors
Arthur Zeikel++
Gerald M. Richard++
Ronald W. Forbes++
Cynthia A. Montgomery+
Charles C. Reilly++
Kevin A. Ryan++
Richard R. West++
(b) -- Financial Data Schedule for Class A Shares.
(c) -- Financial Data Schedule for Class B Shares.
(d) -- Financial Data Schedule for Class C Shares.
(e) -- Financial Data Schedule for Class D Shares.
18 ++++ -- Rule 18f-3 Plan of Registrant.
</TABLE>
- ---------------
<TABLE>
<C> <S> <C>
* Refiled electronically in Post-Effective Amendment No. 15. Initially filed as
identically numbered Exhibit to the initial Registration Statement, filed October
7, 1983 (File No. 2-87036).
** Refiled electronically in Post-Effective Amendment No. 15. Initially filed as
identically numbered Exhibit to Pre-Effective Amendment No. 1 to the Registration
Statement (File No. 2-87036).
*** Refiled electronically in Post-Effective Amendment No. 15. Initially filed as
identically numbered Exhibit to Post-Effective Amendment No. 11 to the
Registration Statement (File No. 2-87036).
- Refiled electronically in Post-Effective Amendment No. 15. Initially filed as
identically numbered Exhibit to Post-Effective Amendment No. 5 to the
Registration Statement (File No. 2-87036).
-- Refiled electronically in Post-Effective Amendment No. 15. Initially filed as
identically numbered Exhibit to Post-Effective Amendment No. 8 to the
Registration Statement (File No. 2-87036).
degrees Filed electronically herewith. Initially filed as identically numbered Exhibit to
Post-Effective Amendment No. 13 to the Registration Statement (File No. 2-87036).
degrees++ Filed electronically herewith. Initially filed as Exhibit 2(b) to Post-Effective
Amendment No. 14 to the Registration Statement (File No. 2-87036).
+ Refiled electronically in Post-Effective Amendment No. 15. Initially filed as
identically numbered Exhibit to Post-Effective Amendment No. 14 to Registration
Statement (File No. 2-87036).
++ Refiled electronically in Post-Effective Amendment No. 15. Initially filed as
identically numbered Exhibit to Post-Effective Amendment No. 12 to Registration
Statement (File No. 2-87036).
+++ Incorporated by reference to identically numbered Exhibit to Post-Effective
Amendment No. 15 to the Registration Statement (File No. 2-87036).
</TABLE>
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<PAGE> 97
<TABLE>
<C> <S> <C>
++++ Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13 to
Registration Statement under the Securities Act of 1933 on Form N-1A of Merrill
Lynch Multi-State Municipal Series Trust on January 25, 1996 (File Nos. 2-99473
and 811-4375).
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS MARCH 31, 1997
- ------------------------------------------------------------------------------- --------------
<S> <C>
Class A Common Stock, par value $.10 per share................................. 7,717
Class B Common Stock, par value $.10 per share................................. 15,691
Class C Common Stock, par value $.10 per share................................. 1,519
Class D Common Stock, par value $.10 per share................................. 26,767
</TABLE>
Note: The number of holders shown in the table includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch").
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
as amended to date, 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.
The Registrant has purchased an insurance policy insuring its officers and
Directors against liabilities, and certain costs of defending claims against
such officers and Directors, to the extent such officers and Directors are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties.
The Management Agreement between Registrant and Merrill Lynch Asset
Management, Inc. (now called Merrill Lynch Asset Management, L.P.) ("MLAM")
limits the liability of MLAM to liabilities arising
C-3
<PAGE> 98
from willful misfeasance, bad faith or gross negligence in the performance of
their respective duties or from reckless disregard of their respective duties
and obligations.
In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distribution within the meaning of the
Securities Act of 1933 (the "Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus and
Statement of Additional Information.
Insofar as 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 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 open-end investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
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
SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch
Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch
Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch
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<PAGE> 99
Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch
Utility Income Fund, Inc. and Merrill Lynch Variable Series Funds, Inc.; and the
following closed-end investment companies: Convertible Holdings, Inc., Merrill
Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating
Rate Fund, Inc.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment
Adviser, acts as the investment adviser for the following open-end investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Emerging Tigers
Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Municipal Series Trust, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc. and The
Municipal Fund Accumulation Program, Inc.; and the following closed-end
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc.,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund, II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield 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 Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York
Holdings, Inc., and Worldwide DollarVest, Inc.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of MLAM, FAM Princeton Services, Inc.
("Princeton Services") and Princeton Administrator L.P. ("Princeton
Administrators") is also P.O. Box 9011, Princeton, New Jersey 08543-9011.The
address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081,
Princeton, New Jersey 08543-9081. The address of Merrill Lynch and Merrill Lynch
& Co., Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey
Street, New York, New York 10281. The address of Merrill Lynch Financial Data
Services, Inc. ("MLFDS") is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
C-5
<PAGE> 100
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 1, 1995, 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. Giordano, Harvey,
Kirstein and Monagle are directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ ---------------------- --------------------------------------
<S> <C> <C>
ML & Co. ..................... Limited Partner Financial Services Holding Company;
Limited Partner of FAM.
Princeton Services............ General Partner General Partner of FAM.
Arthur Zeikel................. President 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 Executive Vice President of FAM;
President Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
Director of MLFDS; President of
Princeton Administrators L.P.
Vincent R. Giordano........... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Elizabeth Griffin............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Norman R. Harvey.............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Michael J. Hennewinkel........ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Philip L. Kirstein............ Senior Vice President, Senior Vice President, General Counsel
General Counsel and and Secretary of FAM; Senior Vice
Secretary President, General Counsel, Director
and Secretary of Princeton Services;
Director of MLFD.
Ronald M. Kloss............... Senior Vice President Senior Vice President and Controller
and Controller of FAM; Senior Vice President and
Controller of Princeton Services.
Stephen M. M. Miller.......... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.; Senior Vice
President of Princeton Services.
Joseph T. Monagle, Jr. ....... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Michael L. Quinn.............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch from 1989
to 1995.
Richard L. Reller............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
Gerald M. Richard............. Senior Vice President Senior Vice President and Treasurer of
and Treasurer FAM; Senior Vice President and
Treasurer of Princeton Services;
Vice President and Treasurer of
MLFD.
</TABLE>
C-6
<PAGE> 101
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ ---------------------- --------------------------------------
<S> <C> <C>
Ronald L. Welburn............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services.
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: Merrill Lynch
EuroFund, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Income Fund, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Merrill Lynch Consults International Portfolio, Merrill
Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill
Lynch Global Convertible Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Global Holdings, Merrill Lynch Global Resources Trust, Income Opportunities Fund
1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Latin America
Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Pacific
Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Series Fund, Inc.,
Merrill Lynch Variable Series Funds, Inc., Merrill Lynch World Income Fund,
Inc., Worldwide DollarVest Fund, Inc., and Merrill Lynch Short-Term Global
Income Fund, Inc. The address of each of these investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of MLAM U.K. is Milton Gate,
1 Moor Lane, London EC2Y 9HA, England.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since January 1,
1995, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert, and Richard are
officers of one or more of the registered investment companies listed in the
first two paragraphs of this Item 28:
<TABLE>
<CAPTION>
POSITION OTHER SUBSTANTIAL BUSINESS,
NAME WITH MLAM U.K. PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------- ---------------------- -------------------------------------------
<S> <C> <C>
Arthur Zeikel............ Director and Chairman President of the Manager and FAM;
President and Director of Princeton
Services, Director of MLFD; Executive
Vice President of ML & Co.
Alan J. Albert........... Senior Managing Vice President of the Manager.
Director
Nicholas C.D. Hall....... Director Director of Merrill Lynch Europe PLC.;
General Counsel of Merrill Lynch
International Private Banking Group.
Gerald M. Richard........ Senior Vice President Senior Vice President and Treasurer of the
Manager and FAM; Senior Vice President
and Treasurer of Princeton Services; Vice
President and Treasurer of MLFD.
Carol Ann Langham........ Company Secretary None
Debra Anne Searle........ Assistant Company None
Secretary
</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 second paragraph of Item
28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc. and The Municipal Fund Accumulation
Program, Inc., and also acts as principal underwriter for the following
closed-end funds: Merrill Lynch High Income Municipal Bond Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc.
C-7
<PAGE> 102
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Breen, Crook, Fatseas and Wasel is One Financial Center, 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 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
Kevin P. Boman................. Vice President None
Michael J. Brady............... Vice President None
William M. Breen............... Vice President None
Michael G. Clark............... Vice President None
Mark A. DeSario................ Vice President None
James T. Fatseas............... Vice President None
Debra W. Landsman-Yaros........ Vice President None
Michelle T. Lau................ Vice President None
Gerald M. Richard.............. Vice President and Treasurer Treasurer
Salvatore Venezia.............. Vice President None
William Wasel.................. Vice President None
Robert Harris.................. Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder will be maintained at the offices of the Registrant and its Transfer
Agent, MLFDS.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) 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> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
Township of Plainsboro, and the State of New Jersey, on the 23rd day of May,
1997.
MERRILL LYNCH FUND FOR TOMORROW, INC.
By: /s/ ARTHUR ZEIKEL
------------------------------------
(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 DATE(S) INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- -------------
<C> <S> <C>
/s/ ARTHUR ZEIKEL President (Principal Executive May 23, 1997
- ------------------------------------------ Officer) and Director
Arthur Zeikel
* Treasurer (Principal Financial
- ------------------------------------------ and Accounting Officer)
(Gerald M. Richard)
* Director
- ------------------------------------------
(Ronald W. Forbes)
* Director
- ------------------------------------------
(Cynthia A. Montgomery)
* Director
- ------------------------------------------
(Charles C. Reilly)
* Director
- ------------------------------------------
(Kevin A. Ryan)
* Director
- ------------------------------------------
(Richard R. West)
* This Amendment has been signed by each of the persons so indicated by the undersigned as
Attorney-in-Fact.
*By /s/ ARTHUR ZEIKEL May 23, 1997
- ------------------------------------------
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>
C-9
<PAGE> 104
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------
<S> <C> <C>
2 -- Amended and Restated By-Laws of Registrant.
5(b) -- Sub-Advisory Agreement between Merrill Lynch Asset Management, L.P. and Merrill
Lynch Asset Management U.K. Limited.
10 -- Opinion and Consent of Shereff, Friedman, Hoffman & Goodman, LLP, counsel for
Registrant.
11(a) -- Consent of Deloitte & Touche LLP, independent auditors to Registrant.
15(a) -- Amended and Restated Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940 and Distribution Plan Sub-Agreement.
17(b) -- Financial Data Schedule for Class A Shares.
17(c) -- Financial Data Schedule for Class B Shares.
17(d) -- Financial Data Schedule for Class C Shares.
17(e) -- Financial Data Schedule for Class D Shares.
</TABLE>
<PAGE> 1
Exhibit 2
AMENDED AND RESTATED
BY-LAWS
OF
MERRILL LYNCH FUND FOR TOMORROW, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation
shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time designate or as
the business of the Corporation may require.
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 Jule 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, by
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.
1
<PAGE> 2
Section 3. Place of Meetings. The annual meeting and any special
meeting of the stockholders shall be held at such place within the United States
as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each 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 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 required 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, 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
2
<PAGE> 3
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 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 of if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares
3
<PAGE> 4
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 of 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 and rejection of votes shall be decided by the Chairman of the
meeting.
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 III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Articles
of Incorporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Articles of Incorporation or
these By-Laws.
Section 2. Number of Directors. The numerous of directors shall be
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three (3) nor more than fifteen (15).
Any vacancy created by an increase in directors may be filled in accordance with
Section 6 of this Article III . No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration of
his term unless such director is specifically removed pursuant to Section 5 of
this Article III at the time of such decrease.
Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
annually, by written ballot at the annual meeting of stockholders or a special
meeting held for that purpose. The term
4
<PAGE> 5
of office of each director shall be from the time of his election and
qualification until the annual election of directors next succeeding his
election and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or until
December 31 of the year in which he shall have reached seventy-two years of age,
or until he shall have been removed as hereinafter provided in these By-Laws, or
as otherwise provided by statute or the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders by a vote of sixty-six and two-thirds percent
(66-2/3%) of the votes entitled to be cast for the election of directors.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, an increase in the number of directors or any other
cause, shall be filled by a vote of the majority of the Board of Directors then
in office regardless of whether they constitute a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than two-thirds of the directors then
holding office shall have been elected by the stockholders of the Corporation.
In the event that at any time there is a vacancy in any office of a director
which vacancy may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
sixty days, for the purpose of filling said vacancy or vacancies. Any directors
elected or appointed to fill a vacancy shall hold office until the next annual
meeting of stockholders of the Corporation and until a successor shall have been
chosen and qualifies or until his earlier resignation or removal.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meeting. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held as soon as practicable after the meeting of
stockholders at which the directors were elected. No notice of such annual
meeting shall be necessary if held immediately
5
<PAGE> 6
after the adjournment, and at the site, of the meeting of shareholders. If not
so held, notice shall be given as hereinafter provided for special meetings of
the Board of Directors.
Section 11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Telephone Meetings. Any member or members of the Board of
Directors or of any committee designated by the Board, may participate in a
meeting of the Board, or any such committee, as the case may be, by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means constitutes presence in person at the meeting. This
Section 12 shall not be applicable to meetings held for the purpose of voting in
respect of approval of contracts or agreements whereby a person undertakes to
serve or act as investment adviser of, or principal underwriter for, the
Corporation.
Section 13. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver or notice of any meeting need not state the
purposes of such meeting.
Section 14. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present at any meeting of the Board in
order to constitute a quorum for the transaction of business at such meeting,
and except as otherwise expressly required by statute, the Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or
other applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board; provided,
however, that the approval of any contract with an investment adviser or
principal underwriter, as such terms are defined in the Investment Company Act
of 1940, as amended, which the Corporation enters into or any renewal or
amendment thereof, the approval of the fidelity bond required by the Investment
Company Act of 1940, as amended, and the selection of the Corporation's
independent public accountants shall each require the affirmative vote of a
majority of the directors who are not interested persons, as defined in the
Investment Company Act of 1940, as amended, of the Corporation. In the absence
of a quorum at any meeting of the Board, a majority of the directors present
thereat may adjourn such meeting to another time and place until a quorum shall
be present thereat. Notice of the time and place of any such adjourned meeting
shall be given to the directors who were not present at the time of the
adjournment and, unless such time and place were announced at the meeting at
which the adjournment was taken, to the other directors. At any adjourned
meeting at which a
6
<PAGE> 7
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 15. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President, or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his or her absence or inability to act, any person appointed by the
Chairman) shall act as secretary of the meeting and keep the minutes thereof.
Section 16. Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting, to the
extent permissible under applicable law, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
Section 17. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
Section 18. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as acquired by the Investment Company Act
of 1940, as amended. The Board however, may delegate the duty of management of
the assets and the administration of its day to day operations to an individual
or corporate management company and/or investment adviser pursuant to a written
contract or contracts which have obtained the requisite approvals, including the
requisite approvals of renewals thereof, of the Board of Directors and/or the
stockholders of the Corporation in accordance with the provisions of the
Investment Company Act of 1940, as amended, and the rules thereunder.
Section 19. Contracts. Except as otherwise provided by law or by the
Articles of Incorporation, no contract or transaction between the Corporation
and any partnership or corporation, and no act of the Corporation, shall in any
way be affected or invalidated by the fact that any officer or director of the
Corporation is pecuniarily or otherwise interested therein or is a member,
officer or director of such interest shall be known to the Board of Directors of
the Corporation. Specifically, but without limitation of the foregoing, the
Corporation may enter into one or more contracts appointing Merrill Lynch Asset
Management Inc. investment manager of the Corporation, and may otherwise do
business with Merrill Lynch Asset Management Inc., notwithstanding the fact that
one or more of the directors of the Corporation and some or all of
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<PAGE> 8
its officers are, have been or may become directors, officers, members,
employees, or stockholders of Merrill Lynch Asset Management Inc. may deal
freely with each other, and neither such contract appointing Merrill Lynch Asset
Management Inc. investment manager to the Corporation nor any other contract or
transaction between the Corporation and Merrill Lynch Asset Management Inc.
shall be invalidated or in any wise affected thereby, nor shall any director or
officer of the Corporation by reason thereof be liable to the Corporation or to
any stockholder or creditor of the Corporation or to any other person for any
loss incurred under or by reason of any such contract or transaction. For
purposes of this paragraph, any reference to "Merrill Lynch Asset Management
Inc." shall be deemed to include said company and any parent, subsidiary or
affiliate of said company and any successor (by merger, consolidation or
otherwise) to said company or any such parent, subsidiary or affiliate.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolution adopted by
a majority of the entire board, designate an Executive Commitee consisting of
two or more of the directors of the Corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the
Articles of Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the
Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in
the Investment Company Act of 1940, as amended;
(e) the amendment or repeal of these By-Laws or the adoption of
new By-Laws;
(f) the amendment or repeal of any resolution of the Board which
by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock
of the Corporation; and
(h) the approval of any merger or share exchange which does not
require stockholder approval.
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<PAGE> 9
The Executive Commitee shall keep written minutes of its
proceedings and shall report such minutes to the Board. All such proceedings
shall be subject to revision or alteration by the Board; provided, however, that
third parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such commitee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. General. One third, but not less than two, of the members of
any commitee shall be present at any meeting of such committee in order to
constitute a quorum for the transaction of business at such meeting, and the act
of a majority present shall be the act of such committee. The Board may
designate a chairman of any committee and such chairman or any two members of
any committee may fix the tine and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any tine to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority or
power of the Board in the management of the business or affairs of the
Corporation.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the Corporation
shall be a President, who shall be a director of the Corporation, a Secretary
and a Treasurer, each of whom shall be elected by the Board of Directors. The
Board of Directors may elect or appoint one or more Vice Presidents and may also
appoint such other officers, agents and employees as it may deem necessary or
proper. Any two or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Such officers
shall be elected by the Board of Directors each year at its first meeting held
after the annual meeting of stockholders, each to hold office until the meeting
of the Board following the next annual meeting of the stockholders and until his
successor shall have been duly elected and shall have qualified, or until his
death, or until he shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board may from time to time elect, or delegate to
the President the power to appoint, such other officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or
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<PAGE> 10
more Assistant Secretaries) and such agents, as may be necessary or desirable
for the business of the Corporation. Such officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall be
necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He may
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these powers.
Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from time
to time prescribe.
Section 9. Treasurer. The Treasurer shall:
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(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation, except those which
the Corporation has placed in the custody of a bank or trust
company or member of a national securities exchange (as that
term is defined in the Securities Exchange Act of 1934)
pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as
custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the
credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such
certificates shall be a facsimile, as hereinafter provided)
and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all of the duties incident to the office
of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
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<PAGE> 12
Section 12. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be
indemnified by the Corporation to the full extent permitted under the General
Laws of the State of Maryland and the Investment Company Act of 1940 except that
such indemnity shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office. Absent a
court determination that an officer or director seeking indemnification was not
liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Corporation to indemnify such person must be based
upon the reasonable determination of independent legal counsel or the vote of a
majority of a quorum of the directors who are neither "interested persons", as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
nor parties to the proceeding ("non-party independent directors"), after review
of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Each officer and director of the Corporation claiming
indemnification within the scope of this Article VI shall be entitled to
advances from the Corporation for payment of the reasonable expenses incurred by
him in connection with proceedings to which he or she is a party in the manner
and to the full extent permitted under the General Laws of the State of
Maryland; provided, however, that the person seeking indemnification shall
provide to the Corporation a written affirmation of his or her good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form and
amount acceptable to the Corporation for his or her undertaking; (b) the
Corporation is insured against losses arising by reason of the advance; or (c) a
majority of a quorum of non-party independent directors, or independent legal
counsel in a written opinion shall determine, based on a review of facts readily
available to the Corporation at the time the advance is proposed to be made,
that there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer
or director protecting such person to the full extent permitted under the
General Laws of the State of
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Maryland, from liability arising from his or her activities as officer or
director of the Corporation. The Corporation, however, may not purchase
insurance on behalf of any officer or director of the Corporation that protects
or purports to protect such person from liability to the Corporation or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
The Corporation may indemnify, make advances or purchase
insurance to the extent provided in this Article VI on behalf of an employee or
agent who is not an officer of director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board of Directors, 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
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 the 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. Transfer of Shares. Transfer 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 or her 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 of certificates, if
issued, for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all
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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 certificate 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 sum, limited or unlimited, and in such form and with such
surety or sureties, as the Board in its absolute discretion shall determine, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such certificate, or issuance
of a new certificate. Anything herein to the contrary notwithstanding, the
Board, in its absolute discretion, may refuse to issue any such new certificate,
except pursuant to legal proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and 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 evidence of interests or evidences of interests arising out of
any change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights on interests, and in such case
only the 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 of its affairs, and voting trust agreements on file at its
principal office.
ARTICLE VIII
Determination of Net Asset Value; Valuation of
Portfolio Securities and Other Assets
Section 1. Net Asset Value. The net asset value of a share of Common
Stock of the Corporation shall be determined in accordance with applicable laws
and regulations or under the
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supervision of such persons and at such time or times as shall from time to time
be prescribed by the Board of Directors. Each such determination shall be made
by subtracting from the value of the assets of the Corporation (as determined
pursuant to Article VIII, Section 2 of these By-Laws) the amount of its
liabilities, dividing the remainder by the number of shares of Common Stock
issued and outstanding, and adjusting the results to the nearest full cent per
share.
Section 2. Valuation of Portfolio Securities and Other Assets. Except
as otherwise required by any applicable law or regulation of any regulatory
agency having jurisdiction over the activities of the Corporation, the
Corporation shall determine the value of its portfolio securities and other
assets as follows:
(a) securities for which market quotations are readily
available shall be valued at current market value determined in such manner as
the Board of Directors may from time to time prescribe;
(b) all other securities and assets shall be valued at amounts
deemed best to reflect their fair value as determined in good faith by, the
Board of Directors, or by other persons designated and supervised by the Board
acting pursuant to procedures adopted by the Board in good faith, and at such
time or times as shall from time to time be prescribed by the Board.
All quotations, sale prices, bid and asked prices and other information
shall be obtained from such sources as the persons making such determination
believe to be reliable and any determination of net asset value based thereon
shall be conclusive.
ARTICLE IX
Seal
The Seal of Corporation shall be circular in form and shall
bear, in addition to any other emblem or device approved by the Board of
Directors, the name of the Corporation, the year of its incorporation and the
words "Corporate Seal" and "Maryland". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE X
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the 31st day of the January in each year.
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ARTICLE XI
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safe keeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safe keeping of
the securities and investments of the Corporation shall contain provisions
complying with the Investment Company Act of 1940, as amended, and the general
rules and regulations thereunder.
ARTICLE XII
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc.. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XIII
Independent Public Accountants
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and ratified by the stockholders to the extent required by applicable
provisions of the Investment Company Act of 1940, as amended, and the rules
thereunder.
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ARTICLE XIV
Annual Statement
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed to
each stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his or her address as the same
appears on the books of the Corporation. Such annual statement shall also be
available at the annual meeting of stockholders and within twenty (20) days
thereafter, be placed on file at the Corporation's principal office in the State
of Maryland. Each such report shall show the assets and liabilities of the
Corporation as of the close of the annual or quarterly period covered by the
report and the securities in which the funds of the Corporation were then
invested. Such report shall also show the Corporation's income and expenses for
the period from the end of the Corporation's preceding fiscal year to the close
of the annual or quarterly period covered by the report and any other
information required by the Investment Company Act of 1940, as amended, and
shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XV
Amendments
These By-Laws or any of them may be amended, altered or
repealed at any regular meeting of the stockholders or at any special meeting of
the stockholders at which a quorum is present or represented, by a favorable
vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of
the outstanding shares of capital stock of the Corporation entitled to be voted
on the matter, provided that notice of the proposed amendment, alteration or
repeal be contained in the notice of such special meeting. These By-Laws may
also be amended, altered or repealed by the affirmative vote of a majority of
the Board of Directors at any regular or special meeting of the Board of
Directors, except any particular By-Law which is specified as not subject to
alteration or repeal by the Board of Directors, subject to the requirements of
the Investment Company Act of 1940, as amended.
17
<PAGE> 1
Exhibit 5(b)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the __ day of ____________, 1997, by and between
MERRILL LYNCH ASSET MANAGEMENT, L.P., a Delaware limited partnership
(hereinafter referred to as "MLAM"), and MERRILL LYNCH ASSET MANAGEMENT U.K.
LIMITED, a corporation organized under the laws of England and Wales
(hereinafter referred to as "MLAM U.K.").
W I T N E S S E T H:
WHEREAS, MERRILL LYNCH FUND FOR TOMORROW, INC. (the "Fund") is a
Maryland corporation engaged in business as a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, MLAM and MLAM U.K. are engaged principally in rendering
investment advisory services and are registered as investment advisers under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, MLAM U.K. is regulated by the Investment Management Regulatory
Organization, a self-regulating organization recognized under the Financial
Services Act of 1986 of the United
<PAGE> 2
Kingdom (hereinafter referred to as "IMRO"), and the conduct of its investment
business is regulated by IMRO; and
WHEREAS, MLAM has entered into an investment advisory agreement (the
"Advisory Agreement") dated January 11, 1984, pursuant to which MLAM provides
management and investment and advisory services to the Fund; and
WHEREAS, MLAM U.K. is willing to provide investment advisory services
to MLAM in connection with the Fund's operations on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, MLAM U.K. and MLAM hereby agree as follows:
ARTICLE I
Duties of MLAM U.K.
MLAM hereby employs MLAM U.K. to act as investment adviser to MLAM and
to furnish, or arrange for affiliates to furnish, the investment advisory
services described below, subject to the broad supervision of MLAM and the Fund,
for the period and on the terms and conditions set forth in this Agreement. MLAM
U.K. hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such
<PAGE> 3
services and to assume the obligations herein set forth for the compensation
provided for herein. MLAM and its affiliates shall for all purposes herein be
deemed a Non-private Customer as defined under the rules promulgated by IMRO
(hereinafter referred to as the "IMRO Rules"). MLAM U.K. and its affiliates
shall for all purposes herein be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
MLAM U.K. shall have the right to make unsolicited calls on MLAM and
shall provide MLAM with such investment research, advice and supervision as the
latter may from time to time consider necessary for the proper supervision of
the assets of the Fund; shall make recommendations from time to time as to
which securities shall be purchased, sold or exchanged and what portion of the
assets of the Fund shall be held in the various securities in which the Fund
invests, options, futures, options on futures or cash; all of the foregoing
subject always to the restrictions of the Articles of Incorporation and By-Laws
of the Fund, as they may be amended and/or restated from time to time, the
provisions
<PAGE> 4
of the Investment Company Act and the statements relating to the Fund's
investment objective, investment policies and investment restrictions as the
same are set forth in the currently effective prospectus and statement of
additional information relating to the shares of the Fund under the Securities
Act of 1933, as amended (the "Prospectus" and "Statement of Additional
Information", respectively). MLAM U.K. shall make recommendations and effect
transactions with respect to foreign currency matters, including foreign
exchange contracts, foreign currency options, foreign currency futures and
related options on foreign currency futures and forward foreign currency
transactions. MLAM U.K. shall also make recommendations or take action as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the portfolio securities of the Fund shall be
exercised.
MLAM U.K. will not hold money on behalf of MLAM or the Fund, nor will
MLAM U.K. be the registered holder of the registered investments of MLAM or the
Fund or be the custodian of documents or other evidence of title.
<PAGE> 5
ARTICLE II
Allocation of Charges and Expenses
MLAM U.K. assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement and shall at its own
expense provide the office space, equipment and facilities which it is obligated
to provide under Article I hereof and shall pay all compensation of officers of
the Fund and all Directors of the Fund who are affiliated persons of MLAM U.K.
ARTICLE III
Compensation of MLAM U.K.
For the services rendered, the facilities furnished and expenses
assumed by MLAM U.K., MLAM shall pay to MLAM U.K. a fee in an amount to be
determined from time to time by MLAM and MLAM U.K. but in no event in excess of
the amount that MLAM actually receives for providing services to the Fund
pursuant to the Advisory Agreement.
<PAGE> 6
ARTICLE IV
Limitation of Liability of MLAM U.K.
MLAM U.K. shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the performance of sub-advisory services rendered with respect to the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of reckless disregard of its obligations and duties
hereunder. As used in this Article IV, MLAM U.K. shall include any affiliates of
MLAM U.K. performing services for MLAM contemplated hereby and directors,
officers and employees of MLAM U.K. and such affiliates.
ARTICLE V
Activities of MLAM U.K.
The services of MLAM U.K. to the Fund are not to be deemed to be
exclusive, MLAM U.K. and any person controlled by or under common control with
MLAM U.K. (for purposes of this Article V referred to as "affiliates") being
free to render services to others. It is understood that Directors, officers,
employees and shareholders of the Fund are or may become interested in MLAM U.K.
and its affiliates, as directors, officers, employees and
<PAGE> 7
shareholders or otherwise and that directors, officers, employees and
shareholders of MLAM U.K. and its affiliates are or may become similarly
interested in the Fund, and that MLAM U.K. and directors, officers, employees,
partners and shareholders of its affiliates may become interested in the Fund as
shareholders or otherwise.
ARTICLE VI
MLAM U.K. Statements Pursuant to IMRO Rules
Any complaints concerning MLAM U.K. should be in writing addressed to
the attention of the Managing Director of MLAM U.K. MLAM has the right to obtain
from MLAM U.K. a copy of the IMRO complaints procedure and to approach IMRO and
the Investment Ombudsman directly.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding Investments Not Readily
Realisable (as that term is used in the IMRO Rules) or investments denominated
in a currency other than British pound sterling. There can be no certainty that
market makers will be prepared to deal in unlisted or thinly traded securities
and an accurate valuation may be hard to obtain. The value of investments
recommended by MLAM U.K. may be
<PAGE> 8
subject to exchange rate fluctuations which may have favorable or unfavorable
effects on investments.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding options, futures or
contracts for differences. Markets can be highly volatile and such investments
carry a high degree of risk of loss exceeding the original investment and any
margin on deposit.
ARTICLE VII
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above
written and shall remain in force until the date of termination of the Advisory
Agreement (but not later than two years after the date hereof) and thereafter,
but only so long as such continuance is specifically approved at least annually
by (i) the Directors of the Fund or by the vote of a majority of the outstanding
voting securities of the Fund and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
<PAGE> 9
This Agreement may be terminated at any time, without the payment of
any penalty, by MLAM or by vote of a majority of the outstanding voting
securities of the Fund, or by MLAM U.K., on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Advisory Agreement. Any
termination shall be without prejudice to the completion of transactions already
initiated.
ARTICLE VIII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the Directors of the Fund or by the vote of a
majority of outstanding voting securities of the Fund and (ii) a majority of
those Directors who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
ARTICLE IX
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested
<PAGE> 10
person", when used in this Agreement, shall have the respective meanings
specified in the Investment Company Act and the rules and regulations
thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
ARTICLE X
Governing Law
This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company Act.
To the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By ______________________________________
Title:
MERRILL LYNCH ASSET MANAGEMENT U.K. LIMITED
By ______________________________________
Title:
<PAGE> 1
Exhibit 10
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 758-9500
May 23, 1997
Merrill Lynch Fund For Tomorrow, Inc.
P.O. Box 9011
Princeton, New Jersey 08536-9011
Ladies and Gentlemen:
Merrill Lynch Fund For Tomorrow, Inc. (the "Fund"), a Maryland
corporation (the "Fund"), is filing with the Securities and Exchange Commission
(the "Commission") Post-Effective Amendment No. 17 (the "Amendment") to its
Registration Statement under the Securities Act of 1933, as amended (the "1933
Act"), and the Investment Company Act of 1940, as amended (the "1940 Act"), on
Form N-1A (1933 Act File No. 2-87036, 1940 Act File No. 811-3871) relating,
among other things, to the registration under the 1933 Act of 4,730,791
additional shares of 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 current and effective under the 1933 Act at
the time of sale. 7,308,592 of the Additional Shares are previously outstanding
shares of common stock of the Fund, par value $.10 per share, which were
redeemed by the Fund during its fiscal year ended January 31, 1997. According to
the Amendment, 2,596,799 of the Additional Shares have previously been used by
the Fund for reduction pursuant to paragraph (a) of Rule 24e-2 under the 1940
Act on previous filings of post-effective amendments to the Fund's Registration
Statement during the current fiscal year, or 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 proven to our
satisfaction to be genuine, of its Articles of Incorporation and By-Laws, as
currently in effect, other documents related to its organization and operation,
and a certificate of recent date issued by the Department of Assessments and
Taxation of the State of Maryland, certifying the existence and good standing of
the Fund. We are generally familiar with the corporate affairs of the Fund.
<PAGE> 2
Merrill Lynch Fund For Tomorrow, Inc.
May 23, 1997
Page 2
Based upon the foregoing, it is our opinion that:
1. The Fund has been duly organized and is legally existing
under the laws of the State of Maryland.
2. The Fund is authorized to issue an unlimited number of
shares of common stock.
3. Subject to the effectiveness under the Act of the
Amendment and compliance with applicable state securities
laws, upon the issuance of the Additional Shares for a
consideration of not less than the par value thereof, 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 Amendment, and with any state
securities commission where such filing is required. We also consent to the
reference to our firm as counsel in the prospectus and Statement of Additional
Information of the Fund. 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, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
SFH&G:MKN:JLS:PSF:jlk
<PAGE> 1
EXHIBIT (11)(A)
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Fund For Tomorrow, Inc.:
We consent to the use in Post-Effective Amendment No. 17 to Registration
Statement No. 2-87036 of our report dated March 10, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
May 23, 1997
<PAGE> 1
Exhibit 15(a)
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").
WITNESSETH:
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
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
<PAGE> 2
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 the 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 inventives and payments
to sales and marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising expenditures erelated 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 type referred to in
Paragraphs l 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.
2
<PAGE> 3
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 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______________________________________
3
<PAGE> 4
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 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.
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.
4
<PAGE> 5
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_____________________________________
5
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,078,464)
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<NAME> CLASS D
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</TABLE>
