As filed with the Securities and Exchange Commission on April 30, 1998
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. 18 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 19 [X]
---------------
Merrill Lynch Fund For Tomorrow, Inc.
(Exact Name of Registrant as Specified in Charter)
---------------
<TABLE>
<CAPTION>
800 Scudders Mill Road
Plainsboro, New Jersey 08536-9011 (609) 282-2800
<S> <C> <C>
(Address of Principal Executive Offices) (Zip Code) (Registrant's telephone number,
including area code)
</TABLE>
---------------
Arthur Zeikel
800 Scudders Mill Road, Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
---------------
Copies to:
<TABLE>
<CAPTION>
<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.
Title of Securities Being Registered.................Shares of Common Stock
(Par Value $0.10 per share)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH FUND FOR TOMORROW, INC.
Post-Effective Amendment No. 18 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 ............ General Information
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
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Post-Effective Amendment to
the Registration Statement.
<PAGE>
PROSPECTUS
April 30, 1998
Merrill Lynch Fund For Tomorrow, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 o 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. 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 4.
----------------
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, and for participants in certain fee-based programs
the minimum initial purchase is $500 and the minimum subsequent purchase is
$50. Merrill Lynch may charge its customers a processing fee (presently $5.35)
for confirming purchases and repurchases. Purchases and redemptions made
directly through Merrill Lynch Financial Data Services, Inc. (the "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 April 30, 1998, has been filed with
the Securities and Exchange Commission (the "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 Commission maintains a web site
(http:///www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information about the Fund. 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>
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 year(f) None(d)
decreasing 1.0% annually
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:
Shareholder Servicing Fees(i) ............. 0.20% 0.24% 0.27% 0.19%
Other ..................................... 0.14% 0.14% 0.14% 0.14%
--------- ---- ---- ------
Total Other Expenses ..................... 0.34% 0.38% 0.41% 0.33%
--------- ---- ---- ------
Total Fund Operating Expenses .............. 0.99% 2.03% 2.06% 1.23%
========= ==== ==== ======
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and participants in certain
fee-based programs. See "Purchase of Shares - Initial Sales Charge
Alternatives - Class A and Class D Shares" - page 15.
(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 18 and
"Shareholder Services - Fee-Based Programs" - page 26.
(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 15.
(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 that
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 26.
(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 26.
(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 26.
(g) See "Management of the Fund - Advisory Fee" - page 12.
(h) See "Purchase of Shares - Distribution Plans" - page 21.
(i) See "Management of the Fund - Transfer Agency Services Fee" - page 13.
2
<PAGE>
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 $82 $ 104 $ 167
Class B ........................................................ $ 61 $84 $ 109 $ 217*
Class C ........................................................ $ 31 $65 $ 111 $ 239
Class D ........................................................ $ 64 $89 $ 117 $ 194
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 $82 $ 104 $ 167
Class B ........................................................ $ 21 $64 $ 109 $ 217*
Class C ........................................................ $ 21 $65 $ 111 $ 239
Class D ........................................................ $ 64 $89 $ 117 $ 194
</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 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 Conduct Rules 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 made directly through the
Fund's transfer agent are not subject to the processing fee. See "Purchase of
Shares" and "Repurchase and Redemption of Shares."
3
<PAGE>
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 registered investment companies advised by Merrill Lynch Asset Management,
L.P. ("MLAM" or the "Investment Adviser"), or an affiliate of MLAM, Fund Asset
Management, L.P. ("FAM"). Funds advised by MLAM or FAM that use 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 CDSCs, 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 CDSCs and distribution fees with respect to the Class B and Class
C shares in that the sales charges and distribution fees 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."
4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Account
Maintenance Distribution
Class Sales Charge(1) Fee Fee Conversion Feature
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(2)(3)
- --------------------------------------------------------------------------------------------------------
B CDSC for a period of four years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0%(4) eight years(5)
- --------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- ---------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(3)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares - Initial Sales
Charge Alternatives - Class A and Class D Shares - Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans 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 0.75%
sales charge for 401(k) purchases over $1,000,000 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 the conversion
and holding period for certain retirement plans is modified as described
under "Purchase of Shares - Deferred Sales Charge Alternatives - Class B
and Class C Shares - Conversion of Class B Shares to Class D Shares."
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% 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 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."
5
<PAGE>
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 Class B shares and a CDSC if they are redeemed within
four years of purchase. Such CDSC may be modified in connection with
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 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, are 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
1.0% 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. The maximum initial sales charge of 5.25% is reduced for
purchases of $25,000 and over. Purchases of $1,000,000 or more may not
be subject to an initial sales charge but if the initial sales charge is
waived such 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 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."
6
<PAGE>
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, 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>
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, 1998 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,
=================================================
1998++ 1997++ 1996++ 1995++
=========== =========== =========== =============
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ........ $17.16 $16.26 $ 13.55 $ 16.39
-------- -------- ------- ---------
Investment income - net ..................... .07 .08 .07 .09
Realized and unrealized gain (loss) on
investments and foreign currency
transactions - net ......................... 1.99 3.04 4.19 (1.97)
-------- -------- ------- ---------
Total from investment operations ............. 2.06 3.12 4.26 (1.88)
-------- -------- ------- ---------
Less dividends and distributions:
Investment income - net ..................... - - - -
Realized gain on investments - net .......... (3.61) (2.22) (1.55) (.96)
--------- --------- ------- ---------
Total dividends and distributions ............ (3.61) (2.22) (1.55) (.96)
--------- --------- ------- ---------
Net asset value, end of period ............... $ 15.61 $17.16 $ 16.26 $ 13.55
========= ========= ======= =========
Total Investment Return:**
Based on net asset value per share .......... 12.43% 19.99% 31.82% (11.23%)
========= ========= ======= ==========
Ratios to Average Net Assets:
Expenses .................................... .99% 1.00% 1.07% .98%
========= ========= ======= =========
Investment income - net ..................... .40% .46% .44% .59%
========= ========= ======= =========
Supplemental Data:
Net assets, end of period (in thousands) $13,552 $ 39,605 $ 34,231 $ 8,665
========= ========= ======= =========
Portfolio turnover .......................... 17.63% 39.96% 67.38% 45.86%
========= ========= ======= =========
Average Commission Rate Paid## .............. $ .0003 $ .0277 - -
========= ========= ======= =========
<CAPTION>
Class A
=========================================================================
For the Year Ended January 31,
=========================================================================
1994 1993 1992 1991 1990 1989+
=========== =========== =========== =========== =========== =============
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ........ $ 16.29 $ 16.84 $ 15.49 $ 15.26 $ 14.96 $ 16.05
------- ------- ------- ------- ------- --------
Investment income - net ...................... .15 .25 .36 .41 .30 .08
Realized and unrealized gain (loss) on
investments and foreign currency
transactions - net .......................... 2.18 .49 3.74 .59 1.45 .43
------- ------- ------- ------- ------- --------
Total from investment operations ............. 2.33 .74 4.10 1.00 1.75 .51
------- ------- ------- ------- ------- --------
Less dividends and distributions:
Investment income - net ..................... - (.23) (.35) (.40) (.41) (.13)
Realized gain on investments - net .......... (2.23) (1.06) (2.40) (.37) (1.04) (1.47)
------- ------- -------- -------- -------- ---------
Total dividends and distributions ............ (2.23) (1.29) (2.75) (.77) (1.45) (1.60)
------- ------- -------- -------- -------- ---------
Net asset value, end of period ............... $16.39 $ 16.29 $ 16.84 $ 15.49 $ 15.26 $ 14.96
========= ========= ======= ====== ======== ========
Total Investment Return:**
Based on net asset value per share ........... 15.78% 4.79% 28.35% 6.64% 10.92% 3.90%#
========= ========= ======= ======= ======= =======
Ratios to Average Net Assets:
Expenses ..................................... .88% .90% .95% .96% .89% .91%*
========= ========= ======= ======= ======= ========
Investment income - net ...................... .95% 1.35% 1.81% 2.58% 2.20% 1.87%*
========= ========= ======= ======= ======= ========
Supplemental Data:
Net assets, end of period (in thousands) $10,942 $11,394 $ 8,846 $ 5,478 $ 4,466 $ 476
========= ========= ======= ======= ====== ========
Portfolio turnover .......................... 48.63% 40.58% 48.28% 25.57% 15.23% 10.26%
========= ========= ======= ======= ====== ========
Average Commission Rate Paid## .............. - - - - - -
========= ========= ======= ======= ======= ========
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Class A shares commenced operations on October 26, 1988.
++ Based on average shares outstanding.
# 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>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Class B
=====================================================
For the Year Ended January 31,
=====================================================
1998+ 1997+ 1996+ 1995+
============= ============= ============ ============
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
Per Share Operating Performance:
Net asset value, beginning of year .... $ 16.59 $ 15.79 $ 13.33 $ 16.30
------- -------- -------- --------
Investment income (loss) - net ........ (.13) (.10) (.08) (.06)
Realized and unrealized gain (loss)
on investments and foreign
currency transactions - net .......... 1.92 2.95 4.09 (1.96)
-------- -------- -------- --------
Total from investment operations ...... 1.79 2.85 4.01 (2.02)
-------- -------- -------- --------
Less dividends and distributions:
Investment income - net .............. - - - -
Realized gain on
investments - net ................... (3.37) ( 2.05) (1.55) (.95)
-------- -------- --------- --------
Total dividends and distributions ..... (3.37) (2.05) (1.55) (.95)
-------- -------- --------- --------
Net asset value, end of year .......... $ 15.01 $ 16.59 $ 15.79 $ 13.33
======== ========= ======== ========
Total Investment Return:*
Based on net asset value per share 11.20% 18.80% 30.43% (12.22%)
======== ========= ======== ========
Ratios to Average Net Assets:
Expenses ............................. 2.03% 2.06% 2.13% 1.99%
======== ========= ======== ========
Investment income (loss) - net ....... (.74%) (.58%) (.55%) (.38%)
======== ========= ======== ========
Supplemental Data:
Net assets, end of year (in
thousands) .......................... $ 60,646 $104,828 $112,239 $119,186
======== ========= ======== ========
Portfolio turnover ................... 17.63% 39.96% 67.38% 45.86%
======== ========= ======== ========
Average Commission Rate Paid ## $ .0003 $ .0277 - -
======== ========= ======== ========
<CAPTION>
Class B
=============================================================================
For the Year Ended January 31,
=============================================================================
1994 1993 1992 1991 1990 1989
============ ============ ============ ============ ============ ============
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
Per Share Operating Performance:
Net asset value, beginning of year .... $ 16.28 $ 16.82 $ 15.48 $ 15.24 $ 14.94 $ 13.78
-------- -------- -------- -------- -------- --------
Investment income (loss) - net ........ (.01) .06 .14 .24 .21 .20
Realized and unrealized gain (loss)
on investments and foreign
currency transactions - net .......... 2.17 .52 3.77 .60 1.36 2.72
-------- -------- -------- -------- -------- --------
Total from investment operations ...... 2.16 .58 3.91 .84 1.57 2.92
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income - net .............. - (.06) (.17) (.23) (.23) (.20)
Realized gain on
investments - net ................... (2.14) (1.06) (2.40) (.37) (1.04) (1.56)
-------- -------- -------- -------- -------- --------
Total dividends and distributions ..... (2.14) (1.12) (2.57) (.60) (1.27) (1.76)
-------- -------- -------- -------- -------- --------
Net asset value, end of year .......... $ 16.30 $ 16.28 $ 16.82 $ 15.48 $ 15.24 $ 14.94
============ ============ ============ ============ ============ ============
Total Investment Return:*
Based on net asset value per share 14.60% 3.75% 26.96% 5.59% 9.77% 22.11%
============ ============ ============ ============ ============ ============
Ratios to Average Net Assets:
Expenses .............................. 1.91% 1.92% 1.98% 2.00% 1.93% 1.96%
============ ============ ============ ============ ============ ============
Investment income (loss) - net ........ (.07%) .36% .83% 1.53% 1.20% 1.18%
============ ============ ============ ============ ============ ============
Supplemental Data:
Net assets, end of year (in
thousands) ........................... $396,424 $447,186 $ 476,106 $442,944 $516,402 $562,899
============ ============ ============ ============ ============ ============
Portfolio turnover .................... 48.63% 40.58% 48.28% 25.57% 15.23% 10.26%
============ ============ ============ ============ ============ ============
Average Commission Rate Paid ## ....... - - - - - -
============ ============ ============ ============ ============ ============
</TABLE>
- --------
* Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
## 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>
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class C++
=========================================================
For the Year Ended
January 31, For the Period
======================================= October 21,
1994+ to
January 31,
1998 1997 1996 1995
============= ============= =========== =================
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ...... $ 16.47 $ 15.71 $ 13.28 $ 14.08
------- ------- -------- ---------
Investment income (loss) - net ............ (.11) (.10) (.10) (.04)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions - net ....................... 1.88 2.94 4.08 (.54)
-------- -------- -------- ----------
Total from investment operations ........... 1.77 2.84 3.98 (.58)
-------- -------- -------- ----------
Less distributions from realized gain on
investments - net ......................... (3.30) (2.08) (1.55) (.22)
-------- -------- -------- ----------
Net asset value, end of period ............. $ 14.94 $ 16.47 $ 15.71 $ 13.28
======== ======== ========= ==========
Total Investment Return:**
Based on net asset value per share ........ 11.15% 18.80% 30.32% (4.12%)#
======== ======== ========= ==========
Ratios to Average Net Assets:
Expenses .................................. 2.06% 2.07% 2.14% 2.26%*
======== ======== ========= ==========
Investment income (loss) - net ............ (.68%) (.61%) (.67%) (.87%)*
======== ======== ========= ==========
Supplemental Data:
Net assets, end of period (in thousands) .. $2,926 $ 8,430 $6,385 $ 80
======== ======== ========= ==========
Portfolio turnover ........................ 17.63% 39.96% 67.38% 45.86%
======== ======== ========= ==========
Average Commission Rate Paid ## ........... $.0003 $ .0277 - -
======== ======== ========= ==========
<CAPTION>
Class D++
=========================================================
For the Period
For the Year Ended October 21,
January 31, 1994+ to
======================================= January 31,
1998 1997 1996 1995
============= ============ ============ =================
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ...... $ 17.09 $ 16.20 $ 13.54 $ 14.26
-------- -------- ------- ---------
Investment income (loss) - net ............ -+++ .04 .03 (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions - net ....................... 1.99 3.03 4.18 (.49)
-------- -------- ------- ----------
Total from investment operations ........... 1.99 3.07 4.21 (.50)
-------- -------- ------- ----------
Less distributions from realized gain on
investments - net ......................... (3.56) (2.18) (1.55) (.22)
-------- --------- -------- ----------
Net asset value, end of period ............. $ 15.52 $ 17.09 $ 16.20 $ 13.54
======= ======== ======= =========
Total Investment Return:**
Based on net asset value per share ........ 12.07% 19.73% 31.47% (3.50%)#
======= ======== ======= =========
Ratios to Average Net Assets:
Expenses .................................. 1.23% 1.25% 1.33% 1.43%*
======= ======== ======= =========
Investment income (loss) - net ............ (.01%) .22% .22% (.23%)*
======= ======== ======= =========
Supplemental Data:
Net assets, end of period (in thousands) .. $231,695 $238,260 $227,908 $156,947
======= ======== ======= =========
Portfolio turnover ........................ 17.63% 39.96% 67.38% 45.86%
======= ======= ======= =========
Average Commission Rate Paid ## ........... $ .0003 $ .0277 - -
======= ======== ======= =========
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Amount is less than (.01) per share.
# 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>
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 that 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.
MANAGEMENT OF THE FUND
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.
11
<PAGE>
The Directors of the Fund are:
ARTHUR ZEIKEL* - Chairman of the Investment Adviser and its affiliate,
FAM; Chairman and Director of Princeton Services, Inc.; and Executive Vice
President of ML & Co.
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 - Self-employed financial consultant; former President
and Chief Investment Officer of Versus Capital, Inc.; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc.
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 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 100 registered investment companies. The Investment Adviser
also offers portfolio management services to individual and institutional
accounts. As of January 31, 1998, the Investment Adviser and FAM had a total of
approximately $287.0 billion in investment company and other portfolio assets
under management, including accounts of certain affiliates of the Investment
Adviser.
Vincent P. Dileo is the portfolio manager for the Fund. Mr. Dileo, a First
Vice President of the Investment Adviser since 1998 was a Vice President of the
Investment Adviser from 1984 to 1998.
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, 1998, the fee paid by the
Fund to the Investment Adviser was $2,263,650 (based on average daily net
assets of approximately $349.2 million). For the fiscal year ended January 31,
1998, the ratio of total expenses to average net assets was .99%, 2.03%, 2.06%
and 1.23% 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.
12
<PAGE>
Transfer Agency Services Fee
The Transfer Agent, which is a 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 an annual fee of up to $11.00 per Class A or Class
D account and up to $14.00 per Class B or Class C account and is entitled to
reimbursement for certain transaction charges and out-of-pocket expenses
incurred by it under the Transfer Agency Agreement. Additionally, a $.20
monthly closed account charge will be assessed on all accounts which close
during the calendar year. Application of this fee will commence the month
following the month the account is closed. At the end of the calendar year, no
further fees will be due. For purposes of the Transfer Agency Agreement, the
term "account" includes a shareholder account maintained directly by the
Transfer Agent and any other account representing the beneficial interest of a
person in the relevant share class on a recordkeeping system, provided the
recordkeeping system is maintained by a subsidiary of ML & Co. For the fiscal
year ended January 31, 1998, the total fee paid by the Fund to the Transfer
Agent pursuant to the Transfer Agency Agreement was $723,521.
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,
1998, the Fund reimbursed the Investment Adviser $90,076 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.
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 each of 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 $1000 and the minimum
subsequent purchase is $50, except that (i) for retirement plans, the minimum
initial purchase is $100 and the
13
<PAGE>
minimum subsequent purchase is $1, and (ii) for participants in certain fee
based programs, the minimum initial purchase is $500 and the minimum subsequent
purchase is $50.
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 on that
day, such orders shall be deemed received on the next business day. The Fund or
the Distributor may suspend the 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 made
directly through the Fund's Transfer Agent are not subject to the processing
fee.
The Merrill Lynch Select Pricing(SM) System, 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 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 4.
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 CDSCs, 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 (except that Class B Shareholders may vote upon
material changes to expenses charged under the Class D Distribution Plan). See
"Distribution Plans" below. Each class has different exchange privileges. See
"Shareholder Services - Exchange Privilege."
14
<PAGE>
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 CDSCs and distribution fees with respect to Class B and Class C shares
in that the sales charges and distribution fees 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, that are
eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Account
Maintenance Distribution
Class Sales Charge(1) Fee Fee Conversion Feature
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
- --------------------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0%(4) eight years(5)
- --------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- --------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(3)
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares - Initial Sales
Charge Alternatives - Class A and Class D Shares - Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans 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 0.75%
sales charge for 401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividended reinvestment shares and the conversion
and holding period for certain retirement plans is modified as described
under "Purchase of Shares - Deferred Sales Charge Alternatives - Class B
and Class C Shares - Conversion of Class B Shares to Class D Shares."
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.
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.
15
<PAGE>
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 Sales Load Discount to
as Percentage as Percentage* Selected Dealers
of Offering of the Net as Percentage of the
Amount of Purchase Price Amount Invested 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 by certain retirement plan
investors and participants in certain fee-based programs. If the sales
charge is waived in connection with a purchase of $1,000,000 or more of the
Fund, 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 certain fee-based programs. The charge will be assessed on
an amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed. A sales charge of 0.75% will be charged on
purchases of $1,000,000 or more of Class A or Class D shares by certain
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"). The proceeds from the account maintenance
fees are used to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing continuing account maintenance activities. During
the fiscal year ended January 31, 1998, the Fund sold 1,197,905 Class A shares
for aggregate net proceeds of $20,864,302. The gross sales charges for the sale
of Class A shares of the Fund for that year were $3,463, of which $262 and
$3,201 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, 1998. During the
fiscal year ended January 31, 1998, the Fund sold 265,722 Class D shares for
aggregate net proceeds of $4,736,667. The gross sales charges for the sale of
Class D shares of the Fund for that year were $38,224, of which $2,297 and
$35,927 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 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 and U.S. branches of foreign banking institutions provided that
the program or branch 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
16
<PAGE>
and employees and to members of the Boards of investment companies advised by
MLAM or its affiliates, including the Fund. Certain persons who acquired shares
of certain closed-end funds advised by MLAM or its affiliates 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.
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.
17
<PAGE>
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,
which declines each year 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 at an annual rate of
0.25% of average daily net assets and a distribution fee of 0.75% of net assets
as discussed below under "Distribution Plans." The proceeds from the account
maintenance fees are used to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing continuing account maintenance
activities.
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." Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder Services -
Exchange Privilege" will continue to be subject to the Fund's 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 that
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.
18
<PAGE>
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, 1998, the Distributor received CDSCs
of $81,549 with respect to redemptions of Class B shares, all of which were
paid to Merrill Lynch. Additional CDSCs payable to the Distributor may have
been waived or converted to a contingent obligation in connection with a
shareholder's participation in certain fee-based programs.
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 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 that 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 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
19
<PAGE>
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. The Class C CDSC may be waived in connection with certain
fee-based programs. See "Shareholder Services - Fee-Based Programs." For the
fiscal year ended January 31, 1998, the Distributor received CDSCs of $2,260
with respect to redemptions of Class C shares, all of which were paid to
Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions 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.
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 at an annual rate of 0.25% of average daily 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.
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 that 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
20
<PAGE>
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 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, 1998, the Fund paid the Distributor
$800,509 pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $80.3
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, 1998, the Fund paid the
Distributor $49,658 pursuant to the Class C Distribution Plan (based on average
daily net assets subject to such Class C Distribution Plan of approximately
$5.0 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, 1998, the Fund paid the
Distributor $599,540 pursuant to the Class D Distribution Plan (based on
average daily net assets subject to such Class D Distribution Plan of
approximately $240.5 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
21
<PAGE>
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, 1997, 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 $13,736,000 (21.40% of Class B net
assets at that date). For the Class C shares, as of December 31, 1997, 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 $22,000 (0.75% of Class C assets at
that date). As of January 31, 1998, direct cash revenues for the period since
commencement of the offering of Class B shares exceeded direct cash expenses by
$47,593,009 (78.48% of Class B net assets at that date). With respect to Class C
shares, as of January 31, 1998, direct cash revenues for the period since
October 21, 1994 (commencement of operations) exceeded direct cash expenses by
$116,453 (3.98% 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 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 "Purchase of Shares -
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
22
<PAGE>
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 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 made directly through the Fund's Transfer
Agent are not subject to the processing fee. The Fund reserves the right to
reject any order for repurchase, which right of rejection might adversely
affect shareholders seeking redemption through the repurchase procedure.
However, a shareholder whose order for repurchase is rejected by the Fund may
redeem shares as set forth below.
Redemption
A shareholder wishing to redeem shares may do so without charge by
tendering the shares directly to the 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 that 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.
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Generally, the properly signed written request, with the signatures
guaranteed, will be all you need to send to redeem your shares. In some cases,
however, other documents may be necessary. For example, although the Fund
normally does not issue certificates for shares, it will do so if you make a
special request to the Transfer Agent. If you have asked for and received
certificates for your shares, certificates for the shares being redeemed must
accompany your redemption request. In other cases, the Transfer Agent might
require additional documents, such as trust instruments, death certificates,
appointments as executor or administrator of an estate or certificates of
corporate authority.
The payment for your redemption will be mailed to you within seven days
after the Transfer Agent receives the request in proper form. Exceptions to
this are if normal trading is not taking place on the New York Stock Exchange,
or if the shares to be redeemed have recently been purchased by check and the
check has not yet cleared. If the purchase check has not yet cleared, the
Transfer Agent may delay mailing a redemption check until the purchase check
has cleared, which is usually within ten days after payment of the purchase
price.
Reinstatement Privilege - Class A 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 that 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
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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, the 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, 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 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
to Merrill Lynch if the shareholder's account is maintained with Merrill Lynch
or by written notification or telephone call (1-800-MER-FUND) to the Transfer
Agent if the shareholder's account is maintained with the Transfer Agent, elect
to have subsequent dividends or both dividends and capital gains distributions
paid in cash, rather than reinvested, in which event payment will be mailed on
or about the payment date (provided that, in the event that a payment on an
account maintained at the Transfer Agent would amount to $10.00 or less, a
shareholder will not receive such payment in cash and such payment will
automatically be reinvested in additional shares). The Fund is not responsible
for any failure of delivery to the shareholder's address of record and no
interest will accrue on amounts represented by uncashed distribution or
redemption checks. 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 shareholder may elect to receive systematic withdrawal payments from his
or her Investment Account in the form of payments by check or through automatic
payment by direct deposit to his or her shareholder's bank account on either a
monthly or quarterly basis. A shareholder whose shares are held within a CMA(R),
CBA(R) or Retirement Account may elect to have shares redeemed on a monthly,
bi-monthly, quarterly, semi-annual or annual basis through the CMA(R) or CBA(R)
Systematic Redemption Program, subject to certain conditions. With respect to
redemptions of Class B and Class C shares pursuant to a systematic withdrawal
plan, the maximum number of Class B or Class C shares that can be redeemed from
an account annually shall not exceed 10% of the value of shares of such class in
that account at the time the election to join the systematic withdrawal plan was
made. Any CDSC that otherwise might be due on such redemption of Class B or
Class C shares will be
25
<PAGE>
waived. Shares redeemed pursuant to a systematic withdrawal plan will be
redeemed in the same order as Class B or Class C shares are otherwise redeemed.
See "Purchase of Shares - Deferred Sales Charge Alternatives - Class B and
Class C Shares - Contingent Deferred Sales Charges - Class B Shares" and " -
Contingent Deferred Sales Charges - Class C Shares." Where the systematic
withdrawal plan is applied to Class B shares, upon conversion of the last Class
B shares in an account to Class D shares, the systematic withdrawal plan will
automatically be applied thereafter to Class D shares. See "Purchase of Shares
- - Deferred Sales Charge Alternatives - Class B and Class C Shares - Conversion
of Class B Shares to Class D Shares."
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(Reg. TM) or CBA(Reg.
TM) accounts may arrange to have periodic investments made to the Fund in their
CMA(Reg. TM) or CBA(Reg. TM) accounts or in certain related accounts in amounts
of $100 or more through the CMA(Reg. TM) or CBA(Reg. TM) 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 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 such Program's client agreement and from the Transfer Agent at
(800) MER-FUND or (800) 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.
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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.
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 advised by MLAM or its
affiliate 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 purchase of the
acquired shares and a sale of the exchanged shares for Federal income tax
purposes. For further information, see "Shareholder Services - Exchange
Privilege" in the Statement of Additional Information.
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<PAGE>
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 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.
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.
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Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income.
Any capital gains (i.e., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses, and
including such gains from certain transactions in futures and options)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 28% with respect to assets held for more than 12 months, but not
more than 18 months, and 20% with respect to assets held for more than 18
months. The maximum capital gains rate for corporate shareholders currently is
the same as the maximum tax rate for ordinary income.
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.
Any gain or loss realized upon the sale or redemption of shares of the
Fund by a shareholder who is not a dealer in securities will be treated as
capital gain or loss. In the case of an individual, any such capital gain will
be treated as short-term capital gain if the shares were held for not more than
12 months, gain taxable at the maximum rate of 28%, if such shares were held
for more than 12, but not more than 18 months, and gain taxable at the maximum
rate of 20% if such shares were held for more than 18 months. In the case of a
corporation, any such capital gain will be treated as long-term capital gain,
taxable at the same rates as ordinary income, if such shares were held for more
than 12 months. Any such capital loss will be treated as long-term capital loss
if the shares have been held for more than one year and otherwise as short-term
capital loss. However, any loss realized by a shareholder upon the sale of
shares of the Fund held by the shareholder for six months or less will be
treated as long-term capital loss to the extent of capital gains distributions
received by the shareholder.
Pursuant to the Fund's investment objectives, the Fund may invest in
foreign securities. Foreign taxes may be paid by the Fund as a result of tax
laws of countries in which the Fund may invest. It is impossible to determine
the amount of any such withholding at this time. Because the Fund limits its
investments in foreign securities, shareholders will not be entitled to claim
foreign tax credits with respect to their share of foreign taxes paid by the
Fund on income from investments of foreign securities held by the Fund.
Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provision of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax.
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
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<PAGE>
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.
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.
Dividends and capital gains distributions, as well as gain on the sale of
shares of the Fund, may also be subject to state and local taxes.
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|M/3% of its total assets, to banks, brokers and other
financial institutions. This practice is intended to help the Fund increase the
yield on its portfolio.
Writing of Covered Call Options
The Fund may, from time to time, sell (i.e., "write") covered call options
where the Investment Adviser determines that such transactions will further the
Fund's investment objective. A covered call option is an option where the Fund,
in return for a premium, gives another party a right to buy particular
securities owned by the Fund at a specified price for a certain period of time.
By writing a covered call option, the Fund, in return for the premium income
realized from the sale of the option, gives up the opportunity to profit from a
price increase in the underlying security above the option exercise price,
where the price increase occurs while the option is in effect. In addition, the
Fund's ability to sell the underlying security will be limited while the option
is in effect. The Fund may not write covered call options on underlying
securities having a value exceeding 15% of the value of its total assets.
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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 that 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, 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.
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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 that cannot
be readily resold because of legal or contractual restrictions or that cannot
otherwise be marketed, redeemed, put to the issuer or a third party, or that do
not mature within seven days, or that 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:
o 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.
o 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 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 that 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.
32
<PAGE>
ADDITIONAL INFORMATION
Year 2000 Issues
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Fund could be adversely
affected if the computer systems used by the Investment Adviser or other Fund
service providers do not properly address this problem prior to January 1,
2000. The Investment Adviser has established a dedicated group to analyze these
issues and to implement any systems modifications necessary to prepare for the
Year 2000. Currently, the Investment Adviser does not anticipate that the
transition to the 21st century will have any material impact on its ability to
continue to service the Fund at current levels. In addition, the Investment
Adviser has sought assurances from the Fund's other service providers that they
are taking all necessary steps to ensure that their computer systems will
accurately reflect the Year 2000, and the Investment Adviser will continue to
monitor the situation. At this time, however, no assurance can be given that
the Fund's other service providers have anticipated every step necessary to
avoid any adverse effect on the Fund attributable to the Year 2000 Problem.
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 valued or,
lacking any sales, at the last available bid price for long positions, and at
the last available ask price for short positions. 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. Long positions in securities traded in the OTC market are valued at the
last available bid price in the OTC market prior to the time of valuation.
Short positions in securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of valuation. Portfolio
securities that 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
33
<PAGE>
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
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 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.
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
34
<PAGE>
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 S&P'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.
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
35
<PAGE>
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.
36
<PAGE>
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.)
1. ..............................
2. ..............................
3. ..............................
4. ..............................
5. ..............................
6. ..............................
Name .................................................................
First Name Initial Last Name
Name of Co-Owner (if any) ............................................
First Name Initial Last Name
Address ...............................................................
(Zip Code)
Occupation ...........................................................
.....................................................................
Signature of Owner
Name and Address of Employer .......................................
....................................................................
....................................................................
....................................................................
Signature of Co-Owner (if any)
(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
Ordinary Income Dividends Long-Term Capital Gains
Select [ ] Reinvest Select [ ] Reinvest
One: [ ] Cash One: [ ] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
If cash, specify how you would like your distributions paid to you: [ ] Check
or [ ] Direct Deposit to bank account
If direct deposit to bank account is selected, please complete below:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Fund For Tomorrow, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (check one): [ ] checking [ ] savings
Name on your Account ..............................................
Bank Name .........................................................
Bank Number ................... Account Number.....................
Bank Address ......................................................
I agree that this authorization will remain in effect until I provide written
notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Signature of Depositor ............................................
Signature of Depositor .......................Date.................
(If joint account, both must sign)
Note: If direct deposit to bank account is selected, your blank, unsigned check
marked "VOID" or a deposit slip from your savings account should accompany this
application.
37
<PAGE>
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.
........................... .....................................
Signature of Owner Signature of Co-Owner (if any)
===============================================================================
4. Letter of Intention - Class A and D shares only (See terms and conditions in
the Statement of Additional
Information)
.................., 19.....
Dear Sir/Madam: Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of
Merrill Lynch Fund For Tomorrow, Inc. or any other investment company with an
initial sales charge or deferred sales charge for which 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.
By: ................. .............................................
Signature of Co-Owner
Signature of Owner (If registered in joint parties, both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name .................. (2) Name ...................
Account Number.............. Account Number............
==============================================================================
5. For Dealer Only
Branch Office, Address, Stamp
[ ]
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, FL 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
[ ] [ ] [ ] [ ] [ ] [ ] [ ] ....................
Branch Code F/C No. F/C Last Name
[ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
Dealer's Customer Account No.
38
<PAGE>
MERRILL LYNCH FUND FOR TOMORROW, INC. - AUTHORIZATION FORM (PART 2)
================================================================================
Note: This form is required to apply for the Systematic Withdrawal Plan or the
Automatic Investment Plans only.
================================================================================
1. Account Registration
(Please Print)
Name ..........................................................................
First Name Initial Last Name
Name of Co-Owner (if any) .....................................................
First Name Initial Last Name
Address .......................................................................
...............................................................................
(Zip Code)
[------------------------------------------------------------]
[------------------------------------------------------------]
Social Security No.
or Taxpayer Identification Number
Account Number ...........................
(if existing account).....................
===============================================================================
2. Systematic Withdrawal Plan - (See terms and conditions in the Statement of
Additional Information)
Minimum Requirements: $10,000 for monthly disbursements, $5,000 for quarterly,
of [ ] Class A, [ ] Class B*, [ ] Class C* 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
(month)
thereafter.
Specify the amount of the withdrawal you would like paid to you (check one):
[ ] $______ of [ ]____ % of the current value of [ ] Class A, [ ] Class B*, [ ]
Class C* or [ ] Class D shares in the account.
Specify withdrawal method: [ ] check or [ ] direct deposit to bank account
(check one and complete part (a) or (b) below):
Draw checks payable (check one)
(a) I hereby authorize payment by check
[ ] as indicated in Item 1.
[ ] to the order of ......................................................
Mail to (check one)
[ ] the address indicated in Item 1.
[ ] Name (please print) ..................................................
Address .......................................................................
.......................................................................
Signature of Owner..................................... Date...................
Signature of Co-Owner (if any) ................................................
(b) I hereby authorize payment by direct deposit to bank account and, if
necessary, debit entries and adjustments for any credit entries made to my
account. I agree that this authorization will remain in effect until I provide
written notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Specify type of account (check one): [ ] checking [ ] savings
Name on your Account ..........................................................
Bank Name .....................................................................
Bank Number......................... Account Number............................
Bank Address ..................................................................
..................................................................
Signature of Depositor.................................... Date................
Signature of Depositor.........................................................
(If joint account, both must sign)
Note: If direct deposit is elected, your blank, unsigned check marked "VOID" or
a deposit slip from your savings account should accompany this application.
- --------
* Annual withdrawal cannot exceed 10% of the value of shares of such class held
in the account at the time the election to join the systematic withdrawal
plan is made.
39
<PAGE>
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 No. .................................................................
Please date and invest ACH debits on the 20th of each month beginning
- ------ or as soon as possible thereafter.
(month)
I agree that you are drawing these ACH debits voluntarily at my request
and that you shall not be liable for any loss arising from any delay in
preparing or failure to prepare any such 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 crediting 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 .....................
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 Number Signature of Depositor
(If joint account, both must sign)
Note: If Automatic Investment Plan is elected, your blank, unsigned check
marked "VOID" should accompany this application.
40
<PAGE>
[This page intentionally left blank.]
<PAGE>
[This page intentionally left blank.]
<PAGE>
Investment Adviser
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
Distributor
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 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>
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>
<CAPTION>
Page
=====
TABLE OF CONTENTS
<S> <C>
Fee Table ........................................ 2
Merrill Lynch Select Pricing(SM) System .......... 4
Financial Highlights ............................. 8
Investment Objective and Policies ................ 11
Management of the Fund ........................... 11
Board of Directors ............................ 11
Advisory Fee .................................. 12
Transfer Agency Services Fee .................. 13
Reimbursement for Portfolio Accounting
Services ................................... 13
Code of Ethics ................................ 13
Purchase of Shares ............................... 13
Initial Sales Charge Alternatives - Class A and
Class D Shares ............................. 15
Deferred Sales Charge Alternatives - Class B
and Class C Shares ......................... 18
Distribution Plans ............................ 21
Limitations on the Payment of Deferred Sales
Charges .................................... 22
Repurchase and Redemption of Shares .............. 23
Repurchase .................................... 23
Redemption .................................... 23
Reinstatement Privilege - Class A and
Class D Shares ............................. 24
Shareholder Services ............................. 24
Investment Account ............................ 24
Automatic Reinvestment of Dividends and
Capital Gains Distributions ................ 25
Systematic Withdrawal Plans ................... 25
Automatic Investment Plans .................... 26
Fee-Based Programs ............................ 26
Retirement Plans .............................. 26
Exchange Privilege ............................ 27
Dividends, Distributions and Taxes ............... 28
Investment Practices and Restrictions ............ 30
Additional Information ........................... 33
Year 2000 Issues .............................. 33
Determination of Net Asset Value .............. 33
Performance Data .............................. 34
Organization of the Fund ...................... 35
Shareholder Inquiries ......................... 35
Shareholder Reports ........................... 35
Authorization Form ............................... 37
</TABLE>
Code #10227-0498
(Merrill Lynch logo appears here)
Merrill Lynch Fund
For Tomorrow, Inc.
(graphics)
Prospectus
April 30, 1998
Distributor:
Merrill Lynch
Funds Disributor, Inc.
This prospectus should be
retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1998
Merrill Lynch Fund For Tomorrow, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 o 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.
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 April 30, 1998, 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>
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. ("ML & Co."), a financial services
holding company and the parent company of Merrill Lynch, Pierce, Fenner & Smith
("Merrill Lynch").
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 the Investment Adviser and the Fund reimburses the Investment
Adviser for its costs in connection with such services.
2
<PAGE>
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, 1998, 1997
and 1996, the Investment Adviser earned a fee of $2,263,650, $2,505,726, and
$2,147,843, respectively, from the Fund.
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.
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services, Inc. ("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. Similarly, the following entities may be considered
"controlling persons" of MLAM U.K.: Merrill Lynch Europe Limited (MLAM U.K.'s
parent), a subsidiary of ML International Holdings, a subsidiary of Merrill
Lynch International, Inc., and a subsidiary of ML & Co.
DIRECTORS AND OFFICERS
Information about 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 (65) - President and Director (1)(2) - Chairman of the
Investment Adviser (which term as used herein includes its corporate
predecessors) since 1997; Chairman of FAM (which term, as used herein, includes
its corporate predecessors) since 1997; President of the Investment Advisor and
FAM from 1977 to 1997; Chairman of Princeton Services since 1997 and Director
thereof since 1993; President of Princeton Services from 1993 to 1997;
Executive Vice President of ML & Co. since 1990.
RONALD W. FORBES (57) - 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 (45) - Director (2) - Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 02163. Professor, Harvard Business
School since 1989; Associate Professor, J.L. Kellogg Graduate
3
<PAGE>
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 (66) - 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, The University of Pennsylvania from 1989 to
1990; Partner, Small Cities Cable Television since 1986.
KEVIN A. RYAN (65) - 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 (60) - 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 (57) - 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 Merrill
Lynch Funds Distributor, Inc. ("MLFD" or the "Distributor") since 1986 and
Director thereof since 1991; President of Princeton Administrators, L.P. since
1988.
NORMAN R. HARVEY (64) - Senior Vice President (1)(2) - Senior Vice
President of the Investment Adviser and FAM since 1982.
VINCENT P. DILEO (59) - Vice President (1) - Portfolio Manager of the
Investment Adviser since 1984.
DONALD M. BURKE (37) - Vice President (1)(2) - First Vice President of the
Investment Adviser since 1997; Vice President of the Investment Adviser from
1990 to 1997; Director of Taxation of the Investment Adviser since 1990.
GERALD M. RICHARD (49) - 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 (40) - 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.
At March 31, 1998, the officers and Directors of the Fund as a group (11
persons) owned an aggregate of less than 1% of the outstanding shares of common
stock of ML & Co. and owned an aggregate of less than 1% of the outstanding
shares of the Fund.
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.
4
<PAGE>
The Fund pays each Director not affiliated with the Investment Adviser
(each a "non-affiliated Director") a fee of $2,000 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-affiliated Directors a fee
of $900 per year. In addition, the Chairman of the Audit Committee receives an
annual fee of $1,800 for serving as Chairman of the Committee. These fees and
expenses aggregated $24,196 for the fiscal year ended January 31, 1998.
The following table sets forth the rate of the compensation paid by the
Fund to the non-affiliated Directors as of the fiscal year end January 31, 1998
and the aggregate compensation paid by all investment companies advised by MLAM
and its affiliate, FAM ("MLAM/FAM Advised Funds") to the non-affiliated
Directors for the calendar year ended December 31, 1997.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement from Fund and
Aggregate Benefits Accrued MLAM/FAM-Advised
Compensation as Part of Funds Paid to
Name of Director from the Fund Fund Expenses Directors(1)
=============================== =============== ================== =================
<S> <C> <C> <C>
Ronald W. Forbes .............. $4,500 None $153,500
Cynthia A. Montgomery ......... $4,500 None $153,500
Charles C. Reilly ............. $5,500 None $313,000
Kevin A. Ryan ................. $4,500 None $153,500
Richard R. West ............... $4,500 None $299,000
</TABLE>
- --------
(1) The Directors serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Forbes (29 registered investment companies consisting of 42 portfolios);
Ms. Montgomery (29 registered investment companies consisting of 42
portfolios); Mr. Reilly (47 registered investment companies consisting of
60 portfolios); Mr. Ryan (29 registered investment companies consisting of
42 portfolios); and Mr. West (47 registered investment companies
consisting of 60 portfolios).
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
(except that Class B shareholders may vote upon any material changes to
expenses charged under the Class B Distribution Plan). 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 use the Merrill Lynch Select Pricing(SM) System are
referred to herein as "MLAM-advised mutual funds."
5
<PAGE>
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, 1998 were $3,463, of which the Distributor received $262 and
Merrill Lynch received $3,201. The gross sales charges for the sale of Class A
shares for the fiscal year ended January 31, 1997 were $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 were $8,672, of which the Distributor received $546 and Merrill Lynch
received $8,126. During the fiscal years ended January 31, 1998, 1997 and 1996,
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, 1998 were $38,224, of which the Distributor
received $2,297 and Merrill Lynch received $35,927. The gross sales charges for
the sale of Class D shares for the fiscal year ended January 31, 1997 were
$45,631, of which the Distributor received $2,872 and Merrill Lynch received
$42,759. The gross sales charge for the sale of Class D shares of the Fund for
the fiscal year ended January 31, 1996 were $29,595, of which the Distributor
received $1,825 and Merrill Lynch received $27,770. During the fiscal years
ended January 31, 1998, 1997 and 1996 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 that 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 that 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
6
<PAGE>
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 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 money market fund
advised by MLAM or its affiliates 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|M/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.
7
<PAGE>
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. 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. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is $50.
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 eight 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 investment companies advised by MLAM or its affiliates,
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 he or she 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
8
<PAGE>
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 he
or she 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.
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 continuously offered closed-end funds advised by
MLAM or its affiliates 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.
9
<PAGE>
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 adverse tax consequences to
the Fund that might result from an acquisition of assets having net unrealized
appreciation 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 that (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
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.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the 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 Investment Company Act,
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
10
<PAGE>
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 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,
1998, 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, 1998, with respect to Class B shares, and for the
period October 21, 1994 (commencement of operations) to January 31, 1998, with
respect to Class C shares.
Data Calculated as of January 31, 1998
<TABLE>
<CAPTION>
Allowable Allowable
Aggregate Interest on
Eligible Gross Sales Unpaid
Sales(1) Charges Balance(2)
================ =========== =============
<S> <C> <C> <C>
Class B (in thousands)
Under NASD Rule as Adopted
(in thousands) ................. $1,155,614 $72,226 $63,390
Under Distributor's Voluntary
Waiver (in thousands) .......... $1,155,614 $72,226 $ 5,778
Class C (in thousands)
Under NASD Rule as Adopted
(in thousands) ................. $ 6,629 $ 414 $ 56
<CAPTION>
Annual
Distribution
Amounts Fee at
Maximum Previously Aggregate Current
Amount Paid to Unpaid Net Asset
Payable Distributor(3) Balance Level(4)
=========== ================ =========== =============
<S> <C> <C> <C> <C>
Class B (in thousands)
Under NASD Rule as Adopted
(in thousands) ................. $135,616 $56,241 $79,375 $455
Under Distributor's Voluntary
Waiver (in thousands) .......... $ 78,004 $56,241 $21,763 $455
Class C (in thousands)
Under NASD Rule as Adopted
(in thousands) ................. $ 470 $ 123 $ 347 $ 22
</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
maximum sales charge 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. See "Purchase of Shares - Distribution
Plans" in the Prospectus. This figure may include CDSCs that were deferred
when a shareholder redeemed shares prior to the expiration of the
applicable CDSC period and invested the proceeds, without the imposition
of a sales charge, in Class A shares in conjunction with the shareholder's
participation in the Merrill Lynch Mutual Funds Advisor ("MFA") program.
The CDSC is booked as a contingent obligation that may be payable if the
shareholder terminates participation in the MFA program.
(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.
11
<PAGE>
REDEMPTION OF SHARES
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 for more than seven days: (a) when the New York Stock
Exchange ("NYSE") 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.
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 any such time.
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 withdrawals 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, 1998, 1997 and 1996, the
Distributor received contingent deferred sales charges of $81,549, $261,117 and
$108,712, respectively, with respect to redemption of Class B shares, all of
which were paid to Merrill Lynch. Additional CDSCs payable to the Distributor
during the fiscal year ended January 31, 1998, may have been waived or
converted to a contingent obligation in connection with a shareholder's
participation in certain fee-based programs. Similarly for the fiscal years
ended January 31, 1998, 1997 and 1996, the Distributor received contingent
deferred sales charges of $2,260 $5,359 and $1,548, respectively, with respect
to redemption of Class C shares, all of which were paid to Merrill Lynch.
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 be grouped for
12
<PAGE>
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
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 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, Martin Luther King, Jr. 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 for long positions and
the last available ask price for short positions. Long positions in securities
traded in the over-the-counter ("OTC") market are valued at the last available
bid price in the OTC market prior to the time of valuation. Short positions in
securities traded in the OTC market are valued at the last available ask price
in the OTC market prior to the time of valuation. Portfolio securities that are
traded both in the OTC market and on a stock exchange are valued according to
the broadest and most representative market. 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 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
13
<PAGE>
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(Reg. TM)
accounts may arrange to have periodic investments made in the Fund, in CMA(Reg.
TM) accounts or in certain related accounts in the amounts of $100 or more ($1
for retirement accounts) through the CMA(Reg. TM) 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 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.
14
<PAGE>
Shareholders may, at any time, notify Merrill Lynch in writing if their
account is maintained with Merrill Lynch or notify the Transfer Agent in
writing or by telephone (1-800-MER-FUND) if their account is maintained with
the Transfer Agent 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 (provided that, in the event that a payment
on an account maintained at the Transfer Agent would amount to $10.00 or less,
a shareholder will not receive such payment in cash and such payment will
automatically be reinvested in additional shares). The Fund is not responsible
for any failure of delivery to the shareholder's address of record and no
interest will accrue on amounts represented by uncashed distribution or
redemption checks.
Systematic Withdrawal Plans
A shareholder may elect to make systematic withdrawals from an Investment
Account of Class A, Class B, Class C or Class D shares 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 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
shares having such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient 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 the dollar
amount and class of shares to be redeemed. 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 NYSE is not open for business on such date, the 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 shares in
the Investment Account are reinvested automatically in shares of the Fund. A
shareholder's systematic withdrawal plan may be terminated at any time, without
a 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 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 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.
Alternatively, a shareholder whose shares are held within a CMA(Reg. TM),
CBA(Reg. TM) or Retirement Account may elect to have shares redeemed on a
monthly, bi-monthly, quarterly, semi-annual or annual basis through the CMA(Reg.
TM)/CBA(Reg. TM) Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $50. The proceeds of systematic redemptions will be posted to the
shareholder's account three business days after the date the shares are
redeemed. All redemptions are made at net asset value. A shareholder may elect
to have his or her shares redeemed on the first, second, third or fourth Monday
of each month, in the case of monthly redemptions, or of every other month, in
the case of bimonthly redemptions. For quarterly, semiannual or annual
redemptions, the shareholder may select the month in which the shares are to be
redeemed and may designate whether the redemption is to be made on the first,
second, third or fourth Monday of the month. If the Monday selected is not a
business day, the redemption will be processed at net value on the next business
day. The CMA(Reg. TM) or CBA(Reg. TM) Systematic Redemption
15
<PAGE>
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(Reg. TM) or CBA(Reg. TM) Systematic Redemption Program, eligible
shareholders should contact their Merrill Lynch Financial Consultant.
With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares
that can be redeemed from an account annually shall not exceed 10% of the value
of shares of such class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of Shares -
Deferred Sales Charge Alternatives - Class B and Class C Shares - Contingent
Deferred Sales Charges - Class B Shares" and " - Contingent Deferred Sales
Charges - Class C Shares" in the Prospectus. Where the systematic withdrawal
plan is applied to Class B shares, upon conversion of the last Class B shares
in an account to Class D shares, the systematic withdrawal plan will
automatically be applied thereafter to Class D shares. See "Purchase of Shares
- - Deferred Sales Charge Alternatives - Class B and Class C Shares - Conversion
of Class B Shares to Class D Shares" in the Prospectus; if an investor wishes
to change the amount being withdrawn in a systematic withdrawal plan the
investor should contact his or her 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 automatic
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
U.S. 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 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, but 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. Class B, Class C and
Class D shares will be exchangeable for 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
16
<PAGE>
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 money market funds advised by MLAM or its affiliates
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 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.
17
<PAGE>
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.
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. As long as it so qualifies, the
Fund will not be subject to Federal income tax on that part of its net
investment income and net realized capital gains that 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.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income.
Any capital gains (i.e., the excess of net capital gains from the sale of
assets held for more than 12 months over net short-term capital losses, and
including such gains from certain transactions in futures and options)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals is 28% with respect to assets held for more than 12 months, but not
more than 18 months, and 20% with respect to assets held for more than 18
months. The maximum capital gains rate for corporate shareholders currently is
the same as the maximum tax rate for ordinary income.
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
amounts of any dividends or capital gains distributions, and also designating
the amounts of various categories of capital gain income in capital gain
dividends. A portion of the Fund's ordinary income dividends may be eligible for
the dividends received deduction allowed to corporations under the Code, if
certain requirements are met. For this purpose, the 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
18
<PAGE>
(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."
Any gain or loss realized upon the sale or redemption of shares of the Fund
by a shareholder who is not a dealer in securities will be treated as capital
gain or loss. In the case of an individual, any such capital gain will be
treated as short-term capital gain if the shares were held for not more than 12
months, gain taxable at the maximum rate of 28%, if such shares were held for
more than 12, but not more than 18 months, and capital gain taxable at the
maximum rate of 20% if such share were held for more than 18 months. In the case
of a corporation, any such capital gain will be treated as long-term capital
gain, taxable at the same rates as ordinary income, if such shares were held for
more than 12 months. Any such capital loss will be treated as long-term capital
loss if the shares have been held for more than one year and otherwise as
short-term capital loss. However, any loss realized by a shareholder upon the
sale of shares of the Fund held by the shareholder for six months or less will
be treated as long-term capital loss to the extent of capital gains
distributions received by the shareholder.
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.
Upon a sale or exchange of its shares, a shareholder will realize a
taxable gain or loss depending on its basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. In the case of an individual, any such capital gain will
be treated as short-term capital gain if the shares were held for not more than
12 months, gain taxable at the maximum rate of 28% if such shares were held for
more than 12, but not more than 18 months, and gain taxable at the maximum rate
of 20% if such shares were held for more than 18 months. In the case of a
corporation, any such capital gain will be treated as long-term capital gain,
taxable at the same rates as ordinary income, if such shares were held for more
than 12 months. Any such capital loss will be long-term capital loss if the
shares were held for more than 12 months. A sale or exchange of shares held for
six months or less, however, will be treated as long-term capital loss to the
extent of any long-term capital gains distributions with respect to such
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.
Generally, any 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.
19
<PAGE>
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.
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.
20
<PAGE>
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 can be done, however, only on an exchange that
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 that 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
21
<PAGE>
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.
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, 1998, 1997 and 1996 were 17.63%, 39.96% and 67.38%, 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 NASD
Conduct Rules, 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.
22
<PAGE>
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 that are in excess
of commissions that 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 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, 1998, 1997 and 1996 were $337,563, $332,184
and $516,478, respectively. For these periods, brokers providing research
services received $190,881, $517,724 and $370,558, respectively, in commissions
on portfolio transactions effected for the Fund. The aggregate dollar amounts
of such portfolio transactions were $111,640,179, $193,852,940 and
$220,278,211, respectively. During those periods, the aggregate dollar amounts
of brokerage commissions paid by the Fund to Merrill Lynch were $17,500, $4,891
and $36,666, respectively. These amounts represent 5.2%, 1.5% and 7.1%,
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 2.7%, 1.5% and 4.0%, 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.
23
<PAGE>
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).
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|M/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 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.
24
<PAGE>
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."
c. Invest in securities that 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 that mature within seven days or
securities that 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.
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
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.
25
<PAGE>
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) the rates of return calculated will not be average annual
rates, but rather, actual annual, annualized or aggregate total return and (2)
the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance calculation of including or excluding the maximum applicable sales
charges, actual annual or annualized total return data generally will be lower
than average annual total return data since the average rates of return reflect
compounding of return; aggregate total return data generally will be higher
than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time.
Set forth below is total return information for 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
========================================================== ============== =============== ============== ==============
Average Annual Total Return
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended January 31, 1998 .......................... 6.53% $ 1,065.30 7.58% $ 1,075.80
Five Years Ended January 31, 1998 ........................ 11.61% $ 1,731.70 11.63% $ 1,733.40
Ten Years Ended January 31, 1998 ......................... - - 12.45% $ 3,231.60
Inception (October 26, 1988) to January 31, 1998 ......... 12.02% $ 2,862.20 - -
<CAPTION>
Year Ended January 31,
========================
<S> <C> <C> <C> <C>
Annual Total Return
(excluding maximum applicable sales charges)
1998 ................... 12.43% $ 1,124.30 11.20% $ 1,112.00
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)% 877.80
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>
<S> <C> <C> <C> <C>
Aggregate Total Return
(including maximum applicable sales charges)
Inception (October 26, 1988) to January 31, 1998 ......... 186.22% $ 2,862.20 - -
Inception (March 5, 1984) to January 31, 1998 ............ - - 422.78% $ 5,227.80
</TABLE>
26
<PAGE>
<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
========================================================== ============== =============== ============== ==============
Average Annual Total Return
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended January 31, 1998 .......................... 10.24% $ 1,102.40 6.19% $ 1,061.90
Inception (October 21, 1994) to January 31, 1998 ......... 16.50% $ 1,650.00 15.70% $ 1,613.00
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Annual Total Return
(excluding maximum applicable sales charges)
Year Ended January 31,
==========================================================
1998 ..................................................... 11.15% $ 1,111.50 12.07% $ 1,120.70
1997 ..................................................... 18.80% $ 1,188.00 19.73% $ 1,197.30
1996 ..................................................... 30.32% $ 1,303.20 31.47% $ 1,314.70
1995 ..................................................... (4.12)%* $ 958.80 (3.50)%* $ 965.00
Aggregate Total Return
(including maximum applicable sales charges)
Inception (October 21, 1994) to January 31, 1998 ......... 65.00% $ 1,650.00 61.30% $ 1,613.00
</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.
GENERAL INFORMATION
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.
27
<PAGE>
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on April 1, 1998.
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, 1998, is calculated as set forth below.
<TABLE>
<CAPTION>
Class A
================
<S> <C>
Net Assets ............................................................ $ 13,551,614
============
Number of Shares Outstanding .......................................... 868,395
============
Net Asset Value Per Share (net assets divided by number of shares
outstanding) ......................................................... $ 15.61
Sales Charge* (for Class A and Class D shares: 5.25% of offering price;
5.54% of net asset value) ............................................ .86
------------
Offering Price ........................................................ $ 16.47
============
<CAPTION>
Class B Class C Class D
================ =============== =================
<S> <C> <C> <C>
Net Assets ............................................................ $ 60,645,938 $ 2,926,135 $ 231,694,912
============== ============ =============
Number of Shares Outstanding .......................................... 4,040,291 195,858 14,926,567
============== ============ =============
Net Asset Value Per Share (net assets divided by number of shares
outstanding) ......................................................... $ 15.01 $ 14.94 $ 15.52
Sales Charge* (for Class A and Class D shares: 5.25% of offering price;
5.54% of net asset value) ............................................ ** ** .86
------------- ------------ -------------
Offering Price ........................................................ $ 15.01 $ 14.94 $ 16.38
================ ============ ==============
</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.
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.
28
<PAGE>
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New
York 10022, is counsel for the Fund.
Additional Information
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 Commission. The complete Registration Statement may be obtained
from the Commission upon payment of the fee prescribed by the rules and
regulations of the Commission.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Fund For Tomorrow, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Fund For Tomorrow, Inc. as of
January 31, 1998, 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, 1998 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, 1998, 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, 1998
30
<PAGE>
Merrill Lynch Fund for Tomorrow, Inc. January 31, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
- -------------------------------------------------------------------------------------------------------------------
Computer Technologies
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Personal Computers 400,000 COMPAQ Computer Corp. $ 3,045,990 $ 12,025,000 3.9%
Personal Computers 100,000 +Gateway 2000, Inc. 3,347,740 3,768,750 1.2
Systems 50,000 +Networks Associates, Inc. 2,524,250 2,700,000 0.9
Systems 300,000 +Silicon Graphics, Inc. 11,151,240 4,650,000 1.5
Systems 200,000 +Sun Microsystems, Inc. 5,396,880 9,587,500 3.1
------------ ------------ ------
25,466,100 32,731,250 10.6
- -------------------------------------------------------------------------------------------------------------------
Demographic Trends
- -------------------------------------------------------------------------------------------------------------------
Home Furnishings 50,000 American Woodmark Corporation 1,037,187 1,037,500 0.3
Healthcare 200,000 +HEALTHSOUTH Corp. 3,537,000 4,487,500 1.4
Pollution Technology 550,000 +Philip Services Corp. 5,122,752 4,537,500 1.5
Insurance 200,000 Torchmark Corp. 4,206,236 8,312,500 2.7
------------ ------------ ------
13,903,175 18,375,000 5.9
- -------------------------------------------------------------------------------------------------------------------
Developing Foreign Economies
- -------------------------------------------------------------------------------------------------------------------
Food & Beverage 980,000,000 Avipal S.A.--Avicultura e Agropecuaria 4,130,033 1,658,059 0.5
Telecommunications 105,000 Compania Anonima Nacional Telefonos
de Venezuela (ADR)* 2,415,000 3,858,750 1.3
Specialty Services 1,000,000 National Mutual Asia Ltd. 940,132 840,010 0.3
Holding Company 200,000 +Quinenco S.A. (ADR)* 3,755,087 1,950,000 0.6
Building Materials 100,000 +Royal Group Technologies Ltd. 1,047,206 2,463,729 0.8
Telecommunications 477 SK Telecom Co. (Ordinary) 533,107 250,141 0.1
------------ ------------ ------
12,820,565 11,020,689 3.6
- -------------------------------------------------------------------------------------------------------------------
Future Retailing
- -------------------------------------------------------------------------------------------------------------------
Retail Apparel 40,000 +The Children's Place Retail Stores, Inc. 560,000 290,000 0.1
Specialty Retail 188,900 +OfficeMax, Inc. 2,027,656 2,762,663 0.9
------------ ------------ ------
2,587,656 3,052,663 1.0
- -------------------------------------------------------------------------------------------------------------------
Global Market Expansion
- -------------------------------------------------------------------------------------------------------------------
Cosmetics 174,400 Avon Products, Inc. 6,259,222 10,464,000 3.4
Electrical Equipment 74,760 General Electric Company 2,278,626 5,793,900 1.9
Specialty Retailing 50,000 Gucci Group N.V. (NY Registered Shares) 1,896,750 1,990,625 0.6
Machinery 9,800 Kubota Corp. (ADR)* 1,259,888 588,000 0.2
Food & Beverage 160,000 PepsiCo, Inc. 2,438,212 5,770,000 1.9
Electronics 100,000 Philips Electronics N.V.
(NY Registered Shares) 4,983,486 6,662,500 2.1
------------ ------------ ------
19,116,184 31,269,025 10.1
- -------------------------------------------------------------------------------------------------------------------
Healthcare Cost Containment
- -------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 133,333 Astra AB (ADR)* 1,781,250 2,416,661 0.8
Pharmaceuticals 100,000 Bristol-Myers Squibb Co. 3,953,500 9,968,750 3.2
Pharmaceuticals 100,000 Lilly (Eli) and Company 2,286,050 6,750,000 2.2
Pharmaceuticals 100,900 Merck & Co., Inc. 4,001,062 11,830,525 3.8
Pharmaceuticals 50,000 Novartis AG (ADR)* 1,942,188 4,268,750 1.4
Information Services 300,000 +Physician Computer Network, Inc. 3,074,250 1,237,500 0.4
Pharmaceuticals 100,800 Schering-Plough Corp. 580,167 7,295,400 2.4
Pharmaceuticals 107,500 +Sequus Pharmaceuticals, Inc. 1,263,437 886,875 0.3
Medical Devices 100,000 United States Surgical Corp. 6,799,013 2,856,250 0.9
Medical Services 100,000 +Vencor, Inc. 3,194,630 2,450,000 0.8
------------ ------------ ------
28,875,547 49,960,711 16.2
===================================================================================================================
</TABLE>
31
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Value Percent of
Concept Tomorrow Held Stocks Cost (Note 1a) Net Assets
- -------------------------------------------------------------------------------------------------------------------
Industrial Outsourcing
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Information Services 50,000 +Ceridian Corp. $ 1,959,250 $ 2,265,625 0.7%
Systems 50,000 +Computer Sciences Corporation 3,878,500 4,243,750 1.4
Specialty Services 250,000 +Sitel Corporation 3,939,288 2,265,625 0.7
Computer Software 50,000 +Sterling Commerce, Inc. 1,838,339 1,815,625 0.6
Aerospace & Defense 19,700 +Triumph Group, Inc. 534,070 733,825 0.2
------------ ------------ ------
12,149,447 11,324,450 3.6
- -------------------------------------------------------------------------------------------------------------------
Industrial Renaissance
- -------------------------------------------------------------------------------------------------------------------
Aerospace & Defense 50,000 The Boeing Company 2,645,250 2,378,125 0.7
Transportation 75,000 Delta Air Lines, Inc. 5,782,613 8,559,375 2.8
Automotive 100,000 General Motors Corp. 3,964,542 5,793,750 1.9
Information Systems 100,000 International Business Machines Corp. 2,834,250 9,868,750 3.2
Aerospace & Defense 6,377 Raytheon Company (Class A) (a) 226,358 326,024 0.1
------------ ------------ ------
15,453,013 26,926,024 8.7
- -------------------------------------------------------------------------------------------------------------------
Multimedia
- -------------------------------------------------------------------------------------------------------------------
Broadcasting Services 200,000 Carlton Communications PLC (ADR)* 7,266,875 6,975,000 2.3
Components 150,000 Harman International Industries Inc. 6,836,788 5,868,750 1.9
Information Services 400,000 +OzEmail, Ltd. (ADR)* 4,632,341 3,200,000 1.0
Cable Television 150,000 +Tele-Communications Liberty Media Group
(Series A) 2,675,003 5,371,875 1.8
Publishing Services 150,000 +World Color Press Inc. 3,056,000 4,125,000 1.3
------------ ------------ ------
24,467,007 25,540,625 8.3
- -------------------------------------------------------------------------------------------------------------------
Next Generation Technology
- -------------------------------------------------------------------------------------------------------------------
Pollution Technology 400,000 +Molten Metal Technology, Inc. 6,605,221 150,000 0.0
Environmental Equipment 119,400 +Thermo Ecotek Corp. 1,281,614 2,074,575 0.7
Multi-Industry 230,000 +Thermo Electron Corp. 4,937,738 8,970,000 2.9
Medical Devices 100,000 +Thermotrex Corp. 1,586,723 1,800,000 0.6
Components 150,000 +Voice Control Systems Inc. 834,037 618,750 0.2
------------ ------------ ------
15,245,333 13,613,325 4.4
- -------------------------------------------------------------------------------------------------------------------
Strategic Growth Opportunities
- -------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 100,000 American Home Products Corp. 3,875,049 9,543,750 3.1
Leisure & Entertainment 300,000 +Galoob (Lewis) Toys, Inc. 4,238,645 2,681,250 0.9
Specialty Services 100,000 Household International, Inc. 6,712,565 12,450,000 4.0
Retail 88,400 +Toys `R' Us, Inc. 2,700,054 2,370,225 0.8
------------ ------------ ------
17,526,313 27,045,225 8.8
- -------------------------------------------------------------------------------------------------------------------
Telecommunications
- -------------------------------------------------------------------------------------------------------------------
Telecommunications 100,000 +ADC Telecommunications, Inc. 2,867,500 1,906,250 0.6
Telecommunications 200,000 Alcatel Alsthom Cie Generale
d'Electricite S.A. (ADR)* 5,087,260 5,212,500 1.7
Components 120,000 +Andrew Corp. 2,299,683 3,300,000 1.1
Telecommunications 300,000 Inter-Tel Inc. 2,153,750 7,500,000 2.4
Components 100,000 Nokia Corp. AB (ADR)* 3,778,500 7,600,000 2.5
Telecommunications 100,000 +RSL Communications, Ltd. (Class A) 2,200,000 2,200,000 0.7
------------ ------------ ------
18,386,693 27,718,750 9.0
===================================================================================================================
Total Stocks 205,997,033 278,577,737 90.2
===================================================================================================================
</TABLE>
32
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Value Percent of
Amount Short-Term Securities Cost (Note 1a) Net Assets
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial $ 7,000,000 Apreco, Inc., 5.47% due 3/02/1998 $ 6,968,092 $ 6,968,092 2.3%
Paper** 13,978,000 Associates Corp. of North America, 5.61%
due 2/02/1998 13,973,643 13,973,643 4.5
5,000,000 Fleet Funding Corp., 5.50% due 3/02/1998 4,977,083 4,977,083 1.6
===================================================================================================================
Total Short-Term Securities 25,918,818 25,918,818 8.4
===================================================================================================================
Total Investments $231,915,851 304,496,555 98.6
============
Other Assets Less Liabilities 4,322,044 1.4
------------ ------
Net Assets $308,818,599 100.0%
============ ======
===================================================================================================================
</TABLE>
* American Depositary Receipts (ADR).
** Commercial Paper is traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
+ Non-income producing security.
(a) Received as a spin-off from General Motors Corp.
Categories of companies shown have not been audited by Deloitte & Touche
LLP.
See Notes to Financial Statements.
33
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of January 31, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$231,915,851) (Note 1a) .. $304,496,555
Cash ............................................................. 234
Receivables:
Securities sold ................................................ $ 5,201,002
Capital shares sold ............................................ 341,806
Dividends ...................................................... 111,562 5,654,370
------------
Prepaid registration fees and other assets (Note 1f) ............. 23,372
------------
Total assets ..................................................... 310,174,531
------------
=================================================================================================================
Liabilities: Payables:
Capital shares redeemed ........................................ 872,200
Investment adviser (Note 2) .................................... 164,843
Distributor (Note 2) ........................................... 100,548 1,137,591
------------
Accrued expenses and other liabilities ........................... 218,341
------------
Total liabilities ................................................ 1,355,932
------------
=================================================================================================================
Net Assets: Net assets ....................................................... $308,818,599
============
=================================================================================================================
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized ................................................ $ 86,840
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ................................................ 404,029
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ................................................ 19,586
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized ................................................ 1,492,657
Paid-in capital in excess of par ................................. 231,300,803
Undistributed realized capital gains on investments and foreign
currency transactions--net ....................................... 2,933,989
Unrealized appreciation on investments and foreign currency
transactions--net ................................................ 72,580,695
------------
Net assets ....................................................... $308,818,599
============
=================================================================================================================
Net Asset Value: Class A--Based on net assets of $13,551,614 and 868,395 shares
outstanding ...................................................... $ 15.61
============
Class B--Based on net assets of $60,645,938 and 4,040,291 shares
outstanding ...................................................... $ 15.01
============
Class C--Based on net assets of $2,926,135 and 195,858 shares
outstanding ...................................................... $ 14.94
============
Class D--Based on net assets of $231,694,912 and 14,926,567 shares
outstanding ...................................................... $ 15.52
============
=================================================================================================================
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Statement of Operations for the Year Ended January 31, 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Dividends (net of $111,810 foreign withholding tax) ............ $ 3,017,973
Income Interest and discount earned ................................... 1,337,906
(Notes 1d & 1e): ------------
Total income ................................................... 4,355,879
------------
=================================================================================================================
Expenses: Investment advisory fees (Note 2) .............................. $ 2,263,650
Account maintenance and distribution fees--Class B (Note 2) .... 800,509
Account maintenance fees--Class D (Note 2) ..................... 599,540
Transfer agent fees--Class D (Note 2) .......................... 466,112
Transfer agent fees--Class B (Note 2) .......................... 196,321
Printing and shareholder reports ............................... 113,883
Accounting services (Note 2) ................................... 90,076
Registration fees (Note 1f) .................................... 69,810
Custodian fees ................................................. 66,456
Professional fees .............................................. 59,995
Account maintenance and distribution fees--Class C (Note 2) .... 49,658
Transfer agent fees--Class A (Note 2) .......................... 47,598
Directors' fees and expenses ................................... 24,196
Transfer agent fees--Class C (Note 2) .......................... 13,490
Pricing fees ................................................... 1,200
Other .......................................................... 40,230
------------
Total expenses ................................................. 4,902,724
------------
Investment loss--net ........................................... (546,845)
------------
=================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net ............................................. 57,704,612
(Loss) on Foreign currency transactions--net ........................... (28,936) 57,675,676
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions-- Investments--net ............................................. (15,555,112)
Net (Notes 1b, Foreign currency transactions--net ........................... 17 (15,555,095)
1c, 1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions .......................................... 42,120,581
------------
Net Increase in Net Assets Resulting from Operations ........... $ 41,573,736
============
=================================================================================================================
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended
January 31,
---------------------------
Increase (Decrease) in Net Assets: 1998 1997
=======================================================================================================================
<S> <C> <C> <C>
Operations: Investment income(loss)--net .......................................... $ (546,845) $ 6,084
Realized gain on investments and foreign currency transactions--net ... 57,675,676 52,807,780
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net .................................... (15,555,095) 15,690,009
------------ ------------
Net increase in net assets resulting from operations .................. 41,573,736 68,503,873
============ ============
=======================================================================================================================
Distributions to Realized gain on investments--net:
Shareholders Class A ............................................................. (3,096,223) (5,337,338)
(Note 1g): Class B ............................................................. (12,917,948) (12,797,082)
Class C ............................................................. (663,684) (1,078,464)
Class D ............................................................. (45,397,650) (28,024,409)
------------ ------------
Net decrease in net assets resulting from distributions to shareholders (62,075,505) (47,237,293)
============ ============
=======================================================================================================================
Capital Share Net decrease in net assets derived from capital
Transactions share transactions .................................................... (61,802,479) (10,906,448)
(Note 4): ------------ ------------
=======================================================================================================================
Net Assets: Total increase (decrease) in net assets ............................... (82,304,248) 10,360,132
Beginning of year ..................................................... 391,122,847 380,762,715
------------ ------------
End of year ........................................................... $308,818,599 $391,122,847
============ ============
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
36
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements. -----------------------------------------------
For the Year Ended January 31,
-----------------------------------------------
Increase (Decrease) in Net Asset Value: 1998+ 1997+ 1996+ 1995+ 1994
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ............... $ 17.16 $ 16.26 $ 13.55 $ 16.39 $ 16.29
Operating ------- ------- ------- ------- -------
Performance: Investment income--net ........................... .07 .08 .07 .09 .15
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net ........... 1.99 3.04 4.19 (1.97) 2.18
------- ------- ------- ------- -------
Total from investment operations ................. 2.06 3.12 4.26 (1.88) 2.33
------- ------- ------- ------- -------
Less distributions from realized gain
on investments--net .............................. (3.61) (2.22) (1.55) (.96) (2.23)
------- ------- ------- ------- -------
Net asset value, end of year ..................... $ 15.61 $ 17.16 $ 16.26 $ 13.55 $ 16.39
======= ======= ======= ======= =======
========================================================================================================================
Total Investment Based on net asset price per share ............... 12.43% 19.99% 31.82% (11.23%) 15.78%
Return:* ======= ======= ======= ======= =======
========================================================================================================================
Ratios to Average Expenses ......................................... .99% 1.00% 1.07% .98% .88%
Net Assets: ======= ======= ======= ======= =======
Investment income--net ........................... .40% .46% .44% .59% .95%
======= ======= ======= ======= =======
========================================================================================================================
Supplemental Net assets, end of year (in thousands) ........... $13,552 $39,605 $34,231 $ 8,665 $10,942
Data: ======= ======= ======= ======= =======
Portfolio turnover ............................... 17.63% 39.96% 67.38% 45.86% 48.63%
======= ======= ======= ======= =======
Average commission rate paid++ ................... $ .0003 $ .0277 -- -- --
======= ======= ======= ======= =======
========================================================================================================================
</TABLE>
* Total investment returns exclude the effects of sales
loads.
+ Based on average shares outstanding.
++ 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.
37
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. ---------------------------------------------------
For the Year Ended January 31,
---------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998+ 1997+ 1996+ 1995+ 1994
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ........... $ 16.59 $ 15.79 $ 13.33 $ 16.30 $ 16.28
Operating ------- -------- -------- -------- --------
Performance: Investment loss--net ......................... (.13) (.10) (.08) (.06) (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ............................ 1.92 2.95 4.09 (1.96) 2.17
------- -------- -------- -------- --------
Total from investment operations ............. 1.79 2.85 4.01 (2.02) 2.16
------- -------- -------- -------- --------
Less distributions from realized gain
on investments--net .......................... (3.37) (2.05) (1.55) (.95) (2.14)
------- -------- -------- -------- --------
Net asset value, end of year ................. $ 15.01 $ 16.59 $ 15.79 $ 13.33 $ 16.30
======= ======== ======== ======== ========
============================================================================================================================
Total Investment Based on net asset price per share ........... 11.20% 18.80% 30.43% (12.22%) 14.60%
Return:* ======= ======== ======== ======== ========
============================================================================================================================
Ratios to Average Expenses ..................................... 2.03% 2.06% 2.13% 1.99% 1.91%
Net Assets: ======= ======== ======== ======== ========
Investment loss--net ......................... (.74%) (.58%) (.55%) (.38%) (.07%)
======= ======== ======== ======== ========
============================================================================================================================
Supplemental Net assets, end of year (in thousands) ....... $60,646 $104,828 $112,239 $119,186 $396,424
Data: ======= ======== ======== ======== ========
Portfolio turnover ........................... 17.63% 39.96% 67.38% 45.86% 48.63%
======= ======== ======== ======== ========
Average commission rate paid++ ............... $ .0003 $ .0277 -- -- --
======= ======== ======== ======== ========
============================================================================================================================
</TABLE>
* Total investment returns exclude the effects of sales
loads.
+ Based on average shares outstanding.
++ 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.
38
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C++
----------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended January 31, 1994+ to
------------------------------ Jan. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
================================================================================================================
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............ $ 16.47 $ 15.71 $ 13.28 $ 14.08
Operating ------- ------- ------- -------
Performance: Investment loss--net ............................ (.11) (.10) (.10) (.04)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ............................... 1.88 2.94 4.08 (.54)
------- ------- ------- -------
Total from investment operations ................ 1.77 2.84 3.98 (.58)
------- ------- ------- -------
Less distributions from realized gain
on investments--net ............................. (3.30) (2.08) (1.55) (.22)
------- ------- ------- -------
Net asset value, end of period .................. $ 14.94 $ 16.47 $ 15.71 $ 13.28
======= ======= ======= =======
================================================================================================================
Total Investment Based on net asset value per share .............. 11.15% 18.80% 30.32% (4.12%)+++
Return:** ======= ======= ======= =======
================================================================================================================
Ratios to Average Expenses ........................................ 2.06% 2.07% 2.14% 2.26% *
Net Assets: ======= ======= ======= =======
Investment loss--net ............................ (.68%) (.61%) (.67%) (.87%)*
======= ======= ======= =======
================================================================================================================
Supplemental Net assets, end of period
Data: (in thousands) .................................. $ 2,926 $ 8,430 $ 6,385 $ 80
======= ======= ======= =======
Portfolio turnover .............................. 17.63% 39.96% 67.38% 45.86%
======= ======= ======= =======
Average commission rate paid# ................... $ .0003 $ .0277 -- --
======= ======= ======= =======
================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ 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.
39
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D++
-----------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended January 31, 1994+ to
------------------------------ Jan. 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
=================================================================================================================
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 17.09 $ 16.20 $ 13.54 $ 14.26
Operating -------- -------- -------- --------
Performance: Investment income (loss)--net .............. --# .04 .03 (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .......................... 1.99 3.03 4.18 (.49)
-------- -------- -------- --------
Total from investment operations ........... 1.99 3.07 4.21 (.50)
-------- -------- -------- --------
Less distributions from realized gain
on investments--net ........................ (3.56) (2.18) (1.55) (.22)
-------- -------- -------- --------
Net asset value, end of period ............. $ 15.52 $ 17.09 $ 16.20 $ 13.54
======== ======== ======== ========
=================================================================================================================
Total Investment Based on net asset value per share ......... 12.07% 19.73% 31.47% (3.50%)+++
Return:** ======== ======== ======== ========
=================================================================================================================
Ratios to Average Expenses ................................... 1.23% 1.25% 1.33% 1.43% *
Net Assets: ======== ======== ======== ========
Investment income (loss)--net .............. (.01%) .22% .22% (.23%)*
======== ======== ======== ========
=================================================================================================================
Supplemental Net assets, end of period
Data: (in thousands) ............................. $231,695 $238,260 $227,908 $156,947
======== ======== ======== ========
Portfolio turnover ......................... 17.63% 39.96% 67.38% 45.86%
======== ======== ======== ========
Average commission rate paid## ............. $ .0003 $ .0277 -- --
======== ======== ======== ========
=================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
loads.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
# Amount is less than $(.01) per share.
## 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.
40
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
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
PricingSM 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 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.
o 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 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 date. Interest income (including
41
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
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.
(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 $546,845 have been reclassified between undistributed
net realized capital gains and accumulated net investment loss. 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 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, 1998, MLFD earned underwriting discounts and
direct commissions 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 ..................................... $ 262 $ 3,201
Class D ..................................... $2,297 $35,927
- --------------------------------------------------------------------------------
For the year ended January 31, 1998, MLPF&S also received contingent deferred
sales charges of $286,983 and $2,260 relating to transactions in Class B and C
Shares, respectively.
In addition, MLPF&S received $17,500 in commissions on the execution of
portfolio security transactions for the Fund for the year ended January 31,
1998.
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>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended January 31, 1998 were $57,175,449 and $179,839,410, respectively.
Net realized and unrealized gains (losses) as of January 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments .................... $57,704,895 $ 72,580,704
Short-term investments ................... (283) --
Foreign currency transactions ............ (28,936) (9)
----------- ------------
Total .................................... $57,675,676 $ 72,580,695
=========== ============
- --------------------------------------------------------------------------------
As of January 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $72,580,704, of which $106,344,675 related to appreciated
securities and $33,763,971 related to depreciated securities. The aggregate
cost of investments at January 31, 1998 for Federal income tax purposes was
$231,915,851.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$61,802,479 and $10,906,448 for the years ended January 31, 1998 and January 31,
1997, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended January 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 1,197,905 $ 20,864,302
Shares issued to shareholders
in reinvestment of
distributions ............................ 180,489 2,873,039
---------- ------------
Total issued ............................. 1,378,394 23,737,341
Shares redeemed .......................... (2,817,447) (50,445,255)
---------- ------------
Net decrease ............................. (1,439,053) $(26,707,914)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 B Shares for the Year Dollar
Ended January 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 852,979 $ 14,843,653
Shares issued to shareholders
<PAGE>
in reinvestment of
distributions ............................ 734,764 11,120,083
---------- ------------
Total issued ............................. 1,587,743 25,963,736
Automatic conversion of
shares ................................... (542,990) (9,274,818)
Shares redeemed .......................... (3,322,941) (57,782,855)
---------- ------------
Net decrease ............................. (2,278,188) $(41,093,937)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended 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 C Shares for the Year Dollar
Ended January 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 203,919 $ 3,547,005
Shares issued to shareholders
in reinvestment of
distributions ............................ 39,199 597,135
---------- ------------
Total issued ............................. 243,118 4,144,140
Shares redeemed .......................... (559,154) (9,692,133)
---------- ------------
Net decrease ............................. (316,036) $ (5,547,993)
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended 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
========== ============
- --------------------------------------------------------------------------------
43
<PAGE>
Merrill Lynch Fund For Tomorrow, Inc. January 31, 1998
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended January 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 265,722 $ 4,736,667
Automatic conversion
of shares ................................ 525,220 9,274,818
Shares issued to shareholders
in reinvestment of
distributions ............................ 2,574,802 39,929,189
---------- ------------
Total issued ............................. 3,365,744 53,940,674
Shares redeemed .......................... (2,380,236) (42,393,309)
---------- ------------
Net increase ............................. 985,508 $ 11,547,365
========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
========== ============
- --------------------------------------------------------------------------------
44
<PAGE>
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<PAGE>
[This page intentionally left blank.]
<PAGE>
[This page intentionally left blank.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
=====
<S> <C>
Investment Objective and Policies .................. 2
Management of the Fund ............................. 2
The Investment Adviser .......................... 2
The Advisory Agreement .......................... 2
Directors and Officers ............................. 3
Purchase of Shares ................................. 5
Initial Sales Charge Alternatives - Class A and
Class D Shares ............................... 6
Reduced Initial Sales Charges ................... 6
Distribution Plans .............................. 10
Limitations on the Payment of Deferred Sales
Charges ...................................... 10
Redemptions of Shares .............................. 12
Deferred Sales Charges - Class B and Class C
Shares ....................................... 12
Determination of Net Asset Value ................... 13
Shareholder Services ............................... 14
Investment Account .............................. 14
Automatic Investment Plans ...................... 14
Automatic Reinvestment of Dividends and
Capital Gains Distributions .................. 14
Systematic Withdrawal Plans ..................... 15
Retirement Plans ................................ 16
Exchange Privilege .............................. 16
Dividends, Distributions and Taxes ................. 18
Investment Practices and Restrictions .............. 20
Performance Data ................................... 26
General Information ................................ 27
Common Stock .................................... 27
Computation of Offering Price Per Share ......... 28
Independent Auditors ............................ 28
Custodian ....................................... 28
Transfer Agent .................................. 28
Reports to Shareholders ......................... 28
Legal Counsel ................................... 29
Additional Information .......................... 29
Independent Auditors' Report ....................... 30
Financial Statements ............................... 31
</TABLE>
Code #10228-0498
(MERRILL LYNCH logo appears here)
MERRILL LYNCH FUND
FOR TOMORROW, INC.
(graphics)
STATEMENT OF
ADDITIONAL
INFORMATION
April 30, 1998
Distributor:
Merrill Lynch
Funds Distributor. Inc.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
(1) Included in Prospectus (Part A): Financial Highlights (selected per
share data and ratios) for each of the years in the ten-year period
ended January 31, 1998.
(2) Included in Statement of Additional Information (Part B): Financial
Statements: Schedule of Investments as of January 31, 1998. Statement
of Assets and Liabilities as January 31, 1998. Statement of Operations
for the year ended January 31, 1998.
Statements of Changes in Net Assets for each of the years in the
two-year period ended January 31, 1998.
Financial Highlights for each of the years in the five-year period
ended January 31, 1998.
(3) Included in Part C:
None.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------------- -----------------------------------------------------------------------------------------------
<S> <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.
2oo - 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)oo - 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.
9o - 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.
15(a)o - Amended and Restated Plan of Distribution pursuant to Rule 12b-1 under the 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.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
16(a)oo - 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>
- ---------
* 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).
o 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).
oo 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).
o Refiled electronically in Post-Effective Amendment No. 17. Initially
filed as identically numbered Exhibit to Post-Effective Amendment No. 13
to the Registration Statement (File No. 2-87036).
oo Refiled electronically in Post-Effective Amendment No. 17. 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).
++++ Incorporated by reference to identically-numbered Exhibit 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).
# Incorporated by reference to identically numbered Exhibit to
Post-Effective No. 17 to the Registration Statement (File No. 2-87036).
C-2
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Number of
Holders at
Title of Class January 31, 1998
- ------------------------------------------------- -----------------
<S> <C>
Class A Common Stock, par value $.10 per share .. 2,882
Class B Common Stock, par value $.10 per share .. 9,859
Class C Common Stock, par value $.10 per share .. 688
Class D Common Stock, par value $.10 per share... 24,906
</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 the Registrant's Articles of
Incorporation, as amended to date, Article VI of the 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 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 or 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
reasons 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 cost 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 from willful misfeasance,
bad faith or gross negligence in 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 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
C-3
<PAGE>
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 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 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 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 registered 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 Convertible 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 Growth 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 Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merril Lynch U.S.A. Government Reserves, Merrill Lynch U.S. Treasury
Money Fund, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable
Series Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley,
a division of MLAM); and for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill
Lynch Senior Floating Rate Fund, Inc. MLAM also acts as sub-adviser to Merrill
Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio,
two investment portfolios of EQ Advisors Trust.
C-4
<PAGE>
Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment
Adviser, acts as the investment adviser for the following open-end registered
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
registered investment companies: Apex Municipal Fund, Inc., Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund
III, Inc., Debt Strategies Fund, Inc., Debt Strategies 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., MuniHoldings Fund, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings Florida Insured Fund, MuniHoldings New York Insured Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings Florida Insured Fund II, MuniHoldings New Jersey Insured Fund,
Inc., MuniHoldings New York 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., 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 and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. 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
North Tower, World Financial Center, 250 Vesey Street, New York, New York
10281-1201. The address of Merrill Lynch Financial Data Services, Inc.
("MLFDS") is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
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 December 1, 1995, for his, her or its person's or entity's own account or
in the capacity of director, officer, partner or trustee. In addition, Mr.
Zeikel is President and Director or Trustee, Mr. Richard is Treasurer and Mr.
Glenn is Executive Vice President of substantially all of the investment
companies listed in the first two paragraphs of this Item 28. 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.
C-5
<PAGE>
<TABLE>
<CAPTION>
Other Substantial Business,
Position(s) with the Profession, Vocation
Name Investment Adviser or Employment
- ---------------------------- --------------------------- --------------------------------------------------------
<S> <C> <C>
ML & Co .................... Limited Partner Financial Services Holding Company;
Limited Partner of FAM
Princeton Services ......... General Partner General Partner of FAM
Arthur Zeikel .............. Chairman Chairman of FAM; President of MLAM and FAM from
1977 to 1997; Chairman and Director of Princeton
Services; President of Princeton Services from 1993 to
1997; Executive Vice President of ML & Co.
Jeffrey M. Peek ............ President President of FAM; President and Director of Princeton
Services; Executive Vice President of ML, & Co.
Terry K. Glenn ............. Executive Vice President Executive Vice President of FAM; Executive Vice
President and Director of Princeton Services; President
and Director of MLFD; Director of MLFDS; President of
Princeton Administrators, L.P.
Linda L. Federici .......... Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Vincent R. Giordano ........ Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Elizabeth A. 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 and Secretary of
General Counsel and FAM; Senior Vice President, General Counsel, Director
Secretary and Secretary of Princeton Services; Director of MLFD
Ronald M. Kloss ............ Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Debra W. Landsman-Yaros..... Senior Vice President and Senior Vice President of FAM; Vice President of MLFD;
Controller Senior Vice President 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 Pierce, Fenner & Smith 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 and Senior Vice President and Treasurer of FAM; Senior Vice
Treasurer President and Treasurer of Princeton Services; Vice
President and Treasurer of MLFD
Ronald L. Welburn .......... Senior Vice President Senior Vice President of FAM; Senior Vice President of
Princeton Services
Gregory D. Upah ............ 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 a
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., The Corporate Fund Accumulation Program, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Merrill Lynch Consults International Portfolio,
Merrill Lynch Convertible Fund, Inc., 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
C-6
<PAGE>
Opportunities Fund 2000, Inc., Merrill Lynch Latin America Fund Inc., Merrill
Lynch Middle East/Africa Fund, Inc., The Municipal Fund Accumulation Program,
Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Series Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill
Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill
Lynch Utility Income 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 December 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>
Other Substantial Business,
Name Position with MLAM U.K. Profession, Vocation or Employment
- ------------------------ ----------------------------- ---------------------------------------------------------
<S> <C> <C>
Arthur Zeikel .......... Director and Chairman Chairman of the Manager and FAM since 1997; Chairman
and Director of Princeton Services; President Princeton
Services from 1993 to 1997; President of the Manager and
FAM from 1977 to 1997; Executive Vice President of
ML & Co.
Alan J. Albert ......... Senior Managing Director Vice President of the Manager.
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 Secretary None
</TABLE>
Item 29. Principal Underwriters.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end investment companies referred to in the first two paragraphs of
Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., and The Municipal Fund
Accumulation Program, Inc., and MLFD also acts as principal underwriter for the
following closed-end funds: Merrill Lynch High Income Municipal Bond Fund,
Inc., Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch Senior
Floating Rate Fund, Inc.
C-7
<PAGE>
(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, 23rd 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
Richard L. Reller ....... Director None
Thomas J. Veroge ........ 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 1940 Act and the Rules thereunder will be maintained at
the offices of the Registrant and its Transfer Agent, MLFDS, 4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484.
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>
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 30th day of
April, 1998.
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
- ----------------------------------- ----------------------------------------- -------------
<S> <C> <C>
/s/ ARTHUR ZEIKEL President (Principal Executive Officer) April 30, 1998
- ----------------------------------
(Arthur Zeikel) and Director
* Treasurer (Principal Financial and April 30, 1998
- ----------------------------------
(Gerald M. Richard) Accounting Officer)
* Director April 30, 1998
- ----------------------------------
(Ronald W. Forbes)
* Director April 30, 1998
- ----------------------------------
(Cynthia A. Montgomery)
* Director April 30, 1998
- ----------------------------------
(Charles C. Reilly)
* Director April 30, 1998
- ----------------------------------
(Kevin A. Ryan)
* Director April 30, 1998
- ----------------------------------
(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 April 30, 1998
--------------------------------
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>
C-9
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------- ----------------------------------------------------------------------
<S> <C> <C>
11(a) - Consent of Deloitte & Touche LLP, independent auditors to Registrant.
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>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Fund For Tomorrow, Inc.:
We consent to the use in Post-Effective Amendment No. 18 to Registration
Statement No. 2-87036 of our report dated March 10, 1998 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us uder the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
April 30, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> MERRILL LYNCH FUND FOR TOMORROW--CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 231915851
<INVESTMENTS-AT-VALUE> 304496555
<RECEIVABLES> 5654370
<ASSETS-OTHER> 23606
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 310174531
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1355932
<TOTAL-LIABILITIES> 1355932
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233303915
<SHARES-COMMON-STOCK> 868395
<SHARES-COMMON-PRIOR> 2307448
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2933989
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 72580695
<NET-ASSETS> 13551614
<DIVIDEND-INCOME> 3017973
<INTEREST-INCOME> 1337906
<OTHER-INCOME> 0
<EXPENSES-NET> (4902724)
<NET-INVESTMENT-INCOME> (546845)
<REALIZED-GAINS-CURRENT> 57675676
<APPREC-INCREASE-CURRENT> (15555095)
<NET-CHANGE-FROM-OPS> 41573736
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (3096223)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1197905
<NUMBER-OF-SHARES-REDEEMED> (2817447)
<SHARES-REINVESTED> 180489
<NET-CHANGE-IN-ASSETS> (82304248)
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<NAME> MERRILL LYNCH FUND FOR TOMORROW--CLASS B
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<NAME> MERRILL LYNCH FUND FOR TOMORROW--CLASS C
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<NAME> MERRILL LYNCH FUND FOR TOMORROW--CLASS D
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