<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1996
SECURITIES ACT FILE NO. 33-10794
INVESTMENT COMPANY ACT FILE NO. 811-4934
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
PRE-EFFECTIVE AMENDMENT NO. [_]
POST-EFFECTIVE AMENDMENT NO. 13 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 14 [X]
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. Box 9011
Princeton, New Jersey 08536-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
Counsel for the Fund: Philip L. Kirstein, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP Merrill Lynch Asset Management
919 Third Avenue P.O. Box 9011
New York, New York 10022 Princeton, N.J. 08543-9011
Attention: Joel H. Goldberg, Esq.
----------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[_] on (date) pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a) of Rule 485
[_] on (date) pursuant to paragraph (a) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(ii)
[_] on (date) pursuant to paragraph (a)(ii) of Rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
----------------
The Registrant has registered an indefinite number of its shares of
beneficial interest 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 22, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT
POST-EFFECTIVE AMENDMENT NO. 13 TO REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET PURSUANT TO RULE 481(a) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
- -------- --------
<S> <C> <C>
PART A
Item 1. Cover Page........................... Cover Page
Item 2. Synopsis............................. Fee Table
Item 3. Condensed Financial Information...... Financial Highlights; Performance Data
Item 4. General Description of Registrant.... Investment Objectives and Policies;
Additional Information
Item 5. Management of the Fund............... Fee Table; Management of the Fund;
Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance.......................... Not Applicable
Item 6. Capital Stock and Other Securities... Cover Page; Additional Information
Item 7. Purchase of Securities Being Offered. Cover Page; Fee Table; Merrill Lynch
Select PricingSM System; Purchase of
Shares; Additional Information;
Inside Back Cover Page
Item 8. Redemption or Repurchase............. Fee Table; Merrill Lynch Select
PricingSM System; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings............ Not Applicable
PART B
Item 10. Cover Page........................... Cover Page
Item 11. Table of Contents.................... Back Cover Page
Item 12. General Information and History...... Not Applicable
Item 13. Investment Objectives and Policies... Investment Objectives and Policies
Item 14. Management of the Fund............... Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities.................... Management of the Fund
Item 16. Investment Advisory and Other
Services........................ Management of the Fund; Purchase of
Shares; General Information
Item 17. Brokerage Allocation................. Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities... General Information
Item 19. Determination of Net Asset Value;
Purchase, Redemption and Pricing of
Securities Being Offered............ Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status........................... Dividends, Distributions and Taxes
Item 21. Underwriters......................... Purchase of Shares
Item 22. Calculation of Performance Data...... Performance Data
Item 23. Financial Statements................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this post-effective amendment to
the Registration Statement.
<PAGE>
PROSPECTUS
FEBRUARY 27, 1996 MERRILL LYNCH GROWTH FUND
FOR INVESTMENT AND RETIREMENT
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
-------------------------
Merrill Lynch Growth Fund for Investment and Retirement (the "Fund") is a
mutual fund seeking to provide shareholders with growth of capital and,
secondarily, income by investing in a diversified portfolio of primarily
equity securities placing principal emphasis on those securities which
management of the Fund believes to be undervalued. The portfolio of the Fund
generally will be managed without regard to tax considerations applicable to
distributions to shareholders and therefore its shares may appeal particularly
to investors for whom current tax liability is not a major consideration, such
as employee benefit plans and individual retirement accounts ("IRAs"). There
can be no assurance that the investment objectives of the Fund will be
realized. For more information on the Fund's investment objective and
policies, please see "Investment Objective and Policies" on page 10.
-------------------------
Pursuant to the Merrill Lynch Select Pricing SM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select Pricing SM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select Pricing SM System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081, (609)
282-2800, or from securities dealers which have entered into dealer agreements
with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase is $1,000 and the
minimum subsequent purchase is $50 except that for retirement plans the
minimum initial purchase is $100 and the minimum subsequent purchase is $1.
Merrill Lynch may charge its customers a processing fee (presently $4.85) for
confirming purchases and repurchases. Purchases and redemptions directly
through the Fund's transfer agent are not subject to the processing fee. See
"Purchase of Shares" and "Redemption of Shares".
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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 is a concise statement of information about the Fund that is
relevant to making an investment in the Fund. This Prospectus should be
retained for future reference. A statement containing additional information
about the Fund dated February 27, 1996 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
is available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
-------------------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ------------------------ --------------- -------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Im-
posed on Pur-
chases (as a
percentage of
offering
price)....... 5.25%(c) None None 5.25%(c)
Sales Charge
Imposed on
Dividend
Reinvestments. None None None None
Deferred Sales
Charge (as a
percentage of
original pur-
chase price
or redemption
proceeds,
whichever is
lower)....... None(d) 4.0% during the first 1% for one year None(d)
year, decreasing 1.0%
annually thereafter to
0.0% after
the fourth year
Exchange Fee.. None None None None
ANNUAL FUND OP-
ERATING EX-
PENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS).......
Investment Ad-
visory
Fees(e)...... 0.65% 0.65% 0.65% 0.65%
12b-1 Fees(f):
Account Main-
tenance
Fees......... None 0.25% 0.25% 0.25%
Distribution
Fees......... None 0.75% 0.75% None
(Class B shares convert
to Class D shares
automatically after
approximately eight
years and cease being
subject to distribution
fees)
Other Expenses:
Custodian
Fees......... 0.01% 0.01% 0.01% 0.01%
Shareholder
Servicing
Costs(g)..... 0.13% 0.16% 0.18% 0.14%
Other......... 0.05% 0.05% 0.05% 0.05%
----- ----- ----- -----
Total Other 0.19% 0.22% 0.24% 0.20%
Expenses.... ----- ----- ----- -----
Total Fund Op-
erating Ex- 0.84% 1.87% 1.89% 1.10%
penses+....... ===== ===== ===== =====
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and investment programs.
See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and
Class D Shares"--page 25.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares"--page 28.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans in connection with certain
investment programs. Class A or Class D purchases of $1,000,000 or more
may not be subject to an initial sales charge. See "Purchase of Shares--
Initial Sales Charge Alternatives--Class A and Class D Shares"--page 25.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge will instead be subject to a
CDSC of 1.0% of amounts redeemed within the first year of purchase.
(e) See "Management of the Fund--Management and Advisory Arrangements"--page
21.
(f) See "Purchase of Shares--Distribution Plans"--page 31.
(g) See "Management of the Fund--Transfer Agency Services"--page 23.
+ As of October 31, 1995, the Manager voluntarily waived a portions of the
management fees due from the Fund. The fee has been restated to assume the
absence of any waiver because the Manager may discontinue or reduce such
waiver of fees at any time without notice. During the fiscal year ended
October 31, 1995, the Manager waived management fees totaling .02% for Class
A shares, .03% for Class B shares, .03% for Class C shares and .02% for
Class D shares, after which the Fund's total expense ratio was .82% for
Class A shares, 1.84% for Class B shares, 1.86% for Class C shares and 1.08%
for Class D shares.
2
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR
THE
PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE: ------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment including the maximum
$52.50 initial sales charge (Class A and
Class D shares only) and assuming (1) the To-
tal Fund Operating Expenses for each class
set forth above, (2) a 5% annual return
throughout the periods and (3) redemption at
the end of the period:
Class A...................................... $61 $78 $97 $151
Class B...................................... $59 $79 $101 $199*
Class C...................................... $29 $59 $102 $221
Class D...................................... $63 $86 $110 $179
An investor would pay the following expenses
on the same $1,000 investment assuming no re-
demption at the end of the period:
Class A...................................... $61 $78 $97 $151
Class B...................................... $19 $59 $101 $199*
Class C...................................... $19 $59 $102 $221
Class D...................................... $63 $86 $110 $179
</TABLE>
- --------
* Assumes conversion to Class D shares approximately eight years after
purchase.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly.
The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission (the "Commission") regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C
shareholders who own their own shares for an extended period of time may pay
more in Rule 12b-1 distribution fees than the economic equivalent of the
maximum front-end sales charge permitted under the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. (the "NASD"). Merrill
Lynch may charge its customers a processing fee (presently $4.85) for
confirming purchases and repurchases. Purchases and redemptions directly
through the Fund's transfer agent are not subject to the processing fee. See
"Purchase of Shares" and "Redemption of Shares".
MERRILL LYNCH SELECT PRICING SM SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing SM System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D
are sold to investors choosing the initial sales charge alternatives, and
shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. The Merrill Lynch Select Pricing SM System is used
by more than 50 mutual funds advised by Merrill Lynch Asset Management, L.P.
("MLAM") or an affiliate of MLAM, Fund Asset Management, L.P. ("FAM"). Funds
advised by MLAM or FAM are referred to herein as "MLAM-advised mutual funds".
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The deferred sales charges and account maintenance fees that are imposed on
Class B and Class C shares, as well as the account maintenance fees that are
imposed on the
3
<PAGE>
Class D shares, are imposed directly against those classes and not against all
assets of the Fund and, accordingly, such charges do 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 are
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The distribution-
related revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing SM System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing SM System that the investor
believes is most beneficial in the investor's particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase
of Shares".
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE/1/ FEE FEE FEATURE
- ---------- ------------------ ------------ --------- --------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge/2/,/3/
- ---------- ------------------ ------------ --------- --------------------------
B CDSC for a period of 4 years, 0.25% 0.75% B shares convert to D
at a rate of 4.0% during the shares automatically
first year, decreasing 1.0% after approximately eight
annually to 0.0% years/4/
- ---------- ------------------ ------------ --------- --------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ---------- ------------------ ------------ --------- --------------------------
D Maximum 5.25% initial sales 0.25% No No
charge/3/
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors".
(3) Reduced for purchases of $25,000 or more, and waived for purchases of
Class A shares by certain retirement plans in connection with certain
investment programs. Class A and Class D share purchases of $1,000,000 or
more may not be subject to an initial sales charge but instead will be
subject to a 1.0% CDSC for one year. See "Class A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
4
<PAGE>
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors that currently own Class A shares of the Fund in a
shareholder account are entitled to purchase additional Class A shares
of the Fund in that account. Other eligible investors include certain
retirement plans and participants in certain investment programs. In
addition, Class A shares will be offered to 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 and employees and to members of the Boards
of MLAM-advised mutual funds. The maximum initial sales charge is
5.25%, which is reduced for purchases of $25,000 and over and waived
for purchases by certain retirement plans 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 will be subject to a CDSC of 1.0% if the shares
are redeemed within one year after purchase. Sales charges also are
reduced under a right of accumulation which takes into account the
investor's holdings of all classes of all MLAM-advised mutual funds.
See "Purchase of Shares--Initial Sales Charge Alternatives--Class A
and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Fund's average net
assets attributable to the Class B shares, and a CDSC if they are
redeemed within four years of purchase. Approximately eight years
after issuance, Class B shares will convert automatically to Class D
shares of the Fund, which are subject to an account maintenance fee
but no distribution fee; Class B shares of certain other MLAM-advised
mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares
of the Fund are exchanged for Class B shares of another MLAM-advised
mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares to Class D shares
will occur at least once a month on the basis of the relative net
asset values of the shares of the two classes on the conversion date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes. Shares
purchased through reinvestment of dividends on Class B shares also
will convert automatically to Class D shares. The conversion period
for dividend reinvestment shares, and the conversion and holding
periods for certain retirement plans, were modified as described under
"Purchase of Shares--Deferred Sales Charge Alternatives--Class B and
Class C Shares--Conversion of Class B Shares to Class D Shares".
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of average net assets
attributable to Class C shares. Class C shares are also subject to a
CDSC if they are redeemed within one year of purchase. Although Class
C shares are subject to a 1.0% CDSC for only one year (as compared to
four years for Class B), Class C shares have no conversion feature
and, accordingly, an investor that purchases Class C shares will be
subject to distribution fees that
5
<PAGE>
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 D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived
such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year of purchase. The schedule of initial sales
charges and reductions for 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 SM System that the investor believes is most beneficial in the
investor's particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative
particularly attractive because similar sales charge reductions are not
available with respect to the deferred sales charges imposed in connection with
purchases of Class B or Class C shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for an extended
period of time also may elect to purchase Class A or Class D shares, because
over time the accumulated ongoing account maintenance and distribution fees on
Class B or Class C shares may exceed the initial sales charge and, in the case
of Class D shares, the account maintenance fee. Although some investors that
previously purchased Class A shares may no longer be eligible to purchase Class
A shares of other MLAM-advised mutual funds, those previously purchased Class A
shares, together with Class B, Class C and Class D share holdings, will count
toward a right of accumulation which may qualify the investor for reduced
initial sales charges on new initial sales charge purchases. In addition, the
ongoing Class B and Class C account maintenance and distribution fees will
cause Class B and Class C shares to have higher expense ratios, pay lower
dividends and have lower total returns than the initial sales charge shares.
The ongoing Class D account maintenance fees will cause Class D shares to have
a higher expense ratio, pay lower dividends and have a lower 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
6
<PAGE>
shares of the Fund after a conversion period of approximately eight years, and
thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend
to hold their shares for an extended period of time. Investors in Class B
shares should take into account whether they intend to redeem their shares
within the CDSC period and, if not, whether they intend to remain invested
until the end of the conversion period and thereby take advantage of the
reduction in ongoing fees resulting from the conversion into Class D shares.
Other investors, however, may elect to purchase Class C shares if they
determine that it is advantageous to have all their assets invested initially
and they are uncertain as to the length of time they intend to hold their
assets in MLAM-advised mutual funds. Although Class C shareholders are subject
to a shorter CDSC period at a lower rate, they forgo the Class B conversion
feature, making their investment subject to account maintenance and
distribution fees for an indefinite period of time. In addition, while both
Class B and Class C distribution fees are subject to the limitations on asset-
based sales charges imposed by the NASD, the Class B distribution fees are
further limited under a voluntary waiver of asset-based sales charges. See
"Purchase of Shares--Limitations on the Payment of Deferred Sales Charges".
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the 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. Further information about the performance
of the Fund is contained in the Fund's most recent annual report to
shareholders which may be obtained, without charge, by calling or by writing
the Fund at the telephone number or address on the front cover of this
Prospectus.
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1995(a) 1994(a) 1993 1992 1991 1990 1989+
-------- -------- -------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase
(Decrease) in Net
Asset Value:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period........... $ 19.19 $ 19.22 $ 14.79 $ 15.31 $ 10.61 $ 12.52 $ 9.61
-------- -------- -------- -------- ------- ------- ------
Investment
income--net..... .23 .08 .02 .02 .01 .13 .21
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net............. 4.01 2.01 4.86 .65 4.82 (1.92) 3.15
-------- -------- -------- -------- ------- ------- ------
Total from
investment
operations....... 4.24 2.09 4.88 .67 4.83 (1.79) 3.36
-------- -------- -------- -------- ------- ------- ------
Less dividends
and
distributions:
Investment
income--net..... -- -- -- -- -- (.11) (.19)
Realized gain on
investments--
net............. (.30) (2.12) (.45) (1.19) (.13) (.01) (.26)
-------- -------- -------- -------- ------- ------- ------
Total dividends
and
distributions.... (.30) (2.12) (.45) (1.19) (.13) (.12) (.45)
-------- -------- -------- -------- ------- ------- ------
Net asset value,
end of period.... $ 23.13 $ 19.19 $ 19.22 $ 14.79 $ 15.31 $ 10.61 $12.52
======== ======== ======== ======== ======= ======= ======
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share............ 22.60% 12.50% 33.97% 5.77% 45.88% (14.42%) 36.21%#
======== ======== ======== ======== ======= ======= ======
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding account
maintenance and
distribution fees
and
net of
reimbursement.... .82% .82% .81% .84% .87% .89% .91%*
======== ======== ======== ======== ======= ======= ======
Expenses, net of
reimbursement.... .82% .82% .81% .84% .87% .89% .91%*
======== ======== ======== ======== ======= ======= ======
Expenses......... .84% .82% .81% .84% .87% .89% .91%*
======== ======== ======== ======== ======= ======= ======
Investment income
(loss)--net...... 1.10% .44% .29% .28% .46% .80% 1.84%*
======== ======== ======== ======== ======= ======= ======
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)....... $670,164 $382,077 $229,709 $138,456 $92,494 $21,431 $4,581
======== ======== ======== ======== ======= ======= ======
Portfolio
turnover......... 37.42% 4.22% 33.21% 21.20% 27.86% 19.65% 35.24%
======== ======== ======== ======== ======= ======= ======
<CAPTION>
CLASS B
------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------------------------
1995(a) 1994(a) 1993 1992 1991 1990 1989 1988 1987++
----------- ----------- ----------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase
(Decrease) in Net
Asset Value:
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period........... $ 18.12 $ 18.43 $ 14.35 $ 15.03 $ 10.53 $ 12.49 $ 10.03 $ 8.85 $ 10.00
----------- ----------- ----------- --------- --------- --------- --------- --------- ----------
Investment
income--net..... .01 (.10) (.11) (.10) (.06) (.04) .10 .15 .16
Realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions--
net............. 3.77 1.91 4.64 .61 4.69 (1.87) 2.72 1.28 (1.25)
----------- ----------- ----------- --------- --------- --------- --------- --------- ----------
Total from
investment
operations....... 3.78 1.81 4.53 .51 4.63 (1.91) 2.82 1.43 (1.09)
----------- ----------- ----------- --------- --------- --------- --------- --------- ----------
Less dividends
and
distributions:
Investment
income--net..... -- -- -- -- -- (.04) (.10) (.19) (.06)
Realized gain on
investments--
net............. (.30) (2.12) (.45) (1.19) (.13) (.01) (.26) (.06) --
----------- ----------- ----------- --------- --------- --------- --------- --------- ----------
Total dividends
and
distributions.... (.30) (2.12) (.45) (1.19) (.13) (.05) (.36) (.25) (.06)
----------- ----------- ----------- --------- --------- --------- --------- --------- ----------
Net asset value,
end of period.... $ 21.60 $ 18.12 $ 18.43 $ 14.35 $ 15.03 $ 10.53 $ 12.49 $ 10.03 $ 8.85
=========== =========== =========== ========= ========= ========= ========= ========= ==========
TOTAL INVESTMENT
RETURN:**
Based on net
asset value per
share............ 21.37% 11.41% 32.54% 4.74% 44.32% (15.31%) 29.25% 16.64% (10.98%)#
=========== =========== =========== ========= ========= ========= ========= ========= ==========
RATIOS TO AVERAGE
NET ASSETS:
Expenses,
excluding account
maintenance and
distribution fees
and
net of
reimbursement.... .84% .84% .83% .87% .90% .93% .97% .93% .99%*
=========== =========== =========== ========= ========= ========= ========= ========= ==========
Expenses, net of
reimbursement.... 1.84% 1.84% 1.83% 1.87% 1.90% 1.93% 1.97% 1.93% 1.99%*
=========== =========== =========== ========= ========= ========= ========= ========= ==========
Expenses......... 1.87% 1.84% 1.83% 1.87% 1.90% 1.93% 1.97% 1.93% 1.99%*
=========== =========== =========== ========= ========= ========= ========= ========= ==========
Investment income
(loss)--net...... .04% (.58%) (.78%) (.76%) (.53%) (.29%) .78% 1.52% 2.86%*
=========== =========== =========== ========= ========= ========= ========= ========= ==========
SUPPLEMENTAL
DATA:
Net assets, end
of period (in
thousands)....... $1,920,451 $1,433,051 $1,049,190 $758,061 $824,007 $436,556 $493,623 $511,776 $613,034
=========== =========== =========== ========= ========= ========= ========= ========= ==========
Portfolio
turnover......... 37.42% 4.22% 33.21% 21.20% 27.86% 19.65% 35.24% 4.86% 8.62%
=========== =========== =========== ========= ========= ========= ========= ========= ==========
</TABLE>
- ----
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Class A shares commenced operations on November 28, 1988.
++ Class B shares commenced operations on March 27, 1987.
# Aggregate total investment return.
(a) Based on an average number of shares outstanding during the period.
8
<PAGE>
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
CLASS C CLASS D
---------------------------------------- ----------------------------------------
FOR THE YEAR FOR THE PERIOD FOR THE YEAR FOR THE PERIOD
ENDED OCTOBER 31, OCTOBER 21, 1994+ ENDED OCTOBER 31, OCTOBER 21, 1994+
1995(a) TO OCTOBER 31, 1994(a) 1995(a) TO OCTOBER 31, 1994(a)
----------------- ---------------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in
Net Asset Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 18.12 $17.45 $ 19.18 $18.47
------- ------ -------- ------
Investment income--net. .03 -- .22 --
Realized and unrealized
gain (loss) on
investments and
foreign currency
transactions--net..... 3.74 .67 3.96 .71
------- ------ -------- ------
Total from investment
operations............. 3.77 .67 4.18 .71
------- ------ -------- ------
Less dividends and
distributions:
Investment income--net. -- -- -- --
Realized gain on
investments--net...... (.30) -- (.30) --
------- ------ -------- ------
Total dividends and
distributions.......... (.30) -- (.30) --
------- ------ -------- ------
Net asset value, end of
period................. $ 21.59 $18.12 $ 23.06 $19.18
======= ====== ======== ======
TOTAL INVESTMENT
RETURN:**
Based on net asset value
per share.............. 21.32% 3.84%# 22.29% 3.84%#
======= ====== ======== ======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
account maintenance and
distribution fees and
net of reimbursement... .86% 1.52% * 83% 1.52% *
======= ====== ======== ======
Expenses, net of
reimbursement.......... 1.86% 2.52% * 1.08% 1.77% *
======= ====== ======== ======
Expenses................ 1.89% 2.52% * 1.10% 1.77% *
======= ====== ======== ======
Investment income
(loss)--net............ .14% (1.17%)* 1.00% (.54%)*
======= ====== ======== ======
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands).. $85,486 $1,381 $614,357 $1,186
======= ====== ======== ======
Portfolio turnover...... 37.42% 4.22% 37.42% 4.22%
======= ====== ======== ======
</TABLE>
- --------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
# Aggregate total investment return.
(a) Based on an average number of shares outstanding during the period.
9
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund are to seek growth of capital and,
secondarily, income by investing in a diversified portfolio of primarily equity
securities placing principal emphasis on those securities which management of
the Fund believes to be undervalued. Undervalued issues include securities
selling at discounts from the price-to-book value ratios and price/earnings
ratios computed with respect to the popular stock market averages (primarily
the Standard & Poor's 400 Industrials Stock Price Index). The Fund may also
consider as undervalued securities selling at a discount from their historic
price-to-book value or price/earnings ratios, even though these ratios may be
above the ratios for the stock market averages. Securities offering dividend
yields higher than the yields for the popular stock market averages or higher
than such securities' historic yields may also be considered to be undervalued.
It is anticipated that, within the context of selecting securities believed to
be undervalued, the securities of issuers having a larger ($500 million or
more) stock market capitalization will be emphasized, but attention will be
given as well to identifying and investing in smaller capitalization issues
with value characteristics. There can be no assurance that the investment
objectives of the Fund will be realized. The investment objectives of the Fund
set forth in the first sentence of this paragraph are a fundamental policy of
the Fund which may not be changed without a vote of a majority of its
outstanding shares as defined below.
The Fund is classified as a non-diversified fund under the Investment Company
Act of 1940, as amended (the "Investment Company Act") and, accordingly, is not
subject to the diversification requirements of the Investment Company Act. This
policy is fundamental and may only be changed by shareholder vote. Accordingly,
the Fund may invest more that 5% of the value of its assets in the obligations
of a single issuer and may acquire more than 10% of the voting securities of a
single issuer. However, the Fund remains subject to the diversification
requirements of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), in order to qualify as a regulated investment company (a "RIC")
for U.S. federal income tax purposes. In order to qualify as a RIC under the
Code, the Fund must comply with certain requirements, including limiting its
investments so that at the close of each quarter of the taxable year (i) not
more than 25% of the market value of the Funds's total assets are invested in
the securities of a single issuer, or any two or more issuers which are
controlled by the Fund and engaged in the same, similar or related businesses,
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets are invested in the securities
of a single issuer, and the Fund does not own more than 10% of the outstanding
voting securities of a single issuer. Investment in the securities of the U.S.
Government, its agencies and instrumentalities are not included within the
definition of "issuer" for purposes of the diversification requirements of the
Code, while foreign government securities are included within such definition.
Although operating as a non-diversified fund increases the flexibility with
which MLAM manages the Fund's assets, to the extent the Fund invests a
relatively high percentage of its assets in obligations of a limited number of
issuers, the Fund may be more susceptible than would be a more widely
diversified fund to any single economic, political or regulatory occurrence or
to changes in an issuer's financial condition or in the market's assessment of
the issuers.
The investment policy of the Fund is based on the belief that the pricing
mechanism of the securities markets lacks total efficiency and has a tendency
to inflate prices of securities in favorable market climates and depress prices
of securities in unfavorable climates. Based on this premise, management of the
Fund
10
<PAGE>
believes that favorable changes in market prices are more likely to begin when
securities are selling at what appear to be prices below their inherent value.
The Fund may invest up to 40% of its total assets in securities of foreign
issuers with the foregoing characteristics. Investments in securities of
foreign issuers involve certain risks, including, but not limited to, the
possibility of expropriation of assets, confiscatory taxation, fluctuations in
foreign exchange rates, future political and economic developments, and the
possible imposition of exchange controls or other foreign or U.S. governmental
laws or restrictions applicable to such investments. There may be less publicly
available information about a foreign financial instrument than about a United
States instrument, and foreign entities may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
to which United States entities are subject. As a result, traditional
investment measurements such as price earnings ratios, as used in the United
States, may not be applicable in certain capital markets. Foreign capital
markets, while growing in volume, typically have substantially less volume than
United States markets, and securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable domestic
companies. Brokerage commissions, custodial services, and other costs relating
to investment in foreign capital markets are generally more expensive than in
the United States.
Foreign markets also have different clearance and settlement procedures and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions making it difficult to
conduct such transactions. Delays or problems with settlement could affect the
liquidity of the Fund's portfolio and adversely affect the Fund's performance.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities. The
inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. There is
generally less government supervision and regulation of exchanges, financial
institutions and issuers in foreign countries than there is in the United
States. To the extent foreign investments are subject to withholding or other
taxes or to regulations relating to repatriation of assets, the Fund's
distributable income will be reduced. The prices of securities in different
countries are subject to different economic, financial, political and social
factors.
Since the Fund may invest in securities denominated or quoted in currencies
other than the United States dollar, changes in foreign currency exchange rates
may affect the value of investments in the portfolio and the unrealized
appreciation or depreciation of investments insofar as United States investors
are concerned. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated in
that currency and the Fund's yield on such assets. The rate of exchange between
the dollar and other currencies is determined by forces of supply and demand in
the foreign exchange markets. These forces are, in turn, affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation, and other factors. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position, Also, many of the securities held by the Fund will not be
registered with the Securities and Exchange Commission nor will the issuers
thereof be subject to the reporting requirements of such agency.
11
<PAGE>
Some countries prohibit or impose substantial restrictions on investment in
their capital markets, particularly their equity markets, by foreign entities
such as the Fund. As illustrations, certain countries require governmental
approval prior to investment by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company which
may have less advantageous terms then securities of the company available for
purchase by nationals.
The Fund may invest in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, which are issued in registered form,
are designed for use in the United States securities markets and EDRs, which
are issued in bearer form, are designed for use in European securities markets.
GDRs are tradeable both in the U.S. and Europe and are designed for use
throughout the world.
The Fund may invest in securities of smaller capitalization issuers.
Investments in securities of smaller capitalization issuers involve special
considerations and risks not typically associated with investments in
securities of larger capitalization issuers, including limited product lines,
markets or financial resources, or they may be dependent on a limited
management group. In addition, many smaller capitalization stocks trade less
frequently and in smaller volume, and may be subject to more abrupt or erratic
price movements, than stocks of larger companies. The securities of smaller
companies may also be more sensitive to market changes than the securities of
larger companies.
The Fund generally will invest without regard to tax considerations
applicable to distributions to shareholders and therefore its shares may appeal
particularly to investors for whom current tax liability is not a major
consideration, such as employee benefit plans and individual retirement
accounts ("IRAs"). Because the Fund is designed for investors for whom current
tax liability is not a consideration, the Fund has the flexibility to take
advantage of short-term investment opportunities when determined appropriate by
the Fund's manager, Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Manager"), and, accordingly, the Fund may experience high portfolio turnover.
The portfolio turnover rate is generally not expected to exceed 100%. For the
fiscal years ended October 31, 1995 and October 31, 1994, the Fund's portfolio
turnover rate was 37.42% and 4.22%, respectively. A higher turnover rate
increases brokerage costs.
Investment emphasis will be on equities, primarily common stocks and, to a
lesser extent, securities convertible into common stocks. The Fund may invest
up to 5% of its total assets in debt securities rated investment grade or rated
below investment grade by a nationally recognized rating agency (e.g., rated
below Baa by Moody's Investors Services, Inc. ("Moody's") or BBB by Standard &
Poor's Ratings Group ("S&P")) or in unrated debt securities which, in the
judgment of MLAM, possess similar credit characteristics as debt securities
rated investment grade or debt securities rated below investment grade
(commonly known as "junk bonds"). The Fund will not invest in debt securities
rated in the lowest rating categories (Ca or lower for Moody's and CC or lower
for S&P) unless MLAM believes that the financial condition of the issuer or the
protection afforded the particular securities is stronger than would otherwise
be indicated by such low ratings. For a description of ratings of debt
securities, see the Appendix to the Statement of Additional Information.
12
<PAGE>
The Fund also may invest as a temporary defensive measure in nonconvertible
preferred stocks and debt securities and utilize options and the other
investment practices described below. The Fund at all times, except during
temporary defensive periods, will maintain at least 65% of its total assets
invested in equity securities. The Fund also reserves the right as a temporary
defensive measure to hold other types of securities, including short-term U.S.
Government securities, money market securities, including repurchase
agreements, or cash, in such proportions as, in the opinion of the Manager,
prevailing market or economic conditions warrant. The Fund reserves the right
to hold short-term U.S. Government securities, money market securities,
including repurchase agreements, or cash for redemptions. Except during
extraordinary periods, the Fund would not expect that such securities or cash
held for redemptions would exceed 20% of its total assets.
Inasmuch as the Fund is authorized to invest in bonds and other fixed-income
securities, it is important to note that the portion of the Fund's net asset
value attributable to such securities may fall when interest rates rise and
rise when interest rates fall. In general, fixed-income securities with longer
maturities will be subject to greater volatility resulting from interest rate
fluctuations than will fixed-income securities with shorter maturities.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
The Fund may engage in various portfolio strategies to seek to increase its
return through the use of options on portfolio securities and to hedge its
portfolio against movements in the equity markets, interest rates and exchange
rates between currencies. The Fund has authority to write (i.e., sell) covered
call options on its portfolio securities, purchase put options on securities
and engage in transactions in stock index options, stock index futures and
financial futures, and related options on such futures. The Fund may also deal
in forward foreign exchange transactions and foreign currency options and
futures, and related options on such futures. Each of these portfolio
strategies is described below. Although certain risks are involved in options
and futures transactions (as discussed below in "Risk Factors in Options,
Futures and Currency Transactions"), the Manager believes that, because the
Fund will only engage in these transactions for hedging purposes, the options
and futures portfolio strategies of the Fund will not subject the Fund to the
risks frequently associated with the speculative use of options and futures
transactions. While the Fund's use of hedging strategies is intended to reduce
the volatility of the net asset value of Fund shares, the Fund's net asset
value will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity markets, interest rates or
currency exchange rates occur. Reference is made to the Statement of Additional
Information for further information concerning these strategies.
Writing Covered Options. The Fund is authorized to write (i.e., sell) covered
call options on the securities in which it may invest and to enter into closing
purchase transactions with respect to certain of such options. A covered call
option is an option where the Fund, in return for a premium, gives another
party a right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. By writing covered call
options, the Fund gives up the opportunity, while the option is in effect, to
profit from any price increase in the underlying security above the option
exercise price. In addition, the Fund's ability to sell the underlying security
will be limited while the option is in effect unless the Fund
13
<PAGE>
effects a closing purchase transaction. A closing purchase transaction cancels
out the Fund's position as the writer of an option by means of an offsetting
purchase of an identical option prior to the expiration of the option it has
written. Covered call options serve as a partial hedge against the price of the
underlying security declining. The Fund may not write covered call options in
underlying securities in an amount exceeding 15% of the market value of its
total assets.
The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so
long as the Fund is obligated as the writer of the option, it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S.
Government securities or other high grade liquid debt securities denominated in
U.S. dollars or non-U.S. currencies with a securities depository with a value
equal to or greater than the exercise price of the underlying securities. By
writing a put, the Fund will be obligated to purchase the underlying security
at a price that may be higher than the market value of that security at the
time of exercise for as long as the option is outstanding. The Fund may engage
in closing transactions in order to terminate put options that it has written.
Purchasing Options. The Fund is authorized to purchase put options to hedge
against a decline in the market value of its equity securities. By buying a put
option the Fund has a right to sell the underlying security at the exercise
price, thus limiting the Fund's risk of loss through a decline in the market
value of the security until the put option expires. The amount of any
appreciation in the value of the underlying security will be partially offset
by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Fund's position as the purchaser of an option by means of an offsetting
sale of an identical option prior to the expiration of the option it has
purchased. In certain circumstances, the Fund may purchase call options on
securities held in its portfolio on which it has written call options or on
securities which it intends to purchase. The Fund may purchase either exchange
traded options or OTC options. The Fund will not purchase options on securities
(including stock index options discussed below) if, as a result of such
purchase, the aggregate cost of all outstanding options on securities held by
the Fund would exceed 5% of the market value of the Fund's total assets.
Stock Index Options and Futures and Financial Futures. The Fund is authorized
to engage in transactions in stock index options and futures and financial
futures, and related options on such futures. The Fund may purchase or write
call options and purchase or write put options on stock indexes to hedge
against the risks of market-wide stock price movements in the securities in
which the Fund invests. The effectiveness of the hedge will depend on the
degree of diversification of the Fund's portfolio and the sensitivity of the
securities comprising the portfolio to factors influencing the market as a
whole. Options on indices are similar to options on securities except that, on
settlement, the parties to the contract pay or receive an amount of cash equal
to the difference between the closing value of the index on the relevant
valuation date and the exercise price of the option times a specified multiple.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Fund will
realize a gain or loss on the purchase or sale of an option on an index depends
upon movements in
14
<PAGE>
the level of prices in the stock market generally or in an industry or market
segment rather than movements in the price of a particular stock. Currently,
stock index options traded include, but are not limited to, the S&P 100 Index,
the S&P 500 Index, the NYSE Composite Index, the AMEX Market Value Index, the
National Over-the-Counter Index and other standard, broadly based stock market
indices.
The Fund may also purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities and interest rates, as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a commodity for a set price on a future date. Unlike
most other futures contracts, a stock index futures contract does not require
actual delivery of a commodity, in this case securities, but results in cash
settlement based upon the difference in value of the stock index between the
time the contract was entered into and the time of its settlement. The Fund may
effect transactions in stock index futures contracts in connection with the
equity securities in which it invests and financial futures contracts in
connection with the debt securities in which it invests. Transactions by the
Fund in stock index futures and financial futures are subject to limitations as
described below under "Restrictions on the Use of Futures Transactions".
The Fund may sell stock index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of the
Fund's securities portfolio that might otherwise result. When the Fund is not
fully invested in the securities markets and anticipates a significant market
advance, it may purchase stock index futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of
securities that the Fund intends to purchase. As such securities purchases are
made, an equivalent amount of stock index futures contracts will be terminated
by offsetting sales. The Fund does not consider purchases of futures contracts
to be a speculative practice under these circumstances. It is anticipated that,
in a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, whether the long
position is the purchase of a stock index futures contract or the purchase of a
call option on a stock index future, but under unusual circumstances (e.g., the
Fund experiences a significant amount of redemptions), a long futures position
may be terminated without the corresponding purchase of securities.
The Fund may sell financial futures contracts in anticipation of an increase
in the general level of interest rates. Generally, as interest rates rise, the
market values of fixed-income securities which may be held by the Fund as a
temporary defensive measure will fall, thus reducing the net asset value of the
Fund. However, as interest rates rise, the value of the Fund's short position
in the futures contract will also tend to increase, thus offsetting all or a
portion of the depreciation in the market value of the Fund's investments which
are being hedged. While the Fund will incur commission expenses in selling and
closing out futures positions, these commissions are generally less than the
transaction expenses which the Fund would have incurred had the Fund sold
portfolio securities in order to reduce its exposure to increases in interest
rates. The Fund also may purchase financial futures contracts in anticipation
of a decline in interest rates when it is not fully invested in a particular
market in which it intends to make investments to gain market exposure that may
in part or entirely offset an increase in the cost of securities it intends to
purchase. It is anticipated that, in a substantial majority of these
transactions, the Fund will purchase securities upon termination of the futures
contract.
15
<PAGE>
The Fund also has authority to purchase and write call and put options on
futures contracts in connection with its hedging activities. Generally, these
strategies are utilized under the same market and market sector conditions
(i.e., conditions relating to specific types of investments) in which the Fund
enters into futures transactions. The Fund may purchase put options or write
call options on futures contracts rather than selling the underlying futures
contract in anticipation of a decrease in the market value of a security or an
increase in interest rates. Similarly, the Fund may purchase call options, or
write put options on futures contracts, as a substitute for the purchase of
such futures to hedge against the increased cost resulting from an increase in
the market value or a decline in interest rates of securities which the Fund
intends to purchase.
The Fund may engage in options and futures transactions on exchanges and
options in the over-the-counter markets ("OTC options"). In general, exchange-
traded contracts are third-party contracts (i.e., performance of the parties'
obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. OTC options transactions are
two-party contracts with price and terms negotiated by the buyer and seller.
See "Restrictions on OTC Options" below for information as to restrictions on
the use of OTC options.
Foreign Currency Hedging. The Fund has authority to deal in forward foreign
exchange among currencies of the different countries in which it will invest as
a hedge against possible variations in the foreign exchange rates among these
currencies. This is accomplished through contractual agreements to purchase or
sell a specified currency at a specified future date (up to one year) and price
set at the time of the contract. The Fund's dealings in forward foreign
exchange will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
foreign currency with respect to specific receivables or payables of the Fund
accruing in connection with the purchase and sale of its portfolio securities,
the sale and redemption of shares of the Fund or the payment of dividends and
distributions by the Fund. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency. The Fund will not speculate in foreign forward exchange.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that it is not able to contract to sell the currency at a
price above the devaluation level the Manager anticipates. The Fund will not
attempt to hedge all of its portfolio positions.
The Fund is also authorized to purchase or sell listed or over-the-counter
foreign currency options, foreign currency futures and related options on
foreign currency futures as a short or long hedge against possible variations
in foreign exchange rates. Such transactions may be effected with respect to
hedges on non-U.S. dollar denominated securities owned by the Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund may use such techniques to hedge the stated
value in United States dollars of an investment in a pound sterling denominated
security. In such circumstances, for example, the Fund may purchase a foreign
currency put option enabling it to sell a specified amount of pounds for
dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in the value of the pound relative to the dollar will tend
to be offset by an increase in the value of the put option. To offset, in whole
or in part, the cost of acquiring such a put option, the Fund may also sell a
call option which, if exercised, requires it to sell a specified amount of
pounds for dollars at a
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specified price by a future date (a technique called a "straddle"). By selling
such call option, the Fund gives up the opportunity to profit without limit
from increases in the relative value of the pound to the dollar. The Manager
believes that "straddles" of the type which may be utilized by the Fund
constitute hedging transactions and are consistent with the policies described
above.
Certain differences exist between these foreign currency hedging instruments.
Foreign currency options provide the holder thereof the right to buy or sell a
currency at a fixed price on a future date (with exchange-traded contracts and
OTC options having the characteristics described above). A futures contract on
a foreign currency is an agreement between two parties to buy and sell a
specified amount of currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade or
futures exchanges. The Fund will not speculate in foreign currency options,
futures or related options. Accordingly, the Fund will not hedge a currency
substantially in excess of the market value of securities which it has
committed or anticipates to purchase which are denominated in such currency,
and in the case of securities which have been sold by the Fund but not yet
delivered, the proceeds thereof in its denominated currency. The Fund may not
incur potential net liabilities of more than 20% of its total assets from
foreign currency options, futures or related options.
Restrictions on the Use of Futures Transactions. Under regulations of the
Commodity Futures Trading Commission ("CFTC"), the futures trading activities
described herein will not result in the Fund being deemed to be a "commodity
pool," as defined under such regulations, provided that the Fund adheres to
certain restrictions. In particular, the Fund may purchase and sell futures
contracts and options thereon for (i) bona fide hedging purposes, as defined
under CFTC regulations, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) for non-hedging transactions,
provided that the Fund not enter into such transactions for yield enhancement
or risk management purposes if, immediately thereafter, the sum of the amount
of initial margin deposits on the Fund's existing futures positions and option
premiums would exceed 5% of the market value of its liquidating value, after
taking into account unrealized profits and unrealized losses on any such
transactions. However, the Fund intends to engage in options and futures
transactions only for hedging purposes. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When the Fund purchases a futures contract or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures is unleveraged.
An order has been obtained from the Commission which exempts the Fund from
certain provisions of the Investment Company Act of 1940, as amended (the
"Investment Company Act") in connection with transactions involving futures
contracts and options thereon.
Restrictions on OTC Options. The Fund will engage in OTC options, including
over-the-counter stock index options, over-the-counter foreign currency options
and options on foreign currency futures, only with financial institutions which
have capital of at least $50 million or whose obligations are guaranteed by an
entity having capital of at least $50 million. The Fund will normally seek to
acquire only those OTC options for which the Manager believes the Fund can
receive on each business day at least two independent bids or
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offers (one of which will be from an entity other than a party to the option);
in any case, the Fund will acquire only those OTC options for which the Manager
believes the Fund can receive at least one independent bid or offer.
The staff of the Commission has taken the position that purchased OTC options
and the assets used as cover for written OTC options are illiquid securities.
Therefore, the Fund has adopted an investment policy pursuant to which it will
not purchase or sell OTC options (including OTC options on futures contracts)
if, as a result of such transaction, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceed 15% (10% to the extent required by certain state laws)
of the total assets of the Fund, taken at market value, together with all other
assets of the Fund which are illiquid or are not otherwise readily marketable.
However, if the OTC option is sold by the Fund to a primary U.S. Government
securities dealer recognized by the Federal Reserve Bank of New York and if the
Fund has the unconditional contractual right to repurchase such OTC option from
the dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less
the amount by which the option is "in-the-money" (i.e., current market value of
the underlying security minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally based
on a multiple of the premium received for the option, plus the amount by which
the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Trustees of the Fund
without the approval of the Fund's shareholders. However, the Fund will not
change or modify this policy prior to the change or modification by the
Commission staff of its positions.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures prices
and movements in the prices of the securities, interest rates or currencies
which are the subject of the hedge. If the price of the options or futures
moves more or less than the price of the subject of the hedge, the Fund will
experience a gain or loss which will not be completely offset by movements in
the price of the subject of the hedge.
The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a
liquid secondary market for such options or futures or, in the case of OTC
options, the Manager believes the Fund can receive on each business day at
least two independent bids or offers. However, there can be no assurance that a
liquid secondary market will exist at any specific time. Thus, it may not be
possible to close an options or futures position. The inability to close
options and futures positions also could have an adverse impact on the Fund's
ability to effectively hedge its portfolio. There is also the risk of loss by
the Fund of margin deposits or collateral in the event of bankruptcy of a
broker or futures commission merchant with whom the Fund has an open position
in an option, a futures contract or a related option.
The exchanges on which currency options are traded have generally established
limitations governing the maximum number of call or put options on the same
underlying currency (whether or not covered) which may be written by a single
investor, whether acting alone or in concert with others (regardless of whether
such options are written on the same or different exchanges or are held or
written on one or more accounts or through one or more brokers). "Trading
limits" are imposed on the maximum number of contracts which
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any person may trade on a particular trading day. The Manager does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Fund's portfolio.
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Transactions. Since portfolio transactions may be effected on
foreign securities exchanges, the Fund may incur settlement delays on certain
of such exchanges. 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. Such portfolio securities are generally
traded on a net basis and do not normally involve either brokerage commissions
or transfer taxes. Securities firms may receive brokerage commissions on
certain portfolio transactions, including options, futures and options on
futures transactions and the purchase and sale of underlying securities upon
exercise of options. The Fund has no obligation to deal with any broker in the
execution of transactions in portfolio securities. Under the Investment Company
Act, persons affiliated with the Fund, including Merrill Lynch, 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 Commission. Affiliated persons of the Fund, and affiliated persons of
such affiliated persons, may serve as its broker in transactions conducted on
an exchange and in over-the-counter transactions conducted on an agency basis.
In addition, consistent with the Rules of Fair Practice of the NASD, the Fund
may consider sales of shares of the Fund as a factor in the selection of
brokers or dealers to execute portfolio transactions for the Fund. It is
expected that the majority of the shares of the Fund will be sold by Merrill
Lynch. Costs associated with transactions in foreign securities are generally
higher than with transactions in U.S. securities, although the Fund will
endeavor to achieve the best net results in effecting such transactions.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
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. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other high grade liquid debt securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the amount of its commitment in
connection with such purchase transactions.
Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which
may be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security is fixed at the time of the commitment. At the time of
entering into the agreement, the Fund is paid a commitment fee, regardless of
whether or not the security is ultimately issued, which is typically
approximately 0.5% of the aggregate purchase price of the security which the
Fund has committed to purchase. The Fund will enter into such agreements only
for the purpose of investing in the security underlying the commitment at a
yield and price which is considered advantageous to the Fund. The Fund will not
enter into a standby commitment with a remaining term in excess of 90 days and
will limit its
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investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale, will not exceed 15% (10% to
the extent required by certain state laws) of its total assets taken at the
time of acquisition of such commitment or security. The Fund will at all times
maintain a segregated account with its custodian of cash, cash equivalents,
U.S. Government securities or other high grade liquid debt securities
denominated in U.S. dollars or non-U.S. currencies in an aggregate amount equal
to the purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to a standby commitment
will be issued and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund may bear the
risk of a decline in the value of such security and may not benefit from an
appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Repurchase Agreements. The Fund may invest in money market securities
pursuant to 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 bank
or primary dealer or an affiliate thereof agrees, upon entering into the
contract, to repurchase the security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This insulates
the Fund from fluctuations in the market value of the underlying security
during such period, although, to the extent the repurchase agreement is not
denominated in U.S. dollars, the Fund's return may be effected by currency
fluctuations. The Fund may not invest more than 15% (10% to the extent required
by certain state laws) of its total assets in repurchase agreements maturing in
more than seven days. In the event of default by the seller under a repurchase
agreement, the Fund may suffer time delays and incur costs or possible losses
in connection with the disposal of the collateral.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the United States
Government. Such collateral will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. During
the period of this loan, the Fund receives the income on the loaned securities
and either receives the income on the collateral or other compensation (i.e.,
negotiated loan premium or fee) for entering into the loan and thereby
increases its yield. In the event that the borrower defaults on its obligation
to return borrowed securities, because of insolvency or otherwise, the Fund
could experience delays and costs in gaining access to the collateral and could
suffer a loss to the extent that the value of the collateral falls below the
market value of the borrowed securities.
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Illiquid Securities. The Fund may invest up to 15% of its total assets in
illiquid securities, although it will limit such investments to 10% of its
total assets to the extent required by state law. Pursuant to this restriction
the Fund may not invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed, put to the issuer or a third party, or which do not mature within
seven days, or which the Board of Trustees has not determined to be liquid, if,
regarding all such securities, more than 15% of its total assets, taken at
market value, would be invested in such securities.
The Fund may purchase, without regard to the above limitation, securities
that are not registered under the Securities Act of 1933, as amended (the
"Securities Act") but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Fund's
Board of Trustees, or the Manager pursuant to guidelines adopted by the Board,
continuously determines, based on the trading markets for the specific Rule
144A security, that it is liquid. The Board of Trustees retains oversight and
is ultimately responsible for the determinations. The Board of Trustees
monitors the Fund's investments in these securities, focusing on such factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of
illiquidity in the Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing these securities.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to the
investment of its assets and its activities, some of 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, as defined in the
Investment Company Act. Among its significant restrictions, the Fund may not
invest more than 25% of its total assets (taken at market value at the time of
each investment) in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and instrumentalities).
Non-fundamental policies of the Fund (which may be changed by vote of the
Board of Trustees) include policies which (i) notwithstanding a more lenient
fundamental investment restriction concerning borrowing, prohibit the Fund from
borrowing amounts in excess of 20% of its total assets, taken at market value
(including the amount borrowed), and then only from banks as a temporary
measure for extraordinary or emergency purposes, such as redemption of Fund
shares, and further prohibit purchases of securities while borrowings are
outstanding except to honor prior commitments and to exercise subscription
rights; and (ii) limit investment 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 (or 10% to the extent required by
state law) would be invested in such securities. Securities purchased in
accordance with Rule 144A under the Securities Act and determined to be liquid
by the Board of Trustees are not subject to the 15% (or 10%) limitation set
forth in clause (ii).
In addition, although not a fundamental policy, the Fund will include OTC
options and the securities underlying such options (to the extent provided
under "Investment Objective and Policies--Other Investment Policies and
Practices--Portfolio Strategies Involving Options and Futures") in calculating
the amount of its assets subject to the limitation set forth in clause (ii)
above. However, as discussed further above, the Fund may treat the securities
it uses as cover for written OTC options as liquid and, therefore, will be
excluded from this limitation, provided it follows a specified procedure. The
Fund will not change or modify this policy
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<PAGE>
prior to the change or modification by the Commission staff of its position
regarding OTC options, as discussed above.
The Statement of Additional Information contains a description of those
restrictions and policies under "Investment Objectives and Policies--Investment
Restrictions".
MANAGEMENT OF THE FUND
TRUSTEES
The Trustees of the Fund consist of six individuals, five of whom are not
"interested persons" of the Fund as defined in the Investment Company Act. The
Trustees are responsible for the overall supervision of the operations of the
Fund and perform the various duties imposed on the directors of investment
companies by the Investment Company Act.
The Trustees are:
Arthur Zeikel*--President of MLAM and its affiliate, FAM; President and
Director of Princeton Services, Inc.; Executive Vice President of ML &
Co.; Director of Merrill Lynch Funds Distributor, Inc.
James H. Bodurtha--Chairman and CEO, China Enterprise Management
Corporation.
Herbert I. London--John M. Olin Professor of Humanities, Gallatin Division
of New York University.
Robert R. Martin--Director, WTC Industries, Inc.
Joseph L. May--Attorney in private practice.
Andre F. Perold--Professor, Harvard Business School.
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* Interested person, as defined by the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
MLAM, with offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536
(mailing address: P.O. Box 9011, Princeton, New Jersey 08543-9011), acts as the
manager for the Fund and provides the Fund with management and investment
advisory services. MLAM is owned and controlled by ML & Co., a financial
services holding company and the parent of Merrill Lynch. The Manager or an
affiliate of the Manager, FAM, acts as the investment adviser for more than 130
registered investment companies. The Manager also offers portfolio management
and portfolio analysis services to individual and institutional accounts. As of
January 31, 1996, the Manager and FAM had a total of $202.8 billion in
investment company and other portfolio assets under management, including
accounts of certain affiliates of the Manager.
The management agreement with the Manager (the "Management Agreement")
provides that, subject to the direction of the Trustees of the Fund, the
Manager is responsible for the actual management of the Fund's portfolio. The
responsibility for making decisions to buy, sell or hold a particular security
rests with
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<PAGE>
the Manager, subject to review by the Trustees. The Fund may pay brokerage
commissions to Merrill Lynch, an affiliated person of the Fund. In allocating
brokerage transactions, the Manager may take into consideration the sale of
shares of the Fund. The Manager also is obligated to provide administrative
services necessary for the operation of the Fund and all of the office space,
facilities, equipment and necessary personnel for management of the Fund.
Stephen C. Johnes is the portfolio manager for the Fund. Mr. Johnes is a Vice
President of the Manager and has been employed by the Manager in this capacity
since 1987.
The Fund pays the Manager a monthly fee at the annual rate of 0.65% of the
average daily net assets of the Fund. The Manager has voluntarily agreed to
waive a portion of its management fee so that such fee is equal to 0.65% of
average daily net assets not exceeding $1 billion; 0.625% of average daily net
assets exceeding $1 billion but not exceeding $1.5 billion; and 0.60% of
average daily net assets exceeding $1.5 billion. For the fiscal year ended
October 31, 1995, the fee paid by the Fund, net of fee waiver, to the Manager
was $15,372,837 (based on average net assets of approximately $2.5 billion). At
January 31, 1996, the net assets of the Fund aggregated approximately $3.5
billion. At this level, the annual management fee, net of fee waiver, would
aggregate approximately $21.7 million. In addition, the Management Agreement
obligates the Fund to pay certain expenses incurred in its operations,
including, among other things, the management 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 distributed to
shareholders. Accounting services are provided to the Fund by the Manager and
the Fund reimburses the Manager for its costs in connection with such services.
For the fiscal year ended October 31, 1995, the Fund reimbursed the Manager
$202,204 for accounting services. For the fiscal year ended October 31, 1995,
the ratio of total expenses, excluding account maintenance and distribution
fees and net of reimbursement, to average net assets was 0.82% for Class A
shares, 0.84% for Class B shares, 0.86% for Class C shares and 0.83% for Class
D shares.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Act which incorporates the Code of Ethics of the Manager
(together, the "Codes"). The Codes significantly restrict the personal
investing activities of all employees of the Manager and, as described below,
impose additional, more onerous, restrictions on Fund investment personnel.
The Codes require that all employees of the Manager 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
Manager 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
Manager. 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).
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TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (the "Transfer Agent"), which is
a wholly-owned subsidiary of ML & Co., acts as the Fund's transfer agent
pursuant to a transfer agency, dividend disbursing agency and shareholder
servicing agency agreement (the "Transfer Agency Agreement"). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening and maintenance of
shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer
Agent receives a fee of $11.00 per Class A and Class D shareholder account and
$14.00 per Class B and Class C shareholder account and the Transfer Agent is
entitled to reimbursement for out-of-pocket expenses incurred by it under the
Transfer Agency Agreement. For the fiscal year ended October 31, 1995, the
Fund paid the Transfer Agent $3,758,727 pursuant to the Transfer Agency
Agreement for providing transfer agency services. At January 31, 1996, the
Fund had 53,468 Class A shareholder accounts, 162,590 Class B shareholder
accounts, 13,661 Class C shareholder accounts and 56,807 Class D shareholder
accounts. At this level of accounts, the annual fee payable to the Transfer
Agent would aggregate approximately $3.7 million plus out-of-pocket expenses.
PURCHASE OF SHARES
The Distributor, an affiliate of the Manager and of Merrill Lynch, acts as
the distributor of shares of the Fund. Shares of the Fund are offered
continuously for sale by the Distributor and other eligible securities dealers
(including Merrill Lynch). Shares of the Fund may be purchased from securities
dealers or by mailing a purchase order directly to the Transfer Agent. The
minimum initial purchase is $1,000 and the minimum subsequent purchase is $50,
except that for retirement plans the minimum initial purchase is $100 and the
minimum subsequent purchase is $1.
The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon
the class of shares selected by the investor under the Merrill Lynch Select
Pricing SM System, as described below. The applicable offering price for
purchase orders is based upon the net asset value of the Fund next determined
after receipt of the purchase orders by the Distributor. As to purchase orders
received by securities dealers prior to the close of business on the New York
Stock Exchange (generally 4:00 P.M., New York time), which includes orders
received after the close of business on the previous day, the applicable
offering price will be based on the net asset value determined as of 15
minutes after the close of business on the New York Stock Exchange on that
day, provided the Distributor in turn receives orders from the securities
dealer prior to 30 minutes after the close of business on the New York Stock
Exchange on that day. If the purchase orders are not received prior to 30
minutes after the close of business on the New York Stock Exchange, such
orders shall be deemed received on the next business day. The Fund or the
Distributor may suspend the continuous offering of the Fund's shares of any
class at any time in response to conditions in the securities markets or
otherwise and may thereafter resume such offering from time to time. Any order
may be rejected by the Distributor or the Fund. Neither the Distributor nor
the dealers are permitted to withhold placing orders to benefit themselves by
a price change. Merrill Lynch may charge its customers a processing fee
(presently $4.85) to confirm a sale of shares to such customers. Purchases
directly through the Fund's Transfer Agent are not subject to the processing
fee.
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<PAGE>
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing SM System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Fund with the
investment thereafter being subject to a CDSC and ongoing distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select Pricing SM System
is set forth under "Merrill Lynch Select Pricing SM System" on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The deferred sales charges 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, are imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges do 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 are calculated in the same manner at the same time and will
differ only to the extent that account maintenance and distribution fees and
any incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Class B, Class C and Class D shares each have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
adopted with respect to such class pursuant to which account maintenance
and/or distribution fees are paid. See "Distribution Plans" below. Each class
has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in
that the sales charges applicable to each class provide for the financing of
the distribution of the shares of the Fund. The distribution-related revenues
paid with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised
that only Class A and Class D shares may be available for purchase through
securities dealers, other than Merrill Lynch, which are eligible to sell
shares.
25
<PAGE>
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing SM System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE/1/ FEE FEE CONVERSION FEATURE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge/2/,/3/
- ------ ---------------------------- ---------- ----------- -------------------------
B CDSC for a period of 4 years, 0.25% 0.75% B shares convert to D
at a rate of 4.0% during the shares automatically
first year, decreasing 1.0% after approximately eight
annually to 0.0% years/4/
- ------ ---------------------------- ---------- ----------- -------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ------ ---------------------------- ---------- ----------- -------------------------
D Maximum 5.25% initial sales 0.25% No No
charge/3/
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more, and waived for purchases of
Class A shares by certain retirement plans in connection with certain
investment programs. Class A and Class D share purchases of $1,000,000 or
more may not be subject to an initial sales charge but instead will be
subject to a 1.0% CDSC for one year.
(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 a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
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.
26
<PAGE>
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS DISCOUNT TO
PERCENTAGE OF PERCENTAGE* OF SELECTED DEALERS
OFFERING THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED THE OFFERING PRICE
- ------------------ ------------- -------------- ------------------
<S> <C> <C> <C>
Less than $25,000.............. 5.25% 5.54% 5.00%
$25,000 but less than $50,000.. 4.75 4.99 4.50
$50,000 but less than $100,000. 4.00 4.17 3.75
$100,000 but less than
$250,000...................... 3.00 3.09 2.75
$250,000 but less than
$1,000,000.................... 2.00 2.04 1.80
$1,000,000 and over**.......... 0.00 0.00 0.00
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994 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
1.0% if the shares are redeemed within one year after purchase. Class A
purchases made prior to October 21, 1994 may be subject to a CDSC, in lieu
of an initial sales charge, if the shares are redeemed within one year of
purchase at the following rates: 1.00% on purchases of $1,000,000 to
$2,500,000; 0.60% on purchases of $2,500,001 to $3,500,000; 0.40% on
purchases of $3,500,001 to $5,000,000; and 0.25% on purchases of more than
$5,000,000. The charge will be assessed on an amount equal to the lesser of
the proceeds of redemption or the cost of the shares being redeemed. A sales
charge of 0.75% will be charged on purchases of $1,000,000 or more of Class
A and Class D shares by certain Employer Sponsored Retirement or Savings
Plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and
Class D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act of 1933,
as amended (the "Securities Act"). During the fiscal year ended October 31,
1995, the Fund sold 14,567,526 Class A shares for aggregate net proceeds of
$296,704,905. The gross sales charges for the sale of Class A shares of the
Fund for that year were $324,057, of which $20,065 and $303,992 were received
by the Distributor and Merrill Lynch, respectively. No CDSCs were received with
respect to Class A shares, for which the initial sales charge was waived,
during the fiscal year ended October 31, 1995. During the fiscal year ended
October 31, 1995, the Fund sold 7,989,658 Class D shares for aggregate net
proceeds of $166,752,965. The gross sales charges for the sale of Class D
shares of the Fund for that year were $1,639,227, of which $102,417 and
$1,536,810 were received by the Distributor and Merrill Lynch, respectively.
$14,137 in CDSCs were received with respect to Class D shares, for which the
initial sales charge was waived, during the fiscal year ended October 31, 1995.
Eligible Class A Investors. Class A shares are offered to a limited group of
investors and also will be issued upon reinvestment of dividends on outstanding
Class A shares. Investors that currently own Class A shares of the Fund in a
shareholder account, including participants in the Merrill Lynch BlueprintSM
Program, are entitled to purchase additional Class A shares of the Fund in that
account. Certain Employer Sponsored Retirement or Savings Plans, including
eligible 401(k) plans, may purchase Class A shares at net asset value provided
such plans meet the required minimum number of eligible employees or required
amount of assets advised by MLAM or any of its affiliates. Class A shares are
available at net asset value to corporate
27
<PAGE>
warranty insurance reserve fund programs provided that the program has $3
million or more initially invested in MLAM-advised mutual funds. Also eligible
to purchase Class A shares at net asset value are participants in certain
investment programs including TMA SM Managed Trusts to which Merrill Lynch
Trust Company provides discretionary trustee services and certain purchases
made in connection with the Merrill Lynch Mutual Fund Adviser program. In
addition, Class A shares are offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the Boards of
MLAM-advised investment companies, including the Fund. Certain persons who
acquired shares of certain MLAM-advised closed-end funds who wish to reinvest
the net proceeds from a sale of their closed-end fund shares of common stock in
shares of the Fund also may purchase Class A and Class D shares of the Fund if
certain conditions set forth in the Statement of Additional Information are met
for closed-end funds that commenced operations prior to October 21, 1994. In
addition, Class A shares of the Fund and certain other MLAM-advised mutual
funds are offered at net asset value to shareholders of Merrill Lynch Senior
Floating Rate Fund, Inc. ("Senior Floating Rate Fund") 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 Senior Floating Rate Fund in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges
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".
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 SM
available through employers which provide such plans.
Class D shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies. Class D shares also are
offered at net asset value, without sales charge, to an investor who has a
business relationship with a Merrill Lynch financial consultant, if certain
conditions set forth in the Statement of Additional Information are met.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
BlueprintSM Program.
Class D shares of the Fund are offered at net asset value to shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. ("Municipal Strategy Fund") and
Merrill Lynch High Income Municipal Bond Fund, Inc. ("High Income Municipal
Bond Fund") who wish to reinvest the net proceeds from a sale of certain of
their shares of common stock of Municipal Strategy Fund and High Income
Municipal Bond Fund, respectively, in shares of the Fund.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employer Sponsored Retirement or
Savings Plans, is set forth in the Statement of Additional Information.
28
<PAGE>
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted to Class D shares of the Fund and
thereafter will be subject to lower continuing fees. See "Conversion of Class B
Shares to Class D Shares" below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and a distribution fee of
0.75% of net assets as discussed below under "Distribution Plans".
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for
selling Class B and Class C shares, from its own funds. The combination of the
CDSC and the ongoing distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales charge being deducted at
the time of purchase. Approximately eight years after issuance, Class B shares
will convert automatically to Class D shares of the Fund, which are subject to
an account maintenance fee but no distribution fee; Class B shares of certain
other MLAM-advised mutual funds into which exchanges may be made convert to
Class D shares automatically after approximately ten years. If Class B shares
of the Fund are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will be
tacked onto the holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C shares
is limited by the NASD asset-based sales charge rule. See "Limitations on the
Payment of Deferred Sales Charges" below. The proceeds from the ongoing account
maintenance fee are used to compensate Merrill Lynch for providing continuing
account maintenance activities. Class B shareholders of the Fund exercising the
exchange privilege described under "Shareholder Services--Exchange Privilege"
will continue to be subject to the Fund's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B shares acquired as a
result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which are
redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
29
<PAGE>
redemption or the costs of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC AS A PERCENTAGE OF
YEAR SINCE PURCHASE PAYMENT MADE DOLLAR AMOUNT SUBJECT TO CHARGE
-------------------------------- -------------------------------
<S> <C>
0-1..................................... 4.00%
1-2..................................... 3.00
2-3..................................... 2.00
3-4..................................... 1.00
4 and thereafter........................ 0.00
</TABLE>
For the fiscal year ended October 31, 1995, the Distributor received CDSCs of
$1,488,167 with respect to redemptions of Class B shares, all of which was paid
to Merrill Lynch.
In determining whether a CDSC is applicable to a redemption, the calculation
will be determined in the manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first of shares
held for over four years or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the four-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer 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 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC because of dividend reinvestment. With respect to
the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
2.0% (the applicable rate in the third year after purchase for shares purchased
on or after October 21, 1994).
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 Advisor ("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 Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans and in
30
<PAGE>
connection with certain group plans placing orders through the Merrill Lynch
Blueprint SM Program. The CDSC also is waived for any Class B shares which are
purchased by eligible 401(k) or eligible 401(a) plans which are rolled over
into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in
such account at the time of redemption and for any Class B shares that were
acquired and held at the time of the redemption in an Employee Access Account
SM available through employers providing eligible 401(k) plans. The Class B
CDSC is also waived for any Class B shares which are purchased by a Merrill
Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan
managed by the MLAM Private Portfolio Group and held in such account at the
time of redemption. Additional information concerning the waiver of the Class B
CDSC is set forth in the Statement of Additional Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which are
redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a
percentage of the dollar amount subject thereto. The charge will be assessed on
an amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from reinvestment of dividends
or capital gains distributions.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the one-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
For the fiscal year ended October 31, 1995, the Distributor received CDSCs of
$20,243 with respect to redemptions of Class C shares, all of which was paid to
Merrill Lynch.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
to Class D shares of the Fund. Class D shares are subject to an ongoing account
maintenance fee of 0.25% of net assets but are not subject to the distribution
fee that is borne by Class B shares. Automatic conversion of Class B shares to
Class D shares will occur at least once each month (on the "Conversion Date")
on the basis of the relative net asset values of the shares of the two classes
on the Conversion Date, without the imposition of any sales load, fee or other
charge. Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
31
<PAGE>
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion Period, or vice versa, the
Conversion Period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised mutual
funds held in that Class B Retirement Plan will be converted into Class D
shares of the appropriate funds. Subsequent to such conversion, that Class B
Retirement Plan will be sold Class D shares of the appropriate funds at net
asset value per share.
The Conversion Period also 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 "Shareholders 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, accrued daily and paid monthly, at the annual
rate of 0.25% of the average daily net assets of the Fund attributable to
shares of the relevant class in order to compensate the Distributor and Merrill
Lynch (pursuant to a sub-agreement) in connection with account maintenance
activities.
32
<PAGE>
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C
shares through dealers without the assessment of an initial sales charge and at
the same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
For the fiscal year ended October 31, 1995, the Fund paid the Distributor
$15,900,710 pursuant to the Class B Distribution Plan (based on the average net
assets subject to the Class B Distribution Plan of approximately $1.6 billion),
of which $3,975,178 was paid to Merrill Lynch for providing account maintenance
services and $11,925,532 was paid to Merrill Lynch for distribution-related
activities and services in connection with Class B shares. For the fiscal year
ended October 31, 1995, the Fund paid the Distributor $347,690 pursuant to the
Class C Distribution Plan (based on average net assets subject to the Class C
Distribution Plan of approximately $34.8 million) of which $86,923 was paid to
Merrill Lynch for providing account maintenance services and $260,767 was paid
to Merrill Lynch for distribution-related activities and services in connection
with Class C shares. For the same period, the Fund paid the Distributor
$771,688 pursuant to the Class D Distribution Plan relating to the Class D
shares (based on the average net assets subject to the Class D Distribution
Plan of $308.7 million), all of which was paid to Merrill Lynch for providing
account maintenance services in connection with Class D shares. At January 31,
1996, the net assets of the Fund subject to the Class B Distribution Plan
aggregated approximately $2.0 billion. At this asset level, the annual fee
payable pursuant to the Class B Distribution Plan would aggregate approximately
$20.4 million. At January 31, 1996, the net assets of the Fund subject to the
Class C Distribution Plan aggregated approximately $103.6 million. At this
asset level, the annual fee payable pursuant to the Class C Distribution Plan
would aggregate approximately $1.0 million. At January 31, 1996, the net assets
of the Fund subject to the Class D Distribution Plan aggregated approximately
$663.5 million. At this asset level, the annual fee payable pursuant to the
Class D Distribution Plan would aggregate $1.7 million.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the 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 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, the distribution fees, the CDSCs and certain
other related revenues, and expenses consist of financial consultant
compensation, branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the direct expense and
revenue/cash basis, revenues
33
<PAGE>
consist of the account maintenance fees, the distribution fees and CDSCs and
the expenses consist of financial consultant compensation. With respect to
Class B shares, as of December 31, 1994, the last date at which fully allocated
accrual data is available, the fully allocated accrual revenues received by the
Distributor and Merrill Lynch exceeded fully allocated accrual expenses for the
period since the Fund commenced operations on March 27, 1987 by approximately
$1,591,000 (0.12% of Class B net assets at that date). As of October 31, 1995,
direct cash revenues for the period since the commencement of operations
exceeded direct cash expenses by $49,205,586 (2.56% of Class B net assets at
that date). As of October 31, 1995, for Class C shares, direct cash expenses
for the period since October 21, 1994 (commencement of operations) exceeded
direct cash revenues by $43,931 (0.05% of Class C net assets at that date).
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and there is no
assurance that the 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 to 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 National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on
certain asset-based sales charges such as the Fund's distribution fee and the
CDSC borne by the Class B and Class C shares, but not the account maintenance
fee. The maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges) plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In
certain circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances payment
in excess of the amount payable under the NASD formula will not be made.
34
<PAGE>
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset
value per share next determined after the initial receipt of proper notice of
redemption. Except for any CDSC which may be applicable, there will be no
charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption. The value
of shares at the time of redemption may be more or less than the shareholder's
cost, depending on the net asset value of the Fund's shares at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, Merrill Lynch Financial Data Services,
Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Proper notice of
redemption in the 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. Redemption requests delivered other than by mail
should be delivered to Merrill Lynch Financial Data Services, Inc., 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484. Redemption requests should
not be sent to the Fund. A redemption request requires the signature(s) of all
persons in whose name(s) the shares are registered, signed exactly as his
(their) name(s) appear(s) on the Transfer Agent's register or on the
certificate, as the case may be. The signature(s) on the redemption request
must be guaranteed by an "eligible guarantor institution" as such term is
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, the
existence and validity of which may be verified by the Transfer Agent through
the use of industry publications. Notarized signatures are not sufficient. In
certain instances, the Transfer Agent may require additional documents such as,
but not limited to, trust instruments, death certificates, appointments as
executor or administrator, or certificates of corporate authority. For
shareholders redeeming directly with the Transfer Agent, payments will be
mailed within seven days of receipt of a proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it has
not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (i.e., 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. The Fund will normally accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, less any applicable CDSC,
provided that the request for repurchase is received by the dealer prior to the
close of business on the New York Stock Exchange (generally 4:00 P.M., New York
time) 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 on the same day. Dealers have the responsibility of submitting such
repurchase requests to the Fund not later than 30
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minutes after the close of business on the New York Stock Exchange in order to
obtain that day's closing price. These repurchase arrangements are for the
convenience of shareholders and do not involve a charge by the Fund (other than
any applicable CDSC). Securities firms which do not have selected dealer
agreements with the Distributor, however, may impose a transaction charge on
the shareholder for transmitting the notice of repurchase to the Fund. Merrill
Lynch may charge its customers a processing fee (presently $4.85) to confirm a
repurchase of shares. Redemptions directly through the Fund's Transfer Agent
are not subject to the processing fee. The Fund reserves the right to reject
any order for repurchase, which right of rejection might adversely affect
shareholders seeking redemption through the repurchase procedure. A shareholder
whose order for repurchase is rejected by the Fund, however, may redeem shares
as set forth above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares have a one-
time privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds. The reinstatement privilege is a one-time privilege
and may be exercised by the Class A or Class D shareholder only the first time
such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in its shares.
Certain of such services are not available to investors who place purchase
orders for the Fund's shares through the Merrill Lynch BlueprintSM Program.
Full details as to each of such services, copies of the various plans described
below and instructions as to how to participate in the various services or
plans, or to change options with respect thereto, can be obtained from the Fund
by calling the telephone number on the cover page hereof or from 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 gain distributions.The statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions. Shareholders may make additions to their Investment Account at
any time by mailing a check directly to the Transfer Agent. Shareholders also
may maintain their accounts through Merrill Lynch. Upon the transfer of shares
out of a Merrill Lynch brokerage account, an account in the transferring
shareholder's name will be opened automatically, without charge, at the
Transfer Agent.
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Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Fund, a shareholder either
must redeem the Class A or Class D shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an
account registered in the name of the brokerage firm for the benefit of the
shareholder at the Transfer Agent. Shareholders considering transferring a tax-
deferred retirement account such as an individual retirement account from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the retirement account is to be transferred
will not take delivery of shares of the Fund, a 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.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated at any time in
accordance with the rules of the Commission.
Under the Merrill Lynch Select Pricing SM System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his 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.
Exchanges of Class A and Class D shares are made on the basis of the relative
net asset values per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable for shares of the same
class of other MLAM-advised mutual funds.
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Shares of the Fund which are subject to a CDSC are exchangeable on the basis
of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the Fund. For purposes
of computing the CDSC that may be payable upon a disposition of the shares
acquired in the exchange, the holding period for the previously owned shares of
the Fund is "tacked" to the holding period of the newly acquired shares of the
other Fund.
Class A, Class B, Class C and Class D shares also are exchangeable for shares
of certain MLAM-advised money market funds specifically designated as available
for exchange by holders of Class A, Class B, Class C or Class D shares. The
period of time that Class A, Class B, Class C or Class D shares are held in a
money market fund, however, will not count toward satisfaction of the holding
period requirement for reduction of any CDSC imposed on such shares, if any,
and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale 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
reacquired 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 also is modified with respect to purchases
of Class A and Class D shares by non-retirement plan investors under the 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.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically in
full and fractional shares of the Fund, without a sales charge, at the net
asset value per share next determined on the ex-dividend date of such dividend
or distribution. A shareholder whose account is maintained through the Transfer
Agent may at any time, by written notification or by telephone (1-800-MER-FUND)
to the Transfer Agent, elect to have
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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. A shareholder whose account is accepted through Merrill Lynch
may, at any time, by notice to Merrill Lynch, elect to have both dividends and
capital gains distributions paid in cash, rather than reinvested. Cash payments
can also be directly deposited to the shareholder's bank account. No CDSC will
be imposed on redemption of shares issued as a result of the automatic
reinvestment of dividends or capital gains distribution.
SYSTEMATIC WITHDRAWAL PLANS
A Class A or Class D shareholder may elect to receive systematic withdrawal
checks from such shareholder's Investment Account in the form of payments by
check or through automatic payment by direct deposit to such shareholder's bank
account on either a monthly or quarterly basis. A Class A or Class D
shareholder whose shares are held within a CMA(R), CBA(R) or Retirement Account
may elect to have shares redeemed on a monthly, bi-monthly, quarterly,
semiannual or annual basis through the CMA(R)/CBA(R) Systematic Redemption
Program, subject to certain conditions.
AUTOMATED INVESTMENT PLANS
Regular additions of Class A, Class B, Class C or Class D shares may be made
to an investor's Investment Account by prearranged charges of $50 or more to
such investor's regular bank account. Investors who maintain CMA(R) or CBA(R)
accounts may arrange to have periodic investments made in the Fund in their
CMA(R) or CBA(R) accounts or in certain related accounts in amounts of $100 or
more through the CMA(R)/CBA(R) Automated Investment Program.
TAXES
The Fund intends to continue to elect to qualify for the special tax
treatment afforded regulated investment companies ("RICs") under Internal
Revenue Code of 1986, as amended (the "Code"). If it so qualifies, the Fund
(but not its shareholders) will not be subject to Federal income tax on the
part of its net ordinary income and net realized capital gains which it
distributes to Class A, Class B, Class C and Class D shareholders
("shareholders"). The Fund intends to distribute substantially all of such
income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
are taxable to shareholders as long-term capital gains, regardless of the
length of time the shareholder has owned Fund shares. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of
a shareholder's shares and, after such adjusted tax basis is reduced to zero,
will constitute capital gains to such shareholders (assuming the shares are
held as a capital asset).
Dividends and distributions are taxable to shareholders even though they are
reinvested in additional shares of the Fund. Not later than 60 days after the
close of its taxable year, the Fund will provide its shareholders with a
written notice designating the amounts of any dividends or capital gains
distributions. A
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portion of the Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the Code, if certain
requirements are met. The Fund intends to designate a pro rata portion of such
distributions that are paid on the shares as eligible for the dividends
received deduction. If the Fund pays a dividend or distribution in January
which was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend or distribution will be treated for tax purposes as being paid by the
RIC and received by its shareholders on December 31 of the year in which such
dividend or distribution was declared.
Ordinary income dividends paid by the Fund to shareholders who are non-
resident aliens or foreign entities generally will be subject to a 30% United
States withholding tax under existing provisions of the Code applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
Pursuant to the Fund's investment objectives, the Fund may invest in foreign
securities. Foreign taxes may be paid by the Fund as a result of tax laws of
countries in which the Fund may invest. Income tax treaties between certain
countries and the United States may reduce or eliminate such taxes. It is
impossible to determine in advance the effective rate of foreign tax to which
the Fund will be subject, since the amount of Fund assets to be invested in
various countries is not known. Because the Fund limits its investment in
foreign securities, shareholders will not be entitled to claim foreign tax
credits with respect to their share of foreign taxes paid by the Fund on income
from investments of foreign securities held by the Fund.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains 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. When establishing an account, an investor
must certify under penalty of perjury that such number is correct and that the
investor 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.
A shareholder who holds shares as a capital asset generally will recognize a
capital gain or loss upon the sale of such shares, which will be a long-term
capital gain or loss if such shares were held for more than one year. However,
any loss realized by a shareholder who held shares for six months or less will
be treated as a long-term capital loss to the extent of any distributions of
net capital gains received by the shareholder with respect to such shares.
If a shareholder exercises the exchange privilege within 90 days of acquiring
such shares, then the loss the shareholder can recognize on the exchange will
be reduced (or the gain increased) to the extent the sales charge paid to the
Fund reduces any charge the shareholder would have owed upon the purchase of
the new shares in the absence of the exchange privilege. Instead, such sales
charge will be treated as an amount paid for the new shares. See "Shareholder
Services--Exchange Privilege".
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A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are
not "regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income,
rather than increasing or decreasing the amount of the Fund's net capital gain.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary dividend distributions, and any distributions made before the losses
were realized but in the same taxable year would be recharacterized as a return
of capital to shareholders, thereby reducing each shareholder's basis in his
Fund shares and resulting in a capital gain for any shareholder who received a
distribution greater than the shareholder's tax basis in Fund shares (assuming
the shares were held as a capital asset).
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Dividends and capital gains distributions may also be subject to state and
local taxes.
Shareholders are urged to consult their tax advisers as to whether any
portion of the dividends they receive from the Fund is exempt from state income
tax and as to any other specific questions as to Federal, foreign, state or
local taxes. Foreign investors should consider applicable foreign taxes in
their evaluation of an investment in the Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with
formulas specified by the Commission.
Average annual total return quotations for the specified period 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 CDSC that would be applicable to a
complete redemption of the investment at the end of the specified period such
as in the case of Class B and Class C shares and the maximum sales charge in
the case of Class A and Class D shares. Dividends paid by the Fund with respect
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to all shares to the extent any dividends are paid, will be calculated in the
same manner at the same time on the same day and will be in the same amount,
except that account maintenance fees and distribution charges and any
incremental transfer agency costs relating to each class of shares will be
borne exclusively by that class. The Fund will include performance data for all
classes of shares of the Fund in any advertisement or information including
performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return
calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the effect on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual
or annualized total return data generally will be lower than average annual
total return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time. In advertisements distributed to investors whose
purchases are subject to reduced sales charges in the case of Class A and Class
D shares or waiver of the CDSC in the case of Class B shares (such as investors
in certain retirement plans), the performance data may take into account the
reduced, and not the maximum, sales charges or may not take into account the
CDSC and therefore may reflect greater total return since, due to the reduced
sales charges or waiver of the CDSC, a lower amount of expenses 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 $1,000 investment in the Fund at the beginning of each specified
period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to the Standard & Poor's
500 Composite Stock Price Index, the Value Line Composite Index or the Dow
Jones Industrial Average, or to data contained in publications such as Lipper
Analytical Services, Inc., Morningstar Publications, Inc. ("Morningstar"),
Money Magazine, U.S. News & World Report, Business Week, Forbes Magazine,
Fortune Magazine and CDA Investment Technology, Inc. From time to time, the
Fund may include the Fund's Morningstar risk-adjusted performance ratings in
advertisements or supplemental sales literature. As with other performance
data, performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all its net investment income, if
any. Dividends from such net investment income are paid semi-annually. All net
realized long or short-term capital gains, if any, are
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distributed to the Fund's shareholders annually. From time to time, the Fund
may declare a special distribution at or about the end of the calendar year in
order to comply with a Federal income tax requirement that certain percentages
of its ordinary income and capital gains be distributed during the calendar
year. The per share dividends and distributions on each class of shares will be
reduced as a result of any account maintenance, distribution and transfer
agency fees applicable to that class. See "Additional Information--
Determination of Net Asset Value". Dividends and distributions may be
reinvested automatically in shares of the Fund at net asset value. 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
under "Taxes" whether they are reinvested in shares of the Fund or received in
cash.
See "Shareholder Services--Automatic Reinvestment of Dividends and Capital
Gains Distributions" for information as to how to elect either dividend
reinvestment or cash payments.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily as of 15 minutes after the close of business on the New York Stock
Exchange (generally 4:00 P.M., New York time) on each day during which the New
York Stock Exchange is open for trading. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. The net asset value per share is computed by
dividing the sum of the market value of the securities held by the Fund plus
any cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time, rounded to the nearest cent.
Expenses, including the fees payable to the Manager 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 among the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Trustees as the
primary market. Securities traded on a stock exchange and the over-the-counter
market will be valued according to the broadest and most representative market.
Securities traded in the over-the-counter market are valued at the last
available bid price obtained from one or more dealers in the over-the-counter
market prior to the time of valuation. When the Fund writes a call option, the
amount
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of the premium received is recorded on the books of the Fund as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based upon the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Purchased options
which are traded on exchanges are valued at their last sale price or, in the
case of purchased options traded in the over-the-counter market, the last bid
price. Other investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by
or under the direction of the Board of Trustees of the Fund. Such valuations
and procedures will be reviewed periodically by the Board of Trustees.
ORGANIZATION OF THE FUND
The Fund, an open-end management investment company, was organized on
December 11, 1986 under the laws of the Commonwealth of Massachusetts and is a
business entity commonly known as a "Massachusetts business trust". The Fund is
authorized to issue an unlimited number of shares of beneficial interest of
different classes, $0.10 par value per share. At the date of this Prospectus,
the shares of the Fund are divided into Class A, Class B, Class C and Class D
shares. Class A, Class B, Class C and Class D shares represent interests in the
same assets of the Fund and are identical in all respects except that Class B,
Class C and Class D shares bear certain expenses related to the account
maintenance associated with such shares, and Class B and Class C shares bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to account maintenance
and distribution expenditures, as applicable. See "Purchase of Shares". The
Fund has received an order from the Commission permitting the issuance and sale
of multiple classes of shares. The Trustees of the Fund may classify and
reclassify the shares of the Fund into additional classes of shares at a future
date.
The Declaration of Trust of the Fund does not require that the Fund hold an
annual meeting of shareholders. However, the Fund will be required to call
special meetings of shareholders in accordance with the requirements of the
Investment Company Act to seek approval of new management and advisory
arrangements, of a material increase in distribution fees or of a change in the
fundamental policies, objectives or restrictions of the Fund. The Fund also
would be required to hold a special shareholders' meeting to elect new Trustees
at such time as less than a majority of the Trustees holding office have been
elected by shareholders. The Declaration provides that a shareholders' meeting
may be called for any reason at the request of 10% of the outstanding shares of
the Fund or by majority of the Trustees.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
44
<PAGE>
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.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
----------------
The Declaration of Trust establishing the Fund, dated December 11, 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 "Merrill Lynch Retirement Equity Fund" (subsequently,
"Merrill Lynch Growth Fund for Investment and Retirement") 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 shall be held to any personal liability, nor shall resort be had to their
private property for the satisfaction of any obligation or claim of said Fund
but the "Trust Property" only shall be liable.
45
<PAGE>
[This page is intentionally left blank.]
46
<PAGE>
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT AUTHORIZATION FORM
(PART 1)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT SM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT SM
PROGRAM APPLICATION BY CALLING (800) 637-3766.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Growth Fund for Investment and Retirement and establish an
Investment Account as described in the Prospectus. In the event that I am not
eligible to purchase Class A shares, I understand that Class D shares will be
purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Merrill Lynch Financial
Data Services, Inc. as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: Please list all funds. (Use a separate sheet of
paper if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
(PLEASE PRINT)
Name...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address........................................................................
................................................. Date........................
(Zip Code)
Occupation........................... Name and Address of Employer ........
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with rights of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-Term Capital Gains
Select [_] Reinvest Select [_] Reinvest
One: [_] Cash One: [_] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] CHECK
OR [_] DIRECT DEPOSIT TO BANK ACCOUNT
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Growth Fund for Investment and
Retirement Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE) [_] CHECKING [_] SAVINGS
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ...................... Account Number ............................
Bank Address ..................................................................
I agree that this authorization will remain in effect until I provide written
notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Signature of Depositor ........................................................
Signature of Depositor ............................... Date...................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
47
<PAGE>
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT AUTHORIZATION FORM
(PART 1) -- (CONTINUED)
3. SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER
[ ]
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed in the Prospectus
under "Taxes") either because I have not been notified that I am subject
thereto as a result of a failure to report all interest or dividends, or the
Internal Revenue Service ("IRS") has notified me that I am no longer subject
thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
Dear Sir/Madam:
..................., 19......
Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Growth Fund for Investment and Retirement or any other investment
company with an initial sales charge or deferred sales charge for which
Merrill Lynch Funds Distributor, Inc. acts as distributor over the next 13
month period which will equal or exceed:
[_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Growth Fund for
Investment and Retirement Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc. my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Growth Fund for Investment and Retirement held as
security.
By .................................. .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name............................. (2) Name.............................
Account Number.......................
Account Number.......................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp. We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
- - - our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases made under a Letter of
Intention or Systematic Withdrawal
Plan. We guarantee the shareholder's
signature.
- - - .....................................
This form when completed should be Dealer Name and Address
mailed to:
By ..................................
Merrill Lynch Growth Fund for Authorized Signature of Dealer
Investment and Retirement
[ ][ ][ ] [ ][ ][ ][ ]
c/o Merrill Lynch Branch-Code F/C No. ..............
Financial Data Services, Inc. F/C Last Name
P.O. Box 45289 [ ][ ][ ] [ ][ ][ ][ ][ ]
Jacksonville, FL 32232-5289 Dealer's Customer A/C No.
48
<PAGE>
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT AUTHORIZATION FORM
(PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Name of Owner......................
[ ]
Social Security No. or
Name of Co-Owner (if any).......... Taxpayer Identification
Number
Address............................ Account Number ....................
(if existing account)
...................................
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [_] Class A or [_] Class D shares in Merrill Lynch Growth Fund
for Investment and Retirement at cost or current offering price. Withdrawals
to be made either (check one) [_] Monthly on the 24th day of each month, or
[_] Quarterly on the 24th day of March, June, September and December. If the
24th falls on a weekend or holiday, the next succeeding business day will be
utilized. Begin systematic withdrawal on . . . . . . . . . .(month) or as soon
as possible thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): [_] $_____
or [_]____% of the current value of [_] Class A or [_] Class D shares in the
account.
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a)I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of..........................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (Please Print)......................................................
Address .......................................................................
..........................................................................
Signature of Owner................................ Date..................
Signature of Co-Owner (if any)............................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING
OR TERMINATING THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name on your Account...........................................................
Bank Name......................................................................
Bank Number........................ Account Number............................
Bank Address...................................................................
...............................................................................
Signature of Depositor................................. Date..................
Signature of Depositor.........................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
49
<PAGE>
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account described below
each month to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Growth Fund for Investment and Retirement subject to the terms
set forth below. In the event that I am not eligible to purchase Class A
shares, I understand that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA AUTHORIZATION TO HONOR ACH DEBITS
SERVICES, INC. DRAWN BY MERRILL LYNCH FINANCIAL
DATA SERVICES, INC.
You are hereby authorized to draw an
ACH debit each month on my bank
account for investment in Merrill
Lynch Growth Fund for Investment and
Retirement as indicated below: To...............................Bank
(Investor's Bank)
Amount of each check or ACH debit
$.................................. Bank Address.........................
Account Number ....................
City...... State...... Zip Code......
Please date and invest ACH debits on
the 20th of each month beginning As a convenience to me, I hereby
request and authorize you to pay and
...................................... charge to my account ACH debits
drawn on my account by and payable
.................(month) to Merrill Lynch Financial Data
Services, Inc., I agree that your
or as soon thereafter as possible. rights in respect to each such debit
shall be the same as if it were a
I agree that you are drawing these ACH check drawn on you and signed
debits voluntarily at my request and personally by me. This authority is
that you shall not be liable for any to remain in effect until revoked by
loss arising from any delay in me in writing. Until you receive
preparing or failure to prepare any such notice, you shall be fully
such check or debit. If I change banks protected in honoring any such
or desire to desire to terminate or debit. I further agree that if any
suspend this program, I agree to such debit be dishonored, whether
notify you promptly in writing. I with or without cause and whether
hereby authorize you to take any intentionally or inadvertently, you
action to correct erroneous ACH debits shall be under no liability.
of my bank account or purchases of
fund shares including liquidating ............. ......................
shares of the Fund and credit my bank Date Signature of
account. I further agree that if a Depositor
check or debit is not honored upon
presentation, Merrill Lynch Financial ............. ......................
Data Services, Inc. is authorized to Bank Account Signature of Depositor
discontinue immediately the Automatic Number (If joint account,
Investment Plan and to liquidate both must sign)
sufficient shares held in my account
to offset the purchase made with the
returned check or dishonored debit.
............. ......................
Date Signature of
Depositor
......................
Signature of Depositor
(If joint account,
both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
50
<PAGE>
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
State Street Bank and Trust Company
One Heritage Drive P2N
North Quincy, Massachusetts 02171
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540-6400
COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Merrill Lynch Select Pricing SM System..................................... 3
Financial Highlights....................................................... 8
Investment Objectives and Policies......................................... 10
Portfolio Strategies Including Options and Futures....................... 13
Other Investment Policies and Practices.................................. 19
Investment Restrictions.................................................. 21
Management of the Fund..................................................... 22
Trustees................................................................. 22
Management and Advisory Arrangements..................................... 22
Code of Ethics........................................................... 23
Transfer Agency Services................................................. 24
Purchase of Shares......................................................... 24
Initial Sales Charge Alternatives--
Class A and Class D Shares............................................. 26
Deferred Sales Charge Alternatives-- Class B and Class C Shares.......... 29
Distribution Plans....................................................... 32
Limitations on the Payment of Deferred Sales Charges..................... 34
Redemption of Shares....................................................... 35
Redemption............................................................... 35
Repurchase............................................................... 35
Reinstatement Privilege--Class A and Class D Shares...................... 36
Shareholder Services....................................................... 36
Taxes...................................................................... 39
Performance Data........................................................... 41
Additional Information..................................................... 42
Dividends and Distributions.............................................. 42
Determination of Net Asset Value......................................... 43
Organization of the Fund................................................. 44
Shareholder Reports...................................................... 44
Shareholder Inquiries.................................................... 45
Authorization Form......................................................... 47
</TABLE>
Code #10479-0296
[LOGO] MERRILL LYNCH
MERRILL LYNCH
GROWTH FUND FOR
INVESTMENT AND RETIREMENT
[ART]
PROSPECTUS
February 27, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This Prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH GROWTH FUND
FOR INVESTMENT AND RETIREMENT
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
The investment objectives of Merrill Lynch Growth Fund for Investment and
Retirement (the "Fund") are to seek growth of capital and, secondarily, income
by investing in a diversified portfolio of primarily equity securities placing
principal emphasis on those securities which management of the Fund believes
to be undervalued. The portfolio of the Fund generally will be managed without
regard to tax considerations applicable to distributions to shareholders and
therefore its shares may particularly appeal to investors for whom current tax
liability is not a major consideration, such as employee benefit plans and
individual retirement accounts ("IRAs"). There can be no assurance that the
investment objectives of the Fund will be realized.
Pursuant to the Merrill Lynch Select Pricing SM System, the Fund offers four
classes of shares each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select Pricing SM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances.
----------------
This Statement of Additional Information of the Fund is not a prospectus and
should be read in conjunction with the Prospectus of the Fund, dated February
27, 1996 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, 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.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT -- MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
----------------
The date of this Statement of Additional Information is February 27, 1996.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund are to seek growth of capital and,
secondarily, income by investing in a diversified portfolio of primarily
equity securities placing principal emphasis on those securities which
management of the Fund believes to be undervalued. Reference is made to
"Investment Objectives and Policies" in the Prospectus for a discussion of the
investment objectives and policies of the Fund.
The Fund is classified as a non-diversified fund under the Investment
Company Act of 1940, as amended (the "Investment Company Act") and is not
subject to the diversification requirements of the Investment Company Act.
This policy is fundamental and may only be changed by shareholder vote.
Accordingly, the Fund may invest more than 5% of the value of its assets in
the obligations of a single issuer and may acquire more than 10% of the voting
securities of a single issuer. However, the Fund remains subject to the
diversification requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), in order to qualify as a regulated investment
company (a "RIC") for U.S. federal income tax purposes. In order to qualify as
a RIC under the Code, the Fund must comply with certain requirements,
including limiting its investments so that at the close of each quarter of the
taxable year (i) not more than 25% of the market value of the Fund's total
assets are invested in the securities of a single issuer, or any two or more
issuers which are controlled by the Fund and engaged in the same, similar or
related businesses, and (ii) with respect to 50% of the market value of its
total assets, not more than 5% of the market value of its total assets are
invested in the securities of a single issuer, and the Fund does not own more
than 10% of the outstanding voting securities of a single issuer. Investment
in the securities of the U.S. Government, its agencies and instrumentalities
are not included within the definition of "issuer" for purposes of the
diversification requirements of the Code, while foreign government securities
are included within such definition.
Although operating as a non-diversified fund increases the flexibility with
which Merrill Lynch Asset Management, L.P., (the "Manager" or "MLAM") manages
the Fund's assets, to the extent the Fund invests a relatively high percentage
of its assets in obligations of a limited number of issuers, the Fund may be
more susceptible than would be a more widely diversified fund to any single
economic, political or regulatory occurrence or to changes in an issuer's
financial condition or in the market's assessment of the issuers.
While the Fund generally does not expect to engage in trading for short-term
gains, it will effect portfolio transactions without regard to holding period
if, in its management's judgment, such transactions are advisable in light of
a change in circumstances of a particular company or within a particular
industry or in general market, economic or financial conditions. As a result
of the Fund's investment policies, under certain market conditions, the Fund's
portfolio turnover may be higher than that of other investment companies.
Accordingly, while the Fund anticipates that its annual turnover rate should
not exceed 100% under normal conditions, it is impossible to predict portfolio
turnover rates. 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 all 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. The rates of portfolio turnover
for the fiscal years ended October 31, 1994 and 1995, were 4.22% and 37.42%
respectively.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
Reference is made to the discussion under the caption "Portfolio Strategies
Involving Options and Futures" in the Prospectus for information with respect
to various portfolio strategies involving options and
2
<PAGE>
futures. The Fund may seek to increase its return through the use of options on
portfolio securities and to hedge its portfolio against movements in the equity
markets, interest rates and exchange rates between currencies. The Fund has
authority to write (i.e., sell) covered options on its portfolio securities,
purchase options on securities and engage in transactions in stock index
options, stock index futures and financial futures, and related options on such
futures. The Fund may also deal in forward foreign exchange transactions and
foreign currency options and futures, and related options on such futures. Each
of such portfolio strategies is described in the Prospectus. Although certain
risks are involved in options and futures transactions (as discussed in the
Prospectus and below), the Manager believes that, because the Fund will (i)
write only covered options on portfolio securities and (ii) engage in other
options and futures transactions only for hedging purposes, the options and
futures portfolio strategies of the Fund will not subject the Fund to the risks
frequently associated with the speculative use of options and futures
transactions. While the Fund's use of hedging strategies is intended to reduce
the volatility of the net asset value of Fund shares, the Fund's net asset
value will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. The following is further information relating
to portfolio strategies the Fund may utilize involving options and futures.
Writing Covered Options. The Fund is authorized to write (i.e., sell) covered
call options on the equity securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A
covered call option is an option where the Fund, in return for a premium, gives
another party a right to buy specified securities owned by the Fund at a
specified future date and price set at the time of the contract. The principal
reason for writing call options is to attempt to realize, through the receipt
of premiums, a greater return than would be realized on the securities alone.
By writing covered call options, the Fund gives up the opportunity, while the
option is in effect, to profit from any price increase in the underlying
security above the option exercise price. In addition, the Fund's ability to
sell the underlying security will be limited while the option is in effect
unless the Fund effects a closing purchase transaction. A closing purchase
transaction cancels out the Fund's position as the writer of an option by means
of an offsetting purchase of an identical option prior to the expiration of the
option it has written. Covered call options serve as a partial hedge against
the price of the underlying security declining. The Fund may not write covered
call options on underlying securities in an amount exceeding 15% of the market
value of its total assets.
The writer of a covered call option has no control over when he may be
required to sell his securities since he may be assigned an exercise notice at
any time prior to the termination of his obligation as a writer. If an option
expires unexercised, the writer realizes a gain in the amount of the premium.
Such a gain, of course, may be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised,
the writer realizes a gain or loss from the sale of the underlying security.
The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so
long as the Fund is obligated as the writer of the option, it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S.
Government securities or other high grade liquid debt securities denominated in
U.S. dollars or non-U.S. currencies with a securities depository with a value
equal to or greater than the exercise price of the underlying securities. By
writing a put, the Fund will be obligated to purchase the
3
<PAGE>
underlying security at a price that may be higher than the market value of that
security at the time of exercise for as long as the option is outstanding. The
Fund may engage in closing transactions in order to terminate put options that
it has written.
Options referred to herein and in the Fund's Prospectus may be options issued
by The Options Clearing Corporation (the "Clearing Corporation") which are
currently traded on the Chicago Board Options Exchange, American Stock
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange or New York Stock
Exchange. Options referred to herein and in the Fund's Prospectus may also be
options traded on foreign securities exchanges such as the London Stock
Exchange and the Amsterdam Stock Exchange. An option position may be closed out
only on an exchange which provides a secondary market for an option of the same
series. If a secondary market does not exist, it might not be possible to
effect closing transactions in particular options, with the result, in the case
of a covered call option, that the Fund will not be able to sell the underlying
security until the option expires or until it delivers the underlying security
upon exercise. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Clearing Corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by the Clearing Corporation as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.
The Fund may also enter into over-the-counter put and call option
transactions ("OTC options"), which are two-party contracts with price and
terms negotiated between the buyer and seller.The staff of the Securities and
Exchange Commission (the "Commission") has taken the position that OTC options
and the assets used as cover for written OTC options are illiquid securities.
Purchasing Options. The Fund may purchase put options to hedge against a
decline in the market value of its securities holdings. By buying a put, the
Fund has a right to sell the underlying security at the exercise price, thus
limiting the Fund's risk of loss through a decline in the market value of the
security until the put option expires. The amount of any appreciation in the
value of the underlying security will be offset partially by the amount of the
premium paid for the put option and any related transaction costs. Prior to its
expiration, a put option may be sold in a closing sale transaction and profit
or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the put option plus the related transaction
cost. A closing sale transaction cancels out the Fund's position as the
purchaser of an option by means of an offsetting sale of an identical option
prior to the expiration of the option it has purchased. The Fund will purchase
only put options traded on an exchange. In certain circumstances, the Fund may
purchase call options on securities held in its portfolio on which it has
written call options or on securities which it intends to purchase. The Fund
may purchase either exchange traded options or OTC options. The Fund will not
purchase options on securities (including stock index options discussed below)
if, as a result of such purchase, the aggregate cost of all outstanding options
on securities held by the Fund would exceed 5% of the market value of the
Fund's total assets.
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Stock Index Options and Futures and Financial Futures. As described in the
Prospectus, the Fund is authorized to engage in transactions in stock index
options and futures and financial futures and related options on such futures.
Set forth below is further information concerning futures transactions.
A futures contract is an agreement between two parties to buy and sell a
particular commodity, such as a security, or, in the case of an index-based
futures contract, to make and accept a cash settlement for a set price on a
future date. A majority of transactions in futures contracts, however, do not
result in the actual delivery of the underlying instrument or cash settlement,
but are settled through liquidation, i.e., by entering into an offsetting
transaction. Futures contracts have been designed by boards of trade which have
been designated "contracts markets" by the Commodity Futures Trading Commission
("CFTC").
The purchase or sale of a futures contract differs from the purchase or sale
of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as "initial margin" and
represents a "good faith" deposit assuring the performance of both the
purchaser and seller under the futures contract. Subsequent payments to and
from the broker, called "variation margin", are required to be made on a daily
basis as the price of the futures contracts fluctuates making the long and
short positions in the futures contracts more or less valuable, a process known
as "mark to the market". At any time prior to the settlement date of the
futures contract, the position may be closed out by taking an opposite position
which will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker and the purchaser realizes a loss or gain.
In addition, a nominal commission is paid on each completed sale transaction.
The Fund has received an order from the Commission exempting it from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act of
1940, as amended (the "Investment Company Act") in connection with its strategy
of investing in futures contracts. Section 17(f) relates to the custody of
securities and other assets of an investment company and may be deemed to
prohibit certain arrangements between the Fund and commodities brokers with
respect to initial and variation margin. Section 18(f) of the Investment
Company Act prohibits an open-end investment company such as the Fund from
issuing a "senior security" other than a borrowing from a bank. The staff of
the Commission has in the past indicated that a futures contract may be a
"senior security" under the Investment Company Act.
Restrictions on Use of Futures Transactions. Regulations of the CFTC
applicable to the Fund permit the Fund's futures and options on futures
transactions to include (i) bona fide hedging transactions without regard to
the percentage of the Fund's assets committed to margin and option premiums,
and (ii) non-hedging transactions, provided that the Fund may not enter into
such transactions for yield enhancement or risk management purposes if,
immediately thereafter, the sum of the amount of initial margin deposits on the
Fund's existing futures positions and option premiums would exceed 5% of the
market value of the Fund's liquidating value after taking into account
unrealized profits and unrealized losses on any such transactions. However, the
Fund intends to engage in options and futures transactions only for hedging
purposes.
When the Fund purchases futures contracts or a call option with respect
thereto or writes a put option on a futures contract, an amount of cash, cash
equivalents or short-term, high-grade, fixed-income securities will be
deposited in a segregated account with the Fund's custodian so that the amount
so segregated, plus
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the amount of initial and variation margin held in the account of its broker,
equals the market value of the futures contract, thereby ensuring that the use
of such futures is unleveraged.
Risk Factors in Options and Futures Transactions. Utilization of futures
transactions to hedge the portfolio involves the risk of imperfect correlation
in movements in the prices of futures contracts and movements in the price of
the currency which is the subject of the hedge. If the price of the futures
contract moves more or less than the price of the currency, the Fund will
experience a gain or loss which will not be completely offset by movements in
the price of the currency which is the subject of the hedge.
Prior to exercise or expiration, an exchange-traded option position can only
be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Fund will enter into an option or futures transaction on an
exchange only if there appears to be a liquid secondary market for such options
or futures. However, there can be no assurance that a liquid secondary market
will exist for any particular call or put option or futures contract at any
specific time. Thus, it may not be possible to close an option or futures
position. The Fund will acquire only OTC options for which management believes
the Fund can receive on each business day at least two independent bids or
offers (one of which will be from an entity other than a party to the option).
In the case of a futures position or an option on a futures position written by
the Fund, in the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin. In such
situations, if the Fund has insufficient cash, it may have to sell portfolio
securities to meet daily variation margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to take or make
delivery of the currency underlying futures contracts it holds. The inability
to close options and futures positions also could have an adverse impact on the
Fund's ability to hedge effectively its portfolio. There is also the risk of
loss by the Fund of margin deposits in the event of bankruptcy of a broker or
futures commission merchant with whom the Fund has an open position in a
futures contract or related option.
The exchanges on which the Fund intends to conduct options transactions have
generally established limitations governing the maximum number of call or put
options on the same underlying currency (whether or not covered) which may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). "Trading limits" are imposed on the maximum number of contracts which
any person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. The Manager does not believe that these
trading and position limits will have any adverse impact on the portfolio
strategies for hedging the Fund's portfolio.
Foreign Currency Hedging. Generally, the foreign exchange transactions of the
Fund will be conducted on a spot (i.e., cash) basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. This
rate under normal market conditions differs from the prevailing exchange rate
in an amount generally less than 0.15% of one percent due to the costs of
converting from one currency to another. However, the Fund has authority to
deal in forward foreign exchange among currencies of the different countries in
which it will invest as a hedge against possible variations in the foreign
exchange rate among these currencies. This is accomplished through contractual
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. The Fund's dealings in forward
foreign exchange will be limited to hedging involving either specific
transactions or portfolio positions. Transaction
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hedging is the purchase or sale of forward foreign currency with respect to
specific receivables or payables of the Fund accruing in connection with the
purchase and sale of its portfolio securities, and sale and redemption of
shares of the Fund or the payment of dividends and distributions by the Fund.
Position hedging is the sale of forward foreign currency with respect to
portfolio security positions denominated or quoted in such foreign currency.
The Fund will not speculate in forward foreign exchange. The Fund may not
position hedge with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in that
particular foreign currency. If the Fund enters into a position hedging
transaction, its custodian bank will place cash or liquid equity or debt
securities in a separate account of the Fund in an amount equal to the value of
the Fund's total assets committed to the consummation of such forward contract.
If the value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account so that the value
of the account will equal the amount of the Fund's commitment with respect to
such contracts. The Fund will not attempt to hedge all of its foreign portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by the Manager. The Fund will not enter into a forward
contract with a term of more than one year.
The Fund is also authorized to purchase or sell listed or over-the-counter
("OTC") foreign currency options, foreign currency futures and related options
on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be effected with
respect to hedges on non-U.S. dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund. As an illustration, the Fund may use such techniques to
hedge the stated value in United States dollars of an investment in a sterling
denominated security. In such circumstances, for example, the Fund may purchase
a foreign currency put option enabling it to sell a specified amount of pounds
for dollars at a specified price by a future date. To the extent the hedge is
successful, a loss in the value of the pound relative to the dollar will tend
to be offset by an increase in the value of the put option. To offset, in whole
or in part, the cost of acquiring such a put option, the Fund may also sell a
call option which, if exercised, requires it to sell a specified amount of
pounds for dollars at a specified price by a future date (a technique called a
"straddle"). By selling such call option in this illustration, the Fund gives
up the opportunity to profit without limit from increases in the relative value
of the pound to the dollar. The Manager believes that "straddles" of the type
which may be utilized by the Fund constitute hedging transactions and are
consistent with the policies described above.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the
currency at a price above the devaluation level it anticipates. The cost to the
Fund of engaging in foreign currency transactions varies with such factors as
the currencies involved, the length of the contract period and the market
conditions then prevailing. Since transactions in foreign currency exchange
usually are conducted on a principal basis, no fees or commissions are
involved.
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Transactions. Since portfolio transactions may be effected on
foreign securities exchanges, the Fund may incur settlement delays on certain
of such exchanges. Where possible, the Fund will deal directly
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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. Such portfolio securities
are generally traded on a net basis and do not normally involve either
brokerage commissions or transfer taxes. Securities firms may receive brokerage
commissions on certain portfolio transactions, including options, futures and
options on futures transactions and the purchase and sale of underlying
securities upon exercise of options. The Fund has no obligation to deal with
any broker in the execution of transactions in portfolio securities. Under the
Investment Company Act, persons affiliated with the Fund, including Merrill
Lynch, 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 Commission. Affiliated persons of the Fund, and affiliated
persons of such affiliated persons, may serve as its broker in transactions
conducted on an exchange and in over-the-counter transactions conducted on an
agency basis. In addition, consistent with the Rules of Fair Practice of the
NASD, the Fund may consider sales of shares of the Fund as a factor in the
selection of brokers or dealers to execute portfolio transactions for the Fund.
It is expected that the majority of the shares of the Fund will be sold by
Merrill Lynch. Costs associated with transactions in foreign securities are
generally higher than with transactions in U.S. securities, although the Fund
will endeavor to achieve the best net results in effecting such transactions.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
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. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other high grade liquid debt securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the amount of its commitment in
connection with such purchase transactions.
Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which
may be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security is fixed at the time of the commitment. At the time of
entering into the agreement, the Fund is paid a commitment fee, regardless of
whether or not the security is ultimately issued, which is typically
approximately 0.5% of the aggregate purchase price of the security which the
Fund has committed to purchase. The Fund will enter into such agreements only
for the purpose of investing in the security underlying the commitment at a
yield and price which is considered advantageous to the Fund. The Fund will not
enter into a standby commitment with a remaining term in excess of 90 days and
will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the value of
portfolio securities subject to legal restrictions on resale, will not exceed
15% (10% to the extent required by certain state laws) of its total assets
taken at the time of acquisition of such commitment or security. The Fund will
at all times maintain a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other high grade liquid debt
securities denominated in U.S. dollars or non-U.S. currencies in an aggregate
amount equal to the purchase price of the securities underlying the commitment.
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<PAGE>
There can be no assurance that the securities subject to a standby commitment
will be issued and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund may bear the
risk of a decline in the value of such security and may not benefit from an
appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee will be
recorded as income on the expiration date of the standby commitment.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the bank or primary
dealer or an affiliate thereof agrees, upon entering into the contract, to
repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This results in a fixed
rate of return insulated from market fluctuations during such period.
Repurchase agreements usually cover short periods, such as under one week.
Repurchase agreements may be construed to be collateralized loans by the
purchaser to the seller secured by the securities transferred to the purchaser.
The Fund will require the seller to provide additional collateral if the market
value of the securities falls below the repurchase price at any time during the
term of the repurchase agreement. In the event of default by the seller under a
repurchase agreement construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute collateral for the
seller's obligation to pay the repurchase price. Therefore, the Fund may suffer
time delays and incur costs or possible losses in connection with the
disposition of the collateral. In the event of a default under such a
repurchase agreement, instead of the contractual fixed rate of return, the rate
of return to the Fund shall 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.
Investment in Lower Rated Debt Securities: As described in the Fund's
Prospectus, the Fund may invest in debt securities rated below investment grade
by a nationally recognized rating agency (e.g., rated below Baa by Moody's
Investors Services, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Group
("S&P")) or in unrated debt securities which, in the judgment of MLAM, possess
similar credit characteristics as debt securities rated investment grade or
debt securities rated below investment grade (commonly known as "junk bonds").
Investment in junk bonds involves substantial risk. Securities rated Ba or
lower by Moody's or BB or lower by S&P are considered by those rating agencies
to be predominantly speculative with respect to the capacity to pay interest
and repay principal in accordance with the terms of the security, and generally
involve greater volatility of price than securities in higher rating
categories. More specifically, junk bonds may be issued by less creditworthy
companies or by larger, highly leveraged companies and are frequently issued in
corporate restructurings such as mergers and leveraged buyouts. Such securities
are particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. Junk bonds frequently are junior obligations of
their issuers, so that in the event of the issuer's bankruptcy, claims of the
holders of
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junk bonds will be satisfied only after satisfaction of the claims of senior
security holders. While the junk bonds in which the Fund intends to invest do
not include securities which, at the time of investment, are in default or the
issuers of which are in bankruptcy, there can be no assurance that such events
will not occur after the Fund purchases a particular security, in which case
the Fund may experience losses and incur costs.
Junk bonds tend to be more volatile than higher rated fixed income securities
so that adverse economic events may have a greater impact on the prices of junk
bonds than on higher rated fixed income securities. Like higher rated fixed
income securities, junk bonds are generally purchased and sold through dealers
who make a market in such securities for their own accounts. However, there are
fewer dealers in the junk bond market, which may be less liquid than the market
for higher rated fixed income securities even under normal economic conditions.
Also, there may be significant disparities in the prices quoted for junk bonds
by various dealers. Adverse economic conditions or investor perceptions
(whether or not based on economic fundamentals) may impair the liquidity of
this market and may cause the prices the Fund receives for its junk bonds to be
reduced, or the Fund may experience difficulty in liquidating a portion of its
portfolio. Under such conditions, judgment may play a greater role in valuing
certain of the Fund's portfolio securities than in the case of securities
trading in a more liquid market.
Lending of Portfolio Securities. Subject to the investment restrictions
stated below, the Fund may lend securities from its portfolio to approved
borrowers and receive collateral in cash or securities issued or guaranteed by
the United States Government. Such collateral is maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If
cash collateral is received by the Fund, it is invested in short-term money
market securities, and a portion of the yield received in respect of such
investment is retained by the Fund. Alternatively, if securities are delivered
to the Fund as collateral, the Fund and the borrower negotiate a rate for the
loaned premium to be received by the Fund for lending its portfolio securities.
In either event, the total yield on the Fund's portfolio is increased by loans
of its portfolio securities. 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 to dividends, interest or other
distributions. Such loans are terminable at any time. The Fund may pay
reasonable finder's, administrative and custodial fees in connection with such
loans.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions and policies
relating to the investment of its assets and its activities. The fundamental
restrictions set forth below may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, which for
this purpose and under the Investment Company Act 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 its fundamental restrictions, the Fund may not:
1. Make any investment inconsistent with the Fund's classification as a non-
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).
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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 governmental
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances, repurchase agreements or any similar instruments
shall not be deemed to be the making of a loan, and except further that the
Fund may lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law and the
guidelines set forth in the Fund's Prospectus and Statement of Additional
Information, as they may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as defined
in the Investment Company Act) in amounts up to 33 1/3% of its total assets
(including the amount borrowed), (ii) the Fund may borrow up to an additional
5% of its total assets for temporary purposes, (iii) the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities and (iv) the Fund may purchase securities on margin to
the extent permitted by applicable law. The Fund may not pledge its assets
other than to secure such borrowings or, to the extent permitted by the Fund's
investment policies as set forth in its Prospectus and Statement of Additional
Information, as they may be amended from time to time, in connection with
hedging transactions, short sales, when-issued and forward commitment
transactions and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933, as
amended (the "Securities Act") in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to the
extent that the Fund may do so in accordance with applicable law and the Fund's
Prospectus and Statement of Additional Information, as they may be amended from
time to time, and without registering as a commodity pool operator under the
Commodity Exchange Act.
The Fund has also adopted certain non-fundamental investment restrictions,
which may be changed by the Trustees without approval by the shareholders.
Under its 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
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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 Trustees of the Fund have 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). Securities purchased in accordance with Rule 144A under the
Securities Act and determined to be liquid by the Fund's Board of Trustees are
not subject to the limitations set forth in 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 or American Stock Exchange or a major foreign exchange. For purposes
of this restriction, warrants acquired by the Fund in units or attached to
securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more than 5%
of the Fund's total assets would be invested in such securities. This
restriction shall not apply to mortgage-backed securities, asset-backed
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
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
Manager, the directors of such general partner or the officers and directors of
any subsidiary thereof each owning beneficially more than one-half of one
percent of the securities of such issuer own in the aggregate more than 5% of
the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in oil,
gas or other mineral leases, or exploration or development programs, except
that the Fund may invest in securities issued by companies that engage in oil,
gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except to the extent permitted in the Fund's Prospectus and Statement
of Additional Information, as they may be amended from time to time.
i. Notwithstanding fundamental restriction (7) above, borrow amounts in
excess of 20% of its total assets, taken at market value (including the amount
borrowed), 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 except to honor
prior commitments and to exercise subscription rights.
The staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Fund has adopted an
investment policy pursuant to which it will not purchase or sell OTC options
(including OTC options on futures contracts) if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding
which are held by the Fund, the market value of the underlying securities
covered by OTC call options currently outstanding which were sold by the Fund
and margin
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deposits on the Fund's existing OTC options on futures contracts exceeds 15% of
the total assets of the Fund (10% to the extent required by certain state
laws), taken at market value, together with all other assets of the Fund which
are illiquid or are not otherwise readily marketable. However, if the OTC
option is sold by the Fund to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and if the Fund has the
unconditional contractual right to repurchase such OTC option from the dealer
at a predetermined price, then the Fund will treat as illiquid such amount of
the underlying securities as is equal to the repurchase price less the amount
by which the option is "in-the-money" (i.e., current market value of the
underlying securities minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally based
on a multiple of the premium received for the option, plus the amount by which
the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Trustees of the Fund,
without the approval of the Fund's shareholders. However, the Fund will not
change or modify this policy prior to the change or modification by the
Commission staff of its position.
Portfolio securities of the Fund generally may not be purchased from, sold or
loaned to the Manager or its affiliates or any of their directors, general
partners, officers or employees, acting as principal, unless pursuant to a rule
or exemptive order under the Investment Company Act.
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 such firm, or its affiliates except
for brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions pursuant to an exemptive
order under the Investment Company Act. See "Portfolio Transactions and
Brokerage". Without such an exemptive order, the Fund is prohibited from
engaging in portfolio transactions with Merrill Lynch or its affiliates acting
as principal and from purchasing securities in public offerings which are not
registered under the Securities Act or are not municipal securities as defined
in the Securities Exchange Act of 1934, in which such firms or any of its
affiliates participate as an underwriter or dealer.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Fund, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Trustee is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
Arthur Zeikel (63)--President and Trustee(1)(2)--President of the Manager
(which term as used herein includes its corporate predecessors) since 1977;
President of Fund Asset Management, L.P. ("FAM") (which term as used herein
includes its corporate predecessors) since 1977; President and Director of
Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice
President of Merrill Lynch from 1990 to 1995; Executive Vice President of ML &
Co. since 1990; Director of Merrill Lynch Funds Distributor, Inc. ("MLFD" or
the "Distributor").
James H. Bodurtha (51)--Trustee(2)--124 Long Pond Road, Plymouth,
Massachusetts 02360. Chairman and Chief Executive Officer, China Enterprise
Management Corporation since 1993; Chairman, Berkshire Corporation since 1980;
Partner, Squire, Sanders & Dempsey from 1980 to 1993.
13
<PAGE>
Herbert I. London (56)--Trustee(2)--New York University--Gallatin Division,
113-115 University Place, New York, New York 10003. John M. Olin Professor of
Humanities, New York University and Professor thereof since 1973; Dean,
Gallatin Division of New York University from 1978 to 1993 and Director from
1975 to 1976; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from
1984 to 1985; Director, Damon Corporation since 1991; Overseer, Center for
Naval Analyses.
Robert R. Martin (68)--Trustee(2)--513 Grand Hill, St. Paul, Minnesota
55102. Director, WTC Industries, Inc., since 1994 and Chairman thereof in
1994; Chairman and Chief Executive Officer, Kinnard Investments, Inc. from
1990 to 1993; Executive Vice President, Dain Bosworth from 1974 to 1989;
Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof
in 1979; Director, Securities Industry Association from 1981 to 1982 and
Public Securities Association from 1979 to 1980; Trustee, Northland College
since 1992.
Joseph L. May (66)--Trustee(2)--424 Church Street, Suite 2000, Nashville,
Tennessee 37219. Attorney in private practice since 1984; President, May and
Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983;
Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May
Corporation (personal holding company) from 1972 to 1983; Director, Signal
Apparel Co. since 1972.
Andre F. Perold (43)--Trustee(2)--Morgan Hall, Soldiers Field, Boston,
Massachusetts 02163. Professor, Harvard Business School since 1989 and
Associate Professor from 1983 to 1989; Trustee, The Common Fund, since 1989;
Director, Quantec Limited since 1991 and Teknekron Software Systems since
1994.
Terry K. Glenn (55)--Executive Vice President(1)(2)--Executive Vice
President of the Manager and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of MLFD since 1986 and
Director thereof since 1991.
Norman R. Harvey (62)--Senior Vice President(1)--Senior Vice President of
the Manager and FAM since 1982; Senior Vice President of Princeton Services
since 1993.
Donald C. Burke (35)--Vice President(1)(2)--Vice President and Director of
Taxation of MLAM since 1990; employee of Deloitte & Touche LLP from 1981 to
1990.
Stephen C. Johnes (59)--Vice President(1)--Vice President of the Manager
since 1987; Managing Director of the Trust Company of the West from 1983 to
1986 and Senior Vice President from 1980 to 1982.
Gerald M. Richard (46)--Treasurer(1)(2)--Senior Vice President and Treasurer
of the Manager and FAM since 1984; Senior Vice President of Princeton Services
since 1993; Treasurer of the Distributor since 1984 and Vice President since
1981.
Jerry Weiss (38)--Secretary(1)(2)--Vice President of the Manager since 1990;
Attorney in private practice from 1982 to 1990.
- ---------------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Trustee or officer is a trustee, director or officer of other
investment companies for which the Manager or FAM acts as Manager.
14
<PAGE>
At October 31, 1995, the officers and Trustees of the Fund as a group (12
persons) owned an aggregate of less than 1/4 of 1% of the outstanding shares
of common stock of ML & Co. and owned an aggregate of less than 1% of the
outstanding shares of the Fund.
The Fund pays each Trustee not affiliated with the Manager a fee of $5,000
per year plus $500 per meeting attended, together with such Trustee's actual
out-of-pocket expenses relating to attendance at meetings. The Fund also
compensates members of its Audit Committee, which consists of all of the
nonaffiliated Trustees at the rate of $1,000 annually, plus $250 per meeting
attended. For the fiscal year ended October 31, 1995, fees and expenses paid
to nonaffiliated Trustees aggregated $46,792.
The following table sets forth for the fiscal year ended October 31, 1995,
compensation paid by the Fund to the non-interested Trustees and for the
calendar year ended December 31, 1995, the aggregate compensation paid by all
investment companies (including the Fund) advised by MLAM and its affiliate,
FAM ("MLAM/FAM Advised Funds") to the non-interested Trustees:
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM FUND AND
AGGREGATE PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS FUNDS PAID TO
NAME OF TRUSTEE FROM FUND PART OF FUND EXPENSES TRUSTEE(1)
- --------------- ------------ --------------------- ------------------
<S> <C> <C> <C>
James H. Bodurtha........................ $3,250 None $157,500*
Herbert L. London ....................... $9,000 None $157,500
Robert R. Martin ........................ $9,000 None $157,500
Joseph L. May ........................... $9,000 None $157,500
Andre F. Perold ......................... $9,000 None $157,500
</TABLE>
- --------
(1) In addition to the Fund, the Trustees served on the boards of other
MLAM/FAM Advised Funds as follows: Mr. Bodurtha (46 funds); Mr. London (46
funds); Mr. Martin (46 funds); Mr. May (46 funds); and Mr. Perold (46
funds).
* $157,500 represents the amount Mr. Bodurtha would have received if he had
been a Trustee for the entire calendar year ended December 31, 1995. Mr.
Bodurtha was elected to the Fund's Board of Trustees effective June 23,
1995.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund--Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities may be held by, or be appropriate investments for, other funds or
investment advisory clients for which the Manager or its affiliates act as an
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 by the Manager
for the Fund or other funds for which it acts as investment adviser or for its
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 Manager 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.
The Fund has entered into a management agreement with the Manager (the
"Management Agreement"). The Fund pays the Manager a monthly fee at the annual
rate of 0.65% of the average daily net assets of the
15
<PAGE>
Fund. The Manager has voluntarily agreed to waive a portion of its management
fee so that such fee is equal to 0.65% of average daily net assets not
exceeding $1 billion; 0.625% of average daily net assets exceeding $1 billion
but not exceeding $1.5 billion; and 0.60% of average daily net assets exceeding
$1.5 billion. For the years ended October 31, 1993 and 1994, the fees paid by
the Fund to the Manager were $6,922,555 and $10,000,754, respectively. For the
fiscal year ended October 31, 1995, the fee paid by the Fund, net of fee
waiver, to the Manager was $15,372,837. The Manager is owned and controlled by
ML & Co.
The State of California imposes limitations on the expenses of the Fund.
These expense limitations require that the Manager reimburse the Fund in any
amount necessary to prevent the aggregate ordinary operating expenses
(excluding taxes, brokerage fees and commissions, distribution fees 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
next $70 million of average net assets and 1.5% of the remaining average net
assets. Such reimbursement, if any, will be subtracted from the monthly
advisory fee. To date, such reimbursement has not been required. No fee payment
will be made to the Manager during any fiscal year which will cause such
expenses to exceed the most restrictive expense limitation at the time of such
payment.
The Management Agreement obligates the Manager to provide investment advisory
services and 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 the fees of all
Trustees of the Fund who are affiliated persons of the Manager 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
and prospectuses and statements of additional information (except to the extent
paid by the Distributor); charges of the custodian, any sub-custodian and
transfer agent; expenses of redemption of shares; Securities and Exchange
Commission fees; expenses of registering the shares under Federal, state or
foreign laws; fees and expenses of nonaffiliated 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. The Distributor will
pay the promotional expenses of the Fund in connection with the offering of its
shares. Certain expenses will be financed by the Fund pursuant to a
distribution plan in compliance with Rule 12b-1 under the Investment Company
Act. See "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and
Class C Shares--Distribution Plans".
Duration and Termination. Unless earlier terminated as described below, the
Management Agreement will remain in effect from year to year if approved
annually (a) by the Trustees or by a majority of the outstanding shares of the
Fund and (b) by a majority of the Trustees who are not parties to such contract
or interested persons (as defined in the Investment Company Act) of any such
party. Such contracts are not assignable and may be terminated without penalty
on 60 days' written notice at the option of either party thereto or by the vote
of the shareholders of the Fund.
16
<PAGE>
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing SM System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives and shares of Class B and Class
C are sold to investors choosing the deferred sales charge alternatives. Each
Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund, and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
Class B, Class C and Class D shares each have exclusive voting rights with
respect to the Rule 12b-1 distribution plan adopted with respect to such class
pursuant to which the account maintenance and/or distribution fees are paid.
Each class has different exchange privileges. See "Shareholder Services--
Exchange Privilege".
The Merrill Lynch Select Pricing SM System is used by more than 50 mutual
funds advised by the Manager or an affiliate of the Manager, FAM. Funds
advised by the Manager or FAM are referred to herein as "MLAM-advised mutual
funds".
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the
offering of each class of shares of the Fund. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to 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 Management
Agreement described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The gross sales charges for the sale of Class A shares for the years ended
October 31, 1995, 1994 and 1993 were $324,057, $1,400,380 and $650,283,
respectively, of which the Distributor received $20,065, $88,004 and $38,235,
respectively, and Merrill Lynch received $303,992, $1,312,376 and $612,048,
respectively. For the fiscal years ended October 31, 1995 and 1994, the
Distributor received CDSCs with respect to Class A shares for which the
initial sales charge was waived of $0 and $527, respectively. The gross sales
charges for the sale of Class D shares for the fiscal year ended October 31,
1995 and the period October 21, 1994 (commencement of operations) to October
31, 1994, were $1,639,227 and $22,745, respectively, of which the Distributor
received $102,417 and $791, respectively, and Merrill Lynch received
$1,536,810 and $21,954, respectively. For the fiscal year ended October 31,
1995 and the period October 21, 1994 to October 31, 1994, the Distributor
received CDSCs with respect to Class D shares for which the initial sales
charge was waived of $14,137 and $0, respectively.
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
17
<PAGE>
individual or to concurrent purchases, which in the aggregate are at least
equal to the prescribed amounts, by an individual, his spouse and their
children under the age of 21 years purchasing shares for his or their own
account and to single purchases by a trustee or other fiduciary purchasing
shares for a single trust estate or single fiduciary account although more than
one beneficiary is involved. The term "purchase" also includes purchases by any
"company", as that term is defined in the Investment Company Act, but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of shares of
the Fund or shares of other registered investment companies at a discount;
provided, however, that it shall not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein
are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment
adviser.
REDUCED INITIAL SALES CHARGES
Rights of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase shares
of the Fund subject to an initial sales charge at the offering price applicable
to the total of (a) the public offering price of the shares then being
purchased plus (b) an amount equal to the then current net asset value or cost,
whichever is higher, of the purchaser's combined holdings of all classes of
shares of the Fund and of other MLAM-advised mutual funds. For any such right
of accumulation to be made available the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to the Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent, Merrill Lynch Financial
Data Services, Inc. The Letter of Intention is not available to employee
benefit plans for which Merrill Lynch provides plan participant record-keeping
services. The Letter of Intention is not a binding obligation to purchase any
amount of Class A or Class D shares, however, its execution will result in the
purchaser paying a lower sales charge at the appropriate quantity purchase
level. A purchase not originally made pursuant to a Letter of Intention may be
included under a subsequent Letter of Intention executed within 90 days of such
purchase if the Distributor is informed in writing of this intent within such
90-day period. The value of Class A and Class D shares of the Fund and of other
MLAM-advised mutual funds presently held at a cost or maximum offering price
(whichever is higher), on the date of the first purchase under the Letter of
Intention, may be included as a credit toward the completion of such Letter,
but the reduced sales charge applicable to the amount covered by such Letter
will be applied only to new purchases. If the total amount of shares does not
equal the amount stated in the Letter of Intention (minimum of $25,000), the
investor will be notified and must pay, within 20 days of the execution of such
Letter, the difference between the sales charge on the Class A or Class D
shares purchased at the reduced rate and the sales charge applicable to the
shares actually purchased through the Letter. Class A or Class D shares equal
to five percent of the intended amount will be held in escrow during the 13-
month period (while remaining
18
<PAGE>
registered in the name of the purchaser) for this purpose. The first purchase
under the Letter of Intention must be at least five percent of the dollar
amount of such Letter. If a purchase during the term of such Letter would
otherwise be subject to a further reduced sales charge based on the right of
accumulation, the purchaser will be entitled on that purchase and subsequent
purchases to that further reduced percentage sales charge but there will be no
retroactive reduction of the sales charges on any previous purchase. The value
of any shares redeemed or otherwise disposed of by the purchaser prior to
termination or completion of the Letter of Intention will be deducted from the
total purchases made under such Letter. An exchange from a MLAM-advised money
market mutual fund into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intention from the Fund.
Merrill Lynch BlueprintSM Program. Class D shares of the Fund are offered to
participants in the Merrill Lynch BlueprintSM 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 credit unions and trade associations. Investors placing orders
to purchase Class A or Class D shares of the Fund through Blueprint will
acquire the Class A or Class D shares at net asset value plus a sales charge
calculated in accordance with the Blueprint sales charge schedule (i.e., up to
$300 at 4.25%, $300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more at
the standard sales charge rates disclosed in the Prospectus). In addition,
Class A or Class D shares of the Fund are being offered at net asset value
plus a sales charge of 1/2 of 1% for corporate or group IRA programs placing
orders to purchase their Class A or Class D shares through Blueprint.
Services, including the exchange privilege, available to Class A and Class D
investors through Blueprint, however, may differ from those available to other
investors in Class A or Class D shares. Orders for purchases and redemptions
of Class A or Class D shares of the Fund may be grouped for execution purposes
which, in some circumstances, may involve the execution of such orders two
business days following the day such orders are placed. The minimum initial
purchase price is $100, with a $50 minimum for subsequent purchases through
Blueprint. There are no minimum initial or subsequent purchase requirements
for participants who are part of an automatic investment plan.
Class A and Class D shares are offered at net asset value, with a waiver of
the front-end sales charge, to participants in Blueprint through the Merrill
Lynch Directed IRA Rollover Program ("IRA Rollover Program") available from
Merrill Lynch Business Financial Services, a business unit of Merrill Lynch.
The IRA Rollover Program is available to custodian rollover assets from
Employee Sponsored Retirement and Savings Plans (as defined below) whose
Trustee and/or Plan Sponsor has entered into a Merrill Lynch Directed IRA
Rollover Program Service Agreement. Additional information concerning
purchases through Blueprint, including any annual fees and transaction
charges, is available from Merrill Lynch, Pierce, Fenner & Smith Incorporated,
The BlueprintSM Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Employee Access Accounts SM. Class A or Class D shares are offered at net
asset value to Employee Access Accounts SM available through 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.
19
<PAGE>
Purchase Privileges of Certain Persons. Trustees of the Fund, members of the
Boards of other MLAM-advised investment companies, directors and employees of
ML & Co. and its subsidiaries (the term "subsidiaries", when used herein with
respect to ML & Co., includes MLAM, FAM and certain other entities directly or
indirectly wholly-owned and controlled by ML & Co.), and any trust, pension,
profit-sharing or other benefit plan for such persons, may purchase Class A
shares of the Fund at net asset value. Under such programs, the Fund realizes
economies of scale and reduction of sales-related expenses by virtue of
familiarity with the Fund.
Employees and directors or trustees wishing to purchase shares of the Fund
must satisfy the Fund's suitability standards.
Class D shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant 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 they will purchase Class D shares
of the Fund with proceeds from a redemption of a mutual fund that was sponsored
by the financial consultant's previous firm and was subject to a sales charge
either at the time of purchase or on a deferred basis. Second, the investor
must also establish that such redemption must have been made within 60 days
prior to the investment in the Fund, and the proceeds from the redemption must
have been maintained in the interim in cash or a money market fund.
Class D shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied. First, the investor must advise Merrill Lynch that they will
purchase Class D shares of the Fund with proceeds from a redemption of such
shares of other mutual funds that have been outstanding for a period of no less
than six months; and second, the investor must also establish that such
purchase of Class D shares must be made within 60 days after the redemption and
the proceeds from the redemption must have been maintained in the interim in
cash or a money market fund.
Class D shares of the Fund are also offered at net asset value, without sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund sponsored by a non-
Merrill Lynch company for which Merrill Lynch has served as a selected dealer
and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied. First, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and such fund
was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, such purchase of Class D shares must be made within 90 days
after notice.
Closed-End Fund Investment Option. Class A shares of the Fund and certain
other MLAM-advised mutual funds ("Eligible Class A shares") are offered at net
asset value to shareholders of certain closed-end funds advised by MLAM or FAM
who purchased such closed-end fund shares prior to October 21, 1994 and wish to
reinvest the net proceeds of a sale of their closed-end fund shares of common
stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who
20
<PAGE>
purchased such shares on or after October 21, 1994 and wish to reinvest the net
proceeds from a sale of their closed-end fund shares are offered Class A shares
(if eligible to buy Class A shares) or Class D shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class D Shares"), if the following
conditions are met. First, the sale of closed-end fund shares must be made
through Merrill Lynch, and the net proceeds therefrom must be immediately
reinvested in Eligible Class A or Class D Shares. Second, the closed-end fund
shares must have either been acquired in the initial public offering or be
shares representing dividends from shares of common stock acquired in such
offering. Third, the closed-end fund shares must have been continuously
maintained in a Merrill Lynch securities account. Fourth, there must be a
minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Fund. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. will receive Class A shares of the Fund and shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond
Fund, Inc. will receive Class D shares of the Fund. 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.
TMASM Managed Trusts. Class A shares are offered to TMASM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services at
net asset value.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation
with a personal holding company or a public or private investment company. The
value of the assets or company acquired in a tax-free transaction may be
adjusted in appropriate cases to reduce possible adverse tax consequences to
the Fund which might result from an acquisition of assets having net unrealized
appreciation which is disproportionately higher at the time of acquisition than
the realized or unrealized appreciation of the Fund. The issuance of Class D
shares for consideration other than cash is limited to bona fide
reorganizations, statutory mergers or other acquisitions of portfolio
securities which (i) meet the investment objectives and policies of the Fund;
(ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall at
all times remain within its control); and (iii) are liquid securities, the
value of which is readily ascertainable, which are not restricted as to
transfer either by law or liquidity of market (except that the Fund may acquire
through such transactions restricted or illiquid securities to the extent the
Fund does not exceed the applicable limits on acquisition of such securities
set forth under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales charge are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
21
<PAGE>
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based
on the number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Certain other plans
may purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any MLAM-
advised mutual fund. Minimum purchase requirements may be waived or varied 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.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to separate distribution plans
for Class B, Class C, and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act of the Fund (each a "Distribution Plan") with respect to
the account maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are subject
to the provisions of Rule 12b-1 under the Investment Company Act. Among other
things, each Distribution Plan provides that the Distributor shall provide and
the 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 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 (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 of the Fund. A Distribution Plan cannot be amended to
increase materially the amount to be spent by the Fund without the approval of
the related class of shareholders, and all material amendments are required to
be approved by the vote of 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.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee
22
<PAGE>
and the CDSC borne by the Class B and Class C shares, but not the account
maintenance fee. The maximum sales charge rule is applied separately to each
class. As applicable to the Fund, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend reinvestments
and exchanges), plus (2) interest on the unpaid balance for the respective
class, computed separately, at the prime rate plus 1% (the unpaid balance being
the maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In
certain circumstances the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances payment
in excess of the amount payable under the NASD formula will not be made.
The following tables set forth comparative information as of October 31, 1995
with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and the Distributor's voluntary maximum for the period March 27, 1987
(commencement of operations of Class B shares) to October 31, 1995, with
respect to Class B shares.
DATA CALCULATED AS OF OCTOBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- --------- ----------- ------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
Under NASD Rule As
Adopted................ $2,187,439 $136,715 $43,721 $180,436 $69,303 $111,133 $14,403
Under Distributor's
Voluntary Waiver....... $2,187,439 $136,715 $10,937 $147,652 $69,303 $ 78,349 $14,403
CLASS C SHARES
Under NASD Rule As
Adopted................ $ 76,721 $ 4,795 $ 178 $ 4,973 $ 281 $ 4,692 $ 641
</TABLE>
- --------
(1) Purchase price of all eligible Class B shares sold since March 27, 1987
(commencement of operations) and all eligible Class C shares sold since
October 21, 1994 (commencement of operations) other than shares acquired
through dividend reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in the Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made prior to July 6, 1993 under a prior plan at
the 1.0% rate, 0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has been deemed to
have been a service fee and not subject to the NASD maximum sales charge
rule. See "Purchase of Shares--Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing the
unpaid balance. No assurance can be given that payments of the distribution
fee will reach either the voluntary maximum or the NASD maximum.
23
<PAGE>
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and purchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange is restricted as determined by the
Commission or during which the New York Stock Exchange is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists, as defined by the Commission, as a result of which disposal
of portfolio securities or determination of the net asset value of the Fund is
not reasonably practicable, and for such other periods as the Commission may by
order permit for the protection of shareholders of the Fund.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the net asset value of such shares at such
time.
DEFERRED SALES CHARGE--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares", while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in connection with
certain post-retirement withdrawals from an IRA or other retirement plan or
following the death or disability of a Class B shareholder. Redemptions for
which the waiver applies are: (a) any partial or complete redemption in
connection with a distribution following retirement under a tax-deferred
retirement plan or attaining age 59 1/2 in the case of an IRA or other
retirement plan, or part of a series of equal periodic payments (not less
frequently than annually) made for life (or life expectancy) or any redemption
resulting from the tax-free return of an excess contribution to an IRA; or (b)
any partial or complete redemption following the death or disability (as
defined in the Internal Revenue Code) of a Class B shareholder (including one
who owns the Class B shares as joint tenant with his or her spouse), provided
the redemption is requested within one year of the death or initial
determination of disability.
For the years ended October 31, 1995, 1994 and 1993, the Distributor received
CDSCs of $1,488,167, $704,451 and 995,913, respectively, with respect to
redemptions of Class B shares, all of which was paid to Merrill Lynch. For the
fiscal year ended October 31, 1995, the Distributor received CDSCs of $20,243
with respect to Class C shares, all of which was paid to Merrill Lynch. For the
fiscal period October 21, 1994 (commencement of operations for Class C shares)
to October 31, 1994, the Distributor received no CDSCs with respect to Class C
shares.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations, credit
unions and benefit plans. Class B shares of the Fund are offered through
Blueprint only to members of certain affinity groups. The CDSC is waived in
connection with purchase orders placed through Blueprint. Services, including
the exchange privilege, available to Class B investors through Blueprint,
however, may differ from those available to other Class B investors. Orders for
purchases and
24
<PAGE>
redemptions of Class B shares of the Fund may be grouped for execution purposes
which, in some circumstances, may involve the execution of such orders two
business days following the day such orders are placed. The minimum initial
purchase price is $100, with a $50 minimum for subsequent purchases through
Blueprint. There is no minimum initial or subsequent purchase requirement for
investors who are part of a Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any annual fees or
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for making the Fund's portfolio decisions, placing
the Fund's brokerage business, evaluating the reasonableness of brokerage
commissions and negotiating the amount of any commissions paid subject to a
policy established by the Fund's Trustees and officers. The Fund has no
obligation to deal with any broker or group of brokers in the execution of
transactions in portfolio securities. Orders for transactions in portfolio
securities are placed for the Fund with a number of brokers and dealers,
including Merrill Lynch. In placing orders, it is the policy of the Fund to
obtain the most favorable net results, taking into account various factors,
including price, commissions, if any, size of the transaction and difficulty of
execution. Where practicable, the Manager surveys a number of brokers and
dealers in connection with proposed portfolio transactions and selects the
broker or dealer which offers the Fund best price and execution or other
services which are of benefit to the Fund. Securities firms also may receive
brokerage commissions on transactions including covered call options written by
the Fund and the sale of underlying securities upon the exercise of such
options. In addition, consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and policies established by
the Fund's Trustees, the Manager may consider sales of shares of the Fund as a
factor in the selection of brokers or dealers to execute portfolio transactions
for the Fund.
For the fiscal year ended October 31, 1993, the Fund paid total brokerage
commissions of $1,399,875, of which $27,990 or approximately 2.0% was paid to
Merrill Lynch for effecting 2% of the aggregate amount of transactions in which
the Fund paid brokerage commissions. For the year ended October 31, 1994, the
Fund paid total brokerage commissions of $1,335,438, of which $69,546 or
approximately 5.2% was paid to Merrill Lynch for effecting 4.4% of the
aggregate dollar amount of transactions in which the Fund paid brokerage
commissions. For the fiscal year ended October 31, 1995, the Fund paid total
brokerage commissions of $3,781,129, of which $89,700 or approximately 2.4% was
paid to Merrill Lynch for effecting 2.2% of the aggregate amount of
transactions in which the Fund paid brokerage commissions. The portfolio
turnover rate for the fiscal years ended October 31, 1995 and 1994 was 37.42%
and 4.22%, respectively. The higher portfolio turnover rate for the fiscal year
ended October 31, 1995 was primarily due to an increase in sales of the Fund's
shares during such year and the resultant purchase of additional portfolio
securities.
The Fund does not use any particular broker or dealer, and brokers who
provide supplemental investment research to the Manager may receive orders for
transactions by the Fund. Such supplemental research services ordinarily
consist of assessments and analyses of the business or prospects of a company,
25
<PAGE>
industry or economic sector. Information so received will be in addition to and
not in lieu of the services required to be performed by the Manager under the
Management Agreement. If in the judgment of the Manager the Fund will be
benefited by supplemental research services, the Manager is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. The expenses of the Manager will not necessarily be reduced as a
result of the receipt of such supplemental information, and the Manager may use
such information in servicing its other accounts. For the fiscal year ended
October 31, 1995, the Fund acquired no securities of brokers or dealers which
executed its portfolio transactions during that year.
The Fund invests in certain securities traded in the over-the-counter market
and, where possible, deals directly with the dealers who make a market in the
securities involved, except in those circumstances in which better prices and
execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Fund are prohibited from dealing with the Fund as principal
in purchase and sale of securities. Since transactions in the over-the-counter
market usually involve transactions with dealers acting as principal for their
own accounts, affiliated persons of the Fund, including Merrill Lynch, will not
serve as the Fund's dealer in such transactions. However, affiliated persons of
the Fund may serve as its broker in over-the-counter transactions conducted on
an agency basis.
Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as amended,
Merrill Lynch may execute transactions for the Fund on the floor of any
national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to the Fund at
least annually setting forth the compensation it has received in connection
with such transactions.
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
Manager. After considering all factors deemed relevant, the Trustees made a
determination not to seek such recapture. The Trustees will reconsider this
matter from time to time.
DETERMINATION OF NET ASSET VALUE
Reference is made to "Additional Information--Determination of Net Asset
Value" in the Prospectus concerning the determination of net asset value.
The net asset value of the shares of all classes of the Fund is determined
once daily as of 15 minutes after the close of business on the New York Stock
Exchange (generally 4:00 P.M., New York time) on each day during which the New
York Stock Exchange is open for trading. The New York Stock Exchange is not
open on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation. The Fund also will determine its
net asset value on any day in which there is
26
<PAGE>
sufficient trading in its portfolio securities that the net asset value might
be affected materially, but only if on any such day the Fund is required to
sell or redeem shares. The net asset value is computed by dividing the value of
the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares outstanding at such
time, rounded to the nearest cent. Expenses, including the fees payable to the
Manager and Distributor and any account maintenance and/or distribution fees,
are accrued daily. The per share net asset value of Class B, Class C and Class
D shares generally will be lower than the per share net asset value of the
Class A shares reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to the Class B and Class C shares and the daily expense accruals of the
account maintenance fees applicable with respect to the Class D shares;
moreover, the per share net asset value of the Class B and Class C shares
generally will be lower than the per share net asset value of Class D shares
reflecting the daily expense accruals of the distribution fees and higher
transfer agency fees applicable with respect to Class B and Class C shares of
the Fund. It is expected, however, that the per share net asset value of the
classes will tend to converge (although not necessarily meet) immediately after
the payment of dividends or distributions, which will differ by approximately
the amount of the expense accrual differential among the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Trustees as the
primary market. Securities traded on a stock exchange and the over-the-counter
market will be valued according to the broadest and most representative market.
Securities traded in the over-the-counter market are valued at the last
available bid price obtained from one or more dealers in the over-the-counter
market prior to the time of valuation. When the Fund writes a call option, the
amount of the premium received is recorded on the books of the Fund as an asset
and an equivalent liability. The amount of the liability is subsequently valued
to reflect the current market value of the option written, based upon the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Purchased options
which are traded on exchanges are valued at their last sale price or, in the
case of purchased options traded in the over-the-counter market, the last bid
price. Other investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by
or under the direction of the Board of Trustees of the Fund. Such valuations
and procedures will be reviewed periodically by the Board of Trustees.
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 such
service and copies of the various plans described below can be obtained from
the Fund, the Distributor or Merrill Lynch.
27
<PAGE>
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 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 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 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 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 be issued certificates for his shares, and then must turn the certificates
over to the new firm for re-registration as described in the preceding
sentence. Shareholders considering transferring a tax-deferred retirement
account such as an individual retirement account from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the retirement account is to be transferred will not take delivery of
shares of the Fund, a shareholder must either redeem the shares (paying any
applicable 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.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if an eligible Class A investor as described in the
Prospectus) or Class B, Class C or Class D shares at the applicable public
offering price either through the shareholder's securities dealer, or by mail
directly to the transfer agent, acting as agent for such securities dealer.
Voluntary accumulation 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 investor's bank
account is required. Investors whose shares of the Fund are held within a
CMA(R) or CBA(R) account may arrange to have periodic investments made in the
Fund, in their CMA(R) or CBA(R) accounts or in certain related accounts in the
amount of $100 or more ($1 for retirement accounts) through the CMA(R)/CBA(R)
Automated Investment Program.
28
<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund, without sales charge, as
of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing or by telephone (1-800-MER-
FUND) to receive either their dividends or capital gains distributions, or
both, in cash, in which event payment will be mailed or direct deposited on or
about the payment date.
Shareholders may, at any time, notify the Transfer Agent in writing that they
no longer wish to have their dividend and/or capital gains distributions
reinvested in shares of the Fund or vice versa and, commencing ten days after
the receipt by the Transfer Agent of such notice, those instructions will be
effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make withdrawals from an
Investment Account in the form of payments by check or through automatic
payment by direct deposit to such shareholder's bank account on either a
monthly or quarterly basis as provided below. Quarterly withdrawals are
available for shareholders who have acquired Class A or Class D shares of the
Fund having a value, based on cost or the current offering price, of $5,000 or
more, and monthly withdrawals are available for shareholders with Class A or
Class D shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D shares
are redeemed from those on deposit in the shareholder's account to provide the
withdrawal payment specified by the shareholder. The shareholder may specify
either a dollar amount or a percentage of the value of his Class A or Class D
shares. Redemptions will be made at net asset value as determined as described
herein on the 24th day of each month or the 24th day of the last month of each
quarter, whichever is applicable. If the New York Stock Exchange is not open
for business on such date, the Class A or Class D shares will be redeemed at
the close of business on the following business day. The check for the
withdrawal payment will be mailed, or the direct deposit for withdrawal payment
will be made, on the next business day following redemption. When a shareholder
is making systematic withdrawals, dividends and distributions on all Class A or
Class D shares in the Investment Account are reinvested automatically in Fund
Class A or Class D shares, respectively. A shareholder's Systematic Withdrawal
Plan may be terminated at any time, without charge or penalty, by the
shareholder, the Fund, the Fund's transfer agent or the Distributor. Withdrawal
payments should not be considered as dividends, yield or income. Each
withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be reduced
correspondingly. Purchases of additional Class A or Class D shares concurrent
with withdrawals are ordinarily disadvantageous to the shareholder because of
sales charges and tax liabilities. The Fund will not knowingly accept purchase
orders for Class A or Class D shares of the Fund from investors who maintain a
Systematic Withdrawal Plan unless such purchase is equal to at least one year's
scheduled withdrawals or $1,200, whichever is greater. Periodic investments may
not be made into an Investment Account in which the shareholder has elected to
make systematic withdrawals.
29
<PAGE>
Alternatively, a Class A or Class D shareholder whose shares are held within
a CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bi-monthly, quarterly, semiannual or annual basis through the
CMA(R)/CBA(R) Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $25. The proceeds of systematic redemptions will be posted to the
shareholder's account five business days after the date the shares are
redeemed. Monthly systematic redemptions will be made at net asset value on the
first Monday of each month, bi-monthly systematic redemptions will be made at
net asset value on the first Monday of every other month, and quarterly,
semiannual or annual redemptions are made at net asset value on the first
Monday of months selected at the shareholder's option. If the first Monday of
the month is a holiday, the redemption will be processed at net asset value on
the next business day. The CMA(R)/CBA(R) Systematic Redemption Program is not
available if Fund shares are being purchased within the account pursuant to the
Automatic Investment Program. For more information on the CMA(R)/CBA(R)
Systematic Redemption Program, eligible shareholders should contact their
financial consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and in certain of the other mutual funds sponsored by Merrill Lynch as
well as in other securities. Merrill Lynch charges an initial establishment fee
and an annual custodial fee for each account. Information with respect to these
plans is available on request from Merrill Lynch. The minimum initial purchase
to establish any such plan is $100. However, there is no minimum for purchases
through Blueprint's systematic investment plans.
Capital gains and income received in each of the plans referred to above are
exempt from Federal taxation until distributed from the plans. Investors
considering participations in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with
respect to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select Pricing SM System, Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in his account in
which the exchange is made at the time of the exchange or is otherwise eligible
to purchase Class A shares of the second fund. If the Class A shareholder wants
to exchange Class A shares for shares of a second MLAM-advised mutual fund, and
the shareholder does not hold Class A shares of the second fund in his account
at the time of the exchange and is not otherwise eligible to acquire Class A
shares of the second fund, the shareholder will receive Class D shares of the
second fund as a result of the exchange. Class D shares also may be exchanged
for Class A shares of a second MLAM-advised mutual fund at any time as long as,
at the time of the exchange, the shareholder holds Class A shares of the second
fund in the account in which the exchange is made or is otherwise eligible to
purchase Class A shares of the second fund. Class B, Class C and Class D shares
are 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
30
<PAGE>
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 are exchangeable for shares of certain
MLAM-advised money market funds specifically designated below as available for
exchange by holders of Class A, Class B, Class C or Class D shares. Shares with
a net asset value of at least $100 are required to qualify for the exchange
privilege, and any shares utilized in an exchange must have been held by the
shareholder for 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 charges paid with respect to such Class A or Class D shares in the
initial purchase and any subsequent exchange. Class A or Class D shares issued
pursuant to dividend reinvestment are sold on a no-load basis in each of the
funds offering Class A or Class D shares. For purposes of the exchange
privilege, dividend reinvestment Class A and Class D shares 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 and Class D shares of the other funds or into shares of the Class A
and Class D money market funds with a reduced or without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another MLAM-
advised mutual fund ("new Class B or Class C shares") on the basis of relative
net asset value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Fund exercising the exchange privilege will continue to be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Fund acquired through
use of the exchange privilege will be subject to the Fund's CDSC schedule if
such schedule is higher than the CDSC schedule relating to the Class B shares
of the Fund from which the exchange has been made. For purposes of computing
the sales charge that may be payable on a disposition of the new Class B or
Class C shares, the holding period for the outstanding Class B 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
Special Value Fund, Inc. ("Special Value Fund") after having held the Fund
Class B shares for two and a half years. The 2% CDSC that generally would apply
to a redemption would not apply to the exchange. Three years later the investor
may decide to redeem the Class B shares of Special Value Fund and receive cash.
There will be no CDSC due on this redemption since by "tacking" the two and a
half year holding period of the Fund's Class B shares to the three year holding
period for the Special Value Fund Class B shares, the investor will be deemed
to have held the New Class B shares for more than five years.
The exchange privilege is modified with respect to certain retirement plans
which participate in the Merrill Lynch Mutual Fund Advisor ("MFA") program.
Such retirement plans may exchange Class B, Class
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<PAGE>
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 Manager or its affiliates, but the period of time
that Class B or Class C shares are held in a money market fund will not count
towards satisfaction of the holding period requirement for purposes of reducing
the CDSC or with respect to Class D shares, towards satisfaction of the
conversion period. However, shares of a money market fund which were acquired
as a result of an exchange for Class B or Class C shares of the Fund may, in
turn, be exchanged back into Class B or Class C shares, respectively, 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 Inc.
("Institutional Fund") after having held the Fund Class B shares for two and a
half years and three years later decide to redeem the shares of Institutional
Fund for cash. At the time of this redemption, the 2% CDSC that would have been
due had the Class B shares of the Fund been redeemed for cash rather than
exchanged for shares of Institutional Fund will be payable. If instead of such
redemption the shareholder exchanged such shares for Class B shares of a fund
which the shareholder continued to hold for an additional two and a half years,
a subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds issuing Class A, Class B, Class C
and Class D Shares:
Merrill Lynch Adjustable Rate Securities
Fund, Inc. ..............................
High current income, consistent
with a policy of limiting the
degree of fluctuation in net
asset value of fund shares
resulting from movements in
interest rates, through
investment primarily in a
portfolio of adjustable rate
securities.
Merrill Lynch Americas Income Fund, A high level of current income,
Inc. .................................... consistent with prudent invest-
ment risk, by investing primarily
in debt securities denominated in
a currency of a country located
in the Western Hemisphere (i.e.,
North and South America and the
surrounding waters).
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Merrill Lynch Arizona Limited Maturity
Municipal Bond Fund......................
A portfolio of Merrill Lynch Mul-
ti-State Limited Maturity Munici-
pal Series Trust, a series fund,
whose objective is to provide as
high a level of income exempt
from Federal and Arizona income
taxes as is consistent with pru-
dent investment management
through investment in a portfolio
primarily of intermediate-term
investment grade Arizona Munici-
pal Bonds.
Merrill Lynch Arizona Municipal Bond A portfolio of Merrill Lynch
Fund...................................... Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Arizona income taxes
as is consistent with prudent
investment management.
Merrill Lynch Arkansas Municipal Bond
Fund.....................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Arkansas income taxes
as is consistent with prudent
investment management.
Merrill Lynch Asset Growth Fund, Inc. ....
A high level of current income
through investment primarily in
United States fixed-income
securities.
Merrill Lynch Asset Income Fund, Inc. ....
High total investment return,
consistent with prudent risk,
from investment in United States
and foreign equity, debt and
money market securities, the
combination of which will be
varied both with respect to types
of securities and markets in
response to changing market and
economic trends.
Merrill Lynch Basic Value Fund, Inc. ..... Capital appreciation and,
secondarily, income, through
investment in securities,
primarily equities, that are
undervalued and therefore
represent basic investment value.
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<PAGE>
Merrill Lynch California Insured
Municipal Bond Fund......................
A portfolio of Merrill Lynch Cali-
fornia Municipal Series Trust, a
series fund, whose objective is
to provide as high a level of in-
sured income exempt from Federal
and California income taxes as is
consistent with prudent invest-
ment management through invest-
ment in a portfolio primarily of
insured California Municipal
Bonds.
Merrill Lynch California Limited Maturity
Municipal Bond Fund......................
A portfolio of Merrill Lynch Mul-
ti-State Limited Maturity Munici-
pal Series Trust, a series fund,
whose objective is to provide
shareholders with as high a level
of income exempt from Federal and
California income taxes as is
consistent with prudent invest-
ment management through invest-
ment in a portfolio primarily of
intermediate-term investment
grade California Municipal Bonds.
Merrill Lynch California Municipal Bond
Fund.....................................
A portfolio of Merrill Lynch
California Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and California income
taxes as is consistent with
prudent investment management.
Merrill Lynch Capital Fund, Inc........... The highest total investment
return consistent with prudent
risk through a fully managed
investment policy utilizing
equity, debt and convertible
securities.
Merrill Lynch Colorado Municipal Bond A portfolio of Merrill Lynch
Fund..................................... Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Colorado income taxes
as is consistent with prudent
investment management.
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<PAGE>
Merrill Lynch Connecticut Municipal Bond
Fund.....................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Connecticut income
taxes as is consistent with
prudent investment management.
Merrill Lynch Corporate Bond Fund, Inc. .. Current income from three separate
diversified portfolios of fixed
income securities.
Merrill Lynch Developing Capital Markets
Fund, Inc................................
Long-term capital appreciation
through investment in securities,
principally equities, of issuers
in countries having smaller
capital markets.
Merrill Lynch Dragon Fund, Inc............ Capital appreciation primarily
through investment in equity and
debt securities of issuers
domiciled in developing countries
located in Asia and the Pacific
Basin.
Merrill Lynch EuroFund ................... Capital appreciation primarily
through investment in equity
securities domiciled in Europe.
Merrill Lynch Federal Securities Trust ... High current return through
investments in U.S. Government
and Government agency securities,
including GNMA mortgage-backed
certificates and other mortgage-
backed Government securities.
Merrill Lynch Florida Limited Maturity
Municipal Bond Fund......................
A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to
provide as high a level of income
exempt from Federal income taxes
as is consistent with prudent
investment management while
seeking to offer shareholders the
opportunity to own securities
exempt from Florida intangible
personal property taxes through
investment in a portfolio
primarily of intermediate-term
investment grade Florida
Municipal Bonds.
35
<PAGE>
Merrill Lynch Florida Municipal Bond Fund A portfolio of Merrill Lynch
......................................... Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal income taxes as is
consistent with prudent
investment management while
seeking to offer shareholders the
opportunity to own securities
exempt from Florida intangible
personal property taxes.
Merrill Lynch Fund For Tomorrow, Inc. .... Long-term growth through
investment in a portfolio of good
quality securities, primarily
common stock, potentially
positioned to benefit from
demographic and cultural changes
as they affect consumer markets.
Merrill Lynch Fundamental Growth Fund,
Inc......................................
Long-term growth through
investment in a diversified
portfolio of equity securities
placing particular emphasis on
companies that have exhibited an
above-average growth rate in
earnings.
Merrill Lynch Fundamental Value Portfolio
(Available only for exchanges by certain
individual retirement accounts for which
Merrill Lynch acts as custodian and by
certain CBA(R) accounts and CMA(R) sub-
accounts)...........................
A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series
fund, whose objective is to
provide capital appreciation and
income by investing in
securities, with at least 65% of
the portfolio's assets being
invested in equities.
Merrill Lynch Global Allocation Fund, High total return consistent with
Inc...................................... prudent risk through a fully
managed investment policy
utilizing United States and
foreign equity, debt and money
market securities, the
combination of which will be
varied from time to time both
with respect to the types of
securities and markets in
response to changing market and
economic trends.
36
<PAGE>
Merrill Lynch Global Bond Fund for
Investment and Retirement ...............
High total investment return from
investment in government and
corporate bonds denominated in
various currencies and multi-
national currency units.
Merrill Lynch Global Convertible Fund, High total return from investment
Inc...................................... primarily in an internationally
diversified portfolio of
convertible debt securities,
convertible preferred stock and
"synthetic" convertible
securities consisting of a
combination of debt securities or
preferred stock and warrants or
options.
Merrill Lynch Global Holdings, Inc.
(Residents of Arizona must meet investor The highest total investment
suitability standards).............. return consistent with prudent
risk through worldwide investment
in an internationally diversified
portfolio of securities.
Merrill Lynch Global Opportunity
Portfolio (Available only for exchanges
by certain individual retirement
accounts for which Merrill Lynch acts as
custodian and by certain CBA(R) accounts A portfolio of Merrill Lynch Asset
and CMA(R) sub-accounts)............ Builder Program Inc., a series
fund, whose objective is to
provide a high total investment
return through an investment
policy utilizing United States
and foreign equity, debt and
money market securities, the
combination of which will vary
depending upon changing market
and economic trends.
Merrill Lynch Global Resources Trust...... Long-term growth and protection of
capital from investment in
securities of domestic and
foreign companies that possess
substantial natural resource
assets.
Merrill Lynch Global SmallCap Fund, Inc... Long-term growth of capital by
investing primarily in equity
securities of companies with
relatively small market
capitalizations located in
various foreign countries and in
the United States.
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<PAGE>
Merrill Lynch Global Utility Fund, Inc.... Capital appreciation and current
income through investment of at
least 65% of its total assets in
equity and debt securities issued
by domestic and foreign companies
primarily engaged in the
ownership or operation of
facilities used to generate,
transmit or distribute
electricity, telecommunications,
gas or water.
Merrill Lynch Growth Opportunity
Portfolio (Available only for exchanges
by certain individual retirement
accounts for which Merrill Lynch acts as
custodian and by certain CBA(R) accounts
and CMA(R) sub-accounts)............
A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series
fund, whose objective is to seek
long-term growth of capital by
investing in a portfolio of
equity securities placing
particular emphasis on companies
that have exhibited above-average
growth rates in earnings.
Merrill Lynch Healthcare Fund, Inc.
(Residents of Wisconsin must meet
investor suitability standards) .........
Capital appreciation through
worldwide investment in equity
securities of companies that
derive or are expected to derive
a substantial portion of their
sales from products and services
in healthcare.
Merrill Lynch International Equity Fund... Capital appreciation and,
secondarily, income by investing
in a diversified portfolio of
equity securities of issuers
located in countries other than
the United States.
Merrill Lynch Latin America Fund, Inc..... Capital appreciation by investing
primarily in Latin American
equity and debt securities.
Merrill Lynch Maryland Municipal Bond
Fund.....................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Maryland income taxes
as is consistent with prudent
investment management.
38
<PAGE>
Merrill Lynch Massachusetts Limited
Maturity Municipal Bond Fund.............
A portfolio of Merrill Lynch Mul-
ti-State Limited Maturity Munici-
pal Series Trust, a series fund,
whose objective is to provide as
high a level of income exempt
from Federal and Massachusetts
income taxes as is consistent
with prudent investment manage-
ment through investment in a
portfolio primarily of intermed-
iate-term investment grade Massa-
chusetts Municipal Bonds.
Merrill Lynch Massachusetts Municipal
Bond Fund................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Massachusetts income
taxes as is consistent with
prudent investment management.
Merrill Lynch Michigan Limited Maturity
Municipal Bond Fund......................
A portfolio of Merrill Lynch
Multi-State Limited Municipal
Series Trust, a series fund,
whose objective is to provide as
high a level of income exempt
from Federal and Michigan income
taxes as is consistent with
prudent investment management
through investment in a portfolio
primarily of intermediate-term
investment grade Michigan
Municipal Bonds.
Merrill Lynch Michigan Municipal Bond A portfolio of Merrill Lynch
Fund..................................... Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Michigan income taxes
as is consistent with prudent
investment management.
Merrill Lynch Minnesota Municipal Bond
Fund.....................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Minnesota personal
income taxes as is consistent
with prudent investment
management.
39
<PAGE>
Merrill Lynch Municipal Bond Fund, Inc. ..
Tax-exempt income from three
separate diversified portfolios
of municipal bonds.
Merrill Lynch Municipal Intermediate Term
Fund.....................................
Currently the only portfolio of
Merrill Lynch Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level as possible of income
exempt from Federal income taxes
by investing in investment grade
obligations with a dollar
weighted average maturity of five
to twelve years.
Merrill Lynch New Jersey Limited Maturity
Municipal Bond Fund......................
A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to
provide as high a level of income
exempt from Federal and New
Jersey income taxes as is
consistent with prudent
investment management through a
portfolio primarily of
intermediate-term investment
grade New Jersey Municipal Bonds.
Merrill Lynch New Jersey Municipal Bond
Fund.....................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and New Jersey income
taxes as is consistent with
prudent investment management.
Merrill Lynch New Mexico Municipal Bond
Fund.....................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and New Mexico income
taxes as is consistent with
prudent investment management.
40
<PAGE>
Merrill Lynch New York Limited Maturity
Municipal Bond Fund......................
A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to
provide as high a level of income
exempt from Federal, New York
State and New York City income
taxes as is consistent with
prudent investment management
through investment in a portfolio
primarily of intermediate-term
investment grade New York
Municipal Bonds.
Merrill Lynch New York Municipal Bond
Fund.....................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal, New York State and New
York City income taxes as is
consistent with prudent
investment management.
Merrill Lynch North Carolina Municipal
Bond Fund................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and North Carolina income
taxes as is consistent with
prudent investment management.
Merrill Lynch Ohio Municipal Bond Fund.... A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Ohio income taxes as
is consistent with prudent
investment management.
Merrill Lynch Oregon Municipal Bond Fund.. A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide investors
with as high a level of income
exempt from both Federal and
Oregon income taxes as is
consistent with prudent
investment management.
Merrill Lynch Pacific Fund, Inc........... Capital appreciation by investing
in equity securities of
corporations domiciled in Far
Eastern and Western Pacific
countries, including Japan,
Australia, Hong Kong and
Singapore.
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<PAGE>
Merrill Lynch Pennsylvania Limited
Maturity Municipal Bond Fund.............
A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to
provide as high a level of income
exempt from Federal and
Pennsylvania income taxes as is
consistent with prudent
investment management through
investment in a portfolio of
intermediate-term investment
grade Pennsylvania Municipal
Bonds.
Merrill Lynch Pennsylvania Municipal Bond
Fund ....................................
A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal and Pennsylvania personal
income taxes as is consistent
with prudent management.
Long-term growth of capital by
Merrill Lynch Phoenix Fund, Inc. .... investing in equity and fixed
income securities, including tax-
exempt securities, of issuers in
weak financial condition or
experiencing poor operating
results believed to be
undervalued relative to the
current or prospective condition
of such issuer.
Merrill Lynch Quality Bond Portfolio
(Available only for exchanges by certain
individual retirement accounts for which
Merrill Lynch acts as custodian and by
certain CBA(R) accounts and CMA(R) sub-
accounts) ........................... A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series
fund, whose objective is to
provide a high level of current
income through investment in a
diversified portfolio of debt
obligations, such as corporate
bonds and notes, convertible
securities, preferred stocks and
governmental obligations.
Merrill Lynch Short-Term Global Income
Fund, Inc. ..............................
As high a level of current income
as is consistent with prudent
investment management from a
global portfolio of high quality
debt securities denominated in
various currencies and
multinational currency units and
having remaining maturities not
exceeding three years.
42
<PAGE>
Merrill Lynch Special Value Fund, Inc..... Long-term growth of capital from
investments in securities,
primarily common stock, of
relatively small companies
believed to have special
investment value and emerging
growth companies regardless of
size.
Merrill Lynch Strategic Dividend Fund..... Long-term total return from
investment in dividend paying
common stocks which yield more
than Standard & Poor's 500
Composite Stock Price Index.
Merrill Lynch Technology Fund, Inc. ...... Capital appreciation through
worldwide investment in equity
securities of companies that
derive or are expected to derive
a substantial portion of their
sales from products and services
in technology.
Merrill Lynch Texas Municipal Bond Fund... A portfolio of Merrill Lynch
Multi-State Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level of income exempt from
Federal income taxes as is
consistent with prudent
investment management by
investing primarily in a
portfolio of long-term,
investment grade obligations
issued by the State of Texas, its
political subdivisions, agencies
and instrumentalities.
Merrill Lynch U.S. Government Securities
Portfolio (Available only for exchanges
by certain individual retirement
accounts for which Merrill Lynch acts as
custodian and by certain CBA(R) accounts
and CMA(R) sub-accounts) ........... A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series
fund, whose objective is to
provide a high current return
through investments in U.S.
Government and government agency
securities, including GNMA
mortgage-backed certificates and
other mortgage-backed government
securities.
Merrill Lynch Utility Income Fund, Inc. .. High current income through
investment primarily in equity
and debt securities issued by
companies primarily engaged in
the ownership or operation of
facilities used to generate,
transmit or to distribute
electricity, telecommunications,
gas or water.
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<PAGE>
Merrill Lynch World Income Fund, Inc. .... High current income by investing
in a global portfolio of fixed
income securities denominated in
various currencies, including
multi-national currencies.
Class A Share Money Market Funds:
Merrill Lynch Ready Assets Trust.......... Preservation of capital, liquidity
and the highest possible current
income consistent with the
foregoing objectives from the
short-term money market
securities in which the Trust
invests.
Merrill Lynch Retirement Reserves Money
Fund (Available only for exchanges
within certain retirement plans)....
Currently the only portfolio of
Merrill Lynch Retirement Series
Trust, a series fund, whose
objectives are current income,
preservation of capital and
liquidity available from
investing in a diversified
portfolio of short-term money
market securities.
Merrill Lynch U.S.A. Government Reserves.. Preservation of capital, current
income and liquidity available
from investing in direct
obligations of the U.S.
Government and repurchase
agreements relating to such
securities.
Merrill Lynch U.S. Treasury Money Fund.... Preservation of capital, liquidity
and current income through
investment exclusively in a
diversified portfolio of short-
term marketable securities which
are direct obligations of the
U.S. Treasury.
Class B, Class C and Class D Share Money Market Funds:
Merrill Lynch Government Fund............. A portfolio of Merrill Lynch Funds
For Institutions Series, a series
fund, whose objective is to
provide current income consistent
with liquidity and security of
principal from investment in
securities issued or guaranteed
by the U.S. Government, its
agencies and instrumentalities
and in repurchase agreements
secured by such obligations.
44
<PAGE>
Merrill Lynch Institutional Fund.......... A portfolio of Merrill Lynch Funds
For Institutions Series, a series
fund, whose objective is to
provide maximum current income
consistent with liquidity and the
maintenance of a high-quality
portfolio of money market
securities.
Merrill Lynch Institutional Tax-Exempt
Fund.....................................
A portfolio of Merrill Lynch Funds
For Institutions Series, a series
fund, whose objective is to
provide current income exempt
from Federal income taxes,
preservation of capital and
liquidity available from
investing in a diversified
portfolio of short-term, high
quality municipal bonds.
Merrill Lynch Treasury Fund............... A portfolio of Merrill Lynch Funds
For Institutions Series, a series
fund, whose objective is to
provide current income consistent
with liquidity and security of
principal from investment in
direct obligations of the U.S.
Treasury and up to 10% of its
total assets in repurchase
agreements secured by such
obligations.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their Merrill
Lynch financial consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated in accordance with the rules of the
Commission. The Fund reserves the right to limit the number of times an
investor may exercise the exchange privilege. Certain funds may suspend the
continuous offering of their shares to the general public at any time and may
thereafter resume such offering from time to time. The exchange privilege is
available only to U.S. shareholders in states where the exchange legally may be
made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all its net investment income, if any.
Dividends from such net investment income will be paid semi-annually. All net
realized long- or short-term capital gains, if any, will be distributed
45
<PAGE>
to the Fund's shareholders annually. From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in order to
comply with a Federal income tax requirement that certain percentages of its
ordinary income and capital gains be distributed during the calendar year. See
"Shareholder Services--Automatic Reinvestment of Dividends and Capital Gains
Distributions" for information concerning the manner in which dividends and
distributions may be reinvested automatically in shares of the Fund.
Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
shareholders, as discussed below, whether they are reinvested in shares of the
Fund or received in cash. The per share dividends and distributions on Class B
and Class C shares will be lower than the per share dividends and distributions
on Class A and Class D shares as a result of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares; similarly, the per share dividends and
distributions on Class D shares will be lower than the per share dividends and
distributions on Class A shares as a result of the account maintenance fees
applicable with respect to the Class D shares. See "Determination of Net Asset
Value".
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
Class A, Class B, Class C and Class D shareholders ("shareholders"). The Fund
intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of the
Fund's net realized short-term capital gains (together referred to hereafter as
"ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
are taxable to shareholders as long-term capital gains, regardless of the
length of time the shareholder has owned Fund shares. A sale or exchange of
shares held for six months or less, however, will be treated as long-term
capital loss to the extent of any long-term capital gains distribution with
respect to such shares.
Not later than 60 days after the close of its taxable year, the Fund will
provide its shareholders with a written notice designating the amounts of any
dividends or capital gains distributions. A portion of the Fund's ordinary
income dividends may be eligible for the dividends received deduction allowed
to corporations under the Code, if certain requirements are met. For this
purpose, the Fund will allocate dividends eligible for the dividends received
deduction between the Class A, Class B, Class C and Class D shareholders
according to a method (which it believes is consistent with the Securities and
Exchange Commission exemptive order permitting the issuance and sale of
multiple classes of stock) that is based on the gross income allocable to the
Class A, Class B, Class C and Class D shareholders during the taxable year, or
such other method as the Internal Revenue Service may prescribe. If the Fund
pays a dividend in January which was declared in the previous October, November
or December to shareholders of record on a specified date in one of such
months, then such dividend or distribution will be treated for tax purposes as
being paid by the RIC and received by its shareholders on December 31 of the
year in which such dividend was declared.
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<PAGE>
Pursuant to the Fund's investment objectives, the Fund may invest in foreign
securities. Foreign taxes may be paid by the Fund as a result of tax laws of
countries in which the Fund may invest. Income tax treaties between certain
countries and the United States may reduce or eliminate such taxes. It is
impossible to determine in advance the effective rate of foreign tax to which
the Fund will be subject, since the amount of Fund assets to be invested in
various countries is not known. Because the Fund limits its investment in
foreign securities, shareholders will not be entitled to claim foreign tax
credits with respect to their share of foreign taxes paid by the Fund on income
from investments of foreign securities held by the Fund.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains distributions
and redemption payments ("backup withholding"). Generally, shareholders subject
to backup withholding will be those for whom a certified taxpayer
identification number is not on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such shareholder is not otherwise subject to backup withholding.
Ordinary income dividends paid by the Fund to shareholders who are non-
resident aliens or foreign entities generally will be subject to a 30% United
States withholding tax under existing provisions of the Code applicable to
foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
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 shareholder who holds shares as a capital asset generally will recognize a
capital gain or loss upon the sale of such shares, which will be a long-term
capital gain or loss if such shares were held for more than one year. However,
any loss realized by a shareholder who held shares for six months or less will
be treated as a long-term capital loss to the extent of any distributions of
net capital gains received by the shareholder with respect to such shares.
If a shareholder exercises his exchange privilege within 90 days of acquiring
such shares, then the loss he can recognize on the exchange will be reduced (or
the gain increased) to the extent the sales charge paid to the Fund reduces any
sales charge he would have owed upon the purchase of the new shares in the
absence of the exchange privilege. Instead, such sales charge will be treated
as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its
47
<PAGE>
capital gains, determined, in general, on an October 31 year end, plus certain
undistributed amounts from previous years. The Fund anticipates that it will
make sufficient timely distributions to avoid imposition of the excise tax.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase or sell options and futures and foreign currency
options and futures, and related options on such futures. Options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
Federal income tax purposes at the end of each taxable year, i.e., each option
or futures contract will be treated as sold for its fair market value on the
last day of the taxable year. Unless such contract is a forward foreign
exchange contract, or is a non-equity option or a regulated futures contract
for a non-U.S. currency for which the Fund elects to have gain or loss treated
as ordinary gain or loss under Code Section 988 (as described below), gain or
loss from transactions in such option and futures contracts will be 60% long-
term and 40% short-term capital gain or loss. The mark-to-market rules outlined
above, however, will not apply to certain transactions entered into by the Fund
solely to reduce the risk of changes in price or interest rates with respect to
its investments.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Fund's transactions in options, futures and forward foreign
exchange contracts. Under Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in options, futures and forward foreign exchange.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income may be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Fund may be restricted in effecting closing transactions within three months
after entering into an option or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, futures or forward
foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain forward contracts, from
futures contracts that are not "regulated futures contracts" and from unlisted
options will be treated as ordinary income or loss under Code Section 988. In
certain circumstances, the Fund may elect capital gain or loss treatment for
such transactions. In general, however, Code Section 988 gains or losses will
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to shareholders as ordinary
48
<PAGE>
income. Additionally, if Code Section 988 losses exceed other investment
company taxable income during a taxable year, the Fund would not be able to
make any ordinary dividend distributions, and any distributions made before the
losses were realized but in the same taxable year would be recharacterized as a
return of capital to shareholders, thereby reducing each shareholder's basis in
the Fund shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and the Treasury regulations presently in effect. For
the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative or administrative
action either prospectively or retroactively.
Dividends and capital gains distributions may also be subject to state and
local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, local or foreign taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data, in advertisements or information furnished to present
or prospective shareholders. Total return is based on the Fund's historical
performance and is not intended to indicate future performance. Average annual
total return is determined separately for Class A, Class B, Class C and Class D
shares in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted
and (2) the maximum applicable sales charges will not be included. 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.
49
<PAGE>
Set forth below is total return information for the Class A and Class B
shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES**
----------------------------------- -----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF ON A HYPOTHETICAL AT THE END OF
PERIOD $1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
------ ----------------- ----------------- ----------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended October
31, 1995............... 16.16% $1,161.60 17.37% $1,173.70
Five Years Ended October
31, 1995............... 21.99% $2,701.50 22.06% $2,708.90
Inception (March 27,
1987) to
October 31, 1995....... 13.97% $3,079.20
Inception (November 28,
1988) to October 31,
1995................... 18.01% $3,148.90
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Year Ended October 31,
1995.................... 22.60% $1,226.00 21.37% $1,213.70
1994.................... 12.50% $1,125.00 11.41% $1,114.10
1993.................... 33.97% $1,339.70 32.54% $1,325.40
1992.................... 5.77% $1,057.70 4.74% $1,047.40
1991.................... 45.88% $1,458.80 44.32% $1,443.20
1990.................... (14.42)% $ 855.80 (15.31)% $ 846.90
1989.................... -- -- 29.25% $1,292.50
1988.................... -- -- 16.64% $1,166.40
Inception (November 28,
1988) to
October 31, 1989....... 36.21% $1,362.10 -- --
Inception (March 27,
1987) to
October 31, 1987....... -- -- (10.98)% $ 890.20
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (March 27,
1987) to
October 31, 1995....... 207.92% $3,079.20
Inception (November 28,
1988) to
October 31, 1995....... 214.89% $3,148.90
</TABLE>
- --------
* Information as to Class A shares is presented for the period November 28,
1988 to October 31, 1995. Prior to November 28, 1988, no Class A shares were
publicly issued.
** Commencement of Operations of Class B shares was March 27, 1987.
50
<PAGE>
Set forth below is total return information for the Class C and Class D
shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS C SHARES* CLASS D SHARES*
----------------------------------- -----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF ON A HYPOTHETICAL AT THE END OF
PERIOD $1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
------ ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended October
31, 1995............... 20.32% $1,203.20 15.87% $1,158.70
Inception (October 21,
1994) to
October 31, 1995....... 25.20% $1,259.70 19.73% $1,203.20
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended October 31,
1995................... 21.32% $1,213.20 22.29% $1,222.90
Inception (October 21,
1994) to
October 31, 1994....... 3.84% $1,038.40 3.84 % $1,038.40
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (October 21,
1994) to
October 31, 1995....... 25.97% $1,259.70 20.32% $1,203.20
</TABLE>
- --------
* Commencement of Operations of Class C and Class D shares was October 21,
1994.
In order to reflect the reduced sales charges in the case of Class A or Class
D shares or the waiver of the contingent deferred sales charge in the case of
Class B or Class C shares applicable to certain investors, as described under
"Purchase of Shares" and "Redemption of Shares", respectively, the total return
data quoted by the Fund in advertisements directed to such investors may take
into account the reduced, and not the maximum, sales charge or may take into
account the contingent deferred sales charge and therefore may reflect greater
total return since, due to the reduced sales charges or the waiver of sales
charges, a lower amount of expenses is deducted.
From time to time, the Fund may include the Fund's Morningstar risk-adjusted
performance rating in advertisements or supplemental sales literature.
51
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Declaration of Trust of the Fund permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest, par
value $0.10 per share, of different classes and to divide or combine the
shares of each class into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest in the Fund. At the date of
this Statement of Additional Information, the shares of the Fund are divided
into Class A, Class B, Class C and Class D shares. Under the Declaration of
Trust, the Trustees have the authority to issue separate classes of shares
which represent interests in the assets of the Fund and have identical voting,
dividend, liquidation and other rights and the same terms and conditions
except that expenses related to the account maintenance and distribution of
the shares of a class may be borne solely by such class and a class may have
exclusive voting rights with respect to matters relating to the account
maintenance and distribution expenses being borne only by such class. The Fund
has received an order from the Commission permitting the issuance and sale of
multiple classes of shares. Upon liquidation of the Fund, shareholders of each
class are entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders, except for any expenses which may be
attributable only to one class. Shares have no preemptive rights. The rights
of redemption and conversion rights are described elsewhere herein and in the
Prospectus. Shares are fully paid and non-assessable by the Fund.
Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held in the election of Trustees (to
the extent hereinafter provided) and on other matters submitted to vote of
shareholders, except that shareholders of the class bearing distribution
expenses as provided above shall have exclusive voting rights with respect to
matters relating to such distribution expenditures. Voting rights are not
cumulative, so that the holders of more than 50% of the shares voting in the
election of Trustees can, if they choose to do so, elect all the Trustees of
the Fund, in which event the holders of the remaining shares are able to elect
any person as a Trustee. No amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding shares of the
Fund.
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class A, Class B, Class C and Class D shares of the
Fund, based on the value of the Fund's net assets and number of outstanding
shares on October 31, 1995, is calculated as set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
Net Assets ............. $670,164,126 $1,920,450,968 $85,486,254 $614,356,710
============ ============== =========== ============
Number of Shares
Outstanding............ 28,971,409 88,927,489 3,958,699 26,638,116
============ ============== =========== ============
Net Asset Value Per
Share (net assets
divided by number of
shares outstanding).... $ 23.13 $ 21.60 $ 21.59 $ 23.06
Sales Charge (Class A
and Class D shares:
5.25% of offering price
(5.54% of net asset
value per share))*..... 1.28 ** ** 1.28
------------ -------------- ----------- ------------
Offering Price ......... $ 24.41 $ 21.60 $ 21.59 $ 24.34
============ ============== =========== ============
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption. See "Purchase of Shares--Deferred
Sales Charge Alternatives--Class B and Class C Shares" in the Prospectus and
"Redemption of Shares--Deferred Sales Charge--Class B Shares" herein.
52
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, have
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the shareholders of the
Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
CUSTODIAN
State Street Bank and Trust Company, One Heritage Drive P2N, North Quincy,
Massachusetts 02171, acts as the custodian of the Fund's assets. The Custodian
is responsible for safeguarding and controlling the Fund's cash and securities,
handling the receipt and delivery of securities and collecting interest and
dividends on the Fund's investment.
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's transfer agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
"Management of the Fund--Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New
York 10022, is counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on October 31 of each year. The Fund sends
to its shareholders at least semi-annually reports showing the Fund's portfolio
and other information. An annual report, containing financial statements
audited by independent auditors, is sent to shareholders each year. After the
end of each year, shareholders will receive Federal income tax information
regarding dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act, to which reference is hereby made.
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.
53
<PAGE>
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on February 1, 1996.
----------------
The Declaration of Trust establishing the Fund, dated as of December 11,
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 "Merrill Lynch Retirement Equity Fund"
(subsequently, "Merrill Lynch Growth Fund for Investment and Retirement")
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 shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any obligation or claim
of said Fund but the "Trust Property" only shall be liable.
54
<PAGE>
APPENDIX
RATINGS OF FIXED INCOME SECURITIES
DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC.'S ("MOODY'S") CORPORATE RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
BAA Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate, and therefore not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
55
<PAGE>
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking, and the modifier
3 indicates that the issue ranks in the lower end of its generic category.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act of
1933, as amended.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated issuer or
issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well-established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on debt and
ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and higher
internal cash generation
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternative liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its commercial paper obligations are
supported by the credit of another entity or entities, then the name or names
of such supporting entity or entities are listed within parentheses beneath the
name of the issuer, or there is a footnote referring the reader to another page
for the name or names of the supporting entity or entities. In assigning
ratings to such issuers, Moody's evaluates the financial strength of the
indicated affiliated corporations, commercial banks, insurance companies,
foreign
56
<PAGE>
governments or other entities, but only as one factor in the total rating
assessment. Moody's makes no representation and gives no opinion on the legal
validity or enforceability of any support arrangement. You are cautioned to
review with your counsel any questions regarding particular support
arrangements.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
Because of the fundamental differences between preferred stocks and bonds, a
variation of the bond rating symbols is being used in the quality ranking of
preferred stocks. The symbols, presented below, are designed to avoid
comparison with bond quality in absolute terms. It should always be borne in
mind that preferred stocks occupy a junior position to bonds within a
particular capital structure and that these securities are rated within the
universe of preferred stocks.
Preferred stock rating symbols and their definitions are as follows:
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained
in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "a" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payment.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
57
<PAGE>
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S ("STANDARD & POOR'S")
CORPORATE DEBT RATINGS
A Standard & Poor's corporate or municipal rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
Debt rated BB, B, CCC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest
and repay principal. BB indicates the least degree of speculation and
C the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
58
<PAGE>
BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and
principal payment. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B Debt rated B has a greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest or repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB-rating.
CCC Debt rated CCC has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B-rating.
CC The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been
filed but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is
being paid.
D Debt rated D is in default. The D rating is assigned on the day an
interest or principal payment is missed. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
Provisional ratings: The letter "p" indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp. or
the Federal Deposit Insurance Corp. and interest is adequately
collateralized.
* Continuance of the rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
59
<PAGE>
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA," "AA," "A," "BBB," commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest. The four categories are
as follows:
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree
of safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus
(+) sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying
the higher designations.
B Issues rated "B" are regarded as having only adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D This rating indicates that the issue is either in default or is
expected to be in default upon maturity.
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it
60
<PAGE>
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of such information.
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any
applicable sinking fund obligations. A preferred stock rating differs from a
bond rating inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue. Therefore, to
reflect this difference, the preferred stock rating symbol will normally not be
higher than the bond rating symbol assigned to, or that would be assigned to,
the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
I. Likelihood of payment--capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the
obligation.
II. Nature of, and provisions of, the issue.
III. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
AAA This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely
strong capacity to pay the preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-
quality fixed income security. The capacity to pay preferred
stock obligations is very strong, although not as overwhelming as
for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB Preferred stock rated "BB," "B," and "CCC" are regarded, on
B balance, as predominantly speculative with respect to the
CCC issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation and "CCC" the highest
degree of speculation. While such issues will likely have some
quality and protection characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
61
<PAGE>
CC The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is
currently paying.
C A preferred stock rated "C" is a non-paying issue.
D A preferred stock rated "D" is a non-paying issue in default on
debt instruments.
NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Plus (+) or minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
The preferred stock ratings are not a recommendation to purchase or sell a
security, inasmuch as market price is not considered in arriving at the rating.
Preferred stock ratings are wholly unrelated to Standard & Poor's earnings and
dividend rankings for common stocks.
The ratings are based on current information furnished to Standard & Poor's
by the issuer, and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
62
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of Merrill Lynch Growth Fund for
Investment and Retirement:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Growth Fund for Investment and
Retirement 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 and broker. 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
Growth Fund for Investment and Retirement 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 1, 1995
63
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C>
Banking & Financial 1,000,000 Republic New York Corp. $ 44,267,281 $ 58,625,001 1.8%
Services 1,000,000 Safra Republic Holdings S.A. (ADR)* 69,529,500 87,750,000 2.7
-------------- -------------- ------
113,796,781 146,375,001 4.5
Biotechnology 2,083,000 ++CytoTherapeutics, Inc. (d) 13,010,625 20,830,000 0.6
434,500 ++CytoTherapeutics, Inc. (Warrants) (a) 651,750 1,769,284 0.0
-------------- -------------- ------
13,662,375 22,599,284 0.6
Computer Software 2,000,000 Autodesk, Inc. 37,146,849 67,250,000 2.0
1,600,000 ++Landmark Graphics Corp. (d) 27,012,866 34,400,000 1.0
4,652,000 ++Mentor Graphics, Inc. (d) 62,023,772 97,692,000 3.0
2,713,752 ++Platinum Technology, Inc. (d) 49,597,917 49,525,974 1.5
-------------- -------------- ------
175,781,404 248,867,974 7.5
Diversified Resource 1,500,000 Freeport-McMoRan Copper & Gold, Inc.
Companies (Class A) 36,449,552 34,312,500 1.0
5,000,000 Freeport-McMoRan Copper & Gold, Inc.
(Class B) 107,984,584 113,750,000 3.5
3,750,000 Freeport-McMoRan, Inc. 114,789,644 140,156,250 4.2
-------------- -------------- ------
259,223,780 288,218,750 8.7
Electronic 6,000,000 ++Cirrus Logic, Inc. (d) 64,109,324 252,000,000 7.7
Components 800,000 ++Komag, Inc. 23,908,523 45,500,000 1.4
-------------- -------------- ------
88,017,847 297,500,000 9.1
Healthcare Services 4,000,000 U.S. HealthCare, Inc. 101,351,070 154,000,000 4.7
International 3,500,000 Yacimientos Petroliferos Fiscales
Integrated Oils S.A.--Sponsored (ADR)* 83,800,841 59,937,500 1.8
Natural Gas 2,343,750 Panhandle Eastern Corp. 24,371,330 59,179,688 1.8
Gathering & 2,500,000 Western Gas Resources, Inc. (d) 57,319,428 39,062,500 1.2
Transmission -------------- -------------- ------
81,690,758 98,242,188 3.0
Oil & Gas 3,300,000 Anadarko Petroleum Corp. (d) 119,856,330 143,137,500 4.3
Exploration & 5,000,000 Apache Corp. (d) 144,331,122 127,500,000 3.9
Production 2,200,000 Devon Energy Corp. (d) 34,401,130 47,850,000 1.5
300,000 ++McMoRan Oil & Gas Co. 1,691,662 862,500 0.0
1,650,500 ++Newfield Exploration Co., 46,328,078 48,689,750 1.5
6,975,000 Norcen Energy Resources, Ltd. (d) 105,870,105 90,339,639 2.7
9,000,000 ++Santa Fe Energy Resources, Inc. (d) 83,865,388 79,875,000 2.4
3,000,000 ++Seagull Energy Corporation (d) 63,902,997 51,375,000 1.6
1,000,000 ++United Meridian Corp. 12,390,790 16,875,000 0.5
3,000,000 Vastar Resources, Inc. 89,836,252 84,750,000 2.6
-------------- -------------- ------
702,473,854 691,254,389 21.0
Oil Refining 4,000,000 Valero Energy Corp. (d) 86,245,282 94,500,000 2.9
Oilfield Services 6,000,000 ++Ensco International (b) (d) 66,189,856 101,250,000 3.1
16,300,000 ++Global Marine, Inc. (d) 59,126,323 105,950,000 3.2
1,335,000 ++Pool Energy Services Co. (d) 14,336,959 12,015,000 0.4
-------------- -------------- ------
139,653,138 219,215,000 6.7
</TABLE>
64
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Value Percent of
Industries Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C>
Personal $ 3,622,094 ++Dell Computer Corp. (c) $ 41,131,339 $ 168,427,369 5.1%
Computers
Steel 1,000,000 Nucor Corp. 24,425,131 48,125,000 1.5
Total Stocks 1,911,253,600 2,537,262,455 77.1
Face
Amount Short Term Securities
Commercial ANZ (Delaware), Inc.:
Paper** $30,000,000 5.70% due 11/27/1995 29,876,500 29,876,500 0.9
40,000,000 5.70% due 11/28/1995 39,829,000 39,829,000 1.2
30,000,000 du Pont (E.I.) de Nemours & Co., 5.68%
due 11/21/1995 29,905,333 29,905,333 0.9
51,966,000 General Electric Capital Corp., 5.85%
due 11/01/1995 51,966,000 51,966,000 1.6
Goldman Sachs Group L.P.:
30,000,000 5.72% due 11/20/1995 29,909,433 29,909,433 0.9
40,000,000 5.72% due 11/21/1995 39,872,889 39,872,889 1.2
39,124,000 Matterhorn Capital Corp., 5.71%
due 12/05/1995 38,913,013 38,913,013 1.2
National Fleet Funding Corp.:
40,000,000 5.72% due 11/29/1995 39,822,044 39,822,044 1.2
34,000,000 5.72% due 12/11/1995 33,783,911 33,783,911 1.1
43,000,000 PHH Corp., 5.72% due 12/01/1995 42,795,033 42,795,033 1.3
50,000,000 Penney (J.C.) Funding Corp., 5.71%
due 11/20/1995 49,849,320 49,849,320 1.5
32,950,000 Preferred Receivable Funding Corp.,
5.70% due 12/13/1995 32,730,883 32,730,883 1.0
30,000,000 Siemens Corp., 5.70% due 12/01/1995 29,857,500 29,857,500 0.9
UBS Finance (Delaware) Inc.:
30,000,000 5.71% due 11/07/1995 29,971,450 29,971,450 0.9
50,000,000 5.70% due 12/05/1995 49,730,833 49,730,833 1.5
25,000,000 USAA Capital Corp., 5.70%
due 11/14/1995 24,948,542 24,948,542 0.8
22,229,000 Wal-Mart Stores, Inc., 5.68%
due 12/14/1995 22,078,189 22,078,189 0.7
US Government & 50,000,000 Federal Home Loan Mortgage Corp.,
Agency Obligations** 5.64% due 11/13/1995 49,906,000 49,906,000 1.5
Federal National Mortgage Association:
40,000,000 5.57% due 11/03/1995 39,987,622 39,987,622 1.2
30,000,000 5.62% due 11/07/1995 29,971,900 29,971,900 0.9
Total Short-Term Securities 735,705,395 735,705,395 22.4
Total Investments $2,646,958,995 3,272,967,850 99.5
==============
Other Assets Less Liabilities 17,490,208 0.5
-------------- ------
Net Assets $3,290,458,058 100.0%
============== ======
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper and certain US Government & Agency Obliga-
tions are traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
(a)Warrants entitle the Fund to purchase a predetermined number
of shares of common stock. The purchase price and number of
shares are subject to adjustment under certain conditions until
the expiration date.
(b)Formerly Energy Service Co.
(c)Reflects the conversion of Dell Computer Corp., Series A, 7%
Convertible Preferred Stock.
(d)Investment in an affiliated company (Note 5).
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
65
<PAGE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of October 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$2,646,958,995) (Note 1a) $3,272,967,850
Cash 368,454
Receivables:
Beneficial interest sold $ 14,563,645
Securities sold 11,170,745
Dividends 1,654,000 27,388,390
-------------
Prepaid registration fees and other assets (Note 1f) 84,045
--------------
Total assets 3,300,808,739
--------------
Liabilities: Payables:
Beneficial interest redeemed 4,273,219
Distributor (Note 2) 1,904,814
Investment adviser (Note 2) 1,798,575
Securities purchased 1,192,400 9,169,008
--------------
Accrued expenses and other liabilities 1,181,673
--------------
Total liabilities 10,350,681
--------------
Net Assets: Net assets $3,290,458,058
==============
Net Assets Class A Shares of beneficial interest, $0.10 par value, unlimited
Consist of: number of shares authorized $ 2,897,141
Class B Shares of beneficial interest, $0.10 par value, unlimited
number of shares authorized 8,892,749
Class C Shares of beneficial interest, $0.10 par value, unlimited
number of shares authorized 395,870
Class D Shares of beneficial interest, $0.10 par value, unlimited
number of shares authorized 2,663,812
Paid-in capital in excess of par 2,357,341,249
Undistributed investment income--net 9,409,014
Undistributed realized capital gains on investments--net 282,849,368
Unrealized appreciation on investments--net 626,008,855
--------------
Net assets $3,290,458,058
==============
Net Asset Class A--Based on net assets of $670,164,126 and 28,971,409 shares
Value: of beneficial interest outstanding $ 23.13
==============
Class B--Based on net assets of $1,920,450,968 and 88,927,489 shares
of beneficial interest outstanding $ 21.60
==============
Class C--Based on net assets of $85,486,254 and 3,958,699 shares
of beneficial interest outstanding $ 21.59
==============
Class D--Based on net assets of $614,356,710 and 26,638,116 shares
of beneficial interest outstanding $ 23.06
==============
See Notes to Financial Statements.
</TABLE>
66
<PAGE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statement of Operations for the Year Ended October 31, 1995
<S> <S> <C> <C>
Investment Interest and discount earned $ 24,562,021
Income Dividends 22,055,731
(Notes 1d Other income 323,257
& 1e): --------------
Total income 46,941,009
--------------
Expenses: Investment advisory fees (Note 2) $ 15,943,250
Account maintenance and distribution fees--Class B (Note 2) 15,900,710
Transfer agent fees--Class B (Note 2) 2,546,791
Account maintenance fees--Class D (Note 2) 771,688
Transfer agent fees--Class A (Note 2) 706,222
Registration fees (Note 1f) 452,675
Transfer agent fees--Class D (Note 2) 443,000
Printing and shareholder reports 372,361
Account maintenance and distribution fees--Class C (Note 2) 347,690
Accounting services (Note 2) 202,204
Custodian fees 152,149
Professional fees 120,065
Transfer agent fees--Class C (Note 2) 62,714
Trustees' fees and expenses 46,792
Pricing fees 894
Other 33,203
--------------
Total expenses before reimbursement 38,102,408
Reimbursement of expenses (Note 2) (570,413)
--------------
Total expenses 37,531,995
--------------
Investment income--net 9,409,014
--------------
Realized & Realized gain from investments--net 282,849,493
Unrealized Change in unrealized appreciation on investments--net 212,145,489
Gain on --------------
Investments-- Net realized and unrealized gain on investments 494,994,982
Net (Notes 1b, --------------
1c,1e & 3): Net Increase in Net Assets Resulting from Operations $ 504,403,996
==============
See Notes to Financial Statements.
</TABLE>
67
<PAGE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statements of Changes in Net Assets
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ 9,409,014 $ (5,712,437)
Realized gain on investments and foreign currency transactions--net 282,849,493 35,304,501
Change in unrealized appreciation on investments--net 212,145,489 136,865,088
-------------- --------------
Net increase in net assets resulting from operations 504,403,996 166,457,152
-------------- --------------
Distributions Realized gain on investments--net:
to Share- Class A (6,083,187) (26,111,625)
holders Class B (23,093,382) (122,946,689)
(Note 1g): Class C (87,568) --
Class D (872,515) --
-------------- --------------
Net decrease in net assets resulting from distributions
to shareholders (30,136,652) (149,058,314)
-------------- --------------
Beneficial Net increase in net assets derived from beneficial
Interest interest transactions 998,495,743 521,396,919
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 1,472,763,087 538,795,757
Beginning of year 1,817,694,971 1,278,899,214
-------------- --------------
End of year* $3,290,458,058 $1,817,694,971
============== ==============
<FN>
*Undistributed investment income--net $ 9,409,014 $ --
============== ==============
</TABLE>
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1995+ 1994+ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 19.19 $ 19.22 $ 14.79 $ 15.31 $ 10.61
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .23 .08 .02 .02 .01
Realized and unrealized gain on investments
and foreign currency transactions--net 4.01 2.01 4.86 0.65 4.82
-------- -------- -------- -------- --------
Total from investment operations 4.24 2.09 4.88 0.67 4.83
-------- -------- -------- -------- --------
Less distributions from realized gain on
investments--net (.30) (2.12) (.45) (1.19) (.13)
-------- -------- -------- -------- --------
Net asset value, end of year $ 23.13 $ 19.19 $ 19.22 $ 14.79 $ 15.31
======== ======== ======== ======== ========
Total Based on net asset value per share 22.60% 12.50% 33.97% 5.77% 45.88%
Investment ======== ======== ======== ======== ========
Return:*
Ratios to Expenses, net of reimbursement .82% .82% .81% .84% .87%
Average ======== ======== ======== ======== ========
Net Assets: Expenses .84% .82% .81% .84% .87%
======== ======== ======== ======== ========
Investment income--net 1.10% .44% .29% .28% .46%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $670,164 $382,077 $229,709 $138,456 $ 92,494
Data: ======== ======== ======== ======== ========
Portfolio turnover 37.42% 4.22% 33.21% 21.20% 27.86%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
+Based on average number of shares outstanding during the year.
See Notes to Financial Statements.
</TABLE>
68
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1995+ 1994+ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 18.12 $ 18.43 $ 14.35 $ 15.03 $ 10.53
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net .01 (.10) (.11) (.10) (.06)
Realized and unrealized gain on
investments and foreign currency
transactions--net 3.77 1.91 4.64 .61 4.69
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.78 1.81 4.53 .51 4.63
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain on
investments--net (.30) (2.12) (.45) (1.19) (.13)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 21.60 $ 18.12 $ 18.43 $ 14.35 $ 15.03
========== ========== ========== ========== ==========
Total Based on net asset value per share 21.37% 11.41% 32.54% 4.74% 44.32%
Investment ========== ========== ========== ========== ==========
Return:*
Ratios to Expenses, excluding account maintenance and
Average distribution fees and net of reimbursement .84% .84% .83% .87% .90%
Net Assets: ========== ========== ========== ========== ==========
Expenses, net of reimbursement 1.84% .84% .83% .87% .90%
========== ========== ========== ========== ==========
Expenses 1.87% 1.84% 1.83% 1.87% 1.90%
========== ========== ========== ========== ==========
Investment income (loss)--net .04% (.58%) (.78%) (.76%) (.53%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $1,920,451 $1,433,051 $1,049,190 $ 758,061 $ 824,007
Data: ========== ========== ========== ========== ==========
Portfolio turnover 37.42% 4.22% 33.21% 21.20% 27.86%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
+Based on average number of shares outstanding during the year.
See Notes to Financial Statements.
</TABLE>
69
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994+ to Ended 1994+ to
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1995++ 1994++
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 18.12 $ 17.45 $ 19.18 $ 18.47
Operating -------- -------- -------- --------
Performance: Investment income--net .03 -- .22 --
Realized and unrealized gain on investments and
foreign currency transactions--net 3.74 .67 3.96 .71
-------- -------- -------- --------
Total from investment operations 3.77 .67 4.18 .71
-------- -------- -------- --------
Less distributions from realized gain on investments--net (.30) -- (.30) --
-------- -------- -------- --------
Net asset value, end of period $ 21.59 $ 18.12 $ 23.06 $ 19.18
======== ======== ======== ========
Total Based on net asset value per share 21.32% 3.84%+++ 22.29% 3.84%+++
Investment ======== ======== ======== ========
Return:**
Ratios to Expenses, excluding account maintenance and
Average distribution fees and net of reimbursement .86% 1.52%* .83% 1.52%*
Net Assets: ======== ======== ======== ========
Expenses, net of reimbursement 1.86% 1.52%* 1.08% 1.52%*
======== ======== ======== ========
Expenses 1.89% 2.52%* 1.10% 1.77%*
======== ======== ======== ========
Investment income (loss)--net .14% (1.17%)* 1.00% (.54%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 85,486 $ 1,381 $614,357 $ 1,186
Data: ======== ======== ======== ========
Portfolio turnover 37.42% 4.22% 37.42% 4.22%
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
+Commencement of Operations.
++Based on average number of shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
70
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Growth Fund for Investment and
Retirement (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified,
open-end management investment company. The Fund
offers four classes of shares under the Merrill Lynch
Select PricingSM System. Shares of Class A and Class D
are sold with a front-end sales charge. Shares of Class B
and Class C may be subject to a contingent deferred
sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same
terms and conditions, except that Class B, Class C
and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to its
account maintenance and distribution expenditures.
The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which
are traded on stock exchanges are valued at the last
sale price on the exchange on which such securities are
traded as of the close of business on the day the
securities are being valued or, lacking any sales, at the
last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid
price prior to the time of valuation. In cases where
securities are traded on more than one exchange, the
securities are valued on the exchange designated by or
under the authority of the Board of Trustees as the
primary market. Securities which are traded both in the
over-the-counter market and on a stock exchange are
valued according to the broadest and most representa-
tive market. Options written are valued at the last sale
price in the case of exchange-traded options or, in the
case of options traded in the over-the-counter market,
the last asked price. Options purchased are valued at
the last sale price in the case of exchange-traded
options or, in the case of options traded in the over-
the-counter market, the last bid price. Short-term
securities are valued at amortized cost, which approxi-
mates market value. Other investments, including
futures contracts and related options, are stated at
market value. Securities and assets for which market
value quotations are not available are valued at their
fair value as determined in good faith by or under the
direction of the Fund's Board of Trustees.
(b) Foreign currency transactions--Transactions denom-
inated in foreign currencies are recorded at the exchange
rate prevailing when recognized. Assets and liabilities
denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency
transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unreal-
ized gains or losses from investments include the effects
of foreign exchange rates on investments.
(c) Derivative financial instruments--The Fund may
engage in various portfolio strategies to seek to increase
its return by hedging its portfolio against adverse move-
ments in the equity and currency markets. Losses may
arise due to changes in the value of the contract or
if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is
authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions
or portfolio positions. Such contracts are not entered
on the Fund's records. However, the effect on net
operations is recorded from the date the Fund enters
into such contracts. Premium or discount is amortized
over the life of the contracts.
* Foreign currency options and futures--The Fund may
also purchase or sell listed or over-the-counter foreign
currency options, foreign currency futures and related
options on foreign currency futures as a short or long
hedge against possible variations in foreign exchange
rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned
by the Fund, sold by the Fund but not yet delivered, or
committed or anticipated to be purchased by the Fund.
* Options--The Fund is authorized to purchase and
write covered call options and put options. When the
Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current
market value of the option written.
71
<PAGE>
When a security is purchased or sold through an exer-
cise of an option, the related premium paid (or received)
is added to (or deducted from) the proceeds of the
security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a
gain or loss on the option to the extent of the premi-
ums paid or received (or loss or gain to the extent the
cost of the closing transaction is less than or greater
than the premium paid or received).
Written and purchased options are non-income produc-
ing investments.
* Financial futures contracts--The Fund may purchase
or sell interest rate futures contracts. Upon entering
into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant
to the contract, the Fund agrees to receive from or pay
to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts
or payments are known as variation margin and are
recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized
gain or loss equal to the difference between the value
of the contract at the time it was opened and the
value at the time it was closed.
(d) Income taxes--It is the Fund's policy to comply
with the requirements of the Internal Revenue Code
applicable to regulated investment companies and
to distribute substantially all of its taxable income to
its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax
law, a withholding tax may be imposed on interest,
dividends and capital gains at various rates.
(e) Security transactions and investment income--
Security transactions are recorded on the dates the
transactions are entered into (the trade dates). Divi-
dend income is recorded on the ex-dividend date, except
if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as soon as the
Fund is informed of the ex-dividend date. Interest
income is recognized on the accrual basis. Realized
gains and losses on security transactions are determined
on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees
are charged to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and
distributions paid by the Fund are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Merrill Lynch Asset Management, L.P.
("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned sub-
sidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which
is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
MLAM is responsible for the management of the Fund's
portfolio and provides the necessary personnel, facili-
ties, equipment and certain other services necessary to
the operations of the Fund. For such services, the Fund
is required to pay a monthly fee based upon the average
daily value of the Fund's net assets at an annual rate
of 0.65%. As a reslut of a voluntary waiver of expenses
beginning on December 16, 1994, the fund will pays a
monthly fee based upon the average daily value of
the Fund's net assets at the following annual rates:
0.65% of the average daily net assets on the first
$1 billion; 0.625% on the next $500 million; and 0.60%
of the average net assets over $1.5 billion. The Investment
Advisory Agreement obligates MLAM to reimburse the
Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of
the Fund's first $30 million of average daily net assets,
2.0% of the Fund's next $70 million of average daily
net assets, and 1.5% of the average daily net assets in
excess thereof. No fee payment will be made to MLAM
during any fiscal year which will cause expenses to
exceed the most restrictive expense limitation at the
time of such payment. For the year ended October 31, 1995,
MALM earned fees of $15,943,250 of which $570,413 was
voluntarily waived.
72
<PAGE>
NOTES TO FINANCIAL STATEMNETS (continued)
Pursuant to the distribution plans (the "Distribution
Plans") adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the
Fund pays the Distributor ongoing account maintenance
and distribution fees. The fees are accrued daily and
paid monthly at annual rates based upon the average
daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor,
Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The
ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account mainte-
nance services to Class B, Class C and Class D share-
holders. The ongoing distribution fee compensates
the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and
Class C shareholders.
For the year ended October 31, 1995, MLFD earned
underwriting discounts and direct commissions and
MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $ 20,065 $ 303,992
Class D $102,417 $1,536,810
For the year ended October 31, 1995, MLPF&S received
contingent deferred sales charges of $1,488,167 and
$20,243 relating to transactions in Class B and Class C
Shares, respectively.
In addition, MLPF&S received $89,700 in commissions
on the execution of portfolio security transactions for
the Fund for the year ended October 31, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"),
a wholly-owned subsidiary of ML & Co., is the Fund's
transfer agent.
Accounting services are provided to the Fund by MLAM
at cost.
Certain officers and/or trustees of the Fund are officers
and/or directors of MLAM, PSI, MLPF&S, MLFDS, MLFD,
and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-
term securities, for the year ended October 31, 1995
were $1,089,366,116 and $761,155,374, respectively.
Net realized and unrealized gains as of October 31,
1995 were as follows:
Realized Unrealized
Gains Gains
Long-term investments $282,849,493 $626,008,855
------------ ------------
Total $282,849,493 $626,008,855
============ ============
As of October 31, 1995, net unrealized appreciation for
Federal income tax purposes aggregated $626,008,855,
of which $727,455,464 related to appreciated securities
and $101,446,609 related to depreciated securities. At
October 31, 1995, the aggregate cost of investments for
Federal income tax purposes was $2,646,958,995.
4. Shares of Beneficial Interest:
Net increase in net assets derived from capital share
transactions was $998,495,743 and $521,396,919 for the
years ended October 31, 1995 and 1994, respectively.
Transactions in shares of beneficial interest for each
class were as follows:
73
<PAGE>
Class A Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 14,567,526 $296,704,905
Shares issued to shareholders
in reinvestment of
distributions 317,795 5,475,610
----------- ------------
Total issued 14,885,321 302,180,515
Shares redeemed (5,824,423) (121,604,069)
----------- ------------
Net increase 9,060,898 $180,576,446
=========== ============
Class A Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 12,040,282 $219,373,935
Shares issued to shareholders
in reinvestment of
distributions 1,430,460 23,945,892
----------- ------------
Total issued 13,470,742 243,319,827
Shares redeemed (5,514,465) (100,680,014)
----------- ------------
Net increase 7,956,277 $142,639,813
=========== ============
Class B Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 45,433,946 $887,607,425
Shares issued to shareholders
in reinvestment of
distributions 1,276,055 20,710,369
----------- ------------
Total issued 46,710,001 908,317,794
Automatic conversion
of shares (22,364,293) (422,714,534)
Shares redeemed (14,507,467) (282,014,523)
----------- ------------
Net increase 9,838,241 $203,588,737
=========== ============
Class B Shares for the Year Dollar
Ended October 31, 1994 Shares Amount
Shares sold 26,104,903 $454,589,017
Shares issued to shareholders
in reinvestment of
distributions 6,849,128 109,175,099
----------- ------------
Total issued 32,954,031 563,764,116
Shares redeemed (10,779,320) (187,502,303)
----------- ------------
Net increase 22,174,711 $376,261,813
=========== ============
Class C Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 4,263,467 $ 85,246,441
Shares issued to shareholders
in reinvestment of
distributions 4,740 76,935
----------- ------------
Total issued 4,268,207 85,323,376
Shares redeemed (385,718) (7,910,688)
----------- ------------
Net increase 3,882,489 $ 77,412,688
=========== ============
Class C Shares for the Period
October 21, 1994+ Dollar
October 31, 1994 Shares Amount
Shares sold 76,269 $ 1,342,405
Shares redeemed (59) (1,066)
----------- ------------
Net increase 76,210 $ 1,341,339
=========== ============
[FN]
+Commencement of Operations.
Class D Shares for the Year Dollar
Ended October 31, 1995 Shares Amount
Shares sold 7,989,658 $166,752,965
Shares issued to shareholders
in reinvestment of
distributions 46,313 797,042
Automatic conversion
of shares 21,033,581 422,714,534
----------- ------------
Total issued 29,069,552 590,264,541
Shares redeemed (2,493,288) (53,346,669)
----------- ------------
Net increase 26,576,264 $536,917,872
=========== ============
Class D Shares for the Period
October 21, 1994+ Dollar
October 31, 1994 Shares Amount
Shares sold 67,602 $ 1,260,780
Shares redeemed (5,750) (106,826)
----------- ------------
Net increase 61,852 $ 1,153,954
=========== ============
[FN]
+Commencement of Operations.
74
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
5. Transactions with Affiliated Companies:
Investment in companies 5% or more of whose outstanding securities are
held by the Fund (such companies are defined as "Affiliated Companies"
in Section 2(a)(3) of the Investment Company Act of 1940) are as follows:
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease) Dividend
Industry Affiliate in Shares--Net in Cost--Net Income
<S> <S> <C> <C> <C>
Oil & Gas Exploration & Production Anadarko Petroleum Corp. 1,700,000 $ 70,614,574 $ 730,545
Oil & Gas Exploration & Production Apache Corp. 5,000,000 144,331,122 594,300
Electronic Components Cirrus Logic, Inc.* 6,000,000 -- +
Biotechnology CytoTherapeutics, Inc. 2,083,000 13,010,625 +
Oil & Gas Exploration & Production Devon Energy Corp. 200,000 3,692,500 246,000
Oilfield Services Ensco International 1,000,000 11,942,303 +
Oilfield Services Global Marine, Inc. 1,300,000 6,402,500 +
Computer Software Landmark Graphics Corp. -- -- +
Computer Software Mentor Graphics -- -- +
Oil & Gas Exploration & Production Norcen Energy Resources Ltd. 6,975,000 105,870,105 --
Computer Software Platinum Technology, Inc. 2,713,752 49,597,917 +
Oilfield Services Pool Energy Services Co. -- -- +
Oil & Gas Exploration & Production Santa Fe Energy Resources, Inc. 2,500,000 25,095,531 +
Oil & Gas Exploration & Production Seagull Energy Corporation 3,000,000 63,902,997 +
Oil Refining Valero Energy Corp. -- -- 1,560,000
Natural Gas Gathering & Transmission Western Gas Resources, Inc. 500,000 8,935,988 475,000
<FN>
+Non-income producing security.
*Cirrus Logic, Inc. had a 2-for-1 split.
</TABLE>
75
<PAGE>
TABLE OF CONTENTS
PAGE
----
<TABLE>
<S> <C>
Investment Objectives and Policies ......................................... 2
Portfolio Strategies Involving Options and Futures......................... 2
Other Investment Policies and Practices.................................... 7
Investment Restrictions.................................................... 10
Management of the Fund ..................................................... 13
Trustees and Officers...................................................... 13
Management and Advisory
Arrangements............................................................. 15
Purchase of Shares ......................................................... 17
Initial Sales Charge Alternatives--
Class A and Class D Shares............................................... 17
Reduced Initial Sales Charges.............................................. 18
Employer-Sponsored Retirement or
Savings Plans and Certain Other
Arrangements............................................................. 22
Distribution Plans......................................................... 22
Limitations on the Payment of Deferred Sales Charges....................... 22
Redemption of Shares ....................................................... 24
Deferred Sales Charges--
Class B and Class C Shares............................................... 24
Portfolio Transactions and Brokerage ....................................... 25
Determination of Net Asset Value ........................................... 26
Shareholder Services ....................................................... 27
Investment Account......................................................... 28
Automatic Investment Plans................................................. 28
Automatic Reinvestment of Dividends and Capital Gains Distributions........ 29
Systematic Withdrawal Plans--
Class A and Class D Shares............................................... 29
Retirement Plans........................................................... 30
Exchange Privilege......................................................... 30
Dividends, Distributions and Taxes ......................................... 45
Dividends and Distributions................................................ 45
Taxes...................................................................... 46
Tax Treatment of Options and Futures Transactions.......................... 48
Special Rules for Certain Foreign Currency Transactions.................... 48
Performance Data ........................................................... 49
General Information......................................................... 52
Description of Shares...................................................... 52
Computation of Offering Price Per Share.................................... 52
Independent Auditors ...................................................... 53
Custodian.................................................................. 53
Transfer Agent ............................................................ 53
Legal Counsel.............................................................. 53
Reports to Shareholders.................................................... 53
Additional Information .................................................... 53
Appendix.................................................................... 55
Independent Auditors' Report ............................................... 63
Financial Statements ....................................................... 64
</TABLE>
Code #10480-0296
[LOGO] MERRILL LYNCH
MERRILL LYNCH
GROWTH FUND FOR
INVESTMENT AND RETIREMENT
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
FEBRUARY 27, 1996
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a)Financial Statements
Contained in Part A:
Financial Highlights for each of the periods in the eight-year period
ended October 31, 1995 and the period March 27, 1987 (commencement of
operations) to October 31, 1987.
Contained in Part B:
Financial Statements:
Schedule of Investments as of October 31, 1995
Statement of Assets and Liabilities as of October 31, 1995
Statement of Operations for the year ended October 31, 1995
Statements of Changes in Net Assets for the years ended October 31,
1995 and 1994.
Financial Highlights for each of the periods in the five-year period
ended October 31, 1995
(b)Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1(a) --Declaration of Trust of the Registrant.(b)
(b) --Amendment to Declaration of Trust, dated March 24, 1987.(e)
(c) --Instrument establishing Class A shares and Class B shares of
Registrant.(f)
(d) --Amendment to Declaration of Trust, dated October 18, 1994.(j)
2 --By-Laws of Registrant.(b)
3 --None.
4 --Instruments Defining Rights of Shareholders. Incorporated by
reference to Exhibits 1 and 2 above.
5 --Management Agreement between Registrant and Merrill Lynch Asset
Management.(b)
6(a) --Class B Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(d)
(b) --Class A Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(j)
(c) --Class C Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(j)
(d) --Class D Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(j)
7 --None.
8 --Custody Agreement between Registrant and State Street Bank and Trust
Company.(d)
9 --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agreement between Registrant and Merrill Lynch Financial
Data Services, Inc.(c)
10 --Opinion of counsel for Registrant.(k)
11 --Consent of Deloitte & Touche LLP, independent auditors for
Registrant.
12 --None.
13 --Form of certificate of Merrill Lynch Asset Management.(d)
14 --Not applicable.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
15(a) --Class B Distribution Plan and Class B Distribution Plan Sub-
Agreement.(h)
(b) --Class C Distribution Plan and Class C Distribution Plan Sub-
Agreement.(j)
(c) --Class D Distribution Plan and Class D Distribution Plan Sub-
Agreement.(j)
16(a) --Schedule of computation of each performance quotation provided in
the Registration Statement in response to Item 22 (relating to Class
A shares).(g)
(b) --Schedule of computation of each performance quotation provided in
the Registration Statement in response to Item 22 (relating to Class
B shares).(f)
(c) --Schedule of computation of each performance quotation provided in
the Registration Statement in response to Item 22 (relating to Class
C shares).(j)
(d) --Schedule of computation of each performance quotation provided in
the Registration Statement in response to Item 22 (relating to Class
D shares).(j)
17(a) --Financial Data Schedule for Class A Shares.
(b) --Financial Data Schedule for Class B Shares.
(c) --Financial Data Schedule for Class C Shares.
(d) --Financial Data Schedule for Class D Shares.
(e) --Other Exhibits
Powers of Attorney for Officers and Trustees(i)
Arthur Zeikel
Herbert I. London
Robert R. Martin
Joseph L. May
Andre F. Perold
Gerald M. Richard
(f) --Power of Attorney for James H. Bodurtha.
18 --Rule 18f-3 Plan of the Registrant.(l)
</TABLE>
- --------
(b) Refiled electronically herewith. Initially filed as an Exhibit to
Registrant's Registration Statement under the Securities Act of 1933 on
Form N-1A on December 12, 1986.
(c) Refiled electronically herewith. Initially filed as an Exhibit to Pre-
Effective Amendment No. 1 to Registrant's Registration Statement under the
Securities Act of 1933 on Form N-1A on January 30, 1987.
(d) Refiled electronically herewith. Initially filed as an Exhibit to Pre-
Effective Amendment No. 2 to Registrant's Registration Statement under the
Securities Act of 1933 on Form N-1A on February 18, 1987.
(e) Refiled electronically herewith. Initially filed as an Exhibit to Post-
Effective Amendment No. 1 to Registrant's Registration Statement under the
Securities Act of 1933 on Form N-1A on September 4, 1987.
(f) Refiled electronically herewith. Initially filed as an Exhibit to Post-
Effective Amendment No. 3 to Registrant's Registration Statement under the
Securities Act of 1933 on Form N-1A on November 2, 1988.
(g) Refiled electronically herewith. Initially filed as an Exhibit to Post-
Effective Amendment No. 5 to Registrant's Registration Statement under the
Securities Act of 1933 on Form N-1A on February 28, 1990.
C-2
<PAGE>
(h) Refiled electronically herewith. Initially filed as an Exhibit to Post-
Effective Amendment No. 9 to Registrant's Registration Statement under the
Securities Act of 1933 on Form N-1A on February 26, 1993.
(i) Filed as an Exhibit to Post-Effective Amendment No. 10 to Registrant's
Registration Statement under the Securities Act of 1933 on Form N-1A on
February 25, 1994.
(j) Incorporated by reference to respective exhibit to Post-Effective Amendment
No. 12 to Registration Statement.
(k) Refiled electronically herewith. Initially filed as an Exhibit to Post-
Effective Amendment No. 3 and Post-Effective Amendment No. 9 to
Registrant's Registration Statement on November 2, 1988 and February 26,
1993, respectively.
(l) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to Registration Statement under the Securities of 1933 on Form N-1A of
Merrill Lynch Multi-State Municipal Series Trust on January 25, 1996 (File
Nos. 2-99473 and 811-4375).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS JANUARY 31, 1996
-------------- ----------------
<S> <C>
Class A shares of beneficial interest, par value $0.10
per share............................................. 53,468
Class B shares of beneficial interest, par value $0.10
per share............................................. 162,590
Class C shares of beneficial interest, par value $0.10
per share............................................. 13,661
Class D shares of beneficial interest, par value $0.10
per share............................................. 56,807
</TABLE>
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.
ITEM 27. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees and
agents (including persons who serve at its request as directors, officers
or trustees of another organization in which it has any interest as a
shareholder, creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as
fines and penalties and as counsel fees) reasonably incurred by him in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a trustee, officer, employee or agent, except
with respect to any matter as to which he shall have been adjudicated to
have acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties; provided, however, that as to any matter disposed
of by a compromise payment by such person, pursuant to a consent decree or
otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless the Trust shall have received a written
opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence
or reckless disregard of duty, or the matter of good faith and reasonable
belief as to the best interests of the Trust, had been adjudicated,
C-3
<PAGE>
it would have been adjudicated in favor of such person. The rights accruing
to any Person under these provisions shall not exclude any other right to
which he may be lawfully entitled; provided that no person may satisfy any
right of indemnity or reimbursement granted herein or in Section 5.1 or to
which he may be otherwise entitled except out of the property of the Trust,
and no Shareholder shall be personally liable to any Person with respect to
any claim for indemnity or reimbursement or otherwise. The Trustees may
make advance payments in connection with indemnification under this Section
5.3 provided that the indemnified person shall have given a written
undertaking to reimburse the Trust in the event it is subsequently
determined that he is not entitled to such indemnification."
Insofar as the conditional advancing of indemnification monies for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made on the following conditions: (i) the advances must be limited to
amounts used, or to be used, for the preparation of 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 the
amount to which it is ultimately determined that he is entitled to receive from
the Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party 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.
The Registrant has purchased an insurance policy insuring its officers and
Trustees against liabilities, and certain costs of defending claims against
such officers and Trustees, to the extent such officers and Trustees are not
found to have committed conduct constituting willful misfeasance, bad faith,
gross negligence or reckless disregard in the performance of their duties.
The Management Agreement between Registrant and Merrill Lynch Asset
Management, Inc. (now called Merrill Lynch Asset Management, L.P.) ("MLAM")
limits the liability of MLAM to liabilities arising from willful misfeasance,
bad faith or gross negligence in the performance of their respective duties or
from reckless disregard of their respective duties and obligations.
In Section 9 of the Distribution Agreements relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933, against certain types of civil liabilities arising in
connection with the Registration Statement or Prospectus and Statement of
Additional Information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification 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 and the principal underwriter in
connection with the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification
C-4
<PAGE>
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 MANAGER.
MLAM also acts as 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, Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Balanced Fund for Investment and Retirement, 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 Global Convertible Fund, Inc., Merrill Lynch Global Holdings,
Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for
Investment and Retirement, 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,
Inc., 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. Fund Asset Management, L.P.
("FAM"), an affiliate of MLAM, acts as the investment adviser for the following
open-end investment companies: CBA Money Fund, CMA Government Securities Fund,
CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund,
CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., Financial
Institutions Series Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch 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., Emerging Tigers Fund, Inc., Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., MuniAsset Fund, Inc., MuniEnhanced
Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest California
Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund,
Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc.,
MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield
California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida
Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield
Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan
Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York
Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income
C-5
<PAGE>
Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income
Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings,
Inc. and Worldwide DollarVest Fund, Inc. The address of each of these
investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The
address of Merrill Lynch Funds for Institutions Series and Merrill Lynch
Institutional Intermediate Fund is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Manager, FAM, Princeton Services,
Inc. ("Princeton Services"), and Princeton Administrators, L.P. ("Princeton
Administrators") is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The
address of Merrill Lynch Funds Distributor, Inc. ("MLFD") is P.O. Box 9081,
Princeton, New Jersey 08543-9081. The address of Merrill Lynch, 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. The address of Merrill Lynch Financial Data Services ("FDS") is
4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
July 1, 1993, for such person's or entity's own account or in the capacity of
director, officer, partner or trustee. In addition, Mr. Zeikel is President,
Mr. Richard is Treasurer and Mr. Glenn is Executive Vice President of all or
substantially all of the investment companies described in the preceding
paragraph. Mr. Zeikel is a director of substantially all of such companies, and
Mr. Glenn is a director of certain of such companies. Messrs. Durnin, Giordano,
Harvey, Hewitt, Kirstein and Monagle are directors or officers of one or more
of such companies.
Officers and partners of MLAM are set forth as follows;
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------- ----------------------------------
<C> <C> <S>
ML & Co. ............... Limited Partner Financial Services Holding Company
Merrill Lynch Investment
Management, Inc. ...... Limited Partner Investment Advisory Services
Princeton Services...... General Partner General Partner of FAM
Arthur Zeikel........... President President of FAM; President and Director of
Princeton Services; Director of MLFD;
Executive Vice President of ML & Co.
Terry K. Glenn.......... Executive Vice Executive Vice President of FAM; Executive
President Vice President and Director of Princeton
Services; President and Director of MLFD;
President of Princeton Administrators;
Director of FDS
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION WITH THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------- ----------------------------------
<S> <C> <C>
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Philip L. Kirstein...... Senior Vice Senior Vice President, General Counsel and
President, General Secretary of FAM; Senior Vice President,
Counsel and General Counsel Director and Secretary of
Secretary Princeton Services; Director of MLFD
Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller of
and Controller FAM; Senior Vice President and Controller
of Princeton Services
Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.
Joseph T. Monagle, Senior Vice President Senior Vice President of FAM; Senior Vice
Jr. ................... President of Princeton Services
Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of FAM;
and Treasurer Senior Vice President and Treasurer of
Princeton Services; Vice President and
Treasurer of MLFD
Ronald L. Welburn....... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Anthony Wiseman......... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each of
the open-end investment companies referred to in the first paragraph of Item 28
except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., and also acts as principal
underwriter for the following closed-end funds: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc. and
Merrill Lynch Municipal Strategy Fund, Inc.
C-7
<PAGE>
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Officers Aldrich,
Brady, Breen, Crook, Fatseas, and Wasel is One Financial Center, 15th Floor,
Boston, Massachusetts 02111-2665.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
----- ---------------------- ----------------------
<S> <C> <C>
Terry K. Glenn............. President and Director Executive Vice President
Arthur Zeikel.............. Director President and Trustee
Philip L. Kirstein......... Director None
William E. Aldrich......... Senior Vice President None
Robert W. Crook............ Senior Vice President None
Kevin P. Boman............. Vice President None
Michael J. Brady........... Vice President None
William M. Breen........... Vice President None
Sharon Creveling........... Vice President and None
Assistant Treasurer
Mark A. DeSario............ Vice President None
James J. Fatseas........... Vice President None
Debra W. Landsman-Yaros.... Vice President None
Michelle T. Lau............ Vice President None
Gerald M. Richard.......... Vice President and Treasurer
Treasurer
Salvatore Venezia.......... Vice President None
William Wasel.............. Vice President None
Robert Harris.............. Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder will be maintained at the offices of the Registrant, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536, and its transfer agent, Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Trust--
Management and Advisory Arrangements" in the Prospectus constituting Part A of
the Registration Statement and under "Management of the Fund--Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, Registrant is not a party to any
management-related service contract.
C-8
<PAGE>
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) The Registrant will furnish each person to whom a Prospectus is delivered
with a copy of Registrant's latest annual report to shareholders, upon request
and without charge.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Township of
Plainsboro, and State of New Jersey, on the 23rd day of February, 1996.
Merrill Lynch Growth Fund for
Investment and Retirement
(Registrant)
By /s/ Arthur Zeikel
-------------------------------------
(ARTHUR ZEIKEL, PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
SIGNATURE TITLE DATE
/s/ Arthur Zeikel President and
- ------------------------------------- Trustee (Principal February 23,
(ARTHUR ZEIKEL) Executive Officer) 1996
Treasurer (Principal
* Financial and
- ------------------------------------- Accounting Officer)
(GERALD M. RICHARD)
* Trustee
- -------------------------------------
(JAMES H. BODURTHA)
* Trustee
- -------------------------------------
(HERBERT I. LONDON)
* Trustee
- -------------------------------------
(ROBERT R. MARTIN)
* Trustee
- -------------------------------------
(JOSEPH L. MAY)
* Trustee
- -------------------------------------
(ANDRE F. PEROLD)
*By /s/ Arthur Zeikel
----------------------------------- February 23,
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT) 1996
C-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
------- ------
<C> <S> <C>
11 --Consent of Deloitte & Touche LLP, independent auditors for
Registrant.
17(a) --Financial Data Schedule for Class A Shares.
17(b) --Financial Data Schedule for Class B Shares.
17(c) --Financial Data Schedule for Class C Shares.
17(d) --Financial Data Schedule for Class D Shares.
17(f) --Power of Attorney for James H. Bodurtha.
</TABLE>
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE>
EXHIBIT 99.1(a)
DECLARATION OF TRUST
OF
MERRILL LYNCH RETIREMENT EQUITY FUND
THE DECLARATION OF TRUST of Merrill Lynch Retirement Equity Fund is made
the 11th day of December, 1986, by the parties signatory hereto, as trustees
(such persons, so long as they shall continue in office in accordance with the
terms of this Declaration of Trust, and all other persons who at the time in
question have been duly elected or appointed as trustees in accordance with the
provisions of this Declaration of Trust and are then in office, being
hereinafter called the "Trustees").
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the law of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and,
WHEREAS, it is proposed that the beneficial interests in the trust
assets be divided into transferable shares of beneficial interest as hereinafter
provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold
in trust all money and property contributed to the trust fund to manage and
dispose of the same for the benefit of the holders from time to time of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof, to wit:
<PAGE>
ARTICLE I
The Trust
1.1. Name. The name of the trust created hereby (the
"Trust") shall be "Merrill Lynch Retirement Equity Fund, and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the word "Trust"
wherever hereinafter used) shall refer to the Trustees as Trustees, and not
individually, and shall not refer to the officers, agents, employees or
Shareholders of the Trust. However, should the Trustees determine that the use
of such name is not advisable, they may select such other name for the Trust as
they deem proper and the Trust may hold its property and conduct it activities
under such other name. Any name change shall become effective upon the
execution by a majority of the then Trustees of an instrument setting forth the
new name. Any such instrument shall have the status of an amendment to this
Declaration.
1.2. Definitions. As used in this Declaration, the following terms
shall have the following meanings:
The terms "Affiliated Person", "Assignment", "Commission", "Interested
Person", "Majority Shareholder Vote" (the 67% or more than 50% requirement of
the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings given them in
the 1940 Act.
"Declaration shall mean this Declaration as amended from time to time.
References in this Declaration to "Declaration", "hereof", "herein" and
"hereunder" shall be deemed to refer to the Declaration rather than the article
or section in which such words appear.
"Fundamental Policies" shall mean the investment restrictions set forth in
the Prospectus and designated as fundamental policies therein.
"Person" shall mean and include individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
"Prospectus" shall mean the currently effective Prospectus of the Trust
under the Securities Act of 1933, as amended, including the Statement of
Additional Information incorporated by reference therein.
2.
<PAGE>
"Shareholders" shall mean as of any particular time all holders of record
Of outstanding Shares at such time.
"Shares" shall mean the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from time to
time and includes fractions of Shares as well as whole Shares. As provided in
Article VI hereof, the Trust may issue separate classes of Shares; all
references to Shares shall be deemed to be Shares of a single class or all
classes as the context nay require.
"Trustees" shall mean the signatories to this Declaration, so long as they
shall continue in office in accordance with the terms hereof, and all other
persons who at the time in question have been duly, elected or appointed and
have qualified as trustees in accordance the provisions hereof and are then in
office, are herein to as the "Trustees", and reference in this Declaration to a
Trustee or Trustees shall refer to such person or persons in their capacity as
trustees hereunder.
"Trust Property" shall mean as of any particular time
any and all property, real or personal, tangible or intangible, which at such
time is owned or held by or for the account of the Trust or the Trustees.
The "1940 Act" refers to the Investment Company Act of 1940, as amended
from time to time and shall include the rules and regulations and any relevant
order of exemption promulgated thereunder by the Commission.
3.
<PAGE>
ARTICLE II
Trustees
2. 1. Number and Qualification. The number of Trustees shall be fixed
from time to time by written instrument signed by a majority of the Trustees
then in office, provided, however, that the number of Trustees shall in no event
be less than three or more than fifteen (except prior to the first public
offering of Shares). Any vacancy created by an increase in Trustees may, to the
extent permitted by the 1940 Act, be filled by the appointment of an individual
having the qualifications described in this Article made by a written instrument
signed by a majority of the Trustees then in office. Any such appointment shall
not become effective, however, until the individual name in the written
instrument of appointment shall have accepted in writing such appointment and
agreed in writing to be bound by the terms of this Declaration. No reduction in
the number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of his term. Whenever a vacancy in the number of
Trustees shall occur, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees in office, regardless of their number, shall have all the
powers granted to the Trustees and shall discharge all the duties imposed upon
the Trustees by this Declaration. A Trustee shall be an individual at least 21
years of age who is not under legal disability. Trustees need not own Shares.
2.2. Term of Office. Each Trustee shall (except in the event of
resignations or removals or vacancies Pursuant to Sections 2.3 or 2.4 hereof)
hold office until his successor has been elected and is qualified to serve as
Trustee.
2.3. Resignation and Removal. Any Trustee may resign his trust (without
need or prior or subsequent accounting) by an instrument. in writing signed by
him and delivered or mailed to the Chairman, if any, the President or the
Secretary and such resignation shall be effective upon such delivery, or at a
later date according to the terms of the instrument. Any of the Trustees may be
removed (provided the aggregate number of Trustees after such removal shall not
be less than the number required by Section 2.1 hereof) with cause, by the
action of two of the remaining Trustees. Any Trustee may be removed at
any special meeting of the Shareholders by a vote of two of the
outstanding Shares. Upon the resignation or removal of a Trustee, or his other
wise ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees
4.
<PAGE>
any Trust Property held in the name of the resigning or removal Trustee. Upon
the incapacity or death of any Trustee, his legal representative shall execute
and deliver on his behalf such documents as the remaining Trustees shall require
as provided in the preceding sentence.
2.4. Vacancies. The terms of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the
office, or removal of a Trustee. No such Vacancy shall operate to annul this
Declaration or to revoke any existing agency created pursuant to the terms of
this Declaration. In the case of a vacancy, the Shareholders, acting at any
meeting of Shareholders held in accordance with Section 10.2 hereof, or, to the
extent permitted by the 1940 Act, of trustees continuing in office acting by
written instrument or instruments, may fill such vacancy, and any Trustee so
elected by the Trustees shall hold office as provided in this Declaration.
2.5. Meetings. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, if any, the President, the Secretary, or any two
Trustees. Regular meetings of the Trustees may be held without call or notice at
a time and place fixed by the By-Laws or by resolution of the Trustees. Notice
of any other meeting shall he failed or otherwise given not less than 48 hours
before the meeting but nay be waived in writing by any Trustee either before or
after such meetings The attendance of a Trustee at a meeting shall constitute a
waiver of notice of such meeting except where a Trustee attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting has not been lawfully called or convened. The Trustees
may act with or without a Meeting A quorum for all meetings of the Trustees
shall be a majority of the Trustees. Unless provided otherwise in this
Declaration, any action of the Trustees nay be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without a
meeting by written consents of a majority of the Trustees.
Any committee of the Trustees, including an executive Committee, if any,
may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the Trustees,
Trustees who are Interested Persons of the Trust within the meaning of Section
1.2 hereof or otherwise interested
5.
<PAGE>
in any action to be taken may be counted for quorum purposes under this
section and shall be entitled to vote to the extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting pursuant to such
communications systems shall constitute presence in person at such meeting.
2.6. Officers. The Trustees shall annually elect a President, a Secretary
and a Treasurer and may elect a Chairman. The Trustees may elect or appoint or
authorize the Chairman, if or President to appoint such other officers or agents
with such powers as the Trustees may deem to be advisable. The Chairman and
President shall be and the Secretary and Treasurer may, but need not, be a
Trustee.
2.7. By-Laws. The Trustees may adopt and from time to time amend or repeal
the By-Laws for the conduct of the business of the Trust.
6.
<PAGE>
ARTICLE III
Powers of Trustees
3.1. General. The Trustees shall have exclusive and absolute control over
the Trust Property and over the business of the Trust to the sane extent as if
the Trustees were the sole owners of the Trust Property and business in their
own right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees nay perform such acts as in their sole discretion are
proper for conducting the business of the Trust. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid power. Such powers
of the Trustees may be exercised without order of or resort to any court.
3.2. Investments. The Trustees shall have power, subject to the
Fundamental Policies, to:
(a) conduct, operate and carry on the business of an investment company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise acquire,
hold, pledge, sell, assign, transfer, exchange, distribute or otherwise deal
in or dispose of negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or indebtedness, commercial
paper, repurchase agreements, reverse repurchase agreements, options, futures
contracts, options on futures contracts and other investments, including,
without limitation, those issued, guaranteed or sponsored by any state,
territory or possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities, or by the United
States Government or its agencies or instrumentalities, or international
instrumentalities, or by any bank, savings institution, corporation or other
business entity organized under the laws of the United States and, to the extent
provided in the Prospectus and not prohibited by the Fundamental Policies,
organized under foreign laws; and to exercise any and all rights powers and
privileges of ownership or interest in respect of any and all such investments
of every kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more persons, firms, associations or corporations to exercise any of said
rights, powers and privileges in respect of any of said instruments; and the
Trustees shall be deemed to have the foregoing powers with respect to any
additional securities in which the Trust may invest should the investment
7.
<PAGE>
policies set forth in the Prospectus or the Fundamental Policies be
amended.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
3.3. Legal Title. Legal Title to all the Trust Property, shall be vested
in the Trustees as joining tenants except that the Trustees shall have power to
cause legal title to any Trust Property to be held by or in the name of one or
more of the Trustees, or in the name of the Trust, or in the name of any other
Person as nominee, on such terms as the Trustees may determine, provided that
the interest of the Trust therein is appropriately protected.
The right, title and interest of the Trustees in the Trust Property shall
vest automatically in each person who may hereafter become a Trustee upon his
due election and qualification. Upon the resignation, removal or death of a
Trustee he shall automatically cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of such Trustee in
the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4. Issuance and Repurchase of Securities. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, transfer, and otherwise deal in, Shares, including shares
in fractional denominations, and, subject to the more detailed provisions set
forth in Articles VIII and IX, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares an), funds or property of the
Trust whether capital or surplus or otherwise, to the full extent now or
hereafter permitted by the laws of the Commonwealth of Massachusetts governing
business corporations.
3.5. Borrow Money. Subject to the Fundamental Policies, the Trustees
shall have power to borrow money or otherwise obtain credit and to secure the
same mortgaging, pledging or otherwise subjecting as security the as, of the
Trust, including the lending of portfolio securities, and to endorse, guarantee,
or undertake the performance of any obligation, contract or engagement of any
other person, firm, association or corporation.
3.6. Delegation; Committees. The Trustees shall have power, consistent
with their continuing exclusive authority over the
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management of the Trust and the Trust Property, to delegate from time to time
to such of their number or to officers, employees or agents of the Trust the
doing of such things and the execution of such instruments either in the name of
the Trust or the names of the Trustees or otherwise as the Trustees may deem
expedient, to the same extent as such delegation is permitted to directors of a
Massachusetts business corporation and is Permitted by the 1940 Act.
3.7. Collection and Payment. The Trustees shall have power to collect all
property due to the Trust; to pay all Claims including taxes, against the Trust
Property; to prosecute, defend, compromise or abandon any claim relating to the
Trust Property; to foreclose any security interest securing any obligations, by
virtue of which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.
3.8. Expenses. The Trustees shall have power to incur and pay any
expenses which in the opinion of the Trustees are necessary or Incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for specific services, including legal,
underwriting, syndicating and brokerage services, as they in good faith may deem
reasonable and reimbursement for expenses reasonably incurred by themselves on
behalf of the Trust.
3.9. Miscellaneous Powers. The Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees nay deem desirable for the
transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) purchase, and pay
for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (d) establish pension, profit-sharing, share
purchases and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (e) make donations, irrespective of
benefit to the Trust, for charitable, religious, educational, scientific, civic
or similar purposes; (f) to the extent permitted by law, indemnify any Person
with whom the Trust has dealings, including any advisor, administrator, manager,
distributor and selected dealers, to such extent as the Trustees shall
determine; (g) guarantee
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indebtedness or contractual obligations of others; (h) determine and change
the fiscal year of the Trust and the method in which its accounts shall be kept;
and (i) adopt a seal for the Trust but the absence of such seal shall not impair
the validity of any instrument executed on behalf of the Trust.
3.10. Further Powers. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any, and all commonwealths, territories, dependencies,
colonies, possessions, agencies or instrumentalities of the United States of
America and of foreign governments, and to do all such other things and execute
all such instruments as they deem necessary, proper or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration, the presumption shall be in favor of a grant of
power to the Trustees. The Trustees will not be required to obtain any court
order to deal with the Trust Property.
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ARTICLE IV
Management and Distribution Arrangements
4.1. Management Arrangements. Subject to a Majority Shareholder Vote, as
required by the 1940 Act, the Trustees may in their discretion from time to time
enter into advisory or management contracts whereby the other party to such
contract shall undertake to furnish the Trustees such advisory and management
services as the Trustees shall from time to time consider desirable and all upon
such terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration, the Trustees may authorize
any adviser or manager (subject to such general or specific instructions as the
Trustees, may from time to time adopt to effect purchases, sales, loans or
exchanges of portfolio securities of the Trust on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of any such adviser or manager
(and all without further action by the Trustees). Any such purchases, sales,
loans and exchanges shall be deemed to have been authorized by all of the
Trustees.
4.2. Distribution Arrangements. The Trustees may in their discretion from
time to time enter into a contract, providing for the sale of the Shares of the
trust to net the trust not less than the par value per share, whereby the Trust
may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article IV or
the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party nay enter into selected dealer agreements with registered
securities dealers to further the purpose of the distribution or repurchase of
the Shares.
4.3. Parties to Contract. Any contract of the character described in
Section 4.1 and 4.2 of this Article IV or in Article VII hereof may be entered
into with any corporation, trust or association, although one or more of the
Trustees officers of the Trust may be an officer, director, Trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered valuable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
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indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article IV
or the By-Laws. the same person (including a firm, corporation, trust, or
association) may be the other party to contracts entered into pursuant to
Sections 4.1 and 4.2 above or Article VII, and any individual may be financially
interested or otherwise affiliated with persons who are parties to any or all of
the contracts mentioned in this Section 4.3.
4.4. Provisions and Amendments. Any contract entered into pursuant to
Section 4.1 and 4.2 of this Article IV shall be consistent with and subject to
the requirements of Section 15 of the 1940 Act with respect to its continuance
in effect, its termination, and the method of authorization and approval of such
contract or renewal thereof, and no amendment to any contract, entered into
pursuant to Section 4.1 shall be effective unless assented to by a Majority
Shareholder Vote.
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ARTICLE V
Limitations of Liability of Shareholders,
Trustees and Others
5.1. No Personal Liability of Shareholders, Trustees, etc. No Shareholder
shall be subject to any personal liability whatsoever to any Person in
connection with Trust Property or the acts, obligations or affairs of the Trust.
No Trustee, officer, employee or agent of the Trust shall be subject to any
person liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from his bad faith, willful misfeasance, gross negligence
or reckless disregard of his duty to such and all such Persons shall look solely
to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust If any Shareholder, Trustee, officer,
employee, or agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability, he shall not on account thereof, be
hold to any personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities, to which such
Shareholder ray become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by his in connection with any such claim, or
liability. The rights accruing to a Shareholder under this Section 5.1 shall not
exclude any other right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
5.2. Non-Liability of Trustees, etc. No Trustee, officer, employee or
agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties.
5.3. Mandatory Indemnification. The Trust shall indemnify each of its
Trustees, officers, employees, and agents (including persons who serve at its
request as directors, officers or trustees of another organization in which it
has any interest, as a shareholder, creditor or otherwise) against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees)
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reasonably incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which he may be
involved or with which he may be threatened, while in office or thereafter, by
reason of his being or having been such a Trustee, officer, employee or agent,
except with respect to any matter as to which he shall have been adjudicated to
have acted in had faith, willful misfeasance, gross negligence or reckless
disregard of his duties; provided, however that as to any matter disposed of by
a compromise payment by such person, pursuant to a consent decree or otherwise,
no indemnification either for said payment or for any other expenses shall be
provided unless the Trusts all have received a written opinion from independent
legal counsel approved by the Trustees to the effect that if either the matter
of willful misfeasance, gross negligence or reckless disregard of duty, or, the
matter of good faith and reasonable belief as to the best interests of the
Trust, has been adjudicated, would have been adjudicated in favor of such
person. The rights accruing to any other Person under these provisions shall not
excluded any other right to which he may he lawfully entitled; provided that no
Person may satisfy any right of indemnity or reimbursement granted herein or in
Section 5.1 or to which he may be otherwise entitled except out of the property
of the Trust, and no Shareholder shall be personally liable to any Person wish
respect to any claim for indemnity or reimbursement or otherwise. The Trustees
may make advance payments in connection with indemnification under this Section
5.3, provided that the indemnified person shall have given a written undertaking
to reimburse the Trust in the event it is subsequently determined that he is not
entitled to such indemnification.
5.4. No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance of
any of his duties hereunder.
5.5. No Duty of Investigation; Notice in Trust Instruments, etc. No
purchaser, lender, transfer agent or other person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to move any inquiry
concerning the validate, of any transaction purporting to be made by the
Trustees or by sold officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively taken to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking
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made or issued by the Trustees or by any officers, employees or agents of the
Trust, in their capacity as such, shall contain an appropriate recital to the
effect that the Shareholders, Trustees, officers, I employees and agents of the
Trust shall not personally be bound by or liable thereunder, nor shall resort be
had to their private property to the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made therein to the Declaration,
and may contain any furthor recital which they may deem appropriate, but the
commission of such recital shall not operate to impose impersonal liability on
any of the Trustees, Shareholders, officers, employees or agents of the Trust.
The Trustees may maintain insurance for the protection of the Trust its
Shareholders, Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgement shall deem advisable.
5.6. Reliance on Experts, etc. Each Trustee and officer or employee of
the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by any investment adviser, distributor, selected
dealers, accountants, appraisers or other experts or consultants elected with
reasonable care by the Trustees, officers or employees of the Trust, regardless
of whether such counsel or expert, may also be a Trustee.
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ARTICLE VI
Shares of
Beneficial Interest
6.1. Beneficial Interest. The interest of the beneficiaries hereunder
shall be divided into transferable shares of beneficial interest, par value
$0.10 per share. The number of such shares of beneficial interest authorized
hereunder is unlimited. The trustees, in their discretion without a vote of the
Shareholders, may divide the shares of beneficial interest into classes. In such
event, each class shall represent interests in the Trust Property and have
identical voting, dividend, liquidation and other rights and the sane terms and
conditions except that expenses related to the distribution of the shares of a
class may be borne solely by such class (as shall be determined by the Trustees)
and, as provided in Section 10.1, a class may have exclusive voting rights with
respect to matters relating to the expenses being borne solely by such class.
The bearing of expenses solely by a class of Shares shall be appropriately
reflected (in the manner determined by the Trustees) in the net asset value,
dividends and liquidation rights of the Shares of such class. The division of
the Shares into classes and the terms and conditions pursuant to which the
Shares of the classes will be issued must be made in compliance with the 1940
Act All Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and nonassessable.
5.7. Rights of Shareholders. The ownership of the Trust Property of every
description and the right to conduct any business hereinbefore described are
vested exclusively in the Trustees, and the Shareholders shall have no interest
therein other than the beneficial interest conferred by their Shares, and they
shall have no right to call for any partition or division of any property,
profits, rights or interests of the Trust nor can they be called upon to share
or assume any losses of the Trust or suffer an assessment of any kind by virtue
of their ownership of Shares. The Shares shall be personal property giving only
the rights in this Declaration specifically set forth. The Shares shall not
entitle the holder to preference, preemptive, appraisal, conversion or exchange
rights (except for rights of appraisal specified in Section 11.4).
5.8. Trust Only. It is the intention of the Trustees to create only
relationship of Trustee and beneficiary between the Trustees and each
Shareholder from tine to time. It is not the intention of the Trustees to create
a general Partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the
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Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
5.9. Issuance of Shares. The Trustees, in their discretion, may from time
to time without a vote of the Shareholders issue Shares, in addition to the then
issued and outstanding Shares and Shares held in the treasury, to such party or
parties and for such amount not less than par value and type of consideration,
including cash or property, at such tine or tines, and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares. The Trustees ray from time to time to
divide or combine the Shares into a greater or lesser number without thereby
changing the proportionate beneficial interests in the Trust. Contributions to
the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or 1/1,000ths of a Share or multiples thereof.
5.10. Register of Shares. A register shall be kept at the Trust or a
transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addreses of the Shareholders and the
number of Shares held by then respectively and a record of all transfers
thereof. Such register shall be conclusive as to who are the holders of the
Shares and who shall he entitled to receive dividends or distributions or
otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall
be entitled to receive payment of any dividend or distribution, nor to have
notice given to him as herein provided, until he has given his address to a
transfer agent or such otter officer or agent of the Trustees as shall keep the
said register for entry thereon. It is not contemplated that certificates will
be issued for the Shares; however, the Trustees, in their discretion, may
authorize the issuance of share certificates and promulgate appropriate rules
and regulations as to their use.
5.11. Transfer Agent and Registrar. The Trustee shall have power to employ
a transfer agent or transfer agents, and a registrar or registrars. The transfer
agent or transfer agents may keep the said register and record therein the
original issues and transfers, if any, of the said Shares. Any such transfer
agent and registrars shall perform the duties usually performed by transfer
agents and registrars of certificates of stock in a corporation, except as
modified by the Trustees.
5.12. Transfer of Shares. Shares shall be transferable on the records of
the Trust only by the record holder thereof or by his agent thereto duly
authorized in writing, upon delivery to the
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Trustees or a transfer agent of the Trust of a duly executed instrument of
transfer, together with such evidence of the genuineness of each such execution
and authorization and of other matters as may reasonably be required. Upon such
delivery the transfer shall be recorded on the register of the Trust. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereof and neither the Trustees nor any transfer
agent or registrar nor any officer, employee or agent of the Trust shall be
affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or a transfer
agent of the Trust, but until such record is made, the Shareholder of record,
shall he deemed to be the holder of such Shares for all purposes hereof and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
5.13. Notices. Any and all notices to which any Shareholder hereunder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
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ARTICLE VII
Custodian
7.1. Appointment and Duties. The Trustees shall at all times employ one or
more custodians, meeting the qualifications for custodians for portfolio
securities of investment companies contained in the 1940 Act, as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the By-Laws of the Trust and the
1940 Act:
(1) to hold the securities owned by the Trust and deliver the sane upon
written order;
(2) to receive and receipt for any moneys due to the Trust add deposit the
same in its own banking department or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and accounts of the
Trust and furnish clerical and accounting services; and
(5) if authorized to do so by the Trustees, to compute the net income of
the Trust;, all upon such basis of compensation as may be agreed upon between
the Trustees and the custodian. If so directed by a majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it as
specified in such vote.
The Trustees may also authorize the custodian to employ one or more sub-
custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall meet the qualifications for custodians
contained in the 1940 Act.
7.2. Central Certificate System. Subject to such rules, regulations and
orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance
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with the 1940 Act, pursuant to which system all securities of any particular
class or series of any issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry without physical
delivery of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.
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ARTICLE VIII
Redemption
8.1. Redemptions. All outstanding Shares may be redeemed at the option
of the holders thereof, upon and subject to the terms and conditions provided in
this Article VIII. The Trust shall, upon application of any Shareholder or
pursuant to authorization from any Shareholder, redeem or repurchase from such
Shareholder outstanding Shares for an amount per share determined by the
application of a formula adopted for such purpose by resolution of the Trustees
(which formula shall be consistent with the 1940 Act) provided that (a) such
amount per share shall not exceed the cash equivalent of the proportionate
interest of each share in the assets of the Trust at the time of the purchase or
redemption and )b) if so authorized by the Trustees the Trust may, at any time
and from time to time change fees for effecting such redemption, and such rates
as the Trustees may establish, as and to the extent permitted under the 1940 Act
and nay, at any time and from time to time, pursuant to such Act, suspend such
right of redemption. The procedures for effecting redemption shall be as set
forth in the Prospectus from time to time.
8.2. Redemption of Shares; Disclosure of Holding. If the Trustees shall,
at any time and in good faith, be of the opinion that direct or indirect
ownership of Shares or other securities of the Trust has or ray become
concentrated in any person to an extent which would disqualify the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by then (i) to call
for redemption a number, or principal amount, of Shares or other securities of
the Trust sufficient, in the opinion of the Trustees, to maintain or bring the
direct or indirect ownership of Shares or other securities of the Trust into
conformity with the requirements for such qualification and (ii) to refuse to
transfer or issue Shares or other securities of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust in acquisition would
in the opinion of the Trustees result in such disqualification. The redemption
shall be effected at a redemption price determined in accordance with Section
8.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
8.3. Redemptions of Accounts of Less than $1,000. Due to the relatively
high cost of maintaining investment accounts of
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less than $1,000, the Trustees shall have the power to redeem shares at a
redemption price determined in accordance with Section 8.1 if at any tine the
total investment in such account does not have a value of at least $1,000;
provided, however, that the Trustees may not exercise such power if the
Prospectus does not describe such power. In the event the Trustees determine to
exercise their power to redeem Shares provided in this Section 8.3, Shareholders
shall be notified that the value of their account is less than $1,000 and
allowed 60 days to make an additional investment before redemption is
processed.
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ARTICLE IX
Determination of Net Asset Value,
Net Income and Distributions
9.1. Net Asset Value. The net asset value of each outstanding hare of the
trust shall be determined at such time or times on such days as the Trustees may
determine, in accordance with the 1940 Act. The method of determination of net
asset value shall be determined by the Trustees and shall be as set forth in the
Prospectus with any expenses being borne solely by a class of Shares being
reflected in the net asset value of such Shares. The power and duty to make the
daily calculations may be delegated by the Trustees to the adviser,
administrator, manager, custodian, transfer agent or such other person as the
Trustees determine. The Trustees may suspend the daily determination of net
asset value to the extent permitted by the 1940 Act.
9.2. Distributions to Shareholder The Trustees shall from time to time
distribute ratably among the Shareholders such distribute ratably proportionate
of the net profits, surplus (including paid-in surplus capital, or assets held
by the Trustees as they may deem property (including without limitation any type
of obligations being ratably among the net profits or other assets being
distributed to such class. Such distribution may be made in cash or property
(including without limitation any type of obligations of the Trust or any assets
thereof), and the Trustees may distribute ratably among the Shareholders
additional Shares issuable hereunder in such manner, at such times, and on such
terms as the Trustees ray deem proper. Such distributions may be among the
Shareholders of record at the tine of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine. The
Trustees may always retain from the net profits such amount as they may deem
necessary to ,pay the debts or expenses of the Trust or to meet obligations of
the Trust, or as they may deem desirable to use in the conduct of its affairs or
to retain for future requirements or extensions of the business. The Trustees
may adopt and offer to Shareholders such dividend reinvestment plans, cash
dividend payout plans or related plans as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
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9.3. Power to Modify Foregoing Procedures. Notwithstanding any of the
foregoing provisions of this Article IX, the Trustees may prescribe, in their
absolute discretion, such other bases and times for deter-mining the per share
net asset value of the Trust's Shares or net income, or the declaration, times
for determining the per share net asset value of the Trust's Shares or net
income, or the declaration and payment of dividends and distributions as they
may deem necessary or desirable or to enable the Trust to comply with any
provision of the 1940 Act, including any rule or regulation adopted pursuant to
Section 22 of the 1940 Act by the Commission or any securities association
registered under the Securities Exchange Act of 1934, all as in effect now or
hereafter amended or modified.
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ARTICLE X
Shareholders
10.1. Voting Powers. The Shareholders shall have power to vote (i) for
the removal of Trustees as provided in Section 2.3, (ii) with respect to any
advisory or management contract as provided in Section 4.1, (iii) with respect
to the amendment of this Declaration as provided in Section 11.3, (iv) with
respect to such additional matters relating to the Trust as may be required or
authorized by the 1940 Act, the laws of the Commonwealth of Massachusetts or
other applicable law or by this Declaration or the By-Laws of the Trust, and (v)
with respect to such additional matters relating to the Trust as may be properly
submitted for Shareholder approval. If the Share; shall be divided into classes
as in Article VI hereof, the Shares of each class shall have identical voting
rights except that the Trustees, in their discretion, may provide a class with
exclusive voting rights with respect to matters related to expenses being borne
solely by such class.
10.2. Meetings of Shareholders. Special meetings of the Shareholders
may be called at any time by a majority of the Trustees and shall be called by
any Trustee upon written request of Shareholders holding in the aggregate not
less than 10% of the outstanding Shares having voting rights, such request
specifying the purpose or purposes for which such meeting is to be called. Any
such meeting shall be held within or without the Commonwealth of Massachusetts
on such day and at such time as the Trustees shall designate the holders of one-
third of the outstanding shall present in person or by proxy a constitute a
quorum for the transaction of any business, except as may otherwise be required
by the 1940 Act, the laws of the Commonwealth of Massachusetts or other
applicable law or by this Declaration or the By-Laws of the Trust. If a quorum
is present at a meeting, the affirmative vote of a majority of the shares
represented at the meeting constitute the action of the shareholders, unless the
applicable law, the Declaration or the By-Laws of the Trust requires a greater
number of affirmative votes. If the Shares shall be divided into classes with a
class having exclusive voting rights with respect to certain matters, the
aforesaid quorum and voting requirements with respect to action to be taken by
the Shareholders of the class on such matters shall be applicable only to the
Shares of such class.
10.3. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at
25.
<PAGE>
registered address, mailed at least 10 days and not more than 60
It days before the meeting. Only the business stated in the notice of the
meeting shall be considered at such meeting. Any adjourned meeting may be held
as adjourned without further notice.
10.4. Record Date for Meetings For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purposes of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding 30 days, as the Trustees may determine; or without closing time
transfer books the Trustees may fix a date not more than 60 days prior to the
date of any meeting of Shareholders or daily dividends or other action as a
record date for the determination of the Persons to be treated as Shareholders
of record for such purposes, except for dividend payments which shall be
governed by section 9.2 hereof.
10.5. Proxies, etc. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of a majority of the Trustees, proxies may he solicited
in the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each full Share shall be
,entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall present at such meeting in person or by proxy, and such
joint owners or their proxies so present disagree as to any vote to be past,
such vote shall not be received in respect of such Share. A proxy purporting to
be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. If the holder of any such Share is a minor or a
person of unsound mind, and subject to guardianship or to the legal control of
any other person as regards the charge or management of such Share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
10.6. Reports. The Trustees shall cause to be prepared at least annually
a report of operations containing a balance sheet and statement of income and
undistributed income of the Trust prepared in conformity with generally accepted
accounting principles and an opinion of an independent public accountant on
26.
<PAGE>
such financial statements. Copies of such reports shall be mailed to all
Shareholders of record within the time required by the 1940 Act. The Trustees
shall, in addition, furnish to the Shareholders at least semiannually interim
reports containing an unaudited balance sheet of the Trust as of the end of such
period and an unaudited statement of income and surplus for the period from the
beginning of the current fiscal year to the end of such period.
10.7. Inspection of Records. The records of the Trust shall be open to
inspection by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
10.8. Shareholder Action by Written Consent. Any action which may be taken
by Shareholders without a meeting if a majority of Shareholders entitled to vote
on the matter (or such larger proportion thereof as shall be required by any
express provision of this Declaration) consent to the action in writing and the
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
27.
<PAGE>
ARTICLE XI
Duration; Termination of Trust;
Amendment; Mergers, Etc.
11.1. Duration. Subject to possible termination in accordance with the
provisions of Section 11.2 hereof, the Trust created hereby shall continue until
the expiration of 20 years after the death of the last survivor of the initial
Trustees named herein and the following named persons:
Name Address Date of Birth
- ---- ------- -------------
Daryl Lian Kleiman 375 South End Avenue May 9, 1986
New York, NY 10280
Lindsay Rider MacKinnon Mountain Farm Road January 27, 1981
Tuxedo Park, NY 10987
Eric Alfred Pietrak 95 Corona Avenue January 29, 1981
Pelham, NY 10803
Angus Washburn Smith 12 Masterton Road October 15, 1982
Bronxville, NY 10708
Ashley Chapin Smith 12 Masterton Road May 20, 1972
Bronxville, NY 10708
Elisabeth Lyon Smith 12 Masterton Road October 15, 1982
Bronxville, NY 10708
Thomas Ervin Smith 12 Masterton Road November 14, 1973
Bronxville, NY 10708
11.2. Termination of Trust.
(a) The Trust may be terminated by the affirmative vote of the holders of
not less than two-thirds of the Shares at any meeting of Shareholders or by an
instrument in writing, without a meeting, signed by a majority of the Trustees
and consented to by the holders of not less than two-thirds of such Shares. Upon
the termination of the Trust,
(i) The Trust shall carry on no business except for the purpose of winding
up its affairs.
28.
<PAGE>
(ii) The Trustees shall proceed to wind up the affairs of the Trust and
all of the powers of the Trustees under this Declaration shall continue until
the affairs of the Trust shall have been wound up, including the power to
fulfill or discharge the contracts of the Trust, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property to one or more persons at public or private sale
for consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and do all other
acts appropriate to liquidate its business; provided that any sale, conveyance,
assignment, exchange, transfer or other disposition of all or substantially all
time Trust Property shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by vote or consent of
the majority of the Shares entitled to vote.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Shareholders of each class according to their respective rights taking
into account the proper allocation of expenses being borne solely by any class
of Shares.
(b) After termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from all further
liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease.
11.3. Amendment Procedure.
(a) This Declaration may be amended by the affirmative vote of the holders
of not less than a majority of the Shares at any meeting of Shareholders or by
an instrument in writing without a meeting, signed by a majority of the Trustees
and consented to by the holders of not less than a majority of such Shares. The
Trustees may also amend this Declaration without the vote or consent of
Shareholders if they deem it necessary to conform this Declaration to the
requirements of applicable Federal laws or regulations or the requirements of
the regulated investment company provisions of the Internal Revenue Code, but
the Trustees shall not be liable for failing so to do.
29.
<PAGE>
(b) No amendment may be made, under Section 11.3 (a) above, which would
change any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the vote or consent of the
holders of two-thirds of the Shares. Nothing contained in this Declaration
shall permit the amendment of this Declaration to impair the exemption from
personal liability of the Shareholders, Trustees, officers, employees and agents
of the Trust or to permit assessments upon Shareholders.
(c) A certification in recordable form signed by a majority of the Trustees
setting forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be terminated or amended in any respect by the affirmative
vote of a majority of the Trustees or by an instrument signed by a majority of
the Trustees.
11.4. Merger, Consolidation and Sale of Assets. The Trust may merge or
consolidate with any other corporation, association, trust or other organization
or may sell, lease or exchange all or substantially all of the Trust Property,
including its good will, upon such terms and conditions and for such
consideration when and as authorized at any meeting of Shareholders called for
the purpose by the affirmative vote of the holders of not less than two-thirds
of the Shares, or by, an instrument or instruments in writing without meeting,
consented to by the holders of not less than two-thirds of such Shares, and any
such merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the statutes of the
Commonwealth of Massachusetts. In respect of any such merger, con- solidation,
sale or exchange of assets, any Shareholder shall be entitled to rights of
appraisal of his Shares to the same extent as a shareholder of a Massachusetts
business corporation in respect of a merger, consolidation, sale or exchange of
assets of a Massachusetts business corporation, and such rights shall be his
exclusive remedy in respect of his dissent from any such action.
11.5. Incorporation. With the approval of the holders of a majority of the
Shares, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws
30.
<PAGE>
of any jurisdiction or any other trust, partnership, association or other
organization to take over all of the Trust Property or to carry on any business
in which the Trust shall directly or indirectly have any interest, and to sell,
convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for the Shares or securities thereof or
otherwise, and to lend money to, subscribe for the Shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust holds or is about to acquire shares or an,,
other interest. The Trustees may also cause merger or consolidation between the
Trust or any successor thereto and any such corpora-tion, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in Nothing contained herein shall be construed as
requiring approval of Shareholders for the Trustees to organize or assist in
organization one or more corporations, trusts, partnerships, associations or
other organizations and selling, conveying or transferring a portion of the
Trust Property to such organizations or entities.
31.
<PAGE>
ARTICLE XII
Miscellaneous
12.1. Filing. This Declaration and any amendment hereto shall he filed in
the office of the Secretary of the Commonwealth of Massachusetts and in such
other places as may be required under the laws of Massachusetts and may also be
filed or recorded in such other places as the Trustees deem appropriate. Each
amendment so filed shall be accompanied by a certificate signed and acknowledged
by a Trustee stating that such action was duly taken in a manner provided
herein, and unless such amendment or such certificate sets forth some later time
for the effectiveness of such amendment, such amendment shall be effective upon
its filing. A restated Declaration, containing the original Declaration and all
amendments theretofore made, may be executed from tine to time by a majority of
the Trustees and shall, upon filing with the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
12.2. Resident Agent. The Trust shall maintain a resident agent in the
Commonwealth of Massachusetts, which agent shall initially be CT Corporation
System 12 Oliver Street, Boston, Massachusetts 02100. The Trustees may
designate a successor resident agent, called, however, that such appointment
shall not become effective until written notice thereof is delivered to the
office of the Secretary of the Commonwealth.
12.3. Governing Law. This Declaration is executed by the Trustees and
delivered in the Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State and reference shall be specifically made to the business
corporation law of the Commonwealth of Massachusetts as to the construction of
matters not specifically covered herein or as to which an ambiguity exists.
12.4. Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
12.5. Reliance by Third Parties. Any certificate executed by an individual
who, according to the records of the Trust, or of any recording office in which
this Declaration may be recorded,
32.
<PAGE>
appears to be a Trustee hereunder, certifying to: (a) the number or identity of
Trustees or Shareholders, (b) the due authorization of the execution of any
instrument or writing, (c) the form of any vote passed at a meeting of Trustees
or Shareholders, (d) the fact. that the number of Trustees or Shareholders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by or the
identity of any officers elected by the Trustees, or (f) the existence of any
fact or facts which in any manner relate to the affairs of the Trust, shall be
conclusive evidence as to the matters so certified in favor of any person
dealing with the Trustees and their successors.
12.6. Provisions in Conflict With Law or Regulations.
(a) The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code, the laws of the Commonwealth of Massachusetts or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Declaration; provided, however, that
such determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction any jurisdiction.
33.
<PAGE>
IN WITNESS WHEREOF, the undersigned, constituting all of the Trustees of
the Trust, have caused these presents to be executed as of the day and year
first above written.
/s/ Philip L. Kirstein
----------------------
Philip L. Kirstein
79 West Shore Drive
Pennington, New Jersey 08334
/s/ Michael J. Hennewinkel
-----------------------
Michael J. Hennewinkel
5 Bennington Way
Belle Mead, New Jersey 08502
/s/ Robert Harris
-----------------------
Robert Harris
22 Zeloof Drive
West Windsor, New Jersey 08648
/s/ William E. Aldrich
------------------------
William E. Aldrich
111 Windsor Road
Needham, Massachusetts 02192
34.
<PAGE>
EXHIBIT 99.1(b)
MERRILL LYNCH RETIREMENT EQUITY FUND
The undersigned, constituting a majority of the Trustee of Merrill Lynch
Retirement Equity Fund (the "Trust"), a Massaacusetts business trust, hereby
certify that the Trustees of the Trust have duly adopted the following
amendment, as approved by the sole shareholder of the Trust, to the Declaration
of Trust, of the Trust, dated the 11th day of December 1986 (the "Declaraton").
VOTED: Article VI of the Declaration be, and it hereby is, amended in its
entirety to read as follows:
ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest. The interest of the beneficiaries hereunder
shall be divided into transferable shares of beneficial interest, par value
$0.10 per share. The number of such shares of beneficial interest authorized
hereunder is unlimited. The Trustees, in their discretion without a vote of the
Shareholders, may divide the shares of beneficial interest into classes. In
such event, each class shall represent interests in the Trust Property and have
identical voting, dividend, liquidation and other rights and the same terms and
conditions except that expenses related to the distribution of the shares of a
class may be borne solely by such class (as shall be determined by the Trustees)
and, as provided in Section 10.1, a class may have exclusive voting rights with
respect to matters relating to the expenses being borne solely by such class.
The bearing of expenses solely by a class of Shares shall be appropriately
reflected (in the manner determined by the Trustees) in the net asset value,
dividends and liquidation rights of the Shares of such class. The division of
the Shares into classes and the terms and conditions pursuant to which the
Shares of the will be issued must be made in compliance with the 1940 Act. All
Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and nonassessable.
6.2 Rights of Shareholders. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein
<PAGE>
other than the beneficial interest conferred by their Shares, and they shall
have no right to call for any partition or division of any property, profits,
rights or interests of the Trust nor can they be called upon to share or assume
any losses of the Trust or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only the
rights in this Declaration specifically set forth. The Shares shall not entitle
the holder to preference, preemptive, appraisal, conversion or exchange rights
(except for rights of appraisal specified in Section l1.4).
6.3 Trust Only. It is the intention of the Trustees to create only the
relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general Partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
6.4 Issuance of Shares. The Trustees, in their discretion, may from
time to time without a vote of the Sharsholder issue shares, in addition to the
then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount not less than par value and type of
consideration, including cash or property, at such time or times, and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of, liabilities) and businesses. In connection with any issuance of
Shares, the Trustes may issue fractional Shares. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or 1/1,000ths of a Share or multiples thereof.
6.5 Register of Shares. A register shall be kept at the Trust or a
transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addresses of the Shareholders and the
number of Shares held by them respectively and a record of all transfers
thereof. Such register shall be conclusive as to who are the holders of the
Shares and who shall be entitled to receive dividends or distributions or
otherwise to exercise or enjoy the rights of Shareholders. No Sharaholder shall
be entitled to receive payment of any dividend or distribution, nor to have
notice given to him as herein provided, until he has given his address to a
transfer agent or such other officer or agent of the Trustees as shall keep the
said register for entry thereon. It is not contemplated that certificates will
be issued for the Shares; however, the Trustees,,
<PAGE>
in their discretion, may authorize the issuance of share certificates and
promulgate appropriate rules and regulations as to their use.
6.6 Transfer Agent and Registrar. The Trustee shall have power to
employ a transfer agent or transfer agents, and a registrar or registrars. The
transfer agent or transfer agents may keep the said register and record therein
the oriqinal issues and transfers, if any, of the said Shares. Any such transfer
agent and registrars shall perform the duties usually performed by transfer
agents and registrars of certificates of stock in a corporation, except as
modified by the Trustees.
6.7 Transfer of Shares. Shares shall be transferable on the records of
the Trust only by the record holder thereof or by this agent thereto duly
authorized in writing, upon delivery to the Trustees or a transfer agent of the
Trust of a duly executed instrument of transfer, together with such evidence of
the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery the transfer shall be recorded
on the register of the Trust. Until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes hereof
and neither the Trustees nor any transfer agent or registrar nor any officer
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the reqister of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or a transfer
agent of the Trust, but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereof and
neither the Trustees nor any transfer agent or registrar nor any officer or
aqent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
6.8 Notices. Any and all notices to which any Shareholder hereunder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees, have signed this certificate in duplicate oriqinal counterparts and
have caused a duplicate original to be lodged among the records of the Trust as
required by Article XI, Section 11.3(c) of the Declaration of Trust as of the
20th day of March, 1987.
/s/ Andre Perold
____________________________ ------------------------
Arthur Zeikel Andre F. Perold
279 Watchung Road 174 Allen Avenue
Westfield, New Jersey 07090 Waban, Massachusetts 02168
/s/ Kenneth S. Axelson /s/ Robert Vandell
- ---------------------------- ------------------------
Kenneth S. Axelson Robert F. Vandell
Indian Point Farm Arlington Boulevard
R.R. #3 Box 6550
Box 307 Charlottesville, Virginia
Waldoboro, Maine 22906
/s/ Vincent McLean
- ----------------------------
Vincent R. McLean
702 Shackamaxon Drive
Westfield, New Jersey 07090
<PAGE>
Ex-99.1(c)
Merrill Lynch Retirement Equity Fund
Establishment and Designation
of
Class A Shares and Class B Shares of
Beneficial Interest of the Trust
The undersigned, being a majority of the Trustees of Merrill Lynch
Retirement Equity Fund, a Massachusetts business trust (the "Trust"), acting
pursuant to Section 6.1 of the Declaration of Trust, as amended, dated December
11, 1986 (the "Declaration") of the Trust, do hereby divide the shares of
beneficial interest of the Trust, par value $.10 per share (the "Shares"), to
create two classes of Shares, within the meaning of said Section 6.1, as
follows:
1. The two classes of Shares are designated "Class A Shares" and "Class B
Shares", respectively.
2. Class A Shares and Class B Shares shall be entitled to all of the rights
and preferences accorded to Shares under the Declaration.
3. The purchase price of Class A Shares and Class B Shares, the method of
determination of net asset value of Class A Shares and Class B Shares,
the proce, terms and manner of redemption of Class A Shares and Class B
Shares , and the relative dividend rights of holders of Class A Shares
and Class B Shares shall be established by the Trustees of the Trust in
accordance with the provisions of the Declaration and shall be set forth
in the currently effective prospectus and statement of additional
information of the Trust, as amended from time to time, under the
Securities Act of 1933, as amended.
4. All Shares issued prior to the filing of this instrument with the
Commonwealth of Massachusetts shall be deemed Class B Shares.
1
<PAGE>
In WITNESS WHEREOF, the undersigned, have signed this instrument in
duplicate original counterparts and have caused a duplicate original to be
lodged among the records of the Trust this 31st day of October, 1988.
/s/ Kenneth Axelson /s/ Andre F. Perold
Kenneth S. Axelson Andre F. Perold
307 Gross Neck Road 56 Barnstable Road
Wladoboro, Maine 04572 West Newton, Massachusetts 02165
/s/ Herbert I. London /s/ Arthur Zeikel
Herbert I. London Arthur Zeikel
2 Washinton Square Village 279 Watchung Fork
New York, New York 10012 Westfield, New Jersey 07090
/s/ Joseph L. May
Joseph L. May
2305 Hampton Avenue
Nashville, Tennessee 37215
The Declaration of Trust establishing Merrill Lynch Retirement Equity
Fund, dated December 11, 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 "Merrill Lynch Retirement
Equity 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 Merrill Lynch Retirement Equity Fund shall be held
to any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise in connection with the
affairs of said Trust but the Trust Property only shall be liable.
2
<PAGE>
EXHIBIT 2
BY-LAWS
OF
MERRILL LYNCH RETIREMENT EQUITY FUND
<PAGE>
MERRILL LYNCH RETEREMENT EQUITY FUND
BY-LAWS
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing MERRILL LYCNCH RETIREMENT EQUITY EQUTY FUND,
dated December 11, 1986, as from time to time amended (hereinafter called the
"Declaretion"). All words and terns capitalized in these By-Laws shall have the
meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I
Shareholder Meetings
Section 1.1. Chairman. The Chairman, if any, shall act as chairman
at all meetings of the Sharholders; in his absence the President shall act as
chairman; and in the absence of the Chaiman and President, the Trustee or
Trustees present at each meeting may elect a temporary chairman for the meeting,
who may be one of themselves.
Section 1.2. Proxies; Voting. Shareholders may vote either in
person or by duly executed proxy and each full share represented at the
meeting shall have one vote, all as provided in Article X of the Declaration.
No proxy shall be valid after eleven (11) months from the date of its execution,
unless a longer period is expressly stated in such proxy.
<PAGE>
Section 1.3. Closing of Transfer Books and Fixing Record, Dates.
For the purpose of determining the Shareholders who are entitled to notice of
or to vote or act at any meeting, including any adjournment thereof, or who
are entitled to participate in any dividends, or for any other proper purpose,
the Trustees may from time to time close the transfer books ot fix a record
date in the manner provided in Section 10.4 of the Declaration. If the
Trustees do not prior to any meeting cf Shareholders so fix a record date or
close the transfer books, then the date of mailing notice of the meettingor
the date upon which the dividend resolution is adopted, as the case may be,
shall be the record date.,,,
Secticn 1.4. Inspectors of Election. In advance of any, meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the Chairman, if any, of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. The number of Inspectors shall be either one or three. If
appointed at the meeting on the request of one or more Shareholders or proxies,
a majority of Shares present shall determine whether one or three Inspectors
are to be appionted, but failure to allow such determination by the
Shareholders shall not affect the validity of the appointment of Inspectors of
Election. In case any person appointed as
2.
<PAGE>
Inspector fails to appear or fails or refuses to act, the vacancy, may be
filled by appointment made by the Trustees in advance of, the convening of the
meeting or at the meeting by the person acting as chairman. The Inspectors of
Election shall determine the number of Shares outstanding, the Shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, shall receive votes, ballots or consents, shall
hear and determine all challenges and questions in any way arising an connection
with the right to votes, ballots or consents, tabulate all votes or consents,
determine the results, and do, such other acts as may be proper to conduct the
election or vote with fairness to all Shareholders. If there are three
Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all On request
of the Chairman, if any, of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
Section 1.5. Records at Shareholder Meetings. At each,
meeting of the Shareholders there shall be open for inspection the minutes
of the last previous Shareholder Meeting of the Fund, and a list of the
Shareholders of the Fund, certified to be true and correct by the Secretary or
other proper agent of the Fund, as of the record date of the meeting or the date
of closing of
3.
<PAGE>
transfer books, as the case may be. Such list of Shareholders shall contain
the name of each Shareholder in alphabetical order and the address of and number
of Shares owned by such Shareholder. Shareholders shall have such other rights
and procedures of Inspection of the books and records of the Fund as are granted
to shareholders of a Massachusetts business corporation.
ARTICLE II
Trustees
Section 2.1. Annual and Regular Meetings. The Trustees shall
hold an annual meeting for the election of officers and the transaction of
other business which may come before such meeting, on such date as shall be
fixed by the Trustees from time to time.
Regular meetings of the Trustees may be held without call or notice at such
place or places and times as the Trustees may by resolution provide from time
to time.
Section 2.2. Special Meetings. Special Meetings of the Trustees
shall be held upon the call of the Chairman, if any, the President, the
Secretary or any two Trustees, at such time, on such day, and at such place, as
shall be designated in the notice of the meeting.
Section 2.3. Notice. Notice of a meeting shall be given by mail or
by telegram (which term shall include a cablegram; or delivered personally.
If notice is given by mail, it shall be
4.
<PAGE>
mailed not later than 48 hours preceding the meeting and if given by telegram
or personally, such telegram shall be sent or delivery made not later than 48
hours preceding the meeting. Notice by telephone shall constitute personal
delivery for these purposes. Notice of a meeting of Trustees may be waived
before or after any meeting by signed written waiver. Neither the business to
be transacted at, nor the purpose of, any meeting of the Board of Trustees need
be stated in the notice or waiver of notice cf such meeting, and no notice need
be given of action proposed to be taken by unanimous written consent. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of
such meeting except where a Trustee attends a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
has not been lawfully called or convened.
Section 2.4. Chairman; Records. The Chairman, if any, shall act as
chairman at all meetings of the Trustees; in his absence the President shall
act as chairman; and, in the absence of the Chairman and the President, the
Trustees present shall elect one of their number to act as temporary chairman.
The results of all actions taken at a meeting of the Trustees, or by unanimous
written consent of the Trustees, shall be recorded by the Secretary.
5.
<PAGE>
ARTICLE III
Officers
Section 3.1. Officers of the Fund. The officers of the
Fund shall consist of a Chairman, if any, a President, a Secretary, a
Treasurer and such other officers or assistant officers, including
Vice-Presidents; as may be elected by the Trustees. Any two or more of the
offices may be held by the same person, except that the same person may not be
both President and Secretary. The Trustees may designate a Vice-President as
an Executive Vice-President and may designate the order in which the other
Vice-Presidents may act. The Chairman and the President shall be Trustees,
but no other officer of the Fund need be a Trustee.
Section 3.2. Election and Tenure. At the initial organizational
meeting and thereafter at each annual meeting of the Trustees, the Trustees
shall elect the Chairman, if any, President, Secretary, Treasurer and such
other officers as the Trustees shall deem necessary or appropriate in order to
carry out the business of the Fund. Such officers shall hold office until the
next annual meeting of the Trustees and until their successors have been duly
elected and qualified. The Trustees may fill any vacancy in office or add any
additional officers at any time.
Section 3.3. Removal of Officers. Any officer may be removed
at any time, with or without cause, by action of a
6.
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majority of the Trustees. This provision shall not prevent the making of a
contract of employment for a definite term with any officer and shall have no
effect upon any cause of action which any officer may have as a result of
removal in breach of a contract of employment. Any officer may resign at any
time by notice in writing signed by such officer And delivered or mailed to the
Chairman, if any, President, or Secretary, and such resignation shall take
effect immediately upon receipt by the Chirman, if any, President, or Secretary,
or at a later date according to the terms of such notice in writing.
Section 3.4. Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his duties in such amount
and with such sureties as the Trustees ray determine.
Section 3.5. Chairman, President, and Vice-Presidents. The
Chairman, if any, shall, if present, preside at all meetings of the Shareholders
and of the Trustees and shall exercise and perform such other powers and duties
as may from time to time be assigned to him by the Trustees. Subject to such
supervisory powers, if any, as may be given by the Trustees to the Chairman, if
any, the President shall be the chief executive officer of the Fund and,
subject to the control of the Trustees, shall have general supervision,
direction and control of the business of the Fund and of its employees and
shall exercise such general powers of management as are usually vested in the
office of President of
7.
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a corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Shareholders and of the Trustees. The
President shall be, ex-officio, a member of all standing committees, except as
otherwise provided in the resolutions or instruments creating any such
committees. Subject to direction of the Trustees, the Chairman, if any, and
the President shall each have power in the name and on behalf of the Fund to
execute any and all loan documents, contracts, agreements, deeds, mortgages,
and other instruments in writing, and to employ and discharge employees and
agents of the Fund. Unless otherwise decided by the Trustees, the Chairman, if
any, and the President shall each have full authority and power, on behalf
of all of the Trustees, to Attend and to act and to vote, on behalf of the
Fund at any meetings of business organizations in which the Fund holds an
interest, or to confer such powers upon any other persons, by executing any
proxies duly authorizing such persons. The Chairman, if any, and the
President shall have such further authorities and duties as the Trustees shall
from time to time determine. In the absence or disability of the President,
the Vice-Presidents in order of their rank as fixed by the Trustees or, if
more than one and not ranked, the Vice-President designated by the Trustees,
shall perform all of the duties of the President, and when so acting shall
have all the powers of and be subject to all of the restrictions upon the
President. Subject to the direction of the Trustees, and of the
8.
<PAGE>
President, each Vice-President shall have the power in the name and an
behalf of the Fund to execute any and all loan documents, contracts,
agreements, deeds, mortgages and other instruments in writing, and, in
addition, shall have such other duties and powers as shall be designated from
time to time by the Trustees or by the President.
Section 3.6. Secretary. The Secretary shall keep the minutes of
all meetings of, and record all votes of, Shareholders, Trustees and the
Executive Committee, if any. He shall be custodian of the seal of the Fund, if
any, and he (and any other person so authorized by the Trustees) shall affix
the seal or, if permitted, a facsimile thereof, to any instrument executed by
the Fund which would be sealed by a massachusetts corporation executing the
same or a similar instrument and shall attest the seal and the signature or
signatures of the officer or officers executing such instrument on behalf of
the Fund. The Secretary shall also perform any other duties commonly incident
to such office and a Massachusetts business corporation, and shall have such
other authorities and duties as the Trustees shall from time to time determine.
Section 3.7. Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Fund, and shall have and exercise under the supervision of the Trustees and of
the
9.
<PAGE>
President all powers and duties normally incident to his office. He may endorse
for deposit or collection all notes, checks and other instruments payable to
the Fund or to its order. He shall deposit all funds of the Fund in such
depositories as the Trustees shall designate. He shall be responsible for such
disbursement of the funds of the Fund as may be ordered by the Trustees or the
President. He shall keep accurate account of the books cf the Fund's
transactions which shall be the property of the Fund, and which together with
all other property of the Fund in his possession, shall be subject at all times
to the inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Fund and shall also be the principal financial officer of the Fund. He
shall have such other, duties and authorities as the Trustees shall from time
to time determine. Notwithstanding anything to the contrary herein contained,
the Trustees may authorize any adviser, administrator, manager or transfer
agent to maintain bank accounts and deposit and disburse funds of the Fund.
Section 3.8. Other Officers and Duties. The Trustees may
elect such other officers and assistant officers as they shall from time to
time determine to be necessary or desirable in order to conduct the business
of the Fund. Assistant officers shall act generally in the absence of the
officer whom they assist and shall assist that officer in the duties of his
office. Each
10.
<PAGE>
officer, employee and agent of the Fund shall have such other duties and
authority as may be conferred upon him by the Trustees or delegated to him by
the President.
ARTICLE IV
Miscellaneous
Section 4.1. Custodians. In accordance with Section 7.1 of
the Declaration, the funds of the Fund shall be deposited with such custodian
or custodians as the Trustees shall designate and shall be drawn out on checks,
drafts or other orders signed by such officer, officers, agent or agents
(including any adviser, administrator or manager), as the Trustees may from
tine to time authorize.
Section 4.2. Signatures. All contracts and other
instruments shall be executed on behalf cf the Fund by such officer, officers,
agent or agents, as provided in these By-Laws or as the Trustees may from time
to time by resolution provide.
Section 4.3. Seal. The seal of the Fund, if
any, may be affixed to any document, and the seal and its attestation may be
lithographed, engraved or otherwise printed on any document with the same force
and effect as if it had been imprinted and attested manually in the same
manner arid with the sane effect as if done by a Massachusetts business
corporation.
11.
<PAGE>
ARTICLE V
Share Certificates and Share Transfers,
Section 5.1. Share Certificates. Each holder of Shares of the Fund
shall be entitled ,upon request to have a certificate or certificates, in such
form as shall be approved by the Trustees, representing the number of Shares
owned by him, provided, however, that certificates for fractional Shares shall
not be delivered in any case. The certificates representing Shares shall be
signed by or in the name of the Fund by the President or a Vice-President and
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Fund. Any or all of the signatures
or the seal on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate shall be issued, it may be issued
by the Fund with the same effect as if such officer, transfer agent or
registrar were still in office at the date of issue.
Section 5.2. Transfer Agents, Registrars and the Like. As provided
in Section 6.6 of the Declaration, the Trustees shall have authority to employ
and compensate such transfer agents and registrars with respect to the Shares
of the Fund as the Trustees shall deem necessary or desirable and may require
all certificates for Shares to bear the signature or signatures of
12.
<PAGE>
any of them. in addition, the Trustees shall have power to employ and
compensate such dividend disbursing agents, warrant agents and agents for the
reinvestment of dividends as they shall deem necessary or desirable. Any of
such agents shall have such power and authority as is delegated to any of them.
by the Trustees.
Section 5.3. Transfer of Shares. The Shares of the Fund
shall be transferable on the books of the Fund only upon delivery to the
Trustees or a transfer agent of the Fund of proper documentation as provided in
Section 6.7 of the Declaration, and on surrender of the certificate or
certificates, if issued, for such Shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes thereon. The
Fund, or its transfer agents shall be authorized to refuse any transfer unless
and until presentation of such evidence as may be reasonably required to show
that the requested transfer is proper.
Section 5.4. Registered Shareholders. The Fund may deem and treat
the holder of record of any Share as the absolute owner thereof for all
purposes and shall not be required to take any notice of any right or claim of
right of any other person.
Section 5.5. Regulations. The Trustees ray make such additional
rules and regulations, not inconsistent with these as it may deem expedient
concerning the issue, transfer and registration of certificates for Shares of
the Fund.
13.
<PAGE>
Section 5.6. Lost, Destroyed or Mutilated Certificates. The holder of
any certificate representing Shares of the Fund shall immediately notify the
Fund of any loss, destruction or mutilation of such certificate, and the Fund
may issue a now certificate in the place of any certificate theretofore issued
by it which the owner thereof shall all to have been lost or destroyed or which
shall have been mutilated, and the Trustees may, in the discretion, require
such owner or his legal representatives to give the Fund a bond in such sum,
limited or unlimited, and in such form, and with such surety or sureties, as
the Trustees in their absolute discretion shall determine, to indemnify the
Fund against any claim that may be made against it on account of the alleged
loss or destruction of any such certificate, or issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Trustees in their absolute
discretion, may refuse to issue any such new certificates, except pursuant to
legal proceedings under the laws of the Commonwealth of Massachusetts.,
ARTICLE VI
Amendment of By-Laws
Section 6.1. Amendment and Repeal of By-Laws. in accordance with
Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. Action by the
Trustees with respect to the
14.
<PAGE>
By-Laws shall be taken by an affirmiative vote of a majority of the Trustees.
The Trustees shall in no event adopt By-Laws which are in conflict with the
Declaration, and any apparent inconsistency shall be construed in Favor of the
related provisions in the Declaration.
The Declaration establishing Merrill Lynch Retirement Equity Fund, a
copy of which, together with all amendments thereto, is on file in the office
of the Secretatry of the Commonwealth of Massachusetts, provides that the name
"Merrill Lynch Retirement Equity 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 Merrill Lynch
Retirement Equity Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim or otherwise in connection with the affairs of said Merrill Lynch
Retirement Equity Fund but the "Trust Property" only shall be liable.
15.
<PAGE>
MERRILL LYNCH RETIREMENT EQUITY FUND
The undersigned, constituting a majority of the Trustee of
Merrill Lynch Reatirement Equity Fund (the "Trust"), a Massachusetts business
trust, hereby certify that the Trustees of the Trust have duly adopted the
following amendment, as approved by the solo shareholder of the Trust, to the
Declaration of Trust, of the Trust, dated the 11th day of December 1986 (the
"Declaration").
VOTED: Article of the Declaration be, and it hereby is,
amended in its entirely to read as follows:
ARTICLE VI
Shares of Beneficial Interest
6.1 Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest,
par value $0.10 per share. The number of such shares of beneficial interest
authorized hereunder is unlimited. The Trustees, in their discretion without a
vote of the Shareholders, may divide the shares of beneficial interest into
classes. In such event, each class shall represent interests in the Trust
Property and have identical voting, dividend, liquidation and other rights
and the same terms and conditions except that expenses related to the
distribution of the shares of a class may be borne solely by such class (as
shall be determined by the Trustees) and, as provided in Section 10.1, a class
may have exclusive voting rights with respect to matters relating to the
expenses being borne solely by such class. The bearing of expenses solely by
a class of Shares shall be appropriately reflected (in the manner or
determined by the Trustees) in the not asset value, dividends and liquidation
rights of the Shares of such class. The division of the Shares into classes
and the terms and conditions pursuant to which the Shares of the classes will
be issued zust be made in compliance with the 1940 Act. All Shares issued
hereunder including, without limitation, Shares issued in connection with a
dividend in Shares or a splitof Shares, shall be fully paid and
nonassessable.
6.2 Rights of Shareholders. The ownership of the Trust Property of
every description of the right to conduct any business herainbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein.
<PAGE>
other than the beneficial interest conferred by their Shares, and they shall
have no right to call for any partition or division of any property, profits,
rights or interests of the Trust nor can they be called upon to share or assume
any losses of the Trust or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only the
rights in this Declaration specifically set forth. The Shares shall not entitle
the holder to preference, preemptive, appraisal, conversion or exchange rights
(except for rights of appraisal specified in Section 11.4).,
6.3. Trust Only. It is the intention of the Trustees to create only
the relationship of Trustee and beneficial betnefit the Trustees and each Share
holder from time to time. It is not the intention of the Trustees to create a
general Partnership, limited partnership, joint stock association, corporation,
bailment or any form of legal relationship other than a trust. Nothing in this
Declaration shall be construed to make the Shareholders, either by themselves
or with the Trustees, partners or members of a joint stock association.,
6.4 Issuance of Shares. The Trustees, in their discretion, may from
time to time without a vote of the Shareholders issue Shares, in addition to
the then issued and outstanding Shares and Shares hold in the treasury, to
such party or parties and for such amount not less than par value and type of
consideration, including cash or property, at such time or times, and on such
terms as the Trustees may deem best, and may in such manner acquiree other
assets (including the acquisition of assets subject to, and in connection with
the assumption of, liabilities) and businesses. In connection with any
issuance of Shares, the Trustees may issue fractional Shares. The Trustees
may from time to time divide or combine the Shares into a greater or lesser
number without thereby changing the proportionate beneficial interests in the
Trust. Contributions to the Trust may be accepted for, and Shares shall be
redeemed as, whole Shares and/or 1/1,000ths of a Share or multiples thereof.
6.5 Register of Shares. A register shall be kept at the Trust or a
transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addresses of the Shareholders and
the number of Shares hold by them respectively and a record of all transfers
thereof. Such register shall be conclusive as to who are the holders of the
Shares and who shall be entitled to receive dividends or distributions or
otherwise to exercise or enjoy the rights of Shareholders. No Shareholder
shall be entitled to receive payment of any dividend or distribution, nor to
have notice given to him as herein provided, until he has given his address to
a transfer agent or such other officer or agent of the Trustees as shall keep
the said register for entry thereon. It is not contemplated that certificates
will be issued for the Shares; however, the Trustees,
<PAGE>
in in their discretion, may authorize the issuance of share certificates and
promulgate appropriate rules and regulations as to their use.
6.6 Transfer Agent and Registar. The Trustee shall have power to
employ a transfer agent or transfer agents, and a registrar or registrars. The
transfer agent or transfar agents may keep the said register and record
therein the original issues and transfers, if any, of the said Shares. Any
such transfer agent and registrars shall perform the duties usually performed
by transfer agents and registrars of certificates of stock in a corporation,
except as modified by the Trustees.,
6.7 Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent
thereto duly authorized in writing, upon delivery to the Trustees or a
transfer agent of the Trust of a duly executed instrument of transfer,
together with such evidence of the genuineness of each such execution and
authorization and of other matters as may reasonalbly be required. Upon such
delivery the transfor shall be recorded on the register of the Trust. Until
such record is made, the Shareholder of record shall be deemed to be the
holder of such Shares for all purposes hereof and neither the Trustees nor any
transfer agent or registrar nor any officer, employee or agent of the Trust
shall be affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in Consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by
operation of law, shall be recorded on the register of Shares as
the holder of such Shares upon production of the proper evidence thereof to the
Trustees or a transfer agent of the Trust, but until such record is made, the
Shareholder of record shall be doomed to be the holder of such Shares for all
purposes hereof and neither the Trustees nor any transfer agent or registrar nor
any officer or agent of the Trust shall be affected by any notice of such death,
bankruptcy or incompetence, or other operation of law.
6.8 Notices. Any and all notices to which any Shareholder hereunder
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record
at his last known address as recorded an the register of the Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees, have signed this certificate in duplicate original counterparts and
have caused duplicate original to be lodged among the records of the Trust as
required by Article XI, Section 11.3(c) of the Declaration of Trust as of the
20th day of March, 1987.
/s/ Andre F. Perold
- ------------------------- -------------------------------
Arthur Zeikel Andre F. Perold
279 Watchtlng Road 174 Allen Avenue
Westfield, New Jeresy 07090 Waban, Massachusetts 02168
/s/ Kenneth S. Axelson /s/ Robert F. Vandell
- ------------------------- -------------------------------
Kenneth S. Axelson Robert F. Vandell
Indian Point Farm Arlington Boulevard
R.R #3 Box 6550
Box 307 Charlottesville, Virginia
Waldoboro, Maine 22906
/s/ Vincent R. McLean
- -------------------------
Vincent R. McLean
702 Shackamaxon Drive
Westfield, New Jersey 07090
<PAGE>
EXHIBIT 99.5
MANAGEMENT AGREEMENT
AGREEMENT made this 4th day of February, 1987, by and between MERRILL
LYNCH RETIREMENT EQUITY FUND, a Massachusetts business trust (hereinafter
referred to as the "Fund"), and MERRILL LYNCH ASSET MANAGEMENT, INC., a Delaware
corporation, (hereinafter referred to as the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as a diversified open-end
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act") and
WHEREAS, the Manager is engaged principally in rendering management and
investment advisory services and is registered as an investment adviser under
the Investment Adviser's Act of 1940; and
WHEREAS, the Fund's assets will be invested primarily in equity
securities of high quality companies with large total market capitalization; and
WHEREAS, the Fund desires to retain the Manager to provide management
and investment advisory services to the Fund in the manner and on the terms
hereinafter set forth; and
WHEREAS, the Manager is willing to provide management and investment
advisory services to the Fund on the terms and conditions hereinafter set forth;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Manager hereby agree as follows:,
ARTICLE I
Duties of the Manager
The Fund hereby employs the Manager to act as a manager and investment
adviser of the Fund and to furnish, or arrange for affiliates to furnish, the
management and investment advisory services described below, subject to the
policies of, review by and overall control of the Board of Trustees of the Fund,
for the period and on the terms and conditions set forth in this Agreement. The
Manager hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such services and to assume
the obligations herein set forth for the compensation provided for herein. The
manager and its affiliates shall for all purposes herein be deemed to be
independent contractors and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed agents of the Fund.
(a) Management Services. The Manager shall perform (or arrange for the
performance by affiliates of) the management and administrative services
necessary for the operation of the Fund including administering shareholder
accounts and handling shareholder relations. The Manager shall provide the Fund
with office space, facilities, equipment and necessary personnel and such
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<PAGE>
other services as the Manager, subject to review by the Trustees, shall from
time to time determine to be necessary or useful to perform its obligations
under this Agreement. The Manager shall also, on behalf of the Fund, conduct
relations with custodians, depositories, transfer agents, dividend disbursing
agents, other shareholder servicing agents, accountants, attorneys,
underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and
such other persons in any such other capacity deemed to be necessary or
desirable. The Manager shall generally monitor the fund's compliance with
investment policies and restrictions as set forth in the currently effective
prospectus and statement of additional information relating to the shares of the
Fund under the Securities Act of 1933, as amended (the "Prospectus" and
"Statement of Additional Information", respectively). The Manager shall make
reports to the Trustees of its performance of obligations hereunder and furnish
advice and recommendations with respect to such other aspects of the business
and affairs of the Fund as it shall determine to be desirable.
(b) Investment Advisory Services. The Manager shall provide the Fund
with such investment research, advice and supervision as the latter may from
time to time consider necessary for the proper supervision of the assets of the
Fund, shall furnish continuously an investment program for the Fund and shall
deterrine from time to time which securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held in the
various securities in which the Fund invests or cash,
-3-
<PAGE>
subject always to the restrictions of the Declaration of Trust and By-Laws of
the Fund, as amended from time to time, the provisions of the Investment Company
Act and the statements relating to the Fund's investment objectives, investment
policies and investment restrictions as the same are set forth in the Prospectus
and Statement of Additional Information. The Manager shall take decisions for
the Fund as to foreign currency matters and take determinations as to foreign
exchange contracts. The manager shall make decisions for the Fund as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall be exercised.
Should the Trustees at any time, however, take any definite determination as to
investment policy and notify the Manager thereof in writing, the Manager shall
be bound by such determination for the period, if any, specified in such notice
or until similarly notified that such determination has been revoked. The
Manager shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers or dealers selected by it, and to that end,
the Manager is authorized as the agent of the Fund to give instructions to the
Custodian of the Fund as to deliveries of securities and payments of cash for
the account of the Fund. In connection with the selection of such brokers or
dealers and the Placing of such orders with respect to assets of the Fund,
-4-
<PAGE>
The Manager is directed at all times to seek to obtain execution and prices
within the policy guidelines determined by the, and Trustees and set forth in
the Prospectus and Statement of Additional Information. Subject to this
requirement and the provisions of the Investment company Act, the Securities
Exchange Act of 1934, as amended, and other applicable provisions of law, the
Manager may select brokers or dealers with which it or the Fund is affiliated.
ARTICLE II
Allocation of Charges and Expenses
(a) The Manager. The Manager assumes and shall pay for maintaining the
staff and personnel necessary to perform its obligations under this Agreement,
and shall at its own expense, Provide the office space, facilities, equipment
and necessary personnel which it is obligated to provide under Article I hereof,
and shall pay all compensation of officers of the Fund and all trustees of the
Fund who are affiliated persons of the Manager
(b) The Fund. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund (except for the expenses Paid by the Distributor),
including, without limitation, taxes, expenses for legal and auditing services,
costs of printing proxies, stock certificates, shareholder reports, prospectuses
and statements of additional information, charges of the custodian, any sub-
custodian and transfer agent, expenses of portfolio transactions, expenses of
redemption of shares, Securities and
-5-
<PAGE>
Exchange Commission fees, expenses of registering the shares under Federal,
state and foreign laws, fees and actual out-of-pocket expenses of trustees who
are not affiliated persons of the Manager, accounting and pricing costs
(including the daily calculation of the net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Fund. It is also understood that the
Fund will reimburse the Manager for its costs in providing accounting services
to the Fund. The Distributor will pay certain of the expenses of the Fund
incurred in connection with the continuous offering of shares of beneficial
interest in the Fund.
ARTICLE III
Compensation of the Manager
(a) Management and investment Advisory Fee. For the services rendered,
the facilities furnished and expenses assumed by the Manager, the Fund shall pay
to the Manager at the end of each calendar month a fee based upon the average
daily value of the net assets of the Fund, as determined and computed in
accordance with the description of the determination of net asset value
contained in the Prospectus and Statement of Additional information, at the
annual rate of 0.65 of 1.0% (0.65%) of the average daily net assets of the Fund,
commencing on the day following effectiveness hereof. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this
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<PAGE>
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fee as set forth above. Subject to the provisions of
subsection (b) hereof, payment of the Manager's compensation for the preceding
month shall be made as promptly as possible after completion of the computations
contemplated by subsection (b) hereof. During any period when the determination
of net asset value is suspended by the Trustees, the net asset value of a share
as of the last business day prior to such suspension shall for this purpose be
deemed to be the net asset value at the close of each succeeding business day
until it is again determined.
(b) Expense Limitations. In the event the operating expenses of the
Fund, including amounts payable to the Manager pursuant to subsection (a)
hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed the expense limitations applicable to the Fund imposed by
applicable state securities laws or regulations thereunder, as such limitations
tay.be raised or lowered from time to time, the Manager shall reduce its
management 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;
provided, however, to the extent permitted by law, there shall be excluded from
such expenses the amount of any interest, taxes, brokerage commissions and
extraordinary expenses (including but not limited to legal claims and
liabilities and litigation costs and any indemnification related thereto) paid
or payable by the Fund. Whenever the
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<PAGE>
expenses of the Fund exceed a pro rata portion of the applicable expense
limitations, the estimated amount of reimbursement, under such limitations shall
be applicable as an offset against the monthly payment of the fee due to the
Manager. Should two or more such expenses limitations be applicable as at the
end of the last business day of the month, that expense limitation which results
in the largest reduction in the Manager's fee shall be applicable.
ARTICLE IV
Limitation of Liability of the Manager
The Manager shall not be liable for any error of judgment or mistake of
law or for any loss arising out of any investment or for any act or omission in
the management of the Fund, except for willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties hereunder. As used in this Article IV, the term
"Manager" shall include any affiliates of the Manager performing services for
the Fund contemplated hereby and directors, officers and employees of the
Manager and such affiliates.
ARTICLE V
Activities of the Manager
The services of the Manager to the Fund are not to be deemed to be
exclusive, the Manager and any person controlled by or under common control with
the Manager (for purposes of this Article V referred to as "affiliates") is free
to render services to others. It is understood that Trustees, officers,
employees
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<PAGE>
and shareholders of the Fund are or may become interested in the Manager and
its affiliates", as directors, officers, employees, partners and shareholders
or otherwise, and that directors, officers, employees, partners and
shareholders of the Manager and its affiliates are or may become similarly
interested in the Fund, and that the Manager and directors, officers,
employees, partners and shareholders of its affiliates may become interested
in the Fund as shareholder or otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above written
and shall remain in force until February 4, 1989 and thereafter, but only 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) 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 voting
securities of the Fund, or by the Manager, on sixty days' written notice to the
other party. This Agreenent shall automatically terminate in the event of its
assignment.
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<PAGE>
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) 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.
ARTICLE VIII
Definitions of Certain Terms
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 of 1940 and the Rules and Regulations thereunder, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investinent
Company the latter shall control.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH RETIREMENT EQUITY FUND
By /s/ Arthur Zeikel
---------------------------------
MERRILL LYNCH ASSET MANAGEMENT, INC.
By /s/ Norman R. Harvey
---------------------------------
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<PAGE>
EXHIBIT 99.6(A)
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 4th day of February, 1987 between MERRILL LYNCH
RETIREMENT EQUITY FUND, a Massachusetts business trust (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
1980, 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 throug
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 Fund's shares in
order to promote the growth of the Fund and facilitate the distribution of its
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
shares of beneficial interest of
<PAGE>
the Fund (sometimes herein referred to as "shares") to the public and hereby
agrees during the tern of this Agreement to sell 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
tire designate other principal underwriters and distributors of its 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 sech. If such designation
is deemed exclusive, the right of the Distributor under this Ageement to sell
shares in the areas so designated shall termi nate, 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 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.
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<PAGE>
(c) Such exclusive rights also shall not apply to shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive rights also shall not apply to shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
Section 3. Purchase of Shares from the Fund.
(a) Prior to the continuous offering of the shares, commencing on a date
agreed upon by the Fund and the Distributor, it is contemplated that the
Distributor will solicit subscriptions for shares during a subscription period
which shall last for such period as be agreed upon by the parties hereto. The
subscriptions will be payable within six business days after the termination of
the subscription period, at which time the Fund will commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its shares and thereafter the Distributor shall have the right to
buy from the Fund the shares needed, but not more than the 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 shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(e) hereof.
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<PAGE>
(c) The shares are to be resold by the Distributor to investors at net
asset value, as set forth in Section 3(e) hereof, or to securities dealers
having agreements with the Distributor upon the terms and conditions set forth
in Section 7 hereof.
(d) The net asset value of 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 the Fund and guidelines
established by the Trustees.
(e) The Fund shall have the right to suspend the sale of its shares at
tmes 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
its shares if trading on the New York Stock Exchange shall have been suspended,
if a banking moratorium, shall have been declare, 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 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 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 shares. The Fund (or its
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<PAGE>
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 shares pursuant to the
instructions of the Distributor. Payment shall he 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 shares may be tendered for redemption at any
and the Fund agrees to repurchase or redeem the 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 he paid to redeem or repurchase the shares shall be equal to the
net asset value 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 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
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<PAGE>
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 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 shares or payment may be suspended at times when the
New York Stock Exchange is closed, when trading on stock Exchanae is closed,
When trading on said Exchange is restricted, when an emergencies, exist 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 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
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<PAGE>
number of copies of its prospectus and statement of additional information as
the Distributor shall reasonably request.
(b) The Fund shall take, from tine to time, but subject to the necessary
approval of the shareholders, all necessary action to fix the number of
authorized shares and such steps as may he 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 shares 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 its shares for sale under the
securities laws of such states as the Distributor and the Fund nay 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
quualification and maintenance of qualification shall he 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 requested by
the Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable tine and effort to effect
sales of shares of the Fund, but shall not be
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<PAGE>
obligated to sell any specific number of 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 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 in either 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 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 tire to
time exist.
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<PAGE>
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 shares; provided, that the Fund shall approve the forms of agreements
with dealers. Shares sold to selected dealers shall be for resale by such
dealers only at net asset value determined as set forth in Section 3(d) hereof.
The form of acreenent with selected dealers to be used during the subscription
period described in Section 3(a) is attached hereto as A and the initial form of
agreement with selected dealers to be used in the continuous offering of the
shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
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 reaquired 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 nailing annual and interim reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospec-
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<PAGE>
tuses, 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 shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing anv other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the 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
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
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<PAGE>
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) Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against anv loss, claim, damage or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, class, damage or expense and reasonable counsel fees incurred
in connection therewith) arising by reason of any person acquiring any 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 frm time to tine 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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<PAGE>
deemed to project 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 he liable under its
indemnity agreement contained in this paragraph with respect to ary 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
waiting within a reascnable 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
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<PAGE>
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 proceedings against it or any of its offocers
or trustees in connection with the issuance or sale of any of the 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 that 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 tine amended, or the annual
orr interim reports to shareholders. In case any action shall be brought against
the Fund or any person so indemnified, in respect
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<PAGE>
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 February 4, 1989 and thereafter, but only 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 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.
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<PAGE>
Section 11. 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 12. Governing Law. The provisions of this Agreement shall he
construe and interpreted in accordance with the laws of the State of New York as
at the tine in effect and the applicable provisions of the Investment Company
Act. To the extent '"he 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.
Section 13. Personal Liability. The Declaration of Trust establishing
Merrill Lynch Retirement Equity Fund, dated December 11, 1986, a copy of which,
together with all amendments thereto (the "Declaration"), is on file in the
office of the Secretary of the Commonnwealth of Massachusetts, provides that the
name "Merrill Lynch Retirement Equity 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 shall be held to
any personal liability, nor shall resort had to their private property for
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the satisfaction of any obligation or claim or otherwise in connection with the
affairs of the Fund, but the "Trust Property" only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH RETIREMENT EQUITY FUND
By /s/ Arthur Zeikel
---------------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Leonard Klein
---------------------------------
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<PAGE>
EXHIBIT A
MERRILL LYNCH RETIREMENT EQUITY FUND
SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Retirement Equity Fund, a Massachusetts business
trust (the "Fund"), pursuant to which it acts as the distributor for the sale of
shares of beneficial interest, par value $0.10 per share, of the Fund, and as
such has the right to distribute shares of the Fund for resale. The Fund is an
open-ended 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. Such shares and certain of the
terms on which they are being offered are more fully described in the enclosed
Prospectus and Statement of Additional Information. 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. This Agreement
relates solely to the subscription period described in Section 3(a) of such
Distribution Agreement. Subject to the foregoing, as principal, we offer to sell
to you, as a member of the Selected Dealers Group, shares of the Fund upon the
following terns and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue through March 20, 1987. The subscription
period may be extended upon agreement between the Fund and the Distributor.
Subject to the provisions of such Section and the conditions contained herein,
we will sell to you on the fifth business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of shares as to which you have placed orders with us not later than
5:00 P.M. on the second full business day preceding the Closing Date.
2. 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.
3. You shall not place orders for any of the shares unless you have
already received purchase orders for such shares at the applicable public
offering prices and subject to the terns hereof
<PAGE>
and of the Distribution Agreement. All orders are subject to acceptance 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 Prospectus, as
amended from time to tine. You agree that you will not offer or sell any of the
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 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 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. Payment for shares purchased by you is to be made by certified or
official bank check at the office of Merrill Lynch Funds Distributor, Inc., Box
9011, Princeton, New Jersey 08543-9011, on such date as we may advise, in New
York Clearing House funds payable to the order of Merrill Lynch Funds
Distributor, Inc. against delivery by us of non-negotiable share deposit
receipts ("Receipts") issued by a shareholder servicing agent, acknowledging the
deposit with it of the shares so purchased by you. You agree that as promptly as
practicable after the delivery of such shares you will issue appropriate written
transfer instructions to the Fund or to the shareholder servicing agent as to
the purchasers to whom you sold the shares.
5. No person is authorized to make any representations concerning 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 Infomation. In purchasing 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 and Statement
of Additional Information, 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.
6. 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
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<PAGE>
the tine 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.
7. We reserve the right in our discretion, without notice, to suspend sales
or withdraw the offering of shares entirely. Each party hereto has the right to
cancel this Agreement upon notice to the other party.
8. We shall have full authority to take such action as we may deer,
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 ammended or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
9. 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.
10. Upon application to us, we will inform you as to the states in which we
believe the 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 shares in any
jurisdiction. We will file with the Departnent of State in New York a Further
State Notice with respect to the shares, if necessary.
11. 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.
12. You agree that you will not sell any shares of the Fund to any account
over which you exercise discretionary authority.
-3-
<PAGE>
13. This Agreement shall terminate at the close of business on the Closing
Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of settlement of accounts hereunder.
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:
----------------------------------
-4-
<PAGE>
EXHIBIT B
MERRILL LYNCH RETIREMENT EQUITY FUND
SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Retirement Equity Fund, a Massachusetts business trust (the
"Fund"), pursuant to which it acts as the distributor for the sale of shares of
beneficial interest, par value $0.10 per share, of the Fund, 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 ammended. 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, 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.
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 tine to tine 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 shares unless you have already
received purchase orders for such shares at the
<PAGE>
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
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 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 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 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 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 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 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 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.
7. You agree to deliver to each of the purchasers raking 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
-2-
<PAGE>
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.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of 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 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 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 shares in any
jurisdiction. We will file with the Department of State in New York a Further
State Notice with respect to the 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.
-3-
<PAGE>
13. Your first order placed pursuant to this Agreement for the purchase of
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.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
-----------------------------
By:
------------------------------------
Address:
-------------------------------
---------------------------------------
Date:
----------------------------------
-4-
<PAGE>
EXHIBIT 99.8
CUSTODIAN CONTRACT
Between
THE MERRILL LYNCH RETIREMENT EQUITY FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Prpoerty to be
Held By It.............................................. 1
2. Duties of the Custodian with Respect to Property of
the Fund Held by the Custodian in the United States..... 2
2.1 Holding Securities................................. 2
2.2 Delivery-of Securities............................. 2
2.3 Registration of Securities......................... 7
2.4 Bank Accounts...................................... 7
2.5 Investment and Availability of Federal Funds ...... 8
2.6 Collection of Income............................... 9
2.7 Paysmentof Fund Moneys............................. 9
2.8 Liability for Payment In Advance of
Receipt of Securities Purchased.................... 12
2.9 Appointment of Agents.............................. 12
2.10 Deposit of Securities in Securities System......... 13
2.11 Segregated Account................................. 16
2.12 Ownership Certificates for Tax Purposes............ 17
2.13 Proxies............................................ 17
2.14 Comminications Relating to Fund
Portfolio Securities............................... 17
2.15 Reports to Fund by Independent Public
Accountants........................................ 18
3. Duties of the Custodian with respect to Property of
the Fund Held Outside of the United States.............. 19
3.1 Appointment of Foreign Sub-Custodians.............. 19
3.2 Assets to be Held.................................. 19
3.3 Foreign Securities Depositories.................... 20
3.4 Segregation of Securities.......................... 20
3.5 Agreements with Foreign Banking Institutions....... 20
3.6 Access of Independent Accountants of the Fund...... 21
3.7 Reports by Custodian............................... 21
3.8 Transactions in foreign Custody Account............ 22
3.9 Liability of Foreign Sub-Custodians................ 23
3.10 Monitoring Responsibilities........................ 24
3.11 Branches of U.S. Banks............................. 24
4. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund .................................. 25
5. Proper Instructions..................................... 26
6. Actions Permitted Without Express Authority............. 26
7. Evidence of Authority................................... 27
<PAGE>
8. Duties of Custodian with Respect to the books of
Account and Calculations of Not Asset Value and
Net Income.............................................. 27
9. Records................................................. 28
10. Opinion of Fund's independent Accountant................ 29
11. Compensation of Custodian............................... 29
12. Responsibility of Custodian............................. 29
13. Effective Period, Termination and Amendment............. 31
14. Successor Custodian..................................... 32
15. Interpretive and Additional Provisions.................. 34
16. Massachusetts Law to Apply.............................. 34
17. Prior Contracts......................................... 34
l8. Personal Liability...................................... 35
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Merrill Lynch Retirement Equity Fund, a business
trust organized and existing under the laws of The Commonwealth Of
Massachusetts, having Its principal place of business at 800 Scudders Mill Road,
Plainsboro, Now Jersey. 08543, hereinafter called the "Fund". and State Street
Bank and Trust Company, a Massachusetts corporation, having its principal place
of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter
called the "Custodian",
W I T H N E S S E T H: That in consideration of the mutual covenants
and agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be held by It
The Fund hereby employs the Costodian as the custodian of its assets,
Including securities It desires to be held In places within the United States
("domestic securities") and securities it desires to be hold outside the United
States "foreign securities") pursuant to the provisions of Its Declaration of
Trust. The Fund agrees to deliver to the Custodian all securities and cash owned
by It, and all payments of income, payments of principal or capital
distributions received by It with respect to all securities owned by the Fund
from time to time, and the cash considerations received by It for such new or
treasury shares of beneficial Interest, $.10 par Value, ("Shares") of the Fund
as may be Issued or sold from time to time. The Custodian shall not be
responsible for say property of the Fund hold or received by the Fund and not
delivered to the Custodian.
<PAGE>
Upon receipt of Proper Instructions (within the meaning of Article 5), the
Custodian shall from time to time employ one or more sub-custodians located in
the United States, but only in accordance with an applicable vote by the Board
of Trustees of the Fund, and provided that the Custodian shall have no more or
less responsibility or liability to the land on account of any actions or
omissions of any sub-custodian so employed than any such sub-custodian has to
the Custodian. The Custodian way employ as sub-custodians for the Fund's
securities and other assets the foreign banking Institutions and foreign
securities depositories designated In Schedule "A" hereto but only in accordance
with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall held and physically segregate for
the account of the Fund all non-cash property. to be held by It in the
United States, Including all domestic sucurities owned by the Fund, other
than securities which are maintained pursuant to Section 2.10 in a clearing
&Sauey which acts as a securities depositary or In a book-entry system
authorized by the U.S. Department of the Treasury, collectively referred to
herein as "Securities System".
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by the fund hold by the Custodian or In a Securities
System account of the Custodian only upon receipt of Proper Instructions,
which
-2-
<PAGE>
may be continuing iustructions when deemed appropriate by the parties, and
only in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor:
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities System into by the Fund;
3) In the case of a sale affected through a Securities System, In
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent In connection with tender or other similar
offers for portfolio securities of the Fund;
5) To the Issuer thereof or its agent when such securities are called
redeemed retired or otherwise become payable; provided that,in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or Its agent, for transfer into the name of
the Fund or Into the Fund of any nominee or name of the Custodian or
into the case or nominee name of any agent appointed pursuant to
Section 2.9 Or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of
-3-
<PAGE>
bonds, certificates or other evidence representing the Same
aggregate face amount, or number of units; provided that, in any ,
such case, the new securities are to be delivered to the Custodian;
7) To the broker selling the same for examination in accordance with
the "street delivery" custom;
8) For exchange or conversion pursuant to any Plan or merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the Issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit Agreement; provided that, in any such case, the now
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case. the new securities and cash, if any, are to be delivered to
the Custodian;
-4-
<PAGE>
10) For delivery In connection with say loans of securities grade by the
Fund, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund. which say to In the
form of cash or obligations Lasted by the United States government.
its agencies or instrumentalities. except that in connection with
any loans for which collateral is to be credited to the Custodian's
account In the book-entry system authorized by the U.S. Department
of the Treasury, the Custodian will not be held liable or
responsible for the delivery of securities owned by the Fund prior
to the receipt of such collateral;
11) For delivery as security in connection with, any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker dealer registered under
the Securities exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation
-5-
<PAGE>
and of any registered national securities exchange, or of any
similiar organization or organizations, regarding escrow or other
arrangments in commection with transactions by the Fund;
13) For delivery in accordance with the provisions: of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or
any Contract Market, or any similar organization or organizations
regarding account deposits In connection with transactions by the
Fund;
14) upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may
be described from time to time in the Fund's currently effective
prospectus and statement of additional Information ("prospectus"),
in satisfaction of requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, but, only upon receipt of,
in addition to Proper
-6-
<PAGE>
instructions, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee signed by an officer of the
fund and certified by the Secretary or any Assistant Secretary.
specifying the securities to be delivered, setting forth the purpose
for which such delivery to to be made, declaring such purpose to be
a proper corporate purpose. and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities hold by the Custodian
(other than bearer securities) shall be registered In the case of the Fund
or in the same of any nominee of the Fund or of any against of the
Custodian which nominee shall be assigned exclusively to the Fund, unless
the Fund has authorized In writing the appointment of a nominee to be used
In common with other registered investment companies having the same
investment adviser as the Fund, or in the same or nominee name of any agent
appointed pursuant to Section.2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1; All securities accepted by
the Custodian on behalf of the Fund under the terms of this Contract shall
be in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts In the United States in
-7-
<PAGE>
the name of the Fund, subject only to draft or order by the Custodian
acting pursuant to the terms of this Contract, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by
it from or for the account of the Fund, other than cash maintained by the
FUnd in a back account established and used in accordance with Rule 17f-3
under the Investment Company Act of 1940. Funds held by the Custodian for
the and may be deposited by it to its credit as Custodian in the banking
Department of the Custodian or in such other banks or trust companies as It
may in its discretion dean necessary or desirable; provided, however, that
every such bank or trust coapany shall be qualified to act an a custodian
under the Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust company
shall be approved by vote of a majority of the Board of Trustees of the
Fund. Such funds shall be deposited by the Custodian in Its capacity an
Custodian and shall be wwithdrawable by the Custodian only is that
capacity.
2.5 Investment and Availability of Federal funds. Upon mutual agreement between
the Fund and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
acount of checks received in payment for shares of the Fund which are
deposited into the Fund's account.
-8-
<PAGE>
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to United States registered
securities held hereunder to which the Fund shall be entitled either by law
or pursuant to custom in the securities business, and shall collect on a
timely basis all income and other payments with respect to United States
bearer securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to the Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as and
when they become due and shall collect Interest when due on securities held
hereunder. Income due the Fund an United States securities loaned pursuant
to the provisions of Section 2.2 (10) shall be the responsibility of the
fund. The Custodian mill have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data as
may be necessary to assist the Fund is arranging for the timely delivery to
the Custodian of the Income to which the Fund is properly entitled.
2.7 Payment of Fund Moneys. Upon receipt of Proper Instructions, which may be
continuting instructions when doomed appropriate by the parties, the
Custodian shall pay out moneys of the Fund in the following cases only:
-9-
<PAGE>
1) Upon the purchase of domestic securities, futures contracts or
options on futures contracts for the account of the Fund but only
(a) against the delivery of such securities or evidence of title to
futures contracts or options on futures-contracts, to the Custodian
for any bank, banking firm or trust company doing business In the
United States or abroad Which Is qualified under the Investment
Company Act of 1940, as ammended, to act as a Custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Fund or in the name of a name of a
nominee of the Custodian referred to the Section 2.3 hereof or Inn
proper form for transfer; (b) In the case of a purchase affected
through a Securities System, In accordance wlth the conditions set
forth in Section 2.10 hereof or (c) in the case of repurchaase
agreements entered into between the Fund and the Custodian, or
another bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (Li) against delivery of the
-10-
<PAGE>
receipt evidencing purchase by the Fund of securities owned by the
Custodian along with written evidence of the agreement by the Fund
as Custodian to repurchase such securities from the Fund;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth la Section 2.2 hereof;
3) For the redemption or repurchase of Shares Issued by the Fund as sat
forth In Article 4 hereof;
4) For the payment of any expense or liability issued by the Fund,
including but not limited to the following payments for the account
of the Fund: interest, taxes, management, accounting, transfer
agency and legal fees, and operating expenses of the Fund whether or
not such expenses are to be in whole or part capitalized or treated
as deferred expenses;
5) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities held short;
7) For any other proper purpose, but only upon receipt of, In addition
to Proper
-11-
<PAGE>
Instructions, a certified copy of a resolution of the Board of
Trustees Or of the Executive Committee of the Fund signed by an
officer of the fund and certified by its Secretary or by Assistant
Secretary, specifying the amount of each payment setting forth the
purpose for which such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or persons to whom
such paysent is to be made.
2.8 Liability for Payment In Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of domestic securities for
the account of the Fund is made by the Custodian in advance of receipt of
the securities purchased In the absence of specific written instructions
from the Fund to so pay In advance the Custodian shall be absolutely
liable to the Fund for such securities to the same extent as If the
securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or tines in its
discretion appoint (and say at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as I amended, to act an a custodian, as Its agent to carry out such
of the provisions of this article 2 as the Custodian, say from tine to
time direct; provided, however, that the appointment of any agent shalll
not relieve the Custodian of its responsibilities or lliabilities
hereunder.
-12-
<PAGE>
2.10 Deposit of Securities in Securities Systems. The Custodian say deposit
and/ or maintain domestic securitiess owned by the Fund in a clearing
agency registered with the Securities and Exchange commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission rules and
regulations, If any, and Subject to the following provisions:
1) The Custodian may keep domestic securities of the Fund In a
Securities System provided that such securities are represented In
an account ("Account"') of the Custodian in the Securities System
which shall not Include any assets of the Custodian other than
assets bald as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to domestic securities
of the Fund which are maintained in a Securities System shalll
Identify by book-entry those securities belonging to the fund;
3) The Custodian shall pay for domestic securities purchased for the
account of the
-13-
<PAGE>
Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the account, and (ii) the
making of an entry on the records of the Custodian to reflect such
payment and transfer or the account of the Fund. The Custodian
shall transfer domestic securities sold for the account of the
fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodion to
reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System of transfers of
domestic securities for the account of the land shall identify the
Fund, be maintained for the Fund by the Custodian and be provided
to the Fund at its request. Upon request, the Custodian shall
furnish the fund confirmation of each transger to or from the
account of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for
the account of the Fund.
-14-
<PAGE>
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system,
internal accounting control and procedures for safeguarding
domestic Securities deposited in the Securities System;
5) The Custodian shall have received the initial or annual
certificate, as the case may be required by Article 13 hereof;
6) Anything to the contrary in this Contract notwithstanding the
Custodian shall be liable to the fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure
of the Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may have
as a consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any such loss or
damage.
-15-
<PAGE>
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for
and an behalf of the Fund, into which account or accounts may be
transferred cash and/or securities. Including securities maintained -in an
account by the Custodians pursuant to Section 2.10 hereof. (i) In
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Comodity Exchange Act), relating to compliance with the rules of the
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similiar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Fund, (ii) for purposes of segregating cash or government securities
In connection with options purchased, sold or written by the fund or
commodity futures contracts or options thereon purchased or sold by the
Paid, (iii) for the purposes of compliance by the Fund with the procedures
required by Investment Company AAct Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission relating to
the maintenance of segregated accounts by registered Investment companies
and (iv) for other proper corporate purposes, but only, In the case of
clause (iv),
-16-
<PAGE>
upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee signed
by an officer of the fund and certified by the Secretary or an Assistant
Secretary. setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for ail federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of the fund held by It and in commection
with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if- the securities are registered otherwise than in the nane
of the Fund or a nominee of the Fund, all proxies, without indication of
the name in which such proxies are to be voted, and sh deliver to the Fund
such proxies, all proxy soliciting materials and all notice relating to
such securities.
2.14 Communications relating to the Fund Portfolio Securities. The Custodian
shall transmit promptly to the Fund all written information (including,
without limitations, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
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notices of exercise of call and Put options written by the fund and the
maturity of futures contracts purchased or sold by the Fund) received by
the Custodian from issuer of the domesticsecurities being held for the
Fund. With respect to tender or exchange offers. the Custodian shall
transmitpromptly to the Fund all written Information received by the
Custodian from issuers of the domestic securities whose tender or exchange
is sought and from the party (or his &gouts) making the tender or exchange
offer. If the Fund dealres to take action with resect to any tender offer,
exchange offer or any other similar transaction, the fund shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
2.15 Reports to fund by Independant Public Accountants The Custodian shall
provide the Fund, at such times as the Fund may reasonable require with
reports by independent public accountants an the accounting system,
internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including domestic
securities deposited and/or maintained In a Securities System, relating to
the services provided by the Custodian under this Contract; such reports,
which shall be of sufficient scope and In sufficient detail, as say
reasonably be required by the Fund. to provide reasonable assurance that
any material inadequacies would be disclosed by such,
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examination, and, If there see no such inadequacies, shall so state.
3. Duties of the Custodian with Respect to Property of the, Fund Hold Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians.
The Custodian is authorized and Instructed to employ as sub-custodians for
the Fund's securities and other assets maintained outside of the United
States the foreign banking Institutions and foreign securities
depositories designated on Schedule A hereto ("foreign sub-custodians").
Upon receipt of Proper Instructions together with a certified resolution
of the Fund's Board of Trustees, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional foreign
banking Institutions and foreign securities depositories to act as sub-
custodians. Upon receipt of Proper Instructions from the fund the
Custodian shall cease the employment of any one or more of such sub-
custodians for maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained In the custody of the foreign sub-custodians to:
(a)foreign securities-, defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents In
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions.
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3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securitiy depositories only through arrangements
implemented by the foreign banking Institutions serving as sub-custodians
pursuant to the terms hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund hold by each
foreign sub-custodian. Each agreement to which the Custodian employs a
foreign banking institution shall require that such institution establish
a custody account for the Custodian on behalf of the Fend and physically
segregate in that account, securities and other assets of the Fund, and,
In the event that such institution deposits the Fund's securities in
foreign securities depository, that it shall identify an its books as
belonging to the Custodian, as agent for the Fund, the securities SO
deposited (all collectively referred to as the "Account").
3.5 Agreements with Foreign Banking institutions. Each agreement with a
foreign banking Institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the Fund's assets will not
be subject to any right, charge. security interest, lien, or claim of any
kind in favor of the foreign banking Institutions or its creditors, except
a claim of payment
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for their safe custody or administration; (b) beneficial ownership for the
Fund's assets will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records will
be maintained identifying the assets as belonging to the Fund; (d) officers
of or auditors employed by, or other represtatives of the Custodian,
lncluding to the extent [permitted under applicable law the independent
public accountants for the Fund. will be given access to the books and
records of the foreign banking institution relating to Its actions under
Its agreement with the Custodian; and (e) assets of the Fund held by the
foreign sub-custodian will be subject only to the Instruction of the
Custodian or its agents.
3.6 Access of Independant Accountants of the Fund. Upon request of the Fund,
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to the performance of such foreign banking
institutions under Its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
time, a mutually agreed upon,, statements in respect of the securities and
other assets of the Fund hold by foreign sub-custodians, including but not
limited to an identification of entities having
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possession of the Fund's securities and other assets and advices or
notification Of any transfer of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of the fund indicating, as to securities acquired for the Fund, the
identity of the entity having physical possessions of such securities.
3.8 Transactions in Foreign Custody Account. (a) upon receipt of Proper
Instructions, which may be containing instructions when deemed appropriate
by the parties, the Custodian shall make or cause Its foreign sub-custodian
to transfer, exchange or deliver foreign securities owned by the Fund, but
except to the extent explicitly provided herein only in any of the cases
specified In Section 2.2 (b) Upon receipt of Proper Insructions, which may
be continuing instructions when deemed appropriate by the parties the
Custodian sball pay out or cause its foreign sub-custodians to pay out
monies of the Fund, but except to the extent explicitly provided herein
only In any of the cases specified in Section 2.8. (c) Notwithstanding any
provision of this Contract to the contrary, settlement and payment for
securities received for the account of the Fund and delivery of securities
maintained for the accoamt of the Fund may be affected in accordance with
the customary or established securities trading or securities processing
practices and procedures in the jurisdiction or market In which the
transaction
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occurs, including, without limitation, delivering securities to the
purchase thereof or to a dealer tthereof (or an agent for such purchaser or
dealer) against a receipt with the expection of receiving later payment for
such securities from such purchases or dealer. (d) Securities maintained in
the custody of a foreign sub-custodian may be maintained In the name of
such entity's nominee to the same extnet as set forth in Section 2.3 of the
Contract and the Fund agrees to bold any such nominee hereas from say
liability as a holder of record of such secutities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursusat to which the
Custodoan employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
Performance of its duties and to indemnify, and hold harmless, the
custodian and Fund from and against any loss, damage, cost, expense,
liability, or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
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3.10 Monitoring Responsibilities. The Custodian shall furnish annually to the
Fund, during the Month of June information concerning the foreign sub-
custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund In connection with the
initial approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the custodian learns of a
material adverse change in the financial condition of a foreign sub-
custodian or is notified by a foreign banking institution employed as a
foreign sub-custodian that there appears to be a substantial liklihood
that its shareholders equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders'equity has declined
below $2OO million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.11 Branches of U.S. Banks. Except as otherwise not forth in this Contract,
the provisions hereof shall not apply where the custody of the Fund assets
maintained in a foreign branches of a banking Institution which is a
"bank" is defined by Section. 2(a) (5) of the investment Company Act of
1940 which meets the qualification set foth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be governed
by Article 1 of this Contract.
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4. Payments for Repurchase or Redemption and Sales of Shares of the Fund.
Fund From such funds as may be available for the purpose but subject to
the limitations of the Declaration of Trust and any applicable votes of the
Board of Trustees of the Fund pursuant thereto, the Custodian shall, upon
receipt of Instructions from the Transger Agent, make funds available for
payment to holder of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian Is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
band designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian &hall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from tine to tine
between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Fund's Shares or
from the Transfer Agent of the Fund and deposit Into the Fund's account such
payments as are received for Shares of the Fund Issued or sold from tine to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of the Fund.
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5. Proper Instructions
Proper Instructions as used herein means a writing signed or initiated by
one or more person or persons as the Board of Directors shall have from time to
time authorized. Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of the purpose for
which such action Is requested. Oral Instructions will be considered Proper
Instructions If the Custodian reasonably believes thou to have been given by a
person authorized to giva such instructions with respect to the transaction
Involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secratary or an Assistant Secretary an to
the authorization by the Board of Directors of the Fund accompanied by detailed
description of procedures approved by the Board of Directors, Proper
Instructions may Lnclude communications affected directly. between electro-
mechanical or electronic devices provided that the Board of Directors and the
Custodian are satisfied that such procedures afford adequate safageards for the
Fund's assets.
6. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similiar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund;
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2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, In the name of the Fund. checks. drafts and
other negotiable instruments; and
4) In general, attend to all non-discretionary details in connection with
the sale, exchange. substitution, purchase, transfer and other dealings with
these securities and property of the Fund except as otherwise directed by the
Board of Directors of the Fund.
7. Evidence of Authority The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificates or other instrument or
paper beleived by it to be genuine and to have been properly executed by or on
behalf of the Fund. The Custodian way receive and accept a certified copy of a
vote of the Board of Trustees of the Fund as conclusive evidence (a) of the
authority. of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Directors pursuant to the
Declaration of Trust as described in such vote, and such vote say be considered
as in full force and affect until receipt by the Custodian of written notice to
the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian sball cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
book of account of the Fund and/or compute the not asset value per share of the
outstanding
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shares of the Fund or, if directed in writing to do to by the Fund, shall
itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily per share of
the Fund as described in the fund's currently effective prospectus and shall
advise the Fund and the Transfer Agent daily of the total amoumts of such not
income and. If instructad In writing by an officer of the Fund to do no, shall
advise the Transfer Agent periodically of the division of such net Income among
its various components. The calculations of the set asset value per share and
the daily. Income of the Fund shall be made at the time or times described
from tine to time In the Fund's currently effective prospectus.
9. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 3la-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All such records shall be the
property of the Fund and shall at all times during the regular business hours of
the Custodian be open for Inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Securities and Exchange
Commission. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by the Fund and held by the Custodian and shall,
when
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requested to do so by the land and for such compensation as shall be agreed upon
between the Fund. and the Custodian, include certificate numbers in such
tabluations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses an Custodian, as agreed upon from time to time between the Fund and
the Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is In the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by It
pursuant to this Contract and shall be hold harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably, believed by It to
be genuine and to be signed by the proper party or parties. The Custodian shall
be held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be,without liability
to the Fund for any action taken or omitted by it in good faith
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without negligence. It shall be entitled to rely on and say act upon advice of
counsel (who may be counsel for the Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility of the Custodian with respect
to redemptions affected by check shall be In accordance with a separate
Agreement entered Into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of, Article 3 to the
same extent an set forth in Article 1 hereof with respect to sub-custodian
located in the United States and, rregardless as of whether assets are
maintained in the custody of a foreign banking Institution, a foreign securities
depositary or a branch of a U.S. bank as contemplated by paragraph 3.11 hereof,
the Custodian shall not be liable for any loss, damage, cost, expense, liability
or claim resulting from, or caused by, the direction of or authorization by the
Fund to maintain custody or any securities or cash of the Fund In a foreign
country including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with respect to
securities, which action Involves the payment of money or which action may, In
the opinion of the Custodian, result In the Custodlan or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
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Other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it
If the Fund requires the Custodian to advance cash or securities for any
prupose or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims, or liabilities in
connection with the performance of this contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account Of the Fund shall be
security therefor and should be entitled to utilize available cash and to
dispose of the Fund assets to the extent necessary to obtain reimbursement.
13. Effective Period, Termination and Amendment This contract shll become
effective as of its execution, shall continue in full force and effect until
terminated as ereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either party by an
instrument in writting delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than thirty (30) days after the date
of such delivery or mailing; provided; however that the custodian shall not act
under Section 2.10 hereof in the absence of receipt of an intital certificate Of
the Secretary or an Assistant Secretary that the Board of Directors Of the Fund
have approved the initial use of a particular Securities system and the receipt
of an annual
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certificate of the Secretary or an assistant secretary that the Board of
Directors have reviewed the use by the Fund of such Securities system, as
required in each case by Rule 17f-4 under the Investment Company Act of 1940, as
amended; provided further, however that the Fund shall not amend or terminate
this Contract in contravention of any applicable federal or state regulations,
or any provisions of the Articles of Incorporation, and furthar provided, that
the Fund may at any time by action of Its Board of Directors (i) substitute
another bank or trust company for the custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract In the event
of the appointment of a conservator or receiver for the Custodian by Comptroller
of the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of compatent jurisdiction. Upon
termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the custodian for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian shall be appointed by the Board Of Directors of the
Fund, the custodiann, shall upon termination deliver to such successor
cusstodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's Securities held in a
Securities System
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If no such successor custodian shall be appointed, the Custodian shall, In
like manner, upon receipt of a certified copy of a vote of the board of Trustees
of the Fund, deliver at the office of the custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the BOard of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of Its own selection, having an
agregate capital, surplus, and undivided profits, as shown by its last published
reprot, of not less than $25,000,000, all securities, funds and other properties
held by the Custodian and all instruments held by the Custodian relative thereto
and all other property held by it under the Contract and to transfer to an
account of such successor custodian all of the Fund's securities hold in any
Securities System. Thereafter, such bank or trust company shall be the Successor
Of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of tie Custodian after the date of termination hareof oqing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation of its services during such
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period as the Custodian retain Possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
fund may from time to timw agree an such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interprative or
additional provisions shall be In a writing signed by both parties and shall be
annexed hereto, provided that so such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the fund. No Interpretive or additional
provisions made as provided in the preceding sentence- shall be deemed to be an
amendment of this Contract.
16. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof Interpreted
under and In accordance with laws of The Commonwealth of Massachusetts.
17. Prior Contracts
This Contact superseded and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
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18. Personal Liablity
The Declaration of Trust establishing Merrill Lynch Retirement Equity Fund,
Dated 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, provided that the name Merrill Lynch Retirement
Global Bond 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 Trust shall be held to any personal liability,
nor shall resort be had to thier private property for teh satisfaction of any,
obligation or calim or otherwise in connection with the affairs of the Trust,
but the "Trust Property" only shall be liable. IN WITNESS WEHREOF, each of the
parties has caused this instrument to be executed in its name and behalf by duly
authorized representative and its seal to be hereunder affirmed as of the
day of ,1987.
ATTEST MERRILL LYNCH RETIREMENT EQUITY FUND
_____________________ By _________________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
_____________________ By ________________________________
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Exhibit 99.9
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the ___ day of _________, 1987 by and between
____________ (the "Fund") and Merrill Lynch Financial Data Service, Inc.
("MLFDA"), a New Jersey corporation.
WITNESSETH:
WHEREAS, the Fund wishes to appoint MLFDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent upon, and subject to,
the terms and provisions of this Agreement, and MLFDS in desirous of accepting
such appointment upon, and subject to, such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants contained in this
Agreement, the Fund and MLFDS agree as follows:
1. Appointment of MLFDS as Transter Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent.
(a) The Fund hereby appoints MLFDS to act as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund upon, and subject
to, the terms and provisions of this Agreement.
(b) MLFDS hereby accepts the appointment as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund, and agrees to act
as such upon, and subject to, the terms and provisions of this Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term "Act" means any account of a Investment Company Act of
1940 as amended from time to time and any rule or regulation thereunder;
(II) The term "Account" means any account of a Shareholder, or, if the
shares are held in an account in the name of MLPF&S for benefit of an identified
customer, such account, including a Plan Account, any account under a plan (by
whatever name referred to in the Prospectus) pursuant to the Self-Employed
Individuals Retireiment Act of 1962 ("Keogh Act Plan") and any plan (by whatever
name referred to in the Prospectus) in conjunction with Section 401 of the
Internal Revenue Code ("Corporation Master Plan");
<PAGE>
(III) The term "application" means an application made by a Shareholder
or prospective Shareholder respecting the opening of an Account;
(IV) The term "MLFD" means Merrill Lynch Funds Distributor, Inc., a
Delaware corporation;
(V) The term "MLPF&S" means a Merrill Lynch, Pierce Fenner a Smith
Incorporated, a Delaware corporation;
(VI) The term "Officer's Instruction" means an instruction in writing
given on behalf of the Fund to MLFDS, and signed on behalf of the Fund by the
President, any Vice President, the Secretary or the Treasurer of the Fund;
(VII) The term "Prospectus" means the Prospectus and the Statement of
Additional Information of the Fund as from time to time in effect;
(VIII) The term "Shares" means shares of stock or beneficial interest,
as the case may be, of the Fund, irrespective of class or series;
(IX) The term "Shareholder" means the holder of record of Shares;
(X) The term "Plan Account" means an account opened by a Shareholder
or prospective Shareholder in respect to an open account, monthly payment or
withdrawal plan (in each case by whatever name referred to in the Prospectus),
and may also include an account relating to any other Plan if and when provision
is made for such plan in the Prospectus).
3. Duties of as MLFDS as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent.
(a) Subject to the succeeding provisions of the Agrment, MLFDS hereby
agrees to perform the following functions as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent for the Fund;
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing Accounts;
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(III) Acting as agent for the send Shareholders and/or customers of
MLPF&S in connection with Plan Accounts, upon the terms and subject to the
conditions contained in the Prospectus and application relating to the specific
Plan Account;
(IV) Acting an agent of the Fund and/or MLPF&S maintaining-such
records an may permit the imposition of such contingent deferred sales charges
as may be described in the Prospectus, including such reports as may be
reasonably requested by the Fund with respect to such Shares as may be subject
to a contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a contingent
deferred sales charge calculating and deducting from the redemption proceeds
thereof the amount of such charge in the manner set forth in the Prospectus.
MLFDS shall pay, on bebalf of MLFD, to MLPF&S such deducted contingent deferred
sales charges imposed upon all Shares maintained in the name of MLPF&S, or
maintained in the name of an account identified as a customer account of MLPF&S.
Sales charges imposed upon any other Shares shall be paid by MLFDS to MLFD.
(VI) Exchanging the investatnt of an investor into, or from the
shares of other open-end investment companies or other series portfolios of the
Fund, if any, if and to the extent permitted by the Prospectus at the direction
of such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates representing
Shares, in accordance with, and subject to, procedures and conditions adopted by
the Fund;
(X) Furnishing such confirmations of transactions relating to their
Shares as required by applicable law;
(XI) Acting as agent for the Fund and/or MLPF&S, furnishing such
appropriate periodic statements relating to Accounts, together with additional e
enclosures, including appropriate income tax information and incone tax forms
duly completed, as required by applicable law;
(XII) Acting an agent for the Fund and/or MLPF&S, mailing annual, semi-
annual and quarterly reports prepared by or on behalf of the Fund, and mailing
new Prospectuses upon their issue to Shareholders as required by applicable law;
(XIII) Furnishing such periodic statements of transactions effected by
MLFDS, reconciliations, balances and summaries as the Fund may reasonably
request;
-3-
<PAGE>
(XIV) Maintaining such books and records relating to transactions
effected by MLFDS as are required by the Act, or by any other applicable
provision of law, rule or regulation, to be maintained by the Fund or its
transfer agent with respect to such transactions, and preserving, or causing to
be preserved any such books and records for such periods as may be required by
any such law, rule or regulation and as may be agreed upon from time to time
between MLFDS and the Fund. In addition, MLFDS agrees to maintain and preserve
master files and historical computer tapes on a daily basis in multiple separate
locations a sufficient distance apart to insure preservation of at least one
copy of such information;
(XV) Withholding taxes on non-resident alien Accounts, preparing and
filing U.S. Treasury Department Form 1099 and other appropriate forms as
required by applicable law with respect to dividends and distributions; and
(XVI) Reinvesting dividends for full and fractional shares and
disbursing cash dividends, as applicable.
(b) MLFDS agrees to act as proxy agent in connection with the holding of
annual, if any, and special meetings of Shareholders, mailing such notices,
proxies and proxy statements in connection with the holding of such meetings as
may be required by applicable law, receiving and tabulating votes cast by proxy
and communicating to the Fund the results of such tabulation accompanied by
appropriate certifications, and preparing and furniabling to the Fund
certified lists of Shareholders as of such date, in such form and containing
such information as may be required by the Fund.
(c) MLFDS agrees to deal with, and answer in a timely manner, all
correspondence and inquiries relating to the functions of MLFDS under this
Agreement with respect to Accounts.
(d) MLFDS agrees to furnish to the Fund such information and at such
intervals as is necessary for the Fund to comply with the registration and/or
the reporting requirements (including applicable escheat laws) of the Securities
and Exchange Commission, Blue Sky authorities or other governmental authorities
-4-
<PAGE>
(e) MLFDS agrees to provide to the Fund such information as may
reasonably be required to enable the Fund to reconcile the number of outstanding
Shares between MLFDS's records and the account books of the Fund.
(f) Notwithstanding anything in the foregoing provisions of this
paragraph, MLFDS agrees to perform its functions thereunder subject to such
modification (whether in respect of particular cases or in any particular class
of cases) as may from time to time be contained in an Officer's Instruction.
4. Compensation.
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
5. Right of Inspection.
MLFDS agrees that it will in a timely manner make available to, and
permit, an y officer, accountant, attorney or authorized agent fo the Fund to
examine and make transcripts and copies (including photocopies and computer or
other electronical information storage media and print-outs) of any and all of
its books and records which relate to any transaction or function performed by
MLFDS under or pursuant to this Agreement.
6. Confidential Relationship
MLFDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Fund, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Fund by way of
an Officer's Instruction.
7. Indemnification.
The Fund shall indemnify and hold MLFDS harmless from any loss, costs,
damage and reasonable expenses, including reasonable attorney's fees (provided
that such attorney is appointed with the Fund's consent, which consent shall not
be unreasonably withheld), incurred by it resulting from any claim, demand,
action, or suit in connection with the performance of its duties hereunder,
-5-
<PAGE>
provided that this indemnification shall not apply to actions or omissions of
MLFDS in cases of willful misconduct, failure to act in good faith or negligence
by MLFDS, it's officers, employees or agents, and further provided, that prior
to confessing any claim against it which may be subject to this
indemnification, MLFDS shall give the Fund reasonable opportunity to defend
against said claim in its own name or in the name of MLFDS. An action taken by
MLFDS upon any Officer's Instruction reasonably believed by it to have been
properly executed shall not constitute willful misconduct, failure to act in
good faith or negliegence under this Agreement.
8. Regarding MLFDS.
(a) MLFDS hereby agrees to hire, purchase, develop and maintain such
dedicated personnel, facilities, equipment, software, resources and capabilities
as may be reasonably determined by the Fund to be necessary for the satisfactory
performance of the duties and responsibilities of MLFDS. MLFDS warrants and
represents that its officers and supervisory personnel charged with carrying out
its functions as Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund possess the special skill and technical knowledge
appropriate for that purpose. MLFDS shall at all times exercise due care and
diligence in the performance of its functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent for the Fund. MLFDS agrees
that, in determining whether it has exercised due care and diligence, its
conduct shall be measured by the standard applicable to persons possessing such
special skill and technical knowledge.
(b) MLFDS warrants and represents that is duly authorized and permitted to
act as Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing
Agent under all applicable laws and that it will immediately notify the Fund of
any revocation of such authority or permission or of the comencement of any
proceeding or other action which may lead to such revocation.
9. Termination.
(a) This Agreement shall become effective as of the date first above
written and shall thereafter continue from year to year. This Agreement may be
terminated by the Fund or MLFDS (without penalty to the Fund or MLFDS) provided
that the terminating party gives the other party written notice of such
termination at least sixty (60) days in advance, except that the Fund may
terminate this Agreement immediately upon written notice to MLFDS if the
authority or permission of MLFDS to act as Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent has been revoked or if any proceeding or
other action which the Fund reasonably believes will lead to such revocation has
been commenced.
-6-
<PAGE>
(b) Upon termination of thig Agreement MLFDS shall deliver all unissued
and canceled stock certificates representing Shares remaining in its possession,
and all Shareholder records, books, stock ledgers, instruments and other
documents (including computerized or other electronically stored information)
made or accumulated in the performance of its duties as Transfer Agent,
Disbursing Agent and Shareholder Servicing Agent for the Fund along with a
certified locator document clearly indicating the complete contents therein, to
such successor as may be specified in a notice of termination or Officer's
Instruction; and the Fund assumes all responsibility for failure thereafter to
produce any paper, record or documents so delivered and identified in the
locator document, if and when required to be produced.
10. Amendment.
Except to the extent that the performance by MLFDS or its functions
under this Agreement may from time to time be modified by an Officer's
Instruction, this Agreement say be amended or modified only by further written A
Agreement between the parties.
11. Governing Law.
This Agreement shall be governed by the laws of the State of New
Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective corporate seals hereunto duly affixed and attested,
as of the day and year above written.
[NAME OF FUND]
By: ___________________
Title: ________________
MERRILL LYNCH FINANCIAL DATA SERVICE, INC.
By: _________________________
Title: _______________________
-7-
<PAGE>
EXHIBIT 99.10
BROWN & WOOD
555 California Street
San Francisco, CA 94104 One World Trade Center
415-396-3909 New York, New York 10048 One Farragut Square South
212-839-5300 Washington, D.C. 20006
212-363-7400
10600 Wilshire Boulevard
Los Angeles, CA 90024
213-206-4343
November 2, 1988
Merrill Lynch Retirement Equity Fund
P.O. Box 9011
Princeton, New Jersey 08543-9011
Dear Sirs:
This opinion is furnished in connection with the registration by Merrill
Lynch Retirement Equity Fund, a Massachusetts business trust (the "Fund"), of an
indefinite number of Class A shares of beneficial interest, par value $0.10 per
share (the "Shares"), under the Securities Act of 1933 (the "Securities Act").
Said registration is to be effected in accordance with Rule 24f-2 under the
Investment Company Act of 1940, as amended, pursuant to the Fund's registration
statement on Form N-1A (File No. 33-10794), as amended (the "Registration
Statement"), under the Securities Act.
As counsel for the Fund we are familiar with the proceedings taken by it in
connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Declaration of Trust of the
Fund, as amended, the By-Laws of the Fund, and such other documents as we have
deemed relevant to the matters referred to in this opinion.
<PAGE>
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable Class A shares of beneficial interest of the Fund.
In rendering this opinion, we have relied as to all matters of
Massachusetts law upon the opinion of Gaston & Snow, dated November 1, 1988,
rendered to the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus and
Statement of Additional Information constituting parts thereof.
Very truly yours,
/s/ Brown & Wood
------------------------
Brown & Wood
<PAGE>
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN
919 THIRD AVENUE . NEW YORK, N.Y. 10022-9995
212-758-9500
CABLE SHERFRIED TELEX 237328
DIRECT DIAL: TELECOPIER: (212) 758-9526
February 25, 1993
Merrill Lynch Growth Fund for
Investment and Retirement
P.0. Box 9011
Princeton, New Jersey 08540-9011
Dear Sirs:
Merrill Lynch Growth Fund for Investment and Retirement (the "Fund"), is
filing with the Securities and Exchange Commission Post-Effective Amendment
No. 9 to its Registration Statement under the Securities Act of 1933 (the "Act")
on Form N-1A, (File No. 33-10794) relating to the registration under the Act of
21,048,326 additional shares of beneficial interest, par value $.10 per share
(the "Additional Shares"), which are to be offered and sold by the Fund in the
manner and on the terms set forth in the prospectus of the Fund current and
effective under the Act at the time of sale. Of the Additional Shares,
21,027,120 are previously outstanding shares of beneficial interest of the Fund,
par value $.10 per share, which were redeemed by the Fund during its fiscal year
ended October 31, 1992. According to Post-Effective Amendment No. 9 to the
Fund's Registration Statement, none of the Additional Shares have previously
been used by the Fund for reduction pursuant to paragraph (a) of Rule 24e-2
under the Investment Company Act of 1940 ("1940 Act") in previous filings of
post-effective amendments to the Funds Registration Statement during the current
year, or for reduction, pursuant to paragraph (c) of Rule 24f-2 under the 1940
Act during the Fund's current fiscal year, of the registration fee payable by
the Fund for the registration of shares for sale under the 1933 Act.
We have, as counsel, participated in various proceedings relating to the
Fund and to the proposed issuance of the Additional Shares. We have examined
copies, either certified or otherwise proven to our satisfaction to be genuine,
of the Fund's
<PAGE>
Merrill Lynch Growth Fund for
Investment and Retirement
February 25, 1993
Page 2
Declaration of Trust and By-laws, as currently in effect, and have received oral
confirmation from the Secretary of State of the Commonwealth of Massachusetts,
certifying the existence and good standing of the Fund. We are generally
familiar with the affairs of the Fund.
Based upon the foregoing, it is our opinion that:
1. The Fund has been duly organized and is validly existing under the
laws of the Commonwealth of Massachusetts.
2. The Fund is authorized to issue an unlimited number of shares of
beneficial interest, par value $.10 per share.
3. Subject to the effectiveness of the above-mentioned Post-Effective
Amendment No. 9 to the Fund's Registration Statement and compliance with
applicable state securities laws, upon the issuance of the Additional Shares for
a consideration not less than the net asset value thereof as required by the
1940 Act and in accordance with the terms of the Registration Statement, such
shares will be legally issued and outstanding and fully paid and non-assessable.
However, we note that, as set forth in the Registration Statement, shareholders
of the Fund might, under certain circumstances, be liable for transactions
effected by the Fund. We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as a part of the abovementioned Post-
Effective Amendment No. 9 to the Registration Statement and with any state
securities commission where such filing is required. In giving this consent we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Act.
We are members of the Bar of the State of New York and do not hold
ourselves out as being conversant with the laws of any jurisdiction other than
those of the United States of America and the State of New York. We note that we
are not licensed to practice law in the Commonwealth of Massachusetts, and to
the extent that any opinion herein involves the laws of the Commonwealth of
Massachusetts, such opinion should be understood to be based solely upon our
review of the documents referred to above, the published statutes of the
Commonwealth of
<PAGE>
Merrill Lynch Growth Fund for
Investment and Retirement
February 25, 1993
Page 3
Massachusetts and, where applicable, published cases, rules or regulations of
regulatory bodies of that Commonwealth.
Very truly yours,
Shereff, Friedman, Hoffman & Goodman
SFH&G:JHG:MXN:HBS:plm
<PAGE>
Ex-99.13
CERTIFICATE OF SOLE SHAREHOLDER
Merrill Lynch Asset Management, Inc., the holder of 10,000 shares of beneficial
interest, par value $0.10 per share, of Merrill Lynch Retirement Equity Fund, a
Massachusetts business trust the "Fund"), does hereby confirm to the Fund its
representation that it purchased such shares for investment purposes, with no
present intention of redeeming or reselling any portion thereof, and does
further agree that it it redeems any portion of such shares prior to the
amortization of the Fund's pre-@ registration fees and organizational expenses,
the proceeds thereof will be reduced by the proportionate amount that the total
unamortized balance bears to the number of initial shares outstanding at the
time of redemption.
MERRILL LYNCH ASSET MANAGEMENT, INC.,
By:
ARTHUR ZEIKEL, PRESIDENT
<PAGE>
EXHIBIT 99.15(a)
AMENDED AND RESTATED
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 4th day of February, 1987, and amended and
restated as of September 18, 1992, by and between Merrill Lynch Growth Fund for
Investment and Retirement, a Massachusetts business trust (the "Fund"), and
Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
WHEREAS, the Fund is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund has entered into a Class B Shares Distribution Agreement
with MLFD, pursuant to which MLFD acts as the exclusive distributor and
representative of the Fund in the offer and sale of Class B shares of beneficial
interest, par value $0.10 per share (the "Class B shares"), of the Fund 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 (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account maintenance fee and
a distribution fee to MLFD with respect to the Fund's Class B shares; and
WHEREAS, the Trustees of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
Class B shareholders;
<PAGE>
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms
of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on
the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan at the
end of each month at the annual rate of 0.25% of average daily net assets of the
Fund relating to Class B shares to compensate MLFD and securities firms with
which MLFD enters into related agreements pursuant to Paragraph 3 hereof ("Sub-
Agreements") for account maintenance activities with respect to Class B
shareholders of the Fund.
2. The Fund shall pay MLFD a distribution fee under the Plan at the end of
each month at the annual rate of 0.75% of average daily net assets of the Fund
relating to Class B shares to compensate MLFD and securities firms with which
MLFD enters into related Sub-Agreements for providing sales and promotional
activities and services. Such activities and services will relate to the sale,
promotion and marketing of the Class B shares of the Fund. Such expenditures may
consist of sales commissions to financial consultants for selling Class B shares
of the Fund, compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and promotional
activities, including advertising expenditures related to the Fund and the costs
of preparing and distributing promotional materials. The distribution fee may
also be used to pay the financing costs of carrying the unreimbursed
expenditures described in this Paragraph 2. Payment of the distribution fee
described in this Paragraph 2 shall be subject to any limitations set forth in
any applicable regulation of the National Association of Securities Dealers,
Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs I 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>
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. The Prior Plan has been approved by a vote of at least a majority, as
defined in the Investment Company Act, of the outstanding Class B voting
securities of the Fund. The Plan has not been submitted to the Class B
shareholders because the amendments do not materially increase the rate of
payments by the Fund provided for in the Prior Plan.
6. The Plan shall not take effect until it has been approved, together with
any related agreements, by (a) the 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 B voting
securities of the Fund.
9. The Plan may not be amended to increase materially the rate of payments
by the Fund provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class B
voting securities of the Fund, and by the 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>
12. The Declaration of Trust establishing the Fund, dated December 11,
1986, a copy of which, together with all amendments thereto (the "Declaration"),
is on file with the Secretary of the Commonwealth of Massachusetts, provides
that the name "Merrill Lynch Growth Fund for Investment and Retirement" 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 shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any obligation or claim of
the Fund but the "Trust Property" only shall be liable.
IN WITNESS WHEREOF, the parties hereto have executed this Plan as of the
date first above written.
MERRILL LYNCH GROWTH FUND FOR INVESTMENT
AND RETIREMENT
By /s/ Gerald M. Richard
-----------------------------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Mark A. DeSario
----------------------------------
4
<PAGE>
AMENDED AND RESTATED
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the 4th day of February, 1987, and amended and
restated as of September 18, 1992, by and between Merrill Lynch Funds
Distributor, Inc. ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Securities Firm).
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Growth Fund
for Investment and Retirement, a Massachusetts business trust (the "Fund"),
pursuant to which it acts as the exclusive distributor for the sale of Class B
shares of beneficial interest, par value $0.10 per share (the "Class B shares"),
of the Fund; and
WHEREAS, MLFD and the Fund have entered into an Amended and
Restated Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class B shares for account maintenance
activities related to Class B shares of the Fund and a distribution fee from the
Fund at the annual rate of 0.75% of average daily net assets of the Fund
relating to Class B shares for providing sales and promotional activities and
services related to the distribution of Class B shares of the Fund; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class B shareholders and the Securities Firm is willing to perform such
activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities with
respect to the Class B shares of the Fund of the types referred to in Paragraph
1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities and
services with respect to the sale of the Class B shares of the Fund, and incur
distribution expenditures, of the types referred to in Paragraph 2 of the Plan.
3. As compensation for its activities and services performed under this
Sub-Agreement, MLFD shall pay the Securities
<PAGE>
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 Sub-Agreement shall not take effect until it has been
approved by votes of a majority of both (a) the 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 /s/ Mark A. DeSario
----------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/
----------------------------------
2
<PAGE>
EXHIBIT 16(a)
Merrill Lynch Retirement Equity
Class A
Total Return
Period from
11/28/88 Annual
(inception) Total
to 10/31/89 Return*
----------- -------
Initial Investment $ 1,000.00 $ 1,000.00
Divided by
Maximum Offering Price 10.27
----------
Divided by Net Asset Value 9.61
----------
Equals Shares Purchased 97.37 104.06
Plus Shares Acquired through
Dividend Reinvestment 2.60 2.86
---------- ----------
Equals Shares Held
at 10/31/89 99.97 106.92
Multiplied by Net Asset
Value at 10/31/89 12.52 12.52
---------- ----------
Equals Ending Redeemable
Value at $1,000
Investment (ERV) at 10/31/89 $ 1,251.60 $ 1,338.60
Divided by $1,000 (P) 1.2516 1.3386
Subtract 1 0.2516 0.3386
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) 25.16%
----------
Expressed as a percentage
equals the Aggregate Total
Return for the Period 33.86%
----------
ERV divided by P 1.2516
Raise to the power of 1 / .9235
Equals 1.2751
Subtract 1 0.2751
Expressed as a percentage
equals the Average
Annualized Total Return 27.51%
----------
*Does not include sales charge for the period.
<PAGE>
EXHIBIT 16(b)
RETIREMENT EQUITY
TOTAL RETURN
Annual
Inception Total
03-27-87 Return*
----------- -------
Initial Investment $ 1,000.00 $ 1,000.00
Divided by
Net Asset Value 10.00 10.00
---------- ----------
Equals Shares Purchased 100.00 100.00
Plus Shares Acquired Through
Dividend Reinvestment .595 .595
---------- ----------
Equals Shares Held
at 10/31/89 100.595 100.595
Multiplied by Net Asset
Value at 10/31/89 8.85 8.85
---------- ----------
Equals Ending Value before
deduction for contingent
deferred sales charge $ 890.27 $ 890.27
Deduction for deferred
sales charge 35.37 -0-
---------- ----------
Equals Ending Redeemable
Value of a $1,000
Investment (ERV) $ 854.90 $ 890.27
Divided by $1,000 (P) .8549 .8903
Subtract 1 (.1451) (.1097)
Expressed as a percentage
equals the Aggregate Total
Return for the Period (14.51%)
----------
Expressed as a percentage
equals the Annual Total
Return (T) (10.97%)
----------
ERV divided by P .8549
Raise to the power of 1 / .597
Equals .7570
Subtract 1 (.2430)
Expressed as a percentage
equals the Average
Annualized Total Return (24.30%)
----------
*Does not include sales charge for the period.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND RETIREMENT - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 2646958995
<INVESTMENTS-AT-VALUE> 3272967850
<RECEIVABLES> 27388390
<ASSETS-OTHER> 452499
<OTHER-ITEMS-ASSETS> 0
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<PAGE>
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Growth Fund for Investment and Retirement:
We consent to the use in Post-Effective Amendment No. 13 to Registration
Statement No. 33-10794 of our report dated December 1, 1995 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
February 26, 1996
