<PAGE>
PROSPECTUS
- ----------
JANUARY 31, 1995
MERRILL LYNCH BALANCED FUND
FOR INVESTMENT AND RETIREMENT, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Balanced Fund for Investment and Retirement, Inc., is a mutual
fund of the type permitted to have a number of different portfolios, or
series. The fund and its only series, the Full Investment Portfolio, are
referred to as the "Fund". The Fund seeks to provide shareholders with as high
a level of total investment return as is consistent with reasonable risk. The
Fund seeks to achieve its objective through investment in common stocks and
other types of securities, including fixed-income securities and convertible
securities. Because the Fund is designed for investors for whom current tax
liability is not a consideration, such as certain tax qualified employee
benefit plans, the Fund (and any other series that may be added in the future)
will invest without regard to tax considerations.
----------------
Pursuant to the Merrill Lynch Select PricingSM 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 PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select PricingSM System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 (609)
282-2800, or from securities dealers which have entered into dealer agreements
with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase price is $1,000
($100 for retirement plans) and the minimum subsequent purchase is $50 ($1 for
retirement plans). Merrill Lynch may charge its customers a processing fee
(presently $4.85) for confirming purchases and repurchases. Purchases and
redemptions directly through the Fund's transfer agent are not subject to the
processing fee. See "Purchase of Shares" and "Redemption of Shares".
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
This Prospectus is a concise statement of information about the Fund that is
relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional information
about the Fund, dated January 31, 1995 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
is available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to 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 Reinvest-
ments................. None None None None
Deferred Sales Charge
(as a percentage of
original purchase None (d) 4.0% during the first 1% for one year None (d)
price or redemption year, decreasing 1.0%
proceeds, whichever annually thereafter to 0.0%
is lower)............. after the fourth year
Exchange Fee........... None None None None
ANNUAL FUND OPERATING
EXPENSES (AS A
PERCENTAGE OF AVERAGE
NET ASSETS)(E).........
Investment Advisory
Fees(f)............... 0.63% 0.63% 0.63% 0.63%
12b-1 Fees(g):
Account Maintenance
Fees................ None 0.25% 0.25% 0.25%
Distribution Fees.... None 0.75% 0.75% None
(Class B shares convert to
Class D shares automatically
after approximately eight years
and cease being subject
to distribution fees)
Other Expenses:
Custodial Fees....... 0.02% 0.02% 0.02% 0.02%
Shareholder Servicing
Costs(h)............ 0.12% 0.15% 0.15% 0.12%
Other................ 0.06% 0.06% 0.06% 0.06%
---- ---- ---- ----
Total Other Ex-
penses............ 0.20% 0.23% 0.23% 0.20%
---- ---- ---- ----
Total Fund Operating
Expenses.............. 0.83% 1.86% 1.86% 1.08%
==== ==== ==== ====
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and investment programs.
See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and
Class D Shares"--page 13.
(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 14.
(c) Reduced for purchases of $25,000 and over. 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 13.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that purchases of $1,000,000 or more which may not
be subject to an initial sales charge will instead be subject to a CDSC of
1.0% of amounts redeemed within the first year of purchase.
(e) Information for Class A and Class B shares is stated for the fiscal year
ended September 30, 1994. Information under "Other Expenses" for Class C
and Class D shares is estimated for the fiscal year ending September 30,
1995.
(f) See "The Fund and Its Management--Advisory Fee"--page 10.
(g) See "Purchase of Shares--Distribution Plans"--page 17.
(h) See "The Fund and Its Management--Transfer Agency Services"--page 10.
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 in-
cluding 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
above; (2) a 5% annual
return throughout the
periods and (3) redemp-
tion at the end of the
period:
Class A................. $ 61 $ 78 $ 96 $ 150
Class B................. $ 59 $ 78 $ 101 $ 198*
Class C................. $ 29 $ 58 $ 101 $ 218
Class D................. $ 63 $ 85 $ 109 $ 177
An investor would pay the
following expenses on
the same $1,000 invest-
ment assuming no redemp-
tion at the end of the
period:
Class A................. $ 61 $ 78 $ 96 $ 150
Class B................. $ 19 $ 58 $ 101 $ 198*
Class C................. $ 19 $ 58 $ 101 $ 218
Class D................. $ 63 $ 85 $ 109 $ 177
</TABLE>
- --------
* Assumes conversion to Class D shares approximately eight years after
purchase.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission (the "Commission") regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATE OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C
shareholders who own their shares for an extended period of time may pay more
in Rule 12b-1 distribution fees than the economic equivalent of the maximum
front-end sales charge permitted under the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD"). Merrill Lynch may
charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the
Fund's transfer agent are not subject to the processing fee. See "Purchase of
Shares" and "Redemption of Shares".
MERRILL LYNCH SELECT PRICINGSM SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
PricingSM System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D
are sold to investors choosing the initial sales charge alternatives, and
shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. The Merrill Lynch Select PricingSM System is used
by more than 50 mutual funds advised by Merrill Lynch Asset Management, L.P.,
doing business as Merrill Lynch Asset Management ("MLAM" or the "Investment
Adviser") or an affiliate of MLAM, Fund Asset Management, L.P. ("FAM"). Funds
advised by MLAM or FAM are referred to herein as "MLAM-advised mutual funds".
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The deferred sales charges 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,
3
<PAGE>
accordingly, such charges will not affect the net asset value of any other
class or have any impact on investors choosing another sales charge option.
Dividends paid by the Fund for each class of shares will be calculated in the
same manner at the same time and will differ only to the extent that account
maintenance and distribution fees and any incremental transfer agency costs
relating to a particular class are borne exclusively by that class. Each class
has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The distribution-
related revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM 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 PricingSM System that the investor
believes is most beneficial under the investor's particular circumstances.
More detailed information as to each class of shares is set forth under
"Purchase of Shares".
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
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 4 years, 0.25% 0.75% B shares convert to D shares
at a rate of 4.0% during the automatically after
first year, decreasing 1.0% approximately
annually to 0.0% eight years(/4/)
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- -------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(/3/)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. Contingent deferred sales charges ("CDSCs") are
imposed if the redemption occurs within the applicable CDSC time period.
The charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year. See "Class
A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the 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.
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 that currently own Class A shares in a shareholder account
are entitled to purchase additional Class A shares in that account.
Other eligible investors include certain retirement plans and
participants in certain investment programs. In addition, Class A
shares will be offered to directors and
4
<PAGE>
employees of Merrill Lynch & Co., Inc. and its subsidiaries (the term
"subsidiaries", when used herein with respect to Merrill Lynch & Co.,
Inc., includes MLAM, FAM and certain other entities directly or
indirectly wholly-owned and controlled by Merrill Lynch & Co., Inc.), and
to members of the Boards of MLAM-advised mutual funds. The maximum
initial sales charge is 5.25%, which is reduced for purchases of $25,000
and over. Purchases of $1,000,000 or more may not be subject to an
initial sales charge but if the initial sales charge is waived such
purchases will be subject to a CDSC of 1.0% if the shares are redeemed
within one year after purchase. Sales charges also are reduced under a
right of accumulation which takes into account the investor's holdings of
all classes of all MLAM-advised mutual funds. See "Purchase of Shares--
Initial Sales Charge Alternatives--Class A and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%,
an ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to the Class B shares, and a CDSC if they are redeemed
within four years of purchase. Approximately eight years after
issuance, Class B shares will convert automatically into 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 into 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. Automatic conversion of Class B shares into Class D shares
will occur at least once a month on the basis of the relative net
asset values of the shares of the two classes on the conversion date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes. Shares
purchased through reinvestment of dividends on Class B shares also
will convert automatically to Class D shares. The conversion period
for dividend reinvestment shares and for certain retirement plans is
modified as described under "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares
to Class D Shares".
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Fund's average net
assets attributable to Class C shares. Class C shares are also subject
to a CDSC if they are redeemed within one year of purchase. Although
Class C shares are subject to a 1.0% CDSC for only one year (as
compared to four years for Class B), Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares
will be subject to distribution fees that will be imposed on Class C
shares for an indefinite period subject to annual approval by the
Fund's Board of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived
such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year of purchase. The schedule of initial sales
charges and reductions for the Class D shares is the same as the
schedule for Class A shares. 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".
5
<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
PricingSM System that the investor believes is most beneficial in the
investor's 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 that
previously purchased Class A shares may no longer be eligible to purchase Class
A shares of other MLAM-advised mutual funds, those previously purchased Class A
shares, together with Class B, Class C and Class D share holdings, will count
toward a right of accumulation which may qualify the investor for reduced
initial sales charges on new initial sales charge purchases. In addition, the
ongoing Class B and Class C account maintenance and distribution fees will
cause Class B and Class C shares to have higher expense ratios, pay lower
dividends and have lower total returns than the initial sales charge shares.
The ongoing Class D account maintenance fees will cause Class D shares to have
a higher expense ratio, pay lower dividends and have a lower 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".
6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the audits of the financial statements of the Fund by Deloitte & Touche
LLP, independent auditors. Financial statements for the year ended September
30, 1994, and the independent auditors' report thereon are included in the
Statement of Additional Information. Because Class C and Class D shares had not
commenced operations during the fiscal year ended September 30, 1994, no
information is provided for such shares. 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.
<TABLE>
<S> <C>
THE FOLLOWING
PER SHARE DATA
AND RATIOS HAVE
BEEN DERIVED
FROM INFORMATION
PROVIDED IN THE
FINANCIAL
STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
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........... $ 13.02 $ 12.57 $ 11.94 $ 10.61 $ 11.93 $ 11.18
------- ------- ------- ------- ------- -------
Investment
Income--net...... .32 .43 .47 .70 .64 .24
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net(1)........... (.07) 1.29 .61 1.63 (1.41) 1.42
------- ------- ------- ------- ------- -------
Total from
investment
operations....... .25 1.72 1.08 2.33 (.77) 1.66
------- ------- ------- ------- ------- -------
Less dividends
and
distributions:
Investment
income--net...... (.37) (.39) (.45) (.62) (.55) (.90)
Realized gain on
investments--
net............. (1.23) (.88) -- (.38) -- (.01)
------- ------- ------- ------- ------- -------
Total dividends
and
distributions.... (1.60) (1.27) (.45) (1.00) (.55) (.91)
------- ------- ------- ------- ------- -------
Net asset value,
end of period.... $ 11.67 $ 13.02 $ 12.57 $ 11.94 $ 10.61 $ 11.93
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share............ 1.81% 14.62% 9.23% 23.14% (6.86%) 15.54%++
======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
distribution
fees............. .83% .83% .81% .85% .83% .78%*
======= ======= ======= ======= ======= =======
Expenses......... .83% .83% .81% .85% .83% .78%*
======= ======= ======= ======= ======= =======
Investment
income--net...... 2.68% 3.09% 3.18% 3.64% 5.12% 4.23%*
======= ======= ======= ======= ======= =======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)....... $39,963 $40,688 $20,320 $12,839 $ 4,511 $ 2,080
======= ======= ======= ======= ======= =======
Portfolio
turnover......... 59.15% 79.55% 65.40% 173.76% 163.56% 175.47%
======= ======= ======= ======= ======= =======
<CAPTION>
CLASS B
--------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986++
--------- --------- --------- --------- ------------ ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE
(DECREASE) IN NET
ASSET VALUE:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period........... $ 13.09 $ 12.62 $ 11.99 $ 10.60 $ 11.91 $ 10.94 $ 12.54 $ 11.17 $ 10.00
--------- --------- --------- --------- ------------ ----------- ------------ ----------- --------------
Investment
Income--net...... .20 .24 .29 .39 .50 .53 .57 .39 .25
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net(1)........... (.07) 1.37 .66 1.83 (1.39) 1.25 (1.40) 1.64 .98
--------- --------- --------- --------- ------------ ----------- ------------ ----------- --------------
Total from
investment
operations....... .13 1.61 .96 2.22 (.89) 1.78 (.83) 2.03 1.23
--------- --------- --------- --------- ------------ ----------- ------------ ----------- --------------
Less dividends
and
distributions:
Investment
income--net...... (.24) (.26) (.32) (.45) (.42) (.80) (.55) (.38) (.06)
Realized gain on
investments--
net............. (1.23) (.88) -- (.38) -- (.01) (.22) (.28) --
--------- --------- --------- --------- ------------ ----------- ------------ ----------- --------------
Total dividends
and
distributions.... (1.47) (1.14) (.32) (.83) (.42) (.81) (.77) (.66) (.06)
--------- --------- --------- --------- ------------ ----------- ------------ ----------- --------------
Net asset value,
end of period.... $ 11.75 $ 13.09 $ 12.62 $ 11.99 $ 10.60 $ 11.91 $ 10.94 $ 12.54 $ 11.17
========= ========= ========= ========= ============ =========== ============ =========== ==============
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share............ 0.76% 13.49% 8.01% 21.91% (7.79%) 16.93% (6.36%) 18.98% 12.29%++
========= ========= ========= ========= ============ =========== ============ =========== ==============
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding
distribution
fees............. .86% .85% .85% .90% .86% .84% .82% .73% .82%*
========= ========= ========= ========= ============ =========== ============ =========== ==============
Expenses......... 1.86% 1.85% 1.85% 1.90% 1.86% 1.84% 1.82% 1.73% 1.82%*
========= ========= ========= ========= ============ =========== ============ =========== ==============
Investment
income--net...... 1.65% 1.99% 2.10% 3.37% 3.90% 3.73% 4.66% 3.60% 4.23%*
========= ========= ========= ========= ============ =========== ============ =========== ==============
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)....... $709,836 $830,955 $886,920 $986,895 $1,171,567 $1,735,873 $2,264,429 $3,384,647 $ 2,065,752
========= ========= ========= ========= ============ =========== ============ =========== ==============
Portfolio
turnover......... 59.15% 79.55% 65.40% 173.76% 163.56% 175.47% 239.78% 145.17% 143.78%
========= ========= ========= ========= ============ =========== ============ =========== ==============
</TABLE>
- ----
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Class A shares commenced operations on October 27, 1988.
++ Class B shares commenced operations on November 29, 1985.
++ Aggregate total investment return.
(1)
Foreign currency transaction amounts have been reclassified to conform to the
1994 presentation.
7
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund is designed to provide investors with a convenient and
professionally managed vehicle for seeking as high a level of total investment
return as is consistent with a relatively low level of risk. This is a
fundamental investment objective. The Fund seeks to achieve its objective
through investment in high quality, larger capitalization common stocks
(generally companies with $500,000,000 or more of market capitalization) and
other types of securities, including fixed-income securities (preferred stock
and debt securities) and convertible securities, as well as through the
writing of covered call options and the lending of portfolio securities. It is
anticipated that, except under unusual circumstances, the Fund will maintain
at least 25% of the value of its assets in fixed-income senior securities. In
its common stock investments, it is anticipated that the Fund will seek to
emphasize issues with relatively low price earnings ratios, above average
dividend yields, and relatively low price to book value ratios, as compared to
prevailing market conditions. In seeking to identify "high quality" companies,
particular emphasis is placed by management on common stocks of companies
which 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. With respect to debt securities, the Fund will
invest only in instruments which are rated Aa or better by Moody's Investors
Service, Inc. ("Moody's") or AA or better by Standard & Poor's Ratings Group
("S & P"), or which are determined by the Fund's investment adviser to be of
quality comparable to instruments so rated. The Fund also may engage in
options and futures transactions and lend its portfolio securities. The Fund
attempts to reduce overall exposure to risk from declines in securities prices
by spreading its investments over many different companies in a variety of
industries. No assurance can be given that the Fund will be able to achieve
its investment objective.
Total investment return is the sum of current income and capital gains
received from portfolio investments, as well as the capital appreciation of
investments retained in the portfolio. It is anticipated that ordinarily the
Fund's emphasis on current income and capital appreciation will be relatively
equal, although from time to time the Fund may vary its emphasis between these
two elements as market or economic conditions change. In this regard, the
composition of the Fund is largely unrestricted. In furtherance of its efforts
to reduce overall exposure to investment and income risk through adequate
diversification of its portfolio, the Fund may invest up to 20% of its total
assets in securities issued by foreign companies.
Inasmuch as the Fund is authorized to invest in bonds and other fixed-income
securities, it is important to note that the portion of the Fund's net asset
value attributable to such securities may fall when interest rates rise and
rise when interest rates fall. In general, fixed-income securities with longer
maturities will be subject to greater volatility resulting from interest rate
fluctuations than will fixed-income securities with shorter maturities.
The Fund also reserves the right to invest all or a portion of its assets in
high quality money market securities (such as U.S. Treasury bills,
certificates of deposit issued by U.S. banks having more than $1 billion in
assets, commercial paper and repurchase agreements with respect to U.S.
government securities and U.S. government agency securities) for purposes of
enhancing liquidity and avoiding the effects of declining securities prices
when it seems advisable to do so in light of prevailing market or economic
conditions. The Fund will invest only in commercial paper that is 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. The proportion of the Fund's assets that is invested in money
market securities will vary from time to time.
8
<PAGE>
Because the Fund is designed for investors for whom current tax liability is
not a consideration, the Fund may realize capital gains without regard to
whether they will qualify as long-term capital gains. This means that the Fund
has the flexibility to take advantage of short-term investment opportunities
when determined appropriate by the Investment Adviser. For a discussion of the
investment restrictions of the Fund, see "Investment Practices and
Restrictions--Investment Restrictions".
THE FUND AND ITS MANAGEMENT
The Fund is a mutual fund, technically known as an open-end diversified
management investment company. It was incorporated under the laws of the State
of Maryland on May 21, 1984. The Fund is a company of the series type. At the
present time it consists of only one portfolio. The Fund is designed as an
investment vehicle for investors who seek a high level of total investment
return without regard to tax considerations, such as certain tax-qualified
employee benefit plans, including Individual Retirement Accounts ("IRAs") and
corporate, governmental and other retirement plans qualified under sections
401, 403(b) or 408 of the Internal Revenue Code of 1986, as amended (the
"Code").
The Directors of the Fund consist of five individuals, four 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 Directors of the Fund are
responsible for the overall supervision of the operations of the Fund and
perform the various duties imposed on the directors of investment companies by
the Investment Company Act.
The Directors are:
Arthur Zeikel*--President and Chief Investment Officer of MLAM and FAM;
President and Director of Princeton Services, Inc.; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co.") and Executive Vice
President of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"); Director of Merrill Lynch Funds Distributor, Inc.
Herbert I. London--John M. Olin Professor of Humanities, Gallatin
Division of New York University.
Robert R. Martin--Director, WTC Industries, Inc.
Joseph L. May--Attorney in private practice.
Andre F. Perold--Professor, Harvard Business School.
- --------
* Interested person, as defined in the Investment Company Act, of the Fund.
MLAM, with offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536
(mailing address: P.O. Box 9011, Princeton, New Jersey 08543-9011), is the
investment adviser for the Fund. MLAM is owned and controlled by ML & Co., a
financial services holding company. MLAM 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 has been engaged in the investment advisory
business since 1976, and, together with its affiliate, FAM, currently serves as
the investment adviser to more than 130 other registered investment companies,
as well as to numerous pension plans and other institutions. As of December 31,
1994, the Investment Adviser and FAM had a total of approximately $163.8
billion in investment company and other portfolio assets under management,
including accounts of certain affiliates of the Investment Adviser.
9
<PAGE>
Denis B. Cummings is primarily responsible for the day-to-day management of
the Fund's portfolio and has served in that capacity since 1991. Mr. Cummings
has served as a Vice President of the Investment Adviser since 1978.
Advisory Fee. 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 $500 million; 0.60%
of the average daily net assets exceeding $500 million but not exceeding $1.5
billion; 0.55% of the average daily net assets exceeding $1.5 billion but not
exceeding $2.5 billion; 0.50% of the average daily net assets exceeding $2.5
billion but not exceeding $3.5 billion; and 0.45% of the average daily net
assets exceeding $3.5 billion. For the fiscal year ended September 30, 1994,
the total management fee payable by the Fund to the Investment Adviser was
$5,173,680 (based upon average net assets of approximately $820.6 million). For
the fiscal year ended September 30, 1994, the annualized ratio of total
expenses (excluding distribution fees) to average net assets was 0.83% for the
Class A shares and 0.86% for the Class B shares; no Class C or Class D shares
had been issued during that year.
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), which is a wholly-owned subsidiary of ML & Co., acts as the Fund's
Transfer Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible
for the issuance, transfer and redemption of shares and the opening and
maintenance of shareholder accounts. Pursuant to the Transfer Agency Agreement,
the Transfer Agent receives a fee of $11.00 per Class A and Class D shareholder
account and $14.00 per Class B and Class C shareholder account and is entitled
to reimbursement for out-of-pocket expenses incurred by it under the Transfer
Agency Agreement. For the fiscal year ended September 30, 1994, the total fee
paid by the Fund to the Transfer Agent was $1,227,546. At December 31, 1994,
the Fund had 3,825 Class A shareholder accounts, 47,698 Class B shareholder
accounts, 22 Class C shareholder accounts and 58,202 Class D shareholder
accounts. At this level of accounts, the annual fee payable to the Transfer
Agent would aggregate approximately $1.5 million plus out-of-pocket expenses.
Reimbursement for Portfolio Accounting Services. The Fund reimburses the
Investment Adviser for its costs in providing portfolio accounting services to
the Fund. For the fiscal year ended September 30, 1994, the Fund reimbursed the
Investment Adviser $98,036 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
10
<PAGE>
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
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Investment Adviser and Merrill Lynch, acts as the Distributor of the
shares of the 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 investment is $1,000, and
the minimum subsequent purchase is $50, except for retirement plans, for which
the minimum initial purchase is $100 and the minimum subsequent purchase is
$1.00. Different minimums may apply to purchases through the Merrill Lynch
BlueprintSM Program. See "Purchase of Shares--Reduced Initial Sales Charges--
Merrill Lynch BlueprintSM Program" in the Statement of Additional Information.
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
PricingSM System 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 the New York Stock
Exchange (generally 4:00 P.M. New York time), which includes orders received
after the determination of net asset value on the previous day, the applicable
offering price will be based on the net asset value determined as of 15 minutes
after the close of business on the New York Stock Exchange (generally 4:00 P.M.
New York time) on the day the orders are placed with the Distributor, provided
the orders are received by the Distributor prior to 30 minutes after the close
of business on the New York Stock Exchange on that day. If the purchase orders
are not received by the Distributor prior to 30 minutes after the close of
business on the New York Stock Exchange, such orders shall be deemed received
on the next business day. Any order may be rejected by the Distributor or the
Fund. The Fund or the Distributor may suspend the continuous offering of the
Fund's shares of any class to the general public at any time in response to
conditions in the securities markets or otherwise and may thereafter resume
such offering from time to time. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $4.85) to
confirm a sale of shares to such customers. Purchases directly through the
Fund's Transfer Agent are not subject to the processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of 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 PricingSM System is set forth
under "Merrill Lynch Select PricingSM System" on page 3.
11
<PAGE>
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The deferred sales charges and account maintenance fees that are imposed on
Class B and Class C shares, as well as the account maintenance fees that are
imposed on Class D shares, will be imposed directly against those classes and
not against all assets of the Fund and, accordingly, such charges will not
affect the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Fund for each
class of shares will be calculated in the same manner at the same time and
will differ only to the extent that account maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Class B, Class C and Class D shares each have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
adopted with respect to such class pursuant to which account maintenance
and/or distribution fees are paid. See "Distribution Plans" below. Each class
has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in
that the sales charges applicable to each class provide for the financing of
the distribution of the shares of the Fund. The distribution-related revenues
paid with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised
that only Class A and Class D shares may be available for purchase through
securities dealers, other than Merrill Lynch, which are eligible to sell
shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System.
<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 4 years, 0.25% 0.75% B shares convert to D shares
at a rate of 4.0% during the automatically after
first year, decreasing 1.0% approximately
annually to 0.0% eight years(/4/)
- -------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- -------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(/3/)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the 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.
12
<PAGE>
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative 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
AMOUNT OF PURCHASE PRICE AMOUNT INVESTED THE OFFERING PRICE
------------------ ------------- --------------- ------------------
<S> <C> <C> <C>
Less than $25,000............. 5.25% 5.54% 5.00%
$25,000 but less than $50,000. 4.75 4.99 4.50
$50,000 but less than
$100,000..................... 4.00 4.17 3.75
$100,000 but less than
$250,000..................... 3.00 3.09 2.75
$250,000 but less than
$1,000,000................... 2.00 2.04 1.80
$1,000,000 and over**......... 0.00 0.00 0.00
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994. If the sales charge is
waived, such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. Class A purchases made prior to
October 21, 1994 may be subject to a CDSC, in lieu of an initial sales
charge, if the shares are redeemed within one year of purchase at the
following rates: 1.00% on purchases of $1,000,000 to $2,500,000; 0.60% on
purchases of $2,500,001 to $3,500,000; 0.40% on purchases of $3,500,001 to
$5,000,000; and 0.25% on purchases of more than $5,000,000. The charge will
be assessed on an amount equal to the lesser of the proceeds of redemption
or the cost of the shares being redeemed. A sales charge of 0.75% will be
charged on purchases of $1,000,000 or more of Class A or Class D shares by
certain 401(k) plans.
The Distributor may reallow discounts to such dealers and retain the balance
over such discounts. At times the Distributor may reallow the entire sales
charge to such dealers. Since securities dealers selling Class A and Class D
shares of the Fund will receive a concession equal to most of the sales charge,
they may be deemed to be underwriters under the Securities Act of 1933, as
amended (the "Securities Act").
During the fiscal year ended September 30, 1994, the Fund sold 1,518,510
Class A shares for aggregate net proceeds of $18,698,722. The gross sales
charges for the sale of Class A shares of the Fund for that year were $54,923,
of which $3,336 and $51,587 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 September 30,
1994. The Fund did not begin to offer Class D shares publicly until after the
fiscal year ended September 30, 1994.
Eligible Class A Investors. Class A shares are offered to a limited group of
investors and also will be issued upon reinvestment of dividends from
outstanding Class A shares. Investors that currently own Class A shares in a
shareholder account, including participants in the Merrill Lynch BlueprintSM
Program, are entitled to purchase additional Class A shares 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 provided that the program has $3 million or more initially invested in
MLAM-advised mutual funds. Also eligible to purchase Class A shares at net
asset value are participants in certain investment
13
<PAGE>
programs including TMASM Managed Trusts to which Merrill Lynch Trust Company
provides discretionary trustee services and certain purchases made in
connection with the Merrill Lynch Mutual Fund Adviser program. In addition,
Class A shares will be offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the Boards of
MLAM-advised investment companies, including the Fund. Certain persons who
acquired shares of certain MLAM-advised closed-end funds 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 and Class D 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. For
example, 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. who wish to reinvest the net proceeds from a sale of certain of
their shares of common stock of Merrill Lynch Senior Floating Rate Fund, Inc.
in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges are
reduced under a Right of Accumulation and a Letter of Intention. Class A shares
are offered at net asset value to certain eligible Class A investors as set
forth above under "Eligible Class A Investors".
Class D shares are offered at net asset value 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 and who has (i)
invested in a mutual fund sponsored by a non-Merrill Lynch company for which
Merrill Lynch has served as a selected dealer and where Merrill Lynch has
either received or given notice that such arrangement will be terminated or
(ii) invested in a mutual fund sponsored by a non-Merrill Lynch company for
which Merrill Lynch has not served as a selected dealer, 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
BlueprintSM Program.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employee Sponsored Retirement or
Savings Plans, is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Fund and
thereafter will be subject to lower
14
<PAGE>
continuing fees. See "Conversion of Class B Shares to Class D Shares" below.
Both Class B and Class C shares are subject to an account maintenance fee of
0.25% of net assets and a distribution fee of 0.75% of net assets as discussed
below under "Distribution Plans".
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the ongoing distribution fees 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 of 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 into 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 into 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" below. The proceeds from the ongoing account
maintenance fee are used to compensate Merrill Lynch for providing continuing
account maintenance activities. Class B shareholders of the 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 which are
redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE OF
YEAR SINCE PURCHASE 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>
15
<PAGE>
For the fiscal year ended September 30, 1994, the Distributor received CDSCs
of $163,949 with respect to Class B shares.
In determining whether a CDSC is applicable to a redemption, the calculation
will be determined in the manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first of shares
held for over four years or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the four-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of
shares from a shareholder's account to another will be assumed to be made in
the same order as a redemption.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to charge because of dividend reinvestment. With respect to
the remaining 40 shares, the charge is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
2.0% (the applicable rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an IRA or other retirement plan or
following the death or disability (as defined in the Internal Revenue Code of
1986, as amended) of a shareholder. The Class B CDSC also is waived on
redemptions of shares by certain eligible 401(a) and eligible 401(k) plans and
in connection with certain group plans placing orders through the Merrill Lynch
BlueprintSM Program. The CDSC also is waived for any Class B shares which are
purchased by eligible 401(k) or eligible 401(a) plans which are rolled over
into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in
such account at the time of redemption. The Class B CDSC also is waived for any
Class B shares which are purchased by a Merrill Lynch rollover IRA that was
funded by a rollover from a terminated 401(k) plan managed by the MLAM Private
Portfolio Group and held in such account at the time of redemption. Additional
information concerning the waiver of the Class B CDSC is set forth in the
Statement of Additional Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which are
redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a
percentage of the dollar amount subject thereto. The charge will be assessed on
an amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from reinvestment of dividends
or capital gains distributions.
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. The Fund did not begin to
offer Class C shares publicly until after the fiscal year ended September 30,
1994.
16
<PAGE>
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of the 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 which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised mutual
funds held in that Class B Retirement Plan will be converted into Class D
shares of the appropriate funds. Subsequent to such conversion, that Class B
Retirement Plan will be sold Class D shares of the appropriate funds at net
asset value per share.
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
17
<PAGE>
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.
Prior to July 6, 1993, the Fund paid the Distributor an ongoing distribution
fee, accrued daily and paid monthly, at the annual rate of 1.0% of average
daily net assets of the Class B shares of the Fund under a distribution plan
previously adopted by the Fund (the "Prior Plan") to compensate the Distributor
and Merrill Lynch for providing account maintenance and distribution-related
activities and services to Class B shareholders. The fee rate payable and the
services provided under the Prior Plan are identical to the aggregate fee rate
payable and the services provided under the Class B Distribution Plan, the
difference being that the account maintenance and distribution services have
been unbundled.
For the year ended September 30, 1994, the Fund paid the Distributor account
maintenance fees of $1,944,798 and distribution fees of $5,834,397 under the
Class B Distribution Plan. The Fund did not begin to offer shares of Class C or
Class D publicly until October 21, 1994.
The payments under the Distribution Plans are based upon a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated
18
<PAGE>
accrual basis, revenues consist of the account maintenance fees, distribution
fees, the CDSCs and certain other related revenues, and expenses consist of
financial consultant compensation, branch office and regional operation center
selling and transaction processing expenses, advertising, sales promotion and
marketing expenses, corporate overhead and interest expense. On the direct
expense and revenue/cash basis, revenues consist of the account maintenance
fees, distribution fees and CDSCs and the expenses consist of financial
consultant compensation. As of December 31, 1993, 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 Fund commenced
operations on November 29, 1985 exceeded expenses for such period by
$24,803,000 (2.99% of Class B net assets at that date). As of December 31,
1993, direct cash revenues for the period since the commencement of operations
exceeded direct cash expenses by $109,814,195 (13.22% of Class B net assets at
that date); as of September 30, 1994, direct cash revenues for the period since
the commencement of operations exceeded direct cash expenses by $114,890,699
(16.19% of Class B 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 the Class B, Class C and Class D shares, and there is no
assurance that the Board of 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, the distribution fee and/or the CDSCs received with
respect to one class will not be used to subsidize the sale of shares of
another class. Payments of the distribution fee on Class B shares will
terminate upon conversion of those Class B shares into Class D shares as set
forth under "Deferred Sales Charge Alternatives--Class B and Class C Shares--
Conversion of Class B Shares to Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the Fund's
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
reinvestments and exchanges) plus (2) interest on the unpaid balance at the
prime rate plus 1% (the unpaid balance being the maximum amount payable minus
amounts received from the payment of the distribution fee and the CDSC). 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.
19
<PAGE>
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
designed to facilitate investment in its shares. Certain of such services are
not available to investors who place orders for the Fund through the Merrill
Lynch BlueprintSM Program. Full details as to each of such services, copies of
the various plans described below and instructions as to how to participate in
the various services or plans, or how to change options with respect thereto,
can be obtained from the Fund, 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 statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements will also show any other activity in the account since the preceding
statement. Shareholders will receive separate transaction confirmations for
each purchase or sale transaction other than automatic investment purchases and
the reinvestment of ordinary income dividends, and long-term capital gains
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 will be automatically opened, without charge,
at the Transfer Agent. Shareholders considering transferring their Class A or
Class D shares from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an
account registered in the name of the brokerage firm for the benefit of the
shareholder at the Transfer Agent. Shareholders considering transferring a tax-
deferred retirement account such as an IRA from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the retirement account is to be transferred will not take delivery of
shares of the Fund, a shareholder must either redeem the shares (paying any
applicable CDSC) so that the cash proceeds may 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.
Exchange Privilege. Shareholders of each class of shares of the Fund each
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 PricingSM System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class
A shareholder wants to exchange
20
<PAGE>
Class A shares for shares of a second MLAM-advised mutual fund, and the
shareholder does not hold Class A shares of the second fund in his account at
the time of the exchange and is not otherwise eligible to acquire Class A
shares of the second fund, the shareholder will receive Class D shares of the
second fund as a result of the exchange. Class D shares also may be exchanged
for Class A shares of a second MLAM-advised mutual fund at any time as long as,
at the time of the exchange, the shareholder holds Class A shares of the second
fund in the account in which the exchange is made or is otherwise eligible to
purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the relative
net asset values per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares will be exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC will be 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 of the newly acquired
shares of the other Fund.
Class A, Class B, Class C and Class D shares also will be exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services--Exchange
Privilege" in the Statement of Additional Information.
The Fund's exchange privilege is modified with respect to purchases of Class
A and Class D shares under the Merrill Lynch Mutual Fund Adviser ("MFA")
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D
shares of a MLAM-advised mutual fund for Class A or Class D shares of the Fund
will be made solely on the basis of the relative net asset values of the shares
being exchanged. Therefore, there will not be a charge for any difference
between the sales charge previously paid on the shares of the other MLAM-
advised mutual fund and the sales charge payable on the shares of the Fund
being acquired in the exchange under the MFA program.
21
<PAGE>
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, without sales charge, at the net asset value
per share next determined on the ex-dividend date of such dividend or
distribution. A shareholder may at any time, by written notification or by
telephone (1-(800)-MER-FUND) to the Transfer Agent, elect to have subsequent
dividends or both dividends and capital gains distributions paid in cash rather
than reinvested, in which event payment will be mailed on or about the payment
date. Cash payments can also be directly deposited to the shareholder's bank
account. No CDSC will be imposed on redemption of shares issued as a result of
the automatic reinvestment of dividends or capital gains distributions.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to his bank
account on either a monthly or quarterly basis. A Class A shareholder whose
shares are held within a CMA (R), CBA (R) or Retirement Account may elect to
have shares redeemed on a monthly, bi-monthly, quarterly, semiannual or annual
basis through the Systematic Redemption Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C or
Class D shares may be made to an investor's Investment Account by prearranged
charges of $50 or more to such investor's regular bank account. Investors who
maintain CMA (R) accounts may arrange to have periodic investments made in the
Fund in their CMA (R) account or in certain related accounts in amounts of $100
or more through the CMA Automated Investment Program.
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 in certain of the 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.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund on receipt of
a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no
charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption. The value
of shares at the time of redemption may be more or less than the shareholder's
cost, depending on the market value of the securities held by the Fund at such
time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering
the shares directly to the Fund's Transfer Agent, Financial Data Services,
Inc., Transfer Agency Mutual Funds Operations, P.O. Box 45289, Jacksonville,
Florida 32232-5289. Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., Transfer Agency Mutual Funds
Operations, 4800 Deer Lake Drive
22
<PAGE>
East, Jacksonville, Florida 32246-6484. Proper notice of redemption in the case
of shares deposited with the Transfer Agent may be accompanied by a written
letter requesting redemption. Proper notice of redemption in the case of shares
for which certificates have been issued may be accomplished by a written letter
as noted above accompanied by certificates for the shares to be redeemed. The
notice in either event requires the signatures of all persons in whose names
the shares are registered, signed exactly as their names appear on the Transfer
Agent's register or on the certificate, as the case may be. The signature(s) on
the redemption request must be guaranteed by an "eligible guarantor
institution" as such term 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. Notarized
signatures are not sufficient. In certain instances, the Transfer Agent may
require additional documents, such as, but not limited to, trust instruments,
death certificates, appointments as executor or administrator, or certificates
of corporate authority. For shareholders redeeming directly with the Transfer
Agent, payment will be mailed within seven days of receipt of a proper notice
of redemption.
At various times the Fund may be requested to redeem shares for which it has
not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that
good payment (e.g., cash or certified check drawn on a United States bank) has
been collected for the purchase of such shares. Normally, this delay will not
exceed 10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the 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 New York Stock Exchange on the day received and such
request is received by the Fund from the dealer not later than 30 minutes after
the close of business on the New York Stock Exchange (generally 4:00 P.M. New
York time) on the same day.
Dealers have the responsibility of submitting such repurchase requests to the
Fund not later than 30 minutes after the close of business on the New York
Stock Exchange (generally 4:00 P.M. New York time) in order to obtain that
day's closing price. These repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms which do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its
customers a processing fee (presently $4.85) to confirm a repurchase of shares
to such customers. Redemptions directly through the 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 above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a one-
time privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within
23
<PAGE>
30 days after the date the request for redemption was accepted by the Transfer
Agent or the Distributor. The reinstatement will be made at the net asset value
per share next determined after the notice of reinstatement is received and
cannot exceed the amount of the redemption proceeds. The reinstatement
privilege is a one-time privilege and may be exercised by the Class A or Class
D shareholder only the first time such shareholder makes a redemption.
INVESTMENT PRACTICES AND RESTRICTIONS
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
The Fund may engage in various portfolio strategies to seek to increase its
return through the use of options on portfolio securities and to hedge its
portfolio against movements in the equity markets, interest rates and exchange
rates between currencies. The Fund has authority to write (i.e., sell) covered
call options on its portfolio securities, purchase put options on securities
and engage in transactions in stock index options, stock index futures and
financial futures, and related options on such futures. The Fund may also deal
in forward foreign exchange transactions and foreign currency options and
futures, and related options on such futures. Each of these portfolio
strategies is described below. Although certain risks are involved in options
and futures transactions (as discussed below in "Risk Factors in Options,
Futures and Currency Transactions"), the Investment Adviser believes that,
because the Fund will only engage in these transactions for hedging purposes,
the options and futures portfolio strategies of the Fund will not subject the
Fund to the risks frequently associated with the speculative use of options and
futures transactions. While the Fund's use of hedging strategies is intended to
reduce the volatility of the net asset value of Fund shares, the Fund's net
asset value will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity markets, interest rates or
currency exchange rates occur.
Purchasing Put Options. The Fund is authorized to purchase put options to
hedge against a decline in the market value of its portfolio securities. By
buying a put option, the Fund has a right to sell the underlying security at
the exercise price, thus limiting the Fund's risk of loss through a decline in
the market value of the security until the put option expires. The amount of
any appreciation in the value of the underlying security will be partially
offset by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Fund's position as the purchaser of an option by means of an offsetting
sale of an identical option prior to the expiration of the option it has
purchased. The Fund will not purchase put options on securities if, as a result
of such purchase, the aggregate cost of all outstanding options on securities
held by the Fund would exceed 5% of the market value of the Fund's total
assets.
Writing of Covered Call Options. The Fund may, from time to time, sell
("write") covered call options in order to attempt to increase the yield on its
portfolio or to protect against declines in the value of its portfolio
securities. A covered call option is an option whereby 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
24
<PAGE>
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 in an amount exceeding 25% of the value of its total
assets.
Stock Index Options and Futures and Financial Futures. The Fund is authorized
to engage in transactions in stock index options and futures and financial
futures, and related options on such futures. The Fund may purchase or write
call options and purchase or write put options on stock indexes to hedge
against the risks of market-wide stock price movements in the securities in
which the Fund invests. The effectiveness of the hedge will depend on the
degree of diversification of the Fund's portfolio and the sensitivity of the
securities comprising the portfolio to factors influencing the market as a
whole. Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of prices in the stock market generally or in an
industry or market segment rather than movements in the prices of a particular
stock. Currently, stock index options traded include the S&P 100 Index, the S&P
500 Index, the NYSE Composite Index, the AMEX Market Value Index, the National
Over-the-Counter Index and other standard, broadly based stock market indices.
The Fund may also purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities and interest rates, as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date. Unlike
most other futures contracts, a stock index futures contract does not require
actual delivery of securities, but results in cash settlement based upon the
difference in value of the index between the time the contract was entered into
and the time of its settlement. The Fund may effect transactions in stock index
futures contracts in securities and financial futures contracts in United
States Government and agency securities and corporate debt securities.
Transactions by the Fund in stock index futures and financial futures are
subject to limitations as described below under "Restrictions on the Use of
Futures Transactions".
The Fund may sell stock index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of the
Fund's securities portfolio that might otherwise result. When the Fund is not
fully invested in the securities markets and anticipates a significant market
advance, it may purchase stock index futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of
securities that the Fund intends to purchase. As such securities purchases are
made, an equivalent amount of stock index futures contracts will be terminated
by offsetting sales. The Fund does not consider purchases of futures contracts
to be a speculative practice under these circumstances. It is anticipated that,
in a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, whether the long
position is the purchase of a stock index futures contract or the purchase of a
call option on a stock index future, but under unusual circumstances (e.g., the
Fund experiences a significant amount of redemptions), a long futures position
may be terminated without the corresponding purchase of securities.
The Fund may sell financial futures contracts in anticipation of an increase
in the general level of interest rates. Generally, as interest rates rise, the
market values of debt securities which may be held by the Fund as
25
<PAGE>
a temporary defensive measure will fall, thus reducing the net asset value of
the Fund. However, as interest rates rise, the value of the Fund's short
position in the futures contract will also tend to increase, thus offsetting
all or a portion of the depreciation in the market value of the Fund's
investments which are being hedged. While the Fund will incur commission
expenses in selling and closing out futures positions, these commissions are
generally less than the transaction expenses which the Fund would have incurred
had the Fund sold portfolio securities in order to reduce its exposure to
increases in interest rates. The Fund also may purchase financial futures
contracts in anticipation of a decline in interest rates when it is not fully
invested in a particular market in which it intends to make investments to gain
market exposure that may in part or entirely offset an increase in the cost of
securities it intends to purchase. It is anticipated that, in a substantial
majority of these transactions, the Fund will purchase securities upon
termination of the futures contract.
The Fund also has authority to purchase and write call and put options on
futures contracts in connection with its hedging activities. Generally, these
strategies are utilized under the same market and market sector conditions
(i.e., conditions relating to specific types of investments) in which the Fund
enters into futures transactions. The Fund may purchase put options or write
call options on futures contracts rather than selling the underlying futures
contract in anticipation of a decrease in the market value of a security or an
increase in interest rates. Similarly, the Fund may purchase call options, or
write put options on futures contracts, as a substitute for the purchase of
such futures to hedge against the increased cost resulting from an increase in
the market value or a decline in interest rates of securities which the Fund
intends to purchase.
The Fund may engage in options and futures transactions on exchanges and
options in the over-the-counter markets ("OTC options"). In general, exchange-
traded contracts are third-party contracts (i.e., performance of the parties'
obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. OTC options transactions are
two-party contracts with price and terms negotiated by the buyer and seller.
See "Restrictions on OTC Options" below for information as to restrictions on
the use of OTC options.
Foreign Currency Options, Futures and Related Options. The Fund is also
authorized to purchase or sell listed or over-the-counter foreign currency
options, foreign currency futures and related options on foreign currency
futures as a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to hedges on
non-U.S. dollar denominated securities owned by the Fund, sold by the Fund but
not yet delivered, or committed or anticipated to be purchased by the Fund. As
an illustration, the Fund may use such techniques to hedge the stated value in
United States dollars of an investment in a pound sterling denominated
security. In such circumstances, for example, the Fund may purchase a foreign
currency put option enabling it to sell a specified amount of pounds for
dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in value of the pound relative to the dollar will tend to be
offset by an increase in the value of the put option. To offset, in whole or in
part, the cost of acquiring such a put option, the Fund may also sell a call
option which, if exercised, requires it to sell a specified amount of pounds
for dollars at a specified price by a future date (a technique called a
"straddle"). By selling such call option, the Fund gives up the opportunity to
profit without limit from increases in the relative value of the pound to the
dollar. The Investment Adviser believes that "straddles" of the type which may
be utilized by the Fund constitute hedging transactions and are consistent with
the policies described above.
26
<PAGE>
Certain differences exist between these foreign currency hedging instruments.
Foreign currency options provide the holder thereof the right to buy or sell a
currency at a fixed price on a future date (with exchange-traded contracts and
OTC options having the characteristics described above). A futures contract on
a foreign currency is an agreement between two parties to buy and sell a
specified amount of currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade or
futures exchanges. The Fund will not speculate in foreign currency options,
futures or related options. Accordingly, the Fund will not hedge a currency
substantially in excess of the market securities which it has committed or
anticipates to purchase which are denominated in such currency, and in the case
of securities which have been sold by the Fund but not yet delivered, the
proceeds thereof in its denominated currency. The Fund may not incur potential
net liabilities of more than 20% of its total assets from foreign currency
options, futures or related options.
Restrictions on the Use of Futures Transactions. Under regulations of the
Commodity Futures Trading Commission ("CFTC"), the futures trading activities
described herein will not result in the Fund being deemed to be a "commodity
pool," as defined under such regulations, provided that the Fund adheres to
certain restrictions. In particular, the Fund may (i) purchase and sell futures
contracts and options thereon for bona fide hedging purposes, as defined under
CFTC regulations, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) the Fund may enter into non-
hedging transactions, provided that the Fund not enter into such transactions
for yield enhancement or risk management purposes if, immediately thereafter,
the sum of the amount of initial margin deposits on the Fund's existing futures
positions and option premiums would exceed 5% of the market value of its
liquidation value, after taking into account unrealized profits and unrealized
losses on any such transactions. However, the Fund intends to engage in options
and futures transactions only for hedging purposes. Margin deposits may consist
of cash or securities acceptable to the broker and the relevant contract
market.
When the Fund purchases a futures contract or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures is unleveraged.
An order has been obtained from the Commission which exempts the Fund from
certain provisions of the Investment Company Act in connection with
transactions involving futures contracts and options thereon.
Restrictions on OTC Options. The Fund will engage in OTC options, including
over-the-counter foreign currency options and options on foreign currency
futures, only with member banks of the Federal Reserve System and primary
dealers in United States Government securities or with affiliates of such banks
or dealers which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of at least $50 million. The Fund will
acquire only those OTC options for which the Investment Adviser believes the
Fund can receive on each business day at least two independent bids or offers
(one of which will be from an entity other than a party to the option).
The staff of the Commission has taken the position that purchased OTC options
and the assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an investment policy
27
<PAGE>
pursuant to which it will not purchase or sell OTC options (including OTC
options on futures contracts) if, as a result of such transaction, the sum of
the market value of OTC options currently outstanding which are held by the
Fund, the market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits on the
Fund's existing OTC options on futures contracts exceed 15% of the total assets
of the Fund, taken at market value, together with all other assets of the Fund
which are illiquid or are not otherwise readily marketable. However, if the OTC
option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer
at a predetermined price, then the Fund will treat as illiquid such amount of
the underlying securities as is equal to the repurchase price less the amount
by which the option is "in-the-money" (i.e., current market value of the
underlying security minus the option's strike price). The repurchase price with
the primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money". This policy is not a fundamental policy of the Fund
and may be amended by the Board of Directors of the Fund without the approval
of the Fund's shareholders. However, the Fund will not change or modify this
policy prior to the change or modification by the Commission staff of its
positions.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures prices
and movements in the prices of the securities, interest rates or currencies
which are the subject of the hedge. If the price of the options or futures
moves more or less than the price of the subject of the hedge, the Fund will
experience a gain or loss which will not be completely offset by movements in
the price of the subject of the hedge.
The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a
liquid secondary market for such options or futures or, in the case of OTC
options, the Investment Adviser believes the Fund can receive on each business
day at least two independent bids or offers. However, there can be no assurance
that a liquid secondary market will exist at any specific time. Thus, it may
not be possible to close an options or futures position. The inability to close
options and futures positions also could have an adverse impact on the Fund's
ability to effectively hedge its portfolio. There is also the risk of loss by
the Fund of margin deposits or collateral in the event of bankruptcy of a
broker with whom the Fund has an open position in an option, a futures contract
or a related option.
The exchanges on which currency options are traded have generally established
limitations governing the maximum number of call or put options on the same
underlying currency (whether or not covered) which may be written by a single
investor, whether acting alone or in concert with others (regardless of whether
such options are written on the same or different exchanges or are held or
written on one or more accounts or through one or more brokers). "Trading
limits" are imposed on the maximum number of contracts which any person may
trade on a particular trading day. The Investment Adviser does not believe that
these trading and position limits will have any adverse impact on the portfolio
strategies for hedging the Fund's portfolio.
OTHER INVESTMENT PRACTICES
Lending of Portfolio Securities. The Fund may from time to time lend
securities which it holds, with a value not exceeding 33 1/3% of its total
assets, to approved borrowers such as brokers and financial institutions.
28
<PAGE>
All loans of portfolio securities will be fully collateralized by cash or U.S.
government securities. During the period of this loan, the Fund receives the
income on the loaned securities and either receives the income on the
collateral or other compensation, i.e., negotiated loan premium or fee, for
entering into the loan and thereby increases its yield. 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 the collateral and could suffer a loss to the extent that the value
of the collateral fell below the market value of the borrowed securities.
Repurchase Agreements. In repurchase transactions, the Fund purchases a
collaterized debt security from a bank, broker-dealer or financial institution
which agrees to repurchase such security on a certain date and at a fixed price
calculated to produce a previously agreed upon return to the Fund. If the bank
or financial institution were to default upon its repurchase obligation and the
debt security were sold for a lesser amount, the Fund would realize a loss.
Foreign and Emerging Markets Securities. The Fund may invest up to 20% of its
total assets in securities issued by foreign companies. For purposes of this
investment policy, an issuer ordinarily will be considered to be located in the
country under the laws of which it is organized or where the primary trading
market of its securities is located. The Fund, however, may consider a company
to be located in a country, without reference to its domicile or to the primary
trading market of its securities, when at least 50% of its non-current assets,
capitalization, gross revenues or profits in any one of the two most recent
fiscal years represents (directly or indirectly through subsidiaries) assets or
activities located in such country.
Investments in the securities of foreign issuers involve certain
considerations and risks not ordinarily associated with investments in
securities of domestic issuers. Foreign companies are not generally subject to
uniform accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. companies. Foreign securities exchanges,
brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may
be subject to withholding and other foreign taxes which may adversely affect
the net return on such investments. In addition, with respect to certain
countries, there are risks of expropriation, confiscatory taxation, political
or social instability or diplomatic developments which could affect assets of
the Fund held in foreign countries.
There may be less publicly available information about a foreign company than
a U.S. company. Foreign securities markets may have substantially less volume
than U.S. securities markets and some foreign company securities are less
liquid and more volatile than comparable securities of U.S. companies. A
portfolio of foreign securities may also be adversely affected by fluctuations
in the rates of exchange between the currencies of different nations and by
exchange control regulations. Foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to the Fund
due to subsequent declines in value of such portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. In addition, a portfolio which includes foreign
securities can expect to have a higher expense ratio because of the increased
transaction costs on non-U.S. securities markets and the increased costs of
maintaining the custody of foreign securities.
29
<PAGE>
The Fund has made, and may continue to make, substantial investments in
securities of issuers in Latin America, the Far East and lesser developed
capital markets. The risks of investments in foreign securities described above
tend to be particularly significant when investing in lesser developed capital
markets.
Forward Foreign Exchange Transactions. The Fund has authority to deal in
forward foreign exchange between currencies of the different countries in which
it will invest as a hedge against possible variations in the foreign exchange
rate among these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
(up to one year) and price set at the time of the contract. The Fund's dealings
in forward foreign exchange will be limited to hedging involving either
specific transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward foreign currency with respect to specific
receivables or payables of the Fund accruing in connection with the purchase
and sale of its portfolio securities, the sale and redemption of shares of the
Fund or the payment of dividends and distributions by the Fund. Position
hedging is the sale of forward foreign currency with respect to portfolio
security positions denominated or quoted in such foreign currency. The Fund
will not speculate in forward foreign exchange. The Fund will not attempt to
hedge all of its foreign portfolio positions. The Fund may not commit more than
15% of its assets to position hedging contracts.
Portfolio Brokerage. The Fund has no obligation with any broker or group of
brokers in the execution of transactions in portfolio securities. Orders for
transactions in portfolio securities are placed for the Fund with a number of
brokers and dealers, including Merrill Lynch. In placing orders it is the
policy of the Fund to obtain the most favorable net results, taking into
account various factors including price, commission, if any, size of the
transaction, and difficulty of execution. Where practicable, the Investment
Adviser surveys a number of brokers and dealers in connection with proposed
portfolio transactions and selects the broker or dealer which offers the Fund
the best price and execution or other services which are of benefit to the
Fund.
Investment Restrictions. The Fund has adopted certain investment restrictions
which may not be changed without a vote of the Fund's shareholders, including a
majority of the shares of the Fund and any other portfolio which might be added
in the future. The Statement of Additional Information contains a description
of those restrictions under "Investment Practices and Restrictions--Current
Investment Restrictions."
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with
a formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including the maximum sales charge in the case of Class A and Class D shares
and
30
<PAGE>
the CDSC that would be applicable to a complete redemption of the investment at
the end of the specified period in the case of Class B and Class C shares.
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 both Class A and Class B shares of the
Fund in any advertisement or information including performance data for all
classes of shares 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
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual
or annualized total return data generally will be lower than average annual
total return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time. In advertisements directed to investors whose purchases
are subject to reduced sales charges in the case of Class A and Class D shares
or waiver of the CDSC in the case of Class B and Class C shares (such as
investors in certain retirement plans), performance data may take into account
the reduced, and not the maximum, sales charge or may not take into 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 losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to that of the Standard &
Poor's 500 Composite Stock Price Index, the Value Line Composite Index or the
Dow Jones Industrial Average, or to data contained in publications such as
Lipper Analytical Services, Inc., Morningstar Publications, Inc.
("Morningstar"), 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.
PORTFOLIO TRANSACTIONS AND 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 the Fund's portfolio transactions. With
31
<PAGE>
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 pays brokerage fees to Merrill Lynch in
connection with portfolio transactions executed by Merrill Lynch.
Brokers and dealers, including Merrill Lynch, who provide supplemental
investment research 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 Investment Advisory Agreement, and the expenses of the Investment Adviser
will not necessarily be reduced as a result of the receipt of such supplemental
information. Supplemental investment research received by the Investment
Adviser also may be used in connection with other investment advisory accounts
of the Investment Adviser and its affiliates. Whether or not a particular
broker-dealer sells shares of the Fund neither qualifies nor disqualifies such
broker-dealer to execute transactions for the Fund.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income, if
any. Dividends from such net investment income are paid semi-annually. All net
realized long- or short-term capital gains, if any, are distributed to the
Fund's shareholders at least annually. Premiums from expired call options
written by the Fund and net gains from closing purchase transactions are
treated as short-term capital gains for Federal income tax purposes. The per
share dividends and distributions on each class of shares will be reduced as a
result of any account maintenance, distribution and transfer agency fees
applicable to that class. See "Additional Information--Determination of Net
Asset Value". Dividends and distributions may be automatically reinvested in
shares of the Fund, at the net asset value without a sales charge. Shareholders
may elect in writing to receive any such dividends or distributions, or both,
in cash. Dividends and distributions are taxable to shareholders as described
below whether they are reinvested in shares of the Fund or received in cash.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily 15 minutes after the close of business on the New York Stock
Exchange (generally, 4:00 P.M. New York time), on each day during which the New
York Stock Exchange is open for trading. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. The net asset value per share is computed by
dividing the sum of the value of the securities held by the Fund plus any cash
or other assets (including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total number of
shares outstanding at such time, rounded to the nearest cent. Expenses,
including the investment advisory
32
<PAGE>
fees payable to the Investment Adviser and any account maintenance and/or
distribution fee payable to the Distributor, are accrued daily. The Fund
employs Merrill Lynch Securities Pricing Service ("MLSPS"), an affiliate of the
Investment Adviser, to provide certain securities prices for the Fund. The Fund
paid fees to MLSPS in the amount of $54 for the fiscal period ended September
30, 1994. The per share net asset value of the 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 the 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
differentials among the classes.
Portfolio securities and options which are traded on stock exchanges are
valued at the last sale price as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. Securities traded in the over-the-counter market are valued at the last
quoted bid prices as at the close of trading on the New York Stock Exchange on
each day by brokers that make markets in the securities. Portfolio securities
which are traded both in the over-the-counter market and on a stock exchange
are valued according to the broadest and most representative market. 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.
TAXES
The Fund has elected and intends to continue to qualify for the special tax
treatment afforded regulated investment companies ("RICs") under the Internal
Revenue Code of 1986, as amended (the "Code"). If it so qualifies, the Fund
(but not its shareholders) will not be subject to Federal income tax on the
part of its net ordinary income and net realized capital gains which it
distributes to Class A, Class B, Class C and Class D shareholders (together,
the "shareholders").
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. If the Fund pays a dividend in January which was
declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend or
distribution will be treated for federal tax purposes as being paid on December
31, and will be taxable to shareholders as if received on December 31.
The following discussion applies generally to shareholders of the Fund and,
in particular, to those shareholders of the Fund whose income is subject to
tax.
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
33
<PAGE>
as ordinary income. Distributions made from the Fund's net realized long-term
capital gains (including long-term gains from certain transactions in options)
are taxable to shareholders as long-term capital gains, regardless of the
length of time the shareholder has owned Fund shares.
Dividends and distributions are taxable to shareholders even though they are
reinvested in additional shares of the Fund. Not later than 60 days after the
close of its taxable year, the Fund will provide its shareholders with a
written notice designating the amounts of any ordinary income dividends or
capital gains 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.
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 provisions of the Code applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
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. Income tax treaties between certain
countries and the United States may reduce or eliminate such taxes. It is
impossible to determine in advance the effective rate of foreign tax to which
the Fund will be subject, since the amount of Fund assets to be invested in
various countries is not known. Because the Fund limits its investment 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.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not on file with the Fund, those who, to the Fund's knowledge, have
furnished an incorrect number or those who are subject to backup withholding
because of a failure to report income. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not subject to backup withholding.
A shareholder who holds shares as a capital asset generally will recognize a
capital gain or loss upon the sale of such shares, which will be a long-term
capital gain or loss if such shares were held for more than one year. However,
any loss realized by a shareholder who held shares for six months or less will
be treated as a long-term capital loss to the extent of any distributions of
net capital gains received by the shareholder with respect to such shares.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
such shares, then the loss the shareholder can recognize on the exchange will
be reduced (or the gain increased) to the extent the sales
34
<PAGE>
charge paid to the Fund reduces any sales charge the shareholder would have
owed upon purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new
shares. See "Shareholder Services--Exchange Privilege".
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and these
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively.
The Fund intends to provide shareholders annually with information relating
to the Fund's income and assets necessary to permit shareholders to determine
whether and to what extent their dividend income from the Fund is exempt from
their state income tax.
Shareholders are urged to consult their tax advisers as to whether any
portion of the dividends they receive from the Fund are exempt from state
income tax and as to any other specific questions as to Federal, foreign, state
or local taxes. Foreign investors should consider applicable foreign taxes in
their evaluation of an investment in the Fund.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on May 21, 1984. It has an
authorized capital of 2,000,000,000 shares of Common Stock, par value $0.01 per
share, divided into four classes, designated Class A, Class B, Class C and
Class D Common Stock, each of which consists of 500,000,000 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 the case may be. 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 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; and (iv) ratification of selection of
independent accountants. 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
35
<PAGE>
Fund and in the net assets of the Fund upon liquidation or dissolution after
satisfaction of outstanding liabilities, except, as noted above, the Class B,
Class C and Class D shares bear certain additional expenses.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: TAMFO
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Financial Data Services,
Inc. at 800-637-3863.
36
<PAGE>
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, INC. AUTHORIZATION
FORM (PART 1)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT SM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT SM
PROGRAM APPLICATION BY CALLING (800) 637-3766.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Balanced Fund for Investment and Retirement, 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 Financial Data Services,
Inc. as an initial investment (minimum $1,000). I understand that this
purchase will be executed at the applicable offering price next to be
determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: Please list all funds. (Use a separate sheet of
paper if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
(Please Print)
Name...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address........................................................................
................................................. Date........................
(Zip Code)
Occupation........................... Name and Address of Employer ........
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with rights of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION 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 Balanced Fund for Investment and
Retirement, 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 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>
- -------------------------------------------------------------------------------
3. SOCIAL SECURITY 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 "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 UNDER-REPORTING 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 CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
..................., 19......
Date of Initial Purchase
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Balanced Fund for Investment and Retirement, Inc. or any other
investment company with an initial sales charge or deferred sales charge for
which Merrill Lynch Funds Distributor, Inc. acts as distributor over the next
13 month period which will equal or exceed:
[_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Fund's 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 Balanced Fund for Investment and Retirement, Inc.
held as security.
By .................................. .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name............................. (2) Name.............................
Account Number.......................
Account Number.......................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp. We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
- - - our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases made under a Letter of
Intention or Systematic Withdrawal
Plan. We guarantee the shareholder's
- - - signature.
......................................
Dealer Name and Address
This form when completed should be
mailed to: By....................................
F/C Last Name Authorized Signature of Dealer
Merrill Lynch Balanced Fund for
Investment and Retirement, Inc.
c/o Financial Data Services, Inc. [_][_][_] [_][_][_][_] .............
Transfer Agency Mutual Fund Branch-Code F/C No. F/C Last Name
Operations
P.O. Box 45289 [_][_][_] [_][_][_][_][_]
Jacksonville, FL 32232-5289 Dealer's Customer A/C No.
38
<PAGE>
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, INC. AUTHORIZATION
FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Name of Owner...................... [_][_][_][_][_][_][_][_][_]
Name of Co-Owner (if any).......... Social Security No. or
Taxpayer Identification
Number
Address............................ Account Number ....................
(if existing account)
...................................
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [_] Class A or [_] Class D shares in Merrill Lynch Balanced Fund
for Investment and Retirement, 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
. . . . . . . . . .(month) or as soon as possible thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): [_] $
or [_] % of the current value of [_] Class A or [_] Class D shares in the
account.
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a)I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of..........................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (Please Print)......................................................
Address .......................................................................
..........................................................................
Signature of Owner................................ Date..................
Signature of Co-Owner (if any)............................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND (IF
NECESSARY) DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE IN ERROR
TO MY ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I
PROVIDE WRITTEN NOTIFICATION TO 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.
39
<PAGE>
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw an automated
clearing house ("ACH") debit on my checking account described below each month
to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Balanced Fund for Investment and Retirement, 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.
FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an
ACH debit each month on my bank To...............................Bank
account for investment in Merrill (Investor's Bank)
Lynch Balanced Fund for Investment
and Retirement, Inc. as indicated Bank Address.........................
below:
City...... State...... Zip Code......
Amount of each check or ACH debit
$.................................
As a convenience to me, I hereby
Account Number ................... request and authorize you to pay and
charge to my account ACH debits
Please date and invest ACH debits on drawn on my account by and payable
the 20th of each month beginning to Financial Data Services, Inc., I
agree that your rights in respect of
......(month) or as soon thereafter as each such debit shall be the same as
possible. if it were a check drawn on you and
signed personally by me. This
I agree that you are drawing these authority is to remain in effect
ACH debits voluntarily at my request until revoked by me in writing.
and that you shall not be liable for Until you receive such notice, you
any loss arising from any delay in shall be fully protected in honoring
preparing or failure to prepare any any such debit. I further agree that
such debit. If I change banks or if any such debit be dishonored,
desire to terminate or suspend this whether with or without cause and
program, I agree to notify you whether intentionally or
promptly in writing. I hereby inadvertently, you shall be under no
authorize you to take any action to liability.
correct erroneous ACH debits of my
bank account or purchases of fund ............ .....................
shares including liquidating shares Date Signature of
of the Fund and credit my bank Depositor
account. I further agree that if a
debit is not honored upon ............ .....................
presentation, Financial Data Bank Signature of Depositor
Services, Inc. is authorized to Account (If joint account,
discontinue immediately the Automatic Number both must sign)
Investment Plan and to liquidate
sufficient shares held in my account
to offset the purchase made with the
dishonored debit.
............ ..................... NOTE: IF AUTOMATIC INVESTMENT PLAN
Date Signature of IS ELECTED, YOUR BLANK, UNSIGNED
Depositor CHECK MARKED "VOID" SHOULD ACCOMPANY
THIS APPLICATION.
......................
Signature of Depositor
(If joint account,
both must sign)
40
<PAGE>
[This Page Intentionally Left Blank]
41
<PAGE>
[This Page Intentionally Left Blank]
42
<PAGE>
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
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
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
CUSTODIAN
The Chase Manhattan Bank, N.A.
4 Metro Tech Center
18th Floor
Brooklyn, New York 11245
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Funds Operations
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
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 REPRE-
SENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE STATEMENT OF
ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE INVESTMENT AD-
VISER, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN
ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Merrill Lynch Select PricingSM System...................................... 3
Financial Highlights....................................................... 7
Investment Objective and Policies.......................................... 8
The Fund and Its Management................................................ 9
Purchase of Shares......................................................... 11
Initial Sales Charge Alternatives--
Class A and Class D Shares............................................... 13
Deferred Sales Charge Alternatives--
Class B and Class C Shares............................................... 14
Distribution Plans........................................................ 17
Limitations on the Payment of Deferred Sales Charges...................... 19
Shareholder Services....................................................... 20
Redemption of Shares....................................................... 22
Redemption................................................................ 22
Repurchase................................................................ 23
Reinstatement Privilege--
Class A and Class D Shares............................................... 23
Investment Practices and Restrictions...................................... 24
Portfolio Strategies Involving Options and Futures........................ 24
Other Investment Practices................................................ 28
Performance Data........................................................... 30
Portfolio Transactions and Brokerage....................................... 31
Additional Information..................................................... 32
Dividends and Distributions............................................... 32
Determination of Net Asset Value.......................................... 32
Taxes..................................................................... 33
Organization of the Fund.................................................. 35
Shareholder Inquiries..................................................... 36
Shareholder Reports....................................................... 36
Authorization Form......................................................... 37
</TABLE>
Code #10331-0195
LOGO Merrill Lynch
Merrill Lynch
Balanced Fund for
Investment and
Retirement, Inc.
PROSPECTUS
January 31, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------------
JANUARY 31, 1995
MERRILL LYNCH BALANCED FUND
FOR INVESTMENT AND RETIREMENT, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Balanced Fund for Investment and Retirement, Inc., is a mutual
fund, technically known as an open-end diversified management investment
company, of the type permitted to have a number of different portfolios, or
series. The fund and its only series, the Full Investment Portfolio, are
referred to as the "Fund". The Fund seeks to provide shareholders with as high
a level of total investment return as is consistent with a relatively low
level of risk. It tries to achieve its objective through investment in high
quality, larger capitalization common stocks (generally companies with
$500,000,000 or more of market capitalization) and other types of securities,
including preferred stocks, debt securities and convertible securities.
Because the Fund is designed for investors for whom current tax liability is
not a consideration, such as certain tax qualified employee benefit plans, the
Fund will invest without regard to tax considerations.
----------------
Pursuant to the Merrill Lynch Select PricingSM 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.
----------------
This Statement of Additional Information of the Fund is not a prospectus and
should be read in conjunction with the prospectus of the Fund, dated January
31, 1995 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained without charge from Merrill Lynch
Funds Distributor, Inc., P.O. Box 9011, Princeton, New Jersey 08543-9011,
(609) 282-2800, or from selected securities dealers. This Statement of
Additional Information contains information in addition to, and more detailed
than, that set forth in the Prospectus and has been incorporated by reference
into the Prospectus. It is intended to provide investors with additional
information regarding the activities and operations of the Fund.
----------------
MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
----------------
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
As discussed on page 8 of the Prospectus, the investment objective of the
Fund is to provide shareholders with as high a level of total investment return
as is consistent with a relatively low level of risk. This is a fundamental
investment objective. The Fund seeks to accomplish its objective through
investment in high quality, larger capitalization common stocks (generally
companies with $500,000,000 or more of market capitalization) and other types
of securities, including preferred stocks, debt securities and convertible
securities, as well as through the writing of covered call options and the
lending of its portfolio securities. It is anticipated that, except under
unusual circumstances, the Fund will maintain at least 25% of the value of its
assets in fixed-income senior securities. In its common stock investments, it
is anticipated that the Fund will seek to emphasize issues with relatively low
price earnings ratios, above average dividend yields, and relatively low price
to book value ratios, as compared to prevailing market conditions. With respect
to debt securities (other than money market instruments which are discussed
below), the Fund will invest only in instruments which are rated Aa or better
by Moody's Investors Service, Inc. or AA or better by Standard & Poor's Ratings
Group or which are determined by the investment adviser of the Fund to be of
quality comparable to instruments so rated.
As discussed on page 8 of the Prospectus, the Fund may, under certain
circumstances, invest all or a portion of its assets in high quality money
market securities. Such securities can include the following: (1) U.S. Treasury
bills; (2) bankers' acceptances and certificates of deposit; (3) commercial
paper; and (4) repurchase agreements with respect to U.S. Government securities
and U.S. Government agency securities.
MANAGEMENT OF THE FUND
The Investment Adviser. Merrill Lynch Asset Management, L.P., doing business
as Merrill Lynch Asset Management (the "Investment Adviser" or "MLAM") is the
investment adviser of the Fund. MLAM is owned and controlled by Merrill Lynch &
Co., Inc., a financial services holding company ("ML & Co."). The Investment
Adviser and its affiliate, Fund Asset Management, L.P. ("FAM"), together serve
as the investment adviser to over 130 other registered investment companies, as
well as to numerous pension plans and other institutions.
The Advisory Agreement. Under its investment advisory agreement with the Fund
(the "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 general oversight by the Board of Directors. The Investment Adviser provides
the portfolio managers for the Fund, who make investment decisions and place
orders to effect portfolio transactions for the Fund. In this regard, the
Investment Adviser has access to the total securities research and economic
research facilities of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"). Pursuant to the Agreement, the Investment Adviser also
performs certain administrative and management services for the Fund. The
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
2
<PAGE>
subsidiaries. Portfolio accounting services are provided for the Fund by the
Investment Adviser, and the Fund reimburses the Investment Adviser for its
costs in connection with such services.
The Agreement will continue in effect until April 3, 1995, and may continue
in effect thereafter from year to year if approved at least annually by vote of
a majority of the Directors of the Fund or by the holders of a majority of the
outstanding shares of each series of the Fund. Any such continuation also
requires approval by a majority of the Directors who are not parties to the
Agreement or "interested persons" of any such party as defined in the
Investment Company Act by vote cast in person at a meeting called for such
purpose. The 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 Agreement automatically terminates in the event of its assignment
(as defined in the Act and the rules thereunder).
As discussed under "The Fund and Its Management" in the Prospectus, the
Agreement provides that the Fund will pay the Investment Adviser a monthly fee
based upon the average daily value of the portfolio's net assets at the
following annual rate: 0.65% of the average daily net assets not exceeding $500
million; 0.60% of the average daily net assets exceeding $500 million but not
exceeding $1.5 billion; 0.55% of the average daily net assets exceeding $1.5
billion but not exceeding $2.5 billion; 0.50% of the average daily net assets
exceeding $2.5 billion but not exceeding $3.5 billion; and 0.45% of the average
daily net assets exceeding $3.5 billion. Certain states in which the shares of
the Fund are qualified for sale impose limitations on the expenses of the Fund.
At the date of this Statement of Additional Information, the most restrictive
annual expense limitations to which the Fund is subject require that the
Investment Adviser reimburse each portfolio in any amount necessary to prevent
the portfolio's aggregate ordinary operating expenses (excluding interest,
taxes, account maintenance, distribution and brokerage fees and commissions,
and extraordinary charges such as litigation costs) from exceeding in any
fiscal year 2.5% of the first $30 million of the portfolio's average net
assets, 2.0% of the next $70 million of average net assets and 1.5% of the
portfolio's remaining average net assets. Any such reimbursements would be made
on a monthly basis. No payment of the investment advisory fee will be made to
the Investment Adviser which would result in expenses of any portfolio
exceeding on a cumulative annualized basis the most restrictive applicable
expense limitation in effect at the time of such payment. For the Fund's fiscal
years ended September 30, 1994, 1993, and 1992, the Investment Adviser earned a
fee of approximately $5,173,680, $5,620,993 and $6,063,373, respectively, from
the Fund.
Directors and Officers. The Directors and executive officers of the Fund,
their ages 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 (62)--President and Director (1)--President of the Investment
Adviser (which term as used herein includes its corporate predecessors) since
1977 and Chief Investment Officer thereof since 1976; President and Chief
Investment Officer of FAM (which term as used herein includes its corporate
predecessors) since 1977; President and Director of Princeton Services, Inc.
("Princeton Services") since 1993; Executive Vice President of Merrill Lynch
since 1990 and a Senior Vice President thereof from 1985 to 1990; Executive
Vice President of ML & Co. since 1990; Director of Merrill Lynch Funds
Distributor, Inc. ("MLFD" or the "Distributor").
3
<PAGE>
Herbert I. London (55)--Director--New York University-Gallatin Division, 113-
115 University Place, New York, New York 10003. John M. Olin Professor of
Humanities, New York University since 1993 and Professor thereof since 1973;
Dean, Gallatin Division of New York University from 1978 to 1993 and Director
from 1975 to 1976; Distinguished Fellow, Herman Kahn Chair, Hudson Institute
from 1984 to 1985; Director, Damon Corporation since 1991; Overseer, Center for
Naval Analyses.
Robert R. Martin (67)--Director--513 Grand Hill, St. Paul, Minnesota 55102.
Director, WTC Industries, Inc. since 1995 and Chairman thereof from 1994 to
1995; Chairman and Chief Executive Officer, Kinnard Investments, Inc. from 1990
to 1993; Executive Vice President, Dain Bosworth from 1974 to 1989; Director,
Carnegie Capital Management from 1977 to 1985 and Chairman thereof in 1979;
Director, Securities Industry Association from 1981 to 1982 and Public
Securities Association from 1979 to 1980; Trustee, Northland College since
1992.
Joseph L. May (65)--Director--424 Church Street, Suite 2000, Nashville,
Tennessee 37219. Attorney in private practice since 1984; President, May and
Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983;
Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May
Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.
Andre F. Perold (42)--Director--Morgan Hall, Soldiers Field, Boston,
Massachusetts 02163. Professor, Harvard Business School and Associate Professor
from 1983 to 1989; Trustee, The Common Fund, since 1989; Director, Quantec
Limited since 1991 and Teknekron Software Systems since 1994.
Terry K. Glenn (54)--Executive Vice President (1)--Executive Vice President
of the Investment Adviser and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of MLFD since 1986 and
Director thereof since 1991.
Bernard J. Durnin (52)--Senior Vice President (1)--Senior Vice President of
the Investment Adviser and FAM since 1981 and Vice President from 1977 to 1981.
Denis B. Cummings (52)--Vice President (1)--Vice President of the Investment
Adviser since 1978.
Donald C. Burke (34)--Vice President (1)--Vice President and Director of
Taxation of MLAM since 1990; employee of Deloitte & Touche LLP from 1981 to
1990.
Gerald M. Richard (45)--Treasurer (1)--Senior Vice President and Treasurer of
FAM and the Investment Adviser since 1984; Senior Vice President and Treasurer
of Princeton Services since 1993; Treasurer of MLFD since 1984 and Vice
President since 1981; employee of MLFD since 1978.
Jerry Weiss (36)--Secretary (1)--Vice President of the Investment Adviser
since 1990; Attorney in private practice from 1982 to 1990.
- --------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
4
<PAGE>
Pursuant to the terms of the management agreement with the Fund, the
Investment Adviser pays all compensation of officers of the Fund as well as the
fees of all Directors who are affiliated persons of the Investment Adviser. The
Fund pays each Director not affiliated with the Investment Adviser a fee of
$5,000 per year plus $500 per meeting attended, together with such Director's
out-of-pocket expenses relating to attendance at meetings. The Fund also
compensates members of its Audit and Nominating Committee, which consists of
all of the Directors of the Fund who are not interested persons of the Fund,
with a fee of $1,000 per year and a per meeting fee of $250 per year. For the
fiscal year ended September 30, 1994, fees and expenses paid to the
unaffiliated Directors aggregated $48,967.
The following table sets forth for the fiscal year ended September 30, 1994,
compensation paid by the Fund to the non-interested Directors and the aggregate
compensation paid by all investment companies advised by MLAM and its
affiliate, FAM ("MLAM/FAM Advised Funds") to the non-interested Directors.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM FUND AND
AGGREGATE PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS FUNDS PAID TO
NAME OF DIRECTORS FROM FUND PART OF FUND EXPENSES DIRECTORS(1)
----------------- ------------ --------------------- ------------------
<S> <C> <C> <C>
Herbert I. London......... $10,500 None 187,625
Robert R. Martin.......... $ 9,250 None 182,000
Joseph L. May............. $10,500 None 187,625
Andre F. Perold........... $10,500 None 187,625
</TABLE>
- --------
(1) The Directors served on the boards of other MLAM/FAM Advised Funds as
follows: Mr. London (23 boards); Mr. Martin (23 boards); Mr. May (23 boards);
and Mr. Perold (23 boards).
As of January 1, 1995, the officers and Directors of the Fund as a group (11
persons) owned, in the aggregate, less than 1% of the outstanding shares of the
Fund.
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
PricingSM System: Class A and Class D shares are sold to investors choosing the
initial sales charge alternatives and Class B and Class C shares 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, has the same rights and is identical in
all respects, 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 distribution fees are paid. Each
class has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
5
<PAGE>
The Merrill Lynch Select PricingSM System is used by more than 50 mutual
funds advised by the Investment Adviser or its affiliate, FAM. Funds advised by
the Investment Adviser or FAM are referred to herein as "MLAM-advised mutual
funds".
The 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 the shareholders, the Distributor pays for the
printing and distribution of copies thereof used in connection with the
offering to dealers and investors. The Distributor also pays for other
supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Investment Advisory Agreement described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The gross sales charges for the sale of Class A shares for the fiscal year
ended September 30, 1994 were $54,923, of which the Distributor received $3,336
and Merrill Lynch received $51,587. For the fiscal year ended September 30,
1994 the Distributor received no CDSCs with respect to Class A shares for which
the initial sales charge was waived.
The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases
by any such company which has not been in existence for at least six months or
which has no purpose other than the purchase of shares of the Fund or shares of
other registered investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders of
a company, policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase shares
of the Fund subject to an initial sales charge at the offering price applicable
to the total of (a) the public offering price then being purchased plus (b) an
amount equal to the then current net asset value or cost, whichever is higher,
of the purchaser's combined holdings of all classes of shares of the Fund and
of other MLAM-advised mutual funds. For any such right of accumulation to be
made available, the Distributor must be provided at the time of purchase, by
the purchaser or the purchaser's securities dealer, with sufficient information
to permit confirmation of qualification. Acceptance of the purchase order is
subject to such confirmation. The right of accumulation may be amended or
terminated at any time. Shares held in the name of a nominee or custodian under
pension, profit-sharing or other employee benefit plans may not be combined
with other shares to qualify for the right of accumulation.
6
<PAGE>
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of the Class A or Class D shares of the Fund or
any other MLAM-advised mutual funds made within a thirteen-month period
starting with the first purchase pursuant to a Letter of Intention in the form
provided in the Prospectus. The Letter of Intention is available only to
investors whose accounts are maintained at Financial Data Services, Inc., the
Fund's transfer agent (the "Transfer Agent"). The Letter of Intention is not
available to employee benefit plans for which Merrill Lynch provides plan
participant recordkeeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares, but its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant
to a Letter of Intention may be included under a subsequent Letter executed
within 90 days of such purchase if the Distributor is informed in writing of
this intent within such 90-day period. The value of Class A and Class D shares
of the 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. 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 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 or more of the dollar amount of such Letter. If during the
term of such Letter, a purchase brings the total amount invested to an amount
equal to or in excess of the amount indicated in the Letter, the purchaser
will be entitled on that purchase and subsequent purchases to the reduced
percentage sales charge which would be applicable to a single purchase equal
to the total dollar value of the shares then being purchased under such
Letter, but there will be no retroactive reduction of the sales charges on any
previous purchase. The value of any shares redeemed or otherwise disposed of
by the purchaser prior to termination or completion of the Letter of Intention
will be deducted from the total purchases made under such Letter. An exchange
from a MLAM-advised money market fund into the Fund that creates a sales
charge will count toward completing a new or existing Letter of Intention from
the Fund.
Merrill Lynch Blueprint SM Program. Class D shares of the Fund are offered
to participants in the Merrill Lynch Blueprint SM Program ("Blueprint"). In
addition, participants in Blueprint who own Class A shares of the Fund may
purchase additional Class A shares of the Fund through Blueprint. Blueprint is
directed to small investors, group Investment Retirement Accounts ("IRAs") and
participants in certain affinity groups such as credit unions, trade
associations and benefit plans. Investors placing orders to purchase Class A
or Class D shares of the 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
up to $5,000 at 3.25% plus $3 and $5,000.01 or more at the standard sales
charge rates disclosed in the Prospectus). In addition, Class A or Class D
shares of the Fund are being offered at net asset value plus a sales charge of
1/2 of 1% for corporate or group IRA programs placing orders to purchase their
Class A or Class D shares through Blueprint. Services, including the exchange
privilege, available to Class A and Class D investors through Blueprint,
however, may differ from those available to other investors in Class A and
Class D shares. 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
7
<PAGE>
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.
Class A and Class D shares are offered at net asset value to participants in
the Merrill Lynch Blueprint Program through the Merrill Lynch Directed IRA
Rollover Program ("IRA Rollover Program") available from Merrill Lynch
Business Financial Services, a business unit of Merrill Lynch. The IRA
Rollover Program is available to custodian rollover assets from Employer
Sponsored Retirement and Savings Plans (see definition below) whose Trustee
and/or Plan Sponsor offers the Merrill Lynch Directed IRA Rollover Program.
Additional information concerning purchases through Blueprint, including any
annual fees and transaction charges, is available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, The Blueprint SM Program, P.O. Box 30441, New
Brunswick, New Jersey 08989-0441.
Employer Sponsored Retirement and Savings Plans. Class A and Class D shares
are offered at net asset value to employer sponsored retirement or savings
plans, such as tax qualified retirement plans within the meaning of Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), deferred
compensation plans within the meaning of Section 403(b) and 457 of the Code,
other deferred compensation arrangements, Voluntary Employee Benefits
Association ("VEBA") plans, and non-qualified After Tax Savings and Investment
programs, maintained on the Merrill Lynch Group Employee Services system,
herein referred to as "Employer Sponsored Retirement or Savings Plans",
provided the plan has accumulated at least $20 million in MLAM-advised mutual
funds (in the case of Class A shares) or $5 million in MLAM-advised mutual
funds (in the case of Class D shares). Class D shares may be offered at net
asset value to new Employer Sponsored Retirement or Savings Plans, provided
the plan has $3 million or more initially invested in MLAM-advised mutual
funds. Assets of Employer Sponsored Retirement or Savings Plans sponsored by
the same sponsor or an affiliated sponsor may be aggregated. Class A shares
and Class D shares also are offered at net asset value to Employer Sponsored
Retirement or Savings Plans that have at least 1,000 employees eligible to
participate in the plan (in the case of Class A shares) or between 500 and 999
employees eligible to participate in the plan (in the case of Class D shares).
Employees eligible to participate in Employer Sponsored Retirement or Savings
Plans of the same sponsoring employer or its affiliates may be aggregated. Tax
qualified retirement plans within the meaning of Section 401(a) of the Code
meeting any of the foregoing requirements and which are provided specialized
services (e.g., plans whose participants may direct on a daily basis their
plan allocations among a wide range of investments including individual
corporate equities and other securities in addition to mutual fund shares) by
the Merrill Lynch Blueprint SM Program, are offered Class A shares at a price
equal to net asset value per share plus a reduced sales charge of 0.50%. Any
Employer Sponsored Retirement or Savings Plan which does not meet the above
described qualifications to purchase Class A shares or Class D shares at net
asset value has the option of (i) purchasing Class A shares at the initial
sales charge and possible CDSC schedule disclosed in the Prospectus if it is
otherwise eligible to purchase Class A shares, (ii) purchasing Class D shares
at the initial sales charge and possible CDSC schedule disclosed in the
Prospectus, (iii) if the Employer Sponsored Retirement or Savings Plan meets
the specified requirements, purchasing Class B shares with a waiver of the
CDSC upon redemption, or (iv) if the Employer Sponsored Retirement or Savings
Plan does not qualify to purchase Class B shares with a waiver of the CDSC
upon redemption, purchasing Class C shares at the CDSC schedule disclosed in
the Prospectus. The minimum initial and subsequent purchase requirements are
waived in connection with all the above referenced Employer Sponsored
Retirement or Savings Plans.
8
<PAGE>
Purchase Privileges of Certain Persons. Directors of the Fund, members of the
Boards of other MLAM-advised investment companies, directors and employees of
ML & Co. and its subsidiaries (the term "subsidiaries", when used herein with
respect to ML & Co., includes MLAM, FAM and certain other entities directly or
indirectly wholly-owned and controlled by ML & Co.), and any trust, pension,
profit-sharing or other benefit plan for such persons, may purchase Class A
shares of the Fund at net asset value. Under such programs, the Fund realizes
economies of scale and reduction of sales related expenses by virtue of
familiarity with the Fund.
Employees and directors 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 financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied. First the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis. Second, the investor must also establish that such redemption was 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 are offered at net asset value, without sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: First, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from a redemption of such shares of
other mutual funds and that such shares have been outstanding for a period of
no less than 6 months. Second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the redemption must
have been maintained in the interim in cash or a money market fund.
Class D shares of the Fund are also offered at net asset value, without sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund sponsored by a non-
Merrill Lynch company for which Merrill Lynch has served as a selected dealer
and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied. First, the investor must purchase Class 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; and 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 of 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
9
<PAGE>
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
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 either must 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. Class A shares of the Fund are offered at net asset value
to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. ("Senior
Floating Rate Fund") who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock of the Senior Floating Rate Fund in
shares of the Fund. In order to exercise this investment option, Senior
Floating Rate Fund shareholders must sell their Senior Floating Rate Fund
shares to the Senior Floating Rate Fund in connection with a tender offer
conducted by the Senior Floating Rate Fund and reinvest the proceeds
immediately in the Fund. This investment option is available only with respect
to the proceeds of the Senior Floating Rate Fund shares as to which no Early
Withdrawal Charge (as defined in the Senior Floating Rate Fund prospectus) is
applicable. Purchase orders from Senior Floating Rate Fund shareholders
wishing to exercise this investment option will be accepted only on the day
that the related Senior Floating Rate Fund tender offer terminates and will be
effected at the net asset value of the Fund at such day.
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.
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 which might result from an acquisition of assets having net
unrealized appreciation which is disproportionately higher at the time of
acquisition than the realized or unrealized appreciation of the Fund. The
issuance of Class D shares for consideration other than cash is limited to
bona fide reorganizations, statutory mergers or other acquisitions of
portfolio securities which (i) meet the investment objectives and policies of
the Fund; (ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall at
all times remain within its control); and (iii) are liquid securities, the
value of which is readily ascertainable, which are not restricted as to
transfer either by law or liquidity of market (except that the Fund may
acquire through such transactions restricted or illiquid securities to the
extent the Fund does not exceed the applicable limits on acquisition of such
securities set forth under "Investment Objective and Policies" herein).
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule12b-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 distribution fees and/or account maintenance fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act.
Among other things, each Distribution Plan provides that the
10
<PAGE>
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 (the "Independent Directors"), shall be committed to the discretion
of the Independent Directors then in office. In approving each Distribution
Plan in accordance with Rule 12b-1, the Independent Directors concluded that
there is reasonable likelihood that such Distribution Plan will benefit the
Fund and its related class of shareholders. Each Distribution Plan can be
terminated at any time, without penalty, by the vote of a majority of the
Independent Directors or by the vote of 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.
During the fiscal year ended September 30, 1994, the Fund paid the
Distributor account maintenance fees of $1,944,798 and distribution fees of
$5,834,397 under the Class B Distribution Plan.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares, but not the account maintenance fee.
The maximum sales charge rule is applied separately to each class. As
applicable to the 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.
11
<PAGE>
The following table sets forth comparative information as of September 30,
1994 with respect to the Class B shares of the Fund indicating the maximum
allowable payments that can be made under the NASD maximum sales charge rule
and the Distributor's voluntary maximum for the period November 29, 1985
(commencement of the public offering of Class B shares) to September 30, 1994.
<TABLE>
<CAPTION>
CLASS B SHARES
------------------------------------------------------------------------------------
DATA CALCULATED AS OF SEPTEMBER 30, 1994
(IN THOUSANDS)
------------------------------------------------------------------------------------
ALLOWABLE AMOUNTS ANNUAL
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE DISTRIBUTION
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID FEE AT CURRENT
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE NET ASSET LEVEL(4)
---------- --------- ---------- -------- -------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule
as Adopted.... $3,625,869 $226,617 $140,866 $367,483 $148,648 $218,835 $5,324
Under Distribu-
tor's
Voluntary
Waiver........ $3,625,869 $226,617 $ 18,129 $244,746 $148,648 $ 96,098 $5,324
</TABLE>
- --------
(1) Purchase price of all eligible Class B shares sold since November 29, 1985
(commencement of the public offering of Class B shares) other than shares
acquired through dividend reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made prior to July 6, 1993 under a prior plan 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.
(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.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
Payment for shares presented for redemption will be made by check sent
within seven days after receipt by the Transfer Agent of your written request
in proper form and, if issued, certificates for the shares being redeemed. The
right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period during which trading on the
New York Stock Exchange is restricted as determined by the Commission or such
Exchange is closed (other than customary weekend and holiday closings), for
any period during which an emergency exists as defined by the Commission, as a
result of which disposal of portfolio securities or determination of the net
asset value of the Fund is not reasonably practicable, and for such other
periods as the Commission may by order permit for the protection of
shareholders of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder costs, depending on the net asset value of such shares at such
time.
12
<PAGE>
DEFERRED SALES CHARGE--CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares", while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in connection with
certain post-retirement withdrawals from an IRA or other retirement plan or
following the death or disability of a Class B shareholder. Redemptions for
which the waiver applies are: (a) any partial or complete redemption in
connection with a distribution following retirement under a tax-deferred
retirement plan which is permitted to be made without tax penalty under the
Internal Revenue Code, or attaining age 59 1/2 in the case of an IRA or other
retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for 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 Internal Revenue 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 year ended September 30, 1994, the
Distributor received CDSCs of $163,949 with respect to Class B shares, all of
which was paid to Merrill Lynch.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations, credit
unions and benefit plans. 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 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 is no minimum initial or subsequent purchase
requirement for investors who are part of a Blueprint automatic investment
plan. Additional information concerning Blueprint, including any annual fees or
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
Retirement Plans. Any Retirement Plan which does not meet the qualifications
to purchase Class A or Class D shares at net asset value has the option of
purchasing Class A or Class D shares at the sales charge schedule disclosed in
the Prospectus, or if the Retirement Plan meets the following requirements,
then it may purchase Class B shares with a waiver of the CDSC upon redemption.
The CDSC is waived for any Eligible 401(k) Plan redeeming Class B shares.
"Eligible 401(k) Plan" is defined as a retirement plan qualified under Section
401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for redemptions from
a 401(a) plan qualified under the Code, provided, however, that each such plan
has the same or an affiliated sponsoring employer as an Eligible 401(k) Plan
purchasing Class B shares of MLAM-advised mutual funds ("Eligible 401(a)
Plan"). Other tax qualified retirement plans within the meaning of Section
401(a) and 403(b) of the Code which are provided specialized services (e.g.,
plans whose participants may direct on a daily basis their plan allocations
among a menu of investments) by independent administration firms contracted
through Merrill Lynch also may purchase Class B shares with a waiver of the
CDSC. The CDSC also is waived for any Class B or Class C shares which are
purchased by an Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled
over into a Merrill Lynch or Merrill Lynch Trust
13
<PAGE>
Company custodied IRA and held in such account at the time of redemption. The
Class B CDSC also is waived for any Class B shares which are purchased by a
Merrill Lynch rollover IRA, that was funded by a rollover from a terminated
401(k) plan managed by the MLAM Private Portfolio Group and held in such
account at the time of redemption. The minimum initial and subsequent purchase
requirements are waived in connection with all the above-referenced Retirement
Plans.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily 15
minutes after the close of business on the New York Stock Exchange (generally,
4:00 p.m. New York time), on each day during which the New York Stock Exchange
is open for trading. The New York Stock Exchange is not open on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. The net asset value per share is computed by
dividing the sum of the value of the securities held by the Fund plus any cash
or other assets (including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total number of
shares outstanding at such time, rounded to the nearest cent. Expenses,
including the investment advisory fees and 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 between the
classes.
Portfolio securities and options which are traded on stock exchanges are
valued at the last sale price as of the close of business on the day the
securities are being valued, or, lacking any sales, at the last available bid
price. Securities traded in the over-the-counter market are valued at the last
quoted bid prices at the close of trading on the New York Stock Exchange on
each day by brokers that make markets in the securities. Portfolio securities
which are traded both in the over-the-counter market and on a stock exchange
are valued according to the broadest and most representative market. 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.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Certain of such services are
not available to investors who place orders for the Fund through the Merrill
Lynch BlueprintSM Program. 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.
14
<PAGE>
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 income dividends, and long-term capital gain distributions.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares 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. If the new brokerage
firm is willing to accommodate the shareholder in this manner, the shareholder
must request that he be issued certificates for his shares, and then must turn
the certificates over to the new firm for re-registration as described in the
preceding sentence. Shareholders 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 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 can also be made through a service known as the
Automatic Investment Plan whereby the Transfer Agent is authorized through pre-
authorized checks or automatic 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 the Merrill Lynch BlueprintSM
Program, no minimum charge to the investor's bank account is required.
Investors who maintain CMA(R) accounts may arrange to have periodic investments
made in the Fund, in the CMA accounts or in certain related accounts in amounts
of $100 or more ($1 for retirement accounts) through the CMA Automated
Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund, without sales charge, as
of the close of
15
<PAGE>
business on the ex-dividend date of the dividend or distribution. Shareholders
may elect in writing or by telephoning (1-(800)-MER-FUND) to receive either
their dividends or capital gains distributions, or both, in cash, in which
event payment will be mailed or direct deposited on or about the payment date.
Shareholders may, at any time, notify the Transfer Agent in writing that they
no longer wish to have their dividends and/or capital gains distributions
reinvested in shares of the Fund or vice versa and, commencing ten days after
the receipt by the Transfer Agent of such notice, those instructions will be
effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make withdrawals from an
Investment Account in the form of payments by check or through automatic
payment by direct deposit to his bank account on either a monthly or quarterly
basis as provided below. Quarterly withdrawals are available for shareholders
who have acquired Class A or Class D shares of the Fund having a value, based
on cost or the current offering price, of $5,000 or more, and monthly
withdrawals are available for shareholders with Class A or Class D shares with
such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D shares
are redeemed from those on deposit in the shareholder's account to provide the
withdrawal payment specified by the shareholder. The shareholder may specify
either a dollar amount or a percentage of the value of his Class A or Class D
shares. Redemptions will be made at net asset value as determined 15 minutes
after the close of business on the New York Stock Exchange (generally 4:00 P.M.
New York time) on the 24th day of each month or the 24th day of the last month
of each quarter, whichever is applicable. If the Exchange is not open for
business on such date, the Class A or Class D shares will be redeemed at the
close of business on the following business day. The check for the withdrawal
payment will be mailed or the direct deposit for withdrawal payment will be
made on the next business day following redemption. When a shareholder is
making systematic withdrawals, dividends and distributions on all Class A
shares in the Investment Account are reinvested automatically in Class A or
Class D shares, respectively, of the Fund. A shareholder's Systematic
Withdrawal Plan may be terminated at any time, without charge or penalty, by
the shareholder, the Fund, the Fund's Transfer Agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional Class A or Class D shares concurrent
with withdrawals are ordinarily disadvantageous to the shareholder because of
sales charges and tax liabilities. The Fund will not knowingly accept purchase
orders for Class A or Class D shares of the Fund from investors who maintain a
Systematic Withdrawal Plan unless such purchase is equal to at least one year's
scheduled withdrawals or $1,200, whichever is greater. Periodic investments may
not be made into an Investment Account in which the shareholder has elected to
make systematic withdrawals.
A Class A or Class D shareholder whose shares are held within a CMA (R),
CBA (R) or Retirement Account may elect to have shares redeemed on a monthly,
bi-monthly, quarterly, semiannual or annual basis through the Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $25. The
proceeds of systematic redemptions will be posted to the shareholder's account
five business days after the date the shares are redeemed. Monthly systematic
redemptions will be made at net asset value on the first Monday of each month,
bi-monthly systematic redemptions will be made at net asset value on the first
16
<PAGE>
Monday of every other month, and quarterly, semiannual or annual redemptions
are made at net asset value on the first Monday of months selected at the
shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automatic Investment Program. For
more information on the Systematic Redemption Program, eligible shareholders
should contact their Financial Consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and certain of the other mutual funds sponsored by Merrill Lynch as well
as in other securities. Merrill Lynch charges an initial establishment fee and
an annual custodial fee for each account. Information with respect to these
plans is available on request from Merrill Lynch. The minimum initial purchase
to establish any such plan is $100. However, there is no minimum for purchases
through the Merrill Lynch BlueprintSM Program's systematic investment plans).
Capital gains and income received in each of the plans referred to above are
exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select PricingSM System, Class A shareholders may exchange Class A shares
of the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, and
the shareholder does not hold Class A shares of the second fund in his account
at the time of the exchange and is not otherwise eligible to acquire Class A
shares of the second fund, the shareholder will receive Class D shares of the
second fund as a result of the exchange. Class D shares also may be exchanged
for Class A shares of a second MLAM-advised mutual fund at any time as long as,
at the time of the exchange, the shareholder holds Class A shares of the second
fund in the account in which the exchange is made or is otherwise eligible to
purchase Class A shares of the second fund. Class B, Class C and Class D shares
will be exchangeable with shares of the same class of other MLAM-advised mutual
funds. For purposes of computing the CDSC that may be payable upon a
disposition of the shares acquired in the exchange, the holding period for the
previously owned shares of the Fund is "tacked" to the holding period of the
newly acquired shares of the other Fund as more fully described below. Class A,
Class B, Class C and Class D shares also will be exchangeable for shares of
certain MLAM-advised money market funds specifically designated below as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. Shares with a net asset value of at least $100 are required to qualify
for the exchange privilege, and any shares utilized in an exchange must have
been held by the shareholder for 15 days. It is contemplated that the exchange
privilege may be applicable to other new mutual funds whose shares may be
distributed by the Distributor.
17
<PAGE>
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the outstanding Class A or Class D shares and the sales charge payable at the
time of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares in the
initial purchase and any subsequent exchange. Class A and Class D shares issued
pursuant to dividend reinvestment are sold on a no-load basis in each of the
funds offering Class A or Class D shares. For purposes of the exchange
privilege, Class A and Class D shares acquired through dividend reinvestment
shall be deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was
paid. Based on this formula, Class A and Class D shares generally may be
exchanged into the Class A or Class D shares of the other funds or into shares
of the Class A 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, of another MLAM-
advised mutual fund ("new Class B or Class C shares") on the basis of relative
net asset value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the 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 Fund's CDSC schedule if
such schedule is higher than the CDSC schedule relating to the Class B shares
of the fund from which the exchange has been made. For purposes of computing
the sales charge that may be payable on a disposition of the new Class B or
Class C shares, the holding period for the outstanding Class B or Class C
shares is "tacked" to the holding period of the new Class B or Class C shares.
For example, an investor may exchange Class B shares of the Fund for those of
Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held
Class B shares of the Fund for two and a half years. The 2% sales charge that
generally would apply to a redemption would not apply to the exchange. Three
years later the investor may decide to redeem the Class B shares of Special
Value Fund and receive cash. There will be no 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 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 which 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 of any fund
offering such shares, in which event the holding period for Class B or Class C
shares of the 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
18
<PAGE>
Class B shares of the Fund for two and a half years and three years later
decide to redeem the shares of Institutional Fund for cash. At the time of
this redemption, the 2% CDSC that would have been due had the Class B shares
of the Fund been redeemed for cash rather than exchanged for shares of
Institutional Fund will be payable. If, instead of such redemption, the
shareholder exchanged such shares for Class B shares of a fund which the
shareholder continues to hold for an additional two and a half years, any
subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds issuing Class A, Class B, Class C and Class D Shares:
Merrill Lynch Adjustable Rate
Securities Fund, Inc. ..............
High current income consistent with a
policy of limiting the degree of
fluctuation in net asset value by
investing primarily in a portfolio of
adjustable rate securities,
consisting principally of mortgage-
backed and asset-backed securities.
Merrill Lynch Americas Income Fund,
Inc. ...............................
A high level of current income,
consistent with prudent investment
risk, by investing primarily in debt
securities denominated in a currency
of a country located in the Western
Hemisphere (i.e., North and South
America and the surrounding waters).
Merrill Lynch Arizona Limited
Maturity Municipal Bond Fund........
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
objective is to provide as high a
level of income exempt from Federal
and Arizona income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-
term investment grade Arizona
Municipal Bonds.
Merrill Lynch Arizona Municipal Bond
Fund................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose objective is to
provide investors with as high a
level of income exempt from Federal
and Arizona income taxes as is
consistent with prudent investment
management.
Merrill Lynch Arkansas Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Arkansas
income taxes as is consistent with
prudent investment management.
19
<PAGE>
Merrill Lynch Asset Growth Fund, A high level of current income through
Inc................................. investment primarily in United States
fixed income securities.
Merrill Lynch Asset Income Fund, High total investment return,
Inc................................. consistent with prudent risk, from
investment in United States and
foreign equity, debt and money market
securities, the combination of which
will be varied both with respect to
types of securities and markets in
response to changing market and
economic trends.
Merrill Lynch Basic Value Fund, Capital appreciation and, secondarily,
Inc. ............................... income through investment in
securities, primarily equities, that
are undervalued and therefore
represent basic investment value.
Merrill Lynch California Insured
Municipal Bond Fund.................
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of insured income exempt from
Federal and California income taxes as
is consistent with prudent investment
management through investment in a
portfolio primarily of insured
California Municipal Bonds.
Merrill Lynch California Limited
Maturity Municipal Bond Fund........
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
objective is to provide shareholders
with as high a level of income exempt
from Federal and California income
taxes as is consistent with prudent
investment management through
investment in a portfolio primarily of
intermediate-term investment grade
California Municipal Bonds.
Merrill Lynch California Municipal
Bond Fund...........................
A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide
investors with as high a level of
income exempt from Federal and
California income taxes as is
consistent with prudent investment
management.
Merrill Lynch Capital Fund, Inc. .... The highest total investment return
consistent with prudent risk through a
fully managed investment policy
utilizing equity, debt and convertible
securities.
Merrill Lynch Colorado Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to
20
<PAGE>
provide as high a level of income
exempt from Federal and Colorado
income taxes as is consistent with
prudent investment management.
Merrill Lynch Connecticut Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and Connecticut income taxes
as is consistent with prudent
investment management.
Merrill Lynch Corporate Bond Fund,
Inc. ...............................
Current income from three separate
diversified portfolios of fixed-income
securities.
Merrill Lynch Developing Capital
Markets Fund, Inc. .................
Long-term appreciation through
investment in securities, principally
equities, of issuers in countries
having smaller capital markets.
Merrill Lynch Dragon Fund, Inc. ..... Capital appreciation primarily through
investment in equity and debt
securities of issuers domiciled in
developing countries located in Asia
and the Pacific Basin.
Merrill Lynch EuroFund............... Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.
Merrill Lynch Federal Securities High current return through investments
Trust............................... in U.S. Government and Government
agency securities, including GNMA
mortgage-backed certificates and other
mortgaged-backed Government
securities.
Merrill Lynch Florida Limited
Maturity Municipal Bond Fund........
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
objective is to provide as high a
level of income exempt from Federal
income taxes as is consistent with
prudent investment management while
seeking to offer shareholders the
opportunity to own securities exempt
from Florida intangible personal
property taxes through investment in a
portfolio primarily of intermediate-
term investment grade Florida
Municipal Bonds.
Merrill Lynch Florida Municipal Bond
Fund................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to
21
<PAGE>
provide as high a level of income
exempt from Federal income taxes as is
consistent with prudent investment
management while seeking to offer
shareholders the opportunity to own
securities exempt from Florida
intangible personal property taxes.
Merrill Lynch Fund For Tomorrow, Long-term growth through investment in
Inc................................. a portfolio of good quality
securities, primarily common stock,
potentially positioned to benefit from
demographic and cultural changes as
they affect consumer markets.
Merrill Lynch Fundamental Growth
Fund, Inc...........................
Long-term growth through investment in
a diversified portfolio of equity
securities placing particular emphasis
on companies that have exhibited an
above-average growth rate in earnings.
Merrill Lynch Global Allocation
Fund, Inc...........................
High total return consistent with
prudent risk, through a fully managed
investment policy utilizing United
States and foreign equity, debt and
money market securities, the
combination of which will be varied
from time to time both with respect to
the types of securities and markets in
response to changing market and
economic trends.
Merrill Lynch Global Bond Fund For
Investment and Retirement...........
High total investment return from
investment in a global portfolio of
debt instruments denominated in
various currencies and multi-national
currency units.
Merrill Lynch Global Convertible
Fund, Inc...........................
High total return from investment
primarily in an internationally
diversified portfolio of convertible
debt securities, convertible preferred
stock and "synthetic" convertible
securities consisting of a combination
of debt securities or preferred stock
and warrants or options.
Merrill Lynch Global Holdings, Inc.
(residents of Arizona must meet
investor suitability standards).....
The highest total investment return
consistent with prudent risk through
worldwide investment in an
internationally diversified portfolio
of securities.
22
<PAGE>
Merrill Lynch Global Resources Long-term growth and protection of
Trust............................... capital from investment in securities
of foreign and domestic companies
that possess substantial natural
resource assets.
Merrill Lynch Global SmallCap Fund,
Inc.................................
Long-term growth of capital by
investing primarily in equity
securities of companies with
relatively small market
capitalizations located in various
foreign countries and in the United
States.
Merrill Lynch Global Utility Fund, Capital appreciation and current
Inc................................. income through investment of at least
65% of its total assets in equity and
debt securities issued by domestic
and foreign companies primarily
engaged in the ownership or operation
of facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
Merrill Lynch Growth Fund for
Investment and Retirement...........
Growth of capital and, secondarily,
income from investment in a
diversified portfolio of equity
securities placing principal emphasis
on those securities which management
of the fund believes to be
undervalued.
Merrill Lynch Healthcare Fund, Inc.
(residents of Wisconsin must meet
investor suitability standards).....
Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected
to derive a substantial portion of
their sales from products and
services in healthcare.
Merrill Lynch International Equity
Fund................................
Capital appreciation and, secondarily,
income by investing in a diversified
portfolio of equity securities of
issuers located in countries other
than the United States.
Merrill Lynch Latin America Fund, Capital appreciation by investing
Inc. ............................... primarily in Latin American equity
and debt securities.
Merrill Lynch Maryland Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Maryland
income taxes as is consistent with
prudent investment management.
23
<PAGE>
Merrill Lynch Massachusetts Limited
Maturity Municipal Bond Fund........
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
objective is to provide as high a
level of income exempt from Federal
and Massachusetts income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-
term investment grade Massachusetts
Municipal Bonds.
Merrill Lynch Massachusetts
Municipal Bond Fund.................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose objective is to
provide investors with as high a
level of income exempt from both
Federal and Massachusetts income
taxes as is consistent with prudent
investment management.
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund........
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
objective is to provide as high a
level of income exempt from Federal
and Michigan income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of intermediate-
term investment grade Michigan
Municipal Bonds.
Merrill Lynch Michigan Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Michigan
income taxes as is consistent with
prudent investment management.
Merrill Lynch Minnesota Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Minnesota
personal income taxes as is
consistent with prudent investment
management.
Merrill Lynch Municipal Bond Fund, Tax-exempt income from three separate
Inc................................. diversified portfolios of municipal
bonds.
Merrill Lynch Municipal Intermediate
Term Fund...........................
Currently the only portfolio of
Merrill Lynch Municipal Series Trust,
a series fund, whose objective
24
<PAGE>
is to provide as high a level as
possible of income exempt from Federal
income taxes by investing in
investment grade obligations with a
dollar weighted average maturity of
five to twelve years.
Merrill Lynch New Jersey Limited
Maturity Municipal Bond Fund........
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
objective is to provide as high a
level of income exempt from Federal
and New Jersey income taxes as is
consistent with prudent investment
management through a portfolio
primarily of intermediate-term
investment grade New Jersey Municipal
Bonds.
Merrill Lynch New Jersey Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and New Jersey income taxes as
is consistent with prudent investment
management.
Merrill Lynch New Mexico Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal and New Mexico income taxes as
is consistent with prudent investment
management.
Merrill Lynch New York Limited
Maturity Municipal Bond Fund........
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
objective is to provide as high a
level of income exempt from Federal,
New York State and New York City
income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade New
York Municipal Bonds.
Merrill Lynch New York Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide as
high a level of income exempt from
Federal, New York State and New York
City income taxes as is consistent
with prudent investment management.
25
<PAGE>
Merrill Lynch North Carolina
Municipal Bond Fund.................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and North
Carolina income taxes as is
consistent with prudent investment
management.
Merrill Lynch Ohio Municipal Bond A portfolio of Merrill Lynch Multi-
Fund................................ State Municipal Series Trust, a
series fund, whose objective is to
provide investors with as high a
level of income exempt from both
Federal and Ohio income taxes as is
consistent with prudent investment
management.
Merrill Lynch Oregon Municipal Bond
Fund................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose objective is to
provide investors with as high a
level of income exempt from both
Federal and Oregon income taxes as is
consistent with prudent investment
management.
Merrill Lynch Pacific Fund, Inc...... Capital appreciation by investing in
equity securities of corporations
domiciled in Far Eastern and Western
Pacific countries, including Japan,
Australia, Hong Kong, and Singapore.
Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund........
A portfolio of Merrill Lynch Multi-
State Limited Maturity Municipal
Series Trust, a series fund, whose
objective is to provide as high a
level of income exempt from Federal
and Pennsylvania income taxes as is
consistent with prudent investment
management through investment in a
portfolio of intermediate-term
investment grade Pennsylvania
Municipal Bonds.
Merrill Lynch Pennsylvania Municipal
Bond Fund...........................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Pennsylvania
income taxes as is consistent with
prudent investment management.
Merrill Lynch Phoenix Fund, Inc...... Long-term growth of capital by
investing in equity and fixed income
securities, including tax exempt
securities, of issuers in weak
financial condition or experiencing
poor operating results believed to be
26
<PAGE>
undervalued relative to the current or
prospective condition of such issuer.
Merrill Lynch Short-Term Global
Income Fund, Inc....................
As high a level of current income as is
consistent with prudent investment
management from a global portfolio of
high quality debt securities
denominated in various currencies and
multi-national currency units and
having remaining maturities not
exceeding three years.
Merrill Lynch Special Value Fund, Long-term growth of capital from
Inc................................. investments in securities, primarily
common stock, or relatively small
companies believed to have special
investment value and emerging growth
companies regardless of size.
Merrill Lynch Strategic Dividend Long-term total return from investment
Fund................................ in dividend paying common stocks which
yield more than Standard & Poor's 500
Composite Stock Price Index.
Merrill Lynch Technology Fund, Inc... Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected
to derive a substantial portion of
their sales from products and services
in technology.
Merrill Lynch Texas Municipal Bond
Fund................................
A portfolio of Merrill Lynch Multi-
State Municipal Series Trust, a series
fund, whose objective is to provide
investors with as high a level of
income exempt from Federal income
taxes as is consistent with prudent
investment management by investing
primarily in a portfolio of long-term,
investment grade obligations issued by
the State of Texas, its political
subdivisions, agencies and
instrumentalities.
Merrill Lynch Utility Income Fund, High current income through investment
Inc. ............................... primarily in equity and debt
securities issued by companies
primarily engaged in the ownership or
operation of facilities used to
generate, transmit or to distribute
electricity, telecommunications, gas
or water.
Merrill Lynch World Income Fund, High current income by investing in a
Inc. ............................... global portfolio of fixed-income
securities denominated in various
currencies, including multinational
currencies.
27
<PAGE>
Class A Share Money Market Funds:
Merrill Lynch Ready Assets Trust..... Preservation of capital, liquidity and
the highest possible current income
consistent with the foregoing
objectives from the short-term money
market securities in which the Trust
invests.
Merrill Lynch Retirement Reserves
Money Fund (available only for
exchanges within certain retirement
plans)..............................
Currently the only portfolio of
Merrill Lynch Retirement Series
Trust, a series fund, whose
objectives are current income,
preservation of capital and liquidity
available from investing in a
diversified portfolio of short-term
money market securities.
Merrill Lynch U.S.A. Government
Reserves............................
Preservation of capital, current
income and liquidity available from
investing in direct obligations of
the U.S. Government and repurchase
agreements relating to such
securities.
Merrill Lynch U.S. Treasury Money Preservation of capital, liquidity and
Fund................................ current income through investment
exclusively in a diversified
portfolio of short-term marketable
securities which are direct
obligations of the U.S. Treasury.
Class B; Class C and Class D Share
Money Market Funds:
Merrill Lynch Government Fund........ A portfolio of Merrill Lynch Funds For
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and
security of principal from investment
in securities issued or guaranteed by
the U.S. Government, its agencies and
instrumentalities and in repurchase
agreements secured by such
obligations.
Merrill Lynch Institutional Fund..... A portfolio of Merrill Lynch Funds For
Institutions Series, a series fund,
whose objective is to provide maximum
current income consistent with
liquidity and the maintenance of a
high-quality portfolio of money
market securities.
Merrill Lynch Institutional Tax-
Exempt Fund.........................
A portfolio of Merrill Lynch Funds For
Institutions Series, a series fund,
whose objective is to provide current
income exempt from Federal income
taxes, preservation of capital and
liquidity available from investing in
a diversified portfolio of short-
term, high quality municipal bonds.
28
<PAGE>
Merrill Lynch Treasury Fund.......... A portfolio of Merrill Lynch Funds For
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and
security of principal from investment
in direct obligations of the U.S.
Treasury and up to 10% of its total
assets in repurchase agreements
secured by such obligations.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their Merrill
Lynch financial consultant, who will advise the 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
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all of its net investment income, if
any. Dividends from such investment income are paid semi-annually. All net
realized long- or short-term capital gains, if any, are distributed to the
Fund's shareholders at least annually. Premiums from expired call options
written by the Fund and net gains from closing purchase transactions are
treated as short-term capital gains for Federal income tax purposes. See
"Shareholder Services--Automatic Reinvestment of Dividends and Capital Gains
Distributions" for information concerning the manner in which dividends and
distributions may be reinvested automatically in shares of the Fund.
Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
shareholders as described below whether they are invested in shares of the Fund
or received in cash. The per share dividends and distributions 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".
TAXES
The Fund has elected and intends to continue to qualify for the special tax
treatment afforded regulated investment companies ("RICs") under the Internal
Revenue Code of 1986, as amended (the "Code"). If it so
29
<PAGE>
qualifies, the Fund will not be subject to Federal income tax on the part of
its net ordinary income and net realized capital gains which it distributes to
Class A, Class B, Class C and Class D shareholders (together, the
"shareholders").
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.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in options) are taxable to
shareholders as long-term capital gains, regardless of the length of time the
shareholder has owned Fund shares. Any loss on 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 distribution with respect to such
shares.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any dividends or capital gains distributions. 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 exemptive order
permitting the issuance and sale of multiple classes of stock) that is based on
the gross income allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as the Internal
Revenue Service may prescribe.
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. Income tax treaties between certain
countries and the United States may reduce or eliminate such taxes. It is
impossible to determine in advance the effective rate of foreign tax to which
the Fund will be subject, since the amount of Fund assets to be invested in
various countries is not known. Because the Fund limits its investment 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.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains distributions
and redemption payments ("backup withholding"). Generally, shareholders subject
to backup withholding will be those for whom a certified taxpayer
identification number is not on file with the Fund, those who, to the Fund's
knowledge, have furnished an incorrect number or those who are subject to
backup withholding because of a failure to report income. When establishing an
account, an investor must certify under penalty of perjury that such number is
correct and that such shareholder is not otherwise subject to backup
withholding.
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.
30
<PAGE>
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 provisions of the Code applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. If the Fund pays a dividend in January which was
declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend or
distribution will be treated for federal tax purposes as being paid on December
31 and will be taxable to shareholders as if received on December 31. While the
Fund intends to distribute its ordinary income and capital gains in the manner
necessary to avoid imposition of the 4% excise tax, there can be no assurance
that sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In such event, the
Fund will be liable for the tax only on the amount by which it does not meet
the foregoing distribution requirements.
Tax Treatment of Option Transactions. The Fund may write (i.e., sell) covered
call options with respect to the securities that it holds in its portfolio. In
general, gain or loss from transactions in such options contracts will be
capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's transactions in options contracts. Under Section 1092,
the Fund may be required to postpone recognition for tax purposes of losses
incurred in certain closing transactions in options.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income may be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Fund may be restricted in effecting closing transactions within three months
after entering into an option contract or from making short-term investments in
securities.
Special Rules for Certain Foreign Currency Transactions. In general, gains
from "foreign currencies" and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in
stock, securities or foreign currencies will be qualifying income for purposes
of determining whether the Fund qualifies as a RIC. It is currently unclear,
however, who will be treated as the issuer of a foreign currency instrument or
how foreign currency options, futures, or forward foreign exchange contracts
will be valued for purposes of the RIC diversification requirements applicable
to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S.
31
<PAGE>
dollar). In general, foreign currency gains or losses from certain forward
contracts not traded in the interbank market, from futures contracts that are
not "regulated futures contracts," and from unlisted options will be treated as
ordinary income or loss under Code Section 988. In certain circumstances, the
Fund may elect capital gain or loss treatment for such transactions. In
general, however, Code Section 988 gains or losses will increase or decrease
the amount of the Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. Additionally, if Code
Section 988 losses exceed other investment company taxable income during a
taxable year, the Fund would not be able to make any ordinary dividend
distributions, and any distributions made before the losses were realized but
in the same taxable year would be recharacterized as a return of capital to
shareholders, thereby reducing each shareholder's basis in his Fund shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income and capital gains distributions also may be subject to state
and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state or local taxes.
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 shareholders. 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 maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B and Class C shares.
The 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) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted
and (2) the maximum applicable sales charges will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance
32
<PAGE>
data calculations of including or excluding the maximum applicable sales
charges, actual annual or annualized total return data generally will be lower
than average annual total return data since the average rates of return reflect
compounding of return; aggregate total return data generally will be higher
than average annual total return data since the aggregate rates of return
reflect compounding over 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**
----------------------------------- -----------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS A HYPOTHETICAL EXPRESSED AS A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF THE ON A HYPOTHETICAL AT THE END OF THE
PERIOD $1,000 INVESTMENT PERIOD $1,000 INVESTMENT PERIOD
------ ----------------- ----------------- ----------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGE)
<S> <C> <C> <C> <C>
One Year Ended December
31, 1994............... (11.46%) $ 885.40 (10.72%) $ 892.80
Five Years Ended
December 31, 1994...... 5.71% $1,320.30 5.78% $1,324.30
November 29, 1985 to
December 31, 1994...... 7.76% $1,972.50
October 27, 1988 to
December 31, 1994...... 7.41% $1,555.90
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGE)
<S> <C> <C> <C> <C>
Quarter Ended December
31, 1994............... (2.79%) $ 972.10 (2.91%) $ 970.90
<CAPTION>
YEAR ENDED SEPTEMBER 30,
- ------------------------
<S> <C> <C> <C> <C>
1994.................... 1.81% $1,018.10 0.76% $1,007.60
1993.................... 14.62% $1,146.20 13.49% $1,134.90
1992.................... 9.23% $1,092.30 8.01% $1,080.10
1991.................... 23.14% $1,231.40 21.91% $1,219.10
1990.................... (6.86%) $ 931.40 (7.79%) $ 922.10
1989.................... 16.93% $1,169.30
1988.................... (6.36%) $ 936.40
1987.................... 18.98% $1,189.80
November 29, 1985 to
September 30, 1986..... 12.29% $1,122.90
October 27, 1988 to
September 30, 1989..... 15.54% $1,155.40
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
November 29, 1985 to
December 31, 1994...... 97.25% $1,972.50
October 27, 1988 to
December 31, 1994...... 55.59% $1,555.90
</TABLE>
- --------
* Information as to Class A shares is presented only for the period October
27, 1988 to December 31, 1994. No Class A shares were sold prior to October
27, 1988.
** Commencement of Operations of Class B shares was November 29, 1985.
33
<PAGE>
<TABLE>
<CAPTION>
CLASS C SHARES* CLASS D SHARES*
----------------------------------- -----------------------------------
REDEEMABLE REDEEMABLE
VALUE OF A VALUE OF A
EXPRESSED AS A HYPOTHETICAL EXPRESSED AS A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF THE ON A HYPOTHETICAL AT THE END OF THE
PERIOD $1,000 INVESTMENT PERIOD $1,000 INVESTMENT PERIOD
------ ----------------- ----------------- ----------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGE)
<S> <C> <C> <C> <C>
Inception (October 21,
1994) to December 31,
1994.................. (17.75%) $962.70 (34.57%) $920.80
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGE)
<S> <C> <C> <C> <C>
Inception (October 21,
1994) to December 31,
1994.................. (2.86%) $971.40 (2.82%) $971.80
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (October 21,
1994) to December 31,
1994.................. (3.73%) $962.70 (7.92%) $920.80
</TABLE>
- --------
* Class C Shares and Class 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
"Redemption of Shares", respectively, the total return data quoted by the Fund,
in advertisements directed to such investors, 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 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 risk-adjusted
performance rating in advertisements or supplemental sales literature.
INVESTMENT PRACTICES AND RESTRICTIONS
Reference is made to "Investment Objective and Policies" in the Prospectus
for a discussion of the investment objective and policies of the Fund.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
Reference is made to the discussion under "Investment Practices and
Restrictions--Portfolio Strategies Involving Options and Futures" in the
Prospectus for information regarding various portfolio strategies involving
options and futures. The Fund may engage in various portfolio strategies to
seek to increase its return through the use of options on portfolio securities
and to hedge its portfolio against movements in the equity markets, interest
rates and exchange rates between currencies. The Fund has authority to write
(i.e., sell) covered call options on its portfolio securities, purchase put
options on securities and engage in transactions in stock index options, stock
index futures and financial futures, and related options on such futures. The
Fund may also deal in forward foreign exchange transactions and foreign
currency options and
34
<PAGE>
futures, and related options on such futures. Each of these portfolio
strategies is described below. Although certain risks are involved in options
and futures transactions (as discussed below in "Risk Factors in Options,
Futures and Currency Transactions"), the Investment Adviser believes that,
because the Fund will only engage in these transactions for hedging purposes,
the options and futures portfolio strategies of the Fund will not subject the
Fund to the risks frequently associated with the speculative use of options and
futures transactions. While the Fund's use of hedging strategies is intended to
reduce the volatility of the net asset value of Fund shares, the Fund's net
asset value will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity markets, interest rates or
currency exchange rates occur.
Writing of Covered Call Options. As discussed in the Prospectus, the Fund may
from time to time sell ("write") covered call options. The term option, as used
herein, means an option issued by the Options Clearing Corporation and traded
on a national securities exchange. A call option gives the purchaser of the
option the right to buy, and obligates the writer (seller) to sell, the
underlying security at the exercise price during the option period. When the
Fund writes an option it receives a premium. This premium is the price of such
option on the exchange on which it is traded. At the time the option is
written, the exercise price of the option may be lower, equal to or higher than
the market price of the security on which the option is written.
A call option is "covered" if 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. 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 call option expires
unexercised, the Fund realizes a gain (short-term capital gain for Federal
income tax purposes) in the amount of the premium received for the option. This
gain may be offset by a decline in the market price of the underlying security
during the option period.
The Fund can terminate its obligation under an option prior to the expiration
date of the option by effecting a "closing purchase transaction." This is done
by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. This can be done, however, only on an exchange which
provides a secondary market for an option of the same series and there is no
assurance that a secondary market will exist for any particular option. With
respect to a covered call option, in the event the Fund is unable to effect a
closing purchase transaction, it will not be able to dispose of the underlying
securities until the option expires or until the underlying securities are
delivered upon exercise of the option, with the result that the Fund will be
subject to the risk of decline in the price of the underlying securities during
such period. The Fund writes options on securities only if management believes
that secondary markets will exist on an exchange for options of the same series
which will permit the Fund to effect closing purchase transactions. Depending
on the premium paid by the Fund in effecting a closing purchase 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.
35
<PAGE>
Purchasing Put Options. The Fund is authorized to purchase put options to
hedge against a decline in the market value of its portfolio securities. By
buying a put option, the Fund has a right to sell the underlying security at
the exercise price, thus limiting the Fund's risk of loss through a decline in
the market value of the security until the put option expires. The amount of
any appreciation in the value of the underlying security will be partially
offset by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Fund's position as the purchaser of an option by means of an offsetting
sale of an identical option prior to the expiration of the option it has
purchased. The Fund will not purchase put options on securities if, as a result
of such purchase, the aggregate cost of all outstanding options on securities
held by the Fund would exceed 5% of the market value of the Fund's total
assets.
Stock Index Options and Futures and Financial Futures. The Fund is authorized
to engage in transactions in stock index options and futures and financial
futures, and related options on such futures. The Fund may purchase or write
call options and purchase or write put options on stock indexes to hedge
against the risks of market-wide stock price movements in the securities in
which the Fund invests. The effectiveness of the hedge will depend on the
degree of diversification of the Fund's portfolio and the sensitivity of the
securities comprising the portfolio to factors influencing the market as a
whole. Because the value of an index option depends upon movements in the level
of the index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in the level of prices in the stock market generally or in an
industry or market segment rather than movements in the prices of a particular
stock. Currently, stock index options traded include the S&P 100 Index, the S&P
500 Index, the NYSE Composite Index, the AMEX Market Value Index, the National
Over-the-Counter Index and other standard, broadly based stock market indices.
The Fund may also purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities and interest rates, as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date. Unlike
most other futures contracts, a stock index futures contract does not require
actual delivery of securities, but results in cash settlement based upon the
difference in value of the index between the time the contract was entered into
and the time of its settlement. The Fund may effect transactions in stock index
futures contracts in securities and financial futures contracts in United
States Government and agency securities and corporate debt securities.
Transactions by the Fund in stock index futures and financial futures are
subject to limitations as described below under "Restrictions on the Use of
Futures Transactions".
The Fund may sell stock index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of the
Fund's securities portfolio that might otherwise result. When the Fund is not
fully invested in the securities markets and anticipates a significant market
advance, it may purchase stock index futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of
securities that the Fund intends to purchase. As such securities purchases are
made, an equivalent amount of stock index futures contracts will be terminated
by offsetting sales. The Fund does not consider purchases of futures contracts
to be a speculative practice under these circumstances. It is anticipated that,
in a substantial majority of these transactions, the Fund will purchase such
securities upon
36
<PAGE>
termination of the long futures position, whether the long position is the
purchase of a stock index futures contract or the purchase of a call option on
a stock index future, but under unusual circumstances (e.g., the Fund
experiences a significant amount of redemptions), a long futures position may
be terminated without the corresponding purchase of securities.
The Fund may sell financial futures contracts in anticipation of an increase
in the general level of interest rates. Generally, as interest rates rise, the
market values of debt securities which may be held by the Fund as a temporary
defensive measure will fall, thus reducing the net asset value of the Fund.
However, as interest rates rise, the value of the Fund's short position in the
futures contract will also tend to increase, thus offsetting all or a portion
of the depreciation in the market value of the Fund's investments which are
being hedged. While the Fund will incur commission expenses in selling and
closing out futures positions, these commissions are generally less than the
transaction expenses which the Fund would have incurred had the Fund sold
portfolio securities in order to reduce its exposure to increases in interest
rates. The Fund also may purchase financial futures contracts in anticipation
of a decline in interest rates when it is not fully invested in a particular
market in which it intends to make investments to gain market exposure that may
in part or entirely offset an increase in the cost of securities it intends to
purchase. It is anticipated that, in a substantial majority of these
transactions, the Fund will purchase securities upon termination of the futures
contract.
The Fund also has authority to purchase and write call and put options on
futures contracts in connection with its hedging activities. Generally, these
strategies are utilized under the same market and market sector conditions
(i.e., conditions relating to specific types of investments) in which the Fund
enters into futures transactions. The Fund may purchase put options or write
call options on futures contracts rather than selling the underlying futures
contract in anticipation of a decrease in the market value of a security or an
increase in interest rates. Similarly, the Fund may purchase call options, or
write put options on futures contracts, as a substitute for the purchase of
such futures to hedge against the increased cost resulting from an increase in
the market value or a decline in interest rates of securities which the Fund
intends to purchase.
The Fund may engage in options and futures transactions on exchanges and
options in the over-the-counter markets ("OTC options"). In general, exchange-
traded contracts are third-party contracts (i.e., performance of the parties'
obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. OTC options transactions are
two-party contracts with price and terms negotiated by the buyer and seller.
See "Restrictions on OTC Options" below for information as to restrictions on
the use of OTC options.
Foreign Currency Options, Futures and Related Options. The Fund is also
authorized to purchase or sell listed or over-the-counter foreign currency
options, foreign currency futures and related options on foreign currency
futures as a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to hedges on
non-U.S. dollar denominated securities owned by the Fund, sold by the Fund but
not yet delivered, or committed or anticipated to be purchased by the Fund. As
an illustration, the Fund may use such techniques to hedge the stated value in
United States dollars of an investment in a pound sterling denominated
security. In such circumstances, for example, the Fund may purchase a foreign
currency put option enabling it to sell a specified amount of pounds for
dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in value of the pound relative to
37
<PAGE>
the dollar will tend to be offset by an increase in the value of the put
option. To offset, in whole or in part, the cost of acquiring such a put
option, the Fund may also sell a call option which, if exercised, requires it
to sell a specified amount of pounds for dollars at a specified price by a
future date (a technique called a "straddle"). By selling such call option, the
Fund gives up the opportunity to profit without limit from increases in the
relative value of the pound to the dollar. The Investment Adviser believes that
"straddles" of the type which may be utilized by the Fund constitute hedging
transactions and are consistent with the policies described above.
Certain differences exist between these foreign currency hedging instruments.
Foreign currency options provide the holder thereof the right to buy or sell a
currency at a fixed price on a future date (with exchange-traded contracts and
OTC options having the characteristics described above). A futures contract on
a foreign currency is an agreement between two parties to buy and sell a
specified amount of currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade or
futures exchanges. The Fund will not speculate in foreign currency options,
futures or related options. Accordingly, the Fund will not hedge a currency
substantially in excess of the market securities which it has committed or
anticipates to purchase which are denominated in such currency, and in the case
of securities which have been sold by the Fund but not yet delivered, the
proceeds thereof in its denominated currency. The Fund may not incur potential
net liabilities of more than 20% of its total assets from foreign currency
options, futures or related options.
Restrictions on the Use of Futures Transactions. Under regulations of the
Commodity Futures Trading Commission ("CFTC"), the futures trading activities
described herein will not result in the Fund being deemed to be a "commodity
pool," as defined under such regulations, provided that the Fund adheres to
certain restrictions. In particular, the Fund may (i) purchase and sell futures
contracts and options thereon for bona fide hedging purposes, as defined under
CFTC regulations, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) the Fund may enter into non-
hedging transactions, provided that the Fund not entered into such transactions
for yield enhancement or risk management purposes if, immediately thereafter,
the sum of the amount of initial margin deposits on the Fund's existing futures
positions and option premiums would exceed 5% of the market value of its
liquidating value, after taking into account unrealized profits and unrealized
losses on any such transactions. However, the Fund intends to engage in options
and futures transactions only for hedging purposes. Margin deposits may consist
of cash or securities acceptable to the broker and the relevant contract
market.
When the Fund purchases a futures contract or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures is unleveraged.
An order has been obtained from the Commission which exempts the Fund from
certain provisions of the Investment Company Act in connection with
transactions involving futures contracts and options thereon.
Restrictions on OTC Options. The Fund will engage in OTC options, including
over-the-counter foreign currency options and options on foreign currency
futures, only with member banks of the Federal Reserve System and primary
dealers in United States Government securities or with affiliates of such banks
or dealers which have capital of at least $50 million or whose obligations are
guaranteed by an entity having capital of
38
<PAGE>
at least $50 million. The Fund will acquire only those OTC options for which
the Investment Adviser believes the Fund can receive on each business day at
least two independent bids or offers (one of which will be from an entity other
than a party to the option).
The staff of the Commission has taken the position that purchased OTC options
and the assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an investment policy pursuant to which it will
not purchase or sell OTC options (including OTC options on futures contracts)
if, as a result of such transaction, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceed 15% of the total assets of the Fund, taken at market
value, together with all other assets of the Fund which are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Fund to
a primary U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is
equal to the repurchase price less the amount by which the option is "in-the-
money" (i.e., current market value of the underlying security minus the
option's strike price). The repurchase price with the primary dealers is
typically a formula price which is generally based on a multiple of the premium
received for the option, plus the amount by which the option is "in-the-money".
This policy is not a fundamental policy of the Fund and may be amended by the
Board of Directors of the Fund without the approval of the Fund's shareholders.
However, the Fund will not change or modify this policy prior to the change or
modification by the Commission staff of its positions.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures prices
and movements in the prices of the securities, interest rates or currencies
which are the subject of the hedge. If the price of the options or futures
moves more or less than the price of the subject of the hedge, the Fund will
experience a gain or loss which will not be completely offset by movements in
the price of the subject of the hedge.
The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a
liquid secondary market for such options or futures or, in the case of OTC
options, the Investment Adviser believes the Fund can receive on each business
day at least two independent bids or offers. However, there can be no assurance
that a liquid secondary market will exist at any specific time. Thus, it may
not be possible to close an options or futures position. The inability to close
options and futures positions also could have an adverse impact on the Fund's
ability to effectively hedge its portfolio. There is also the risk of loss by
the Fund of margin deposits or collateral in the event of bankruptcy of a
broker with whom the Fund has an open position in an option, a futures contract
or a related option.
The exchanges on which currency options are traded have generally established
limitations governing the maximum number of call or put options on the same
underlying currency (whether or not covered) which may be written by a single
investor, whether acting alone or in concert with others (regardless of whether
such options are written on the same or different exchanges or are held or
written on one or more accounts or through one or more brokers). "Trading
limits" are imposed on the maximum number of contracts which any person may
trade on a particular trading day. The Investment Adviser does not believe that
these trading and position limits will have any adverse impact on the portfolio
strategies for hedging the Fund's portfolio.
39
<PAGE>
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the
currency at a price above the devaluation level it anticipates. It is possible
that, under certain circumstances, the Fund may have to limit its currency
transactions to qualify as a regulated investment company under the Code; in
this regard, the Fund presently intends to limit its gross income from currency
hedging transactions to less than 10% of its gross income in any taxable year
until such time as the Fund determines that income from the transactions is not
subject to this restriction. The cost to the Fund of engaging in foreign
currency transactions varies with such factors as the currency involved, the
length of the contract period and the market conditions then prevailing. Since
transactions in foreign currency exchange are usually conducted on a principal
basis, no fees or commissions are involved.
OTHER INVESTMENT POLICIES AND PRACTICES
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 and 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.
Foreign Securities. As discussed in the Prospectus, the Fund may invest up to
20% of its total assets in securities issued by foreign companies. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to uniform accounting, auditing and financial
reporting standards requirements comparable to those applicable to U.S.
companies. Securities of some foreign companies may be less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the U.S. There is generally
less government regulation of stock exchanges, brokers and listed companies
abroad than in the U.S. Investment in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets
and imposition of withholding taxes on dividends or interest payments.
Forward Foreign Exchange Transactions. Generally, the foreign exchange
transactions of the Fund will be conducted on a spot, i.e., cash, basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than 0.1 of one percent due to the
costs of converting from one currency to another. However, the Fund has
authority to deal in forward foreign exchange between currencies of the
different countries in which it will invest as a hedge against possible
variations in the foreign exchange rate
40
<PAGE>
between these currencies. This is accomplished through contractual agreements
to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Fund's dealings in forward foreign exchange will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward foreign currency with respect to
specific receivables or payables of the Fund accruing in connection with the
purchase and sale of its portfolio securities, the sale and redemption of
shares of the Fund or the payment of dividends and distributions by the Fund.
Position hedging is the sale of forward foreign currency with respect to
portfolio security positions denominated or quoted in such foreign currency.
The Fund will not speculate in forward foreign exchange. The Fund may not
position hedge with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in that
particular foreign currency. If the Fund enters into a position hedging
transaction, its custodian bank will place cash or liquid equity or debt
securities in a separate account of the Fund in an amount equal to the value of
the Fund's total assets committed to the consummation of such forward contract.
If the value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account so that the value
of the account will equal the amount of the Fund's commitment with respect to
such contracts. The Fund will not attempt to hedge all of its foreign portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by the Investment Adviser. The Fund will not enter into a
position hedging commitment if, as a result thereof, the Fund would have more
than 15% of the value of its assets committed to such contracts. The Fund will
not enter into a forward contract with a term of more than one year.
Restricted 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 net 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 Investment Adviser
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, 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. Portfolio turnover rate is calculated by dividing the lesser of the
Fund's annual sales or purchases of portfolio securities (exclusive of
41
<PAGE>
purchases and sales of Government securities and of all other securities,
including options, whose maturity or expiration dates at the time of
acquisition were one year or less) by the monthly average value of the
securities in the Fund during the fiscal year. For the years ended September
30, 1994 and 1993 the rate of portfolio turnover for the Fund was 59.15% and
79.55%, respectively.
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, 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 contemplates that, consistent with the above
policy of obtaining the best net results, a substantial amount of its brokerage
transactions will be conducted through Merrill Lynch. 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.
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 Investment Advisory Agreement
with the Fund. 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 or its portfolios 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 September 30, 1994, 1993 and 1992 were $1,097,166,
$1,375,992 and $1,433,924, respectively. The aggregate dollar amounts of such
portfolio transactions were $658,162,025, $843,535,870 and $1,042,727,092,
respectively, for such periods. During those periods, the aggregate dollar
amounts of brokerage commissions paid by the Fund to Merrill Lynch were
$75,348, $80,436 and $99,711, respectively. These amounts represent 6.87%,
5.85% and 6.95%, 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 7.27%, 1.65% and 5.83%, respectively, of the
aggregate dollar amount of all Fund transactions involving the payment of
commissions.
42
<PAGE>
The Fund and one or more of the other investment companies or accounts which
the Investment Adviser or its affiliate, FAM, manages, 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.
Investment Restrictions. The Fund has adopted the following fundamental and
non-fundamental investment restrictions and policies relating to the investment
of its assets and its activities. The fundamental restrictions set forth below
may not be changed without the prior approval of the holders of the majority of
the Fund's outstanding voting securities, including a majority of the voting
securities of each portfolio affected. A majority for this purpose means: (a)
more than 50% of the outstanding voting securities, or (b) 67% of the
outstanding voting securities represented at a meeting where more than 50% of
the outstanding voting securities are represented, whichever is less. For
purposes of the following restrictions, all percentage limitations apply
immediately after a purchase or initial investment and any subsequent change in
any application percentage resulting from market fluctuations does not require
elimination of any security from a 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. The Fund currently does not intend to engage in short
sales, except short sales "against the box".
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
43
<PAGE>
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act") in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the non-fundamental restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except to
the extent permitted by applicable law.
c. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed, redeemed
or put to the issuer or a third party, if at the time of acquisition more
than 15% of its total assets would be invested in such securities. This
restriction shall not apply to securities which mature within seven days or
securities which the Board of Directors of the Fund has otherwise
determined to be liquid pursuant to applicable law. Notwithstanding the 15%
limitation herein, to the extent the laws of any state in which the Fund's
shares are registered or qualified for sale require a lower limitation, the
Fund will observe such limitation. As of the date hereof, therefore, the
Fund will not invest more than 10% of its total assets in securities which
are subject to this investment restriction (c). Notwithstanding the fact
that the Board may determine that a Rule 144A security is liquid and not
subject to limitations set forth in this investment restriction (c), the
State of Ohio does not recognize Rule 144A securities as securities that
are free of restrictions as to resale. To the extent required by Ohio law,
the Fund will not invest more than 5% of its total assets in securities of
issuers that are restricted as to disposition, including Rule 144A
securities.
d. Invest in warrants if, at the time of acquisition, its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Fund's total assets; included within such limitation, but not to exceed
2% of the Fund's total assets, are warrants which are not listed on the New
York Stock Exchange or American Stock Exchange or a major foreign exchange.
For purposes of this restriction, warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities, asset-
backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
44
<PAGE>
f. Purchase or retain the securities of any issuer, if those individual
officers and directors of the Fund, the officers and general partner of the
Investment Adviser, the directors of such general partner or the officers
and directors of any subsidiary thereof each owning beneficially more than
one-half of one percent of the securities of such issuer own in the
aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental restriction (7) above, borrow amounts in
excess of 10% of its total assets, taken at market value, and then only
from banks as a temporary measure for extraordinary or emergency purposes
such as the redemption of Fund shares. In addition, the Fund will not
purchase securities while borrowings exceed 5% of its assets.
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.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on May 21, 1984, under the name
Merrill Lynch Retirement Fund, Inc. The name of the Fund was changed to Merrill
Lynch Retirement Benefit Investment Program, Inc. on August 8, 1985. On April
30, 1991, the Fund began doing business under the name Merrill Lynch Balanced
Fund for Investment and Retirement. The Fund officially changed its name to
Merrill Lynch Balanced Fund for Investment and Retirement, Inc. on December 21,
1994. The Fund has an authorized capital of 2,000,000,000 shares of Common
Stock, par value $0.01 per share, divided into four classes, designated Class
A, Class B, Class C and Class D Common Stock, each of which consists of
500,000,000 shares. Shares of 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. The Fund has received an
order from the Commission permitting the issuance and sale of multiple classes
of Common Stock. The Board of 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 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 Act does not require
shareholders
45
<PAGE>
to act upon any of the following matters: (i) election of Directors; (ii)
approval of an investment advisory agreement; (iii) approval of a distribution
agreement; and (iv) ratification of selection of independent accountants.
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. Voting rights for Directors are not cumulative.
Shares issued are fully paid and non-assessable and have no preemptive rights.
Redemption and conversion rights are discussed elsewhere herein and in the
Prospectus. Each share is entitled to participate equally in dividends and
distributions declared by the Fund and in the net assets of the Fund upon
liquidation or dissolution after satisfaction of outstanding liabilities. Stock
certificates are issued by the Transfer Agent only on specific request.
Certificates for fractional shares are not issued in any case.
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class A and Class B shares of the Fund, based on the
value of the Fund's net assets and number of shares outstanding as of September
30, 1994, is calculated as set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B
----------- ------------
<S> <C> <C>
Net Assets............................................ $39,962,564 $709,836,126
=========== ============
Number of Shares Outstanding.......................... 3,424,576 60,042,048
=========== ============
Net Asset Value Per Share (net assets divided by
number of shares outstanding)........................ $ 11.67 $ 11.75
Sales Charge* (for Class A shares; 5.25% of offering
price (5.54% of net asset value per share)).......... .65 **
----------- ------------
Offering Price ....................................... $ 12.32 $ 11.75
=========== ============
</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 of shares. See "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares" in the
Prospectus.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the shareholders of the
Fund, and the employment of such auditors may be terminated without any penalty
by vote of a majority of the outstanding shares of the Fund at a meeting called
for the purpose of terminating such employment. The independent auditors are
responsible for auditing the annual financial statements of the Fund.
CUSTODIAN
Chase Manhattan Bank N.A., 4 Chase MetroTech Center, 18th Floor, Brooklyn, NY
11245, acts as Custodian of the Fund's assets. The Custodian is responsible for
safeguarding and controlling the Fund's cash and securities, handling the
delivery of securities and collecting interest and dividends on the Fund's
investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 33246-6484, 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" in the Prospectus.
46
<PAGE>
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New
York 10022, is counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on September 30 of each year. The Fund will
send to its shareholders at least semi-annually reports showing the Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each year.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, to which reference is hereby made.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on January 1, 1995.
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders, Merrill Lynch Balanced Fund for
Investment and Retirement (formerly Merrill Lynch Retirement Benefit Investment
Program, Inc.):
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Merrill Lynch Balanced Fund for
Investment and Retirement as of September 30, 1994, the related statements of
operations for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
the financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Balanced Fund for Investment and Retirement as of September 30, 1994, the
results of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 31, 1994
48
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Value Percent of
Industries Amount* Corporate Bonds Cost (Note 1a) Net Assets
<C> <C> <C> <S> <C> <C> <C>
Financial $ 10,000,000 Ford Capital BV, 9.375% due 1/01/1998 $ 10,037,900 $ 10,552,600 1.4%
Services 5,000,000 Landeskreditbank, N.V., 7.875% due 4/15/2004 4,972,068 4,957,500 0.7
Financial 10,000,000 American General Financial Corp., 7.38%
Services-- due 5/13/1997 9,993,200 10,020,400 1.3
Consumer
Total Investments in Corporate Bonds 25,003,168 25,530,500 3.4
Country US Government & Agency Obligations
United States 4,910,000 Federal Home Loan Mortgage Corp., REMIC,
1243-HP, 5.625% due 11/25/2015 (a) 4,788,017 4,437,413 0.6
20,000,000 Federal National Mortgage Association,
7.00% due 3/25/2024 18,443,750 18,362,500 2.4
Government National Mortgage Association:
12,720,792 7.50% due 6/15/2024 12,152,332 11,953,575 1.6
6,869,588 7.50% due 7/15/2024 6,562,603 6,455,269 0.8
US Treasury Notes:
55,000,000 7.875% due 8/15/2001 53,943,600 56,289,200 7.5
25,000,000 6.25% due 2/15/2003 25,710,938 22,972,750 3.1
35,000,000 5.75% due 8/15/2003 36,432,813 30,860,200 4.1
22,000,000 US Treasury STRIPS++, 6.81% due 5/15/2000(b) 16,050,781 14,639,240 2.0
Total Investments in US Government &
Agency Obligations 174,084,834 165,970,147 22.1
Foreign Obligations
Australia A$ 3,100,000 Queensland Treasury Corp., Global, 8.00%
due 7/14/1999 2,328,332 2,134,085 0.3
Germany Bundes:
DM 17,000,000 6.00% due 2/20/1998 10,668,744 10,668,625 1.4
22,000,000 6.375% due 5/20/1998 13,923,234 13,918,671 1.8
Italy Lit 5,000,000 Republic of Italy, 8.75% due 2/08/2001 5,373,050 5,152,670 0.7
Mexico Mxp 45,013,640 Mexican Cetes, 9.04% due 9/07/1995(b) 13,025,996 11,761,787 1.6
United UK Treasury Gilt:
Kingdom Pound Sterling 1,350,000 8.75% due 9/01/1997 2,267,919 2,149,575 0.3
4,000,000 8.00% due 6/10/2003 6,698,788 5,949,233 0.8
Total Investments in Foreign Obligations 54,286,063 51,734,646 6.9
Total Investments in Corporate Bonds,
US Government & Agency and
Foreign Obligations 253,374,065 243,235,293 32.4
</TABLE>
49
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held US Stocks & Warrants Cost (Note 1a) Net Assets
<C> <C> <S> <C> <C> <C>
Basic Industry
Aluminum 15,000 Aluminum Co. of America (ALCOA) $ 1,285,103 $ 1,271,250 0.2%
Chemicals 110,000 du Pont (E.I.) de Nemours & Co. 6,362,863 6,380,000 0.8
145,000 Eastman Chemical Co. 7,478,773 7,884,375 1.0
120,000 IMC Fertilizer Group, Inc. 4,987,939 5,340,000 0.7
90,000 Rohm & Haas Co. 4,872,761 5,141,250 0.7
Packaging 150,000 Crown Cork & Seal Co., Inc. 4,484,320 5,775,000 0.8
Paper & Forest 135,000 Scott Paper Co. 6,002,300 8,251,875 1.1
Producers 85,000 Willamette Industries, Inc. 3,173,000 4,356,250 0.6
Total Basic Industry 38,647,059 44,400,000 5.9
Capital Spending
Auto & Truck 125,000 Consorcio G Groupo Dina, S.A. de C.V.
(ADR) (c) (1) 2,026,119 1,500,000 0.2
Communication 255,000 +++ADC Telecommunications, Inc. 8,983,466 10,200,000 1.4
Equipment 270,000 DSC Communications Corp. 7,169,181 7,695,000 1.0
75,000 +++General Data Comm Industries, Inc. 1,790,297 2,118,750 0.3
120,000 Motorola, Inc. 6,103,380 6,330,000 0.8
120,000 Tellabs, Inc. 2,539,049 5,100,000 0.7
Computer Services 435,000 Computer Sciences Corp. 12,394,300 18,922,500 2.5
Electrical Equipment 150,000 Siebe PLC (1) 1,309,386 1,277,370 0.2
100,000 W.W. Grainger 6,446,088 5,925,000 0.8
Electronics 210,000 Solectron Corp. 5,168,718 5,538,750 0.7
Engineering & 230,000 Empresas ICA Sociedad Controladora, S.A. de C.V.
Construction (ADR) (c) (1) 4,526,225 7,417,500 1.0
410,000 Huntington International Holdings PLC
(ADR) (c) (1) 9,996,548 1,998,750 0.3
Environmental 1,100,000 Wheelabrator Technologies, Inc. 12,362,975 16,912,500 2.3
Control
Multi-Industry 200,000 Allied-Signal Inc. 6,438,764 6,825,000 0.9
Office Equipment 610,000 Danka Business Systems PLC (ADR) (c) (1) 9,489,019 11,208,750 1.5
15,000 International Business Machines Corp. 1,063,730 1,042,500 0.1
Total Capital Spending 97,807,245 110,012,370 14.7
</TABLE>
50
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held US Stocks & Warrants Cost (Note 1a) Net Assets
<C> <C> <S> <C> <C> <C>
Consumer Goods & Services
Appliances 675,000 Singer Co. N.V. (ADR) (c) (1) $ 17,730,688 $ 22,781,250 3.0%
474,500 Sunbeam-Oster Inc. 9,420,127 11,565,938 1.5
Automotive 104,700 Magna International Inc. (ADR) (c) (1) 5,172,274 3,860,813 0.5
Equipment
Beverages 20,000 PanAmerican Beverage Inc. (ADR) (c) (1) 635,958 717,500 0.1
Consumer-- 90,000 Duracell International Inc. 3,713,033 4,106,250 0.5
Miscellaneous
Consumer--Services 180,000 Block (H & R), Inc. 7,774,923 8,257,500 1.1
Drugs & Hospital 60,000 Merck & Co., Inc. 2,143,314 2,130,000 0.3
Supply
Health Care 450,000 Humana Inc. 8,419,745 10,631,250 1.4
265,000 Physician Corp. of America 5,482,809 5,962,500 0.8
40,000 Vivra Inc. 727,950 1,090,000 0.1
Household Products 240,000 Procter & Gamble Co. 13,503,704 14,310,000 1.9
Photography 60,000 Eastman Kodak Co. 3,004,778 3,105,000 0.4
Retail 75,000 Phillips-Van Heusen Corp. 1,721,463 1,546,875 0.2
Tires & Rubber 196,100 Cooper Tire & Rubber Co. 4,764,741 4,583,837 0.6
Total Consumer Goods & Services 84,215,507 94,648,713 12.4
Credit-Sensitive & Financial Services
Banking 90,000 Banco Frances del Rio de la Plata S.A.(ADR)(c)(1) 2,964,448 2,700,000 0.4
165,000 BankAmerica Corp. 7,440,617 7,280,625 1.0
200,000 Bank of New York Co. 5,581,161 5,925,000 0.8
245,000 Espirito Santo Financial Holding S.A. (ADR) (c) (1) 3,447,435 3,430,000 0.5
130,000 Grupo Financiero Serfin S.A. (ADR) (c) (1) 3,204,369 2,957,500 0.4
Insurance 110,000 International Telephone & Telegraph Corp. 9,403,546 9,171,250 1.2
Total Credit-Sensitive & Financial Services 32,041,576 31,464,375 4.3
Energy
Energy--Related 350,000 California Energy Co., Inc. 6,244,403 5,993,750 0.8
Oil--Integrated 110,000 Mobil Oil Corp. 8,561,728 8,703,750 1.2
180,000 Phillips Petroleum Co. 5,854,415 6,165,000 0.8
70,000 Royal Dutch Petroleum Co. N.V. (ADR) (c) (1) 6,155,380 7,516,250 1.0
Total Energy 26,815,926 28,378,750 3.8
</TABLE>
51
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held US Stocks & Warrants Cost (Note 1a) Net Assets
<C> <C> <C> <S> <C> <C> <C>
Transports
Railroads 310,000 +++Southern Pacific Rail Co. $ 6,386,644 $ 5,812,500 0.8%
Total Transports 6,386,644 5,812,500 0.8
Utilities
Utilities-- 49,100 ALC Communications Corp. 1,456,673 1,608,025 0.2
Communications 180,000 GTE Corp. 5,790,102 5,467,500 0.7
515,750 LDDS Communications Inc. (Class A) 11,447,075 11,346,500 1.5
415,000 MCI Communications Corp. 11,820,141 10,530,625 1.4
170,000 Southwestern Bell Corp. 7,282,605 7,225,000 1.0
90,000 Sprint Corp. 3,364,449 3,431,250 0.5
200,000 Telefonos de Mexico, S.A. de C.V. (ADR) (c) (1) 9,342,788 12,500,000 1.7
Total Utilities 50,503,833 52,108,900 7.0
Total Investments in US Stocks & Warrants 336,417,790 366,825,608 48.9
Foreign Stocks & Warrants
Argentina
Banking 40,000 Banco de Galicia y Buenos Aires S.A. (ADR) (c) 1,261,974 1,250,000 0.2
Utilities-- 560,000 Telecom Argentina S.A. (Class B) 3,305,379 3,741,174 0.5
Communications
Australia
Banking 425,250 Coles Myer Ltd. 1,802,859 1,312,236 0.2
347,492 National Australia Bank Ltd. 2,199,488 2,653,727 0.4
Media/Publishing 80,000 News Corp. (ADR) (c) 4,079,037 4,050,000 0.5
Multi-Industry 308,963 Pacific Dunlop, Ltd. 1,154,171 937,394 0.1
Canada
Appliances 280,000 International Semi-Tech Corp. 2,947,648 1,775,457 0.2
Chemicals 90,000 NOVA Corp. (Class A) 949,140 990,000 0.1
Retail Stores 75,000 Hudson's Bay Company (Ordinary) 2,011,843 1,629,523 0.2
Chile
Banking 57,000 +++Banco O'Higgins (ADR) (c) 837,114 1,168,500 0.2
Utilities--Electric 96,600 Distribuidora Chilectra Metropolitana S.A.
(ADR) (c)++++ 2,696,793 4,745,475 0.6
Denmark
Utilities-- 80,000 Tele Danmark A/S 1,882,080 2,180,000 0.3
Communications
</TABLE>
52
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Foreign Stocks & Warrants Cost (Note 1a) Net Assets
<C> <C> <C> <S> <C> <C> <C>
France
Industrial 3,123 +++Eramet $ 183,452 $ 201,457 0.0%
Insurance 42,900 Compagnie UAP 1,165,352 1,086,662 0.1
Oil--Integrated 153,826 Societe Nationale Elf Aquitaine (ADR) (c) 5,483,913 5,537,736 0.7
Utilities--Water 15,413 Compagnie Generale des Eaux 1,445,264 1,361,634 0.2
Hong Kong
Banking 283,415 HSBC Holdings PLC 1,715,599 3,163,646 0.4
Electrical 1,300,000 Johnson Electric Co. 2,603,189 3,659,389 0.5
Equipment
Multi--Industry 660,000 Hutchison Whampoa, Ltd. 1,685,630 3,117,761 0.4
Real Estate 225,000 Wharf Holdings Ltd. 948,314 905,626 0.1
Italy
Banking 90,000 Instituto Mobilare (ADR) (c) 1,976,579 1,890,000 0.3
Japan
Chemicals 65,000 Sekisui Chemical Co. 663,408 684,211 0.1
Electronics 90,000 Mitsubishi Electric Corp. 556,016 643,117 0.1
Tools 30,000 +++Makita Electric Work 609,699 582,996 0.1
Mexico
Multi-Industry 465,000 +++Grupo Carso, S.A. de C.V. (ADR) (c)++++ 4,106,100 10,520,625 1.4
Retail Stores 430,000 CIFRA, S.A. de C.V. 'C' 1,129,713 1,203,949 0.2
Portugal
Banking 100,000 Banco Commercial Portugal (New) (ADR) (c) 1,342,303 1,350,000 0.2
97,000 Banco Commercial Portugal (Registered) 1,233,051 1,332,215 0.2
Spain
Oil--Integrated 60,000 Repsol S.A. 1,616,190 1,832,489 0.2
Sweden
Appliances 12,000 Electrolux AB 'B' Free 610,647 568,302 0.1
Telecommunications 40,000 Ericsson (LM) Telephone Co. 2,085,490 2,140,000 0.3
</TABLE>
53
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value Percent of
Industries Held Foreign Stocks & Warrants Cost (Note 1a) Net Assets
<C> <C> <C> <S> <C> <C> <C>
United Kingdom
Financial Services 100,000 Reuters Holding PLC (ADR) (c) $ 2,571,186 $ 4,475,000 0.6%
Multi-Industry 50,000 Hanson PLC Sponsored (ADR) (c) 1,106,687 906,250 0.1
Oil--Integrated 35,000 British Petroleum Co. PLC (ADR) (c) 2,578,350 2,651,250 0.4
Total Investments in Foreign Stocks &
Warrants 62,543,658 76,247,801 10.2
Total Investments in US & Foreign Stocks
& Warrants 398,961,448 443,073,409 59.1
<CAPTION>
Face
Amount* Short-Term Securities
<C> <C> <S> <C> <C> <C>
Commercial $ 20,000,000 B.A.T. Capital Corp., 4.92% due 10/26/1994 19,931,667 19,931,667 2.7
Paper** 24,881,000 General Electric Capital Corp., 4.95%
due 10/03/1994 24,874,157 24,874,157 3.3
Total Investments in Short-Term Securities 44,805,824 44,805,824 6.0
Total Investments 697,141,337 731,114,526 97.5
<CAPTION>
Number of Premiums
Shares Issue Received
<C> <C> <S> <C> <C> <C>
Options Written
Call Options 1,000 General DataComm Industries, Inc.,
Written expiring October 1994 at US$30 (1,783) (1,125) 0.0
Total Options Written (1,783) (1,125) 0.0
Total Investments, Net of Options Written $697,139,554 731,113,401 97.5
============
Other Assets Less Liabilities 18,685,289 2.5
------------ ------
Net Assets $749,798,690 100.0%
============ ======
<FN>
(a)Real Estate Mortgage Investment Conduits (REMIC).
(b)Represents the yield-to-maturity on this zero coupon issue.
These securities are purchased at a deep discount and
amortized to maturity.
(c)American Depositary Receipt (ADR).
*Denominated in US dollars unless otherwise indicated.
**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.
(1)Consistent with the general policy of the Securities and
Exchange Commission, the nationality or domicile of an issuer
for determination of foreign issuer status may be (i) the country
under whose laws the issuer is organized, (ii) the country in
which the issuer's securities are principally traded, or (iii) the
country in which the issuer derives a significant proportion
(at least 50%) of its revenue or profits from goods produced or
sold, investments made, or services performed in the country,
or in which at least 50% of the assets of the issuer are situated.
See Notes to Financial Statements.
++Separate Trading of Registered Interest and Principal of Securities
(STRIPS).
++++Restricted securities as to resale. The value of the Fund's investment
in restricted securities was approximately $15,266,000, representing
2.0% of net assets.
<CAPTION>
Value
Issue Acquisition Date Cost (Note 1a)
<S> <C> <C> <C>
Distribuidora Chilectra
Metropolitana S.A.
(ADR) 2/12/1992-2/26/1992 $ 2,696,793 $ 4,745,475
Grupo Carso,
S.A. de C.V. (ADR) 9/24/1991-1/24/1992 4,106,100 10,520,625
------------ ------------
Total $ 6,802,893 $ 15,266,100
============ ============
+++Non-income producing security.
</TABLE>
54
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of September 30, 1994
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$697,141,337) (Note 1a) $731,114,526
Cash 1,193,921
Receivables:
Securities sold $ 39,659,730
Interest 3,297,249
Dividends 676,737
Capital shares sold 251,850 43,885,566
------------
Prepaid registration fees and other assets (Note 1d) 126,383
------------
Total assets 776,320,396
------------
Liabilities: Options written, at value (premiums received--$1,783) (Notes 1a & 1c) 1,125
Payables:
Securities purchased 23,288,459
Capital shares redeemed 1,805,947
Distributor (Note 2) 592,475
Investment adviser (Note 2) 396,063 26,082,944
------------
Accrued expenses and other liabilities 437,637
------------
Total liabilities 26,521,706
------------
Net Assets: Net assets $749,798,690
============
Net Assets Class A Shares of Common Stock, $0.01 par value, 500,000,000 shares authorized $ 34,246
Consist of: Class B Shares of Common Stock, $0.01 par value, 500,000,000 shares authorized 604,020
Paid-in capital in excess of par 652,263,675
Undistributed investment income--net 3,227,255
Undistributed realized capital gains on investments and foreign currency transactions--net 59,682,149
Unrealized appreciation on investments and foreign currency transactions--net 33,987,345
------------
Net assets $749,798,690
============
Net Asset Class A--Based on net assets of $39,962,564 and 3,424,576 shares outstanding $ 11.67
Value: ============
Class B--Based on net assets of $709,836,126 and 60,402,048 shares outstanding $ 11.75
============
See Notes to Financial Statements.
</TABLE>
55
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended September 30, 1994
<C> <S> <C> <C>
Investment Interest and discount earned (net of $91,991 foreign withholding tax) $ 21,932,818
Income Dividends (net of $259,965 foreign withholding tax) 6,678,142
(Notes 1d Other 204,094
& 1e): ------------
Total income 28,815,054
------------
Expenses: Distribution fees--Class B (Note 2) 7,779,195
Investment advisory fees (Note 2) 5,173,680
Transfer agent fees--Class B (Note 2) 1,174,407
Custodian fees 190,179
Printing and shareholder reports 182,011
Accounting services (Note 2) 98,036
Transfer agent fees--Class A (Note 2) 53,139
Professional fees 51,144
Registration fees (Note 1f) 49,492
Directors' fees and expenses 48,967
Pricing fees 4,640
Amortization of organization expenses (Note 1f) 2,683
Other 23,017
------------
Total expenses 14,830,590
------------
Investment income--net 13,984,464
------------
Realized & Realized gain from:
Unrealized Investments--net $ 66,568,356
Gain (Loss) Foreign currency transactions--net 1,285 66,569,641
on Investment ------------
& Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net (72,110,568)
Transactions-- Foreign currency transactions--net 49,571 (72,060,997)
Net (Notes 1b, ------------ ------------
1e & 3): Net realized and unrealized loss on investments and foreign currency transactions (5,491,356)
------------
Net Increase in Net Assets Resulting from Operations $ 8,493,108
============
See Notes to Financial Statements.
</TABLE>
56
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended Sept. 30,
Increase (Decrease) in Net Assets: 1994 1993
<C> <S> <C> <C>
Operations: Investment income--net $ 13,984,464 $ 16,570,858
Realized gain on investments and foreign currency transactions--net 66,569,641 82,929,610
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net (72,060,997) 14,121,027
------------ ------------
Net increase in net assets resulting from operations 8,493,108 113,621,495
------------ ------------
Dividends & Investment income--net:
Distributions Class A (1,253,348) (994,119)
to Share- Class B (14,802,935) (17,314,603)
holders Realized gain on investments--net:
(Note 1g): Class A (4,103,194) (1,508,643)
Class B (75,192,306) (59,542,543)
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (95,351,783) (79,359,908)
------------ ------------
Capital Share Net decrease in net assets derived from capital
Transactions share transactions (34,985,543) (69,858,642)
(Note 4): ------------ ------------
Net Assets: Total decrease in net assets (121,844,218) (35,597,055)
Beginning of year 871,642,908 907,239,963
------------ ------------
End of year* $749,798,690 $871,642,908
============ ============
*Undistributed investment income--net $ 3,227,255 $ 4,746,266
============ ============
See Notes to Financial Statements.
</TABLE>
57
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1994* 1993 1992 1991 1990
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.02 $ 12.57 $ 11.94 $ 10.61 $ 11.93
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .32 .43 .47 .70 .64
Realized and unrealized gain (loss) on investments
and foreign currency transactions (1)--net (.07) 1.29 .61 1.63 (1.41)
-------- -------- -------- -------- --------
Total from investment operations .25 1.72 1.08 2.33 (.77)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.37) (.39) (.45) (.62) (.55)
Realized gain on investments--net (1.23) (.88) -- (.38) --
-------- -------- -------- -------- --------
Total dividends and distributions (1.60) (1.27) (.45) (1.00) (.55)
-------- -------- -------- -------- --------
Net asset value, end of year $ 11.67 $ 13.02 $ 12.57 $ 11.94 $ 10.61
======== ======== ======== ======== ========
Total Based on net asset value per share 1.81% 14.62% 9.23% 23.14% (6.86%)
Investment ======== ======== ======== ======== ========
Return:**
Ratios to Expenses .83% .83% .81% .85% .83%
Average ======== ======== ======== ======== ========
Net Assets: Investment income--net 2.68% 3.09% 3.18% 3.64% 5.12%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 39,963 $ 40,688 $ 20,320 $ 12,839 $ 44,511
Data: ======== ======== ======== ======== ========
Portfolio turnover 59.15% 79.55% 65.40% 173.76% 163.56%
======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended September 30,
Increase (Decrease) in Net Asset Value: 1994* 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.09 $ 12.62 $ 11.99 $ 10.60 $ 11.91
Operating --------- --------- --------- --------- ----------
Performance: Investment income--net .20 .24 .29 .39 .50
Realized and unrealized gain (loss) on
investments and foreign currency
transactions (1)--net (.07) 1.37 .66 1.83 (1.39)
--------- --------- --------- --------- ----------
Total from investment operations .13 1.61 .95 2.22 (.89)
--------- --------- --------- --------- ----------
Less dividends and distributions:
Investment income--net (.24) (.26) (.32) (.45) (.42)
Realized gain on investments--net (1.23) (.88) -- (.38) --
--------- --------- --------- --------- ----------
Total dividends and distributions (1.47) (1.14) (.32) (.83) (.42)
--------- --------- --------- --------- ----------
Net asset value, end of year $ 11.75 $ 13.09 $ 12.62 $ 11.99 $ 10.60
========= ========= ========= ========= ==========
Total Based on net asset value per share 0.76% 13.49% 8.01% 21.91% (7.79%)
Investment ========= ========= ========= ========= ==========
Return:**
Ratios to Expenses, excluding distribution fees .86% .85% .85% .90% .86%
Average ========= ========= ========= ========= ==========
Net Assets: Expenses 1.86% 1.85% 1.85% 1.90% 1.86%
========= ========= ========= ========= ==========
Investment income--net 1.65% 1.99% 2.10% 3.37% 3.90%
========= ========= ========= ========= ==========
Supplemental Net assets, end of year (in thousands) $ 709,836 $ 830,955 $ 886,920 $ 986,895 $1,171,567
Data: ========= ========= ========= ========= ==========
Portfolio turnover 59.15% 79.55% 65.40% 173.76% 163.56%
========= ========= ========= ========= ==========
<FN>
*Based on average shares outstanding during the year.
**Total investment returns exclude the effect of sales loads.
(1)Foreign currency transaction amounts have been reclassified to conform to 1994 presentation.
See Notes to Financial Statements.
</TABLE>
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Retirement Benefit Investment Pro-
gram, Inc., Full Investment Portfolio does business
under the name Merrill Lynch Balanced Fund for
Investment and Retirement. Merrill Lynch Balanced
Fund for Investment and Retirement (the "Fund")
is registered under the Investment Company Act
of 1940 as a diversified, open-end management
investment company. The Fund offers both Class A
and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject
to a contingent deferred sales charge. Both classes
of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions,
except that Class B Shares bear certain expenses
related to the distribution of such shares and have
exclusive voting rights with respect to matters
relating to such distribution expenditures. On
September 27, 1994, shareholders approved the
implementation of the Merrill Lynch Select Pricing sm
System, which will offer two new classes of shares,
Class C and Class D. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities
and options which are traded on stock exchanges
are valued at the last sale price as of the close of
business on the day the securities are being valued
or, lacking any sales, at the last available bid price.
Securities traded in the over-the-counter market
are valued at the last quoted bid prices at the close
of trading on the New York Stock Exchange on
each day by brokers that make markets in the
securities. Portfolio securities which are traded both
in the over-the-counter market and on a stock ex-
change are valued according to the broadest and
most representative market. Short-term securities
are valued at amortized cost, which approximates
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.
(b) Foreign currency transactions--Transactions
denominated in foreign currencies are recorded at the
exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the
period. Foreign currency transactions are the result
of settling (realized) and valuing (unrealized) assets
and liabilities expressed in foreign currencies into
US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign
exchange sales on investments.
The Fund is authorized to enter into forward foreign
exchange contracts as a hedge against either spe-
cific transactions or portfolio positions. Such con-
tracts are not entered on the Fund's records. However,
the effect on operations is recorded from the date
the Fund enters into such contracts. Premium or
discount is amortized over the life of the contracts.
The Fund may also purchase or sell listed or over-
the-counter foreign currency options, foreign
currency futures and related options on foreign
currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such
transactions may be effected with respect to hedges
on non-US dollar denominated securities owned by
the Fund, sold by the Fund but not yet delivered, or
committed or anticipated to be purchased by the Fund.
(c) Options--When the Fund sells 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 premiums received or paid (or loss or gain to
the extent the cost of the closing transaction is less
than or greater than the premium paid or received).
Written and purchased options are non-income
producing 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). Divi-
dend income is recorded on the ex-dividend date,
except that if the ex-dividend date has passed, certain
dividends from foreign securities are recorded as
59
<PAGE>
soon as the Fund is informed of the ex-dividend date.
Interest income (including amortization of discount)
is recognized on the accrual basis. Realized gains
and losses on security transactions are determined
on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration
fees are charged to expense as the related shares
are issued.
(g) Dividends and distributions--Dividends and
distributions paid by the Fund are recorded on the
ex-dividend dates.
(h) Reclassifications--Certain 1993 amounts have
been reclassified to conform to the 1994 presentation.
Undistributed realized capital gains-net in the
amount of $552,808 has been reclassified to undis-
tributed investment income-net.
2. Investment Advisory Agreement and
Transaction with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Merrill Lynch Asset Management,
L.P. ("MLAM"). Effective January 1, 1994, the invest-
ment advisory business of MLAM was reorganized
from a corporation to a limited partnership. Both
prior to and after the reorganization, ultimate con-
trol of MLAM was vested with Merrill Lynch & Co.,
Inc. ("ML & Co."). The general partner of MLAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of ML & Co. The limited partners
are ML & Co. and Merrill Lynch Investment Manage-
ment, Inc. ("MLIM"), which is also an indirect
wholly-owned subsidiary of ML & Co. The Fund has
also entered into a Distribution Agreement and a
Distribution Plan with Merrill Lynch Funds Dis-
tributor, Inc. ("MLFD" or "Distributor"), a wholly-
owned subsidiary of MLIM.
MLAM is responsible for the management of the
Fund's portfolio and provides the necessary person-
nel, 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 $500 million; 0.60%
of the average daily net assets exceeding $500 mil-
lion but not exceeding $1.5 billion; 0.55% of the
average daily net assets exceeding $1.5 billion but
not exceeding $2.5 billion; 0.50% of the average
daily net assets exceeding $2.5 billion but not
exceeding $3.5 billion; and 0.45% of the average
daily net assets exceeding $3.5 billion. The most
restrictive annual expense limitation requires
that the Adviser reimburse the Fund to the extent
the Fund's expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions,
and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of
the next $70 million of average daily net assets,
and 1.5% of the average daily net assets in excess
thereof. No payment will be made to MLAM during
any fiscal year which will cause such expenses to
exceed the most restrictive expense limitation
applicable at the time of such payment.
Pursuant to a distribution plan (the "Distribution
Plan") adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940,
the Fund pays the Distributor an ongoing account
maintenance fee and a distribution fee, which are
accrued daily and paid monthly at the annual rates
of 0.25% and 0.75%, respectively, of the average daily
net assets of the Class B Shares of the Fund. Pursu-
ant 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 shareholders.
The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder
and distribution services and bearing certain
distribution-related expenses of the Fund.
For the year ended September 30, 1994, MLFD
earned underwriting discounts of $3,336, and
MLPF&S received dealer concessions of $51,587 on
sales of the Fund's Class A Shares.
MLPF&S received contingent deferred sales charges
of $163,949 relating to transactions in Class B Shares
and $75,348 in commissions on the execution of
portfolio security transactions for the Fund during
the period.
Financial Data Services, Inc. ("FDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's
transfer agent.
Accounting services are provided to the Fund by
MLAM at cost.
Certain officers and/or directors of the Fund are
officers and/or directors of MLAM, MLIM, PSI,
MLPF&S, FDS, MLFD, and/or ML & Co.
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding
short-term securities, for the year ended Septem-
ber 30, 1994 were $455,609,366 and $600,829,358,
respectively.
Net realized and unrealized gains (losses) as of
September 30, 1994 were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $66,532,102 $33,973,189
Options written 36,254 658
Foreign currency
transactions (241,606) 13,498
Forward foreign exchange
contracts 242,891 --
----------- -----------
Total $66,569,641 $33,987,345
=========== ===========
As of September 30, 1994, net unrealized apprecia-
tion for Federal income tax purposes aggregated
$33,973,847, of which $64,172,617 related to appre-
ciated securities and $30,198,770 related to de-
preciated securities. The aggregate cost of invest-
ments less premiums received for options written
at September 30, 1994 for Federal income tax
purposes was $697,139,554.
Transactions in call options written for the year
ended September 30, 1994 were as follows:
Number of Premiums
Shares Received
Outstanding options at
beginning of year -- --
Options written 32,500 $ 48,779
Options closed (10,400) (10,154)
Options exercised (7,500) (23,007)
Options expired (13,600) (13,835)
----------- -----------
Outstanding options at
end of year 1,000 $1,783
=========== ===========
4. Capital Share Transactions:
Net decrease in net assets derived from capital
share transactions was $34,985,543 and $69,858,642
for the years ended September 30, 1994 and
September 30, 1993, respectively.
Transactions in capital shares for Class A and Class B
Shares were as follows:
Class A Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 1,518,510 $ 18,698,722
Shares issued to share-
holders in reinvestment of
dividends and distributions 428,291 5,110,279
------------ -------------
Total issued 1,946,801 23,809,001
Shares redeemed (1,648,302) (19,908,322)
------------ -------------
Net increase 298,499 $ 3,900,679
============ =============
Class A Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 2,695,028 $ 33,091,210
Shares issued to share-
holders in reinvestment
of distributions 161,050 1,956,633
------------ -------------
Total issued 2,856,078 35,047,843
Shares redeemed (1,346,924) (17,015,867)
------------ -------------
Net increase 1,509,154 $ 18,031,976
============ =============
Class B Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 2,858,236 $ 35,039,885
Shares issued to share-
holders in reinvestment of
dividends and distributions 6,329,365 76,402,900
------------ -------------
Total issued 9,187,601 111,442,785
Shares redeemed (12,275,154) (150,329,007)
------------ -------------
Net decrease (3,087,553) $ (38,886,222)
============ =============
Class B Shares for the Year Dollar
Ended September 30, 1994 Shares Amount
Shares sold 2,722,243 $ 34,400,436
Shares issued to share-
holders in reinvestment
of distributions 5,336,253 65,136,704
------------ -------------
Total issued 8,058,496 99,537,140
Shares redeemed (14,832,136) (187,427,758)
------------ -------------
Net decrease (6,773,640) $ (87,890,618)
============ =============
5. Loan Securities:
At September 30, 1994, the Fund held a US Treasury
Bond having an value of approximately $4,169,000 as
collateral for portfolio securities loaned having a
market value of approximately $4,050,000.
6. Commitments:
At September 30, 1994, the Fund had entered into
forward foreign exchange contracts under which it
had agreed to purchase and sell various foreign
currencies with values of approximately $183,000
and $772,000.
61
<PAGE>
[This Page Intentionally Left Blank]
62
<PAGE>
[This Page Intentionally Left Blank]
63
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................... 2
Management of the Fund..................................................... 2
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...................... 11
Redemption of Shares....................................................... 12
Deferred Sales Charge--
Class B Shares........................................................... 13
Determination of Net Asset Value........................................... 14
Shareholder Services....................................................... 14
Investment Account........................................................ 15
Automatic Investment Plans................................................ 15
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 15
Systematic Withdrawal Plans--
Class A and Class D Shares............................................... 16
Retirement Plans.......................................................... 17
Exchange Privilege........................................................ 17
Dividends, Distributions and Taxes......................................... 29
Dividends and Distributions............................................... 29
Taxes..................................................................... 29
Performance Data........................................................... 32
Investment Practices and Restrictions...................................... 34
Portfolio Strategies Involving Options and Futures........................ 34
Other Investment Policies and Practices................................... 39
General Information........................................................ 45
Description of Shares..................................................... 45
Computation of Offering Price Per Share................................... 46
Independent Auditors...................................................... 46
Custodian................................................................. 46
Transfer Agent............................................................ 46
Legal Counsel............................................................. 46
Reports to Shareholders................................................... 46
Additional Information.................................................... 47
Independent Auditors' Report............................................... 48
Financial Statements....................................................... 49
</TABLE>
Code #10332-0195
LOGO Merrill Lynch
Merrill Lynch
Balanced Fund for
Investment and
Retirement, Inc.
STATEMENT OF
ADDITIONAL
INFORMATION
January 31, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and
cross-references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE>
MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, INC.
SUPPLEMENT DATED JANUARY 31, 1995 TO
PROSPECTUS DATED JANUARY 31, 1995
FOR USE IN THE STATE OF WISCONSIN
THE FUND MAY INVEST IN SECURITIES RESTRICTED AS TO RESALE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 ("RESTRICTED SECURITIES"), THE
SECURITIES OF UNSEASONED ISSUERS, AND ILLIQUID SECURITIES. HOWEVER, THE
COMBINED TOTAL OF SUCH INVESTMENTS WILL NOT EXCEED 15% OF THE FUND'S TOTAL
ASSETS. WITHIN THAT LIMITATION, RESTRICTED SECURITIES, OTHER THAN THOSE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT OF 1933 AND
DETERMINED TO BE LIQUID UNDER GUIDELINES ESTABLISHED BY THE BOARD, WILL BE
LIMITED TO 10% OF THE FUND'S TOTAL ASSETS. IT IS THE OPINION OF THE WISCONSIN
SECURITIES COMMISSION THAT INVESTMENT IN RESTRICTED SECURITIES IN EXCESS OF 5%
OF THE FUND'S TOTAL ASSETS MAY BE CONSIDERED A SPECULATIVE ACTIVITY INVOLVING
RELATIVELY GREATER RISKS OR COSTS TO THE FUND.
CODE # 10342-0195
