AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996.
FILE NO. 33-8708
FILE NO. 811-4839
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 <checked-box>
PRE-EFFECTIVE AMENDMENT NO. <square>
POST-EFFECTIVE AMENDMENT NO. 10 <checked-box>
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 <checked-box>
AMENDMENT NO. 11 <checked-box>
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH INSTITUTIONAL INTERMEDIATE FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ROBERT W. CROOK
MERRILL LYNCH INSTITUTIONAL INTERMEDIATE FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
PHILIP L. KIRSTEIN, ESQ. LEONARD B. MACKEY, JR., ESQ.
FUND ASSET MANAGEMENT, L.P. ROGERS & WELLS
P.O. BOX 9011 200 PARK AVENUE
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10166
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX)
<square> immediately upon filing pursuant to paragraph (b)
<square> on (date) pursuant to paragraph (b)
<checked-box> 60 days after filing pursuant to paragraph (a)
<square> on (date) pursuant to paragraph (a)(i)
<square> 75 days after filing pursuant to paragraph (a)(ii)
<square> on (date) pursuant to paragraph (a)(ii) of rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
<square> this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
CALCULATION OF REGISTRATION FEE
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER
THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY
ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON DECEMBER 21, 1995.
===============================================================================
THIS AMENDMENT TO THE REGISTRATION STATEMENT OF MERRILL LYNCH INSTITUTIONAL
INTERMEDIATE FUND HAS NOT BEEN MARKED TO SHOW CHANGES FROM THE PRIOR SUCH
AMENDMENT BECAUSE VIRTUALLY THE ENTIRE DOCUMENT HAS CHANGED FROM SUCH PRIOR
AMENDMENT.
<PAGE>
<PAGE>
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM LOCATION
<S> <C> <C>
PART A
1. Cover Page .......................................... Cover Page
2. Synopsis ........................................... Fee Table
3. Financial Highlights ............................... Financial Highlights; Performance Data
4. General Description of Registrant ................... Investment Objectives and Policies;
Investment Policies of the Portfolios;
Additional Information
5. Management of the Fund .............................. Fee Table; Investment Adviser; Trustees;
Portfolio Transactions; Additional
Information
5A. Management's Discussion of Fund Performance ......... *
6. Capital Stock and Other Securities .................. Cover Page; Dividends, Distributions and
Taxes; Additional Information
7. Purchase of Securities Being Offered ................ Fee Table; Purchase of Shares; Merrill
Lynch Select Pricing<service-mark> System;
Additional Information
8. Redemption or Repurchase ............................ Fee Table; Redemption of Shares; Merrill
Lynch Select Pricing<service-mark> System;
Shareholder Services
*9. Pending Legal Proceedings ........................... *
PART B
10. Cover Page .......................................... Cover Page
11. Table of Contents ................................... Table of Contents
12. General Information and History ..................... Additional Information
13. Investment Objectives and Policies .................. Investment Objectives and Policies;
Investment Restrictions; Portfolio
Transactions
14. Management of the Fund .............................. Management of the Fund
*15. Control Persons and Principal Holders of Securities.. [*]
16. Investment Advisory and Other Services .............. Management of the Fund; Purchase of Shares
17. Brokerage Allocation and Other Practices ............ Portfolio Transactions
*18. Capital Stock and Other Securities .................. *
19. Purchase, Redemption and Pricing of Securities
Being Offered ..................................... Purchase of Shares; Determination of Net
Asset Value; Redemption of Shares;
Systematic Withdrawal Plans; Retirement
Plans; Exchange Privilege; Additional
Information
20. Tax Status .......................................... Dividends, Distributions and Taxes
21. Underwriters ........................................ Distributor
22. Calculation of Performance Data ..................... Performance Data
23. Financial Statements ................................ Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C
of this Registration Statement.
- - ----------------
* Item inapplicable or answer negative.
</TABLE>
<PAGE>
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 1996
PROSPECTUS
NOVEMBER 1, 1996
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 <circle> PHONE NO. (609)
282-2800
--------------
Merrill Lynch Intermediate Government Bond Fund (the "Fund") is a
diversified mutual fund seeking the highest possible current income consistent
with the protection of capital afforded by investing in intermediate-term debt
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities with a maximum maturity not to exceed fifteen years. Under
normal circumstances, all or substantially all of the Fund's assets will be
invested in such securities. Depending upon market conditions, an average
maturity of six to eight years is anticipated. There can be no assurance that
the Fund's investment objective will be realized. For more information on the
Fund's investment objective and policies, please see "Investment Objectives and
Policies" on page 9.
Pursuant to the Merrill Lynch Select Pricing<service-mark> System, the
Fund offers four classes of shares, each with a different combination of sales
charges, ongoing fees and other features. Class C shares of the Fund are
available only through the Exchange Privilege. The Merrill Lynch Select
Pricing<service-mark> System permits an investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. See "Merrill Lynch Select
Pricing<service-mark> System" on page 4.
Shares may be purchased directly from the Merrill Lynch Funds
Distributor, Inc. (the "Distributor"), P.O. Box 9081, Princeton, New Jersey
08543-9081 ((609) 282-2800), or from other securities dealers which have
entered into selected dealer agreements with the Distributor. See "Purchase of
Shares," below. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") may charge its customers a processing fee (presently $4.85) for
confirming purchases and repurchases. Purchases and redemptions effected
directly through the Fund's transfer agent are not subject to the processing
fee. See "Purchase of Shares" and "Redemption of Shares."
The minimum initial purchase is $1,000 ($100 for retirement plans), and
the minimum subsequent purchase is $50 ($1 for retirement plans). A
shareholder may have his shares redeemed at the net asset value per share of
the Fund.
Prior to November 1, 1996, the Fund operated as the Merrill Lynch
Institutional Intermediate Fund. On November 1, 1996, the Fund was reorganized
as the Merrill Lynch Intermediate Government Bond Fund and shares of the Fund
outstanding on that date were reclassified as Class D Shares.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------
This Prospectus sets forth in concise form the information about the Fund
that a prospective investor should know before investing in the Fund.
Investors should read and retain this Prospectus for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission in a Statement of Additional Information, dated November 1,
1996, and is available upon request and without charge, by calling or writing
the Fund at the address and telephone number set forth above. 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>
<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior
to the time the registration statement becomes effective. This
prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under
the securities laws of such State.
PAGE
<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(C) CLASS D(D)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price).......... 1.00%(e) None None 1.00%(e)
Sales Charge Imposed on Dividend Reinvestments None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)................ None(f) 1.00%(g) 1.00%(g) None(f)
Exchange Fee .................................. None None None None
Annual Fund Operating Expenses(h):
Investment Adviser Fees(i) .................... 0.40% 0.40% 0.40% 0.40%
12b-1 Fees(j):
Account Maintenance Fees .................... None 0.25% 0.25% 0.10%
Distribution Fees None 0.25%(k) 0.25% None
Other Expenses:
Custodial Fees .............................. 0.02% 0.02% 0.02% 0.02%
Shareholder Servicing Fees(l) ............... [0.05%] 0.05%] [0.05%] [0.05%]
Other Fees .................................. 0.34% 0.34% 0.34% 0.34%
------- ------- ------- -------
Total Other Expenses....................... [0.41%] [0.41%] [0.41%] [0.41%]
------- ------- ------- -------
Total Fund Operating Expenses ................ [0.81%] [1.31%] [1.31%] [0.91%]
------- ------- ------- -------
------- ------- ------- -------
<FN>
- - --------------------
(a) Class A shares are sold to a limited group of investors including existing Class A shareholders, certain
retirement plans and certain investment programs. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares"--page 14. Prior to the date of this Prospectus, the Fund has not offered
its Class A shares to the public.
(b) Class B shares convert to Class D shares automatically approximately ten years after initial purchase. See
"Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares"--page 16. Prior to the date of
this Prospectus, the Fund has not offered its Class B shares to the public.
(c) Class C shares are available only through the Exchange Privilege. See "Shareholder Services--Exchange Privilege."
Prior to the date of this Prospectus, the Fund has not offered its Class C shares to the public.
(d) Prior to the date of this Prospectus, the Fund has not offered its Class D shares to the public.
(e) Reduced for purchases of $100,000 and over. Class A or Class D purchases of $1,000,000 or more may not be
subject to an initial sales charge but instead may be subject to a 0.20% contingent deferred sales charge
("CDSC") on amounts redeemed within the first year after purchase. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares"--page 14.
(f) Class A and Class D shares are not subject to a CDSC, except that certain purchases of $1,000,000 or more which
may not be subject to an initial sales charge may instead be subject to a CDSC of 0.20% of amounts redeemed
within the first year of purchase.
(g) Decreasing 1.0% thereafter to 0.0% after the first year.
(h) Information for Class A Shares is stated for the fiscal year ended October 31, 1995. The Fund was reorganized on
November 1, 1996. Information for Class B, Class C and Class D shares is estimated.
(i) See "Investment Adviser"--page 10.
(j) See "Purchase of Shares--Distribution Plans"--page 19.
(k) Class B shares convert to Class D shares automatically after approximately ten years and cease being subject to
distribution fees.
(l) See "Additional Information--Transfer Agency Services"--page 30.
</TABLE>
2
<PAGE>
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
________________________________________________________
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
_______ _______ _______ ________
An investor would pay the following expenses on a
$1,000 investment, including for Class A and Class D
shares the maximum $10 front-end sales charge and
assuming (i) the Total Fund Operating Expenses for
each class set forth on page 2, (ii) a 5% annual
return throughout the periods indicated and (iii)
redemption at the end of the period:
Class A ................................ $18 $36 $55 $109
Class B ................................ $23 $42 $72 $158
Class C*................................ $23 $42 $72 $158
Class D ................................ $19 $39 $60 $121
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ................................ $18 $36 $55 $109
Class B ................................ $13 $42 $72 $158
Class C*................................ $13 $42 $72 $158
Class D................................. $19 $39 $60 $121
<FN>
____________________
* Class shares are available only through the Exchange Privilege.
</TABLE>
3
<PAGE>
<PAGE>
The foregoing Fee Table is intended to assist investors in understanding
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes the reinvestment of all
dividends and distributions and utilizes a five percent annual rate of return
as mandated by Securities and Exchange Commission regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR THE PURPOSE OF THE EXAMPLE. Class B and Class C
shareholders who hold their shares for an extended period of time may pay more
in Rule 12b-1 distribution fees than the economic equivalent of the maximum
front-end sales charges permitted under the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD"). In addition, the
Example does not reflect the processing fee (presently $4.85) that Merrill
Lynch may charge its customers for confirming purchases and redemptions.
MERRILL LYNCH SELECT PRICING<service-mark> SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing<service-mark> 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 are sold to investors choosing the deferred
sales charge alternatives. Class C shares are offered only through the
Exchange Privilege and may not be purchased except through exchange of Class C
shares of certain other funds. The Merrill Lynch Select Pricing<service-mark>
System is used by more than 50 mutual funds advised by Merrill Lynch Asset
Management, L.P. ("MLAM" or the "Investment Adviser") or its affiliate, Fund
Asset Management, L.P. ("FAM"). Funds advised by MLAM or FAM are referred to
herein as "MLAM-advised mutual funds."
Each Class A, Class B, Class C or Class D share of the 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, accordingly, such charges will not
affect the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Fund for each class
of shares will be calculated in the same manner at the same time and will
differ only to the extent that account maintenance and distribution fees and
any incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Each class has different exchange privileges. See
"Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing<service-mark>
System, followed by a more detailed description of each class and a discussion
of the factors that investors should consider in determining the method of
purchasing shares under the Merrill Lynch Select Pricing<service-mark> System
that the investor believes is most beneficial under his particular
circumstances. More detailed information as to each class of shares is set
forth under "Purchase of Shares."
4
PAGE
<PAGE>
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SHARES CHARGE{(1)} FEE FEE FEATURE
<S> <C> <C> <C> <C>
A Maximum 1.00 initial No No No
sales charge{(2)(3)}
B CDSC for one year, at a rate 0.25% 0.25% B shares convert to
of 1.0% during the first D shares automatically
year, decreasing to 0.0% after after approximately
the first year ten years{(4)}
C{(5)} CDSC for one year, at a rate 0.25% 0.25% No
of 1.0% during the first
year, decreasing to 0.0% after
the first year
D Maximum 1.00% initial 0.10% No No
sales charge{(3)}
- - ----------------
<FN>
(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 $100,000 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 may be subject to a 0.20% CDSC for one year. See "Class A" and
"Class D."
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have an eight-year
conversion period. If Class B shares of the Portfolios 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.
(5) Class C shares are available only through the Exchange Privilege. See
"Shareholder Services--Exchange Privilege."
</TABLE>
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 will be offered to a limited group of
investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A
shares of the Fund in a shareholder account 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 employees of Merrill Lynch & Co., Inc.
("ML & Co.") and its subsidiaries (the term "subsidiaries," when
used herein with respect to ML & Co., includes MLAM, FAM and
certain other entities directly or indirectly wholly-owned and
controlled by ML & Co.) and to members of the Boards of
MLAM-advised mutual funds. The maximum initial sales charge is
1.00%, and is reduced for purchases of $100,000 and over and waived
for purchases of Class A shares by certain retirement plans in
connection with certain investment programs. Purchases of
$1,000,000 or more may not be subject to an initial sales charge,
but if the initial sales charge is waived, such purchases may be
subject to a contingent deferred sales charge ("CDSC") of 0.20% 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%
of the Fund's average net assets attributable to the Class B
shares, an ongoing distribution fee of 0.25% of average net assets
attributable to Class B shares and a CDSC if they are redeemed
within one year of purchase. Approximately ten years after
5
<PAGE>
<PAGE>
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 eight 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 the conversion and holding periods
for certain retirement plans is modified as described under
"Purchase of Shares--Deferred Sales Charge Alternatives--Class B
and Class C Shares--Conversion of Class B Shares to Class D
Shares."
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
of average net assets and an ongoing distribution fee of 0.25% of
average net assets. 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, 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 Trustees and regulatory
limitations. Class C shares are available only through the
Exchange Privilege.
Class D: The shares of the Fund in existence prior to its reorganization on
November 1, 1996 have been reclassified as Class D shares.
Although purchasers of Class D shares generally will be subject to
a 1% front-end sales load, those shareholders of the Fund who have
held shares of the Fund since prior to its reorganization on
November 1, 1996 will not be subject to any sales load with respect
to either their reclassified Class D shares or any Class D shares
that they may purchase in the future. In addition, while the
Fund's shares prior to its reorganization on November 1, 1996 were
subject to a 0.15% annual distribution fee, the Class D shares are
subject to a 0.10% annual account maintenance fee. Class D shares
incur an initial sales charge when they are purchased and are
subject to an ongoing account maintenance fee 0.10% of average net
assets. 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 may be subject to a
CDSC of 0.20% if the shares are redeemed within one year of
purchase. The schedule of initial sales charges and reductions for
Class D shares is the same as the schedule for Class A shares,
except that there is no waiver for purchases by retirement plans in
connection with certain investment programs. Class D shares also
will be issued upon conversion of Class B shares as described above
under "Class B." See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares."
The following is a discussion of the factors that investors should
consider in determining the method of purchasing shares under the Merrill Lynch
Select Pricing<service-mark> System that the investor believes is most
beneficial under 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 they are
eligible investors, 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
initial 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
6
<PAGE>
<PAGE>
purchases of Class B or Class C shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for an extended
period of time also may elect to purchase Class A or Class D shares, because
over time the accumulated ongoing account maintenance and distribution fees on
Class B or Class C shares may exceed the initial sales charge and, in the case
of Class D shares, the account maintenance fee. Although some investors that
previously purchased Class A shares may no longer be eligible to purchase Class
A shares of other MLAM-advised mutual funds, those previously purchased Class A
shares, together with Class B, Class C and Class D share holdings, will count
toward a right of accumulation which may qualify the investor for reduced
initial sales charges on new initial sales charge purchases. In addition, the
ongoing Class B and Class C account maintenance and distribution fees will
cause Class B and Class C shares to have higher expense ratios, pay lower
dividends and have lower total returns than the initial sales charge shares.
The ongoing Class D account maintenance fees will cause Class D shares to have
a higher expense ratio, pay lower dividends and have a lower total return than
Class A shares.
DEFERRED SALES CHARGE ALTERNATIVES. Because no initial sales charges
are deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be particularly
appealing to investors who do not qualify for a reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution fees potentially may be offset to the extent any
return is realized on the additional funds initially invested in Class B or
Class C shares. In addition, Class B shares will be converted into Class D
shares of the Fund after a conversion period of approximately ten years, and
thereafter investors will be subject to lower ongoing fees. Class C shares are
available only through the Exchange Privilege.
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 one year CDSC period, they forgo the Class B conversion feature, making
their investment subject to account maintenance and distribution fees for an
indefinite period of time. In addition, while both Class B and Class C
distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, the Class B distribution fees are further limited under a
voluntary waiver of asset-based sales charges. See "Purchase of
Shares--Limitations on the Payment of Deferred Sales Charges."
7
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below (other than the information
for the six months ended April 30, 1996, which is unaudited) has been audited
in conjunction with the annual audits of the financial statements of the Fund
by Deloitte & Touche LLP, Independent Auditors. Financial Statements for the
year ended October 31, 1995 and the Independent Auditors' report thereon are
included in the Statement of Additional Information. Financial information is
not presented for Class A, Class B, Class C or Class D shares, because no
shares of those classes were publicly issued as of the date of this Prospectus.
In connection with its reorganization on November 1, 1996, the Fund changed its
investment objective from investing only in assets which would permit shares of
the Fund to qualify both as "liquid assets" under the regulations of the office
of Thrift Supervision and as an investment permitted by the regulations of the
National Credit Union Association to seeking the highest possible current
income consistent with the protection of capital afforded by investing in
intermediate-term debt securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities with a maximum maturity not to exceed fifteen
years and, depending upon market conditions, an average maturity of six to
eight years. For the period from the commencement of the Fund's operations
through its reorganization on November 1, 1996, the portfolio of the Fund has
consisted primarily of securities issued by the U.S. Government and its
agencies and instrumentalities. The average maturity of the Fund's portfolio
during this period (generally ranging from two to five years) has been somewhat
shorter than the expected average maturity of the Fund of six to eight years
following the change in its investment objective upon its reorganization. As a
result, the financial information in the table below for operations of the Fund
prior to its reorganization may not be indicative of its performance following
its reorganization.
The following per share data and ratios have been derived from
information provided in the financial statements:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, FOR THE YEAR ENDED OCTOBER 31,
_______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987<dagger>
____________________________________________________________________________________________________________
(UNAUDITED)
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, $ 9.82 $ 9.60 $ 10.31 $ 10.06 $ 9.76 $ 9.35 $ 9.42 $ 9.44 $ 9.57 $ 10.00
beginning
of period
Investment income-net .30 .62 .55 .54 .62 .72 .77 .83 .80 .73
Realized and unrealized (.17) .22 (.71) .25 .30 .41 (.07) (.02) (.13) (.43)
gain (loss) on
investments-net
Total from investment .13 .84 (.16) .79 .92 1.13 .70 .81 .67 .30
operations
Less dividends from (.30) (.62) (.55) (.54) (.62) (.72) (.77) (.83) (.80) (.73)
investment income-net
Net asset value, end of $ 9.65 $ 9.82 $ 9.60 $ 10.31 $ 10.06 $ 9.76 $ 9.35 $ 9.42 $ 9.44 $ 9.57
period
TOTAL INVESTMENT
RETURN:
Based on net asset 1.33%# 8.95% (1.54)% 8.07% 9.66% 12.62% 7.75% 9.12% 7.29% 3.18%#
value per share
RATIOS TO AVERAGE NET
ASSETS:
Expenses .97%* .96% .83% .80% .82% .81% .75% .70% .65% .59%*
Investment income-net 6.16%* 6.38% 5.55% 5.34% 6.24% 7.66% 8.24% 8.96% 8.36% 7.66%*
SUPPLEMENTAL DATA:
Net assets, end of $ 57,715 $ 65,139 $ 81,407 $ 122,283 $ 94,798 $ 125,888 $ 151,891 $ 211,528 $ 303,530 $ 426,712
period
(in thousands)
Portfolio turnover 22.11% 47.90% 172.51% 204.80% 156.12% 202.11% 68.74% 306.69% 262.56% 406.66%
________________
<FN>
* Annualized
<dagger> The Fund commenced operations on November 6, 1986.
# Aggregate total investment return.
</TABLE>
8
PAGE
<PAGE>
Further information about the Fund's performance is contained
in the Fund's Annual Report, which can be obtained, without charge, upon
request.
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a diversified, open-end management investment company. The
Fund's investment objective is to seek the highest possible current income
consistent with the protection of capital afforded by investing in
intermediate-term debt securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities with a maximum maturity not to exceed fifteen
years. Under normal circumstances, all or substantially all of the Fund's
assets will be invested in such securities. Depending upon market conditions,
an average maturity of six to eight years is anticipated.
Certain of the securities in which the Fund invests are supported by the
full faith and credit of the U.S. Government, such as U.S. Treasury
obligations. Other of the securities in which the Fund invests are not
supported by the full faith and credit of the U.S. Government but are issued by
U.S. Government agencies, instrumentalities or government-sponsored
enterprises. Such securities are generally supported only by the credit of the
agency, instrumentality or enterprise issuing the security and are generally
considered to have a low principal risk. However, because of the longer-term
maturities of the securities in which the Fund will invest, interest rate
fluctuations may adversely affect the market value of such securities. As
interest rates rise, the value of fixed-income securities will fall, adversely
affecting the net asset value of the Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to
the investment of its assets and its activities which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities. Investors are referred to the Statement
of Additional Information for a complete description of such restrictions and
policies.
OTHER PORTFOLIO STRATEGIES
INDEXED AND INVERSE SECURITIES. The Fund may invest in securities whose
potential return is based on the change in particular measurements of value or
rate (an "index"). As an illustration, the Fund may invest in a security that
pays interest and returns principal based on the change in an index of interest
rates or on the value of a precious or industrial metal. Interest and
principal payable on a security may also be based on relative changes among
particular indices. In addition, the Fund may invest in securities whose
potential investment return is inversely based on the change in particular
indices. For example, the Fund may invest in securities that pay a higher rate
of interest and principal when a particular index decreases and pay a lower
rate of interest and principal when the value of the index increases. To the
extent that the Fund invests in such types of securities, it will be subject to
the risks associated with changes in the particular indices, which may include
reduced or eliminated interest payments and losses of invested principal.
Certain indexed securities, including certain inverse securities, may
have the effect of providing a degree of investment leverage, because they may
increase or decrease in value at a rate that is a multiple of the changes in
applicable indices. As a result, the market value of such securities will
generally be more volatile than the market values of fixed-rate securities.
The Fund believes that indexed securities, including inverse securities,
represent flexible portfolio management instruments that may allow the Fund to
seek potential investment rewards, hedge other portfolio positions, or vary the
degree of portfolio leverage relatively efficiently under different market
conditions.
LENDING OF PORTFOLIO SECURITIES. The Fund may from time to time lend
securities from its portfolio to brokers, dealers and financial institutions
and receive collateral in cash or securities issued or guaranteed by the U.S.
Government which, while the loan is outstanding, will be maintained at all
9
<PAGE>
<PAGE>
in an amount equal to at least 100% of the current market value of the
loaned securities plus accrued interest. Such cash collateral will be invested
in short-term securities, the income from which will increase the return to the
Fund.
FORWARD COMMITMENTS. The Fund may purchase securities on a when-issued
basis and may purchase or sell such securities for delayed delivery. These
transactions occur when securities are purchased or sold by the Fund with
payment and delivery taking place in the future to secure what is considered an
advantageous yield and price to the Fund at the time of entering into the
transaction. The value of the security on the delivery date may be more or
less than its purchase price. Upon entering into such transactions, the Fund
will maintain a segregated account with its custodian of cash or liquid, high-
grade debt obligations in an aggregate amount equal to the amount of its
commitments in connection with such delayed delivery and purchase transactions.
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or primary dealer in U.S. Government securities or an
affiliate thereof. Under such agreements, the seller agrees, upon entering
into the contract, to repurchase the security from the Fund at a mutually
agreed upon time and price, thereby determining the yield during the term of
the agreement. This results in a fixed rate of return for the Fund insulated
from market fluctuations during such period. In the event of default by the
seller under a repurchase agreement, a Fund will continue to hold the seller's
securities as collateral but may suffer time delays and incur costs or possible
losses in connection with such transactions.
INVESTMENT ADVISER
Merrill Lynch Asset Management, L.P. ("MLAM"), an indirect wholly owned
subsidiary of Merrill Lynch & Co., Inc., is the investment adviser for the
Fund. The principal address of the Investment Adviser is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536 (mailing address: P.O. Box 9011, Princeton,
New Jersey 08543-9011). The Investment Adviser or its affiliate, Fund Asset
Management, L.P. ("FAM"), acts as the investment adviser for over 130 other
registered investment companies. MLAM also offers portfolio management and
portfolio analysis services to individuals and institutions. In the aggregate,
as of August 31, 1996, MLAM and FAM had a total of approximately $212.3 billion
in investment company and other portfolios assets under management.
Subject to the general supervision of the Board of Trustees of the Fund,
the Investment Adviser renders investment advice and is responsible for the
overall management of the Fund's business affairs.
The Fund pays the Investment Adviser a monthly fee at the annual rate of
0.40% of the average daily net assets of the Fund. In addition, the Investment
Advisory Agreement obligates the Fund to pay certain expenses incurred in its
operations including, among other things, the investment advisory fee, legal
and audit fees, registration fees, unaffiliated trustees' fees and expenses,
custodian and transfer agency fees, accounting costs, the costs of issuing and
redeeming shares and certain of the costs of printing proxies, shareholder
reports, prospectuses and statements of additional information.
The Investment Adviser has agreed that, in the event the operating
expenses of the Fund (including the fees payable to the Investment Adviser but
excluding taxes, interest, brokerage and extraordinary expenses) for any fiscal
year exceed the expense limitations applicable to the Fund imposed by state
securities laws or any published regulations thereunder, it will reduce its fee
by the extent of such excess and, if required pursuant to any such laws or
regulations, will annually reimburse the Fund in the amount of such excess.
MLAM received $271,378, or 0.40% of the Fund's average net assets, in
investment advisory fees from the Fund during the Fund's fiscal year ended
October 31, 1995. For the same period, total expenses of the Fund were
$649,643, or 0.96% of average net assets.
Jay C. Harbeck has served as the Fund's Portfolio Manager since January
1, 1992, and is primarily responsible for the Fund's day-to-day management. He
has served as Vice President of MLAM since 1986.
10
<PAGE>
<PAGE>
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act of 1940 which incorporates the Code of
Ethics of the Investment Adviser (together, the "Codes"). The Codes
significantly restrict the personal investing activities of all employees of
the Investment Adviser and, as described below, impose additional, more
onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Investment Adviser preclear
any personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Investment Adviser include a ban on acquiring any securities
in a "hot" initial public offering and a prohibition from profiting on
short-term trading in securities. In addition, no employee may purchase or
sell any security which at the time is being purchased or sold (as the case may
be), or to the knowledge of the employee is being considered for purchase or
sale, by any fund advised by the Investment Adviser. Furthermore, the Codes
provide for trading "blackout periods" which prohibit trading by investment
personnel of the Fund within periods of trading by the Fund in the same (or
equivalent) security (15 or 30 days depending upon the transaction).
TRUSTEES
The Trustees of the Fund consist of seven individuals, five of whom are
not "interested persons" of the Fund as defined in the Investment Company Act
of 1940. The Trustees 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 of 1940. The
Board of Trustees elects officers of the Fund annually.
The Trustees of the Fund and their principal employment are as follows:
ROBERT W. CROOK* -- Senior Vice President of the Investment Adviser and
of the Distributor.
A. BRUCE BRACKENRIDGE -- Retired Group Executive of J.P. Morgan &
Co., Inc. and Morgan Guaranty Trust Company.
CHARLES C. CABOT, JR. -- Partner in the law firm of Sullivan & Worcester.
JAMES T. FLYNN -- Retired Chief Financial Officer of J.P. Morgan &
Co., Inc.
TERRY K. GLENN* -- Executive Vice President of the Investment Adviser
and FAM and President and Director of the Distributor.
GEORGE W. HOLBROOK, JR. -- Managing Partner of Bradley Resources Company.
W. CARL KESTER -- Professor, Business Administration, Harvard University
Graduate School of Business Administration.
__________________
[FN]
* Interested person, as defined in the Investment Company Act of 1940, of
the Fund.
PURCHASE OF SHARES
The Fund continuously offers its shares at a public offering price based
on its per share net asset value plus sales charges imposed either at the time
of purchase or on a deferred basis depending upon the class of shares selected
by the investor under the Merrill Lynch Select Pricing<service-mark> System.
Net asset value is determined in the manner set forth under "Additional
11
<PAGE>
<PAGE>
Information--Determination of Net Asset Value." Merrill Lynch Funds
Distributor, Inc. (the "Distributor"), an affiliate of both the Investment
Adviser and Merrill Lynch, acts as the distributor of the shares. Shares may
be purchased directly from the Distributor or from other securities dealers,
including Merrill Lynch, with whom the Distributor has entered into selected
dealer agreements. The minimum initial purchase is $1,000. The minimum
subsequent purchase is $50. For retirement plans, the minimum initial purchase
is $100 and the minimum subsequent purchases requirement is $1. Merrill Lynch
charges its customers a processing fee (currently $4.85) to confirm a sale of
shares to such customers.
As to purchase orders received by securities dealers prior to the close
of the New York Stock Exchange (the "NYSE") (generally 4:00 p.m., New York City
time) on the day the order is placed with the Distributor, including orders
received after the close 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 the NYSE on the day the order is placed with the Distributor, provided
the order is received by the Distributor not later than 30 minutes after the
close of business on the NYSE (generally 4:00 p.m., New York City time), on
that day. If the purchase orders are not received by the Distributor as of 30
minutes after the close of business on the NYSE, such orders shall be deemed
received on the next business day. Any order may be rejected by the
Distributor or the Fund. Neither the Distributor nor securities dealers are
permitted to withhold placing orders to benefit themselves by a price change.
The Fund reserves the right to suspend the sale of its shares to the public in
response to conditions in the securities markets, or otherwise. Any order may
be rejected by the Distributor or the Fund.
The Fund will issue four classes of shares under the Merrill Lynch Select
Pricing<service-mark> System, which will permit each investor to choose the
method of purchasing shares that the investor believes is most beneficial given
the amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Class A and Class D shares will be
sold to investors choosing the initial sales charge alternative and Class B and
Class C shares are sold to investors choosing the deferred sales charge
alternative. Class C shares are available only through the Exchange Privilege
and may not be purchased except through exchange of Class C shares of another
MLAM-advised mutual fund.
The alternative sales arrangements of the Fund permit investors in the
Fund to choose the method of purchasing shares that they believe is most
beneficial given the amount of their purchase, the length of time they expect
to hold their shares and other relevant circumstances. Investors should
determine whether under their particular circumstances it is more advantageous
to incur an initial sales charge, as discussed below, or to have the entire
initial purchase price invested in the Fund with the investment thereafter
being subject to ongoing account maintenance and distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select
Pricing<service-mark> System is set forth under "Merrill Lynch Select
Pricing<service-mark> System" on page 4.
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests in 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 of the Fund 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
12
<PAGE>
<PAGE>
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 tables set forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing<service-mark>
System.
<TABLE>
<CAPTION>
ACCOUNT DISTRIBUTION
CLASS SALES CHARGE{(1)} MAINTENANCE FEE FEE CONVERSION FEATURE
_____ _________________ _______________ ____________ __________________
<S> <C> <C> <C> <C>
A Maximum 1.00% initial sales charge{(2)(3)} No No No
B CDSC for one year, at a rate of 1.0% 0.25% 0.25% B shares convert to D
during the first year, decreasing to shares automatically
0.0% after the first year after approximately ten
years{(4)}
C{(5)} CDSC for one year, at a rate of 1.0% 0.25% 0.25% No
during the firstyear, decreasing to
0.0% after the first year
D Maximum 1.00% initial sales charge{(3)} 0.10% No No
__________________________
<FN>
(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 $100,000 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 may be subject to a 0.20% CDSC for one year. See "Class
A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have an
eight-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.
(5) Class C shares are available only through the Exchange Privilege. See
"Shareholder Services--Exchange Privilege."
</TABLE>
13
<PAGE>
<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.
Sales charges for purchases of Class A and Class D shares of the Fund, computed
as indicated below, are reduced on larger purchases. The Distributor may
reallow as a discount all or a part of such sales charge to securities dealers
with whom it has agreements and will retain any portion of the sales charge not
reallowed. If 90% or more of the sales charge is reallowed to a dealer, such
dealer may be deemed to be an underwriter within the meaning of the Securities
Act of 1933 and subject to liability as such. The Distributor will retain the
entire sales charge on orders placed directly with it. The sales charges
applicable to purchases of Class A and Class D shares, expressed as a
percentage of the gross public offering price and the net amount invested, and
expected dealer discounts, expressed as a percentage of the gross public
offering price, are as follows:
<TABLE>
<CAPTION>
SALES LOAD AS A SALES LOAD AS A DISCOUNT TO SELECT
PERCENTAGE OF PERCENTAGE OF NET DEALERS AS A PERCENTAGE
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED{*} OF OFFERING PRICE
<S> <C> <C> <C>
Less than $100,000 .................. 1.00% 1.01% .95%
$100,000 but less than $250,000...... .75 .76 .70
$250,000 but less than $500,000...... .50 .50 .45
$500,000 but less than $1,000,000.... .30 .30 .27
$1,000,000 or more{**}............... .00 .00 .00
_______________________
<FN>
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of $1,000,000 or more, and
on Class A purchases by certain retirement plan investors in connection with certain investment
programs. If the sales charge is waived in connection with a purchase of $1,000,000 or more, such
purchases will be subject to a CDSC of 0.20% if the shares are redeemed within one year after
purchase. 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 0.30% will be imposed on
purchases of $1 million or more of Class A or Class D shares by certain 401(k) plans.
</TABLE>
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
Blueprint<service-mark> Program, are entitled to purchase additional Class A
shares of the Fund in that account. Certain employer sponsored retirement or
savings plans, including eligible 401(k) plans, may purchase Class A shares of
the Fund at net asset value provided such plans meet the required minimum
number of eligible employees or required amount of assets advised by MLAM or
any of its affiliates. Class A shares are available at net asset value to
corporate warranty insurance reserve fund programs provided that the program
has $3 million or more initially invested in MLAM-advised mutual funds. Also
eligible to purchase Class A shares at net asset value are participants in
certain investment programs including TMA<trademark> Managed Trusts to which
Merrill Lynch Trust Company provides discretionary trustee services, collective
investment trusts for which Merrill Lynch Trust Company serves as trustee and
certain purchases made in connection with the Merrill Lynch Mutual Fund Adviser
("MFA") program. In addition, Class A shares will be offered at net asset
value to ML & Co., Inc. and its subsidiaries and their directors and employees
and to members of the Boards of MLAM-advised investment companies, including
the Fund. Certain persons who acquired shares of certain MLAM-advised
closed-end funds in their initial offering who wish to reinvest the net
proceeds from a sale of their closed-end fund shares of common stock in shares
of the Fund also may purchase Class A shares of the Fund if certain conditions
set forth in the Statement of Additional Information are met. In addition,
Class A shares of the Fund and certain other MLAM-advised mutual funds are
offered at net asset value to shareholders of Merrill Lynch Senior Floating
Rate Fund, Inc. and, if certain conditions set forth in the Statement of
Additional Information are met, to shareholders of Merrill Lynch Municipal
Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who
wish to reinvest the net proceeds from a sale of certain of their shares of
common stock pursuant to a tender offer conducted by such funds in shares of
the Fund and certain other MLAM-advised mutual funds.
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
14
<PAGE>
<PAGE>
dividends or capital gains distributions. Class A and Class D sales charges
also may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors."
The shares of the Fund in existence prior to its reorganization on
November 1, 1996 have been reclassified as Class D shares. Although purchasers
of Class D shares generally will be subject to a 1% front-end sales load, those
shareholders of the Fund who have held shares of the Fund since prior to its
reorganization on November 1, 1996 will not be subject to any sales load with
respect to either their reclassified Class D shares or any Class D shares that
they may purchase in the future.
Class A and Class D shares are offered at net asset value to certain
employer-sponsored retirement or savings plans and to Employee Access
Accounts<service-mark> available through qualified employers which provide such
plans. Class A and Class D shares of the Fund are offered at net asset value
to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill
Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest in shares of
the Fund the net proceeds from a sale of certain of their shares of common
stock, pursuant to tender offers conducted by these Funds.
Class D shares are offered at net asset value, without sales charge, to
an investor who has a business relationship with a financial consultant, if
certain conditions set forth in the Statement of Additional Information are
met. Class D shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint<service-mark> Program.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
INVESTORS CHOOSING THE DEFERRED SALES CHARGE ALTERNATIVES SHOULD CONSIDER
CLASS B SHARES IF THEY INTEND TO HOLD THEIR SHARES FOR AN EXTENDED PERIOD OF
TIME AND CLASS C SHARES IF THEY ARE UNCERTAIN AS TO THE LENGTH OF TIME THEY
INTEND TO HOLD THEIR ASSETS IN MLAM-ADVISED MUTUAL FUNDS. CLASS C SHARES,
HOWEVER, ARE AVAILABLE ONLY THROUGH THE EXCHANGE PRIVILEGE.
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 and Class C shares are subject to a one
year CDSC. Approximately ten 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 and thereafter
will be subject to lower continuing fees. See "Conversion of Class B Shares to
Class D Shares" below. Both Class B and Class C shares are subject to an
account maintenance fee of 0.25% of net assets and distribution fees of 0.25%
of net assets. See "Distribution Plans." The proceeds from the account
maintenance fees are used to compensate Merrill Lynch for providing continuing
account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so
that the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below. Class C shares are available only through the Exchange
Privilege.
Proceeds from the CDSC and the distribution fee are paid to the
Distributor and are used in whole or in part by the Distributor to defray the
expenses of dealers (including Merrill Lynch) related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to financial
consultants for selling Class B and Class C shares, from its own funds. The
combination of the CDSC and the ongoing distribution fee facilitates the
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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 ten years after
issuance, Class B shares will convert automatically into Class D shares, 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 eight 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 one year 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 contingent deferred sales
charge on Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
YEAR SINCE CHARGE AS A PERCENTAGE
PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
___________ _________________________
<S> <C>
0-1................................................... 1.0%
Thereafter ........................................... None
</TABLE>
In determining whether a contingent deferred sales charge is applicable
to a redemption, the calculation will be determined in the manner that results
in the lowest possible applicable rate being charged. Therefore, it will be
assumed that the redemption is 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 CDSC 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.
To provide an example, assume an investor purchased 100 Class B shares at
$10 per share (at a cost of $1,000) and in the eighth month after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional shares upon dividend reinvestment. If at such time the
investor makes his first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to charge because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of
$10 per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
1.0% (the applicable rate in the first year after purchase).
In the event that Class B shares are exchanged by certain retirement
plans for Class A shares in connection with a transfer to the Merrill Lynch
Mutual Fund Adviser ("MFA") program, the time period that such Class A shares
are held in the MFA program will be included in determining the holding period
of Class B shares reacquired upon termination of participation in the MFA
program (see "Shareholder Services--Exchange Privilege").
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Code) of a shareholder. The Class B contingent deferred sales
charge also is waived on redemption of shares in connection with certain group
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plans through the Merrill Lynch Blueprint<service-mark> Program. See
"Shareholder Services--Merrill Lynch Blueprint<service-mark> Program." The
contingent deferred sales charge is waived on redemption of shares by certain
eligible 401(a) and eligible 401(k) plans. The contingent deferred sales
charge is also waived for any Class B shares which are purchased by an eligible
401(k) or eligible 401(a) plan and are rolled over into a Merrill Lynch,
Pierce, Fenner & Smith Incorporated or Merrill Lynch Trust Company custodied
Individual Retirement Account and held in such account at the time of
redemption and for any Class B shares that were acquired and held at the time
of the redemption in an Employee Access Account available through employers
providing eligible 401(k) plans. Additional information concerning the waiver
of the Class B contingent deferred sales charge 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.
The following table sets forth the rates of the contingent deferred sales
charge on Class C shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
YEAR SINCE CHARGE AS A PERCENTAGE
PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
____________ _________________________
<S> <C>
0-1 .................................................. 1.0%
Thereafter ........................................... None
</TABLE>
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the one-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
CONVERSION OF CLASS B SHARES TO CLASS D SHARES. After approximately ten
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares. Class D shares are subject to an ongoing account
maintenance fee of 0.10% 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.
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
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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 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 retirement plan will be
sold Class D shares of the appropriate funds at net asset value per share.
In the event that all Class B shares held in a single account are
converted to Class D shares on a Conversion Date, shares representing
reinvestment of declared but unpaid dividends on those Class B shares also will
be converted to Class D shares; otherwise, only Class B shares purchased
through reinvestment of dividends paid will convert to Class D shares on the
Conversion Date.
The minimum value of Class B shares held in a single account that will be
converted on any Conversion Date is $50; however, if at a Conversion Date the
conversion of Class B shares to Class D shares 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 held in the account on the Conversion Date will be converted to
Class D shares.
Class B shareholders holding share certificates must deliver such
certificates to the Transfer Agent at least one week prior to the Conversion
Date applicable to those shares. Shares evidenced by certificates that are not
received by the Transfer Agent at least one week prior to the Conversion Date
will be converted into Class D shares on the next scheduled Conversion Date
after such certificates are delivered.
The Conversion Period also is modified for retirement plan investors
which participate in the MFA program. While participating in the MFA program,
such investors will hold Class A shares. If these Class A shares were acquired
through exchange of Class B shares (see "Shareholder Services--Exchange
Privilege"), then the holding period for such Class A shares will be "tacked"
to the holding period of the Class B shares originally held for purposes of
calculating the Conversion Period on Class B shares acquired upon termination
of participation in the MFA program.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment of
account maintenance fees and distribution fees, and the Class D Distribution
Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each
provide that the Fund pays the Distributor an account maintenance fee relating
to the shares of the relevant class of the Fund's shares, accrued daily and
paid monthly, at the annual rate of 0.25% of average daily net assets of the
relevant class for Class B and Class C shares, and 0.10% of average daily net
assets attributable to the relevant class for Class D shares 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 0.25%
of average daily net assets attributable to the relevant class for Class B and
Class C shares, 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. 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.
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Prior to reorganization of the Fund on November 1, 1996, pursuant to the
Fund's then existing distribution plan the Fund paid the Distributor a monthly
fee at the annual rate of 0.15% of the Fund's average daily net assets in order
to compensate the Distributor for the services it provided. During the years
ended October 31, 1994 and 1995, the Fund paid to the Distributor fees
totalling $161,849 and $101,765, respectively. In connection with the
reorganization of the Fund on November 1, 1996, the Fund's existing
distribution plan was amended and became the Class D distribution plan.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the relevant 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 will be presented to the Trustees for their consideration in
connection with their deliberations as to the continuance of the Class B and
Class C Distribution Plans. This information is to be presented annually as of
December 31 of each year on a "fully allocated accrual" basis and quarterly on
a "direct expense and revenue/cash" basis. On the fully allocated accrual
basis, revenues consist of the account maintenance fees, distribution fees, the
contingent deferred sales charges and certain other related revenues, and
expenses consist of financial consultant compensation, branch office and
regional operation center selling and transaction processing expenses,
advertising, sales promotion and marketing expenses, corporate overhead and
interest expense. On the direct expense and revenue/cash basis, revenues
consist of the account maintenance fees, distribution fees and the contingent
deferred sales charges and the expenses consist of financial consultation
compensation. As of December 31, 1995, the last date for which full allocated
accrual data is available, the fully allocated accrual expenses incurred by the
Distributor and Merrill Lynch under the Fund's prior distribution plan since
the Fund commenced operations on November 6, 1986 exceeded revenues for such
period by $____________ (____%) of net assets at that date). As of December
31, 1995, direct cash revenues for the period since the commencement of
operations exceeded direct expenses by $619,728 (0.97% of 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 Trustees 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 Trustees 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 fees. The maximum sales charge rule is applied
separately by each class. As applicable to the Fund, the maximum sales charge
rule limits the aggregate of distribution fee payments and CDSCs payable to the
sum of (1) 6.25% of eligible gross sales of Class B shares and Class C shares,
computed separately (defined to exclude shares issued pursuant to dividend
reinvestment and exchanges) and (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 Class B shares is 6.75% of eligible gross sales.
The Distributor retains the right to stop waiving the interest charge 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
fees. In certain circumstances the amount payable pursuant to the voluntary
19
PAGE
<PAGE>
maximum may exceed the amount payable under the NASD formula. In such
circumstances, payment in excess of the amount payable under the NASD formula
will not be made.
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares upon receipt of a
written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption in the case of Class A or Class D shares, and is the net asset value
per share next determined after the initial receipt of proper notice of
redemption, less the applicable CDSC, if any, in the case of Class B or Class C
Shares. Except for any contingent deferred sales load which may be applicable
to Class B or Class C Shares, there will be no charge for redemption if the
redemption request is sent directly to the Transfer Agent. Shareholders
liquidating their total holdings also will receive upon redemption all
dividends declared on the shares redeemed. If a shareholder redeems all of the
shares in his account, he will receive, in addition to the net asset value of
the shares redeemed, a separate check representing all dividends declared but
unpaid. If a shareholder redeems a portion of the shares in his account, the
dividends declared but unpaid on the shares redeemed will be distributed on the
next dividend payment date.
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 at
such time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Transfer Agent, Merrill Lynch Financial Data Services, Inc.,
P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to Merrill Lynch Financial
Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. Proper notice of redemption in case of shares deposited with the
Transfer Agent may be accomplished by a written letter requesting redemption.
Proper notice of redemption in the case of shares for which certificates have
been issued may be accomplished by a written letter as noted above accompanied
by certificates for the shares to be redeemed. The notice in either event
requires the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as their name(s) appears 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 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.
Examples of "eligible guarantor institutions" include most commercial banks and
broker dealers (including, for example, Merrill Lynch branch offices).
Information regarding other financial institutions which qualify as "eligible
guarantor institutions" may be obtained from the Transfer Agent. 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 after 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 will also repurchase shares through a shareholder's listed
securities dealer. As described in the Statement of Additional Information,
the repurchase arrangements are for the convenience of shareholders and do not
involve a charge by the Fund (other than any applicable CDSC). Securities
dealers may impose a charge on the shareholder for transmitting the notice of
repurchase to the Fund. The Fund reserves the right to reject any order for
20
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repurchase, which right of rejection might adversely affect shareholders
seeking redemption through the repurchase procedure. Merrill Lynch may charge
its customers a processing fee (currently $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.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
As described in further detail in the Statement of Additional
Information, holders of Class A or Class D shares who have redeemed their
shares will have a one-time privilege to reinstate their accounts by purchasing
shares of the same class at net asset value without a sales charge up to the
dollar amount redeemed.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of the net
investment income of the Fund, if any. The net investment income of the Fund
is declared as dividends daily immediately prior to the determination of the
net asset value of the Fund on that day and reinvested monthly in additional
full and fractional shares of the Fund at net asset value unless the
shareholder elects to receive such dividends in cash. The net investment
income of the Fund for dividend purposes consists of interest and dividends
earned on portfolio securities, less expenses, in each case computed since the
most recent determination of net asset value. Expenses of the Fund, including
the advisory fee and any account maintenance and/or distribution fees (if
applicable), are accrued daily. Shares will accrue dividends as long as they
are issued and outstanding. 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 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 "Additional
Information--Determination of Net Asset Value." Shares are issued and
outstanding as of the settlement date of a purchase order to the settlement
date of a redemption order.
In order to avoid a four percent nondeductible excise tax, a regulated
investment company must distribute to its shareholders during the calendar year
an amount equal to 98 percent of the Fund's investment company income, with
certain adjustments, for such calendar year, plus 98 percent of the Fund's
capital gain net income for the one-year period ending on October 31 of such
calendar year. All net realized long-or short-term capital gains of the Fund,
if any, are declared and distributed to the shareholders of the Fund annually
after the close of the Fund's fiscal year.
See "Shareholder Services--Automatic Reinvestment of Dividends and Capital
Gain Distributions" for information concerning the manner in which dividends
and distributions may be automatically reinvested 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 discussed below whether they are reinvested in shares or
received in cash.
FEDERAL INCOME TAXES
The Fund has in the past elected the special tax treatment afforded
regulated investment companies under the Code. The Fund believes that it has
qualified for such treatment and intends to continue to qualify therefor. If
it so qualifies, the Fund (but not its shareholders) will be relieved of
federal income tax on the amount it distributes to Class A, Class B, Class C
and Class D shareholders (together, the "shareholders"). If in any taxable
year the Fund does not qualify as a regulated investment company, all of its
taxable income will be taxed at corporate rates.
The Fund contemplates declaring as dividends substantially all of its net
investment income. See "Dividends and Distributions." Dividends paid by the
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Fund from its investment income and distributions of its net realized
short-term capital gains are taxable to shareholders as ordinary income.
Distributions made from net realized long-term capital gains are taxable to
shareholders as long-term capital gains. Dividends and distributions will be
taxable to shareholders as ordinary income or capital gains, whether received
in cash or reinvested in additional shares of the Fund. The maximum tax rate
imposed on capital gains for individual taxpayers is 28 percent. Merrill Lynch
Financial Data Services, Inc., the Fund's transfer agent, will send each
shareholder a monthly dividend statement which will include the amount of
dividends paid and identify whether such dividends represent ordinary income or
capital gains.
Upon sale or exchange of shares of the Fund, a shareholder will realize
short- or long-term capital gain or loss, depending upon the shareholder's
holding period in the shares. However, if a shareholder's holding period in
his shares is six months or less, any capital loss realized from a sale or
exchange of such shares must be treated as long-term capital loss to the extent
of capital gains dividends received with respect to such shares.
The Fund may recognize interest attributable to it from holding zero
coupon securities. Current federal law requires that, for most zero coupon
securities, the Fund must accrue a portion of the discount at which the
security was purchased as income each year even though the Fund receives no
interest payment in cash on the security during the year. The Fund must pay
out substantially all of its net investment income each year. Accordingly, the
Fund may be required to pay out as an income distribution each year an amount
which is greater than the total amount of cash interest it actually received.
Such distributions will be made from the cash assets of the Fund or by sales of
portfolio securities, if necessary. The Fund may realize a gain or loss from
such sales.
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 no certified taxpayer identification number is on file with the
Fund or who, to the Fund's knowledge, have furnished an incorrect number. An
investor when establishing an account must certify under penalty of perjury
that such number is correct and that he 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 into Class D shares. A shareholder's basis
in the Class D shares acquired will be the same as such shareholder's basis in
the Class B shares converted, and the holding period of the acquired Class D
shares will include the holding period for the converted Class B shares.
Dividends to shareholders who are nonresident aliens, trusts, estates,
partnerships or corporations may be subject to a 30% United States withholding
tax unless a reduced rate of withholding is provided under an applicable
treaty. Shareholders who are nonresident aliens or foreign entities are urged
to consult their own tax advisers concerning the applicability of the United
States withholding tax.
If a shareholder exercises his exchange privilege with respect to shares
of the Fund within 90 days after the date such shares were acquired to acquire
shares in or a second Fund ("New Fund"), then the loss, if any, recognized on
the exchange will be reduced (or the gain, if any, increased) to the extent the
load charge paid to the Fund reduces any load charge such shareholder would
have been required to pay on the acquisition of the New Fund shares in the
absence of the exchange privilege. Instead, such load charge will be treated
as an amount paid for the New Fund shares and will be included in the
shareholder's basis for such shares.
Under another provision of the Code, any dividend declared by the Fund to
shareholders of record in October, November, or December of any year and made
payable to shareholders of record in such a month will be deemed to have been
received on December 31 of such year if actually paid during the following
January.
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.
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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 Regulations promulgated thereunder. The Code and Regulations are
subject to change by legislative or administrative action either prospectively
or retroactively.
The Statement of Additional Information describes the effect of other
provisions of the Code on the Fund's shareholders.
Ordinary income and capital gains dividends may also be subject to state
and local taxes.
Investors are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, foreign, state or local taxes.
PORTFOLIO TRANSACTIONS
The Fund has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to policy
established by the Board of Trustees, the Investment Adviser is primarily
responsible for the portfolio decisions of the Fund and the placing of its
portfolio transactions. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Affiliated persons
of the Fund, including Merrill Lynch, may serve as its broker in
over-the-counter transactions conducted on an agency basis.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which
are designed to facilitate investment in its shares. Full details as to each
of such services and copies of the various plans described below can be
obtained from the Fund, the Distributor or Merrill Lynch. Certain of these
services are available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained with 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 purchase and the reinvestment of ordinary income and
long-term capital gain distributions. These statements will also show any
other activity in the account since the previous statement. Shareholders will
receive separate transaction confirmations for each purchase or sale
transaction other than automatic investment purchases and the reinvestments of
ordinary income dividends and long-term capital gain distributions. A
shareholder may make additions to his Investment Account at any time by
purchasing shares at the applicable public offering price either through a
securities dealer which has entered into a selected dealers agreement with the
Distributor or by mail directly to the Transfer Agent, acting as agent for the
Distributor.
Shareholders also may 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 opened
automatically, without charge, at the Transfer Agent. Shareholders considering
transferring their Class A or Class D shares from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class A or Class D shares are to be transferred will not take
delivery of shares of the 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
23
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<PAGE>
the brokerage firm for the benefit of the shareholder. Shareholders
considering transferring a tax-deferred retirement account such as an
individual retirement account from Merrill Lynch to another brokerage firm or
financial institution should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of shares of the Fund, a
shareholder must either redeem the shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement account at Merrill Lynch for
those shares.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B and Class D shares may be made to
an investor's Investment Account by prearranged charges of $50 or more to his
regular bank account. Investors who maintain CMA<reg-trade-mark> or
CBA<reg-trade-mark> accounts may arrange to have periodic investments made in
the Fund in their CMA<reg-trade-mark> or CBA<reg-trade-mark> accounts or in
certain related accounts in amounts of $100 or more through the
CMA<reg-trade-mark>/CBA<reg-trade-mark> Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested
automatically in full and fractional shares of the Fund at the net asset value
per share next determined on the ex-dividend date of such dividend or
distribution. A shareholder may at any time, by written notification to
Merrill Lynch if the shareholder's account is maintained with Merrill Lynch or
by written notification or by telephone (1-800-MER-FUND) to the Transfer Agent
if the shareholder's account is maintained with the Transfer Agent, elect to
have subsequent dividends or capital gains distributions, or both, 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 upon redemption of shares
issued as a result of the automatic reinvestment of dividends or capital gains
distributions.
SYSTEMATIC WITHDRAWAL PLANS
As described in further detail in the Statement of Additional
Information, a shareholder of Class A or Class D shares may elect to make
systematic withdrawals from his Investment Account with respect to any
Portfolio on either a monthly, bimonthly, quarterly, semiannual or annual basis
subject to certain conditions.
RETIREMENT PLANS
As described in further detail in the Statement of Additional
Information, eligible shareholders of the Fund may participate in a variety of
qualified employee benefit plans which are available from Merrill Lynch.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares 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 in accordance with the rules
of the Securities and Exchange Commission (the "Commission").
Under the Merrill Lynch Select Pricing<service-mark> System, Class A
shareholders may exchange Class A shares 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
24
<PAGE>
<PAGE>
exchange or is otherwise eligible to purchase Class A shares of the second
fund. If the Class A shareholder wants to exchange Class A shares for shares
of a second MLAM-advised mutual fund, and the shareholder does not hold Class A
shares of the second fund in his account at the time of the exchange and is not
otherwise eligible to acquire Class A shares of the second fund, the
shareholder will receive Class D shares of the second fund as a result of the
exchange. Class D shares also may be exchanged for Class A shares of a second
MLAM-advised mutual fund at any time as long as, at the time of the exchange,
the shareholder holds Class A shares of the second fund in the account in which
the exchange is made or is otherwise eligible to purchase Class A shares of the
second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the Class A or Class D shares being exchanged and the sales charge
payable at the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares will be exchangeable with shares of
the same class of other MLAM-advised mutual funds. Class C shares are
available only through the Exchange Privilege.
Shares 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. 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 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 CDSC schedule applicable to the Fund 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 exchange privilege is modified with respect to certain retirement
plans which participate in the MFA program. Such retirement plans may exchange
Class B, Class C or Class D shares that have been held for at least one year
for Class A shares of the same Fund on the basis of relative net asset values
in connection with the commencement of participation in the MFA program, I.E.,
no CDSC will apply. The one-year holding period does not apply to shares
acquired through reinvestment of dividends. Upon termination of participation
in the MFA program, Class A shares will be reexchanged for the class of shares
originally held. For purposes of computing any CDSC that may be payable upon
redemption of Class B or Class C shares so reacquired, or the Conversion Period
for Class B shares so acquired, the holding period for the Class A shares will
be "tacked" to the holding period for the Class B or Class C shares originally
held.
The Fund's exchange privilege is also modified with respect to purchases
of Class A and Class D shares by non-retirement plan investors 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.
25
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<PAGE>
MERRILL LYNCH BLUEPRINT<service-mark> PROGRAM
Class D shares of the Fund are offered to participants in the Merrill
Lynch Blueprint<service-mark> 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 or corporate IRAs and participants in certain affinity groups
such as benefit plans, credit unions and trade associations. Investors placing
orders to purchase Class A or Class D shares of the Fund through a Blueprint
account will acquire such Class A or Class D shares at a reduced sales charge
calculated in accordance with the standard Blueprint sales charge schedules.
Class B shares of the Fund are offered through Blueprint only to members of
certain affinity groups. The contingent deferred sales load will be waived in
connection with orders to purchase Class B shares of the Fund through Blueprint
provided that the shareholder is a participant in a qualified group plan at the
time of purchase. However, services available to Fund shareholders through
Blueprint may differ from those available to other Fund shareholders. Orders
for purchase and redemption of 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. There will be no
minimum initial or subsequent purchase requirement for participants who are
part of an automatic investment plan. Additional information concerning
placing orders to purchase through Blueprint, including any annual fees and
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The Blueprint<service-mark> Program, P.O. Box 30441, New
Brunswick, New Jersey 08989-0441.
PERFORMANCE DATA
From time to time the Fund may include the average annual total return
and yield of the Fund for various specified time periods in advertisements or
information furnished to present or prospective shareholders. Average annual
total return and yield are computed separately for the Class A, Class B, Class
C and Class D shares of the Fund in accordance with formulas 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 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 will be computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including any contingent deferred sales charge that
would be applicable to a complete redemption of the investment at the end of
the specified period such as in the case of Class B and Class C shares and the
maximum sales charge in the case of Class A and Class D shares.
Dividends paid by the Fund with respect to all shares, to the extent any
dividends are paid, will be calculated in the same manner at the same time on
the same day and will be in the same amount, except that account maintenance
fees and distribution charges and any incremental transfer agency costs
relating to each class of shares will be borne exclusively by that class. The
Fund will include performance data for all classes of shares in any
advertisement or information including performance data of the Fund.
The Fund also may quote its total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charge will not be included with respect to annual or annualized rate of return
calculations. Aside from the impact on the performance data calculations of
including or excluding the maximum applicable sales charge, 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 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 distributed to investors whose
purchases are subject to waiver of the CDSC in the case of Class B and Class C
shares (such as investors in certain retirement plans) or to reduced sales
charges in the case of Class A and Class D shares, performance data may take
into account the reduced, and not the maximum, sales charge or may not take
26
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<PAGE>
into account the contingent deferred sales charges and therefore may reflect
greater total return since, due to the reduced sales charges or waiver of the
contingent deferred sales charge, a lower amount of expenses is 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 such total return on a
hypothetical investment in the Fund at the beginning of each specified period.
Yield quotations will be computed based on a 30-day period by dividing
(a) the net income based on the yield to maturity of each security earned
during the period by (b) the average daily number of shares outstanding during
the period that were entitled to receive dividends multiplied by the maximum
offering price per share on the last day of the period. The yield for the
30-day period ended April 30, 1996 was %. In connection with its
reorganization on November 1, 1996, the Fund changed its investment objective
from investing only in assets which would permit shares of the Fund to qualify
both as "liquid assets" under the regulations of the Office of Thrift
Supervision and as an investment permitted by the regulations of the National
Credit Union Association to seeking the highest possible current income
consistent with the protection of capital afforded by investing in
intermediate-term debt securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities with a maximum maturity not to exceed fifteen
years and, depending upon market conditions, an average maturity of six to
eight years. For the period from the commencement of the Fund's operations
through its reorganization on November 1, 1996, the portfolio of the Fund has
consisted primarily of securities issued by the U.S. government and its
agencies and instrumentalities. The average maturity of the Fund's portfolio
during this period [(generally ranging from three to five years)] has been
somewhat shorter than the expected average maturity of the Fund of six to eight
years following the change in its investment objective upon its reorganization.
As a result, the financial information in the table below for operations of the
Fund prior to its reorganization may not be indicative of its performance
following its reorganization. Since Class A, Class B, Class C and Class D
shares have not been issued prior to the date of this Prospectus, yield
information concerning Class A, Class B, Class C and Class D shares is not yet
provided.
Total return and yield figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
total return and yield will vary depending on market conditions, the securities
held by the Fund, 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 the performance of the Fund to that of
the Standard & Poor's 500 Composite Stock Price Index, the Value Line Composite
Index, the Dow Jones Industrial Average, or performance data contained in
publications such as Lipper Analytical Services, Inc., Morningstar
Publications, Inc., Money Magazine, U.S. News & World Report, Business Week,
CDA Investment Technology, Inc., Forbes Magazine or Fortune Magazine. In
addition, from time to time the Fund may include the Fund's risk-adjusted
performance ratings assigned by Morningstar Publications, Inc. in advertising
or supplemental sales literature. As with other performance data, performance
comparisons should not be considered indicative of the Fund's relative
performance for any future period.
ADDITIONAL INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value of all classes of shares of the Fund is determined
once daily by MLAM immediately after the declaration of dividends as of 15
minutes after the close of business on the NYSE (generally 4:00 p.m., New York
City time) on each day during which the NYSE is open for trading and on any
other day on which there is sufficient trading in the Fund's portfolio
securities that net asset value might be materially affected but only if on any
such day the Fund is required to sell or redeem shares. The Fund's net asset
value per share is computed by dividing the sum of the value of the portfolio
securities held by the Fund plus any cash or other assets minus all liabilities
by the total number of shares outstanding at such time, rounded to the nearest
cent. Expenses, including the investment advisory fee payable to MLAM and any
27
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<PAGE>
account maintenance and/or distribution fees 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 per share net asset value of Class A shares generally will be higher
than the per share net asset value of Class B, Class C and Class D shares,
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 fee applicable
with respect to Class D shares. Moreover, the per share net asset value of
Class D shares generally will be higher than the per share net asset value of
the 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 four classes of shares eventually will tend to converge (although
not necessarily meet) immediately after the payment of dividends, which will
differ by approximately the amount of the expense accrual differentials between
the classes.
ORGANIZATION OF THE FUND
The Fund was organized as an unincorporated business trust under the laws
of Massachusetts under the name "Merrill Lynch Institutional Intermediate Fund"
on September 10, 1986. On November 1, 1996, the Fund was reorganized and
changed its name to "Merrill Lynch Intermediate Government Bond Fund." Its
executive offices are located at One Financial Center, Boston, Massachusetts
02111-2646 (telephone toll free 800-225-1576). Under the Declaration of Trust,
the Trustees are authorized to issue an indefinite number of shares of $0.10
par value of one or more classes, and the Trustees have designated four
classes: "Class A Common Stock," "Class B Common Stock," "Class C Common Stock"
and "Class D Common Stock." Each Class A, Class B, Class C and Class D share
of Common Stock has equal voting rights, and each such issued and outstanding
share is entitled to one vote and to participate equally in dividends and
distributions declared by the Fund and in net assets of the Fund upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities. The shares of the Fund, when issued, will be fully paid and non-
assessable, be freely transferable and have no preference, preemptive,
conversion or similar rights, except that the Class B, Class C and Class D
shares bear certain expenses related to the account maintenance fees 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 such account maintenance and distribution
expenditures, as applicable. See "Purchase of Shares." The Trustees are
authorized to divide or combine such shares into a greater or lesser number of
shares and to classify and reclassify the shares of the Fund into additional
classes of Common Stock at a future date. Shares of the Fund outstanding on
the date the Fund was reorganized were reclassified as Class D shares.
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
trustees. Shareholders may, in accordance with the Declaration of Trust, cause
a meeting of shareholders to be held for the purpose of voting on the removal
of Trustees. Meetings of the shareholders will be called upon written request
of shareholders holding in the aggregate not less than 10% of the outstanding
shares having voting rights. Except as set forth above, the Trustees will
continue to hold office and appoint successor trustees. Shares do not have
cumulative voting rights and the holders of more than 50% of the shares of the
Fund voting for the election of Trustees can elect all of the Trustees of the
Fund if they choose to do so and in such event the holders of the remaining
shares would not be able to elect any Trustees. Holders of shares of the Fund
are entitled to redeem their shares as set forth under "Redemption of Shares."
No amendment may be made to the Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the Fund.
The Declaration of Trust establishing the Fund, dated September 10, 1986,
a copy of which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name of the Fund refers to the trustees under the Declaration
collectively as trustees, but not as individuals or personally, and no trustee,
shareholder, officer, employee or agent of the Fund may be held to any personal
liability, nor may resort be had to their private property for the satisfaction
of any obligation or claim otherwise in connection with the affairs of the Fund
but the Fund's property only shall be liable.
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For further information concerning the organization of the Fund, see the
Statement of Additional Information.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, independent auditors, has been selected as the
independent auditors of the Fund.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, acts as
Custodian of the Fund's assets.
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), which is a wholly
owned subsidiary of Merrill Lynch & Co., Inc., 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, MLFDS is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
Pursuant to the Transfer Agency Agreement, FDS receives an annual fee of $11.00
per shareholder account for Class A and Class D shares of the Fund and $14.00
per shareholder account for Class B and Class C shares of the Fund and is
entitled to reimbursement for out-of-pocket expenses incurred by it under the
Transfer Agency Agreement.
LEGAL COUNSEL
Rogers & Wells, New York, New York, is counsel for the Fund and passes
upon legal matters for the Fund in connection with the shares offered by this
Prospectus.
REPORTS TO SHAREHOLDERS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
P.O. BOX 45289
JACKSONVILLE, FLORIDA 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and/or mutual fund account numbers. If you have any questions
regarding this please call your Merrill Lynch financial consultant or Merrill
Lynch Financial Data Services, Inc. at 800-637-3863.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information included in the
Registration Statement filed with the Commission under the Securities Act of
1933 and the Investment Company Act of 1940, with respect to the securities
offered hereby, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission.
To the knowledge of the Fund as of September 10, 1996, no entities owned
beneficially more than 5% of the Fund's outstanding shares other than:
International Meta Systems, Inc., 100 Norm Sepulveda Boulevard, Suite 601, El
Segundo, California 90245-4359, which owned 411,615 shares, representing 7.05%
of such outstanding shares; First Singles Church USA, Inc., 3812 Kirkwood
29
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<PAGE>
Avenue, Orange, California 92669-5350, which owned 414,537 shares, representing
7.10% of such outstanding shares; and American Cancer Society, Illinois
Division Inc., 77 East Monroe, Chicago, Illinois 60603-5700, which owned
334,250 shares, representing 5.72% of such outstanding shares.
The Statement of Additional Information, dated November 1, 1996, which
forms a part of the Registration Statement, is incorporated by reference into
this Prospectus. The Statement of Additional Information may be obtained
without charge as provided on the cover page of this Prospectus. The
Registration Statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
30
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[This page is intentionally left blank.]
31
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MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND-AUTHORIZATION FORM (PART 1)
____________________________________________________________________________
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
<square> Class A shares <square> Class B shares <square> Class D shares
of Merrill Lynch Intermediate Government Bond Fund and establish an Investment
Account as described in the Prospectus. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $____________ payable to Merrill Lynch
Financial Data Services, Inc. as an initial investment (minimum $1,000). I
understand that this purchase will be executed at the applicable offering
price next to be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds
that would qualify for the right of accumulation as outlined in the
Statement of Additional Information: (Please list all funds. Use a
separate sheet of paper if necessary.)
<TABLE>
<CAPTION>
<S> <C>
1........................................ 4....................................
2........................................ 5....................................
3........................................ 6....................................
Name___________________________________________________________________________
First Name Initial Last Name
Name of Co-Owner (if any)______________________________________________________
First Name Initial Last Name
Address___________________________ Name and Address of Employer________________
__________________________________ ____________________________________________
(Zip Code)
Occupation________________________ ____________________________________________
__________________________________ ____________________________________________
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(In The Case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
_______________________________________________________________________________
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
ORDINARY INCOME DIVIDENDS LONG-TERM CAPITAL GAINS
SELECT <square> Reinvest SELECT <square> Reinvest
ONE: <square> Cash ONE: <square> 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:
<square> Check or <square> 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 Intermediate Government Bond Fund Authorization
Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE) <square> checking <square> savings
Name on your account___________________________________________________________
Bank Name______________________ Bank Number______________ Account Number_______
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor_________________________________________________________
Signature of Depositor___________________________ Date_________________________
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
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MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND-AUTHORIZATION FORM
(PART 1)-(CONTINUED)
__________________________________________________________________
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
_________________________________________________
Social Security Number or Taxpayer Identification
Number
Under penalty of perjury, I certify (1) that the number set forth above
is my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed in the Prospectus
under "Distributions and Taxes-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 Intermediate Government Bond Fund 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:
<square> $100,000 <square> $250,000 <square> $500,000 <square> $1,000,000
Each purchase will be made at the then reduced offering price applicable
to the amount checked above, as described in the Merrill Lynch Intermediate
Government Bond Fund Prospectus.
I agree to the terms and conditions of the Letter of Intention. I
hereby irrevocably constitute and appoint Merrill Lynch Funds Distributor,
Inc., my attorney, with full power of substitution, to surrender for redemption
any or all shares of Merrill Lynch Intermediate Government Bond Fund held as
security.
<TABLE>
<CAPTION>
By
<S> <C>
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................................................
</TABLE>
________________________________________________________
5. FOR DEALER ONLY
Branch Office, Address, Stamp.
This form, when completed, should be mailed to:
Merrill Lynch Intermediate Government Bond Fund
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
We hereby authorize Merrill Lynch Funds Distributor,
Inc. to act as our agent in connection with
transactions under this authorization form and
agree to notify the Distributor of any purchases
or sales made under a Letter of Intention,
Automatic Investment Plan or Systematic
Withdrawal Plan. We guarantee the Shareholder's
signature.
.......................................................
Dealer Name and Address
By.....................................................
Authorized Signature of Dealer
___________ ___________ _____________
Branch-Code F/C No. F/C Last Name
____________ ___________
Dealer's Customer A/C No.
33
<PAGE>
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND-AUTHORIZATION FORM (PART 2)
____________________________________________________________________________
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
<TABLE>
<CAPTION>
<S> <C>
1. ACCOUNT REGISTRATION
Name of Owner........................................
Name of Co-Owner (if any)............................. .................................
Social Security Number
or Taxpayer Identification Number
Address............................................... Account Number....................
...................................................... (if existing account)
</TABLE>
_______________________________________________________________________________
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 <square> Class A or <square> Class D shares in Merrill Lynch
Intermediate Government Bond Fund at cost or current offering price.
Withdrawals to be made either (check one) <square> Monthly on the 24th day of
each month, or <square> Quarterly on the 24th day of March, June, September and
December. If the 24th falls on a weekend or holiday, the next succeeding
business day will be utilized. Begin systematic withdrawal on ____________ or
(month)
as soon as possible thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): <square>
$________ or <square> ________% of the current value of <square> Class A or
<square> Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: <square> check or <square> 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
<square> as indicated in Item 1.
<square> to the order of....................................................
Mail to (check one)
<square> the address indicated in Item 1.
<square> Name (Please Print)................................................
<TABLE>
<CAPTION>
<S> <C> <C>
Address .......................................................................
................................ ......................................
Signature of Owner Date
</TABLE>
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Specify type of account (check one): <square> checking <square> savings
<TABLE>
<CAPTION>
<S> <C> <C>
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)
</TABLE>
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
34
<PAGE>
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND--AUTHORIZATION FORM (PART
2)--(CONTINUED)
- - ----------------------------------------------------------------------------
1. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw
an automated clearing house ("ACH") debit on my checking account as described
below each month to purchase: (choose one)
<square> Class A shares <square> Class B shares <square> Class D shares
of Merrill Lynch Intermediate Government Bond Fund 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.
<TABLE>
<CAPTION>
<S> <C>
MERRILL LYNCH FINANCIAL DATA AUTHORIZATION TO HONOR ACH DEBITS
SERVICES, INC. DRAWN BY
MERRILL LYNCH FINANCIAL DATA
You are hereby authorized to draw an SERVICES, INC.
ACH debit each month on my bank
account for investment in Merrill To.............................Bank
Lynch Intermediate Government Bond (Investor's Bank)
Fund as indicated below:
Amount of each ACH debit Bank Address.......................
$.............................
Account Number................ City...... State..... Zip Code....
Please date and invest ACH debits on As a convenience to me, I hereby
the 20th of each month beginning . . request and authorize you to pay and
. . . . . . . . . (month) or as soon charge to my account ACH debits drawn
thereafter as possible. on my account by and payable to
Merrill Lynch Financial Data
I agree that you are drawing these Services, Inc. I agree that your
ACH debits voluntarily at my request rights in respect to each such debit
and that you shall not be liable for shall be the same as if it were a
any loss arising for any delay in check drawn on you and signed
preparing or failure to prepare any personally by me. This authority is
such debit. If I change banks or to remain in effect until revoked
desire to terminate or suspend this personally by me in writing. Until
program, I agree to notify you you receive such notice, you shall be
promptly in writing. I hereby fully protected in honoring any such
authorize you to take any action to debit. I further agree that if any
correct erroneous ACH debits of my such debit be dishonored, whether
bank account or purchases of fund with or without cause and whether
shares including liquidating shares intentionally or inadvertently, you
of the Fund and credit my bank shall be under no liability.
account. I further agree that if a
check or debit is not honored upon ........... ........................
presentation, Merrill Lynch Financial Date Signature of Depositor
Data Services, Inc. is authorized to
discontinue immediately the Automatic
Investment Plan and to liquidate ................... ...............
sufficient shares held in my account Bank Account Number Signature of
to offset the purchase made with the Depositor
dishonored debit. (If joint account,
both must sign)
........... ........................
Date Signature of Depositor
........................
Signature of Depositor
(If joint account, both
must sign)
</TABLE>
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
35
<PAGE>
INVESTMENT ADVISER
Merrill Lynch Asset Management, L.P.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Rogers & Wells
200 Park Avenue
New York, New York 10166
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE [LOGO]
INVESTMENT ADVISER OR THE DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
<TABLE>
<CAPTION>
MERRILL LYNCH
TABLE OF CONTENTS INTERMEDIATE GOVERNMENT
BOND FUND
PAGE
<S> <C> <C>
Fee Table
Merrill Lynch Select Pricing<service-mark> System
Financial Highlights
Investment Objectives and Policies
Investment Adviser
Code of Ethics
Trustees
Purchase of Shares
Initial Sales Charge Alternatives-
Class A and Class D Shares
Deferred Sales Charge Alternatives-
Class B and Class C Shares
Distribution Plans
Limitations on the Payment of Deferred Sales
Charges
Redemption of Shares
Redemption
Repurchase
Reinstatement Privilege-
Class A and Class D Shares
Dividends, Distributions and Taxes PROSPECTUS
Dividends and Distributions
Federal Income Taxes
Portfolio Transactions November 1, 1996
Shareholder Services
Investment Account
Automatic Investment Plans Distributor:
Automatic Reinvestment of Dividends and Merrill Lynch
Capital Gains Distributions Funds Distributor, Inc.
Gains Distributions
Systematic Withdrawal Plans This prospectus should be
Retirement Plans retained for future reference.
Exchange Privilege
Merrill Lynch Blueprint<service-mark> Program
Performance Data
Additional Information
Determination of Net Asset Value
Organization of the Fund
Independent Auditors
Custodian
Transfer Agency Services
Legal Counsel
Reports to Shareholders
Additional Information
Authorization Form
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 1996.
STATEMENT OF ADDITIONAL INFORMATION
- - -----------------------------------
November 1, 1996
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011-PHONE NO. (609) 282-2800
Merrill Lynch Intermediate Government Bond Fund, Inc. (the "Fund") is a
diversified mutual fund. Pursuant to the Merrill Lynch Select
Pricing<service-mark> System, the Fund offers four classes of shares of Common
Stock, each with a different combination of sales charges, ongoing fees and
other features, except that Class C shares of the Fund are available only
through the Exchange Privilege. The Merrill Lynch Select Pricing<service-mark>
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 (the
"Prospectus") dated November 1, 1996, which has been filed with the Securities
and Exchange Commission and is available upon oral or written request without
charge. Copies of the Prospectus can be obtained by calling or by writing the
Fund at the above telephone number or address. This Statement of Additional
Information has been incorporated by reference into the Prospectus.
60
--------------------
MERRILL LYNCH ASSET MANAGEMENT - INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. - DISTRIBUTOR
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN
ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH STATE.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to seek the highest possible
current income consistent with the protection of capital afforded by investing
in intermediate-term debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities with a maximum maturity not to
exceed fifteen years. Under normal circumstances, all or substantially all of
the Fund's assets will be invested in such securities.
Reference is made to "Investment Objectives and Policies" on page 9 of
the Prospectus for a discussion of the investment objectives and policies of
the Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities (which for this purpose and under the Investment Company Act
of 1940 means the lesser of (i) 67% of the shares represented at a meeting at
which more than 50% of the outstanding shares are represented or (ii) more than
50% of the outstanding shares).
Under the fundamental investment restrictions, the Fund may not:
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S. Government
and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which invest
in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances, repurchase agreements or any similar instruments
shall not be deemed to be the making of a loan, and except further that the
Fund may lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law and the
guidelines set forth in the Fund's Prospectus and Statement of Additional
Information, as they may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3 % of its total
assets (including the amount borrowed), (ii) the Fund may, to the extent
permitted by applicable law, borrow up to an additional 5% of its total assets
for temporary purposes (currently, Ohio regulations prohibit any borrowing in
excess of 33 1/3 of the Fund's total assets), (iii) the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities and (iv) the Fund may purchase securities on margin to
the extent permitted by applicable law. The Fund may not pledge its assets
other than to secure such borrowings or, to the extent permitted by the Fund's
investment policies as set forth in its Prospectus and Statement of Additional
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
2
<PAGE>
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 investment 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. The Fund currently does not intend
to engage in short sales, except short sales "against the box."
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of acquisition
more than 15% of its total assets would be invested in such securities. This
restriction shall not apply to securities which mature within seven days or
securities which the Board of Trustees 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).
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 net assets; included within such limitation, but not to exceed 2% of
the Fund's net assets, are warrants which are not listed on the New York Stock
Exchange (the "NYSE") 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 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.
f. Purchase or retain the securities of any issuer, if those
individual officers and Trustees 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 investment restriction (7) above, the
Fund will not borrow amounts in excess of 5% of the total assets of the Fund,
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 are
outstanding.
3
<PAGE>
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving Merrill Lynch except pursuant to an
exemptive order or otherwise in compliance with the provisions of the
Investment Company Act of 1940 and the rules and regulations thereunder.
Included among such restricted transactions are (i) purchases from or sales to
Merrill Lynch of securities in transactions in which Merrill Lynch acts as
principal, and (ii) purchases of securities from underwriting syndicates of
which Merrill Lynch is a member.
LENDING OF PORTFOLIO SECURITIES. Subject to investment restriction (5)
above, the Fund from time to time may lend securities from its portfolio to
brokers, dealers and financial institutions and receive as collateral cash or
United States Treasury securities which at all times while the loan is
outstanding will be maintained in amounts equal to at least 100% of the current
market value of the loaned securities. Any cash collateral will be invested in
short-term securities, which will increase the current income of the Portfolio
making the loan. Such loans, which will not have terms longer than 30 days,
will be terminable at any time. The Fund will have the right to regain record
ownership of loaned securities to exercise beneficial rights such as voting
rights, subscription rights and rights of dividends, interest or other
distributions. The Fund may pay reasonable fees to persons unaffiliated with
the Fund for services in arranging such loans. In the event of a default by
the borrower, the Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral.
FORWARD COMMITMENTS. U.S. Government securities and corporate debt
obligations may be purchased on a forward commitment basis at fixed purchase
terms with periods of up to 45 days between the commitment and settlement
dates. The purchase will be recorded on the date the Fund enters into the
commitment and the value of the security will thereafter be reflected in the
calculation of the Fund's net asset value. The value of the security on the
delivery date may be more or less than its purchase price. A separate account
of the Fund will be established with the Custodian consisting of cash or liquid
high grade debt obligations having a market value at all times until the
delivery date at least equal to the amount of the forward commitment. Although
the Fund will generally enter into forward commitments with the intention of
acquiring securities for its portfolio, the Fund may dispose of a commitment
prior to settlement if the Investment Adviser deems it appropriate to do so.
There can, of course, be no assurance that the judgments upon which these
techniques are based will be accurate or that such techniques when applied will
be effective. The Fund will enter into forward commitment arrangements only
with respect to securities in which it may otherwise invest as described under
"Investment Objectives and Policies."
REPURCHASE AGREEMENTS. As described in the Prospectus, the Fund may
invest in securities pursuant to repurchase agreements. Under such agreements,
the seller agrees, upon entering into the contract, to repurchase the security
at a mutually agreed upon time and price, thereby determining the yield during
the term of the agreement. This results in a fixed rate of return insulated
from market fluctuations during such period. Such agreements usually cover
short periods, such as under one week. Repurchase agreements may be construed
to be collateralized loans by the purchaser to the seller secured by the
securities transferred to the purchaser. The Fund will require the seller to
provide additional collateral if the market value of the securities falls below
the repurchase price at any time during the term of the repurchase agreement.
In the event of default by the seller under a repurchase agreement construed to
be a collateralized loan, the underlying securities are not owned by the Fund
but only constitute collateral for the seller's obligation to pay the
repurchase price. Therefore, the Fund may suffer time delays and incur costs
or possible losses in connection with the disposition of the collateral.
Instead of the contractual fixed rate of return, the rate of return to the Fund
will be dependent upon intervening fluctuations of the market value of such
security and the accrued interest on the security. In such event, the Fund
would have rights against the seller for breach of contract with respect to any
losses arising from market fluctuations following the failure of the seller to
perform. From time to time, the Fund also may invest in securities pursuant to
purchase and sale contracts. While the substance of purchase and sale
contracts is similar to repurchase agreements, because of the different
treatment with respect to accrued interest and additional collateral,
management believes that purchase and sale contracts are not repurchase
agreements as such term is understood in the banking and brokerage community.
As a matter of operating policy, the Fund will not enter into repurchase
agreements or purchase and sale contracts with greater than seven days to
maturity if, at the time of such investment, more than 10% of the total assets
of a Portfolio would be so invested.
4
<PAGE>
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund, their ages, principal occupations
for at least the last five years and the public companies for which they serve
as directors are set forth below. Unless otherwise stated, the address of each
Trustee and officer is One Financial Center, Boston, Massachusetts 02111-2646.
ROBERT W. CROOK (60)-PRESIDENT AND TRUSTEE(1)(2)-Senior Vice President of
MLAM and of MLFD since 1990 and Vice President of MLAM and MLFD prior thereto.
A. BRUCE BRACKENRIDGE (66)-TRUSTEE(2)-9 Elm Lane, Bronxville, New York
10708. Group Executive of J.P. Morgan & Co., Inc. (banking) and Morgan
Guaranty Trust Company from 1979 to 1991 and an employee of J.P. Morgan in
various capacities from 1952 to 1991.
CHARLES C. CABOT, JR. (66)-TRUSTEE(2)-One Post Office Square, Boston,
Massachusetts 02119. Partner of the law firm Sullivan & Worcester and
associated with that firm since 1966.
JAMES T. FLYNN (57)-TRUSTEE(2)-340 East 72nd Street, New York, New York
10021. Chief Financial Officer of J.P. Morgan & Co., Inc. from 1990 to 1995
and an employee of J.P. Morgan in various capacities from 1967 to 1995.
TERRY K. GLENN (55)-TRUSTEE(1)(2)-P.O. Box 9011, Princeton, New Jersey
08543-9011. Executive Vice President of MLAM and FAM since 1983; Executive
Vice President and Director of Princeton Services, Inc. since 1993; President
of MLFD since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
GEORGE W. HOLBROOK, JR. (65)-TRUSTEE(2)-107 John Street, Southport,
Connecticut 06490. Managing Partner of Bradley Resources Company (private
investment company) and associated with that firm and its predecessors since
1953; Director of Canyon Resources Corporation (mineral exploration company).
W. CARL KESTER (44)-TRUSTEE(2)-Harvard Business School, Morgan Hall, 393
Soldiers Field, Boston, Massachusetts 02163. MBA Class of 1958 Professor of
Business Administration of Harvard University Graduate School of Business
Administration since 1981; Independent Consultant since 1978.
WILLIAM E. ALDRICH (62)-EXECUTIVE VICE PRESIDENT(2)-Vice President of
MLAM since 1993; Senior Vice President of MLFD since 1990; Vice President of
MLFD prior thereto and a Vice President of FAM since 1981.
MICHAEL J. BRADY (37)-SENIOR VICE PRESIDENT(2)-Vice President of MLAM
since 1993; Vice President of MLFD since 1990 and an employee of MLFD prior
thereto.
WILLIAM M. BREEN (41)-SENIOR VICE PRESIDENT AND ASSISTANT
TREASURER(2)-Vice President of MLAM since 1993 and Vice President of MLFD since
1990 and Assistant Vice President of MLFD prior thereto.
JAMES J. FATSEAS (40)-SENIOR VICE PRESIDENT(2)-Vice President of MLAM
since 1993; Vice President of MLFD since 1990 and Assistant Vice President of
MLFD prior thereto.
N. JOHN HEWITT (61)-SENIOR VICE PRESIDENT(2)-P.O. Box 9011, Princeton,
New Jersey 08543-9011. Senior Vice President of Princeton Services, Inc. since
1993; Senior Vice President of MLAM and FAM since 1980.
WILLIAM WASEL (37)-SENIOR VICE PRESIDENT(2)-Vice President of MLAM since
1990 and Assistant Vice President of MLFD prior thereto.
5
<PAGE>
KAREN D. BARBATO (32)-VICE PRESIDENT(2)-Employee of MLFD since 1982.
DONALD C. BURKE (36)-VICE PRESIDENT(2)-P.O. Box 9011, Princeton, New
Jersey 08543-9011. Vice President of MLAM since 1990; employee of Deloitte &
Touche LLP from 1982 to 1990.
ANN CATLIN (35)-VICE PRESIDENT(2)-Employee of MLFD since 1986.
CHARLES O. DALY (61)-VICE PRESIDENT(2)-Employee of MLFD since 1981.
DIANA FRANKLAND (61)-VICE PRESIDENT(2)-Employee of MLFD since 1979.
JAY C. HARBECK (61)-VICE PRESIDENT(2)-P.O. Box 9011, Princeton, New
Jersey 08543-9011. Vice President of MLAM since 1986.
MARK E. MAGUIRE (36)-VICE PRESIDENT(2)-Assistant Vice President of MLFD
since 1990 and an employee of MLFD since 1986.
PATRICIA A. SCHENA (38)-VICE PRESIDENT(2)-Employee of MLFD since 1980.
BARRY F. X. SMITH (31)-VICE PRESIDENT(2)-Employee of MLFD since 1987.
DIANNE F. MCDONOUGH (35)-VICE PRESIDENT(2)-Employee of MLFD since 1983.
GERALD M. RICHARD (47)-TREASURER(2)-P.O. Box 9011, Princeton, New Jersey
08543-9011. Senior Vice President and Treasurer of MLAM and FAM since 1984;
Vice President and Treasurer of MLFD since 1981; Senior Vice President and
Treasurer of Princeton Administrators, Inc. since 1988; Senior Vice President
of Princeton Services, Inc.
JERRY WEISS (38)-SECRETARY(1)-P.O. Box 9011, Princeton, New Jersey 08543-
9011. Vice President of MLAM since 1990 and an attorney in private practice
prior thereto.
____________
<FN>
(1) These Trustees may be deemed to be "interested persons" of the Fund as
that term is defined in the Investment Company Act of 1940. Mr. Crook
and Mr. Glenn are officers of MLFD and MLAM.
(2) Director/trustee or officer of certain other investment companies for
which FAM or MLAM acts as investment adviser.
6
<PAGE>
Set forth below is a chart showing the aggregate compensation paid by the
Fund to each of its Trustees, as well as the total compensation paid to each
Trustee of the Fund by the Fund and by other investment companies advised by
the Investment Adviser or MLAM (collectively, the "Fund Complex") for their
services as Directors or Trustees of such investment companies.
</TABLE>
<TABLE>
<CAPTION>
PENSION OR AGGREGATE COMPENSATION
RETIREMENT BENEFITS FROM FUND AND
COMPENSATION ACCRUED AS PART FAM/MLAM ADVISED FUNDS
NAME OF TRUSTEE FROM FUND OF FUND EXPENSES PAID TO TRUSTEES
- - --------------- ------------- ------------------- ----------------------
<S> <C> <C> <C>
A. Bruce Brackenridge<F1> $6,000 None $30,000
Charles C. Cabot, Jr.<F1> 6,000 None 30,000
James T. Flynn<F1,F2> 0 None 0
Todd Goodwin<F1> 6,000 None 30,000
George W. Holbrook<F1> 6,000 None 30,000
W. Carl Kester<F1,F3> 0 None 7,500
Note: Mr. Goodwin resigned from the Board of Trustees on December 11, 1995.
- - ----------------
<FN>
(1)The Trustees served on the boards of other MLAM-advised Funds as follows: A. Bruce Brackenridge (5 funds and
portfolios),Charles C. Cabot, Jr. (5 funds and portfolios), James T. Flynn (5 funds and portfolios), Todd
Goodwin (5 funds and portfolios), George W. Holbrook (5 funds and portfolios) and W. Carl Kester (5 funds and
portfolios).
(2)Mr. Flynn became a Trustee in June, 1996.
(3)Mr. Kester became a Trustee in December, 1995.
</TABLE>
At September 1, 1996, the officers and trustees of the Fund as a group
(twenty-four persons) owned an aggregate of less than 1/4 of 1% of the
outstanding shares of common stock of Merrill Lynch & Co., Inc. and owned less
than one percent of the outstanding shares of the Fund.
The trustees have an Audit and Nominating Committee, the members of which
are Messrs. Brackenridge, Cabot, Flynn, Holbrook and Kester.
Each Trustee who is not an officer or employee of Merrill Lynch & Co.,
Inc. or its subsidiaries will be paid $6,000 annually in his capacity as
Trustee. All Trustees will be reimbursed for any expenses incurred in
attending meetings of the Board of Trustees of the Fund or of any committee
thereof. No officer or employee of Merrill Lynch & Co., Inc. or its
subsidiaries will receive any compensation from the Fund for acting as a
Trustee or officer of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund" in the Prospectus for
certain information concerning the management and advisory arrangements of the
Fund.
Pursuant to the terms of the Investment Advisory Agreement, the
Investment Adviser, subject to the general supervision of the Trustees of the
Fund and in conformance with the stated policies of the Fund, renders
investment supervisory and administrative services to the Fund. In this
regard, it is the responsibility of the Investment Adviser to make investment
decisions for the Fund and to place the purchase and sale orders for the
portfolio transactions of the Fund. In addition the Investment Adviser
performs, or supervises the performance of, administrative services in
connection with the Fund, including (i) supervision of all aspects of the
Fund's administration and operations, including processing services related to
the purchase and redemption of Fund shares, the general handling of shareholder
relations, and portfolio management; (ii) providing the Fund, at the Investment
Adviser's expense, with the services of persons competent to perform such
administrative and clerical functions as are necessary in order to provide
effective administration of the Fund; and (iii) providing the Fund, at the
Investment Adviser's expense, with adequate office space and related services.
The Investment Adviser may arrange for the provision of these administrative
services and functions by MLFD or another affiliate of Merrill Lynch & Co.,
Inc.
7
<PAGE>
The Investment Advisory Agreement obligates the Investment Adviser to pay
all compensation of and furnish office space for officers and employees of the
Fund connected with investment and economic research, trading and investment
management of the Fund, as well as compensation of all Trustees of the Fund who
are affiliated persons of Merrill Lynch & Co., Inc. or any of its subsidiaries.
The Fund pays all other expenses incurred in the operation of the Fund
including, among other things, taxes, expenses for legal and auditing services,
costs of printing proxies, stock certificates, shareholder reports,
prospectuses and statements of additional information (except to the extent
paid by the Distributor), charges of the custodian and the transfer agent,
expenses of redemption of shares, Securities and Exchange Commission fees,
expenses of registering the shares under Federal and state securities laws,
fees and expenses of unaffiliated trustees, accounting and pricing costs
(including the daily calculation of net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Fund. Accounting services are
provided for the Fund by the Investment Adviser, and the Fund reimburses the
Investment Adviser for its costs in connection with those services. MLFD pays
certain of the expenses of the Fund in connection with the continuous offering
of Fund shares. See "Purchase of Shares" in the Prospectus. Certain
distribution expenses will be financed by the Fund pursuant to the Distribution
Plans in compliance with Rule 12b-1 under the Investment Company Act of 1940.
See "Distributor."
As compensation for the services rendered under the Investment Advisory
Agreement, the Fund pays the Investment Adviser a fee, payable monthly, at an
annual rate of 0.40% of the Fund's average daily net assets. For the fiscal
years ended October 31, 1994 and 1995, the Fund paid investment advisory fees
of $431,597 and $271,378, respectively. The Investment Adviser has agreed
that, in the event the operating expenses of the Fund (including the fees
payable to the Investment Adviser but excluding taxes, interest, brokerage and
extraordinary expenses), for any fiscal year ending on a date on which the
Investment Advisory Agreement is in effect, exceed the expense limitations
applicable to the Fund imposed by state securities laws or any published
regulations thereunder, it will reduce its fee by the extent of such excess
and, if required pursuant to any such laws or regulations, will reimburse the
Fund in the amount of such excess. The State of California imposes limitations
on the expenses of the Fund. These expense limitations require that the
Investment Adviser reimburse the Fund in an amount necessary to prevent the
Fund's aggregate ordinary operating expenses (excluding interest, taxes,
brokerage fees and commissions and extraordinary charges such as litigation
costs) from exceeding in any fiscal year 2.5% of the Fund's first $30 million
of average net assets, 2.0% of the Fund's next $70 million of average net
assets and 1.5% of the Fund's average net assets in excess of $100 million. No
fee payment will be made to the Investment Adviser during any fiscal year which
will cause such expenses to exceed the pro rata expense limitation at the time
of such payment. For the fiscal years ended October 31, 1994 and 1995, no
reimbursement was necessary. Effective January 1, 1997, provided certain
conditions are met, the State of California will exempt securities issued by
registered open-end investment companies from registration in California and
this expense limitation will no longer apply to such open-end investment
companies.
The Investment Advisory Agreement is effective as of October 31, 1986
and, unless earlier terminated as described below, will continue in effect from
year to year if approved annually (a) by the Board of Trustees of the Fund or
by a majority of the outstanding shares of the Fund, and (b) by a majority of
the trustees who are not parties to that contract or interested persons (as
defined in the Investment Company Act of 1940) of any such party. The
Investment Advisory Agreement will terminate automatically upon its assignment
and is terminable at any time without penalty by the trustees of the Fund or by
a vote of a majority of the Fund's outstanding shares (as defined under
"Investment Restrictions" herein) or by the Investment Adviser on 60 days'
written notice to the other party. The Investment Advisory Agreement was last
renewed by the Fund's Board of Trustees on September 9, 1996.
The investment advisory services of the Investment Adviser to the Fund
are not exclusive under the terms of the Investment Advisory Agreement and the
Investment Adviser is also free to, and does, render such services to others.
TRANSFER AGENCY SERVICES ARRANGEMENTS
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), which is a wholly
owned subsidiary of Merrill Lynch & Co., Inc., serves as transfer agent to the
Fund pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder
8
<PAGE>
Servicing Agency Agreement (the "Transfer Agency Agreement"). MLFDS receives a
fee of $11.00 per shareholder account for Class A or Class D shares of the Fund
and a fee of $14.00 per shareholder account for Class B or Class C shares of
the Fund.
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information--Determination of Net Asset
Value" on page 28 of the Prospectus. The net asset value of the shares of the
Fund is determined once daily by MLAM immediately after the declaration of
dividends as of 15 minutes after the close of business on the NYSE (generally
4:00 p.m., New York City time) on days that the NYSE is open for business and
on any other day on which there is sufficient trading in the Fund's portfolio
securities that net asset value might be materially affected but only if on any
such day the Fund is required to sell or redeem shares. The NYSE is not open
for business on the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of the Fund is computed by
dividing the sum of the value of the securities held by the Fund plus any cash
or other assets minus all liabilities by the total number of shares of the Fund
outstanding at such time, rounded to the nearest cent. Expenses, including the
investment advisory fee payable to MLAM and any account maintenance and/or
distribution fees payable to the Distributor, are accrued daily.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of the other classes, reflecting
the daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares and
the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; 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 between the classes.
Portfolio securities traded in the over-the-counter market are valued at
the last available bid price or yield equivalent as obtained from dealers who
make a market in the securities. Securities with remaining maturities of sixty
days or less 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 Trustees of the Fund.
PORTFOLIO TRANSACTIONS
Reference is made to "Portfolio Transactions" in the Prospectus.
The obligations in which the Fund invests are traded primarily in the
over-the-counter market but may be traded on an exchange. Where possible, the
Fund will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their
own account. On occasion, securities may be purchased directly from the
issuer. The cost of executing portfolio transactions of the Fund will
primarily consist of dealer spreads and underwriting commissions.
Under the Investment Company Act of 1940, persons affiliated with the
Fund are prohibited from dealing with the Fund as a principal in the purchase
and sale of securities unless a permissive order allowing such transactions is
obtained from the Securities and Exchange Commission. Affiliated persons of
the Fund may serve as its broker in over-the-counter transactions conducted on
an agency basis. The Fund may not generally purchase securities from any
underwriting syndicate of which Merrill Lynch is a member.
9
<PAGE>
The Trustees of the Fund have considered the possibility of recapturing
for the benefit of the Fund brokerage commissions, dealer spreads and other
expenses of possible portfolio transactions, such as underwriting commissions,
by conducting such portfolio transactions through affiliated entities,
including Merrill Lynch. For example, brokerage commissions received by
Merrill Lynch could be offset against the management fee paid by the Fund to
the Investment Adviser. After considering all factors deemed relevant, the
Trustees made a determination not to seek such recapture. The Trustees will
consider this matter from time to time.
In placing orders, it is the policy of the Fund to obtain the best net
results taking into account such factors as price (including the applicable
dealer spread), the size, type and difficulty of the transaction involved, the
firm's general execution and operational facilities, the firm's risk in
positioning the securities involved and the firm's provision of supplemental
investment research (such as economic data and market forecasts). Information
so received will be in addition to and not in lieu of the services required to
be performed by the Investment Adviser under its 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. In some cases, the
Investment Adviser may use such supplemental research in providing investment
advice to its other investment advisory accounts. While the Investment Adviser
generally seeks reasonably competitive spreads or commissions, the Fund will
not necessarily be paying the lowest spread or commission available. [The
Fund's policy of investing in securities with intermediate maturities will
result in high portfolio turnover.]
Securities held by the Fund may also be held by or be appropriate
investments for other funds for which the Investment Adviser or its affiliates
act as an adviser or by investment advisory clients of the Investment Adviser.
Because of different objectives or other factors, a particular security may be
bought for one or more clients when one or more clients are selling the same
security. If purchases or sales of securities for the Fund or other funds for
which they act as investment adviser or for their advisory clients arise for
consideration at or about the same time, transactions in such securities will
be made, insofar as feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more
than one client of the Investment Adviser or its affiliates during the same
period may increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
PORTFOLIO TURNOVER
The Investment Adviser effects portfolio transactions without regard to
holding period if, in its judgment, such transactions are advisable in light of
a change in circumstances in general market, economic or financial conditions.
As a result of its investment policies, the Fund may engage in a substantial
number of portfolio transactions. The portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of securities whose maturities at
the time of acquisition were one year or less) by the monthly average value of
the securities in the portfolio during the year. High portfolio turnover
involves correspondingly greater transaction costs in the form of dealer spread
and brokerage commissions, which are borne directly by the Fund, and may
increase the percentage of the Fund's distributions which are taxable to
shareholders as ordinary income. For the fiscal years ended October 31, 1994
and October 31, 1995, the Fund's portfolio turnover rates were 172.51% and
47.90%, respectively. See "Dividends, Distributions and Taxes."
PURCHASE OF SHARES
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing<service-mark> 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 represents an identical interest in
the same portfolio of investments of the Fund and has the same rights except
that Class B, Class C and Class D shares bear the expenses of the Class B,
Class C and Class D exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which the
distribution and/or account maintenance fees are paid. Each has different
exchange privileges. See "Shareholder Services--Exchange Privilege." Class C
shares are available only through the Exchange Privilege.
10
<PAGE>
ALTERNATIVE SALES ARRANGEMENTS
The alternative sales arrangements available for the Fund's shares permit
each investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold his shares and other relevant circumstances.
Investors should determine whether under their particular circumstances it is
more advantageous to incur an initial sales charge and not be subject to
ongoing charges, as discussed below, or to have the entire initial purchase
price invested in the Fund with the investment thereafter being subject to
ongoing charges.
The Merrill Lynch Select Pricing<service-mark> System is used by more
than 50 mutual funds advised by MLAM or its affiliate, the Investment Adviser.
Funds advised by MLAM or the Investment Adviser which utilize the Select
Pricing<service-mark> System are referred to herein as "MLAM-advised mutual
funds."
The Fund has entered into separate distribution agreements (the
"Distribution Agreements") with the Distributor in connection with the
continuous offering of each class of shares. The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the
offering of each class of shares of the Fund. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, the Distributor pays for the printing
and distribution of copies thereof used in connection with the offering to
dealers and investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to
the same renewal requirements and termination provisions as the Investment
Advisory Agreement described above.
INITIAL SALES CHARGE ALTERNATIVE-CLASS A AND CLASS D SHARES
REDUCED SALES CHARGES. As described generally in the Prospectus, a
reduced sales charge is available for any purchase of Class A or Class D shares
of the Fund in excess of $100,000. 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 (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Code) although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company," as that term is defined in the Investment Company Act, but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of shares of
the 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. The term "purchase" also includes purchases by employee benefit plans
not qualified under Section 401 of the Code, including purchases by employees
or by employers on behalf of employees, by means of a payroll deduction plan or
otherwise, of shares of the Fund. Purchases by such a company or non-
qualified employee benefit plan will qualify for the quantity discounts
discussed above only if the Fund and the Distributor are able to realize
economies of scale in sales effort and sales related expense by means of the
company, employer or plan making the Fund's Prospectus available to individual
investors or employees and forwarding investments by such persons to the Fund
and by any such employer or plan bearing the expense of any payroll deduction
plan.
RIGHT OF ACCUMULATION. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
Class A or Class D shares of the Fund subject to initial sales charge at the
offering price applicable to the total of (a) the public offering price of the
shares then being purchased plus (b) an amount equal to the then current net
asset value or cost, whichever is higher, of the purchaser's combined holdings
of all classes of shares of the Fund and of any other MLAM-advised mutual fund.
For any such right of accumulation to be made available the Distributor must be
provided at the time of purchase, by the purchaser or the purchaser's
securities dealer, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
11
<PAGE>
time. Shares held in the name of a nominee or custodian under pension,
profit-sharing or other employee benefit plans may not be combined with other
shares to qualify for the right of accumulation.
LETTER OF INTENTION. Reduced sales charges are applicable to purchases
through any dealer aggregating $100,000 or more of Class A shares of the Fund
or any other MLAM-advised mutual funds made within a 13-month period starting
with the first purchase pursuant to a Letter of Intention in the form provided
by the Distributor. The Letter of Intention is available only to investors
whose accounts are maintained at the Fund's Transfer Agent. 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's 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 or 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. The reduced sales charge
applicable to the amount covered by the Letter of Intention will be applied
only to new purchases. If the total amount of shares purchased does not equal
the amount stated in the Letter of Intention, the investor will be notified and
must pay, within 20 days of the expiration of such Letter, the difference
between the sales charge on Class A or Class D shares of the Fund 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). The first purchase under
the Letter of Intention must be five percent 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 Class A or Class D
shares of the Fund 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 in the Fund.
EMPLOYEE ACCESS ACCOUNTS<service-mark>. Class A or Class D shares are
offered at net asset value to Employee Access Accounts available through
qualified employers that provide employer-sponsored retirement or savings plans
that are eligible to purchase such shares at net asset value. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is
$50.
TMA<service-mark> MANAGED TRUSTS. Class A shares are offered to
TMA<service-mark> Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services at net asset value.
MERRILL LYNCH BLUEPRINT<service-mark> PROGRAM. Class D shares of the
Fund are offered to participants in the Merrill Lynch Blueprint<service-mark>
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 IRAs and
participants in certain affinity groups such as benefit plans, credit unions
and trade associations. Investors placing orders to purchase Class A or Class
D shares of the Fund through Blueprint will acquire such 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 $5,000 at .80%. Purchases of
$5,000.01 or more will be at the standard sales charge rate disclosed in the
Prospectus). In addition, Class D shares of the Fund are being offered at net
asset value plus a sales charge of 1/2 of 1% for participants in corporate or
group IRA programs placing orders to purchase their shares through Blueprint.
However, services (including the exchange privilege) available to Class A and
Class D shareholders through Blueprint may differ from those available to other
investors in Class A or Class D shares. Class A and Class D shares are offered
at net asset value to participants in the Merrill Lynch Blueprint<service-mark>
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. Orders for purchases and redemptions of Class A
12
<PAGE>
or Class D shares of the Fund may be grouped for execution purposes which, in
some circumstances, may involve the execution of such orders two business days
following the day such orders are placed. The minimum initial purchase price
is $100 with a $50 minimum for subsequent purchases through Blueprint. Minimum
initial or subsequent purchase requirements are waived in connection with
automatic investment plans for Blueprint participants. Additional information
concerning purchases through Blueprint, including any annual fees and
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The Blueprint<service-mark> Program, P.O. Box 30441, New
Brunswick, New Jersey 08989-0441.
PURCHASE PRIVILEGES OF CERTAIN PERSONS. Trustees of the Fund, directors
and trustees of other MLAM-advised investment companies, Merrill Lynch & Co.,
Inc. ("ML & Co.") and its subsidiaries (the term "subsidiaries," when used
herein with respect to ML & Co., includes MLAM, FAM and certain other entities
directly or indirectly wholly-owned and controlled by ML & Co.), and their
directors or employees, 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.
The shares of the Fund in existence prior to its reorganization on
November 1, 1996 have been reclassified as Class D shares. Although purchasers
of Class D shares generally will be subject to a 1% initial sales charge, those
shareholders of the Fund who have held shares of the Fund since prior to its
reorganization on November 1, 1996 will not be subject to any sales charge with
respect to either their reclassified Class D shares or any Class D shares that
they may purchase in the future.
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 MLAM who purchased such closed-end fund shares prior to October 21,
1994 (the date the Merrill Lynch Select Pricing<service-mark> System commenced
operations) and wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in Eligible Class A Shares of the Fund.
Alternatively, closed-end fund shareholders who purchased such shares on or
after October 21, 1994 and wish to reinvest the net proceeds from a sale of
their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other MLAM-advised mutual
funds ("Eligible Class D Shares"). In order to exercise this investment
option, closed-end fund shareholders must (i) sell their closed-end fund shares
through Merrill Lynch and reinvest the proceeds immediately in the Eligible
Class A or Class D Shares of the Fund, (ii) either have acquired the shares in
the closed-end fund's initial public offering or through reinvestment of
dividends earned on shares purchased in such offering, (iii) have maintained
their closed-end fund shares continuously in a Merrill Lynch account, and (iv)
purchase a minimum of $250 worth of Fund shares. Shareholders of certain MLAM-
advised continuously offered closed-end funds may reinvest at net asset value
the net proceeds from a sale of certain shares of common stock of such funds in
shares of the Fund. Upon exercise of this investment option, shareholders of
Merrill Lynch Senior Floating Rate Fund, Inc. will receive Class A shares of
the Fund and shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc. will receive Class D shares
of the Fund, except that shareholders already owning Class A shares of the Fund
will be eligible to purchase additional Class A shares pursuant to this option,
if such additional Class A shares will be held in the same account as the
existing Class A shares and the other requirements pertaining to the
reinvestment privilege are met. In order to exercise this investment option, a
shareholder of one of the above-referenced continuously offered closed-end
funds (an "eligible fund") must sell his or her shares of common stock of the
eligible fund (the "eligible shares") back to the fund in connection with a
tender offer conducted by the eligible fund and reinvest the proceeds
immediately in the designated class of shares of the Fund. This investment
option is available only with respect to eligible shares as to which no Early
Withdrawal Charge or CDSC (each as defined in the eligible fund's prospectus)
is applicable. Purchase orders from eligible fund shareholders wishing to
exercise this investment option will be accepted only on the day that the
related tender offer terminates and will be effected at the net asset value of
the designated class of the Fund on such day.
Class D shares of the Fund are offered at the 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 they will
purchase Class D shares of the Fund with proceeds from a redemption of such
13
<PAGE>
shares of other mutual funds and that such shares have been outstanding for a
period of no less than six 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. Second, such purchase of Class D shares must be made within 90 days
after such notice.
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 with proceeds from a redemption of shares of a
mutual fund that was sponsored by the financial consultant's previous firm and
imposed a sales charge either at the time of purchase or on a deferred basis.
Second, the investor also must establish that such redemption had been made
within 60 days prior to the investment in the Fund, and the proceeds from the
redemption had been maintained in the interim in cash or a money market fund.
Reductions in or exemptions from the imposition of a sales load are due
to the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investors.
ACQUISITION OF CERTAIN INVESTMENT COMPANIES. The public offering price
of Class D shares of the Fund 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 in appropriate cases be adjusted 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 PLAN
Reference is made to "Purchase of Shares-Deferred Sales Charge
Alternatives--Class B and Class C Shares--Distribution Plan" in the Prospectus
for certain information with respect to the separate distribution plans of the
Fund for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid or payable by the Fund to the
Distributor with respect to such classes. During the years ended October 31,
1994 and 1995, pursuant to the Fund's then existing distribution plan, the Fund
paid to the Distributor fees totalling $____________ and $101,765,
respectively.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act of
1940. Among other things, each Distribution Plan provides that the Distributor
shall provide and the Trustees 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
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Trustees 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 Trustees
who are not "interested persons" of the Fund, as defined in the Investment
Company Act of 1940 (the "Independent Trustees"), shall be committed to the
discretion of the Independent Trustees then in office. In approving each
Distribution Plan in accordance with Rule 12b-1, the Independent Trustees
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 Trustees or by the vote of the holders of a majority of the
outstanding related class of voting securities. A Distribution Plan cannot be
amended to increase materially the amount to be spent without the approval of
the related class of shareholders, and all material amendments are required to
be approved by the vote of Trustees, including a majority of the Independent
Trustees 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.
REDEMPTION OF SHARES
The right to redeem shares or to receive payment with respect to any
redemption may only be suspended for any period during which trading on the New
York Stock Exchange is restricted as determined by the SEC 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
SEC may by order permit for the protection of shareholders of the Fund.
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The value of shares at the time of redemption may be more or less than
the shareholder's cost, depending on the market value of the securities held by
the Fund at such time.
REPURCHASE
The Fund will normally accept orders to repurchase shares by wire or
telephone from dealers for their customers at the net asset value next computed
after receipt of the order by the dealer, 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 is received by the Fund from such
dealer not later than 30 minutes after the close of business on the New York
Stock Exchange (generally 4:00 p.m., New York City 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 City time), in order to obtain
that day's closing price.
For shareholders submitting their shares for repurchase through listed
securities dealers, payment for fractional shares will be made by the Transfer
Agent directly to the shareholder and payment for full shares will be made by
the securities dealer within seven days of the proper tender of the
certificates, if any, and stock power or letter requesting redemption, in each
instance with signatures guaranteed as noted in the Prospectus.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed Class A or Class D shares, including
redemption through repurchase by the Fund, have a one-time privilege to
reinstate their accounts by purchasing Class A or Class D shares, as the case
may be, at the net asset value of such shares without a sales charge up to the
dollar amount redeemed. The reinstatement privilege may be exercised as
follows. A notice to exercise this privilege along with a check for the amount
to be reinstated must be received by the Transfer Agent within 30 days after
the date the request for redemption was accepted by the Transfer Agent or the
Distributor. The reinstatement will be made at the net asset value per share
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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 shareholder only the first time
such shareholder makes a redemption. A redemption resulting in a gain is a
taxable event whether or not the reinstatement privilege is exercised. A
redemption resulting in a loss will not be a taxable event to the extent the
reinstatement privilege is exercised, and an adjustment will be made to the
shareholder's tax basis in shares acquired pursuant to the reinstatement to
reflect the disallowed loss.
If a shareholder disposes of shares within 90 days of their acquisition
and subsequently reacquires shares of the Fund pursuant to the reinstatement
privilege, then the shareholder's tax basis in those shares disposed of will be
reduced to the extent the load charge paid to the Fund upon the shareholder's
initial purchase reduces any load charge such shareholder would have been
required to pay on the subsequent acquisition in absence of the reinstatement
privilege. Instead, such load charge will be treated as an amount paid for the
subsequently acquired shares and will be included in the shareholder's tax
basis for such shares.
DEFERRED SALES CHARGE-CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares-Alternative Sale
Arrangements-Deferred Sales Charge Alternative-Class B and Class C Shares,"
while Class B shares redeemed within one year of purchase are subject to a
contingent deferred sales charge under most circumstances, the charge is waived
on redemptions of Class B shares in connection with certain post-retirement
withdrawals from an Individual Retirement Account ("IRA") or other retirement
plan or following the death or disability of a Class B shareholder.
Redemptions for which the waiver applies are: (a) any partial or complete
redemption in connection with a distribution following retirement under a tax-
deferred retirement plan or attaining age 59 1/2 in the case of an IRA or
other retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) or any
redemption resulting from the tax-free return of an excess contribution to an
IRA; or (b) any partial or complete redemption following the death or
disability (as defined in the 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. The CDSC is also waived for any Class B
shares that were acquired and held at the time of redemption by Employee Access
Accounts available through employers that provide Eligible 401(k) Plans. The
initial minimum for such accounts is $500, except that the initial minimum for
shares purchased for such accounts pursuant to the Automatic Investment Program
is $50.
MERRILL LYNCH BLUEPRINT<service-mark> PROGRAM. Class B shares are
offered to certain participants in the Merrill Lynch Blueprint<service-mark>
Program ("Blueprint"). Blueprint is directed to small investors and
participants in certain affinity groups such as trade associations and credit
unions. Class B shares are offered through Blueprint only to members of
certain affinity groups. The contingent deferred sales charge is waived for
shareholders who are members of certain affinity groups at the time orders to
purchase Class B shares are placed through Blueprint. However, services
(including the exchange privilege) available to Class B shareholders through
Blueprint may differ from those available to other Class B investors. Orders
for purchases and redemptions of Class B shares 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. Minimum investment amounts are waived in connection with
automatic investment plans for Blueprint participants. Additional information
concerning these Blueprint programs, including any annual fees or transaction
charges, is available from Merrill Lynch, Pierce, Fenner & Smith Incorporated,
The Blueprint<service-mark> Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Reference is made to "Dividends, Distributions and Taxes" on page 47 of
the Prospectus.
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FEDERAL INCOME TAXES
The Fund intends to qualify as a regulated investment company under
certain provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). Under such provisions, the Fund will not be subject to federal income
tax on such part of its ordinary income and net realized capital gains which it
distributes to Class A, Class B, Class C and Class D shareholders. To qualify
for treatment as a regulated investment company, the Fund must, among other
things, derive in each taxable year at least 90% of its gross income from
dividends, interest and gains from the sale or other disposition of securities
and derive less than 30% of its gross income each taxable year from gains
(without deduction for losses) from the sale or other disposition of stocks,
securities and certain options, futures or forward contracts held for less than
three months. If in any taxable year the Fund does not qualify as a regulated
investment company, all its taxable income will be taxed to the Fund at
corporate rates.
Dividends will be taxable to shareholders as ordinary income, except for
(a) such portion as may exceed a shareholder's ratable share of the Fund's
earnings and profits as determined for tax purposes (which may differ from net
income for book purposes), which excess will be applied against and reduce the
shareholder's cost or other tax basis for his shares and (b) amounts
representing distributions of realized net long-term capital gains, if any. If
the amount described in (a) above were to exceed the shareholder's tax basis
for his shares, the excess over basis would be treated as gain from the sale or
exchange of such shares. The excess of any net long-term capital gains over
net short-term capital losses realized by the Fund will, to the extent
distributed by the Fund, be taxable to shareholders as long-term capital gains
regardless of the length of time a particular shareholder may have held his
shares in the Fund. The maximum tax rate imposed on capital gains for
individual taxpayers is 28 percent. Dividends and distributions are taxable as
described, whether received in cash or reinvested in additional shares of the
Fund.
Some shareholders may be subject to a 31% withholding tax on reportable
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 or who, to the Fund's knowledge, have furnished an incorrect number.
When establishing an account, an investor must certify under penalties of
perjury that such number is correct and that he 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.
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 imposes a 4% nondeductible excise tax on a regulated investment
company, such as the Fund, if it does not distribute to its shareholders during
the calendar year an amount equal to 98 percent of the Fund's investment
company income, with certain adjustments, for such calendar year, plus 98
percent of the Fund's capital gain net income for the one-year period ending on
October 31, of such calendar year. In addition, an amount equal to any
undistributed investment company taxable income or capital gain net income from
the previous calendar year must also be distributed to avoid the excise tax.
While the Fund intends to distribute its income and capital gains in the manner
necessary to avoid imposition of the 4% excise tax, there can be no assurance
that sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. The excise tax is
imposed on the amount by which the regulated investment company does not meet
the foregoing distribution requirements.
Only dividends paid by the Fund which are attributable to dividends
received by the Fund will qualify for the 70% dividends-received deduction for
corporations. In addition, corporate shareholders must have held their shares
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in the Fund for more than 45 days to qualify for the deduction on dividends
paid by the Fund. Because most of the Fund's income will be interest income,
rather than dividends on common or preferred stock, it is unlikely that any
substantial proportion of its distributions will be eligible for the
dividends-received deduction available for corporations under the Code.
At October 31, 1996, the Fund had a net capital loss carry-forward of
approximately $24,029,000 ($8,336,000 expires in 1996, $5,830,000 expires in
1997, $4,643,000 expires in 1998, $3,224,000 expires in 2002, and $1,996,000
expires in 2003), which will be available to offset like amounts of any future
taxable gains.
Dividends to shareholders who are nonresident aliens, trusts, estates,
partnerships or corporations may be subject to a 30% United States withholding
tax unless a reduced rate of withholding is provided under an applicable tax
treaty. Shareholders who are nonresident aliens or foreign entities are urged
to consult their own tax advisers concerning the applicability of the United
States withholding tax.
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 sections of the
Code and the Treasury Regulations promulgated thereunder. The Code and
Regulations are subject to change by legislative or administrative action.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which
are designed to facilitate investment in its shares. Full details as to each
of such services and copies of the various plans described below can be
obtained from the Fund, the Distributor or Merrill Lynch. Certain of these
services are available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gains distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gains
distributions. A shareholder may make additions to his Investment Account at
any time by mailing a check directly to the Fund's transfer agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Fund's transfer agent.
Shareholders considering transferring their Class A shares from Merrill
Lynch to another brokerage firm or financial institution should be aware that,
if the firm to which the Class A or Class D shares are to be transferred will
not take delivery of shares of the Fund, a shareholder either must redeem the
Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such shareholder
must continue to maintain an Investment Account at the transfer agent for those
Class A or Class D shares. Shareholders interested in transferring their Class
B or Class C shares from Merrill Lynch and who do not wish to have an
Investment Account maintained for such shares at the transfer agent may request
their new brokerage firm to maintain such shares in an account registered in
the name of the brokerage firm for the benefit of the shareholder at the
transfer agent. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he or she be
issued certificates for his shares, and then must turn the certificates over to
the new firm for re-registration as described in the preceding sentence.
Shareholders considering transferring a tax-deferred retirement account such as
an individual retirement account from Merrill Lynch to another brokerage firm
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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 can be transferred to the account at the new firm, or
such shareholder must continue to maintain a retirement account with Merrill
Lynch for those shares.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account (as described
in the Prospectus under "Shareholder Services-Investment Account" on p. ______)
at any time by purchasing Class A shares (if he or she is an eligible Class A
investor as described in the Prospectus) or Class B or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail directly to the Fund's transfer agent, acting as agent for
such securities dealer. Voluntary accumulation also can be made through a
service known as the Fund's Automatic Investment Plan whereby the Fund is
authorized through pre-authorized checks or automated clearing house debits of
$50 or more to charge the regular bank account of the shareholder on a regular
basis to provide systematic additions to the Investment Account of such
shareholder. For investors who buy shares of the fund through Blueprint no
minimum charge to the investors' bank accounts is required. An investor whose
shares of the Fund are held within a CMA<reg-trade-mark> or CBA<reg-trade-mark>
account may arrange to have periodic investments made in the Fund in amounts of
$100 or more ($1 for retirement accounts) through the
CMA<reg-trade-mark>/CBA<reg-trade-mark> Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method
of payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the
Fund. Such reinvestment will be at the net asset value of shares of the Fund
as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date.
Shareholders may, at any time, notify the transfer agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or distributions reinvested in shares of the Fund or vice versa, and
commencing ten days after receipt by the transfer agent of such notice, those
instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS
A Class A or Class D shareholder of the Fund may elect to receive
systematic withdrawal payments 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 having a value, based upon the current net asset value, of $5,000 or
more, and monthly withdrawals are available for shareholders with Class A or
Class D shares having 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
once by MLAM immediately after the declaration of dividends as of 15 minutes
after the close of business on the New York Stock Exchange (generally
4:00 p.m., New York City 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 the withdrawal
payment will be made, on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and distributions on
all Class A or Class D shares in the Investment Account are automatically
reinvested in Class A or Class D shares 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.
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Withdrawal payments should not be considered as dividends, yields or
income. Each withdrawal is a taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the shareholder's original investment
may be correspondingly reduced. 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 additions to an Investment Account in which an election has
been made to receive systematic withdrawals unless such addition 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 from which the
shareholder has elected to make systematic withdrawals.
A Class A or Class D shareholder whose shares are held within a
CMA<reg-trade-mark>, CBA<reg-trade-mark> or Retirement Account may elect to
have shares redeemed on a monthly, bimonthly, quarterly, semiannual or annual
basis through the Systematic Redemption Program. The minimum fixed dollar
amount redeemable is $25. The proceeds of systematic redemptions will be
posted to the shareholder's account five business days after the date the
shares are redeemed. Monthly systematic redemptions will be made at net asset
value on the first Monday of each month, bimonthly systematic redemptions will
be made at net asset value on the first Monday of every other month, and
quarterly, semiannual or annual redemptions are made at net asset value on the
first Monday of months selected at the shareholder's option. If the first
Monday of the month is a holiday, the redemption will be processed at net asset
value on the next business day. The Systematic Redemption Program is not
available if 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 upon request from Merrill Lynch. The minimum initial
purchase to establish any such plan is $100 and the minimum subsequent purchase
is $1.
RETIREMENT PLAN
Any Retirement Plan which does not meet the qualifications to purchase
Class A or Class D shares at net asset value may purchase Class B shares with a
waiver of the CDSC upon redemption if the following qualifications are met.
The CDSC is waived for any Eligible 401(k) Plan redeeming Class B shares and is
also waived for Class B redemptions from a 401(a) plan qualified under the
Code, provided that each such plan has the same or an affiliated sponsoring
employer as an Eligible 401(k) Plan purchasing Class B shares ("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 may also purchase Class B shares with a waiver of the
CDSC. The CDSC is also waived for any Class B shares which are purchased by an
Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled over into a Merrill
Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at
the time of redemption. The Class B CDSC is also waived for shares 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.
EMPLOYER-SPONSORED RETIREMENT AND SAVINGS PLANS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based
on the number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Certain other plans
may purchase Class B shares with a waiver of the CDSC upon redemption, based on
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similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any
MLAM-advised mutual fund. Minimum purchase requirements may be waived for such
plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available
toll-free from Merrill Lynch Business Financial Services at (800) 237-7777.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds listed below. Under the
Merrill Lynch Select Pricing<service-mark> 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 as follows:
Class A shares may be exchanged for shares of Merrill Lynch Ready Assets Trust,
Merrill Lynch Retirement Reserves Money Fund (available only for exchange
within certain retirement plans), Merrill Lynch USA Government Reserves and
Merrill Lynch U.S. Treasury Money Fund. Class B, Class C and Class D shares
may be exchanged for shares of Merrill Lynch Government Fund, Merrill Lynch
Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund and Merrill
Lynch Treasury Fund. Shares with a net asset value of at least $100 are
required to qualify for the exchange privilege, and any shares utilized in an
exchange must have been held by the shareholder for at least 15 days. It is
contemplated that the exchange privilege may be applicable to other new mutual
funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A
or Class D shares") for Class A or Class D shares of another MLAM-advised
mutual fund ("new Class A or Class D shares") are transacted on the basis of
relative net asset value per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the outstanding Class A or Class D shares and the sales charge payable
at the time of the exchange on the new Class A or Class D shares. With respect
to outstanding Class A or Class D shares as to which previous exchanges have
taken place, the "sales charge previously paid" shall include the aggregate of
the sales charge paid with respect to such Class A or Class D shares in the
initial purchase and any subsequent exchange. Class A or Class D shares issued
pursuant to dividend reinvestment are sold on a no-load basis in each of the
funds offering Class A or Class D shares. For purposes of the exchange
privilege, Class A and Class D shares acquired through dividend reinvestment
shall be deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was
paid. Based on this formula, Class A and Class D shares of the Fund generally
may be exchanged into the Class A or Class D shares of the other funds or into
shares of the Class A and Class D money market funds with or without a reduced
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 any
of the other 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
21
<PAGE>
privilege will continue to be subject to the fund's CDSC schedule if such
schedule is higher than the CDSC 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 higher of
the fund's CDSC schedule or the CDSC relating to the Class B shares of the fund
from which the exchange has been made. For purposes of computing the sales
load that may be payable on a disposition of the new Class B or Class C shares,
the holding period for the outstanding Class B or Class C shares is "tacked" to
the holding period of the new Class B or Class C shares. For example, an
investor may exchange Class B shares of the Fund for those of Merrill Lynch
Special Value Fund, Inc. ("Special Value Fund") after having held the Fund's
Class B shares for two and a half years. The 2% sales load that generally
would apply to a redemption would not apply to the exchange. Two years later
the investor may decide to redeem the Class B shares of Merrill Lynch 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 the Fund's Class B
shares to the two year holding period for the Merrill Lynch Special Value Fund
Class B shares, the investor will be deemed to have held the new Class B shares
for more than four years.
The exchange privilege is modified with respect to certain retirement
plans which participate in the Merrill Lynch Mutual Fund Adviser ("MFA")
program. Such retirement plans may exchange Class B, Class C or Class D shares
that have been held for at least one year for Class A shares of the same Fund
on the basis of relative net asset values in connection with the commencement
of participation in the MFA program, I.E., no CDSC will apply. The one-year
holding period does not apply to shares acquired through reinvestment of
dividends. Upon termination of participation in the MFA program, Class A
shares will be reexchanged for the class of shares originally held. For
purposes of computing any CDSC that may be payable upon redemption of Class B
or Class C shares so reacquired, the holding period for the Class A shares will
be "tacked" to the holding period for the Class B or Class C shares originally
held.
Shareholders also may exchange shares of the 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 Class B 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
a 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 the Fund's Class B shares for two and
a half years and two 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 one and a half
years, any subsequent redemption will not incur a CDSC.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant who will advise the Fund of the exchange.
Before effecting an exchange, shareholders should obtain a currently effective
prospectus of the fund into which the exchange is to be made. 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 SEC. 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.
22
<PAGE>
PERFORMANCE DATA
From time to time the Fund may include its average annual total return
and other total return data, as well as yield, in advertisements or information
furnished to present or prospective shareholders. Total return and yield
figures are based on the Fund's historical performance and are not intended to
indicate future performance. Average annual total return and yield are
determined separately for Class A, Class B, Class C and Class D shares in
accordance with formulas specified by the SEC and take into account the maximum
sales charge.
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) the rates of return calculated will not be average annual
rates, but rather, actual annual, annualized or aggregate rate of return and
(2) the maximum applicable sales charge will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charge, 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 relating to the periods prior
to reorganization of the Fund. In connection with its reorganization on
[November 1, 1996], the Fund changed its investment objective from investing
only in assets which would permit shares of the Fund to qualify both as "liquid
assets" under the regulations of the Office of Thrift Supervision and as an
investment permitted by the regulations of the National Credit Union
Association to seeking the highest possible current income consistent with the
protection of capital afforded by investing in intermediate-term debt
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities with a maximum maturity no to exceed fifteen years and,
depending upon market conditions, an average maturity of six to eight years.
For the period from the commencement of the Fund's operations through its
reorganization on November 1, 1996, the portfolio of the Fund has consisted
primarily of securities issued by the U.S. government and its agencies and
instrumentalities. The average maturity of the Fund's portfolio during this
period (generally ranging from two to five years) has been somewhat shorter
than the expected average maturity of the Fund of six to eight years following
the change in its investment objective upon its reorganization. As a result,
the financial information in the table below for operations of the Fund prior
to its reorganization may not be indicative of its performance following its
reorganization. Since Class A, Class B, Class C and Class D shares have not
been issued prior to the date of this Statement of Additional Information,
total return information concerning Class A, Class B, Class C and Class D
shares is not yet provided.
<TABLE>
<CAPTION>
REDEEMABLE VALUE OF
EXPRESSED AS A A HYPOTHETICAL
PERCENTAGE BASED ON A $1,000 INVESTMENT
HYPOTHETICAL $1,000 AT THE END OF
PERIOD INVESTMENT THE PERIOD
______ _____________________ ______________________
<S> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
One Year Ended April 30, 1996 6.56% $1,065.60
Five Years Ended April 30, 1996 6.58 1,375.50
Inception (November 6, 1986) to April 30, 1996 6.93 1,889.10
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
PERIOD ANNUAL TOTAL RETURN
______ ____________________
<S> <C> <C>
Six Months Ended April 30, 1996 1.33% $1,013.30
One Year Ended October 31, 1995 8.95 1,089.50
One Year Ended October 31, 1994 (1.54) 984.60
One Year Ended October 31, 1993 8.07 1,080.70
One Year Ended October 31, 1992 9.66 1,096.60
One Year Ended October 31, 1991 12.62 1,126.20
One Year Ended October 31, 1990 7.75 1,077.50
One Year Ended October 31, 1989 9.12 1,091.20
One Year Ended October 31, 1988 7.29 1,072.90
Inception (November 6, 1986) through October 31, 1987 3.18 1,031.80
AGGREGATE TOTAL RETURN
Inception (November 6, 1986) to April 30, 1996 88.91% 1,889.10
</TABLE>
In order to reflect the reduced sales charges applicable to certain
investors, as described under "Purchase of Shares," the total return data
quoted by the Fund in advertisements directed to such investors whose purchases
are subject to reduced sales load, in the case of Class A and Class D shares,
or waiver of the contingent deferred sales charge in the case of Class B and
Class C shares, may take into account the reduced, and not the maximum, sales
charge or may not take into account the contingent deferred sales charge and
therefore may reflect greater total return since, due to the reduced sales
charge, a lower amount of expenses is deducted.
On occasion, the Fund may compare its performance to that of the Standard
& Poor's 500 Composite Stock Price Index, the Value Line Composite Index, the
Dow Jones Industrial Average, or performance data contained in publications
such as Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, U.S. News & World Report, Business Week, CDA Investment Technology,
Inc., Forbes Magazine or Fortune Magazine. As with other performance data,
performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.
ADDITIONAL INFORMATION
ORGANIZATION OF THE FUND
The Fund was organized as an unincorporated business trust under the laws
of Massachusetts under the name "Merrill Lynch Institutional Intermediate Fund"
on September 10, 1986. On November 1, 1996, the Fund was reorganized and
changed its name to "Merrill Lynch Intermediate Government Bond Fund." Its
executive offices are located at One Financial Center, Boston, Massachusetts
02111-2646 (telephone toll free 800-225-1576). Under the Declaration of Trust,
the Trustees are authorized to issue an indefinite number of shares of $0.10
par value of one or more classes, and the Trustees have designated four
classes: "Class A Common Stock," "Class B Common Stock," "Class C Common Stock"
and "Class D Common Stock." Each Class A, Class B, Class C and Class D share
of Common Stock has equal voting rights, and each such issued and outstanding
share is entitled to one vote and to participate equally in dividends and
distributions declared by the Fund and in net assets of the Fund upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities. The shares of the Fund, when issued, will be fully paid and non-
assessable, be freely transferable and have no preference, preemptive,
conversion or similar rights, except that the Class B, Class C and Class D
shares bear certain expenses related to the account maintenance fees 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 such account maintenance and distribution
expenditures, as applicable. See "Purchase of Shares." The Trustees are
authorized to divide or combine such shares into a greater or lesser number of
shares and to classify and reclassify the shares of the Fund into additional
classes of Common Stock at a future date. Shares of the Fund outstanding on
the date the Fund was reorganized were reclassified as Class D shares.
24
<PAGE>
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders' meeting for the election of
trustees. Shareholders may, in accordance with the Declaration of Trust, cause
a meeting of shareholders to be held for the purpose of voting on the removal
of Trustees. Meetings of the shareholders will be called upon written request
of shareholders holding in the aggregate not less than 10% of the outstanding
shares having voting rights. Except as set forth above, the Trustees will
continue to hold office and appoint successor trustees. Shares do not have
cumulative voting rights and the holders of more than 50% of the shares of the
Fund voting for the election of Trustees can elect all of the Trustees of the
Fund if they choose to do so and in such event the holders of the remaining
shares would not be able to elect any Trustees. Holders of shares of the Fund
are entitled to redeem their shares as set forth under "Redemption of Shares."
No amendment may be made to the Declaration of Trust without the affirmative
vote of a majority of the outstanding shares of the Fund.
The Declaration of Trust establishing the Fund, dated September 10, 1986,
a copy of which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name of the Fund refers to the trustees under the Declaration
collectively as trustees, but not as individuals or personally, and no trustee,
shareholder, officer, employee or agent of the Fund may be held to any personal
liability, nor may resort be had to their private property for the satisfaction
of any obligation or claim otherwise in connection with the affairs of the Fund
but the Fund's property only shall be liable.
Under a separate agreement Merrill Lynch has granted the Fund the right
to use the "Merrill Lynch" name and has reserved the right to withdraw its
consent to the use of such name by the Fund at any time, or to grant the use of
such name to any other company, and the Fund has granted Merrill Lynch, under
certain conditions, the use of any other name it might assume in the future,
with respect to any corporation organized by Merrill Lynch.
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class D shares of the Fund, treating the shares of
the Fund in existence prior to their reclassification as Class D shares and
based on the value of the Fund's net assets and number of shares outstanding as
of April 30, 1996, is calculated as set forth below. Information is not
provided for Class A, Class B or Class C shares since no Class A, Class B or
Class C shares were publicly offered prior to the date of this Statement of
Additional Information.
<TABLE>
<CAPTION>
CLASS D
_______
<S> <C>
Net assets $ 57,715,114
============
Number of Shares Outstanding 5,980,437
============
Net Asset Value Per Share (net assets $ 9.65
divided by number of shares outstanding) $ 9.65
====
Sales Charge* (for Class A and Class D
shares: 1.00% of offering price (1.01%
of net asset value per share)) 0.10
====
Offering Price $ 9.75
====
- - ------------------
<FN>
* Rounded to the nearest one-hundredth percent, assumes maximum sales
charge is applicable.
</TABLE>
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Institutional Intermediate Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Institutional Intermediate Fund
as of October 31, 1995, 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 October 31, 1995 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Institutional Intermediate Fund as of October 31, 1995, 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
December 8, 1995
26
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TABLE OF CONTENTS
PAGE
Investment Objectives and Policies........ 2 [LOGO]
Investment Restrictions................... 2
Management of the Fund.................... 5
Trustees and Officers.................. 5
Management and Advisory Arrangements... 7
Transfer Agency Services Arrangements.. 8
Determination of Net Asset Value.......... 9
Portfolio Transactions.................... 9 MERRILL LYNCH
Portfolio Turnover..................... 10 INTERMEDIATE GOVERNMENT
Purchase of Shares........................ 10 BOND FUND
Alternative Sales Arrangements......... 11
Initial Sales Charge Alternative-Class
A and Class D Shares.................. 11
Distribution Plan...................... 14
Redemption of Shares...................... 15
Repurchase............................. 15
Reinstatement Privilege................ 15
Deferred Sales Charge-Class B and Class
C Shares............................. 16
Dividends, Distributions and Taxes........ 16
Dividends and Distributions............ 16
Federal Income Taxes................... 17
Shareholder Services...................... 18
Investment Account..................... 18
Automatic Investment Plans............. 19
Automatic Reinvestment of Dividends and
Capital Gains Distributions.......... 19
Systematic Withdrawal Plans............ 19
Retirement Plans.......................... 20
Exchange Privilege........................ 21
Performance Data.......................... 23
Additional Information.................... 24 STATEMENT OF
Organization of the Fund............... 24 ADDITIONAL INFORMATION
Computation of Offering Price
Per Share............................ 25
Independent Auditors' Report.............. 26 November 1, 1996
Audited Financial Statements.............. F-1
Unaudited Financial Statements............ F- Distributor:
Merrill Lynch
Funds Distributor, Inc.
Code 01432-0996
<PAGE>
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for the six-month period ended April 30, 1996
(unaudited) and audited Financial Highlights for each of the years in the
nine-year period ended October 31, 1995 and for the period November 6,
1986 (commencement of operations) to October 31, 1987.
Contained in Part B:
Schedules of Investments, as of October 31, 1995 (audited) and as of
April 30, 1996 (unaudited)
Statements of Assets and Liabilities, as of October 31, 1995 (audited)
and as of April 30, 1996 (unaudited)
Statements of Operations for the year ended October 31, 1995 (audited)
and as of April 30, 1996 (unaudited)
Statements of Changes in Net Assets for the six-month period ended April
30, 1996 (unaudited) and for the years ended October 31, 1995 and 1994
(audited)
Financial Highlights for the six-month period ended April 30, 1996
(unaudited) and for each of the years in the five-year period ended
October 31, 1995 (audited).
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<S> <C>
1(a) - Declaration of Trust (incorporated by reference to Exhibit 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-8708).
1(b) - Form of Amendment to Declaration of Trust
2 - By-Laws of Registrant (incorporated by reference to Exhibit 2 to Registrant's
Registration Statement on Form N-1A) (File No. 33-8708).
3 - None.
4 - Specimen certificates for Class A, Class B, Class C and Class D shares of
beneficial interest of Fund.<dagger>
5 - Form of Investment Advisory Agreement (incorporated by reference to Exhibit 5 to
Post-Effective Amendment No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 33-8708).
6(a) - Form of Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (including form of Selected Dealer Agreement).*
6(b) - Form of Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (including form of Selected Dealer Agreement).*
6(c) - Form of Class C Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (including form of Selected Dealer Agreement).*
</TABLE>
C-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<S> <C>
6(d) - Form of Class D Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (including form of Selected Dealer Agreement).*
7 - None.
8 - Form of Custodian Agreement (incorporated by reference to Exhibit 8 to Pre-
Effective Amendment No. 1 to Registrant's Registration Statement on Form N-1A (File
No. 33-8708)).
9(a) - Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and Merrill Lynch Financial Data Services,
Inc.<dagger>
9(b) - Form of Agreement relating to the use of the "Merrill Lynch" name (incorporated by
reference to Exhibit 9(b) to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-8708).
10 - Opinion of Counsel.<dagger>
11 - Consent of Deloitte & Touche LLP, independent accountants for the Registrant.<dagger>
12 - None.
13(a) - Certificate of Merrill Lynch Asset Management, L.P. relating to Class A, Class B
and Class C shares.<dagger>
14 - None.
15(a) - Form of Class B Distribution Plan of Registrant.*
15(b) - Form of Class C Distribution Plan of Registrant.*
15(c) - Form of Class D Distribution Plan of Registrant.*
16 - Schedule for computation of each performance quotation provided in the Registration
Statement in response to Item 22 (incorporated by reference to Exhibit 16 to Post-
Effective Amendment No. 2 to Registrant's Registration Statement on Form N-1A (File
No. 33-8708)).
17 - None.
18 - Form of plan under Rule 18f-3.*
27(a) - Financial Data Schedule - Class A shares.<dagger>
27(b) - Financial Data Schedule - Class B shares.<dagger>
27(c) - Financial Data Schedule - Class C shares.<dagger>
27(d) - Financial Data Schedule - Class D shares.<dagger>
- - -----------------
<FN>*Filed herewith.
<dagger> To be filed by amendment.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
C-2
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<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS SEPTEMBER __, 1996
<S> <C>
Class A common stock, par value $___________ per share None
Class B common stock, par value $___________ per share None
Class C common stock, par value $___________ per share None
Class D common stock, par value $___________ per share *
- - --------------------
<FN>
Note: The number of holders shown above includes holders of record plus beneficial owners, whose shares are held
of record by Merrill Lynch, Pierce, Fenner & Smith Incorporated.
* Represents number of holders of existing shares of the Fund which were reclassified as Class D shares on
November 1, 1996.
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to Section 5.3 of Registrant's Declaration of Trust.
Insofar as the conditional advancing of indemnification monies for
actions based upon the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions: (i) the advances must
be limited to amounts used, or to be used, for the preparation or presentation
of a defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise
by, or on behalf of, the recipient to repay that amount of the advance which
exceeds that amount to which it is ultimately determined that he is entitled to
receive from the Registrant by reason of indemnification; and (iii) (a) such
promise must be secured by a surety bond, other suitable insurance of an
equivalent form of security which assures that any repayments may be obtained
by the Registrant without delay or litigation, which bond, insurance or other
form of security must be provided by the recipient of the advance, or (b) a
majority of a quorum of the Registrant's disinterested, non-party trustees, or
an independent legal counsel in a written opinion, shall determine, based upon
a review of readily available facts, that the recipient of the advance
ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with shares being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Investment
Adviser"), an affiliate of FAM, acts as the investment adviser for the
following open-end investment companies: Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch
Asset Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill
Lynch Asset Income Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Fund for Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
C-3
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<PAGE>
Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill
Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc. Merrill Lynch Institutional Intermediate Fund, Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc.,
Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series
Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Merrill Lynch U.S.A. Government Reserves,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch Utility Income Fund,
Inc., and Merrill Lynch Variable Series Funds, Inc., and the following closed-
end investment companies: Convertible Holdings, Inc., Merrill Lynch High
Income Municipal Bond Fund, Inc., and Merrill Lynch Senior Floating Rate Fund,
Inc. The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Institutional Intermediate Fund
is One Financial Center, 23rd Floor, Boston, Massachusetts 02111. The address
of the Investment Adviser and of Merrill Lynch Funds Distributor, Inc.
("MLFD"), and MLAM is also P.O. Box 9011, Princeton, New Jersey 08543-9011.
The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial Center,
North Tower, 250 Vesey Street, New York, New York 10281-1209. Fund Asset
Management, L.P. ("FAM") acts as the investment adviser for the following other
open-end investment companies: CBA Money Fund, CMA Government Securities Fund,
CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Emerging Tigers
Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc. and The
Municipal Fund Accumulation Program, Inc., and the following closed-end
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund,
Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
Munivest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest
Michigan Fund, Inc, MuniVest New Jersey Fund, Inc., MuniVest New York Insured
Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Insured Fund, Inc.,
MunYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc.,
MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II,
Inc., MuniYield New York Insured Fund III, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew
York Holdings, Inc. and Worldwide DollarVest Fund, Inc.
Set forth below is a list of each officer and director of the Investment
Adviser indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since October 31,
1987 for his or her or its own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Glenn and Richard hold the
same positions with substantially all of the investment companies described in
the preceding paragraph and Messrs. Giordano, Harvey and Monagle are directors
or officers of one or more of such companies. Messrs. Zeikel and Richard also
hold the same positions with all or substantially all of the investment
companies advised by FAM as they do with the Investment Adviser. Messrs.
Harvey and Monagle are directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
<S> <C> <C>
ML & Co. Limited Partner Financial Services Holding Company;
Limited Partner of MLAM
Fund Asset Management, Inc. Limited Partner Investment Advisory Services
</TABLE>
C-4
PAGE
<PAGE>
<TABLE>
<CAPTION>
POSITIONS WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
<S> <C> <C>
Princeton Services, Inc.
("Princeton Services") General Partner General Partner of MLAM
Arthur Zeikel President and Director President of MLAM; President and Director
of Princeton Services; Executive Vice
President of ML & Co. and Merrill Lynch;
Director of MLFD
Terry K. Glenn Executive Vice President Executive Vice President of MLAM and FAM;
Executive Vice President and Director of
Princeton Services since 1993; President
of MLFD and Director thereof since 1991;
President of Princeton Administrators,
L.P.
Vincent R. Giordano Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Elizabeth Griffin Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Norman R. Harvey Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Michael J. Hennewinkel Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
N. John Hewitt Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Philip L. Kirstein Senior Vice President General Senior Vice President, General Counsel
Counsel, and Secretary and Secretary of MLAM; Senior Vice
President, General Counsel, Director and
Secretary of Princeton Services; Director
of MLFD
Ronald M. Kloss Senior Vice President and Senior Vice President and Controller of
Controller MLAM; Senior Vice President and
Controller of Princeton Services
Stephen M. M. Miller Senior Vice President Executive Vice President of Princeton
Administrator, L.P.; Senior Vice
President of Princeton Services
Joseph T. Monagle, Jr. Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Michael L. Quinn Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Managing
Director and First Vice President of
Merrill Lynch from 1989 to 1995
Richard L. Reller Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Gerald M. Richard Senior Vice President and Senior Vice President and Treasurer of
Treasurer MLAM; Senior Vice President and Treasurer
of Princeton Services; Vice President and
Treasurer of MLFD
Ronald L. Welburn Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Anthony Wiseman Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>
C-5
<PAGE>
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Merrill Lynch Funds Distributor, Inc. ("MLFD") acts as the
principal underwriter for the Registrant. MLFD acts as the principal
underwriter for each of the investment companies referred to in Item 28 except
Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA
Treasury Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-
Exempt Fund, Merrill Lynch Corporate High Yield Fund, Inc., Merrill Lynch
Corporate High Yield Fund II, Inc., MuniAssets Fund, Inc., MuniBond Income
Fund, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest
Fund II, Inc., MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYiled
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYiled
California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida
Insured Fund, MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYiled
New Jersey Fund, Inc.., MuniYield New Jersey Insured Fund, Inc., MuniYield New
York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
New York Insured Fund III, Inc., MuniYield Pennsylvania Fund, Inc., MuniYield
Fund, Inc., MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc.,
Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, The
Corporate fund Accumulation Program, Inc., The Municipal Fund Accumulation
Program, Inc., World Wide Dollar Vest, Inc.
(b) Set forth below is information concerning each director and officer
of MLFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Crook,
Aldrich, Bracy, Breen, Fatseas, Maguire and Wasel and Ms. Schena is One
Financial Center, Boston, Massachusetts 0211.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C>
Terry K. Glenn President Trustee
Arthur Zeikel Director None
Philip Kirstein Director None
William E. Aldrich Senior Vice President Executive Vice President
Robert W. Crook Senior Vice President President and Trustee
Gerald M. Richard Vice President and Treasurer Vice President, Treasurer
Mark A. DeSario Vice President None
Michelle T. Lau Vice President None
Salvatore Venezia Vice President None
Kevin P. Boman Vice President None
Michael J. Brady Vice President Senior Vice President
William M. Breen Vice President Senior Vice President and
Assistant Treasurer
James T. Fatseas Vice President Senior Vice President
William Wasel Vice President Senior Vice President
Debra W. Landsman-Yaros Vice President None
Mark E. Maguire Assistant Vice President Senior Vice President
Patricia A. Schena Assistant Vice President Vice President and Assistant
Secretary
Robert Harris Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
C-6
<PAGE>
<PAGE>
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder
will be maintained at the offices of the Registrant, Merrill Lynch
Institutional Intermediate Fund, 800 Scudders Mill Road, Plainsboro, New Jersey
08536; its Investment Adviser, Merrill Lynch Asset Management, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536; and its Custodian and Transfer Agent,
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110.
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the caption "Management of the Fund" in the
Prospectus constituting Part A of the Registration Statement and under the
caption, "Management and Advisory Arrangements" in the Statement of Additional
Information constituting Part B of the Registration Statement, the Registrant
is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request, and without charge.
C-7
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the County of Suffolk, and
Commonwealth of Massachusetts, on the day of September, 1996.
MERRILL LYNCH INSTITUTIONAL INTERMEDIATE FUND
By:__________________________________________
Robert W. Crook
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Robert W. Crook and
Gerald M. Richard, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
Amendments (including pre-effective and post-effective amendments) to the
Registration Statement (File No. 33-8708) of the Merrill Lynch Institutional
Intermediate Fund, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registrant's Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
___________________________ President and Trustee September , 1996
Robert W. Crook (Principal Executive Officer)
___________________________ Treasurer (Principal Financial September , 1996
Gerald M. Richard and Accounting Officer)
___________________________ Trustee
A. Bruce Brackenridge
___________________________ Trustee
Charles C. Cabot, Jr.
___________________________ Trustee
James T. Flynn
___________________________ Trustee
Terry K. Glenn
___________________________ Trustee
George W. Holbrook, Jr.
___________________________ Trustee
W. Carl Kester
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
- - ------- ------
<S> <C> <C>
6(a)* - Form of Class A Distribution Agreement between Registrant
and Merrill Lynch Funds Distributor, Inc. (including form
of Selected Dealer Agreement)
6(b)* - Form of Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including form of
Selected Dealer Agreement)
6(c)* - Form of Class C Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including form of
Selected Dealer Agreement)
6(d)* - Form of Class D Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including form of Selected
Dealer Agreement)
15(a)* - Form of Class B Distribution Plan of Registrant.
15(b)* - Form of Class C Distribution Plan of Registrant.
15(c)* - Form of Class D Distribution Plan of Registrant.
18 - Form of plan under Rule 18f-3.
- - --------------------
<FN>* Filed herewith
</TABLE>
PAGE
<PAGE>
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made this [ ]th day of September, 1996 between
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND, a corporation organized
under the laws of Maryland (the "Fund"), and Merrill Lynch Funds
Distributor, Inc., a Delaware corporation (the "Distributor");
W I T N E S S E T H:
_ _ _ _ _ _ _ _ _ _
WHEREAS, the Fund is registered under the Investment Company Act
of 1940, as amended to date (the "Investment Company Act"), as an open-end
investment company, and it is affirmatively in the interest of the Fund to
offer its shares for sale continuously pursuant to a currently effective
prospectus (the "Prospectus") under the Securities Act of 1933 (the
"Securities Act"); and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the
Class A beneficial interest in the Fund, par value $.10 per share.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR. The Fund hereby
appoints the Distributor as the principal underwriter and distributor of
<PAGE>
<PAGE>
the Fund to sell its Class A shares to the public and the Distributor
hereby accepts such appointment. The Fund during the term of this
Agreement shall sell its Class A shares to the Distributor upon the terms
and conditions set forth below.
Section 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall
be the exclusive representative of the Fund to act as principal underwriter
and distributor, except that:
(a) The Fund may, upon written notice to the
Distributor, from time to time, designate other principal underwriters and
distributors of its Class A shares with respect to areas other than the
United States as to which the Distributor may have expressly waived in
writing its right to act as such. If such designation is deemed exclusive,
the right of the Distributor under this Agreement to sell Class A shares in
the areas so designated shall terminate, but this Agreement shall remain
otherwise in full effect until terminated in accordance with the other
provisions hereof.
(b) The exclusive rights granted to the Distributor to
purchase Class A shares from the Fund shall not apply to shares of the Fund
issued in connection with the merger or consolidation of any other
investment company or personal holding company with the Fund or the
acquisition by purchase or otherwise of all (or substantially all) the
assets or the outstanding shares of any such company by the Fund.
(c) Such exclusive rights shall also not apply to Class
A shares issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
(d) Such exclusive rights shall also not apply to Class
2
<PAGE>
<PAGE>
A shares issued by the Fund pursuant to the reinvestment privilege afforded
redeeming shareholders.
Section 3. PURCHASE OF SHARES FROM THE FUND.
(a) The Fund will offer its Class A shares and
thereafter the Distributor shall have the right to buy from the Fund the
Class A shares needed, but not more than the Class A shares needed (except
for clerical errors in transmission) to fill unconditional orders for
shares of the Fund placed with the Distributor by investors or securities
dealers. The price which the Distributor shall pay for the Class A shares
of the Fund so purchased from the Fund shall be the net asset value per
share of the Fund, determined as set forth in Section 3 (d) hereof, used in
determining the public offering price on which such orders were based.
(b) The Class A shares of the Fund are to be resold by
the Distributor to investors at the public offering price, as set forth in
Section 3 (d) hereof, or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7 hereof.
(c) The public offering price of the Class A shares,
I.E., the price per share at which the Distributor or Selected Dealers (as
hereinafter defined) may sell shares to the public, shall be the public
offering price as set forth in the Prospectus relating to such shares, but
not to exceed the net asset value at which the Distributor is to purchase
the shares, plus a sales charge not to exceed 2% of the public offering
3
<PAGE>
<PAGE>
price of shares of the Fund, subject to reductions for volume purchases.
Initially it is contemplated that the maximum sales charge will be 2% of
the public offering price of Class A shares of the Fund. Class A shares
may be sold to employees of Merrill Lynch & Co., Inc. and its subsidiaries
without a sales charge upon terms and conditions set forth in the
Prospectus. If the public offering price of Class A shares of the Fund
does not equal an even cent, the public offering price of such shares may
be adjusted to the nearest cent. All payments to the Fund hereunder shall
be made in the manner set forth in Section 3(f).
(d) The net asset value of Class A shares of the Fund
shall be determined by the Fund or any agent of the Fund, as of the close
of the New York Stock Exchange on each business day on which said Exchange
is open, in accordance with the method set forth in the Prospectus of the
Fund and guidelines established by the Board of Trustees of the Fund. The
Fund may also cause the net asset value of Class A shares of the Fund to be
determined in substantially the same manner or estimated in such manner and
as of such other hour or hours as may from time to time be agreed upon in
writing by the Fund and the Distributor.
(e) The Fund shall have the right to suspend the sale of
its Class A shares at times when redemption of any such shares is suspended
pursuant to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class A shares if
trading on the New York Stock Exchange shall have been suspended, if a
4
<PAGE>
<PAGE>
banking moratorium shall have been declared by Federal or New York
authorities, or if there shall have been some other extraordinary event,
which, in the judgment of the Fund, makes it impracticable to sell any such
Class A shares.
(f) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase orders for
Class A shares of the Fund received by the Distributor. Any order may be
rejected by the Fund; PROVIDED, HOWEVER, that the Fund will not arbitrarily
or without reasonable cause refuse to accept or confirm orders for the
purchase of Class A shares. The Fund (or its agent) will confirm orders
upon their receipt, will make appropriate book entries and upon receipt by
the Fund (or its agent) of payment therefor, will deliver deposit receipts
or certificates for such Class A shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions
to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF SHARES BY THE FUND.
(a) Any of the outstanding Class A shares of the Fund
may be tendered for redemption at any time, and the Fund agrees to
repurchase or redeem any Class A shares so tendered in accordance with its
obligations as set forth in Article VIII of its Declaration of Trust, as
amended from time to time, and in accordance with the applicable provisions
5
<PAGE>
<PAGE>
set forth in the Prospectus of the Fund. The price to be paid to redeem or
repurchase Class A shares of the Fund shall be equal to the net asset value
per share of the Fund, calculated in accordance with the provisions of
Section 3(e) hereof, less the redemption fee or other charge, if any, set
forth in the Prospectus of the Fund. All payments by the Fund hereunder
shall be made in the manner set forth below. The redemption or repurchase
by the Fund of any of the Class A shares purchased by or through the
Distributor will not affect the sales charge secured by the Distributor or
any Selected Dealer in the course of the original sale, except that if any
Class A shares are tendered for redemption or repurchase within seven
business days after the date of the confirmation of the original purchase,
the right to the sales charge shall be forfeited by the Distributor and the
Selected Dealer which sold such Class A shares.
The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the
Distributor in New York Clearing House funds on or before the seventh
business day subsequent to its having received the notice of redemption in
proper form.
(b) Redemption of Class A shares of the Fund or payment
may be suspended at times when the New York Stock Exchange is closed, when
trading on said Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of the
6
<PAGE>
<PAGE>
net assets of the Fund, or during any other period when the Securities and
Exchange Commission, by order, so permits.
Section 5. DUTIES OF THE FUND.
(a) The Fund shall furnish to the Distributor copies of
all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of shares of the Fund, and this shall include one certified
copy, upon request by the Distributor, of all financial statements prepared
for the Fund by independent public accountants. The Fund shall make
available to the Distributor such number of copies of its Prospectus as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject
to the necessary approval of its shareholders, all necessary action to fix
the number of its authorized Class A shares and to register shares under
the Securities Act, to the end that there will be available for sale such
number of Class A shares as investors may reasonably be expected to
purchase.
(c) The Fund shall use its best efforts to qualify and
maintain the qualifications of an appropriate number of its Class A shares
for sale under the securities laws of such states as the Distributor and
the Fund may approve. Any such qualification may be withheld, terminated
or withdrawn by the Fund at any time in its discretion. As provided in
Section 8(c) hereof, the expense of qualification and maintenance of
qualification of Class A shares of the Fund shall be borne by the Fund.
7
<PAGE>
<PAGE>
The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection
with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports of the
Fund.
Section 6. DUTIES OF THE DISTRIBUTOR.
(a) The Distributor shall devote reasonable time and
effort to effect sales of Class A shares of the Fund, but shall not be
obligated to sell any specific number of Class A shares. The services of
the Distributor hereunder are not to be deemed exclusive and nothing herein
contained shall prevent the Distributor from entering into distribution
arrangements with other investment companies so long as the performance of
its obligations hereunder is not impaired thereby.
(b) In selling the Class A shares of the Fund, the
Distributor shall use its best efforts in all respects duly to conform with
the requirements of all federal and state laws and regulations and the
regulations of the National Association of Securities Dealers, Inc. (the
"NASD"), relating to the sale of such securities. Neither the Distributor
nor any Selected Dealer nor any other person is authorized by the Fund to
give any information or to make any representations, other than those
contained in the registration statement or related Prospectus and any sales
literature specifically approved by the Fund.
8
<PAGE>
<PAGE>
Section 7. SELECTED DEALERS AGREEMENTS.
(a) The Distributor shall have the right to enter into
selected dealers agreements with securities dealers of its choice
("Selected Dealers") for the sale of Class A shares and fix therein the
portion of the sales charge which may be allocated to the Selected Dealers;
provided that the Fund shall approve the forms of agreements with dealers
and the dealer compensation set forth therein and shall evidence such
approval by filing said forms and amendments thereto as exhibits to its
currently effective registration statement on Form N-1 filed under the
Securities Act. Class A shares sold to Selected Dealers shall be for
resale by such dealers only at the public offering price(s) set forth in
the Prospectus. The form of agreement with Selected Dealers to be used
during the subscription period described in Section 3(a) is attached hereto
as Exhibit A and the initial form of agreement with Selected Dealers to be
used in the continuous offering of the Class A shares described in Section
3(b) is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall
offer and sell Class A shares only to such Selected Dealers as are members
in good standing of the NASD.
(c) The Distributor shall adopt and follow procedures,
as approved by the Fund, for the confirmation of sales of Class A shares to
investors and Selected Dealers, the collection of amounts payable by
investors and Selected Dealers on such sales, and the cancellation of
unsettled transactions, as may be necessary to comply with the requirements
of the NASD, as such requirements may from time to time exist.
9
<PAGE>
<PAGE>
Section 8. PAYMENT OF EXPENSES.
(a) The Fund shall bear all costs and expenses of the
Fund, including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required registration
statements and prospectuses under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and the expense
of preparing, printing, mailing and otherwise distributing prospectuses,
annual or interim reports to shareholders and proxy materials.
(b) After the prospectuses and annual and interim
reports have been prepared, set in type and mailed to shareholders, the
Distributor shall bear the costs and expenses of printing and distributing
any copies thereof which are used in connection with the offering of Class
A shares to Selected Dealers or investors. The Distributor shall bear the
costs and expenses of preparing, printing and distributing any
supplementary sales literature used by the Distributor or furnished by it
for use by Selected Dealers in connection with the offering of the Class A
shares for sale. Any expenses of advertising incurred in connection with
such offering will also be the obligation of the Distributor.
(c) The Fund shall bear the costs and expenses of
qualification of its Class A shares for sale, and, if necessary or
advisable in connection therewith, the Fund shall bear the cost and expense
of qualifying the Fund as a broker or dealer, in such states of the United
States or other jurisdictions as shall be selected by the Fund and the
10
<PAGE>
<PAGE>
Distributor pursuant to Section 5(c) hereof and the cost and expenses
payable to each such state for continuing qualification therein until the
Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. INDEMNIFICATION.
(a) The Fund shall indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor against
any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim,
damage or expense and reasonable counsel fees incurred in connection
therewith) arising by reason of any person acquiring any Class A shares,
which may be based upon the Securities Act, or on any other statute or at
common law, on the ground that the registration statement or related
prospectus, as from time to time amended and supplemented, or the annual or
interim reports to shareholders of the Fund, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, unless such statement or omission was made in reliance upon,
and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor; provided, however, that in no
case (i) is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor or any
such controlling persons thereof against any liability to the Fund or its
security holders to which the Distributor or any such controlling persons
11
<PAGE>
<PAGE>
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of reckless
disregard of its obligations and duties under this Agreement; or (ii) is
the Fund to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Distributor or any
such controlling persons, unless the Distributor or such controlling
persons, as the case may be, shall have notified the Fund in writing within
a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons, (or after the Distributor or such
controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall
not relieve it from any liability which it may have to the person against
whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense, or, if it so elects, to
assume the defense of any suit brought to enforce any such liability, but
if the Fund elects to assume the defense, such defense shall be conducted
by counsel chosen by it and satisfactory to the Distributor or such
controlling person or persons, defendant or defendants in the suit. In the
event the Fund elects to assume the defense of any such suit and retain
such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
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<PAGE>
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants
in the suit, for the reasonable fees and expenses of any counsel retained
by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Class
A shares.
(b) The Distributor shall indemnify and hold harmless the Fund
and each of its directors and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage, or expense
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Fund in writing
by or on behalf of the Distributor for use in connection with the
registration statement or related prospectus, as from time to time amended,
or the annual or interim reports to shareholders. In case any action shall
be brought against the Fund or any person so indemnified, in respect of
which indemnity may be sought against the Distributor, the Distributor
shall have the rights and duties given to the Fund, and the Fund and each
person so indemnified shall have the rights and duties given to the
Distributor by the provisions of subsection (a) of this Section 9.
Section 10. MERRILL LYNCH MUTUAL FUND ADVISER PROGRAM. In
connection with the Merrill Lynch Mutual Fund Adviser Program, the
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Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to offer and sell Class A shares of the Fund,
as agent for the Fund, to participants in such program. The terms of this
Agreement shall apply to such sales, including terms as to the offering
price of the Class A shares, the proceeds to be paid to the Fund, the
duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT. This
Agreement shall become effective as of the date first above written and
shall remain in force until September [ ], 1998 and thereafter, but only
so long as such continuance is specifically approved at least annually by
(i) the Board of Trustees of the Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, cast in person or by proxy, and
(ii) a majority of those directors who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for
the purpose of voting upon such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Trustees of the Fund or by vote of
a majority of the outstanding voting securities of the Fund, or by the
Adviser, on sixty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting
securities," "assignment," "affiliated person" and "interested person," a
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when used in this Agreement, shall have the respective meaning specified in
the Investment Company Act.
Section 12. AMENDMENTS OF THIS AGREEMENT. This Agreement may
be amended by the parties only if such amendment is specifically approved
by (i) the Board of Trustees of the Fund, or by the vote of a majority of
the outstanding voting securities of the Fund, and (ii) a majority of those
directors who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting
on such approval.
Section 13. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of New York and the applicable
provisions of the Investment Company Act. To the extent the applicable law
of the State of New York, or any of the provisions herein, conflict with
applicable provisions of the Investment Company Act, the latter shall
control.
15
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of ___________, 1996 in New York, New York.
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND
FUND
By _______________________________________
President
MERRILL LYNCH FUNDS DISTRIBUTOR,
INC.
By _______________________________________
President
16
EXHIBIT A
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
CLASS A SHARES OF BENEFICIAL INTEREST
SELECTED DEALERS AGREEMENT
--------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Intermediate Government Bond Fund, Inc., a
Maryland corporation (the "Fund"), pursuant to which it acts as the
distributor for the sale of Class A shares of beneficial interest in the
Fund, par value $0.10 per share, and as such has the right to distribute
shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its
shares being offered to the public are registered under the Securities Act
of 1933, as amended. You have received a copy of the Distribution
Agreement between ourself and the Fund and reference is made herein to
certain provisions of such Distribution Agreement. The term Prospectus as
used herein refers to the prospectus on file with the Securities and
Exchange Commission which is part of the most recent effective registration
statement pursuant to the Securities Act of 1933, as amended. As
principal, we offer to sell to you, as a member of the Selected Dealers
Group, shares of the Fund upon the following terms and conditions:
1. In all sales of these shares to the public you shall
act as dealer for your own account, and in no transaction shall you have
any authority to act as agent for the Fund, for us or for any other member
of the Selected Dealers Group, except in connection with the Merrill Lynch
Mutual Fund Adviser program and such other special programs as we from time
<PAGE>
<PAGE>
to time agree, in which case you shall have authority to offer and sell
shares, as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only as
the public offering price applicable to each order, as set forth in the
current Prospectus of the Fund. The procedure relating to the handling of
orders shall be subject to Section 5 hereof and instructions which we or
the Fund shall forward from time to time to you. All orders are subject to
acceptance or rejection by the Distributor or the Fund in the sole
discretion of either. The minimum initial purchase is $1,000. The minimum
subsequent purchase is $50.
3. The sales charges for sales to the public, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
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<PAGE>
<TABLE>
<CAPTION>
Discounted
Sales Charge Selected
Sales Charge as Percentage<F1> Dealers as
Amount as Percentage of the Net Percentage
of of the Amount of the
Purchase Offering Price Invested Offering Price
-------- -------------- ------------- --------------
<S> <C> <C> <C>
Less than $100,000 1.00% 1.01% .95%
$100,000 but less
than $250,000 .75 .76 .70
$250,000 but less
than $500,000 .50 .50 .45
$500,000 but less
than $1,000,000 .30 .30 .27
$1,000,000 or more<F2> .00 .00 .00
<FN>
<F1> Rounded to the nearest one-hundredth percent.
<F2> Initial sales charges may be waived for certain classes of offerees as
set forth in the current Prospectus and Statement of Additional
Information. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.
</TABLE>
The term "purchase" 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 Class A shares for his or their own
account and to single purchases by a trustee or other fiduciary purchasing
Class A 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
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Investment Company Act of 1940, as amended, 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 Class A 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.
The reduced sales charges are applicable through a right of
accumulation under which investors are permitted to purchase Class A shares
of the Fund at the offering price applicable to the total of (a) the public
offering price of the Class A shares then being purchased plus (b) an
amount equal to the then current net asset value or cost, whichever is
higher, of the purchaser's combined holdings of the Class A, Class B, Class
C and Class D shares of the Fund and of any other investment company with a
sales charge for which the Distributor acts as the distributor. For any
such right of accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or you, with sufficient
information to permit confirmation of qualification, and acceptance of the
purchase order is subject to such confirmation.
The reduced sales charges are applicable to purchases of Class A
shares through you aggregating $100,000 or more, made within a thirteen-
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<PAGE>
month period starting with the first purchase pursuant to a Letter of
Intention in the form provided in the Prospectus. 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. If the intended amount of Class A shares is not purchased within
the thirteen-month period, an appropriate price adjustment will be made
pursuant to the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of
any sales made by you to the public qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right
of accumulation or a Letter of intention is set forth in the Prospectus.
4. You shall not place orders for any of the Class A shares
unless you have already received purchase orders for such Class A shares at
the applicable public offering prices and subject to the terms hereof and
of the Distribution Agreement. You agree that you will not offer or sell
any of the Class A shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws and that
in connection with sales and offers to sell Class A shares you will furnish
to each person to whom any such sale or offer is made a copy of the
Prospectus (as then amended or supplemented) and will not furnish to any
person any information relating to the Class A shares of the Fund, which is
inconsistent in any respect with the information contained in the
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Prospectus (as then amended or supplemented) or cause any advertisement to
be published in any newspaper or posted in any public place without our
consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class A shares of the Fund to be resold
by us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution
Agreement and subject to the compensation provisions of Section 3 hereof,
and (ii) to tender Class A shares directly to the Fund or its agent for
redemption subject to the applicable terms and conditions set forth in
Section 4 of the Distribution Agreement.
6. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: e.g.,
by a change in the "net asset value" from that used in determining the
offering price to your customers.
7. If any Class A shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the Fund
or are tendered for redemption within seven business days after the date of
the confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to, and refund to us, any discount received by you
on such Class A shares.
8. No person is authorized to make any representations
concerning Class A shares of the issuer except those contained in the
current Prospectus of the Fund and in such printed information subsequently
6
<PAGE>
<PAGE>
issued by us or the Fund as information supplemental to such Prospectus.
In purchasing Class A shares through us you shall rely solely on the
representations contained in the Prospectus and supplemental information
above mentioned. Any printed information which we furnish you other than
the Fund's Prospectus, periodic reports and proxy solicitation material are
our sole responsibility and not the responsibility of the Fund, and you
agree that the Fund shall have no liability or responsibility to you in
these respects unless expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus at or prior to the
time of offering or sale and you agree thereafter to deliver to such
purchasers copies of the annual and interim reports and proxy solicitation
materials of the Fund. You further agree to endeavor to obtain proxies
from such purchasers. Additional copies of the Prospectus, annual or
interim reports and proxy solicitation materials of the Fund will be
supplied to you in reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class A shares entirely. Each
party hereto has the right to cancel this agreement upon notice to the
other party.
11. We shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good
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<PAGE>
faith and for obligations expressly assumed by us herein. Nothing contained
in this paragraph is intended to operate as, and the provisions of this
paragraph shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as amended, or
of the rules and regulations of the Securities and Exchange Commission
issued thereunder.
12. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales in
the United States, we both hereby agree to abide by the Rules of Fair
Practice of such Association.
13. Upon application to us, we will inform you as to the states
in which we believe the Class A shares have been qualified for sale under,
or are exempt from the requirements of, the respective securities laws of
such states, but we assume no responsibility or obligation as to your right
to sell Class A shares in any jurisdiction. We will file with the
Department of State in New York a Further State Notice with respect to the
Class A shares, if necessary.
14. All communications to us should be sent to the address set
forth below. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
8
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15. Your first order placed pursuant to this Agreement for the
purchase of Class A shares of the Fund will represent your acceptance of
this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By:__________________________________
Authorized Signature
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
One Liberty Plaza
165 Broadway
New York, N.Y. 10006
Accepted:
Firm Name:_____________________________________________
By:____________________________________________________
Address:_______________________________________________
_______________________________________________________
Date:__________________________________________________
9
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the [ ] day of September, 1996 between
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND, a Maryland corporation
(the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act
of 1940, as amended to date (the "Investment Company Act"), as an open-end
investment company and it is affirmatively in the interest of the Fund to
offer its shares for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the
Class B shares of beneficial interest in the Fund (the "Class B shares") in
order to promote the growth of the Fund and facilitate the distribution of
its Class B shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR. The Fund hereby
appoints the Distributor as the principal underwriter and distributor of
the Fund to sell Class B shares of beneficial interest in the Fund
(sometimes herein referred to as "Class B shares") to the public and hereby
<PAGE>
<PAGE>
agrees during the term of this Agreement to sell Class B shares of the Fund
to the Distributor upon the terms and conditions herein set forth.
Section 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall
be the exclusive representative of the Fund to act as principal underwriter
and distributor of its Class B shares, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and distributors
of its Class B shares with respect to areas other than the United States as
to which the Distributor may have expressly waived in writing its right to
act as such. If such designation is deemed exclusive, the right of the
Distributor under this Agreement to sell Class B shares in the areas so
designated shall terminate, but this Agreement shall remain otherwise in
full effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive rights granted to the Distributor to
purchase Class B shares from the Fund shall not apply to shares of the Fund
issued in connection with the merger or consolidation of any other
investment company or personal holding company with the Fund or the
acquisition by purchase or otherwise of all (or substantially all) the
assets or the outstanding shares of any such company by the Fund.
(c) Such exclusive rights also shall not apply to Class B
shares issued by the Fund pursuant to reinvestment of dividends or capital
gains distributions.
2
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<PAGE>
(d) Such exclusive rights also shall not apply to Class B
shares issued by the Fund pursuant to any reinstatement privilege afforded
redeeming shareholders.
Section 3. PURCHASE OF SHARES FROM THE FUND.
(a) The Fund will commence an offering of its Class B
shares and thereafter the Distributor shall have the right to buy from the
Fund the Class B shares of the Fund needed, but not more than the Class B
shares of the Fund needed (except for clerical errors in transmission) to
fill unconditional orders for Class B shares of the Fund placed with the
Distributor by investors or securities dealers. Investors eligible to
purchase Class B shares of the Fund shall be those persons so identified in
the currently effective prospectus and statement of additional information
of the Fund (the "prospectus" and "statement of additional information,"
respectively) under the Securities Act of 1933, as amended (the "Securities
Act"), relating to such Class B shares. The price which the Distributor
shall pay for the Class B shares so purchased from the Fund shall be the
net asset value for the Fund, determined as set forth in Section 3(c)
hereof.
(b) The Class B shares of the Fund are to be resold by the
Distributor to investors at net asset value for the Fund, as set forth in
Section 3(c) hereof, or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7 hereof.
(c) The net asset value of Class B shares of the Fund shall
be determined by the Fund or any agent of the Fund in accordance with the
method set forth in the prospectus and statement of additional information
3
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<PAGE>
of the Fund and guidelines established by the Board of Trustees of the
Fund.
(d) The Fund shall have the right to suspend the sale of
Class B shares of the Fund at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund shall also
have the right to suspend the sale of Class B shares of the Fund if trading
on the New York Stock Exchange shall have been suspended, if a banking
moratorium shall have been declared by federal or New York authorities, or
if there shall have been some other event, which, in the judgment of the
Fund, makes it impracticable or inadvisable to sell the Class B shares.
(e) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase orders for
Class B shares received by the Distributor. Any order may be rejected by
the Fund; provided, however, that the Fund will not arbitrarily or without
reasonable cause refuse to accept or confirm orders for the purchase of
Class B shares. The Fund (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and, upon receipt by the Fund
(or its agent) of payment therefor, will deliver deposit receipts or
certificates for such Class B shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions
to be delivered promptly to the Fund (or its agent).
4
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<PAGE>
Section 4. REPURCHASE OR REDEMPTION OF
SHARES BY THE FUND.
(a) Any of the outstanding Class B shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or redeem the
Class B shares so tendered in accordance with its obligations as set forth
in Article VIII of its Declaration of Trust, as amended from time to time,
and in accordance with the applicable provisions set forth in the
prospectus and statement of additional information of the Fund. The price
to be paid to redeem or repurchase the Class B shares of the Fund shall be
equal to the net asset value for the Fund calculated in accordance with the
provisions of Section 3(c) hereof, less the redemption fee or other charge,
if any, set forth in the prospectus and statement of additional information
of the Fund. All payments by the Fund hereunder shall be made in the
manner set forth below.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of the
Distributor on or before the seventh business day subsequent to its having
received the notice of redemption in proper form. The proceeds of any
redemption of Class B shares shall be paid by the Fund as follows: (i) any
applicable contingent deferred sales charge shall be paid to the
Distributor and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of
the prospectus and statement of additional information.
(b) Redemption of Class B shares of the Fund or payment may
be suspended at times when the New York Stock Exchange is closed, when
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trading on that Exchange is closed, when trading on that Exchange is
restricted, when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its
net assets, or during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. DUTIES OF THE FUND.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor
may reasonably request for use in connection with the distribution of
Class B shares of the Fund, and this shall include, upon request by the
Distributor, one certified copy of all financial statements prepared for
the Fund by independent public accountants. The Fund shall make available
to the Distributor such number of copies of its prospectus and statement of
additional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
the necessary approval of the shareholders, all necessary action to fix the
number of authorized Class B shares and such steps as may be necessary to
register the same under the Securities Act of 1933, as amended (the
"Securities Act"), to the end that there will be available for sale such
number of Class B shares of the Fund as the Distributor reasonably may be
expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Class B shares of
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the Fund for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may be
withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund.
The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection
with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports of the
Fund.
Section 6. DUTIES OF THE DISTRIBUTOR.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class B shares of the Fund, but shall not be obligated
to sell any specific number of Class B shares. The services of the
Distributor to the Fund hereunder are not to be deemed exclusive and
nothing herein contained shall prevent the Distributor from entering into
like arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby.
(b) In selling the Class B shares of the Fund, the
Distributor shall use its best efforts in all respects duly to conform with
the requirements of all federal and state laws relating to the sale of such
securities. Neither the Distributor nor any selected dealer nor any other
person is authorized by the Fund to give any information or to make any
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representations, other than those contained in the registration statement
or related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of sales to
investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales, and the cancellation of
unsettled transactions, as may be necessary to comply with the requirements
of the National Association of Securities Dealers, Inc. (the "NASD"), as
such requirements may from time to time exist.
Section 7. SELECTED DEALER AGREEMENTS.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice ("selected
dealers") for the sale of Class B shares; provided that the Fund shall
approve the forms of agreements with dealers. Class B shares sold to
selected dealers shall be for resale by such dealers only at net asset
value determined as set forth in Section 3(c) hereof. The initial form of
agreement with selected dealers to be used in the offering of the Class B
shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class B shares only to such selected dealers as are members in
good standing of the NASD.
Section 8. PAYMENT OF EXPENSES.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in connection
8
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with the preparation and filing of any required registration statements
and/or prospectuses and statements of additional information under the
Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports
and proxy materials to shareholders (including but not limited to the
expense of setting in type any such registration statements, prospectuses,
statements of additional information, annual or interim reports or proxy
materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses associated
with payments of sales commissions to financial consultants. In addition,
after the prospectuses, statements of additional information and annual and
interim reports have been prepared and set in type, the Distributor shall
bear the costs and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class B shares to
selected dealers or investors pursuant to this Agreement. The Distributor
shall bear the costs and expenses of preparing, printing and distributing
any other literature used by the Distributor or furnished by it for use by
selected dealers in connection with the offering of the Class B shares for
sale to the public and any expenses of advertising incurred by the
Distributor in connection with such offering. It is understood and agreed
that, so long as the Fund's Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act remains in effect, any expenses incurred by the
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Distributor hereunder may be paid from amounts recovered by it from the
Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualifying
its Class B shares for sale pursuant to this Agreement, and, if necessary
or advisable in connection therewith, of qualifying the Fund as a broker or
dealer, in such states of the United States or other jurisdictions as shall
be selected by the Fund and the Distributor pursuant to Section 5(c) hereof
and the cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. INDEMNIFICATION.
(a) The Fund shall indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor against
any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim,
damage or expense and reasonable counsel fees incurred in connection
therewith) arising by reason of any person acquiring any Class B shares,
which may be based upon the Securities Act, or on any other statute or at
common law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time to time
amended and supplemented, or an annual or interim report to shareholders of
the Fund, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to make
the statements therein not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, information furnished to
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the Fund in connection therewith by or on behalf of the Distributor;
provided, however, that in no case (i) is the indemnity of the Fund in
favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against
any liability to the Fund or its security holders to which the Distributor
or any such controlling persons would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of the reckless disregard of their obligations
and duties under this Agreement; or (ii) is the Fund to be liable under its
indemnity agreement contained in this paragraph with respect to any claim
made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have
notified the Fund in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim
shall have been served upon the Distributor or such controlling persons (or
after the Distributor or such controlling persons shall have received
notice of such service on any designated agent), but failure to notify the
Fund of any such claim shall not relieve it from any liability which it may
have to the person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Fund
will be entitled to participate at its own expense in the defense, or, if
it so elects, to assume the defense of any suit brought to enforce any such
liability, but if the Fund elects to assume the defense, such defense shall
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be conducted by counsel chosen by it and satisfactory to the Distributor or
such controlling person or persons, defendant or defendants in the suit.
In the event the Fund elects to assume the defense of any such suit and
retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Fund does not
elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants
in the suit, for the reasonable fees and expenses of any counsel retained
by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its
officers or Trustees in connection with the issuance or sale of any of the
Class B shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Trustees and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage or expense
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance
upon, and in conformity with, information furnished to the Fund in writing
by or on behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of additional
information, as from time to time amended, or the annual or interim reports
to shareholders. In case any action shall be brought against the Fund or
any person so indemnified, in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties
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given to the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
Section 10. DURATION AND TERMINATION OF THIS AGREEMENT. This
Agreement shall become effective as of the date first above written and
shall remain in force until September [ ], 1998 and thereafter as to the
Fund, but only so long as such continuance is specifically approved at
least annually by (i) the Board of Trustees, or by the vote of a majority
of the outstanding Class B voting securities of the Fund, and (ii) by the
vote of a majority of those Trustees who are not parties to this Agreement
or interested persons of any such party cast in person at a meeting called
for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment
of any penalty, by the Trustees or by vote of a majority of the outstanding
Class B voting securities of the Fund, or by the Distributor, on sixty
days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting
securities," "assignment," "affiliated person" and "interested person,"
when used in this Agreement, shall have the respective meanings specified
in the Investment Company Act.
Section 11. AMENDMENTS OF THIS AGREEMENT. This Agreement may
be amended as to the Fund by the parties only if such amendment is
specifically approved by (i) the Board of Trustees of the Fund, or by the
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vote of a majority of outstanding Class B voting securities of the Fund,
and (ii) by the vote of a majority of those Trustees of the Fund who are
not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 12. GOVERNING LAW. The provisions of this Agreement
shall be construed and interpreted in accordance with the laws of the State
of New York as at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of the State
of New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH INTERMEDIATE GOVERNMENT
BOND FUND
By __________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By __________________________________
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EXHIBIT A
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
CLASS B SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
-------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Intermediate Government Bond Fund, a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for
the sale of Class B shares of beneficial interest in the Fund, par value
$0.10 per share (the "Class B shares"), and as such has the right to
distribute Class B shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended, and its Class B shares being offered to the public are registered
under the Securities Act of 1933, as amended. You have received a copy of
the Distribution Agreement between ourself and the Fund and reference is
made herein to certain provisions of such Distribution Agreement. The
terms "Prospectus" and "Statement of Additional Information" as used herein
refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission which is
part of the most recent effective registration statement pursuant to the
Securities Act of 1933, as amended. As principal, we offer to sell to you,
as a member of the Selected Dealers Group, Class B shares of the Fund upon
the following terms and conditions:
1. In all sales of these Class B shares to the public you shall
act as dealer for your own account, and in no transaction shall you have
any authority to act as agent for the Fund, for us or for any other member
of the Selected Dealers Group.
2. Orders received from you will be accepted through us only at
the public offering price applicable to each order, as set forth in the
current Prospectus and Statement of Additional Information of the Fund.
The procedure relating to the handling of orders shall be subject to
Section 4 hereof and instructions which we or the Fund shall forward from
time to time to you. All orders are subject to acceptance or rejection by
the Distributor or the Fund in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the Fund.
3. You shall not place orders for any of the Class B shares
unless you have already received purchase orders for such Class B shares at
the applicable public offering prices and subject to the terms hereof and
of the Distribution Agreement. You agree that you will not offer or sell
any of the Class B shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws and that
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in connection with sales and offers to sell Class B shares you will furnish
to each person to whom any such sale or offer is made a copy of the
Prospectus and, if requested, the Statement of Additional Information (as
then amended or supplemented) and will not furnish to any person any
information relating to the Class B shares of the Fund which is
inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper
or posted in any public place without our consent and the consent of the
Fund.
4. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class B shares of the Fund to be resold
by us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution
Agreement, and (ii) to tender Class B shares directly to the Fund or its
agent for redemption subject to the applicable terms and conditions set
forth in Section 4 of the Distribution Agreement.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: E.G.,
by a change in the "net asset value" from that used in determining the
offering price to your customers.
6. No person is authorized to make any representations
concerning Class B shares of the Fund except those contained in the current
Prospectus and Statement of Additional Information of the Fund and in such
printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus and Statement of Additional Information.
In purchasing Class B shares through us you shall rely solely on the
representations contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospectus,
Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility
of the Fund, and you agree that the Fund shall have no liability or
responsibility to you in these respects unless expressly assumed in
connection therewith.
7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if requested,
the Statement of Additional Information at or prior to the time of offering
or sale and you agree thereafter to deliver to such purchasers copies of
the annual and interim reports and proxy solicitation materials of the
Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of
Additional Information, annual or interim reports and proxy solicitation
materials of the Fund will be supplied to you in reasonable quantities upon
request.
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8. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class B shares entirely. Each
party hereto has the right to cancel this Agreement upon notice to the
other party.
9. We shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good
faith and for obligations expressly assumed by us herein. Nothing
contained in this paragraph is intended to operate as, and the provisions
of this paragraph shall not in any way whatsoever constitute, a waiver by
you of compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and Exchange
Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales in
the United States, we both hereby agree to abide by the Association's Rules
of Fair Practice.
11. Upon application to us, we will inform you as to the states
in which we believe the Class B shares have been qualified for sale under,
or are exempt from the requirements of, the respective securities laws of
such states, but we assume no responsibility or obligation as to your right
to sell Class B shares in any jurisdiction. We will file with the
Department of State in New York a Further State Notice with respect to the
Class B shares, if necessary.
12. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
13. Your first order placed pursuant to this Agreement for the
purchase of Class B shares of the Fund will represent your acceptance of
this Agreement.
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MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By____________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:_____________________________
By:____________________________________
Address:_______________________________
_______________________________________
Date:__________________________________
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the [ ] day of September, 1996 between
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND, a Maryland corporation
(the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act
of 1940, as amended (the "Investment Company Act"), as an open-end
investment company and it is affirmatively in the interest of the Fund to
offer its shares for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the
Class C shares of beneficial interest in the Fund (the "Class C shares") in
order to promote the growth of the Fund and facilitate the distribution of
its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR. The Fund hereby
appoints the Distributor as the principal underwriter and distributor of
the Fund to sell Class C shares of beneficial interest in the Fund
(sometimes herein referred to as "Class C shares") to the public and hereby
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agrees during the term of this Agreement to sell Class C shares of the Fund
to the Distributor upon the terms and conditions herein set forth.
Section 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall
be the exclusive representative of the Fund to act as principal underwriter
and distributor of its Class C shares, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and distributors
of its Class C shares with respect to areas other than the United States as
to which the Distributor may have expressly waived in writing its right to
act as such. If such designation is deemed exclusive, the right of the
Distributor under this Agreement to sell Class C shares in the areas so
designated shall terminate, but this Agreement shall remain otherwise in
full effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive rights granted to the Distributor to
purchase Class C shares from the Fund shall not apply to shares of the Fund
issued in connection with the merger or consolidation of any other
investment company or personal holding company with the Fund or the
acquisition by purchase or otherwise of all (or substantially all) the
assets or the outstanding shares of any such company by the Fund.
(c) Such exclusive rights also shall not apply to Class C
shares issued by the Fund pursuant to reinvestment of dividends or capital
gains distributions.
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(d) Such exclusive rights also shall not apply to Class C
shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or to any other
Class C shares as shall be agreed between the Fund and the Distributor from
time to time.
Section 3. PURCHASE OF SHARES FROM THE FUND.
(a) It is contemplated that the Fund will commence an
offering of its Class C shares and thereafter the Distributor shall have
the right to buy from the Fund the Class C shares of the Fund needed, but
not more than the Class C shares of the Fund needed (except for clerical
errors in transmission) to fill unconditional orders for Class C shares of
the Fund placed with the Distributor by eligible investors or securities
dealers. Investors eligible to purchase Class C shares of the Fund shall
be those persons so identified in the currently effective prospectus and
statement of additional information of the Fund (the "prospectus" and
"statement of additional information," respectively) under the Securities
Act of 1933, as amended (the "Securities Act"), relating to such Class C
shares. The price which the Distributor shall pay for the Class C shares
so purchased from the Fund shall be the net asset value for the Fund,
determined as set forth in Section 3(c) hereof.
(b) The Class C shares of the Fund are to be resold by the
Distributor to investors at net asset value for the Fund, as set forth in
Section 3(c) hereof, or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7 hereof.
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(c) The net asset value of Class C shares of the Fund shall
be determined by the Fund or any agent of the Fund in accordance with the
method set forth in the prospectus and statement of additional information
of the Fund and guidelines established by the Board of Trustees of the
Fund.
(d) The Fund shall have the right to suspend the sale of
Class C shares of the Fund at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund shall also
have the right to suspend the sale of Class C shares of the Fund if trading
on the New York Stock Exchange shall have been suspended, if a banking
moratorium shall have been declared by federal or New York authorities, or
if there shall have been some other event, which, in the judgment of the
Fund, makes it impracticable or inadvisable to sell the Class C shares.
(e) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase orders for
Class C shares received by the Distributor. Any order may be rejected by
the Fund; provided, however, that the Fund will not arbitrarily or without
reasonable cause refuse to accept or confirm orders for the purchase of
Class C shares. The Fund (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and, upon receipt by the Fund
(or its agent) of payment therefor, will deliver deposit receipts or
certificates for such Class C shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House
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funds. The Distributor agrees to cause such payment and such instructions
to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF
SHARES BY THE FUND.
(a) Any of the outstanding Class C shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or redeem the
Class C shares so tendered in accordance with its obligations as set forth
in Article VIII of its Declaration of Trust, as amended from time to time,
and in accordance with the applicable provisions set forth in the
prospectus and statement of additional information of the Fund. The price
to be paid to redeem or repurchase the Class C shares of the Fund shall be
equal to the net asset value for the Fund calculated in accordance with the
provisions of Section 3(c) hereof, less any contingent deferred sales
charge ("CDSC"), the redemption fee or other charges, if any, set forth in
the prospectus and statement of additional information of the Fund. All
payments by the Fund hereunder shall be made in the manner set forth below.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of the
Distributor on or before the seventh business day subsequent to its having
received the notice of redemption in proper form. The proceeds of any
redemption of Class C shares shall be paid by the Fund as follows: (i) any
applicable CDSC shall be paid to the Distributor, and (ii) the balance
shall be paid to or for the account of the shareholder, in each case in
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accordance with the applicable provisions of the prospectus and statement
of additional information.
(b) Redemption of Class C shares of the Fund or payment may
be suspended at times when the New York Stock Exchange is closed, when
trading on said Exchange is suspended, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its
net assets, or during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. DUTIES OF THE FUND.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor
may reasonably request for use in connection with the distribution of
Class C shares of the Fund, and this shall include, upon request by the
Distributor, one certified copy of all financial statements prepared for
the Fund by independent public accountants. The Fund shall make available
to the Distributor such number of copies of its prospectus and statement of
additional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
the necessary approval of the shareholders, all necessary action to fix the
number of authorized Class C shares and such steps as may be necessary to
register the same under the Securities Act of 1933, as amended (the
"Securities Act"), to the end that there will be available for sale such
6
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number of Class C shares of the Fund as the Distributor reasonably may be
expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of Class C shares of
the Fund for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may be
withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund.
The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection
with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports of the
Fund.
Section 6. DUTIES OF THE DISTRIBUTOR.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class C shares of the Fund, but shall not be obligated
to sell any specific number of Class C shares. The services of the
Distributor to the Fund hereunder are not to be deemed exclusive and
nothing herein contained shall prevent the Distributor from entering into
like arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby.
(b) In selling the Class C shares of the Fund, the
Distributor shall use its best efforts in all respects duly to conform with
7
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the requirements of all federal and state laws relating to the sale of such
securities. Neither the Distributor nor any selected dealer, as defined in
Section 7 hereof, nor any other person is authorized by the Fund to give
any information or to make any representations, other than those contained
in the registration statement or related prospectus and statement of
additional information and any sales literature specifically approved by
the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of sales to
investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales, and the cancellation of
unsettled transactions, as may be necessary to comply with the requirements
of the National Association of Securities Dealers, Inc. (the "NASD"), as
such requirements may from time to time exist.
Section 7. SELECTED DEALER AGREEMENTS.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice ("selected
dealers") for the sale of Class C shares; provided that the Fund shall
approve the forms of agreements with dealers. Class C shares sold to
selected dealers shall be for resale by such dealers only at net asset
value determined as set forth in Section 3(c) hereof. The initial form of
agreement with selected dealers to be used during the continuous offering
of the Class C shares is attached hereto as Exhibit A.
8
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(b) Within the United States, the Distributor shall offer
and sell Class C shares only to such selected dealers as are members in
good standing of the NASD.
Section 8. PAYMENT OF EXPENSES.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in connection
with the preparation and filing of any required registration statements
and/or prospectuses and statements of additional information under the
Investment Company Act, the Securities Act, and all amendments and
supplements thereto, and preparing and mailing annual and interim reports
and proxy materials to shareholders (including but not limited to the
expense of setting in type any such registration statements, prospectuses,
statements of additional information, annual or interim reports or proxy
materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses associated
with payments of sales commissions to financial consultants. In addition,
after the prospectuses, statements of additional information and annual and
interim reports have been prepared and set in type, the Distributor shall
bear the costs and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class C shares to
selected dealers or investors pursuant to this Agreement. The Distributor
shall bear the costs and expenses of preparing, printing and distributing
any other literature used by the Distributor or furnished by it for use by
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selected dealers in connection with the offering of the Class C shares for
sale to the public and any expenses of advertising incurred by the
Distributor in connection with such offering. It is understood and agreed
that, so long as the Fund's Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act remains in effect, any expenses incurred by the
Distributor hereunder may be paid from amounts recovered by it from the
Fund under such Plan.
(c) The Fund shall bear the cost and expenses of
qualification of the Class C shares for sale pursuant to this Agreement
and, if necessary or advisable in connection therewith, of qualifying the
Fund as a broker or dealer, in such states of the United States or other
jurisdictions as shall be selected by the Fund and the Distributor pursuant
to Section 5(c) hereof and the cost and expenses payable to each such state
for continuing qualification therein until the Fund decides to discontinue
such qualification pursuant to Section 5(c) hereof.
Section 9. INDEMNIFICATION.
(a) The Fund shall indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor against
any loss, liability, claim, damage or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, claim,
damage or expense and reasonable counsel fees incurred in connection
therewith), as incurred, arising by reason of any person acquiring any
Class C shares, which may be based upon the Securities Act, or on any other
statute or at common law, on the ground that the registration statement or
related prospectus and statement of additional information, as from time to
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time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, unless
such statement or omission was made in reliance upon, and in conformity
with, information furnished to the Fund in connection therewith by or on
behalf of the Distributor; provided, however, that in no case (i) is the
indemnity of the Fund in favor of the Distributor and any such controlling
persons to be deemed to protect such Distributor or any such controlling
persons thereof against any liability to the Fund or its security holders
to which the Distributor or any such controlling persons would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of
their obligations and duties under this Agreement; or (ii) is the Fund to
be liable under its indemnity agreement contained in this paragraph with
respect to any claim made against the Distributor or any such controlling
persons, unless the Distributor or such controlling persons, as the case
may be, shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Distributor or such
controlling persons (or after the Distributor or such controlling persons
shall have received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve it from any
liability which it may have to the person against whom such action is
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brought otherwise than on account of its indemnity agreement contained in
this paragraph. The Fund will be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it
and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to
assume the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or defendants
in the suit, shall bear the fees and expenses, as incurred, of any
additional counsel retained by them, but, in case the Fund does not elect
to assume the defense of any such suit, it will reimburse the Distributor
or such controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses, as incurred, of any counsel retained
by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its
officers or Trustees in connection with the issuance or sale of any of the
Class C shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Trustees and officers and each person, if any, who
controls the Fund against any loss, liability, claim, damage or expense, as
incurred, described in the foregoing indemnity contained in subsection (a)
of this Section, but only with respect to statements or omissions made in
reliance upon, and in conformity with, information furnished to the Fund in
writing by or on behalf of the Distributor for use in connection with the
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registration statement or related prospectus and statement of additional
information, as from time to time amended, or the annual or interim reports
to shareholders. In case any action shall be brought against the Fund or
any person so indemnified, in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties
given to the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
Section 10. DURATION AND TERMINATION OF THIS AGREEMENT. This
Agreement shall become effective as of the date first above written and
shall remain in force until September [ ], 1998 and thereafter as to the
Fund, but only so long as such continuance is specifically approved at
least annually by (i) the Board of Trustees of the Fund or by the vote of a
majority of the outstanding Class C voting securities of the Fund, and
(ii) by the vote of a majority of those Trustees who are not parties to
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment
of any penalty, by the Trustees or by vote of a majority of the outstanding
Class C voting securities of the Fund, or by the Distributor, on sixty
days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested person",
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when used in this Agreement, shall have the respective meanings specified
in the Investment Company Act.
Section 11. AMENDMENTS OF THIS AGREEMENT. This Agreement may
be amended as to the Fund by the parties only if such amendment is
specifically approved by (i) the Board of Trustees of the Fund, or by the
vote of a majority of outstanding Class C voting securities of the Fund,
and (ii) by the vote of a majority of those Trustees of the Fund who are
not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 12. GOVERNING LAW. The provisions of this Agreement
shall be construed and interpreted in accordance with the laws of the State
of New York as at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of the State
of New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH INTERMEDIATE GOVERNMENT
BOND FUND
By: _________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By __________________________________
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EXHIBIT A
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
CLASS C SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
-------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Intermediate Government Bond Fund, a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for
the sale of Class C shares of beneficial interest in the Fund, par value
$0.10 per share (the "Class C shares"), and as such has the right to
distribute Class C shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended, and its Class C shares being offered to the public are registered
under the Securities Act of 1933, as amended. You have received a copy of
the Class C Shares Distribution Agreement (the "Distribution Agreement")
between ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospectus" and
"Statement of Additional Information" as used herein refer to the
prospectus and statement of additional information, respectively, on file
with the Securities and Exchange Commission which is part of the most
recent effective registration statement pursuant to the Securities Act of
1933, as amended. We offer to sell to you, as a member of the Selected
Dealers Group, Class C shares of the Fund upon the following terms and
conditions:
1. In all sales of these Class C shares to the public you shall
act as dealer for your own account, and in no transaction shall you have
any authority to act as agent for the Fund, for us or for any other member
of the Selected Dealers Group.
2. Orders received from you will be accepted through us only at
the public offering price applicable to each order, as set forth in the
current Prospectus and Statement of Additional Information of the Fund.
The procedure relating to the handling of orders shall be subject to
Section 4 hereof and instructions which we or the Fund shall forward from
time to time to you. All orders are subject to acceptance or rejection by
the Distributor or the Fund in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the Fund.
3. You shall not place orders for any of the Class C shares
unless you have already received purchase orders for such Class C shares at
the applicable public offering prices and subject to the terms hereof and
of the Distribution Agreement. You agree that you will not offer or sell
any of the Class C shares except under circumstances that will result in
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compliance with the applicable Federal and state securities laws and that
in connection with sales and offers to sell Class C shares you will furnish
to each person to whom any such sale or offer is made a copy of the
Prospectus and, if requested, the Statement of Additional Information (as
then amended or supplemented) and will not furnish to any person any
information relating to the Class C shares of the Fund which is
inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper
or posted in any public place without our consent and the consent of the
Fund.
4. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class C shares of the Fund to be resold
by us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution
Agreement, and (ii) to tender Class C shares directly to the Fund or its
agent for redemption subject to the applicable terms and conditions set
forth in Section 4 of the Distribution Agreement.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: E.G.,
by a change in the "net asset value" from that used in determining the
offering price to your customers.
6. No person is authorized to make any representations
concerning Class C shares of the Fund except those contained in the current
Prospectus and Statement of Additional Information of the Fund and in such
printed information subsequently issued by us or the Fund as information
supplemental to such Prospectus and Statement of Additional Information.
In purchasing Class C shares through us you shall rely solely on the
representations contained in the Prospectus and Statement of Additional
Information and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospectus,
Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility
of the Fund, and you agree that the Fund shall have no liability or
responsibility to you in these respects unless expressly assumed in
connection therewith.
7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if requested,
the Statement of Additional Information at or prior to the time of offering
or sale and you agree thereafter to deliver to such purchasers copies of
the annual and interim reports and proxy solicitation materials of the
Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of
Additional Information, annual or interim reports and proxy solicitation
materials of the Fund will be supplied to you in reasonable quantities upon
request.
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8. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class C shares entirely or to
certain persons or entities in a class or classes specified by us. Each
party hereto has the right to cancel this Agreement upon notice to the
other party.
9. We shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good
faith and for obligations expressly assumed by us herein. Nothing
contained in this paragraph is intended to operate as, and the provisions
of this paragraph shall not in any way whatsoever constitute, a waiver by
you of compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and Exchange
Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any sales in
the United States, we both hereby agree to abide by the Rules of Fair
Practice of such Association.
11. Upon application to us, we will inform you as to the states
in which we believe the Class C shares have been qualified for sale under,
or are exempt from the requirements of, the respective securities laws of
such states, but we assume no responsibility or obligation as to your right
to sell Class C shares in any jurisdiction. We will file with the
Department of State in New York a Further State Notice with respect to the
Class C shares, if necessary.
12. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
13. Your first order placed pursuant to this Agreement for the
purchase of Class C shares of the Fund will represent your acceptance of
this Agreement.
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MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By___________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:_____________________________
By:____________________________________
Address:_______________________________
_______________________________________
Date:__________________________________
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the [ ] day of September 1996 between Merrill
Lynch Intermediate Government Bond Fund, a Maryland corporation, (the
"Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation
(the "Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its
shares for sale continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class D
shares of beneficial interest in the Fund (the "Class D shares") in order
to promote the growth of the Fund and facilitate the distribution of its
Class D shares.
NOW, THEREFORE, the parties agree as follows:
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Section 1. APPOINTMENT OF THE DISTRIBUTOR. The Fund hereby appoints
the Distributor as the principal underwriter and distributor of the Fund to
sell Class D shares of beneficial interest in the Fund (sometimes herein
referred to as "Class D shares") to the public and hereby agrees during the
term of this Agreement to sell Class D shares of the Fund to the
Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class D
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such.
If such designation is deemed exclusive, the right of the Distributor under
this Agreement to sell Class D shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full effect until
terminated in accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class
D shares from the Fund shall not apply to Class D shares issued in
connection with the merger or consolidation of any other investment company
or personal holding company with the Fund or the acquisition by purchase or
2
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otherwise of all (or substantially all) the assets or the outstanding
shares of any such company by the Fund.
(c) Such exclusive right also shall not apply to Class D shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class D shares
issued by the Fund pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class D shares as
shall be agreed between the Fund and the Distributor from time to time.
Section 3. PURCHASE OF CLASS D SHARES FROM THE FUND.
(a) It is contemplated that the Fund will commence an offering of its
Class D shares, and thereafter the Distributor shall have the right to buy
from the Fund the Class D shares of the Fund needed, but not more than the
Class D shares of the Fund needed (except for clerical errors in
transmission) to fill unconditional orders for Class D shares of the Fund
placed with the Distributor by eligible investors or securities dealers.
Investors eligible to purchase Class D shares of the Fund shall be those
persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class D shares. The price
which the Distributor shall pay for the Class D shares so purchased from
the Fund shall be the net asset value for the Fund, determined as set forth
3
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in Section 3(d) hereof, used in determining the public offering price on
which such orders were based.
(b) The Class D shares of the Fund are to be resold by the
Distributor to investors at the public offering price for the Fund, as set
forth in Section 3(c) hereof, or to securities dealers having agreements
with the Distributor upon the terms and conditions set forth in Section 7
hereof.
(c) The public offering price(s) of Class D shares of the Fund, I.E.,
the price per share at which the Distributor or selected dealers may sell
Class D shares to the public, shall be the public offering price as set
forth in the prospectus and statement of additional information relating to
such Class D shares, but not to exceed the net asset value at which the
Distributor is to purchase the Class D shares, plus a sales charge not to
exceed 1.00% of the public offering price (1.01% of the net amount invested
for Class D shares of the Fund), subject to reductions for volume
purchases. If the public offering price does not equal an even cent, the
public offering price may be adjusted to the nearest cent. All payments to
the Fund hereunder shall be made in the manner set forth in Section 3(f).
(d) The net asset value of Class D shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance with the
method set forth in the prospectus and statement of additional information
of the Fund and guidelines established by the Board of Trustees of the
Fund.
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(e) The Fund shall have the right to suspend the sale of Class D
shares of the Fund at times when redemption is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Fund shall also have the
right to suspend the sale of Class D shares of the Fund if trading on the
New York Stock Exchange shall have been suspended, if a banking moratorium
shall have been declared by federal or New York authorities, or if there
shall have been some other event, which, in the judgment of the Fund, makes
it impracticable or inadvisable to sell the Class D shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class D shares
received by the Distributor. Any order may be rejected by the Fund;
provided, however, that the Fund will not arbitrarily or without reasonable
cause refuse to accept or confirm orders for the purchase of Class D
shares. The Fund (or its agent) will confirm orders upon their receipt,
will make appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or certificates
for such Class D shares pursuant to the instructions of the Distributor.
Payment shall be made to the Fund in New York Clearing House funds. The
Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
5
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Section 4. REPURCHASE OR REDEMPTION OF CLASS D SHARES BY THE FUND.
(a) Any of the outstanding Class D shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the
Class D shares so tendered in accordance with its obligations as set forth
in Article VIII of its Declaration of Trust, as amended from time to time,
and in accordance with the applicable provisions set forth in the
prospectus and statement of additional information. The price to be paid
to redeem or repurchase the Class D shares of the Fund shall be equal to
the net asset value for the Fund calculated in accordance with the
provisions of Section 3(d) hereof, less any contingent deferred sales
charge ("CDSC"), redemption fee or other charge(s), if any, set forth in
the prospectus and statement of additional information of the Fund. All
payments by the Fund hereunder shall be made in the manner set forth below.
The redemption or repurchase by the Fund of any of the Class D shares of
the Fund purchased by or through the Distributor will not affect the sales
charge secured by the Distributor or any selected dealer in the course of
the original sale, except that if any Class D shares of the Fund are
tendered for redemption or repurchase within seven business days after the
date of the confirmation of the original purchase, the right to the sales
charge shall be forfeited by the Distributor and the selected dealer which
sold such Class D shares.
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The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor in
New York Clearing House funds on or before the seventh business day
subsequent to its having received the notice of redemption in proper form.
The proceeds of any redemption of shares shall be paid by the Fund as
follows: (i) any applicable CDSC shall be paid to the Distributor, and
(ii) the balance shall be paid to or for the account of the shareholder, in
each case in accordance with the applicable provisions of the prospectus
and statement of additional information.
(b) Redemption of Class D shares of the Fund or payment may be
suspended at times when the New York Stock Exchange is closed, when trading
on said Exchange is suspended, when trading on said Exchange is restricted,
when an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its
net assets, or during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. DUTIES OF THE FUND.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor
may reasonably request for use in connection with the distribution of Class
D shares of the Fund, and this shall include, upon request by the
Distributor, one certified copy of all financial statements prepared for
the Fund by independent public accountants. The Fund shall make available
7
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to the Distributor such number of copies of the prospectus and statement of
additional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the Class D shareholders, all necessary action to fix
the number of authorized Class D shares of the Fund and such steps as may
be necessary to register the same under the Securities Act, to the end that
there will be available for sale such number of Class D shares of the Fund
as the Distributor may reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class
D shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may be
withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund.
The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection
with such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Fund.
Section 6. DUTIES OF THE DISTRIBUTOR.
8
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(a) The Distributor shall devote reasonable time and effort to effect
sales of Class D shares of the Fund but shall not be obligated to sell any
specific number of Class D shares. The services of the Distributor to the
Fund hereunder are not to be deemed exclusive and nothing herein contained
shall prevent the Distributor from entering into like arrangements with
other investment companies so long as the performance of its obligations
hereunder is not impaired thereby.
(b) In selling the Class D shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements
of all Federal and state laws relating to the sale of such securities.
Neither the Distributor nor any selected dealer, as defined in Section 7
hereof, nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in
the registration statement or related prospectus and statement of
additional information and any sales literature specifically approved by
the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by
the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and
selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
9
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Section 7. SELECTED DEALERS AGREEMENTS.
(a) The Distributor shall have the right to enter into selected
dealers agreements with securities dealers of its choice ("selected
dealers") for the sale of Class D shares and fix therein the portion of the
sales charge which may be allocated to the selected dealers; provided that
the Fund shall approve the forms of agreements with dealers and the dealer
compensation set forth therein. Class D shares sold to selected dealers
shall be for resale by such dealers only at the public offering price(s)
set forth in the prospectus and statement of additional information. The
form of agreement with selected dealers to be used during the continuous
offering of the Class D shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell
Class D shares only to such selected dealers as are members in good
standing of the NASD.
Section 8. PAYMENT OF EXPENSES.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements
thereto, and preparing and mailing annual and interim reports and proxy
materials to Class D shareholders (including but not limited to the expense
of setting in type any such registration statements, prospectuses,
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statements of additional information, annual or interim reports or proxy
materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with
payments of sales commissions to financial consultants. In addition, after
the prospectuses, statements of additional information and annual and
interim reports have been prepared and set in type, the Distributor shall
bear the costs and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class D shares to
selected dealers or investors pursuant to this Agreement. The Distributor
shall bear the costs and expenses of preparing, printing and distributing
any other literature used by the Distributor or furnished by it for use by
selected dealers in connection with the offering of the Class D shares for
sale to the public and any expenses of advertising incurred by the
Distributor in connection with such offering. It is understood and agreed
that so long as the Fund's Class D Shares Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder in connection with account
maintenance activities may be paid from amounts recovered by it from the
Fund under such plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class D shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or
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dealer in such states of the United States or other jurisdictions as shall
be selected by the Fund and the Distributor pursuant to Section 5(c) hereof
and the cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. INDEMNIFICATION.
(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith), as
incurred, arising by reason of any person acquiring any Class D shares,
which may be based upon the Securities Act, or on any other statute or at
common law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time to time
amended and supplemented, or an annual or interim report to shareholders of
the Fund, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the
Fund in favor of the Distributor and any such controlling persons to be
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deemed to protect such Distributor or any such controlling persons thereof
against any liability to the Fund or its security holders to which the
Distributor or any such controlling persons would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be
liable under its indemnity agreement contained in this paragraph with
respect to any claim made against the Distributor or any such controlling
persons, unless the Distributor or such controlling persons, as the case
may be, shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Distributor or such
controlling persons (or after the Distributor or such controlling persons
shall have received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve it from any
liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in
this paragraph. The Fund will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it
and satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Fund elects to
assume the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or defendants
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in the suit shall bear the fees and expenses of any additional counsel
retained by them, but in case the Fund does not elect to assume the defense
of any such suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the reasonable
fees and expenses of any counsel retained by them. The Fund shall promptly
notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance or sale of any of the Class D shares.
(b) The Distributor shall indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only
with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the registration
statement or related prospectus and statement of additional information, as
from time to time amended, or the annual or interim reports to Class D
shareholders. In case any action shall be brought against the Fund or any
person so indemnified, in respect of which indemnity may be sought against
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the Distributor, the Distributor shall have the rights and duties given to
the Fund, and the Fund and each person so indemnified shall have the rights
and duties given to the Distributor by the provisions of subsection (a) of
this Section 9.
Section 10. MERRILL LYNCH MUTUAL FUND ADVISER PROGRAM. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are
authorized to offer and sell shares of the Fund, as agent for the Fund, to
participants in such program. The terms of this Agreement shall apply to
such sales, including terms as to the offering price of shares, the
proceeds to be paid to the Fund, the duties of the Distributor, the payment
of expenses and indemnification obligations of the Fund and the
Distributor.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT. This
Agreement shall become effective as of the date first above written and
shall remain in force until September [ ], 1998 and thereafter, but only
for so long as such continuance is specifically approved at least annually
by (i) the Trustees or by the vote of a majority of the outstanding voting
securities of the Fund and (ii) by the vote of a majority of those Trustees
who are not parties to this Agreement or interested persons of any such
party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees or by vote of a majority of the outstanding
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voting securities of the Fund, or by the Distributor, on sixty days'
written notice to the other party. This Agreement shall automatically
terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in
this Agreement, shall have the respective meanings specified in the
Investment Company Act.
Section 12. AMENDMENTS OF THIS AGREEMENT. This Agreement may be
amended by the parties only if such amendment is specifically approved by
(i) the Trustees or by the vote of a majority of outstanding voting
securities of the Fund and (ii) by the vote of a majority of those Trustees
of the Fund who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting
on such approval.
Section 13. GOVERNING LAW. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New
York as at the time in effect and the applicable provisions of the
Investment Company Act. To the extent that the applicable law of the State
of New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND
FUND
By_________________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_________________________________________
Title:
17
EXHIBIT A
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
CLASS D SHARES OF BENEFICIAL INTEREST
SELECTED DEALERS AGREEMENT
--------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Intermediate Government Bond Fund, a Maryland
corporation, (the "Fund"), pursuant to which it acts as the distributor for
the sale of Class D shares of beneficial interest in the Fund, par value
$0.10 per share (the "Class D Shares"), and as such has the right to
distribute Class D shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended, and its Class D shares being offered to the public are registered
under the Securities Act of 1933, as amended. You have received a copy of
the Class D Shares Distribution Agreement (the "Distribution Agreement")
between ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospectus" and
"Statement of Additional Information" used herein refer to the prospectus
and statement of additional information, respectively, on file with the
Securities and Exchange Commission which is part of the most recent
effective registration statement pursuant to the Securities Act of 1933, as
amended. We offer to sell to you, as a member of the Selected Dealers
Group, Class D shares of the Fund upon the following terms and conditions:
1. In all sales of these Class D shares to the public, you shall act
as dealer for your own account and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch
Mutual Fund Adviser program and such other special programs as we from time
to time agree, in which case you shall have authority to offer and sell
shares, as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The
procedure relating to the handling of orders shall be subject to Section 5
hereof and instructions which we or the Fund shall forward from time to
time to you. All orders are subject to acceptance or rejection by the
<PAGE>
<PAGE>
Distributor or the Fund in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the Fund.
3. The sales charges for sales to the public, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage<F1> Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- - ------------------ -------------- ------------- -----------
<S> <C> <C> <C>
Less than $100,000 1.00% 1.01% .95%
$100,000 but less
than $250,000 .75% .76% .70%
$250,000 but less
than $500,000 .50% .50% .45%
500,000 but less
than $1,000,000 .30% .30% .27%
$1,000,000 or more<F2> .00% .00% .20%
___________________
<FN>
<F1> Rounded to the nearest one-hundredth percent.
<F2> Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchases may be subject to a contingent deferred sales charge as
set forth in the current Prospectus and Statement of Additional Information.
</TABLE>
The term "purchase" 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 Class D shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class D 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 of 1940, as
amended, 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 Class D shares of the Fund or Class D shares of other registered
investment companies at a discount; provided, however, that it shall not
2
<PAGE>
<PAGE>
include purchases by any group of individuals whose sole organizational nexus
is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which eligible investors are permitted to purchase Class D shares of the
Fund at the offering price applicable to the total of (a) the public offering
price of the shares then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the Fund
and of any other investment company with an initial sales charge for which the
Distributor acts as the distributor. For any such right of accumulation to be
made available, the Distributor must be provided at the time of purchase, by
the purchaser or you, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation.
The reduced sales charges are applicable to purchases aggregating $100,000
or more of Class A shares or of Class D shares of any other investment company
with an initial sales charge for which the Distributor acts as the distributor
made through you within a thirteen-month period starting with the first
purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. 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. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of any sales
made by you to the public qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intention is set forth in the Prospectus and
Statement of Additional Information.
4. You shall not place orders for any of the Class D shares of the Fund
unless you have already received purchase orders for such Class D shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class D shares except under circumstances that will result in compliance with
the applicable federal and state securities laws and that in connection with
sales and offers to sell Class D shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class D shares of the
Fund which is inconsistent in any respect with the information contained in the
3
<PAGE>
<PAGE>
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class D shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement and subject
to the compensation provisions of Section 3 hereof and (ii) to tender Class D
shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
6. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding: E.G., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
7. If any Class D shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are
tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class D shares.
8. No person is authorized to make any representations concerning Class D
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class D
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
4
<PAGE>
<PAGE>
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class D shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
13. Upon application to us, we will inform you as to the states in which
we believe the Class D shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class D shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class D shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
15. Your first order placed pursuant to this Agreement for the purchase
of Class D shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By___________________________________
(Authorized Signature)
Please return one signed copy
of this agreement to:
5
<PAGE>
<PAGE>
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
__________________________________________
By:__________________________________________________
Address:
___________________________________________
____________________________________________________
Date:
________________________________________________
6
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of September, 1996, by
and between Merrill Lynch Intermediate Government Bond Fund, a Maryland
corporation (the "Fund"), and Merrill Lynch Funds Distributor, Inc., a
Delaware corporation ("MLFD").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or
through other securities dealers; and
WHEREAS, the Fund has entered into a Class B Shares Distribution
Agreement with MLFD, pursuant to which MLFD acts as the exclusive
distributor and representative of the Fund in the offer and sale of the
Class B shares of beneficial interest in the Fund (the "Class B shares") to
the public; and
WHEREAS, the Fund has entered into a Class B Distribution Plan
(the "Prior Plan") pursuant to Rule 12b-1 under the Investment Company Act;
and
WHEREAS, the Fund desires to adopt this Amended and Restated
Class B Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account maintenance fee
and a distribution fee to MLFD in connection with the distribution of Class
B shares of the Fund;
WHEREAS, the Fund desires to adopt this Distribution Plan with
respect to Class B shares of beneficial interest in the Fund; and
WHEREAS, the Trustees of the Fund have determined that there is a
reasonable likelihood that adoption of this Distribution Plan will benefit
the Fund and its Class B shareholders.
NOW, THEREFORE, the Fund hereby adopts, and the Distributor
hereby agrees to the terms of, this Distribution Plan (the "Plan") in
accordance with Rule 12b-l under the Investment Company Act on the
following terms and conditions:
<PAGE>
<PAGE>
1. The Fund shall pay MLFD an account maintenance fee under the
Plan at the end of each month with respect to each Portfolio of the Fund at
the annual rate of 0.10% of the average daily net assets of the Fund
relating to Class B shares to compensate MLFD and securities firms with
which MLFD enters into related agreements ("Sub-Agreements") pursuant to
Paragraph 3 hereof for account maintenance activities with respect to
Class B shareholders of the Fund.
2. The Fund shall pay MLFD a distribution fee under the Plan at
the end of each month (i) at the annual rate of 0.25% of the average daily
net asset value of the Class B shares of the Fund to compensate MLFD and
securities firms with which MLFD enters into related agreements
("Sub-Agreements") pursuant to Paragraph 3 hereof for providing sales and
promotional activities and services. Such activities and services will
relate to the sale, promotion and marketing of the Class B shares of the
Fund and payments related to the furnishing of services to Class B
shareholders by sales and marketing personnel. Such expenditures may
consist of sales commissions to financial consultants for selling Class B
shares of the Fund, compensation, sales incentives and payments to sales
and marketing personnel, and the payment of expenses incurred in its sales
and promotional activities, including advertising expenditures related to
the Class B shares of the Fund, the costs of preparing and distributing
promotional materials. The distribution fee may also be used to pay the
financing costs of carrying on the unreimbursed expenditures described in
this Paragraph 2. Payment of the distribution fee described in this
Paragraph 2 shall be subject to any limitations set forth in applicable
regulation of the National Association of Securities Dealers, Inc. Only
distribution expenditures properly attributable to the sale of Class B
shares of the Fund will be used to justify any fee paid by the Fund
pursuant to this Plan.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements
with certain securities firms ("Securities Firms"), including Merrill
Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to such
Securities Firms for activities and services of the type referred to in
Paragraph 1 and 2 hereof. MLFD may reallocate all or a portion of its
distribution fee to such Securities Firms as compensation for the
above-mentioned activities and services. Such Sub-Agreement shall provide
that the Securities Firms shall provide MLFD with such information as is
reasonably necessary to permit MLFD to comply with the reporting
requirements set forth in Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of
Trustees, and the Trustees shall review, at least quarterly, a written
report complying with the requirements of Rule 12b-1 regarding the
disbursement of the account maintenance fee and distribution fee during
such period.
2
<PAGE>
<PAGE>
5. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a)
the Board of Trustees of the Fund and (b) those Trustees of the Fund who
are not "interested persons" of the Fund, as defined in the Investment
Company Act, and have no direct or indirect financial interest in the
operation of the Plan or any agreements related to it (the "Rule 12b-1
Trustees"), cast in person at a meeting or meetings called for the purpose
of voting on the Plan and such related agreements.
6. The Plan shall continue in effect for so long as such
continuance is specifically approved at least annually in the manner
provided for approval of the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority
of the Rule 12b-l Trustees or by vote of a majority of the outstanding
Class B voting securities of the Fund.
8. The Plan may not be amended to increase materially the rate
of payments provided for herein unless such amendment is approved by at
least a majority, as defined in the Investment Company Act, of the
outstanding Class B voting securities of the Fund and by the Board of
Trustees of the Fund in the manner provided for in Paragraph 5 hereof, and
no material amendment to the Plan shall be made unless approved in the
manner provided for approval and annual renewal in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Trustees who are not interested persons, as defined in the Investment
Company Act, of the Fund shall be committed to the discretion of the
Trustees who are not interested persons.
10. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a
period of not less than six years from the date of the Plan, or the
agreements or such report, as the case may be, the first two years in an
easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this Plan as
of , 1996.
MERRILL LYNCH INTERMEDIATE GOVERNMENT
BOND FUND
By__________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________
3
<PAGE>
<PAGE>
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of September, 1996 by and
between Merrill Lynch Funds Distributor, Inc., a Delaware corporation
("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a
Delaware corporation (the "Securities Firm")
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Intermediate Government Bond Fund, a Maryland corporation (the "Fund"),
pursuant to which it acts as the exclusive distributor for the sale of
Class B shares of beneficial interest in the Fund (the "Class B shares");
and
WHEREAS, MLFD and the Fund have entered into an Amended and
Restated Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") pursuant to which MLFD receives
an account maintenance fee from the Fund at the annual rate of 0.10% of the
average daily net assets of the Fund relating to Class B shares for account
maintenance activities related to Class B shares of the Fund and a
distribution fee from the Fund at the annual rate of 0.25% of the average
daily net asset value of the Class B Shares of the Fund for providing sales
and promotional activities and services related to the distribution of
Class B shares of the Fund; and
WHEREAS, MLFD desires the Securities Firm to perform certain
account maintenance activities and sales and promotional activities and
services for the Fund's Class B shareholders, and the Securities Firm is
willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance
activities and services with respect to the Class B shares of the Fund and
incur expenditures in connection with such activities and services of the
types referred to in Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional
activities and services with respect to the sale of the Class B shares of
the Fund, and incur distribution expenditures, of the types referred to in
Paragraph 2 of the Plan.
3. As compensation for its activities and services performed
under this Agreement, MLFD shall pay the Securities Firm an account
maintenance fee and a distribution fee at the end of each calendar month in
an amount agreed upon by the parties hereto.
4
<PAGE>
<PAGE>
4. The Securities Firm shall provide MLFD, at least quarterly,
such information as reasonably requested by MLFD to enable MLFD to comply
with the reporting requirements of Rule 12b-1 regarding the disbursement of
the account maintenance fee and the distribution fee during such period
referred to in Paragraph 4 of the Plan.
5. This Sub-Agreement shall not take effect until it has been
approved by votes of a majority of both (a) the Board of Trustees of the
Fund and (b) those Trustees of the Fund who are not "interested persons" of
the Fund, as defined in the Act, and have no direct or indirect financial
interest in the operation of the Plan, this Agreement, or any agreements
related to the Plan or this Agreement (the "Rule 12b-1 Trustees"), cast in
person at a meeting or meetings called for the purpose of voting on this
Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner
provided for approval of the Plan in Paragraph 5.
7. This Agreement shall automatically terminate in the event of
its assignment or in the event of the termination of the Plan or any
amendment to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of ____________________, 1996.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By__________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By__________________________________
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the [ ] day of September 1996, by and
between Merrill Lynch Intermediate Government Bond Fund, a Maryland
corporation (the "Fund"), and Merrill Lynch Funds Distributor, Inc., a
Delaware corporation ("MLFD").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class C Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of the
Class C shares of beneficial interest in the Fund, par value $0.10 per
share (the "Class C shares"); and
WHEREAS, the Fund desires to adopt this Class C Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant
to which the Fund will pay an account maintenance fee and a distribution
fee to MLFD with respect to the Class C shares of the Fund; and
WHEREAS, the Trustees of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and
shareholders of the Fund.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment
Company Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.10% of average daily net
assets of the Fund relating to Class C shares
<PAGE>
<PAGE>
to compensate MLFD and securities firms with which MLFD enters into
related agreements pursuant to Paragraph 3 hereof ("Sub-Agreements") for
providing account maintenance activities with respect to Class C
shareholders of the Fund. Expenditures under the Plan may consist of
payments to financial consultants for maintaining accounts in connection
with Class C shares of the Fund and payment of expenses incurred in
connection with such account maintenance activities including the costs of
making services available to shareholders including assistance in connection
with inquiries related to shareholder accounts. Only account maintenance
expenditures properly attributable to the sale of Class C shares of the
Fund will be used to justify any fee paid by the Fund pursuant to this Plan.
2. The Fund shall pay MLFD a distribution fee under the Plan at the
end of each month at the annual rate of 0.25% of average daily net assets
of the Fund relating to Class C shares to compensate MLFD and securities
firms with which MLFD enters into related Sub-Agreements for providing
sales and promotional activities and services. Such activities and
services will relate to the sale, promotion and marketing of the Class C
shares of the Fund. Such expenditures may consist of sales commissions to
financial consultants for selling Class C shares of the Fund, compensation,
sales incentives and payments to sales and marketing personnel, and the
payment of expenses incurred in its sales and promotional activities,
including advertising expenditures related to the Fund and the costs of
preparing and distributing promotional materials. The distribution fee may
also be used to pay the financing costs of carrying the unreimbursed
expenditures described in this Paragraph 2. Payment of the distribution
fee described in this Paragraph 2 shall be subject to any limitations set
forth in any applicable regulation of the National Association of
Securities Dealers, Inc. Only distribution expenditures properly
attributable to the sale of Class C shares of the Fund will be used to
justify any fee paid by the Fund pursuant to this Plan.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch,
Pierce, Fenner & Smith Incorporated, to provide compensation to such
Securities Firms for activities and services of the type referred to in
Paragraphs 1 and 2 hereof. MLFD may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities Firms as
compensation for the above-mentioned activities and services. Such
Sub-Agreement shall provide that the Securities Firms shall provide MLFD
with such information as is reasonably necessary to permit MLFD to comply
with the reporting requirements set forth in Paragraph 4 hereof.
2
<PAGE>
<PAGE>
4. MLFD shall provide the Fund for review by the Board of Trustees,
and the Trustees shall review, at least quarterly, a written report
complying with the requirements of Rule 12b-1 regarding the disbursement of
the account maintenance fee and the distribution fee during such period.
5. This Plan shall not take effect until it has been approved by a
vote of at least a majority, as defined in the Investment Company Act, of
the outstanding Class C voting securities of the Fund.
6. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a)
the Board of Trustees of the Fund and (b) those Trustees of the Fund who
are not "interested persons" of the Fund, as defined in the Investment
Company Act, and have no direct or indirect financial interest in the
operation of this Plan or any agreements related to it (the "Rule 12b-1
Trustees"), cast in person at a meeting or meetings called for the purpose
of voting on the Plan and such related agreements.
7. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for
approval of the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees, or by vote of a majority of the outstanding Class
C voting securities of the Fund.
9. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least
a majority, as defined in the Investment Company Act, of the outstanding
Class C voting securities of the Fund, and by the Board of Trustees of the
Fund in the manner provided for in Paragraph 6 hereof, and no material
amendment to the Plan shall be made unless approved in the manner provided
for approval and annual renewal in Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of
Trustees who are not interested persons, as defined in the Investment
Company Act, of the Fund shall be committed to the discretion of the
Trustees who are not interested persons.
11. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a
period of not less than six years from the date of the Plan, or the
agreements or such report, as the case may be, the first two years in an
easily accessible place.
3
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
By_______________________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By______________________________________________
Title:
<PAGE>
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the [ ] day of September 1996, by and between
Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Intermediate Government Bond Fund, a Maryland corporation, (the "Fund"),
pursuant to which it acts as the exclusive distributor for the sale of
Class C shares of beneficial interest in the Fund, par value $0.10 per
share (the "Class C shares"); and
WHEREAS, MLFD and the Fund have entered into a Class C Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD
receives an account maintenance fee from the Fund at the annual rate of
0.10% of average daily net assets of the Fund relating to Class C shares
for account maintenance activities related to Class C shares of the Fund
and a distribution fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class C shares for providing sales
and promotional activities and services related to the distribution of
Class C shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services
for the Fund's Class C shareholders and the Securities Firm is willing to
perform such activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
and services with respect to the Class C shares of the Fund and incur
expenditures in connection with such activities and services of the types
referred to in Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities
and services with respect to the sale of the Class C shares of the Fund,
and incur distribution expenditures, of the types referred to in Paragraph
2 of the Plan.
<PAGE>
<PAGE>
3. As compensation for its activities and services performed under
this Agreement, MLFD shall pay the Securities Firm an account maintenance
fee and a distribution fee at the end of each calendar month in an amount
agreed upon by the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with
the reporting requirements of Rule 12b-1 regarding the disbursement of the
account maintenance fee and the distribution fee during such period
referred to in Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Board of Trustees of the Fund and (b)
those Trustees of the Fund who are not "interested persons" of the Fund, as
defined in the Act, and have no direct or indirect financial interest in
the operation of the Plan, this Agreement or any agreements related to the
Plan or this Agreement (the "Rule 12b-1 Trustees"), cast in person at a
meeting or meetings called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner
provided for approval of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment
to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
Title:
2
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the [ ] day of September 1996, by and
between Merrill Lynch Intermediate Government Bond Fund, a Maryland
corporation (the "Fund"), and Merrill Lynch Funds Distributor, Inc., a
Delaware corporation ("MLFD").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class D Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of the
Class D shares of beneficial interest in the Fund, par value $0.10 per
share (the "Class D shares") to the public; and
WHEREAS, the Fund adopted a distribution plan for its shares, dated
November 1, 1986 and amended as of March 23, 1987 (the "Existing Plan"),
and upon the reorganization of the Fund on or about November 1, 1996, the
shares of the Fund in existence prior to such reorganization and covered by
the Existing Plan were redesignated Class D shares;
WHEREAS, the Fund desires to amend and restate the Existing Plan by
adopting this Class D Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act, pursuant to which the Fund will pay an
account maintenance fee to MLFD with respect to Class D shares of the Fund;
and
WHEREAS, the Trustees of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and
shareholders of the Fund.
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NOW, THEREFORE, the Fund hereby amends and restates the Existing Plan
by adopting, and MLFD hereby agrees to the terms of, the Plan in accordance
with Rule 12b-1 under the Investment Company Act on the following terms and
conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.10% to compensate MLFD and
securities firms with which MLFD enters into related agreements
("Sub-Agreements") pursuant to Paragraph 2 hereof for providing account
maintenance activities with respect to Class D shareholders of the Fund.
Expenditures under the Plan may consist of payments to financial
consultants for maintaining accounts in connection with Class D shares of
the Fund and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts. Only account maintenance expenditures properly
attributable to the sale of Class D shares of the Fund will be used to
justify any fee paid by the Fund pursuant to this Plan.
2. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch,
Pierce, Fenner & Smith Incorporated, to provide compensation to such
Securities Firms for activities of the type referred to in Paragraph 1.
MLFD may reallocate all or a portion of its account maintenance fee to such
Securities Firms as compensation for the above-mentioned activities. Such
Sub-Agreement shall provide that the Securities Firms shall provide MLFD
with such information as is reasonably necessary to permit MLFD to comply
with the reporting requirements set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of Trustees,
and the Trustees shall review, at least quarterly, a written report
complying with the requirements of Rule 12b-1 regarding the disbursement of
the account maintenance fee during such period.
4. This Plan shall not take effect until it has been approved by a
vote of at least a majority, as defined in the Investment Company Act, of
the outstanding Class D voting securities of the Fund.
5. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a)
the Board of Trustees of the Fund and (b) those Trustees of the Fund who
are not "interested persons" of the Fund, as defined in the Investment
Company Act, and have no direct or indirect financial interest in the
2
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<PAGE>
operation of this Plan or any agreements related to it (the "Rule 12b-1
Trustees"), cast in person at a meeting or meetings called for the purpose
of voting on the Plan and such related agreements.
6. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for
approval of the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees, or by vote of a majority of the outstanding Class
D voting securities of the Fund.
8. The Plan may not be amended to increase materially the rate of
payments provided for in Paragraph 1 hereof unless such amendment is
approved by at least a majority, as defined in the Investment Company Act,
of the outstanding Class D voting securities of the Fund, and by the Board
of Trustees of the Fund in the manner provided for in Paragraph 5 hereof,
and no material amendment to the Plan shall be made unless approved in the
manner provided for approval and annual renewal in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Trustees who are not interested persons, as defined in the Investment
Company Act, of the Fund shall be committed to the discretion of the
Trustees who are not interested persons.
10. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a
period of not less than six years from the date of the Plan, or the
agreements or such report, as the case may be, the first two years in an
easily accessible place.
3
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERRILL LYNCH INTERMEDIATE GOVERNMENT BOND FUND
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
4
<PAGE>
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the [ ] day of September 1996, by and between
Merrill Lynch Funds Distributor, Inc. a Delaware corporation ("MLFD"), and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Intermediate Government Bond Fund, a Maryland corporation (the "Fund"),
pursuant to which it acts as the exclusive distributor for the sale of
Class D shares beneficial interest in the Fund, par value $0.10 per share
(the "Class D shares"); and
WHEREAS, MLFD and the Fund have entered into a Class D Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD
receives an account maintenance fee from the Fund at the annual rate of
0.10% of average daily net assets of the Fund relating to Class D shares
for providing account maintenance activities and services with respect to
Class D shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and services, including assistance in connection
with inquiries related to shareholder accounts, for the Fund's Class D
shareholders and the Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
and services with respect to the Class D shares of the Fund and incur
expenditures in connection with such activities and services, of the types
referred to in Paragraph 1 of the Plan.
2. As compensation for its services performed under this Agreement,
MLFD shall pay the Securities Firm a fee at the end of each calendar month
in an amount agreed upon by the parties hereto.
3. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with
the reporting requirements of Rule 12b-1 regarding the disbursement of the
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fee during such period referred to in Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Board of Trustees of the Fund and (b)
those Trustees of the Fund who are not "interested persons" of the Fund, as
defined in the Act, and have no direct or indirect financial interest in
the operation of the Plan, this Agreement or any agreements related to the
Plan or this Agreement (the "Rule 12b-1 Trustees"), cast in person at a
meeting or meetings called for the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner
provided for approval of the Plan in Paragraph 5.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment
to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
2
MERRILL LYNCH SELECT PRICING<service-mark> SYSTEM
PLAN PURSUANT TO RULE 18f-3 UNDER THE INVESTMENT COMPANY ACT
The mutual funds participating in the Merrill Lynch Select
Pricing<service-mark> System (individually a "Fund" and, collectively, the
"Funds") offer Class A Shares, Class B Shares, Class C Shares and Class D
Shares as follows:
Account Maintenance and Distribution Fees
_________________________________________
Class B Shares, Class C Shares and Class D Shares bear the expenses of
the ongoing account maintenance fees applicable to the particular Class.
Class B Shares and Class C Shares bear the expenses of the ongoing
distribution fees applicable to the particular Class. Specific
shareholders within a Class may be subject to initial or contingent
deferred sales charges as set forth in each Fund's current prospectus and
statement of additional information (together, the "prospectus").
Transfer Agency Expenses
________________________
Each Class shall bear any incremental transfer agency cost applicable
to the particular Class.
Voting Rights
_____________
Each Class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its account maintenance fees or ongoing
distribution fees, as may be applicable. Each Class shall have separate
voting rights on any matter submitted to shareholders in which the
interests of one Class differ from the interests of any other Class.
Dividends
_________
Dividends paid on each Class will be calculated in the same manner at
the same time and will differ only to the extent that any account
maintenance fee, any distribution fee and any incremental transfer agency
cost relates to a particular Class.
Conversion Features
___________________
Holders of Class B Shares will have such conversion features to Class
D Shares as set forth in each Fund's current prospectus. Conversion
features may vary among holders of Class B Shares.
Exchange Privileges
___________________
Holders of Class A Shares, Class B Shares, Class C Shares and Class D
Shares shall have such exchange privileges as set forth in each Fund's
current prospectus. Exchange privileges may vary among Classes and among
holders of a Class.
<PAGE>
Other Rights and Obligations
____________________________
Except as otherwise described above, in all respects, each Class shall
have the same rights and obligations as each other Class.
