<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 1995
SECURITIES ACT FILE NO. 33-14517
INVESTMENT COMPANY ACT FILE NO. 811-5178
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 9 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 11 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH STRATEGIC DIVIDEND FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH STRATEGIC DIVIDEND FUND
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
COUNSEL FOR THE FUND: PHILIP L. KIRSTEIN, ESQ.
JOEL H. GOLDBERG, ESQ. MERRILL LYNCH ASSET
SHEREFF, FRIEDMAN, MANAGEMENT
HOFFMAN & GOODMAN, LLP P.O. BOX 9011
919 THIRD AVENUE PRINCETON, NEW JERSEY 08543-9011
NEW YORK, NEW YORK 10022
</TABLE>
------------------------
It is proposed that this filing will become effective (check appropriate box):
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
------------------------
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 SEPTEMBER 20, 1995.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
AMOUNT OF PROPOSED PROPOSED
SHARES MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest (par
value $.10 per share)................ 4,812,178 $12.09 $289,990.74 $100
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
*(1) The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940 and was based upon an
offering price of $12.09 per share, equal to the net asset value as of the
close of business on November 20, 1995.
(2) The total amount of securities redeemed or repurchased during Registrant's
previous fiscal year was 4,788,192 Shares of Beneficial Interest.
(3) None of the Shares described in (2) above have been used for reduction
pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment Company Act
of 1940 in previous filings during Registrant's current fiscal year.
(4) 4,788,192 of the Shares redeemed during Registrant's previous fiscal year
are being used for the reduction of the registration fee in this amendment
to the Registration Statement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH STRATEGIC DIVIDEND FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<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 Objective 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; Merrill Lynch Select
PricingSM System; Fee Table; Purchase
of Shares; Redemption of Shares;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase................. Merrill Lynch Select PricingSM System;
Fee Table; 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 Objective 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............................... 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> 3
PROSPECTUS
NOVEMBER 28, 1995
MERRILL LYNCH STRATEGIC DIVIDEND FUND
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Strategic Dividend Fund (the "Fund") is a mutual fund seeking
to provide shareholders with long-term total return by investing primarily in a
diversified portfolio of dividend-paying common stocks which yield more than the
Standard & Poor's 500 Composite Stock Price Index. Total return is the aggregate
of income and capital value changes. The strategy of the Fund's manager, Merrill
Lynch Asset Management, is based on the belief that stocks which have above
average dividend yields will provide attractive long-term total return and
greater price stability than stocks which have below average dividend yields
during periods of downward movements in market prices. There can be no assurance
that the investment objective 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 November 28, 1995 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and is
available, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ----------------------- ------------ -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)...... 5.25%(c) None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments............................ None None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)............ None(d) 4.0% during the first 1% for one None(d)
year, decreasing 1.0% year
annually thereafter to
0.0% after the fourth
year
Exchange Fee............................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)(e):
Investment Advisory Fees(f)................ 0.60% 0.60% 0.60% 0.60%
12b-1 Fees(g):
Account Maintenance Fees................. None 0.25% 0.25% 0.25%
Distribution Fees........................ None 0.75% 0.75% None
(Class B shares convert
to Class D shares
automatically after
approximately eight
years and cease being
subject to distribution
fees)
Other Expenses:
Custodian Fees........................ 0.01% 0.01% 0.01% 0.01%
Shareholder Servicing Fees(h)......... 0.20% 0.24% 0.24% 0.20%
Other................................. 0.24% 0.24% 0.24% 0.24%
------- ----- ----- ------
Total Other Expenses.............. 0.45% 0.49% 0.49% 0.45%
------- ----- ----- ------
TOTAL FUND OPERATING EXPENSES.............. 1.05% 2.09% 2.09% 1.30%
======= ===== ===== ======
</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 23.
(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 25.
(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 23.
(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) Information for Class A and Class B shares is stated for the fiscal year
ended July 31, 1995. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending July 31, 1996.
(f) See "Management of the Fund--Management and Advisory Arrangements"--page 19.
(g) See "Purchase of Shares--Distribution Plans"--page 28.
(h) See "Management of the Fund--Transfer Agency Services"--page 20.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD
OF:
----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment including the maximum $52.50
initial sales charge (Class A and Class D shares
only) and assuming (1) the Total Fund Operating
Expenses for each class set forth above, (2) a 5%
annual return throughout the periods and (3)
redemption at the end of the period:
Class A........................................... $ 63 $84 $ 107 $174
Class B........................................... $ 61 $85 $ 112 $223*
Class C........................................... $ 31 $65 $ 112 $242
Class D........................................... $ 65 $92 $ 120 $201
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at the
end of the period:
Class A........................................... $ 63 $84 $ 107 $174
Class B........................................... $ 21 $65 $ 112 $223*
Class C........................................... $ 21 $65 $ 112 $242
Class D........................................... $ 65 $92 $ 120 $201
</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 shares for an extended period of time may pay more in
Rule 12b-1 distribution fees than the economic equivalent of the maximum
front-end sales charge permitted under the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD"), Merrill Lynch may
charge its customers a processing fee (presently $4.85) for confirming purchases
and redemptions. Purchases and redemptions directly through the Fund's transfer
agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares".
MERRILL LYNCH SELECT PRICINGSM SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
PricingSM System. The shares of each class may be purchased at a price equal to
the next determined net asset value per share subject to the sales charges and
ongoing fee arrangements described below. Shares of Class A and Class D are sold
to investors choosing the initial sales charge alternatives, and shares of Class
B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select PricingSM System is used by more than 50
mutual funds advised by Merrill Lynch Asset Management, L.P., doing business as
Merrill Lynch Asset Management ("MLAM" or the "Manager") 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".
3
<PAGE> 6
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
the Class D shares, will be imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges will not affect
the net asset value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Fund for each class of shares
will be calculated in the same manner at the same time and will differ only to
the extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Each class has different exchange privileges. See "Shareholder
Services--Exchange Privilege".
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select PricingSM System that the investor
believes is the most beneficial under the investor's particular circumstances.
More detailed information as to each class of shares is set forth under
"Purchase of Shares".
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
-----------------------------------------------------------------------------------------------
A Maximum 5.25% initial sales
charge(2)(3) No No No
-----------------------------------------------------------------------------------------------
B CDSC for a period of 4 years,
at a rate of 4.0% during the
first year, decreasing 1.0% B shares convert to D shares
annually to 0.0% 0.25% 0.75% automatically after
approximately
eight years(4)
-----------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
-----------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales
charge(3) 0.25% No No
-----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</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."
(Notes continued on next page.)
4
<PAGE> 7
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans 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.
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 are also 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 period for certain
retirement plans, was 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".
5
<PAGE> 8
Class C: Class C shares do not incur a sales charge when they are purchased, but
they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to Class C shares. Class C shares are also subject to a
CDSC if they are redeemed within one year of purchase. Although Class C
shares are subject to a 1.0% CDSC for only one year (as compared to
four years for Class B), Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject
to distribution fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Fund's Board of
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 after 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
PricingSM System that the investor believes is most beneficial under the
investor's particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because of the account maintenance fee imposed
on Class D shares. Investors qualifying for significantly reduced initial sales
charges may find the initial sales charge alternative particularly attractive
because similar sales charge reductions are not available with respect to the
deferred sales charges imposed in connection with purchases of Class B or Class
C shares. Investors not qualifying for reduced initial sales charges who expect
to maintain their investment for an extended period of time also may elect to
purchase Class A or Class D shares, because over time the accumulated ongoing
account maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the account
maintenance fee. Although some investors that previously purchased Class A
shares may no longer be eligible to purchase Class A shares of other
MLAM-advised mutual funds, those previously purchased Class A shares, together
with Class B, Class C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for reduced initial sales charges on
new initial sales charge purchases. In addition, the ongoing Class B and Class C
account maintenance and distribution fees will cause Class B and Class C shares
to have higher expense ratios, pay lower dividends and have lower total returns
than the initial sales charge shares. The ongoing Class D account maintenance
fees will cause Class D shares to have a higher expense ratio, pay lower
dividends and have a lower 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
6
<PAGE> 9
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Fund after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. Investors in Class B shares
should take into account whether they intend to redeem their shares within the
CDSC period and, if not, whether they intend to remain invested until the end of
the conversion period and thereby take advantage of the reduction in ongoing
fees resulting from the conversion into Class D shares. Other investors,
however, may elect to purchase Class C shares if they determine that it is
advantageous to have all their assets invested initially and they are uncertain
as to the length of time they intend to hold their assets in MLAM-advised mutual
funds. Although Class C shareholders are subject to a shorter CDSC period at a
lower rate, they forego the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See "Purchase of Shares--Limitations on the Payment of Deferred
Sales Charges".
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the audits of the financial statements of the Fund by Deloitte & Touche
LLP, independent auditors. Financial statements for the year ended July 31,
1995, and the independent auditors' report thereon are included in the Statement
of Additional Information. The following per share data and ratios have been
derived from information provided in the financial statements. Financial
Highlights are not presented for Class A shares for the period November 25, 1987
to November 29, 1988, since no shares of that class were outstanding during such
period. 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 CLASS B
-------------------------------------------------------------------- ------------------------------
FOR THE
PERIOD
NOV. 29,
FOR THE YEAR ENDED JULY 31, 1988+ TO FOR THE YEAR ENDED JULY 31,
--------------------------------------------------------- JULY 31, ------------------------------
1995 1994 1993 1992 1991 1990 1989 1995 1994 1993
------- ------- ------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <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................ $ 12.78 $ 13.60 $ 12.79 $ 11.90 $ 11.80 $ 12.38 $ 10.71 $ 12.77 $ 13.59 $ 12.78
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Investment income--net... .39 .41 .44 .44 .55 .76 .39 .29 .33 .31
Realized and unrealized
gain (loss) on
investments and foreign
currency
transactions--net...... 1.10 (.12) .81 .93 .14 (.61) 1.88 1.07 (.18) .81
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Total from investment
operations............... 1.49 .29 1.25 1.37 .69 .15 2.27 1.36 .15 1.12
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net... (.42) (.46) (.44) (.48) (.59) (.73) (.46 ) (.29) (.32) (.31)
Realized gain on
investments--net....... (1.61) (.65) -- -- -- -- (.14 ) (1.61) (.65) --
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions............ (2.03) (1.11) (.44) (.48) (.59) (.73) (.60 ) (1.90) (.97) (.31)
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period................... $ 12.24 $ 12.78 $ 13.60 $ 12.79 $ 11.90 $ 11.80 $ 12.38 $ 12.23 $ 12.77 $ 13.59
======= ======= ======= ======= ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on net asset value
per share................ 14.04% 2.38% 10.03% 11.96% 6.25% 1.20% 22.02%# 12.82% 1.30% 8.90%
======= ======= ======= ======= ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
account maintenance and
distribution fees........ 1.05% .85% .81% .88% .88% .86% 1.04%* 1.09% .88% .84%
======= ======= ======= ======= ======== ======== ======== ======== ======== ========
Expenses.................. 1.05% .85% .81% .88% .88% .86% 1.04%* 2.09% 1.88% 1.84%
======= ======= ======= ======= ======== ======== ======== ======== ======== ========
Investment income--net.... 3.39% 3.42% 3.38% 3.75% 4.83% 6.17% 4.89%* 2.36% 2.39% 2.37%
======= ======= ======= ======= ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)........... $18,687 $21,854 $34,228 $31,512 $33,916 $37,499 $24,002 $130,921 $167,889 $227,089
======= ======= ======= ======= ======== ======== ======== ======== ======== ========
Portfolio turnover........ 52.69% 22.75% 25.23% 29.17% 10.50% 16.99% 33.66% 52.69% 22.75% 25.23%
======= ======= ======= ======= ======== ======== ======== ======== ======== ========
<CAPTION>
FOR THE
PERIOD
NOV. 25,
1987+ TO
JULY 31,
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Asset Value:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $ 11.88 $ 11.78 $ 12.37 $ 10.76 $ 10.00
-------- -------- -------- -------- -------
Investment income--net... .34 .45 .60 .51 .33
Realized and unrealized
gain (loss) on
investments and foreign
currency
transactions--net...... .91 .12 (.58) 1.89 .68
-------- -------- -------- -------- -------
Total from investment
operations............... 1.25 .57 .02 2.40 1.01
-------- -------- -------- -------- -------
Less dividends and
distributions:
Investment income--net... (.35) (.47) (.61) (.52) (.25 )
Realized gain on
investments--net....... -- -- -- (.27) --
-------- -------- -------- -------- -------
Total dividends and
distributions............ (.35) (.47) (.61) (.79) (.25 )
-------- -------- -------- -------- -------
Net asset value, end of
period................... $ 12.78 $ 11.88 $ 11.78 $ 12.37 $ 10.76
======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:**
Based on net asset value
per share................ 10.85% 5.14% .15% 23.48% 10.13%#
======== ======== ======== ======== =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
account maintenance and
distribution fees........ .91% .90% .89% .98% 1.08%*
======== ======== ======== ======== =======
Expenses.................. 1.91% 1.90% 1.89% 1.98% 2.08%*
======== ======== ======== ======== =======
Investment income--net.... 2.74% 3.81% 5.14% 5.05% 5.15%*
======== ======== ======== ======== =======
SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)........... $239,048 $284,869 $337,072 $289,599 $160,045
======== ======== ======== ======== =======
Portfolio turnover........ 29.17% 10.50% 16.99% 33.66% 42.36%
======== ======== ======== ======== =======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
# Aggregate total investment return.
8
<PAGE> 11
FINANCIAL HIGHLIGHTS (CONCLUDED)
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 21, 1994+ TO
JULY 31, 1995
-----------------------
CLASS C CLASS D
--------- ----------
<S> <C> <C>
Increase (Decrease) in Net Asset Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............................................. $11.84 $ 11.85
--------- ----------
Investment income -- net........................................................ .21 .26
Realized and unrealized gain on investments and foreign currency
transactions -- net.......................................................... 1.21 1.23
--------- ----------
Total from investment operations.................................................. 1.42 1.49
--------- ----------
Less dividends and distributions:
Investment income -- net........................................................ (.25) (.29)
Realized gain on investments -- net............................................. (.81) (.81)
--------- ----------
Total dividends and distributions................................................. (1.06) (1.10)
--------- ----------
Net asset value, end of period.................................................... $12.20 $ 12.24
========= ==========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................................................ 13.30%# 13.98%#
========= ==========
RATIOS TO AVERAGE NET ASSETS:
Expenses excluding account maintenance and distribution fees...................... 1.19%* 1.13%*
========= ==========
Expenses.......................................................................... 2.19%* 1.38%*
========= ==========
Investment income -- net.......................................................... 1.94%* 2.93%*
========= ==========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......................................... $811 $13,988
========= ==========
Portfolio turnover................................................................ 52.69% 52.69%
========= ==========
</TABLE>
- ---------------
+ Commencement of operations.
* Annualized.
** Total investment returns, exclude the effect of sales loads.
# Aggregate total investment return.
9
<PAGE> 12
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term total return by
investing primarily in a diversified portfolio of dividend-paying common stocks
which yield more than the Standard & Poor's 500 Composite Stock Price Index.
Total return is the aggregate of income and capital value changes. The strategy
of the Fund's manager, Merrill Lynch Asset Management, L.P. ("MLAM" or the
"Manager"), is based on the belief that stocks which have above average yields
will provide attractive long-term total return and greater price stability than
stocks which have below average dividend yields during periods of downward
movements in market prices. While the Fund generally will invest in companies
with a continuous record of paying dividends, it may also invest in companies
which only recently have commenced payment of dividends. The Fund may engage in
various portfolio strategies involving options and futures to seek to increase
its return and to hedge its portfolio against movements in the equity markets,
interest rates and exchange rates between currencies. Because the Fund will seek
long-term total return (i.e., income and capital growth) by emphasizing
investments in dividend-paying common stocks, it will not have as much
investment flexibility as total return funds which may pursue their objective by
investing in both income and capital growth stocks without such an emphasis.
There can be no assurance that the investment objective of the Fund will be
realized.
The Fund at all times, except during temporary defensive periods, will
maintain at least 65% of its total assets invested in dividend-paying common
stocks. The Fund may also invest in securities convertible into common stocks,
non-convertible preferred stocks and debt securities and utilize the other
investment practices described below. The Fund has established no rating
criteria for debt securities or preferred stock that it may hold. As a result,
the Fund's investments in such securities are permitted to include securities
which are in default or have major risk exposures to adverse conditions. The
Fund, however, does not intend to invest in securities with such characteristics
or in debt securities not within the four highest quality ratings as determined
by either Moody's Investors Service, Inc. (currently Aaa, Aa, A and Baa for
bonds) or Standard & Poor's Ratings Group (currently AAA, AA, A and BBB for
bonds). The Fund reserves the right to hold, as a temporary defensive measure or
as a reserve for redemptions, 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. Except during temporary defensive periods, such securities or cash will
not exceed 20% of its total assets. The investment objective of the Fund set
forth in the first sentence of the above paragraph and the 65% requirement with
respect to dividend-paying common stocks are fundamental policies of the Fund
which may not be changed without a vote of a majority of its outstanding shares
as defined below.
The Fund may invest up to 25% of its total assets in securities of foreign
issuers of the foregoing types and with the foregoing characteristics.
Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or United States governmental laws or restrictions applicable to such
investments. 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. Foreign
currency exchange
10
<PAGE> 13
rates are determined by forces of supply and demand on 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.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
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 of United States entities. In addition, certain
foreign investments may be subject to foreign withholding taxes. Foreign
financial markets, while growing in volume, have, for the most part,
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. The 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 in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause the Fund
to miss attractive investment opportunities. Inability to dispose of 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. Costs associated with transactions in foreign
securities are generally higher than with transactions in United States
securities. There is generally less government supervision and regulation of
exchanges, financial institutions and issuers in foreign countries than there is
in the United States.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in United States securities
since the expenses of the Fund, such as custodial costs, are higher.
The Fund may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) 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 a United States 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. In a sponsored ADR or EDR arrangement, the foreign
issuer assumes the obligation to pay some or all of the depositary's transaction
fees, whereas in an unsponsored arrangement the foreign issuer assumes no
obligations and the depositary's transaction fees are paid by the ADR or EDR
holders. Foreign issuers in respect of whose securities unsponsored ADRs or EDRs
have been issued are not necessarily obligated to disclose material information
in the markets in which the unsponsored ADRs or EDRs are traded and, therefore,
there may not be a correlation between such information and the market value of
such securities.
11
<PAGE> 14
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, 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 and Futures Transactions"), the
Manager believes that, because the Fund will (i) write only covered call 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.
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 Call 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.
Purchasing Put 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. The
Fund will not purchase put options on securities if, as a result of such
purchase, the aggregate
12
<PAGE> 15
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 put options on stock indices to hedge against
the risks of market-wide stock price movements in the securities in which the
Fund invests. The effectiveness of the hedge will depend on the degree of
diversification of the Fund's portfolio and the sensitivity of the securities
comprising the portfolio to factors influencing the market as a whole. Because
the value of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Fund will realize a
gain or loss on the purchase or sale of an option on an index depends upon
movements in the level of prices in the stock market generally or in an industry
or market segment rather than movements in the price of a particular stock.
Currently, stock index options traded include the S&P 100 Index, the S&P 500
Index, the NYSE Composite Index, the AMEX Market Value Index, the National
Over-the-Counter Index and other standard, broadly based stock market indices.
The Fund may also purchase and sell stock index futures contracts and
financial futures contracts ("futures contracts") as a hedge against adverse
changes in the market value of its portfolio securities and interest rates, as
described below. A futures contract is an agreement between two parties which
obligates the purchaser of the futures contract to buy and the seller of a
futures contract to sell a security for a set price on a future date. Unlike
most other futures contracts, a stock index futures contract does not require
actual delivery of securities but results in cash settlement based upon the
difference in value of the index between the time the contract was entered into
and the time of its settlement. The Fund may effect transactions in stock index
futures contracts in securities and financial futures contracts in United States
government and agency securities and corporate debt securities. Transactions by
the Fund in stock index futures and financial futures are subject to limitations
as described below under "Restrictions on the Use of Futures Transactions".
The Fund may sell stock index futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of the
Fund's securities portfolio that might otherwise result. When the Fund is not
fully invested in the securities markets and anticipates a significant market
advance, it may purchase stock index futures in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of securities
that the Fund intends to purchase. As such securities purchases are made, an
equivalent amount of stock index futures contracts will be terminated by
offsetting sales. The Fund does not consider purchases of futures contracts to
be a speculative practice under these circumstances. It is anticipated that, in
a substantial majority of these transactions, the Fund will purchase such
securities upon termination of the long futures position, whether the long
position is the purchase of a stock index futures contract or the purchase of a
call option on a stock index future, but under unusual circumstances (e.g., the
Fund experiences a significant amount of redemptions), a long futures position
may be terminated without the corresponding purchase of securities.
The Fund may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of debt securities which may be held by the Fund 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
13
<PAGE> 16
expenses which would have been incurred had the Fund sold portfolio securities
in order to reduce its exposure to increases in interest rates. The Fund also
may purchase financial futures contracts in anticipation of a decline in
interest rates when it is not fully invested in a particular market in which it
intends to make investments to gain market exposure that may in part or entirely
offset an increase in the cost of securities it intends to purchase. It is
anticipated that, in a substantial majority of these transactions, the Fund will
purchase securities upon termination of the futures contract.
The Fund also has authority to purchase and write call and put options on
futures contracts in connection with its hedging activities. Generally, these
strategies are utilized under the same market and market sector conditions
(i.e., conditions relating to specific types of investments) in which the Fund
enters into futures transactions. The Fund may purchase put options or write
call options on futures contracts rather than selling the underlying futures
contract in anticipation of a decrease in the market value of a security or an
increase in interest rates. Similarly, the Fund may purchase call options, or
write put options on futures contracts, as a substitute for the purchase of such
futures, to hedge against the increased cost resulting from an increase in the
market value or a decline in interest rates of securities which the Fund intends
to purchase.
The Fund may engage in options and futures transactions on exchanges and
options in the over-the-counter markets ("OTC options"). In general,
exchange-traded contracts are third-party contracts (i.e., performance of the
parties' obligations is guaranteed by an exchange or clearing corporation) with
standardized strike prices and expiration dates. OTC options transactions are
two-party contracts with price and terms negotiated by the buyer and seller. See
"Restrictions on OTC Options" below for information as to restrictions on the
use of OTC options.
Foreign Currency 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. The Fund will not attempt to hedge all of its foreign 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
specified price by a
14
<PAGE> 17
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.
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 a currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade of
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 operator" as defined under such regulations, provided that the Fund adheres
to certain restrictions. In particular, the Fund may (i) purchase and sell
futures contracts and options thereon for bona fide hedging purposes, as defined
under CFTC regulations, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) the Fund may enter into
non-hedging transactions, provided that the Fund not enter into such non-hedging
transactions if, immediately thereafter, the sum of the amount of the 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 futures transactions and
options thereon 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 contracts, thereby
ensuring that the use of such futures is unleveraged.
Restrictions on OTC Options. The Fund will engage in OTC options,
including over-the-counter foreign currency options and options on foreign
currency futures, only with member banks of the Federal Reserve System and
primary dealers in United States Government securities or with affiliates of
such banks or dealers which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
The Fund will acquire only those OTC options for which the Manager believes the
Fund can receive on each business day at least two independent bids or offers
(one of which will be from an entity other than a party to the option).
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy
15
<PAGE> 18
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 (except as provided below) 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 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.
Risk Factors in Options and Futures 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 price 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 over-the-counter
transactions, 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 with whom
the Fund has an open position in an option, a futures contract or a 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 security or currency (whether or not covered)
which may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different exchanges or are held or written on one or more accounts or through
one or more brokers). "Trading limits" are imposed on the maximum number of
contracts which any person may trade on a particular trading day. The 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
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
16
<PAGE> 19
System or primary dealer in United States 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. The Fund may not invest more than 15%
(10% to the extent required by certain state laws) of its net 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 disposition 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 which 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
a 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 will 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.
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 carefully
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, which are fundamental policies and
may not be changed without the approval of the holders of a
17
<PAGE> 20
majority of the Fund's outstanding voting securities, as defined in the
Investment Company Act. Among the more significant restrictions, the Fund may
not:
- Make any investment inconsistent with the Fund's classification as a
diversified company under the Investment Company Act.
- 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
in limited circumstances; 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--Portfolio Strategies Involving Options and
Futures") in calculating the amount of its net 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 prior to the
change or modification by the Commission staff of its position regarding OTC
options, as discussed above.
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 the Manager and its affiliate, FAM; President
and Director of Princeton Services, Inc.; Executive Vice President of ML & Co.,
and Executive Vice President of Merrill Lynch; Director of Merrill Lynch Funds
Distributor, Inc.
RONALD W. FORBES--Professor of Finance, School of Business, State
University of New York at Albany.
- ---------------
* Interested person, as defined by the Investment Company Act, of the Fund.
18
<PAGE> 21
CYNTHIA A. MONTGOMERY--Professor, Harvard Business School.
CHARLES C. REILLY--Self-employed financial consultant; Adjunct Professor,
Columbia University Graduate School of Business; Former President and Chief
Investment Officer of Verus Capital, Inc.; Former Senior Vice President of
Arnhold and S. Bleichroeder, Inc.
KEVIN A. RYAN--Professor of Education at Boston University; founder and
current director of the Boston University Center for the Advancement of Ethics
and Character.
RICHARD R. WEST--Professor of Finance, and Dean from 1984 to 1993, New York
University Leonard N. Stern School of Business Administration.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager"), which is
owned and controlled by ML & Co., acts as the manager for the Fund and provides
the Fund with management and investment advisory services. The principal offices
of the Manager are located at 800 Scudders Mill Road, Plainsboro, New Jersey
(mailing address: P.O. Box 9011, Princeton, New Jersey 08543-9011). The Manager
or its affiliate, FAM, acts as the investment adviser for more than 130 other
registered investment companies. The Manager also offers portfolio management
and portfolio analysis services to individuals and institutions. As of October
31, 1995, the Manager and FAM had a total of approximately $190.4 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 the Manager, subject to review by the Trustees. The Manager provides
the portfolio manager for the Fund, Walter D. Rogers, who considers analyses
from various sources (including brokerage firms with which the Fund does
business), makes the necessary decisions, and places transactions accordingly.
Mr. Rogers is a Vice President of the Manager and has been employed by the
Manager or its predecessor in this capacity since 1987. Mr. Rogers also acts as
portfolio manager of other registered investment companies sponsored by the
Manager, including Merrill Lynch Global Utility Fund, Inc. and Merrill Lynch
Utility Income Fund, Inc. 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.
The Fund pays the Manager a monthly fee at the annual rate of 0.60% of the
average daily net assets of the Fund. For the fiscal year ended July 31, 1995,
the Manager received a fee of $1,019,890 (based on average net assets of
approximately $171.2 million). At October 31, 1995, the net assets of the Fund
aggregated approximately $159.1 million. At this level, the annual management
fee would aggregate approximately $954,625. 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 on a semi-annual basis. For the fiscal
year ended July 31, 1995, the amount of such reimbursement was $41,617. For the
fiscal year ended July 31, 1995, the ratio of total expenses to average net
assets, net of account maintenance and distribution fees, was 1.05% for the
Class A shares and 1.09% for the Class B shares. For Class C and
19
<PAGE> 22
Class D shares for the period October 21, 1994 (commencement of operations) to
July 31, 1995, the annualized ratio of total expenses, net of account
maintenance and distribution fees, to average net assets was 1.19% for Class C
shares and 1.13% for Class D shares.
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 is entitled to reimbursement for
out-of-pocket expenses incurred by it under the Transfer Agency Agreement. For
the fiscal year ended July 31, 1995, $394,825 was paid to the Transfer Agent
pursuant to the Transfer Agency Agreement. At October 31, 1995, the Fund had
1,986 Class A shareholder accounts, 14,763 Class B shareholder accounts, 196
Class C shareholder accounts and 2,378 Class D shareholder accounts. At this
level of accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $257,430 plus out-of-pocket expenses.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act 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).
PURCHASE OF SHARES
The Distributor, an affiliate of both the Manager and 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.
20
<PAGE> 23
The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon the
class of shares selected by the investor under the Merrill Lynch Select
PricingSM System, 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. Purchasers directly through the Transfer Agent are not subject to the
processing fee.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System, which permits each investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of 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 Class B shares are sold to
investors choosing the deferred sales charge alternatives. Investors should
determine whether under their particular circumstances it is more advantageous
to incur an initial sales charge or to have the entire initial purchase price
invested in the Fund with the investment thereafter being subject to a CDSC and
ongoing distribution fees. A discussion of the factors that investors should
consider in determining the method of purchasing shares under the Merrill Lynch
Select PricingSM System is set forth under "Merrill Lynch Select PricingSM
System" on page 3.
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, will be imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid. See "Distribution Plans" below. Each class has different exchange
privileges. See "Shareholder Services-- Exchange Privilege".
21
<PAGE> 24
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Fund. The distribution-related revenues paid
with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System.
<TABLE>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
-----------------------------------------------------------------------------------------------
A Maximum 5.25% initial sales No No
charge(2)(3) No
-----------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, at a 0.25% 0.75% B shares convert to D
rate of 4.0% during the first year, shares
decreasing 1.0% annually to 0.0% automatically after
approximately eight
years(4)
-----------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
-----------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales charge(3) 0.25% No No
-----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more, 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.
22
<PAGE> 25
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
DISCOUNT TO
SALES LOAD SALES LOAD AS SELECTED DEALERS
AS PERCENTAGE OF PERCENTAGE* OF THE AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE NET AMOUNT INVESTED THE OFFERING PRICE
- ------------------------------------------- ---------------- ------------------- ------------------
<S> <C> <C> <C>
Less than $25,000.......................... 5.25% 5.54% 5.00%
$25,000 but less than $50,000.............. 4.75 4.99 4.50
$50,000 but less than $100,000............. 4.00 4.17 3.75
$100,000 but less than $250,000............ 3.00 3.09 2.75
$250,000 but less than $1,000,000.......... 2.00 2.04 1.80
$1,000,000 and over**...................... 0.00 0.00 0.00
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994, 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 million or more of Class A
or Class D shares by certain Employer Sponsored Retirement or Savings Plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act of 1933,
as amended (the "Securities Act"). During the fiscal year ended July 31, 1995,
the Fund sold 181,563 Class A shares for aggregate net proceeds of $2,155,978.
The gross sales charges for the sale of Class A shares of the Fund for that year
were $11,029, of which $628 and $10,401 were received by the Distributor and
Merrill Lynch, respectively. During the fiscal year ended July 31, 1995, no
CDSCs were received with respect to Class A shares for which the initial sales
charge was waived.
During the period October 21, 1994 (commencement of operations) to July 31,
1995, the Fund sold 118,404 Class D shares for aggregate net proceeds of
$1,359,401. The gross sales charges for the sale of Class D shares of the Fund
for that period were $9,527, of which $673 and $8,854 were received by the
Distributor and Merrill Lynch, respectively. For the same period, no CDSCs were
received with respect to Class D shares for which the initial sales charge was
waived.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account, including participants in the Merrill Lynch
BlueprintSM Program,
23
<PAGE> 26
are entitled to purchase additional Class A shares of the Fund in that account.
Certain Employer Sponsored Retirement or Savings Plans, including eligible
401(k) plans, may purchase Class A shares at net asset value provided such plans
meet the required minimum number of eligible employees or required amount of
assets advised by MLAM or any of its affiliates. Class A shares are available at
net asset value to corporate warranty insurance reserve fund programs 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 TMASM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services and
certain purchases made in connection with the Merrill Lynch Mutual Fund Adviser
program. In addition, Class A shares 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. For example, Class A shares of the Fund and certain other MLAM-advised
mutual funds are offered at net asset value to shareholders of Merrill Lynch
Senior Floating Rate Fund, Inc. who wish to reinvest the net proceeds from a
sale of certain of their shares of common stock of Merrill Lynch Senior Floating
Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges 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 AccountsSM
available through employers which provide such plans.
Class D shares are offered at net asset value to an investor who has a
business relationship with a financial consultant who joined Merrill Lynch from
another investment firm within six months prior to the date of purchase if
certain conditions set forth in the Statement of Additional Information are met.
Class D shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies. Class D shares 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 (i)
invested in a mutual fund sponsored by a non-Merrill Lynch company for which
Merrill Lynch has served as a selected dealer and where Merrill Lynch has either
received or given notice that such arrangement will be terminated, or (ii)
invested in a mutual fund sponsored by a non-Merrill Lynch company for which
Merrill Lynch has not served as a selected dealer, if certain conditions set
forth in the Statement of Additional Information are met.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
BlueprintSM Program.
Class D shares of the Fund are offered at net asset value to shareholders
of Merrill Lynch Municipal Strategy Fund, Inc. who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock of Merrill Lynch
Municipal Strategy Fund, Inc. in shares of the Fund.
24
<PAGE> 27
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.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Fund and
thereafter will be subject to lower 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. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the Fund to sell the Class B and
Class C shares without a sales charge being deducted at the time of purchase.
Approximately eight years after issuance, Class B shares will convert
automatically into Class D shares of the Fund, which are subject to an account
maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. Class B shareholders of the Fund
exercising the exchange privilege described under "Shareholder
Services--Exchange Privilege" will continue to be subject to the Fund's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the Class
B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which
are redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar
25
<PAGE> 28
amount subject thereto. The charge will be assessed on an amount equal to the
lesser of the proceeds of redemption or the cost of the shares being redeemed.
Accordingly, no CDSC will be imposed on increases in net asset value above the
initial purchase price. In addition, no CDSC will be assessed on shares derived
from reinvestment of dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------------------------------------------------------ -----------------
<S> <C>
0-1......................................................... 4.00%
1-2......................................................... 3.00
2-3......................................................... 2.00
3-4......................................................... 1.00
4 and thereafter............................................ 0.00
</TABLE>
For the fiscal year ended July 31, 1995, the Distributor received CDSCs of
$139,714 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 upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to 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).
In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the Merrill Lynch Mutual
Fund Adviser ("MFA") program, the time period that such Class A shares are held
in the MFA program will be included in determining the holding period of Class B
shares reacquired upon termination of participation in the MFA program (see
"Shareholder Services -- Exchange Privilege").
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans and in connection with certain group plans placing
orders through the Merrill Lynch BlueprintSM Program. The CDSC also is waived
for any Class B shares which are purchased by eligible 401(k) or eligible 401(a)
plans
26
<PAGE> 29
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 AccountSM available through employers providing eligible 401(k)
plans. The Class B CDSC also is waived for any Class B shares which are
purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a
terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in
such account at the time of redemption. Additional information concerning the
waiver of the Class B CDSC is set forth in the Statement of Additional
Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which
are redeemed within one year after 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 period October 21, 1994 (commencement of operations) to July
31, 1995, the Distributor received CDSCs of $627, with respect to the redemption
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
into Class D shares of the Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
27
<PAGE> 30
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 "Shareholder Services -- Exchange
Privilege"), then the holding period for such Class A shares will be "tacked" to
the holding period of the Class B shares originally held for purposes of
calculating the Conversion Period on Class B shares acquired upon termination of
participation in the MFA program.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each, a
"Distribution Plan") with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C Distribution Plans provide for the payment of account maintenance
fees and distribution fees, and the Class D Distribution Plan provides for the
payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer
28
<PAGE> 31
to compensate its financial consultants in connection with the sale of the Class
B and Class C shares. In this regard, the purpose and function of the ongoing
distribution fees and the CDSC are the same as those of the initial sales charge
with respect to the Class A and Class D shares of the Fund in that the deferred
sales charges provide for the financing of the distribution of the Fund's Class
B and Class C shares.
Prior to July 6, 1993, the Fund paid the Distributor an ongoing
distribution fee, accrued daily and payable monthly, at the annual rate of 1.0%
of average daily net assets of the Class B shares of the Fund under a
distribution plan previously adopted by the Fund (the "Prior Plan") to
compensate the Distributor and Merrill Lynch for providing account maintenance
and distribution-related activities and services to the Class B shareholders.
The fee rate payable and the services provided under the Prior Plan are
identical to the aggregate fee rate payable and the services provided under the
Class B Distribution Plan, the difference being that the account maintenance and
distribution services have been unbundled.
For the fiscal year ended July 31, 1995, the Fund paid the Distributor
account maintenance fees of $358,249 and distribution fees of $1,074,747 (based
on average net assets relating to the Class B shares of approximately $142.5
million) under the Class B Distribution Plan. For the period October 21, 1994
(commencement of operations) to July 31, 1995, the Fund paid the Distributor
account maintenance fees of $768 and distribution fees of $2,303 (based on
average net assets relating to the Class C shares of approximately $398,162)
under the Class C Distribution Plan. For the same period, the Fund paid the
Distributor $17,716 in account maintenance fees (based on average net assets
relating to the Class D shares of approximately $9.1 million) under the Class D
Distribution Plan. At October 31, 1995, the net assets of the Fund subject to
the Class B Distribution Plan aggregated approximately $125.5 million. At this
net asset level, the annual fee payable pursuant to the Class B Distribution
Plan would aggregate approximately $1.3 million. At October 31, 1995, the net
assets of the Fund subject to the Class C Distribution Plan aggregated
approximately $1.1 million. At this net asset level, the annual fee payable
pursuant to the Class C Distribution Plan would aggregate approximately $10,767.
At October 31, 1995, the net assets of the Fund subject to the Class D
Distribution Plan aggregated approximately $14.9 million. At this net asset
level, the annual fee payable pursuant to the Class D Distribution Plan would
aggregate approximately $37,266.
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 revenues and expenses is presented
to the Trustees each year for their consideration in connection with their
deliberations as to the continuance of the Class B and Class C Distribution
Plans. This information is presented annually as of December 31 of each year on
a "fully allocated accrual" basis and quarterly on a "direct expense and
revenue/cash" basis. On the fully allocated accrual basis, revenues consist of
the account maintenance fees, distribution fees, the CDSC and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the 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 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 November 25, 1987 by approximately $4,336,000 (3.21% of
Class B net assets at that date). As of December 31, 1994, direct cash revenues
for the period exceeded direct cash
29
<PAGE> 32
expenses by $14,360,003 (10.63% of Class B net assets at that date). As of July
31, 1995, direct cash revenues for the period since the Fund commenced
operations exceeded direct cash expenses by $15,106,001 (11.46% of Class B net
assets at that date). With respect to Class C shares, as of December 31, 1994,
direct cash expenses for the period since October 21, 1994 (commencement of
operations) exceeded direct cash revenues by $294 (.04% of Class C net assets at
that date).
The Fund has no obligation with respect to distribution-related and/or
account maintenance-related expenses incurred by the Distributor and Merrill
Lynch in connection with Class B, Class C and Class D shares, and there is no
assurance that the 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 the
distribution of each class of shares separately. The initial sales charges, the
account maintenance fee, distribution fee and/or the CDSCs received with respect
to one class will not be used to subsidize the sale of shares of another class.
Payments of the distribution fee on Class B shares will terminate upon
conversion of those Class B shares into Class D shares as set forth under
"Deferred Sales Charge Alternatives--Class B and Class C Shares-- Conversion of
Class B Shares to Class D Shares".
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the
distribution fee and the CDSC borne by the Class B and Class C shares, but not
the account maintenance fee. The maximum sales charge rule is applied separately
to each class. As applicable to the Fund, the maximum sales charge rule limits
the aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend reinvestments
and exchanges), plus (2) interest on the unpaid balance for the respective
class, computed separately, at the prime rate plus 1% (the unpaid balance being
the maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Fund rather than to the Distributor; however,
the Fund will continue to make payments of the account maintenance fee. In
certain circumstances, the amount payable pursuant to the voluntary maximum may
exceed the amount payable under the NASD formula. In such circumstances payment
in excess of the amount payable under the NASD formula will not be made.
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
30
<PAGE> 33
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 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 is defined in rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, the existence and validity of which may be
verified as 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 it has assured itself that 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, 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
such request 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.
The 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 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 Transfer Agent are not subject to the processing fee. The Fund
reserves the right to reject any order for repurchase, which right of rejection
might adversely affect shareholders seeking redemption through the repurchase
procedure. However, a shareholder whose order for repurchase is rejected by the
Fund may redeem shares as set forth above.
31
<PAGE> 34
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 a 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
designed to facilitate investment in its shares. Full details as to each of such
services, copies of the various plans described below and instructions as to how
to participate in the various 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 or from the Distributor or Merrill Lynch. Included in such
services are the following:
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive, at least quarterly, statements from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gain distributions. Shareholders may make
additions to their Investment Account at any time by mailing a check directly to
the Transfer Agent. Shareholders 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 may be opened at the
Transfer Agent. Shareholders considering transferring their Class A or Class D
shares from Merrill Lynch to another brokerage firm or financial institution
should be aware that, if the firm to which the Class A or Class D shares are to
be transferred will not take delivery of shares of the Fund, a shareholder
either must redeem the Class A or Class D shares (paying any applicable CDSC) so
that the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder
at the Transfer Agent. Shareholders considering transferring a tax-deferred
retirement account such as an individual retirement account from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the retirement account is to be transferred will not take delivery
of shares of the Fund, a shareholder must either redeem the shares (paying
32
<PAGE> 35
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.
EXCHANGE PRIVILEGE
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 PricingSM System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class D
shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares are exchangeable for shares of the same
class of other MLAM-advised mutual funds.
Shares of the Fund 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
33
<PAGE> 36
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 is also 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 at the net asset value per share next
determined on the ex-dividend date of such dividend or distribution. A
shareholder may at any time, by written notification or by telephone
(1-800-MER-FUND) to the Transfer Agent, elect to have subsequent dividends or
capital gains distributions, or both, paid in cash, rather than reinvested, in
which event payment will be mailed on the payment date. A shareholder whose
account is maintained at Merrill Lynch may, at any time, by written notification
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 upon
redemption of shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions.
SYSTEMATIC WITHDRAWAL PLANS
A Class A or Class D shareholder may elect to receive systematic withdrawal
payments from his Investment Account through automatic payment by check or
through automatic payment by direct deposit to his 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, bimonthly, quarterly, semi-annual or annual basis through
the Systematic Redemption Program, subject to certain conditions.
34
<PAGE> 37
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C or Class D shares may be
made to an investor's Investment Account by pre-arranged charges of $50 or more
to his regular bank account. Investors who maintain CMA(R) accounts may arrange
to have periodic investments made in the Fund in amounts of $100 or more through
the CMA(R) Automated Investment Program.
RETIREMENT PLANS
Self-directed individual retirement accounts ("IRAs") and other retirement
plans are available from Merrill Lynch. Under these plans, investments may be
made in the Fund and certain other mutual funds whose shares are distributed by
the Distributor, as well as in other securities. Merrill Lynch charges an
initial establishment fee and an annual custodial fee for each account. The
minimum initial purchase to establish any such plan is $100 and the minimum
subsequent purchase is $1.
Shareholders considering transferring a tax-deferred retirement account
such as an IRA from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the retirement account is
to be transferred will not take delivery of shares of the Fund, a shareholder
must either redeem the shares (paying any applicable CDSC) so that the cash
proceeds 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.
PORTFOLIO TRANSACTIONS
In executing portfolio transactions, the Fund seeks to obtain the best net
results, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution,
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While the Fund generally seeks reasonably competitive
commission rates, the Fund does not necessarily pay the lowest commission or
spread available. The Fund contemplates that, consistent with its policy of
obtaining the best net results, it will place orders for transactions with a
number of brokers and dealers, including Merrill Lynch, an affiliate of the
Manager. Subject to obtaining the best price and execution, brokers who provide
supplemental investment research to the Fund may receive orders for transactions
by the Fund. Information so received will be in addition to, and not in lieu of,
the services required to be performed by the Manager, and the expenses of the
Manager will not necessarily be reduced as a result of the receipt of such
supplemental information. See "Management of the Fund--Management and Advisory
Arrangements". In addition, consistent with the Rules of Fair Practice of the
NASD, 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.
It is expected that the majority of the shares of the Fund will be sold by
Merrill Lynch.
The Fund anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will be
conducted primarily on the principal stock exchanges of such countries.
Brokerage commissions and other transaction costs on foreign securities
exchanges are generally higher than in the United States, although the Fund will
endeavor to achieve the best net results in effecting such transactions.
35
<PAGE> 38
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any 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 to
all shares, to the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount, except
that account maintenance fees and distribution charges and any incremental
transfer agency costs relating to each class of shares will be borne exclusively
by that class. The Fund will include performance data for all classes of shares
of the Fund in any advertisement or information including performance data of
the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather, actual annual, annualized or
aggregate rates of return, and (2) the maximum applicable sales charge will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over a longer period of time.
In advertisements distributed to investors whose purchases are subject to waiver
of the CDSC in the case of Class B and Class C shares (such as investors in
certain retirement plans) or to reduced sales loads in the case of Class A and
Class D shares, performance data may take into account the reduced, and not the
maximum, sales charge or may not take into account the CDSC and therefore may
reflect greater total return since, due to the reduced sales charges or waiver
of the CDSC, a lower amount of expenses 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 that of the Standard &
Poor's 500 Composite Stock Price Index, the Value Line Composite Index, the Dow
Jones Industrial Average, or performance data
36
<PAGE> 39
published by Lipper Analytical Services, Inc., Morningstar Publications, Inc.,
Money Magazine, U.S. News and World Report, Business Week, CDA Investment
Technology, Inc., Forbes Magazine and Fortune Magazine. From time to time, the
Fund may include the Fund's Morningstar risk-adjusted performance ratings in
advertisements or supplemental sales literature. As with other performance data,
performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.
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 (together, the "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.
Dividends and distributions are taxable to shareholders even though they
are reinvested in additional shares of the Fund. Not later than 60 days after
the close of its taxable year, the Fund will provide its shareholders with a
written notice designating the amounts of any ordinary income dividends or
capital gains 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. 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
Fund and received by its shareholders on December 31 of the year in which such
dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will generally 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. Nonresident
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").
37
<PAGE> 40
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 such investor is not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses 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 gains. 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 the basis of each shareholder's Fund shares.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring such shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent the sales charge
paid to the Fund reduces any sales charge the shareholder would have owed upon
the purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
A loss on the sale or exchange of shares of the Fund held by a shareholder
for less than 6 months will be a capital loss to the extent of any long term
capital gains distributions paid with respect to such shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gains dividends may also be subject to state
and local taxes.
Shareholders are urged to consult their tax advisers regarding 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.
38
<PAGE> 41
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 quarterly. All net
realized long- or short-term capital gains, if any, are distributed to the
Fund's shareholders at least 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 without sales charge. Shareholders may elect in writing
to receive any such dividends or distributions, or both, in cash. Dividends and
distributions are taxable to shareholders as described above whether they are
reinvested in shares of the Fund or received in cash.
All net realized long- or short-term capital gains, if any, are declared
and distributed to the Fund's shareholders annually after the close of the
Fund's fiscal year. Capital gains distributions will be automatically reinvested
in shares unless the shareholder elects to receive such distributions 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
by the Manager 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 net asset value is
computed by dividing 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 investment advisory 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. The Fund
employs Merrill Lynch Securities Pricing Service ("MLSPS"), an affiliate of the
Manager, to provide certain securities prices for the Fund. For the fiscal year
ended July 31, 1995, the Fund did not pay any fees to MLSPS.
39
<PAGE> 42
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 Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the time
of valuation. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. Any assets and liabilities initially expressed in terms
of non-U.S. Dollar currencies are translated into U.S. Dollar currencies at the
prevailing market rates as quoted by one or more banks or dealers on the day of
valuation. 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 Trustees of the Fund.
When the Fund sells an option, an amount equal to the premium received by
the Fund is included in the Fund's Statement of Assets and Liabilities as a
deferred credit. The amount of such liability subsequently will be
marked-to-market 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.
Options purchased by the Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter markets, the last bid price. Other investments, including
futures contracts and related options, are stated at market value. If current
market value exceeds the premium received there is an unrealized loss;
conversely, if the premium exceeds current market value there is an unrealized
gain. If an option expires on its stipulated expiration date or if the Fund
enters into a closing purchase transaction, the Fund will realize a gain (or
loss if the cost of a closing purchase transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option will be
extinguished. If an option is exercised, the Fund will realize a gain or loss
from the sale of the underlying security and the proceeds of sales are increased
by the premium originally received.
ORGANIZATION OF THE FUND
The Fund was organized on May 14, 1987 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, $.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
beneficial interest at a future date. Shares have the conversion rights
described in this Prospectus.
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
40
<PAGE> 43
the requirements of the Investment Company Act to seek approval of new
management and advisory arrangements, of a material increase in distribution or
account maintenance fees or of a change in the fundamental policies, objective
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 of Trust 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 a
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, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Merrill Lynch Financial
Data Services, Inc. at 800-637-3863.
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 May 14, 1987, 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 Strategic Dividend 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 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.
41
<PAGE> 44
(This page intentionally left blank)
42
<PAGE> 45
MERRILL LYNCH STRATEGIC DIVIDEND FUND--AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING TOLL FREE (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C
shares / / Class D shares
of Merrill Lynch Strategic Dividend Fund and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $.......... payable to Merrill Lynch Financial
Data Services, Inc., as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the right of accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
1. .......................... 4. ...............................
2. .......................... 5. ...............................
3. .......................... 6. ...............................
Name............................................................................
First Name Initial Last Name
Name of Co-Owner (if any).......................................................
First Name Initial Last Name
Address.........................................................................
................................................................................
(Zip Code)
Occupation......................................................................
................................................................................
Signature of Owner
Name and Address of Employer....................................................
................................................................................
................................................................................
Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTION
<TABLE>
<S> <C> <C> <C> <C> <C>
Ordinary Income Dividends Long-Term Capital Gains
--------------------------------- ---------------------------------
SELECT / / Reinvest SELECT / / Reinvest
ONE: / / Cash ONE: / / Cash
--------------------------------- ---------------------------------
</TABLE>
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: / / Check
or / / Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Strategic Dividend Fund 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.
43
<PAGE> 46
- --------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
/ /
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Additional Information--Taxes") either because I have not been notified that I
am subject thereto as a result of a failure to report all interest or dividends,
or the Internal Revenue Service ("IRS") has notified me that I am no longer
subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
- ----------------------------- --------------------------------------
Signature of Owner Signature of Co-Owner (if any)
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
Dear Sir/Madam:
, 19
--------------------------- --
Date of initial purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Strategic Dividend Fund or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds Distributor,
Inc. acts as distributor over the next 13-month period which will equal or
exceed:
/ / $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 Strategic Dividend
Fund 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 Special Value Fund, Inc. held as security.
By
-------------------------- ------------------------------------------------
Signature of Owner Signature of Co-Owner
(If registered in joint parties, both must sign)
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
(1) Name
---------------------------------
Account Number
---------------------------
(2) Name
---------------------------------
Account Number
---------------------------
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
This form when completed should be mailed to:
Merrill Lynch Strategic Dividend Fund
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the shareholder's signature.
- --------------------------------------------------------------------------------
Dealer Name and Address
By
-----------------------------------------------------------------------------
Authorized Signature of Dealer
/ / / /
Branch-Code F/C No. --------------------------------------
F/C Last Name
/ / / /
Dealer's Customer Account No.
44
<PAGE> 47
- --------------------------------------------------------------------------------
MERRILL LYNCH STRATEGIC DIVIDEND FUND--AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL PLAN OR THE
AUTOMATIC INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C>
Name of Owner / /
-------------------------------------------------- Social Security No.
or Taxpayer Identification No.
Name of Co-Owner (if any)
Address -------------------------------------- Account Number
-------------------------------------------------------- --------------------------------------------
(if existing account)
- ---------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS D SHARES ONLY (See terms and
conditions in the Statement of Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch Strategic
Dividend Fund 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 SHALL ACCOMPANY THIS APPLICATION.
45
<PAGE> 48
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described below
each month to purchase (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Strategic Dividend Fund, subject to the terms set forth below.
In the event that I am not eligible to purchase Class A shares, I understand
that Class D shares will be purchased.
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 Strategic Dividend Fund as indicated below:
Amount of each check or ACH debit $
-----------------------------------------
Account Number
--------------------------------------------------------------
Please date and invest ACH debits on the 20th of each month beginning
or as soon thereafter as possible.
- -----------------------
(month)
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund and
credit my bank account. I further agree that if a debit is not honored upon
presentation, Merrill Lynch Financial Data Services, Inc. is authorized to
discontinue immediately the Automatic Investment Plan and to liquidate
sufficient shares held in my account to offset the purchase made with the
dishonored debit.
- ----------------- ---------------------------------------
Date Signature of Depositor
---------------------------------------
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO
HONOR ACH DEBITS
DRAWN BY MERRILL LYNCH FINANCIAL DATA
SERVICES, INC.
To Bank
--------------------------------------------------------------------------
(Investor's Bank)
Bank Address
-------------------------------------------------------------------
City State Zip Code
------------ ------------ --------------------------------------
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc.. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
- -------------------- ---------------------------------------
Date Signature of Depositor
- -------------------- ---------------------------------------
Bank Account Number Signature of Depositor
(If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
46
<PAGE> 49
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 08536
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
COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
<PAGE> 50
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................... 2
Merrill Lynch Select Pricing(SM) System. 3
Financial Highlights.................... 8
Investment Objective and Policies....... 10
Management of the Fund.................. 18
Trustees.............................. 18
Management and Advisory Arrangements.. 19
Transfer Agency Services.............. 20
Code of Ethics........................ 20
Purchase of Shares...................... 20
Initial Sales Charge
Alternatives--Class A and Class D
Shares............................. 23
Deferred Sales Charge Alternatives--
Class B and Class C Shares......... 25
Distribution Plans.................... 28
Limitations on the Payment of Deferred
Sales Charges...................... 30
Redemption of Shares.................... 30
Redemption............................ 31
Repurchase............................ 31
Reinstatement Privilege--Class A and
Class D Shares..................... 32
Shareholder Services.................... 32
Portfolio Transactions.................. 35
Performance Data........................ 36
Taxes................................... 37
Additional Information.................. 39
Dividends and Distributions........... 39
Determination of Net Asset Value...... 39
Organization of the Fund.............. 40
Shareholder Reports................... 41
Shareholder Inquiries................. 41
Authorization Form...................... 43
Code #10559-1195
</TABLE>
(MERRILL LYNCH LOGO)
MERRILL LYNCH
STRATEGIC DIVIDEND FUND
PROSPECTUS
November 28, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 51
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH STRATEGIC DIVIDEND FUND
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
The investment objective of Merrill Lynch Strategic Dividend Fund (the
"Fund") is to seek long-term total return by investing primarily in a
diversified portfolio of dividend-paying common stocks which yield more than
the Standard & Poor's 500 Composite Stock Price Index. Total return is the
aggregate of income and capital value changes. The strategy of the Fund's
manager, Merrill Lynch Asset Management, is based on the belief that stocks
which have above average yields will provide attractive long-term total return
and greater price stability than stocks which have below average dividend
yields during periods of downward movements in market prices. There can be no
assurance that the investment objective 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
November 28, 1995 (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 November 28, 1995.
<PAGE> 52
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term total return by
investing primarily in a diversified portfolio of dividend-paying common stocks
which yield more than the Standard & Poor's 500 Composite Stock Price Index.
Total return is the aggregate of income and capital value changes. The strategy
of the Fund's manager, Merrill Lynch Asset Management, L.P., doing business as
Merrill Lynch Asset Management ("MLAM" or the "Manager"), is based on the belief
that stocks which have above average yields will provide attractive long-term
total return and greater price stability than stocks which have below average
dividend yields during periods of downward movements in market prices. Reference
is made to "Investment Objective and Policies" in the Prospectus for a
discussion of the investment objective and policies of the Fund.
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 Fund's portfolio turnover rates for the fiscal
years ended July 31, 1994 and 1995 were 22.75% and 52.69%, respectively.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
Reference is made to the discussion under the caption "Investment Objective
and Policies--Portfolio Strategies Involving Options and Futures" in the
Prospectus for information with respect to various portfolio strategies
involving options and 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 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 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 write only covered call options on portfolio
securities and 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.
2
<PAGE> 53
Writing Covered Call 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 particular hedge against
the price of the underlying security declining.
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.
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. 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 Fund will only enter into
over-the-counter option transactions with respect to portfolio securities 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). 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
3
<PAGE> 54
are illiquid securities to the extent set forth under "Investment Objective and
Policies--Portfolio Strategies Involving Options and Futures" in the Prospectus.
Purchasing Put Options. The Fund may purchase put options to hedge against
a decline in the market value of its equity 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; 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. The Fund will not purchase put options on securities if, as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Stock Index Options and Futures and Financial Futures. 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
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 contract fluctuates, making the long and short
positions in the futures contract 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"
4
<PAGE> 55
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 not enter into such
non-hedging transactions 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 futures transactions and
options thereon 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 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.
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 hedging is the purchase or sale of forward foreign
currency with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Fund or the payment of dividends and
distributions by the Fund. Position hedging is the sale of forward foreign
currency with respect to portfolio security positions denominated or quoted in
such foreign currency. The Fund will not speculate in forward foreign exchange.
The Fund may not position hedge with respect to the currency of a particular
country to an extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio denominated or quoted
in that particular foreign currency. If the Fund enters into a position hedging
transaction, its custodian bank will place cash or liquid equity or debt
securities in a separate account of the Fund in an amount equal to the value of
the Fund's total assets committed to the consummation of such forward contract.
If the value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will equal the amount of the Fund's commitment with respect to such
contracts. The Fund will not attempt to hedge all of its foreign portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by the 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
5
<PAGE> 56
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
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.
Risk Factors in Options and Futures Transactions. Utilization of futures
transactions involves the risk of imperfect correlation in movements in the
prices of futures contracts and movements in the price of the underlying
security which is the subject of the hedge. If the price of the futures contract
moves more or less than the price of the underlying security, the Fund will
experience a gain or loss which will not be completely offset by movements in
the price of the underlying security 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 security
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 with whom the Fund has an
open position in a futures contract or related option.
6
<PAGE> 57
The exchanges on which the Fund intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options of the same underlying security or 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.
OTHER INVESTMENT POLICIES AND PRACTICES
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.
Lending of Portfolio Securities. Subject to investment restriction (5)
below, the Fund may lend securities from its portfolio to approved borrowers and
receive therefor collateral in cash or securities issued or guaranteed by the
United States Government which are 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.
7
<PAGE> 58
Illiquid Securities. While the Fund will not purchase illiquid securities
in an amount exceeding 15% (10% to the extent required by state law) of its
total assets, the Fund may purchase, without regard to that 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 continuously determines, based on the trading
markets for the specific restricted security, that it is liquid. The Board of
Trustees may adopt guidelines and delegate to the Investment Adviser the daily
function of determining and monitoring liquidity of restricted securities. The
Board of Trustees, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
The Board of Trustees carefully monitors the Fund's investments in these
securities purchased pursuant to Rule 144A, focusing on such factors, among
others, as valuation, liquidity and availability of information. These
investments in securities purchased pursuant to Rule 144A could have the effect
of increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions and policies relating to
the investment of its assets and its activities, which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities (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). The Fund may not:
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain
8
<PAGE> 59
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
the non-fundamental investment restrictions, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Trustees of the Fund has
otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c). Securities purchased in accordance with Rule 144A under the Securities
Act (a "Rule 144A security") and determined to be liquid by the Fund's
Board of Trustees are not subject to the limitations set forth in this
investment restriction (c). Notwithstanding the fact that the Board may
determine that a Rule 144A security is liquid and not subject to
limitations set forth in this investment restriction (c), the State of Ohio
does not recognize Rule 144A securities as securities that are free of
restrictions as to resale. To the extent required by Ohio law, the Fund
will not invest more than 50% of its total assets in securities of issuers
that are restricted as to disposition, including Rule 144A securities.
d. Invest in warrants if, at the time of acquisition, its investments
in warrants, valued at the lower of cost or market value, would exceed 5%
of the Fund's 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
9
<PAGE> 60
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 directors 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 exercise subscription
rights.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Fund, the Fund is prohibited from
engaging in certain transactions involving Merrill Lynch or its affiliates
except for brokerage transactions permitted under the Investment Company Act
involving only usual and customary commissions or transactions permitted
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 of 1933 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.
10
<PAGE> 61
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 & Co., Inc. ("ML & Co.") since 1990; Executive Vice
President of Merrill Lynch since 1990 and Senior Vice President thereof from
1985 to 1990; Director of Merrill Lynch Funds Distributor, Inc. ("MLFD" or the
"Distributor").
RONALD W. FORBES (55)--Trustee(2)--1400 Washington Avenue, Albany, New York
12222. Professor of Finance, School of Business, State University of New York at
Albany, since 1989.
CYNTHIA A. MONTGOMERY (43)--Trustee(2)--Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 12163. Professor, Harvard Business School
since 1989; Associate Professor, J.L.--Kellogg Graduate School of Management,
Northwestern University, 1985-1989; Assistant Professor, Graduate School of
Business Administration, the University of Michigan, 1979-1985; Director of UNUM
Corporation and Newell Company.
CHARLES C. REILLY (64)--Trustee(2)--9 Hampton Harbor Road, Hampton Bays,
New York 11946. Self-employed financial consultant since 1990; President and
Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business, 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, since 1990; Partner,
Small Cities Cable Television since 1986.
KEVIN A. RYAN (63)--Trustee(2)--127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Professor of Education at Boston University since 1982;
Founder and current Director of The Boston University Center for Advancement of
Ethics & Character; Formerly taught on the faculties of the University of
Chicago, Stanford University and The Ohio State University.
RICHARD R. WEST (57)--Trustee(2)--287 Genoa Springs Drive, Genoa, Nevada
89411. Professor of Finance, and Dean from 1984 to 1993, New York University
Leonard N. Stern School of Business Administration; Professor of Finance at the
Amos Tuck School of Business Administration from 1976 to 1984 and Dean from 1976
to 1983; Director of Vornado, Inc. (real estate holding corporation), Constar
International, Inc., Smith Corona Corporation (manufacturer of typewriters and
word processors) and Alexander's, Inc.
TERRY K. GLENN (55)--Executive Vice President(1)(2)--Executive Vice
President of the Manager and FAM since 1983; Executive Vice President of
Princeton Services since 1993; President of the Distributor since 1986 and
Director thereof since 1991.
NORMAN R. HARVEY (62)--Senior Vice President(1)(2)--Senior Vice President
of the Manager and FAM since 1982.
DONALD C. BURKE (35)--Vice President(1)(2)--Vice President and Director of
Taxation of the Manager since 1990; Employee of Deloitte & Touche LLP from 1982
until 1990.
WALTER D. ROGERS (52)--Vice President(1)--Vice President of the Manager
since 1987.
GERALD M. RICHARD (46)--Treasurer(1)(2)--Senior Vice President and
Treasurer of the Manager and FAM since 1984; Senior Vice President and Treasurer
of Princeton Services since 1993; Vice President of the Distributor since 1981
and Treasurer since 1984; employee of the Distributor since 1978.
11
<PAGE> 62
ROBERT HARRIS (43)--Secretary(1)(2)--Vice President of the Manager since
1984 and attorney associated with the Manager since 1980; Secretary of the
Distributor since 1982.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Trustee or officer is a director, trustee or officer of certain other
investment companies for which the Manager or its affiliate, FAM, acts as
investment adviser.
As of 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.
Pursuant to the terms of the management agreement with the Fund, the
Manager pays all compensation of officers and employees of the Fund as well as
the fees of all Trustees who are affiliated persons of ML & Co. or its
subsidiaries. The Fund pays each Trustee not affiliated with the Manager a fee
of $1,000 per year plus $400 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 and Nominating Committee, which consists of all
the nonaffiliated Trustees with a fee of $1,000 per year; the Chairman of the
Audit and Nominating Committee receives an additional annual fee of $1,000 per
year. For the fiscal year ended July 31, 1995, fees and expenses paid to
nonaffiliated Trustees aggregated $18,444.
The following table sets forth the compensation paid by the Fund to the
non-interested Trustees for the fiscal year ended July 31, 1995 and the
aggregate compensation paid by all investment companies advised by MLAM and its
affiliate, FAM ("MLAM/FAM Advised Funds") to the non-interested Trustees for the
calendar year ended December 31, 1994.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM FUND AND
AGGREGATE PENSION OR RETIREMENT MLAM/FAM ADVISED
COMPENSATION BENEFITS ACCRUED AS FUNDS PAID TO
NAME OF DIRECTOR FROM FUND PART OF FUND EXPENSES TRUSTEES(1)
- ------------------------------------ ------------ --------------------- ----------------
<S> <C> <C> <C>
Ronald W. Forbes.................... $4,000 None $154,400
Cynthia A. Montgomery............... $2,233 None $133,817
Charles C. Reilly................... $4,000 None $278,900
Kevin A. Ryan....................... $4,000 None $154,400
Richard R. West..................... $5,000 None $300,900
</TABLE>
- ---------------
(1) In addition to the Fund, the Trustees served on other MLAM/FAM Advised Funds
as follows: Mr. Forbes (37 funds); Ms. Montgomery (37 funds); Mr. Reilly (54
funds); Mr. Ryan (37 funds); and Mr. West (54 funds).
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
12
<PAGE> 63
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"). As discussed in the Prospectus, the Manager receives
for its services to the Fund monthly compensation at the annual rate of 0.60% of
the average daily net assets of the Fund. For the fiscal years ended July 31,
1993, 1994 and 1995, the total management fees paid by the Fund to the Manager
aggregated $1,546,576, $1,381,980 and $1,019,890, respectively. At October 31,
1995, the net assets of the Fund aggregated approximately $159.1 million. At
this level, the annual management fee would aggregate approximately $954,625.
The State of California imposes limitations on the expenses of the Fund. At
the date of this Statement of Additional Information, these annual expense
limitations require that the Manager reimburse the Fund in any amount necessary
to prevent the aggregate ordinary operating expenses (excluding interest, 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 management 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 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, shareholders 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. Accounting services
are provided to the Fund by the Manager, and the Fund reimburses the Manager for
its costs in connection with such services on a semi-annual basis. As required
by the Fund's distribution agreements, the Distributor will pay the promotional
expenses of the Fund in connection with the offering of its shares. See
"Purchase of 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 contract is not
13
<PAGE> 64
assignable and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
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 identical interests 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 FAM or the Manager 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 offerings 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 the 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 fiscal years
ended July 31, 1993, 1994 and 1995 were $81,292, $80,525 and $11,029,
respectively, of which the Distributor received $2,936, $4,364 and $628,
respectively, and Merrill Lynch received $79,356, $76,171 and $10,401,
respectively. During the fiscal year ended July 31, 1995, the Distributor
received no CDSCs on Class A shares for which the initial sales charge was
waived. For the period October 21, 1994 (commencement of operations) to July 31,
1995, the gross sales charges for the sale of Class D shares was $9,527, of
which the Distributor received $673 and Merrill Lynch received $8,854. For
information as to brokerage commissions received by Merrill Lynch, see
"Portfolio Transactions and Brokerage."
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
14
<PAGE> 65
individual, or to concurrent purchases, which in the aggregate are at least
equal to the prescribed amounts, by an individual, his spouse and their children
under the age of 21 years purchasing shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases by
any such company which has not been in existence for at least six months or
which has no purpose other than the purchase of shares of the Fund or shares of
other registered investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders of
a company, policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. Reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of other MLAM-advised mutual funds. For any such right
of accumulation to be made available, the Distributor must be provided at the
time of purchase, by the purchaser or the purchaser's securities dealer, with
sufficient information to permit confirmation of qualification. Acceptance of
the purchase order is subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing, or other employee benefit plans may
not be combined with other shares to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating $25,000 or more of Class A or Class D shares of the Fund or any
other MLAM-advised mutual funds made within a 13-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's transfer agent. The Letter of Intention is
not available to employee benefit plans for which Merrill Lynch provides plan
participant record-keeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under the subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward the
completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If
15
<PAGE> 66
a purchase during the term of such Letter would otherwise be subject to a
further reduced sales charge based on the right of accumulation, the purchaser
will be entitled on that purchase and subsequent purchases to that further
reduced percentage sales charge, but there will be no retroactive reduction of
the sales charges on any previous purchase. The value of any shares redeemed or
otherwise disposed of by the purchaser prior to termination or completion of the
Letter of Intention will be deducted from the total purchases made under such
Letter. An exchange from a MLAM-advised money market fund into the Fund that
creates a sales charge will count toward completing a new or existing Letter of
Intention from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the Fund may purchase additional Class A shares of the Fund through Blueprint.
The Blueprint Program is directed to small investors, group Individual
Retirement Accounts ("IRAs") and participants in certain affinity groups such as
credit unions, trade associations and benefit plans. Investors placing orders to
purchase Class A or Class D shares of the Fund through Blueprint will acquire
the Class A or Class D shares at net asset value plus a sales charge calculated
in accordance with the Blueprint sales charge schedule (i.e., up to $300 at
4.25%, $300.01 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.
Class A and Class D shares are offered at net asset value, to Blueprint
participants through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from Employer Sponsored Retirement and Savings Plans
(as defined below) whose Trustee and/or Plan Sponsor has entered into a Merrill
Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class D shares of the Fund may be
grouped for execution purposes which, in some circumstances, may involve the
execution of such orders two business days following the day such orders are
placed. The minimum initial purchase price is $100, with a $50 minimum for
subsequent purchases through Blueprint. There are no minimum initial or
subsequent purchase requirements for participants who are part of an automatic
investment plan. Additional information concerning purchases through Blueprint,
including any annual fees and transaction charges, is available from Merrill
Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program, P.O. Box
30441, New Brunswick, New Jersey 08989-0441.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Employer Sponsored Retirement Plans and Savings. Class A and Class D
shares are offered at net asset value to employer sponsored retirement or
savings plans, such as tax qualified retirement plans within the meaning of
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
deferred compensation plans within the meaning of Section 403(b) and 457 of the
Code, other deferred compensation arrangements, Voluntary Employee Benefits
Association ("VEBA") plans, and non-qualified After Tax Savings and Investment
programs, maintained on the Merrill Lynch Group Employee Services system, herein
16
<PAGE> 67
referred to as "Employer Sponsored Retirement or Savings Plans", provided the
plan has accumulated at least $20 million in MLAM-advised mutual funds (in the
case of Class A shares) or $5 million in MLAM-advised mutual funds (in the case
of Class D shares). Class D shares may be offered at net asset value to new
Employer Sponsored Retirement or Savings Plans, provided the plan has $3 million
or more initially invested in MLAM-advised mutual funds. Assets of Employer
Sponsored Retirement or Savings Plans sponsored by the same sponsor or an
affiliated sponsor may be aggregated. Class A shares and Class D shares also are
offered at net asset value to Employer Sponsored Retirement or Savings Plans
that have at least 1,000 employees eligible to participate in the plan (in the
case of Class A shares) or between 500 and 999 employees eligible to participate
in the plan (in the case of Class D shares). Employees eligible to participate
in Employer Sponsored Retirement or Savings Plans of the same sponsoring
employer or its affiliates may be aggregated. Tax qualified retirement plans
within the meaning of Section 401(a) of the Code meeting any of the foregoing
requirements and which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a wide
range of investments including individual corporate equities and other
securities in addition to mutual fund shares) by the Merrill Lynch Blueprint(SM)
Program, are offered Class A shares at a price equal to net asset value per
share plus a reduced sales charge of 0.50%. Any Employer Sponsored Retirement or
Savings Plan which does not meet the above described qualifications to purchase
Class A shares or Class D shares at net asset value has the option of (i)
purchasing Class A shares at the initial sales charge and possible CDSC schedule
disclosed in the Prospectus, if it is otherwise eligible to purchase Class A
shares, (ii) purchasing Class D shares at the initial sales charge and possible
CDSC schedule disclosed in the Prospectus, (iii) if the Employer Sponsored
Retirement or Savings Plan meets the specified requirements, purchasing Class B
shares with a waiver of the CDSC upon redemption, or (iv) if the Employer
Sponsored Retirement or Savings Plan does not qualify to purchase Class B shares
with a waiver of the CDSC upon redemption, purchasing Class C shares at the CDSC
schedule disclosed in the Prospectus. The minimum initial and subsequent
purchase requirements are waived in connection with all the above referenced
Employer Sponsored Retirement or Savings Plans.
Any Employer Sponsored Retirement or Savings Plan which does not meet the
above described qualifications to purchase Class A or Class D shares at net
asset value has the option of (i) purchasing Class D shares at the initial sales
charge schedule disclosed in the Prospectus for purchases of up to $1,000,000
and at 0.75% for purchases of $1,000,000 or more, (ii) if the Employer Sponsored
Retirement or Savings Plan meets the specified requirements, purchasing Class B
shares with a waiver of the CDSC upon redemption, or (iii) if the Employer
Sponsored Retirement or Savings Plan does not qualify to purchase Class C shares
with a waiver upon redemption, purchasing Class B or Class C shares at their
respective CDSC schedule disclosed in the Prospectus.
Certain Employer Sponsored Retirement or Savings Plans, which were
permitted prior to October 21, 1994, to purchase Class A shares at the initial
sales charge schedule in the then current prospectus for purchases up to
$1,000,000 and at 0.75% for purchases of $1,000,000 or more, may purchase Class
A shares at the initial sales charge schedule disclosed in the Prospectus for
purchases of up to $1,000,000 and at 0.75% for purchases of $1,000,000 or more.
The minimum initial and subsequent purchase requirement are waived in connection
with all the above referenced Employer Sponsored Retirement or Savings Plans.
Employee Access Accounts(SM). Class A or Class D shares are offered at net
asset value to Employee Access Accounts 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,
17
<PAGE> 68
except that the initial minimum for shares purchased for such accounts pursuant
to the Automatic Investment Program is $50.
Purchase Privileges of Certain Persons. Trustees of the Fund, members of
the Boards of other MLAM-advised investment companies, 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
any trust, pension, profit-sharing or other benefit plan for such persons, may
purchase Class A shares of the Fund at net asset value.
Class D shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of
shares of a mutual fund that was sponsored by the financial consultant's
previous firm and was subject to a sales charge either at the time of purchase
or on a deferred basis. Second, the investor must also establish that such
redemption had been made within 60 days prior to the investment in the Fund, and
the proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a Merrill Lynch
financial consultant and who has invested in a mutual fund for which Merrill
Lynch has not served as a selected dealer if the following conditions are
satisfied: First, the investor must advise Merrill Lynch that it will purchase
Class D shares of the Fund with proceeds from a redemption of such shares of
other mutual funds and that such shares have been outstanding for a period of no
less than 6 months. Second, such purchase of Class D shares must be made within
60 days after the redemption and the proceeds from the redemption must have been
maintained in the interim in cash or a money market fund.
Class D shares of the Fund are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: First, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and such fund was
subject to a sales charge either at the time of purchase or on a deferred basis.
Second, such purchase of Class D shares must be made within 90 days after
notice.
Employees and directors wishing to purchase shares of the Fund must satisfy
the Fund's suitability standards.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or FAM
who purchased such closed-end fund shares prior to October 21, 1994 and wish to
reinvest the net proceeds from a sale of their closed-end fund shares of common
stock in Eligible Class A Shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares if they are eligible
Class A investors, Class D shares of the Fund and other MLAM-advised mutual
funds ("Eligible Class D Shares"), if the following conditions are
18
<PAGE> 69
met. First, the sale of the closed-end fund shares must be made through Merrill
Lynch, and the net proceeds therefrom must be immediately reinvested in Eligible
Class A or Class D Shares. Second, the closed-end fund shares either must have
been acquired in the initial public offering or be shares representing dividends
from shares of common stock acquired in such offering. Third, the closed-end
fund shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option. Class A shares of the Fund are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. ("Senior Floating
Rate Fund") who wish to reinvest the net proceeds from a sale of certain of
their shares of common stock of Senior Floating Rate Fund in shares of the Fund.
In order to exercise this investment option, Senior Floating Rate Fund
shareholders must sell their Senior Floating Rate Fund shares to the Senior
Floating Rate Fund in connection with a tender offer conducted by the Senior
Floating Rate Fund and reinvest the proceeds immediately in the Fund. This
investment option is available only with respect to the proceeds of Senior
Floating Rate Fund shares as to which no Early Withdrawal Charge (as defined in
the Senior Floating Rate Fund prospectus) is applicable. Purchase orders from
Senior Floating Rate Fund shareholders wishing to exercise this investment
option will be accepted only on the day that the related Senior Floating Rate
Fund tender offer terminates and will be effected at the net asset value of the
Fund at such day. Similarly, Class D shares of the Fund are offered at net asset
value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. ("Municipal
Strategy Fund") who wish to purchase shares of the Fund with the net proceeds
from a sale of certain of their shares of common stock of Municipal Strategy
Fund pursuant to a tender offer by Municipal Strategy Fund. This investment
option is available only with respect to the proceeds of Municipal Strategy Fund
shares as to which no CDSC (as defined in the Municipal Strategy Fund
prospectus) is applicable.
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.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Fund to the Distributor with
respect to such classes.
19
<PAGE> 70
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 each 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 the 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 each 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 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.
20
<PAGE> 71
The following table sets forth comparative information as of July 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 with respect to Class B shares the Distributor's voluntary maximum.
Class C has no voluntary waiver.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JULY 31, 1995
---------------------------------------------------------------------------------------
CLASS B
(IN THOUSANDS)
ANNUAL
DISTRIBUTION
ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
--------- --------- ---------- ------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule as Adopted............. $388,184 $24,261 $9,410 $33,671 $ 17,782 $15,889 $928
Under Distributor's Voluntary Waiver... $388,184 $24,261 $1,941 $26,202 $ 17,782 $ 8,420 $928
</TABLE>
<TABLE>
<CAPTION>
CLASS C
(NOT IN THOUSANDS)
ANNUAL
DISTRIBUTION
ALLOWABLE ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
--------- --------- ---------- ------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule as Adopted............. $766,878 $47,930 $1,771 $49,701 $2,930 $46,771 $6,083
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B shares sold since November 25, 1987
(commencement of the operations) and all eligible Class C shares sold since
October 21, 1994 (commencement of operations) other than shares acquired
through dividend reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made prior to July 6, 1993 under a prior plan
applicable to Class B shares at the 1.0% rate, 0.75% of average daily net
assets has been treated as a distribution fee and 0.25% of average daily net
assets has been deemed to have been a service fee and not subject to the
NASD maximum sales charge rule. See "Purchase of Shares--Distribution Plans"
in the Prospectus.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the voluntary maximum or the NASD maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
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 costs, depending on the net asset value of such shares at such
time.
21
<PAGE> 72
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives-- Class B and Class C Shares," while Class B shares redeemed
within four years of purchase or 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 Individual Retirement Account ("IRA") or
other retirement plan or on redemptions of Class B shares following the death or
disability of a Class B shareholder. Redemptions for which the waiver applies
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 Code) of a Class B
shareholder (including one who owns the Class B shares as joint tenant with his
or her spouse), provided the redemption is requested within one year of the
death or initial determination of disability. For the fiscal years ended July
31, 1993, 1994 and 1995, the Distributor received CDSCs of $291,740, $122,226
and $139,714, respectively, with respect to redemption of Class B shares, all of
which was paid to Merrill Lynch. For the period October 21, 1994 (commencement
of operations) to July 31, 1995, the Distributor received CDSCs of $627, with
respect to redemption of Class C shares, all of which was paid to Merrill Lynch.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in the Merrill Lynch Blueprint(SM) Program ("Blueprint"). Blueprint
is directed to small investors and participants in certain affinity groups such
as trade associations and credit unions. Class B shares of the Fund are offered
through Blueprint only to members of certain affinity groups. The CDSC is waived
in connection with purchase orders placed through Blueprint. Services, including
the exchange privilege, available to Class B investors through Blueprint,
however, may differ from those available to other Class B investors. Orders for
purchases and redemptions of Class B shares of the Fund 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 Blueprint(SM) Program, P.O. Box 30441, New Brunswick,
New Jersey 08989-0441.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has the
option of purchasing Class A or Class D shares at the sales charge schedule
disclosed in the Prospectus, or if the Retirement Plan meets the following
requirements, then it may purchase Class B shares with a waiver of the CDSC upon
redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B
shares. "Eligible 401(k) Plan" is defined as a retirement plan qualified under
Section 401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for redemptions from a
401(a) plan qualified under the Code, provided, however, that each such plan has
the same or an affiliated sponsoring employer as an Eligible 401(k) Plan
purchasing Class B shares of MLAM-advised mutual funds ("Eligible 401(a) Plan").
Other tax qualified retirement plans within the meaning of Sections 401(a) and
403(b) of the Code which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a
22
<PAGE> 73
menu of investments) by independent administration firms contracted through
Merrill Lynch also may purchase Class B shares with a waiver of the CDSC. The
CDSC also is waived for any Class B or Class C shares which are purchased by an
Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled over into a Merrill
Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at
the time of redemption. The Class B CDSC also is waived for any Class B shares
which are purchased by a Merrill Lynch rollover IRA, that was funded by a
rollover from a terminated 401(k) plan managed by the MLAM Private Portfolio
Group and held in such account at the time of redemption. The minimum initial
and subsequent purchase requirements are waived in connection with all the
above-referenced Retirement Plans. The CDSC is also waived for any Class B
shares that were acquired and held at the time of redemption by Employee Access
AccountsSM available through employers that provide Eligible 401(k) Plans. The
initial minimum for such accounts is $500, except that the initial minimum for
shares purchased for such accounts pursuant to the Automatic Investment Program
is $50.
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 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 the 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. Consistent with the Rules of Fair Practice of the NASD, 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.
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, 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 July
31, 1995, the Fund did not acquire any 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
23
<PAGE> 74
with the Fund are prohibited from dealing with the Fund as principal in the
purchase and sale of securities. Since transactions in the over-the-counter
market usually involve transactions with dealers acting as principal for their
own 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 the Fund's dealer in such transactions and 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.
For the fiscal year ended July 31, 1993, the Fund paid total brokerage
commissions of $246,230, of which $9,564 or 3.88% was paid to Merrill Lynch for
effecting 5.43% of the aggregate dollar amount of transactions in which the Fund
paid brokerage commissions. For the fiscal year ended July 31, 1994, the Fund
paid total brokerage commissions of $293,748, of which $13,360 or 4.6% was paid
to Merrill Lynch for effecting 5.9% of the aggregate dollar amount of
transactions in which the Fund paid brokerage commissions. For the fiscal year
ended July 31, 1995, the Fund paid total brokerage commissions of $327,592, of
which $7,026 or 2.14% was paid to Merrill Lynch for effecting 2.20% of the
aggregate dollar amount of transactions in which the Fund paid brokerage
commissions.
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 the Fund is determined once daily
Monday through Friday 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 the New
York Stock Exchange is open. 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 quoted by one or more banks or dealers on
the day of valuation. 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. Expenses, including the fees payable to the Manager and the Distributor
and any account maintenance and/or distribution fees, are accrued daily. The per
share net asset value of the Class B, Class C and Class D shares generally will
be lower than the per share net asset value of the Class A shares reflecting the
daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C shares
and the daily expense accruals of the account maintenance fees applicable with
respect to the Class D
24
<PAGE> 75
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 the Class B and Class C shares
of the Fund. It is expected, however, that the per share net asset value of the
four classes will tend to converge (although not necessarily meet) immediately
after the payment of dividends or distributions, which will differ by
approximately the amount of the expense accrual differential between the
classes.
Portfolio securities which are securities 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 in the over-the-counter market are valued at
the last available bid price in the over-the-counter market prior to the time of
valuation. Securities traded on a stock exchange and the over-the-counter market
will be valued according to the broadest and most representative market. 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. Options purchased by the Fund are valued at their last sale
price in the case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the last bid price.
Where there is no market quotation on securities or options, fair market
value will be determined in good faith by or under the direction of the Fund's
Trustees. Such valuations and procedures will be reviewed periodically by the
Trustees.
When the Fund sells an option, an amount equal to the premium received by
the Fund is included in the Fund's Statement of Assets and Liabilities as a
deferred credit. The amount of such liability will be subsequently
marked-to-market to reflect the current market value of the option written. If
current market value exceeds the premium received there is an unrealized loss;
conversely, if the premium exceeds current market value there is an unrealized
gain. The current market value of a traded option is the last sale price or, in
the absence of a sale, the last offering price. If an option expires on its
stipulated expiration date or if the Fund enters into a closing purchase
transaction, the Fund will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option will be extinguished. If an option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of sale are increased by the premium originally
received.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services summarized below which are
designed to facilitate investment in its shares. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Fund, the Distributor or Merrill Lynch.
25
<PAGE> 76
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gains distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gains distributions.
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.
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.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail directly from the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the 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. The
Automatic Investment Plan is not available to shareholders participating in
certain retirement plans. For investors who buy shares of the Fund through the
Merrill Lynch BlueprintSM Program, no minimum charge to the investor's bank
account is required. Investors who maintain CMA(R) accounts may arrange to have
periodic investments made in the Fund in their CMA(R) accounts or in certain
related accounts in amounts of $100 or more ($1 for retirement plans) through
the CMA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund 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-
26
<PAGE> 77
FUND) to receive either their income dividends or capital gains distributions,
or both, in cash, in which event payment will be mailed or direct deposited on
the payment date.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account in the form of payments by check or through automatic
payment by direct deposit to such shareholder's bank account, on either a
monthly or quarterly basis as provided below. Quarterly withdrawals are
available for shareholders who have acquired Class A or Class D shares of the
Fund having a value, based on cost or the current offering price, of $5,000 or
more, and monthly withdrawals are available for shareholders with Class A or
Class D shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value determined as
described herein on the 24th day of each month or the 24th day of the last month
of each 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.
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,
bimonthly, quarterly, semiannual or annual basis through the Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $25. The
proceeds of systematic redemptions will be posted to a shareholder's account
five business days after the date the shares are redeemed. Monthly systematic
redemptions will be made at net asset value on the first Monday of each month,
bimonthly systematic redemptions will be made at net asset value on the first
Monday of every other month, and quarterly, semiannual or annual redemptions are
made at net asset value on the first Monday of months selected at the
shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automatic Investment Program. For
more information on the Systematic Redemption Program, eligible shareholders
should contact their Merrill Lynch financial consultant.
27
<PAGE> 78
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 and the minimum subsequent purchase is $1.
Capital gains and income received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plans.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select PricingSM System, Class A shareholders may exchange Class A shares
of the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, and the
shareholder does not hold Class A shares of the second fund in his account at
the time of the exchange and is not otherwise eligible to acquire Class A shares
of the second fund, the shareholder will receive Class D shares of the second
fund as a result of the exchange. Class D shares also may be exchanged for Class
A shares of a second MLAM-advised mutual fund at any time as long as, at the
time of the exchange, the shareholder holds Class A shares of the second fund in
the account in which the exchange is made or is otherwise eligible to purchase
Class A shares of the second fund. Class B, Class C and Class D shares will be
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period of the previously owned
shares of the Fund is "tacked" to the holding period of the newly acquired
shares of the other Fund as more fully described below. Class A, Class B, Class
C and Class D shares also will be exchangeable for shares of certain
MLAM-advised money market funds specifically designated below as available for
exchange by holders of Class A, Class B, Class C or Class D shares. Shares with
a net asset value of at least $100 are required to qualify for the exchange
privilege, and any shares utilized in an exchange must have been held by the
shareholder for 15 days. It is contemplated that the exchange privilege may be
applicable to other new mutual funds whose shares may be distributed by the
Distributor.
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
28
<PAGE> 79
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 Class A or
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 Merrill Lynch Special Value
Fund, Inc. ("Special Value Fund") after having held the Fund Class B shares for
two and a half years. The 2% sales charge that generally would apply to a
redemption would not apply to the exchange. Three years later the investor may
decide to redeem the Class B shares of Merrill Lynch Special Value Fund and
receive cash. There will be no CDSC due on this redemption since by "tacking"
the two and a half year holding period of Fund Class B shares to the three year
holding period for the Merrill Lynch Special Value Fund Class B shares, the
investor will be deemed to have held the new Class B shares for more than five
years.
The exchange privilege is modified with respect to certain retirement plans
which participate in the Merrill Lynch Mutual Fund Adviser ("MFA") program. Such
retirement plans may exchange Class B, Class C or Class D shares that have been
held for at least one year for Class A shares of the same Fund on the basis of
relative net asset values in connection with the commencement of participation
in the MFA program, i.e., no CDSC will apply. The one year holding period does
not apply to shares acquired through reinvestment of dividends. Upon termination
of participation in the MFA program, Class A shares will be reexchanged for the
class of shares originally held. For purposes of computing any CDSC that may be
payable upon redemption of Class B or Class C shares so reacquired, the holding
period for the Class A shares will be "tacked" to the holding period for the
Class B or Class C shares originally held.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the 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 B shares, towards satisfaction of the conversion
period. However, shares of a money market fund which were acquired as a result
of an exchange for Class B or Class C shares of the Fund may, in turn, be
exchanged back into Class B or Class C shares, 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
29
<PAGE> 80
the Fund for shares of Merrill Lynch Institutional Fund ("Institutional Fund")
after having held the Fund Class B shares for two and a half years and three
years later decide to redeem the shares of Institutional Fund for cash. At the
time of this redemption, the 2% CDSC that would have been due had the Class B
shares of the Fund been redeemed for cash rather than exchanged for shares of
Institutional Fund will be payable. If instead of such redemption the
shareholder exchanged such shares for Class B shares of a fund which the
shareholder continued to hold for an additional two and a half years, any
subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds issuing Class A, Class B, Class C and Class D Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. .............. High current income, consistent with a
policy of limiting the degree of
fluctuation in net asset value by
investing primarily in a portfolio of
adjustable rate securities,
consisting principally of
mortgage-backed and asset-backed
securities.
MERRILL LYNCH AMERICAS INCOME FUND,
INC. ............................. As high a level of current income as is
consistent with prudent investment
risk through investment primarily in
debt securities denominated in a
currency of a country located in the
Western Hemisphere (i.e., North and
South America and the surrounding
waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BONDS FUND....... A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to provide
as high a level of income exempt from
Federal and Arizona income taxes as
is consistent with prudent investment
management through investment in a
portfolio primarily of
intermediate-term investment grade
Arizona Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Arizona
income taxes as is consistent with
prudent investment management.
30
<PAGE> 81
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. ............................... 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 ASSET INCOME FUND,
INC. ............................... A high level of current income through
investment primarily in United States
fixed income securities.
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT,
INC. ............................. As high a level of total investment
return as is consistent with a
relatively low level of risk through
investment in common stock and other
types of securities, including fixed
income securities and convertible
securities.
MERRILL LYNCH BASIC VALUE FUND,
INC. ............................... Capital appreciation and, secondarily,
income by investing in securities,
primarily equities, that are
undervalued and therefore represent
basic investment value.
MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND............... A portfolio of Merrill Lynch California
Municipal Series Trust, a series
fund, whose objective is to provide
as high a level of insured income
exempt from Federal and California
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL BOND FUND...... A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to provide
as high a level of income exempt from
Federal and California income taxes
as is consistent with prudent
investment management through
investment in a portfolio primarily
of intermediate-term investment grade
California Municipal Bonds.
31
<PAGE> 82
MERRILL LYNCH CALIFORNIA MUNICIPAL
BOND FUND........................... A portfolio of Merrill Lynch California
Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and California income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH CAPITAL FUND, INC. ... The highest total investment return
consistent with prudent risk through
a fully managed investment policy
utilizing equity, debt and
convertible securities.
MERRILL LYNCH COLORADO MUNICIPAL
BOND FUND........................... A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Colorado
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH CONNECTICUT MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Connecticut
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH CORPORATE BOND FUND,
INC. ............................. Current income from three separate
diversified portfolios of fixed
income securities.
MERRILL LYNCH DEVELOPING CAPITAL
MARKETS FUND, INC. ............... Long-term 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 issues domiciled in
developing countries located in Asia
and the Pacific Basin.
MERRILL LYNCH EUROFUND.............. Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.
32
<PAGE> 83
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.
MERRILL LYNCH FLORIDA MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is 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 in placing particular
emphasis on companies that have
exhibited an above-average growth
rate in earnings.
33
<PAGE> 84
MERRILL LYNCH FUNDAMENTAL VALUE
PORTFOLIO (Available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)........................ A portfolio of Merrill Lynch Retirement
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, INC. ....................... High total return consistent with
prudent risk, through a fully-managed
investment policy utilizing United
States and foreign equity, debt and
money market securities, the
combination of which will be varied
from time to time both with respect
to types of securities and markets in
response to changing market and
economic trends.
MERRILL LYNCH GLOBAL BOND FUND FOR
INVESTMENT AND RETIREMENT......... High total investment return from
investment in government and
corporate bonds denominated in
various currencies and multi-national
currency units.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC. ....................... High total return from investment
primarily in an internationally
diversified portfolio of convertible
debt securities, convertible
preferred stock and "synthetic"
convertible securities consisting of
a combination of debt securities or
preferred stock and warrants or
options.
MERRILL LYNCH GLOBAL HOLDINGS, INC.
(residents of Arizona must meet
investor suitability standards)... The highest total investment return
consistent with prudent risk through
worldwide investment in an
internationally diversified portfolio
of securities.
MERRILL LYNCH GLOBAL OPPORTUNITY
PORTFOLIO (Available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)........................ A portfolio of Merrill Lynch Retirement
Asset 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
34
<PAGE> 85
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 foreign and domestic companies
that possess substantial natural
resource assets.
MERRILL LYNCH GLOBAL SMALLCAP
FUND, INC. ....................... Long-term growth of capital by
investing primarily in equity
securities of companies with
relatively small market
capitalizations located in various
foreign countries and in the United
States.
MERRILL LYNCH GLOBAL UTILITY
FUND, 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 FUND FOR
INVESTMENT AND RETIREMENT......... Growth of capital and, secondarily,
income from investment in a
diversified portfolio of equity
securities placing a principal
emphasis on those securities which
management of the fund believes to be
undervalued.
MERRILL LYNCH HEALTHCARE FUND, INC.
(residents of Wisconsin must meet
investor suitability standards)... Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected
to derive a substantial portion of
their sales from products and
services in healthcare.
MERRILL LYNCH INTERNATIONAL EQUITY
FUND.............................. Capital appreciation and, secondarily,
income by investing in a diversified
portfolio of equity securities of
issuers located in countries other
than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC. ....................... Capital appreciation by investing
primarily in Latin American equity
and debt securities.
35
<PAGE> 86
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.
MERRILL LYNCH MASSACHUSETTS LIMITED
MATURITY MUNICIPAL BOND FUND...... A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to provide
as high a level of income exempt from
Federal and Massachusetts income
taxes as is consistent with prudent
investment management through
investment in a portfolio primarily
of intermediate-term investment grade
Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND................. A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is to
provide investors with as high a
level of income exempt from both
Federal and Massachusetts income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND FUND,
INC. ............................. A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to provide
as high a level of income exempt from
Federal and Michigan income taxes as
is consistent with prudent investment
management through investment in a
portfolio primarily of
intermediate-term investment grade
Michigan Municipal Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND........................... A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Michigan
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MINNESOTA MUNICIPAL
BOND FUND........................... A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from
36
<PAGE> 87
Federal and Minnesota personal income
taxes as is consistent with prudent
investment management.
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
investment in a portfolio primarily
of intermediate-term investment grade
New Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and New Jersey
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NEW MEXICO MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and New Mexico
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND FUND...... A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to provide
as high a level of income exempt from
Federal, New York State and New York
City income taxes as is consistent
with prudent investment management
through investment
37
<PAGE> 88
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 investors with as high a
level of income exempt from both
Federal and Ohio income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH OREGON MUNICIPAL BOND
FUND.............................. A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, A
Series Fund, Whose objective is to
provide investors with as high a
level of income exempt from both
Federal and Oregon income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH PACIFIC FUND, INC. ... Capital appreciation by investing in
equity securities of corporations
domiciled in Far Eastern and Western
Pacific countries, including Japan,
Australia, Hong Kong, Singapore and
the Philippines.
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.
38
<PAGE> 89
MERRILL LYNCH PENNSYLVANIA MUNICIPAL
BOND FUND......................... A portfolio of Merrill Lynch
Multi-State Municipal Series Trust, a
series fund, whose objective is to
provide as high a level of income
exempt from Federal and Pennsylvania
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH PHOENIX FUND, INC. ... Long-term growth of capital by
investing in equity and fixed income
securities, including tax-exempt
securities, of issuers in weak
financial condition or experiencing
poor operating results believed to be
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)................ A portfolio of Merrill Lynch Retirement
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.
MERRILL LYNCH SPECIAL VALUE FUND,
INC. ............................... Long-term growth of capital from
investments in securities, primarily
common stocks, of relatively small
companies believed to have special
investment value and emerging growth
companies regardless of size.
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
39
<PAGE> 90
provide investors with as high a
level of income exempt from Federal
income taxes as is consistent with
prudent investment management by
investing primarily in a portfolio of
long-term, investment grade
obligations issued by the state of
Texas, its political subdivisions,
agencies and instrumentalities.
MERRILL LYNCH U.S. GOVERNMENT
SECURITIES PORTFOLIO (Available
only for exchanges by certain
individual retirement accounts for
which Merrill Lynch acts as
custodian)........................ A portfolio of Merrill Lynch Retirement
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.
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
40
<PAGE> 91
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.
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
41
<PAGE> 92
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.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data, in advertisements or information furnished to present
or prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B, Class
C and Class D shares in accordance with formulas specified by the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and distributions
are reinvested and taking into account all applicable recurring and nonrecurring
expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time.
42
<PAGE> 93
Set forth below is total return information for the Class A, Class B, Class
C and Class D shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------- -------------------------------------
REDEEMABLE REDEEMABLE
EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A PERCENTAGE HYPOTHETICAL AS A PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
- ----------------------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
One Year Ended July 31, 1995....... 8.06% $1,080.60 8.93% $1,089.30
Five Years Ended July 31, 1995..... 7.68% $1,447.80 7.72% $1,450.60
Inception (November 25, 1987) to
July 31, 1995.................... 9.26% $1,975.50
Inception (November 29, 1988) to
July 31, 1995.................... 9.10% $1,787.90
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended July 31,
1995............................... 14.04% $1,140.40 12.82% $1,128.20
1994............................... 2.38% $1,023.80 1.30% $1,013.00
1993............................... 10.03% $1,100.30 8.90% $1,089.00
1992............................... 11.96% $1,119.60 10.85% $1,108.50
1991............................... 6.25% $1,062.50 5.14% $1,051.40
1990............................... 1.20% $1,012.00 0.15% $1,001.50
1989............................... 23.48% $1,234.80
Inception (November 25, 1987) to
July 31, 1988.................... 10.13% $1,101.30
Inception (November 29, 1988) to
July 31, 1989.................... 22.02% $1,220.20
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (November 25, 1987) to
July 31, 1995.................... 97.55% $1,975.50
Inception (November 29, 1988) to
July 31, 1995.................... 78.79% $1,787.90
</TABLE>
43
<PAGE> 94
<TABLE>
<CAPTION>
CLASS C SHARES* CLASS D SHARES*
------------------------------------- -------------------------------------
REDEEMABLE REDEEMABLE
EXPRESSED VALUE OF A EXPRESSED VALUE OF A
AS A PERCENTAGE HYPOTHETICAL AS A PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 INVESTMENT BASED ON A $1,000 INVESTMENT
HYPOTHETICAL AT THE END HYPOTHETICAL AT THE END
PERIOD $1,000 INVESTMENT OF THE PERIOD $1,000 INVESTMENT OF THE PERIOD
- ----------------------------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (October 21, 1994) to
July 31, 1995.................... 16.13% $1,123.00 10.43% $1,079.90
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (October 21, 1994) to
July 31, 1995.................... 13.30% $1,133.00 13.98% $1,139.80
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (October 21, 1994) to
July 31, 1995.................... 12.30% $1,123.00 7.99% $1,079.90
</TABLE>
- ---------------
* Class C Shares and Class D Shares commenced operations on October 21, 1994.
In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares", respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses is deducted.
From time to time, the Fund may include the Fund's Morningstar
risk-adjusted performance rating in advertisements or supplemental sales
literature.
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 quarterly. All net
realized long- or short-term capital gains, if any, will be distributed to the
Fund's shareholders at least 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
44
<PAGE> 95
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 elect to qualify for the special tax
treatment afforded regulated investment companies ("RICs") under the Internal
Revenue Code of 1986, as amended (the "Code"). If it so qualifies, the Fund (but
not its shareholders) will not be subject to Federal income tax on the part of
its net ordinary income and net realized capital gains which it distributes to
Class A, Class B, Class C and Class D shareholders (together, the
"shareholders"). The 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. Any loss upon the sale or exchange
of Fund shares held for six months or less, however, will be treated as
long-term capital loss to the extent of any long-term capital gains
distributions received by the shareholder with respect to such shares.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (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 ordinary income dividends or
capital gains distributions. A portion of the Fund's ordinary income dividends
may be eligible for the dividends received deduction allowed to 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 upon the gross income that is 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 Fund and
received by its shareholders on December 31 of the year in which such dividend
was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident 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 the applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
45
<PAGE> 96
Pursuant to the Fund's investment objective, 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 reportable dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not on file with the Fund or who, to the Fund's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under 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 for Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period of the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent the sales charge
paid to the Fund reduces any sales charge the shareholder would have owed upon
the purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its ordinary
income and capital gains in the manner necessary to avoid imposition of the 4%
excise tax, there can be no assurance that sufficient amounts of the Fund's
taxable income and capital gains will be distributed to avoid entirely the
imposition of the tax. In such event, the Fund will be liable for the tax only
on the amount by which it does not meet the foregoing distribution requirements.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase or sell options and 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 such
option or futures contract will be treated as sold for its fair market value on
the last day of the taxable year. In general, unless the special election
referred to in the previous sentence is made, gain or loss from Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss. The
mark-to-
46
<PAGE> 97
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 and futures contracts. Under
Section 1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain closing transactions in options and futures.
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 options 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, foreign currency
futures and 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 United States
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 income,
rather than increasing or decreasing the amount of the Fund's net capital gains.
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 the basis of each shareholder's Fund
shares.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
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, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
47
<PAGE> 98
MASSACHUSETTS INCOME TAX
Under present Massachusetts law, the Fund (but not its shareholders) is not
subject to any Massachusetts income taxation during any fiscal year in which the
Fund qualifies as a RIC. The Fund might be subject to Massachusetts income taxes
for any taxable year in which it did not so qualify.
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 would
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 distribution and account maintenance 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 distribution and account
maintenance expenses being borne solely by such class. The Fund has received an
order from the Securities and Exchange Commission permitting the issuance and
sale of multiple classes of shares. Upon liquidation of the Fund, shareholders
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
to only one class. Shares have no preemptive rights. The rights of redemption,
conversion and exchange 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 hereafter provided) and on other matters submitted to vote of
shareholders except that shareholders of the class bearing distribution and
account maintenance expenses as provided above shall have exclusive voting
rights with respect to matters relating to such distribution and account
maintenance expenses. There normally will be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the terms of the Declaration
of Trust, cause a meeting of shareholders to be held for the purpose of voting
on the removal of the Trustees. The Declaration of Trust 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 a majority of the Trustees. Under the
Investment Company Act, if ten or more shareholders apply to the Trustees in
writing, the Trustees will be required to assist such shareholders in
communicating with other shareholders to obtain the necessary signatures to
request a shareholders' meeting so long as the requirements of Section 16(c) are
met. 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 unable 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.
48
<PAGE> 99
The Manager provided the initial capital for the Fund by purchasing 10,000
shares of the Fund for $100,000. Such shares were acquired for investment and
can only be disposed of by redemption. The organizational expenses of the Fund
were paid by the Fund and were amortized over a period not exceeding five years.
The proceeds realized by the Manager upon the redemption of any of the shares
initially purchased by it during such five year period, if any, were reduced by
the proportional amount of the unamortized organizational expenses which the
number of such initial shares being redeemed bears to the number of shares
initially purchased.
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class A, Class B, Class C and Class D shares of the
Fund, based on the value of the Fund's net assets and number of shares
outstanding as of July 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....................... $18,687,144 $130,920,666 $ 811,088 $13,988,122
========== =========== ========== ==========
Number of Shares Outstanding..... 1,526,875 10,701,025 66,491 1,142,637
========== =========== ========== ==========
Net Asset Value Per Share (net
assets divided by number of
shares outstanding)............ $ 12.24 $ 12.23 $ 12.20 $ 12.24
Sales Charge* (for Class A and
Class D shares: 5.25% of
offering price, 5.54% of net
asset value per share)......... 0.68 ** ** 0.68
----------- ------------ ----------- -----------
Offering Price................... $ 12.92 $ 12.23 $ 12.20 $ 12.92
========== =========== ========== ==========
</TABLE>
- ---------------
*Rounded to nearest one-hundredth of one percent; assumes maximum sales charge
is applicable.
**Class B and Class C shares are not subject to an initial sales charge but may
be subject to a CDSC on redemption. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" in the Prospectus and
"Redemption of Shares -- Deferred Sales Charges -- Class B and Class C Shares"
herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The 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 investments.
49
<PAGE> 100
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 July 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.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's share on November 1, 1995.
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.
The Declaration of Trust establishing the Fund, dated as of May 14, 1987, 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 Strategic Dividend 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 be had to their
private property for satisfaction of any obligation or claim of said Fund but
the "Trust Property" only shall be liable.
50
<PAGE> 101
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
Merrill Lynch Strategic Dividend Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Strategic Dividend Fund as of July
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 July 31,
1995 by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Strategic Dividend Fund as of July 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
August 31, 1995
51
<PAGE> 102
Merrill Lynch Strategic Dividend Fund, July 31, 1995
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value Percent of
EUROPE Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
Spain Oil & Gas Producers 52,000 Repsol S.A. (ADS)** $ 1,661,156 $ 1,735,500 1.0%
Total Investments in Spain 1,661,156 1,735,500 1.0
United Chemicals 62,000 Imperial Chemical Industries PLC
Kingdom (ADR)* 2,744,492 3,123,250 1.9
Oil--International 19,000 British Petroleum Co. PLC (ADS)** 1,676,727 1,724,250 1.1
30,000 Royal Dutch Petroleum PLC (ADR)* 1,703,965 3,810,000 2.3
------------ ------------ ------
3,380,692 5,534,250 3.4
Total Investments in the
United Kingdom 6,125,184 8,657,500 5.3
Total Investments in Europe 7,786,340 10,393,000 6.3
NORTH
AMERICA
United Aerospace & Defense 62,000 Northrop Grumman Corp. 2,214,602 3,534,000 2.1
States 40,000 TRW Inc. 2,218,088 2,985,000 1.8
------------ ------------ ------
4,432,690 6,519,000 3.9
Automotive 72,000 Arvin Industries, Inc. 1,656,934 1,674,000 1.0
Equipment 60,000 Dana Corp. 1,649,850 1,770,000 1.1
------------ ------------ ------
3,306,784 3,444,000 2.1
Banks 20,000 Barnett Banks, Inc. 1,002,350 1,110,000 0.7
28,000 Boatmen's Bancshares, Inc. 1,004,500 1,018,500 0.6
60,000 The Chase Manhattan Corp. 2,110,790 3,217,500 2.0
22,000 Chemical Banking Corp. 1,036,396 1,135,750 0.7
49,000 CoreStates Financial Corp. 1,677,064 1,788,500 1.1
16,000 Integra Financial Corp. 862,960 850,000 0.5
23,000 Mellon Bank Corp. 990,205 922,875 0.6
23,000 Mercantile Bancorporation 1,002,055 1,037,875 0.6
65,000 Meridian Bancorp, Inc. 1,795,625 2,486,250 1.5
------------ ------------ ------
11,481,945 13,567,250 8.3
Chemicals 23,000 The Dow Chemical Co. 1,369,880 1,704,875 1.0
Cosmetics & 22,000 Avon Products, Inc. 1,303,320 1,496,000 0.9
Household Products 42,000 The Clorox Co. 2,495,107 2,756,250 1.7
------------ ------------ ------
3,798,427 4,252,250 2.6
Drugs 40,000 Bristol-Myers Squibb Co. 1,826,550 2,770,000 1.7
40,000 Eli Lilly & Co. 2,165,088 3,130,000 1.9
------------ ------------ ------
3,991,638 5,900,000 3.6
Electrical Equipment 65,000 General Electric Co. 3,140,231 3,835,000 2.3
Financial Services 80,000 American Express Co. 1,709,114 3,080,000 1.9
72,000 Beneficial Corp. 2,763,271 3,411,000 2.1
------------ ------------ ------
4,472,385 6,491,000 4.0
</TABLE>
52
<PAGE> 103
<TABLE>
<S> <C> <C> <C> <C> <C>
Food Merchandising 20,000 Lance, Inc. 360,000 350,000 0.2
Hardware Products 51,000 The Stanley Works 2,138,235 2,020,875 1.2
Information 25,000 Xerox Corp. 2,545,646 2,978,125 1.8
Processing
Insurance 95,000 American General Corp. 1,961,793 3,455,625 2.1
50,000 Lincoln National Corp. 2,135,530 2,056,250 1.2
115,000 Ohio Casualty Corp. 3,672,969 3,708,750 2.3
------------ ------------ ------
7,770,292 9,220,625 5.6
Metals 35,000 Carpenter Technology Corp. 2,225,034 2,581,250 1.6
100,000 Cyprus Amax Minerals Co. 2,627,429 2,787,500 1.7
------------ ------------ ------
4,852,463 5,368,750 3.3
Miscellaneous 28,000 Minnesota Mining & Manufacturing
Technology Company 1,671,180 1,585,500 1.0
Oil--Domestic 30,000 Atlantic Richfield Co. 3,395,562 3,457,500 2.1
96,000 Phillips Petroleum Co. 3,323,722 3,396,000 2.1
------------ ------------ ------
6,719,284 6,853,500 4.2
Oil--International 60,000 Exxon Corp. 3,569,538 4,350,000 2.6
40,000 Mobil Corp. 1,804,050 3,910,000 2.4
55,000 Texaco Inc. 2,558,840 3,657,500 2.2
------------ ------------ ------
7,932,428 11,917,500 7.2
Paper & Forest 100,000 Federal Paper Board Co., Inc. 2,178,963 3,737,500 2.3
Products
Photography 50,000 Eastman Kodak Co. 2,030,861 2,881,250 1.8
Publishing/Printing 35,000 McGraw-Hill, Inc. 2,434,950 2,690,625 1.6
Real Estate 40,000 Avalon Properties, Inc. 846,650 800,000 0.5
28,000 Developers Diversified Realty Corp. 791,000 850,500 0.5
35,000 Simon Property Group, Inc. 886,200 857,500 0.5
------------ ------------ ------
2,523,850 2,508,000 1.5
Retail 29,000 May Department Stores Co. 1,257,489 1,257,875 0.8
36,000 Sears, Roebuck & Co. 1,208,160 1,174,500 0.7
------------ ------------ ------
2,465,649 2,432,375 1.5
Savings & Loan 80,000 Great Western Financial Corporation 1,685,600 1,710,000 1.0
85,000 H.F. Ahmanson & Co. 1,716,588 1,901,875 1.2
------------ ------------ ------
3,402,188 3,611,875 2.2
Transportation 35,000 Union Pacific Corp. 1,752,100 2,279,375 1.4
Utilities--Electric 85,000 American Electric Power Co., Inc. 2,682,600 2,932,500 1.8
126,000 Consolidated Edison Co. of
N.Y., Inc. 3,559,500 3,654,000 2.2
84,000 Houston Industries Inc. 3,249,540 3,675,000 2.2
60,000 Northern States Power Co. 2,613,600 2,655,000 1.6
66,000 Public Service Co. of Colorado 2,137,905 2,087,250 1.3
64,000 Public Service Enterprise
Group, Inc. 2,245,120 1,776,000 1.1
100,000 Wisconsin Energy Corp. 2,593,500 2,800,000 1.7
------------ ------------ ------
19,081,765 19,579,750 11.9
</TABLE>
53
<PAGE> 104
Merrill Lynch Strategic Dividend Fund, July 31, 1995
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
NORTH AMERICA Shares Value Percent of
(concluded) Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C> <C>
United Utilities--Gas & 135,000 The Brooklyn Union Gas Co. $ 3,619,350 $ 3,290,625 2.0%
States Gas Pipeline 130,000 NICOR Inc. 3,698,548 3,298,750 2.0
(concluded) 131,000 Sonat, Inc. 2,343,064 3,930,000 2.4
------------ ------------ ------
9,660,962 10,519,375 6.4
Utilities-- 69,000 GTE Corp. 2,455,578 2,449,500 1.5
Telecommunications 101,000 NYNEX Corp. 3,870,320 4,166,250 2.5
100,000 Southern New England
Telecommunications Corp. 3,431,713 3,425,000 2.1
58,000 Sprint Corporation 2,091,570 1,986,500 1.2
------------ ------------ ------
11,849,181 12,027,250 7.3
Total Investments in
North America 127,363,977 148,275,625 90.2
Total Common Stocks 135,150,317 158,668,625 96.5
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Short-Term Securities
<S> <C> <C> <C>
US Government $2,057,000 Federal Home Loan Mortgage
& Agency Corporation, 5.84% due 8/04/1995 2,055,665 2,055,665 1.3
Obligations*** Federal National Mortgage
Association:
2,870,000 5.63% due 8/02/1995 2,869,102 2,869,102 1.7
1,525,000 5.60% due 8/14/1995 1,521,679 1,521,679 0.9
Total Short-Term Securities 6,446,446 6,446,446 3.9
Total Investments $141,596,763 165,115,071 100.4
------------
Liabilities in Excess of Other Assets (708,051) (0.4)
------------ ------
Net Assets $164,407,020 100.0%
------------ ------
</TABLE>
*American Depositary Receipt (ADR).
**American Depositary Share (ADS).
***Certain US Government & Agency Obligations are traded on a
discount basis; the interest rates shown are the discount rates
paid at the time of purchase by the Fund.
See Notes to Financial Statements.
54
<PAGE> 105
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As Of July 31, 1995
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$141,596,763)(Note 1a)...... $165,115,071
Receivables:
Securities sold................................................... $ 2,170,842
Dividends......................................................... 357,574
Beneficial interest sold.......................................... 92,930 2,621,346
------------
Prepaid expenses and other assets (Note 1f)......................... 69,527
------------
Total assets........................................................ 167,805,944
------------
Liabilities: Payables:
Securities purchased.............................................. 1,091,996
Beneficial interest redeemed...................................... 450,858
Distributor (Note 2).............................................. 111,336
Investment adviser (Note 2)....................................... 84,289 1,738,479
------------
Accrued expenses and other liabilities.............................. 1,660,445
------------
Total liabilities................................................... 3,398,924
------------
Net assets: Net assets.......................................................... $164,407,020
------------
Net Assets Class A Shares of beneficial interest, $0.10 par value,
Consist Of: unlimited number of shares authorized............................... $ 152,688
Class B Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized............................... 1,070,102
Class C Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized............................... 6,649
Class D Shares of beneficial interest, $0.10 par value,
unlimited number of shares authorized............................... 114,264
Paid-in capital in excess of par.................................... 125,645,624
Undistributed investment income--net................................ 8,064
Undistributed realized capital gains on investments and
foreign currency transactions--net.................................. 13,891,277
Unrealized appreciation on investments and foreign
currency transactions--net.......................................... 23,518,352
------------
Net assets.......................................................... $164,407,020
------------
Net Asset Class A--Based on net assets of $18,687,144 and 1,526,875
Value: shares of beneficial interest outstanding........................... $ 12.24
------------
Class B--Based on net assets of $130,920,666 and 10,701,025
shares of beneficial interest outstanding........................... $ 12.23
------------
Class C--Based on net assets of $811,088 and 66,491 shares of
beneficial interest outstanding..................................... $ 12.20
------------
Class D--Based on net assets of $13,988,122 and 1,142,637
shares of beneficial interest outstanding........................... $ 12.24
------------
</TABLE>
See Notes to Financial Statements.
55
<PAGE> 106
Merrill Lynch Strategic Dividend Fund, July 31, 1995
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For The Year Ended July 31, 1995
<S> <C> <C> <C>
Investment Dividends (net of $101,249 foreign withholding tax)............... $ 6,824,508
Income Interest and discount earned...................................... 726,726
(Notes 1d & 1e): ------------
Total income...................................................... 7,551,234
------------
Expenses: Account maintenance and distribution fees--Class B (Note 2)....... $ 1,432,996
Investment advisory fees (Note 2)................................. 1,019,890
Transfer agent fees--Class B (Note 2)............................. 338,594
Printing and shareholder reports.................................. 170,420
Registration fees (Note 1f)....................................... 85,586
Professional fees................................................. 84,060
Accounting services (Note 2)...................................... 41,617
Transfer agent fees--Class A (Note 2)............................. 38,737
Custodian fees.................................................... 21,970
Trustees' fees and expenses....................................... 18,444
Account maintenance fees--Class D (Note 2)........................ 17,716
Transfer agent fees--Class D (Note 2)............................. 16,587
Account maintenance and distribution fees--Class C (Note 2)....... 3,071
Transfer agent fees--Class C (Note 2)............................. 907
Pricing fees...................................................... 781
Other............................................................. 7,765
------------
Total expenses.................................................... 3,299,141
------------
Investment income--net............................................ 4,252,093
------------
Realized & Realized gain from:
Unrealized Gain Investments--net................................................ 25,347,941
(Loss) on Foreign currency transactions--net.............................. 294 25,348,235
Investments & ------------
Foreign Currency Change in unrealized appreciation on:
Transactions--Net Investments--net................................................ (9,619,340)
(Notes 1b, 1c, Foreign currency transactions--net.............................. (332) (9,619,672)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and
foreign currency transactions..................................... 15,728,563
------------
Net Increase in Net Assets Resulting from Operations.............. $ 19,980,656
------------
</TABLE>
See Notes to Financial Statements.
56
<PAGE> 107
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <C> <C> <C>
Operations: Investment income--net.......................................... $ 4,252,093 $ 5,797,119
Realized gain on investments and foreign currency
transactions--net............................................... 25,348,235 13,163,104
Change in unrealized appreciation/depreciation on...............
investments and foreign currency transactions--net.............. (9,619,672) (16,546,436)
------------ ------------
Net increase in net assets resulting from operations............ 19,980,656 2,413,787
------------ ------------
Dividends & Investment income--net:
Distributions to Class A....................................................... (668,538) (987,005)
Shareholders Class B....................................................... (3,464,874) (4,814,245)
(Note 1g): Class C....................................................... (8,975) --
Class D....................................................... (247,242) --
Realized gain on investments--net:
Class A....................................................... (2,560,061) (1,506,196)
Class B....................................................... (19,570,649) (10,287,745)
Class C....................................................... (13,005) --
Class D....................................................... (470,632) --
------------ ------------
Net decrease in net assets resulting from dividends
and distributions to shareholders............................... (27,003,976) (17,595,191)
------------ ------------
Beneficial Net decrease in net assets derived from beneficial
Interest interest transactions........................................... (18,312,516) (56,392,747)
Transactions ------------ ------------
(Note 4):
Net Assets: Total decrease in net assets.................................... (25,335,836) (71,574,151)
Beginning of year............................................... 189,742,856 261,317,007
------------ ------------
End of year*.................................................... $164,407,020 $189,742,856
------------ ------------
*Undistributed investment income--net (Note 1h).................. $ 8,064 $ 192,681
------------ ------------
</TABLE>
See Notes to Financial Statements.
57
<PAGE> 108
Merrill Lynch Strategic Dividend Fund, July 31, 1995
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios
have been derived from information
provided in the financial statements. Class A
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <C> <C>
Per Share Net asset value, beginning of year....... $ 12.78 $ 13.60 $ 12.79 $ 11.90 $ 11.80
Operating -------- -------- -------- -------- --------
Performance: Investment income--net................... .39 .41 .44 .44 .55
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net........................ 1.10 (.12) .81 .93 .14
-------- -------- -------- -------- --------
Total from investment operations......... 1.49 .29 1.25 1.37 .69
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net................. (.42) (.46) (.44) (.48) (.59)
Realized gain on investments--net...... (1.61) (.65) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions........ (2.03) (1.11) (.44) (.48) (.59)
-------- -------- -------- -------- --------
Net asset value, end of year............. $ 12.24 $ 12.78 $ 13.60 $ 12.79 $ 11.90
-------- -------- -------- -------- --------
Total Investment Based on net asset value per share....... 14.04% 2.38% 10.03% 11.96% 6.25%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses................................. 1.05% .85% .81% .88% .88%
Net Assets: ======== ======== ======== ======== ========
Investment income--net................... 3.39% 3.42% 3.38% 3.75% 4.83%
-------- -------- -------- -------- --------
Supplemental Net assets, end of year (in thousands)... $ 18,687 $ 21,854 $ 34,228 $ 31,512 $ 33,916
Data: ======== ======== ======== ======== ========
Portfolio turnover....................... 52.69% 22.75% 25.23% 29.17% 10.50%
-------- -------- -------- -------- --------
<CAPTION>
The following per share data and ratios
have been derived from information
provided in the financial statements. For the Period
Class B October 21, 1994++ to
Increase (Decrease) in Net For the Year Ended July 31, July 31, 1995
Asset Value: 1995 1994 1993 1992 1991 Class C Class D
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period................... $ 12.77 $ 13.59 $ 12.78 $ 11.88 $ 11.78 $ 11.84 $ 11.85
Performance: -------- -------- -------- -------- -------- -------- --------
Investment income--net...... .29 .33 .31 .34 .45 .21 .26
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net........... 1.07 (.18) .81 .91 .12 1.21 1.23
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations.................. 1.36 .15 1.12 1.25 .57 1.42 1.49
-------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net.... (.29) (.32) (.31) (.35) (.47) (.25) (.29)
Realized gain on
investments--net.......... (1.61) (.65) -- -- -- (.81) (.81)
-------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions............... (1.90) (.97) (.31) (.35) (.47) (1.06) (1.10)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period...................... $ 12.23 $ 12.77 $ 13.59 $ 12.78 $ 11.88 $ 12.20 $ 12.24
-------- -------- -------- -------- -------- -------- --------
Total Based on net asset value
Investment per share................... 12.82% 1.30% 8.90% 10.85% 5.14% 13.30%+++ 13.98%+++
Return:** ======== ======== ======== ======== ======== ======== ========
</TABLE>
58
<PAGE> 109
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratios to Average Expenses, excluding
Net Assets: account maintenance and
distribution fees........... 1.09% .88% .84% .91% .90% 1.19%* 1.13%*
-------- -------- -------- -------- -------- -------- --------
Expenses.................... 2.09% 1.88% 1.84% 1.91% 1.90% 2.19%* 1.38%*
-------- -------- -------- -------- -------- -------- --------
Investment income--net...... 2.36% 2.39% 2.37% 2.74% 3.81% 1.94%* 2.93%*
-------- -------- -------- -------- -------- -------- --------
Supplemental Net assets, end of period
Data: (in thousands).............. $130,921 $167,889 $227,089 $239,048 $284,869 $ 811 $ 13,988
-------- -------- -------- -------- -------- -------- --------
Portfolio turnover.......... 52.69% 22.75% 25.23% 29.17% 10.50% 52.69% 52.69%
-------- -------- -------- -------- -------- -------- --------
</TABLE>
*Annualized.
++Commencement of Operations.
**Total investment returns exclude the effect of sales loads.
+++Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Strategic Dividend Fund (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund offers four classes of shares under the Merrill Lynch Select
Pricing SM System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a contingent
deferred sales charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class B, Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid price.
Securities traded in the over-the-counter market are valued at the last
available bid price prior to the time of valuation. In cases where securities
are traded on more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of 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 representative
market. Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last asked price. 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 approximates market value. Other
investments, including futures contracts and related options, are stated at
market value. Securities and assets for which market quotations are not
available are valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the equity, debt and currency markets. Losses may arise
due to changes in the value of the contract or if the counterparty does not
perform under the contract.
* Financial futures contracts--The Fund may purchase or sell interest rate
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. 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.
59
<PAGE> 110
Merrill Lynch Strategic Dividend Fund, July 31, 1995
NOTES TO FINANCIAL STATEMENTS (continued)
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.
* 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.
* 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 operations is recorded from the date the
Fund enters into such contracts. Premium or discount is amortized over the life
of the contracts.
* Options--The Fund is authorized to write and purchase put and call options.
When the Fund writes an option, an amount equal to the premium received by the
Fund is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the current market value
of the option written. When a security is purchased or sold through an exercise
of an option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to) 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 premiums received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(d) Income taxes--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend date, except that 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 (including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles require that
certain differences between undistributed net investment income for financial
reporting and tax purposes, if permanent, be reclassified to undistributed net
realized capital gains. Accordingly, current year's permanent book/tax
differences of $47,081 have been reclassified from undistributed net investment
income to undistributed net realized capital gains. These reclassifications
have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the 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, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee
of 0.60%, on an annual basis, of the average daily value of the Fund's net
assets.
60
<PAGE> 111
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 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 the Investment Adviser
during any fiscal year which will cause such expenses to exceed the pro rata
expense limitation at the time of such payment.
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:
<TABLE>
<CAPTION>
Account Distribution
Maintenance Fee Fee
<S> <C> <C>
Class B............................... 0.25% 0.75%
Class C............................... 0.25% 0.75%
Class D............................... 0.25% --
</TABLE>
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1995, MLFD earned underwriting discounts and MLPF&S
earned dealer concessions on sales of the Fund's Class A and Class D Shares as
follows:
<TABLE>
<CAPTION>
MLFD MLPF&S
<S> <C> <C>
Class A............................... $628 $10,401
Class D............................... $673 $ 8,854
</TABLE>
For the year ended July 31, 1995, MLPF&S received contingent deferred sales
charges of $139,714 and $627 relating to transactions in Class B and Class C
Shares, respectively.
In addition, MLPF&S received $7,026 in commissions on the execution of
portfolio security transactions for the Fund for the year ended July 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 July 31, 1995 were $82,135,952 and $118,932,929, respectively.
Net realized and unrealized gains (losses) as of July 31, 1995 were as follows:
<TABLE>
<CAPTION>
Realized
Gains Unrealized
(Losses) Gains
<S> <C> <C>
Long-term investments........... $25,347,978 $ 23,518,308
Short-term investments.......... (37) --
Foreign currency transactions... 294 44
----------- ------------
Total........................... $25,348,235 $ 23,518,352
----------- ------------
</TABLE>
As of July 31, 1995, net unrealized appreciation for Federal income tax
purposes aggregated $23,518,308, of which $25,366,088 related to appreciated
securities and $1,847,780 related to depreciated securities. At July 31, 1995,
the aggregate cost of investments for Federal income tax purposes was
$141,596,763.
4. Shares of Beneficial Interest:
Net decrease in net assets derived from capital share transactions was
$18,312,516 and $56,392,747 for the year ended July 31, 1995 and July 31, 1994,
respectively.
Transactions in capital shares for each class were as follows:
<TABLE>
<CAPTION>
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
<S> <C>
Shares sold..................... 181,563 $ 2,155,978
Shares issued to shareholders in
reinvestment of dividends and
distributions................... 222,923 2,499,626
----------- -------------
Total issued.................... 404,486 4,655,604
Shares redeemed................. (587,662) (7,012,619)
----------- -------------
Net decrease.................... (183,176) $ (2,357,015)
----------- -------------
</TABLE>
61
<PAGE> 112
Merrill Lynch Strategic Dividend Fund, July 31, 1995
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
<TABLE>
<CAPTION>
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
<S> <C> <C>
Shares sold...................... 565,272 $ 7,579,456
Shares issued to shareholders in
reinvestment of dividends and
distributions.................... 126,113 1,592,528
----------- -------------
Total issued..................... 691,385 9,171,984
Shares redeemed.................. (1,497,859) (19,449,269)
----------- -------------
Net decrease..................... (806,474) $ (10,277,285)
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
<S> <C> <C>
Shares sold...................... 1,056,552 $ 12,463,967
Shares issued to shareholders in
reinvestment of dividends and
distributions.................... 1,658,976 18,600,026
----------- -------------
Total issued..................... 2,715,528 31,063,993
Shares redeemed.................. (3,932,552) (46,733,450)
Automatic conversion of shares... (1,228,326) (14,212,015)
----------- -------------
Net decrease..................... (2,445,350) $ (29,881,472)
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
<S> <C> <C>
Shares sold...................... 1,342,236 $ 17,730,479
Shares issued to shareholders in
reinvestment of dividends and
distributions.................... 963,577 12,154,097
----------- -------------
Total issued..................... 2,305,813 29,884,576
Shares redeemed.................. (5,872,428) (76,000,038)
----------- -------------
Net decrease..................... (3,566,615) $ (46,115,462)
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
Class C Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
<S> <C> <C>
Shares sold...................... 76,521 $ 887,173
Shares issued to shareholders in
reinvestment of dividends and
distributions.................... 963 10,674
----------- -------------
Total issued..................... 77,484 897,847
Shares redeemed.................. (10,993) (128,548)
----------- -------------
Net increase..................... 66,491 $ 769,299
----------- -------------
</TABLE>
++Commencement of Operations.
<TABLE>
<CAPTION>
Class D Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
<S> <C> <C>
Shares sold...................... 118,404 $ 1,359,401
Automatic conversion of shares 1,226,771 14,212,015
Shares issued to shareholders in
reinvestment of dividends and
distributions.................... 54,447 595,598
----------- -------------
Total issued..................... 1,399,622 16,167,014
Shares redeemed.................. (256,985) (3,010,342)
----------- -------------
Net increase..................... 1,142,637 $ 13,156,672
----------- -------------
</TABLE>
++Commencement of Operations.
62
<PAGE> 113
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies... 2
Management of the Fund.............. 10
Purchase of Shares.................. 14
Initial Sales Charge
Alternatives-- Class A and
Class D Shares................. 14
Reduced Initial Sales Charges..... 15
Distribution Plans................ 19
Limitations on the Payment of
Deferred Sales Charges......... 20
Redemption of Shares................ 21
Deferred Sales Charges--Class B
and Class C Shares............. 22
Portfolio Transactions and
Brokerage......................... 23
Determination of Net Asset Value.... 24
Shareholder Services................ 25
Performance Data.................... 42
Dividends, Distributions and
Taxes............................. 44
General Information................. 48
Description of Shares............. 48
Computation of Offering Price Per
Share.......................... 49
Custodian......................... 49
Transfer Agent.................... 50
Legal Counsel..................... 50
Reports to Shareholders........... 50
Additional Information............ 50
Independent Auditors' Report...... 51
Financial Statements................ 52
Code #10560-1195
</TABLE>
(MERRILL LYNCH LOGO)
MERRILL LYNCH
STRATEGIC DIVIDEND FUND
STATEMENT OF
ADDITIONAL
INFORMATION
November 28, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE> 114
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 IMDATE OR IMAGE IN TEST
- ---------------------- -------------------
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> 115
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the years in the seven years
ended July 31, 1995, and the period November 25, 1987 (commencement of
operations) to July 31, 1988.
Contained in Part B:
Schedule of Investments, as of July 31, 1995.
Statement of Assets and Liabilities, as of July 31, 1995.
Statement of Operations for the year ended July 31, 1995.
Statements of Changes in Net Assets for the years ended July 31,
1995 and 1994.
Financial Highlights for each of the years in the five years ended
July 31, 1995.
(b) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<C> <C> <S>
</TABLE>
<TABLE>
<C> <C> <S>
1(a) -- Declaration of Trust of the Registrant.(a)
(b) -- Amendment to Declaration of Trust of Registrant dated July 14, 1987.(b)
(c) -- Instrument establishing Class A shares and Class B shares of Registrant.(c)
(d) -- Certificate of Amendment to Declaration of Trust and Establishment and
Designation of Class C and D shares, dated October 19, 1994.
2 -- By-Laws of Registrant.(a)
3 -- None.
4(a) -- Instruments Defining Rights of Shareholders. Incorporated by reference to
Exhibits 1 and 2 above.
5 -- Management Agreement between Registrant and Merrill Lynch Asset Management,
Inc.(b)
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(g)
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(a)
(c) -- Class C Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(g)
(d) -- Class D Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc.(g)
7 -- None.
8 -- Custody Agreement between Registrant and State Street Bank and Trust Company.(b)
9 -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between Registrant and Merrill Lynch Financial Data Services, Inc.(b)
10 -- Opinion of Shereff, Friedman, Hoffman & Goodman, LLP, counsel to Registrant.
11(a) -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
(b) -- Consent of Morningstar, Inc.(e)
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, Inc.(b)
14 -- Not Applicable.
15(a) -- Amended and Restated Class B Distribution Plan and Class B Distribution Plan Sub-
Agreement of Registrant.(f)
15(b) -- Class C Distribution Plan and Class C Distribution Plan Sub-Agreement.(g)
15(c) -- Class D Distribution Plan and Class D Distribution Plan Sub-Agreement.(g)
16(a) -- Schedule for computation for each performance quotation relating to Class A
shares provided in the Registration Statement in response to Item 22.(d)
(b) -- Schedule for computation of each performance quotation relating to Class B shares
provided in the Registration Statement in response to Item 22.(c)
(c) -- Schedules for computation of each performance quotation for Class C and Class D
shares provided in Registration Statement in response to Item 22.
</TABLE>
C-1
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ---------------------------------------------------------------------------------
<C> <C> <S>
17(a) -- Other Exhibits
Powers of Attorney for Officers and Trustees
Arthur Zeikel(f)
Gerald M. Richard(f)
Ronald W. Forbes(f)
Cynthia A. Montgomery(h)
Charles C. Reilly(f)
Kevin A. Ryan(f)
Richard R. West(f)
17(b) -- Financial Data Schedule for Class A shares.
17(c) -- Financial Data Schedule for Class B shares.
17(d) -- Financial Data Schedule for Class C shares.
17(e) -- Financial Data Schedule for Class D shares.
</TABLE>
- ---------------
(a) Refiled electronically herewith. Initially filed on May 22, 1987 as an
exhibit to Registrant's Registration Statement under the Securities Act of
1933 on Form N-1A (File No. 33-14517).
(b) Refiled electronically herewith. Initially filed on August 4, 1987 as an
exhibit to Pre-Effective Amendment No. 2 to Registrant's Registration
Statement under the Securities Act of 1933 on Form N-1A.
(c) Refiled electronically herewith. Initially filed on October 28, 1988 as an
exhibit to Post-Effective Amendment No. 2 to Registrant's Registration
Statement under the Securities Act of 1933 on Form N-1A.
(d) Refiled electronically herewith. Initially filed on November 28, 1989 as an
exhibit to Registrant's Registration Statement under the Securities Act of
1933 on Form N-1A.
(e) Refiled electronically herewith. Initially filed on November 27, 1992 as an
exhibit to Post-Effective Amendment No. 6 to Registrant's Registration
Statement under the Securities Act of 1933 on Form N-1A.
(f) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment No. 7 to Registrant's Registration Statement under the Securities
Act of 1933 on Form N-1A.
(g) Refiled electronically herewith. Initially filed as identically numbered
exhibit to Post-Effective Amendment No. 8 to Registration Statement.
(h) Incorporated by reference to identically numbered exhibit to Post-Effective
Amendment 8 to Registration Statement.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
HOLDERS AT
TITLE OF CLASS OCTOBER 31, 1995
---------------------------------------------------------------------- ----------------
<S> <C>
Class A shares of beneficial interest, par value $0.10 per share...... 1,986
Class B shares of beneficial interest, par value $0.10 per share...... 14,763
Class C shares of beneficial interest, par value $0.10 per share...... 196
Class D shares of beneficial interest, par value $0.10 per share...... 2,378
</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.
C-2
<PAGE> 117
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, 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 moneys 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 or presentation of a defense to
the action, including costs connected with the preparation of a settlement; (ii)
advances may be made only upon receipt of a written promise by, or on behalf of,
the recipient to repay that amount of the advance which exceeds 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.
Article IV of the Management Agreement between Registrant and Merrill Lynch
Asset Management, Inc. (now called Merrill Lynch Asset Management L.P.) ("MLAM")
(Exhibit 5 to Registrant's Registration Statement on Form N-1A) 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 each class of
shares 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 (the "Act"), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus and
Statement of Additional Information.
C-3
<PAGE> 118
Insofar as indemnification for liabilities arising under the Act 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 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.
Merrill Lynch Asset Management, L.P. (the "Manager" or "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 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
Asset Builder Program, Inc., Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
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.,
C-4
<PAGE> 119
MuniYield New York Insured Fund III, Inc., MuniYield Pennsylvania Fund,
MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High
Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic
Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork
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, except
that 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 director of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since July 31,
1993 for his own account or in the capacity of director, officer, partner or
trustee. In addition, Mr. Zeikel is President, Mr. Glenn is Executive Vice
President and Mr. Richard is Treasurer 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.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ ------------------------- -------------------------------------
<S> <C> <C>
ML & Co. ..................... Limited Partner Financial Services Holding Company
Princeton Services............ General Partner General Partner of FAM
Arthur Zeikel................. President and Director President and Director of FAM;
President and Director of Princeton
Services; Director of Merrill Lynch
Funds Distributor, Inc. ("MLFD");
Executive Vice President of ML &
Co. and Merrill Lynch
Terry K. Glenn................ Executive Vice President Executive Vice President of FAM;
and Director Executive 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
N. John Hewitt................ Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Philip L. Kirstein............ Senior Vice President, Senior Vice President, General
General Counsel, Counsel and Secretary of FAM; Senior
Secretary and Director Vice President, General Counsel,
Director and Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss............... Senior Vice President Senior Vice President of FAM;
Controller of the Manager and FAM
Stephen M. M. Miller.......... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.
</TABLE>
C-5
<PAGE> 120
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME MANAGER PROFESSION, VOCATION OR EMPLOYMENT
- ------------------------------ ------------------------- -------------------------------------
<S> <C> <C>
Joseph T. Monagle............. Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton Services
Gerald M. Richard............. Senior Vice President and Senior Vice President and Treasurer
Treasurer of FAM; Vice President and Treasurer
of MLFD; Senior Vice President of
Princeton Services
Richard L. Reller............. Senior Vice President First Vice President of MLAM; First
Vice President of Princeton Services
Ronald L. Welburn............. Senior Vice President Senior Vice President of FAM since
1988; 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., The Municipal Fund Accumulation
Program, Inc., and also acts as principal underwriter for the following
closed-end funds: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill
Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch Municipal Strategy Fund,
Inc.
C-6
<PAGE> 121
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Brady, Crook, Graczyk, Fatseas, Wasel and Ms. Schena is One Financial Center,
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 Executive Vice President
Arthur Zeikel................. Director President and Director
Philip L. Kirstein............ Director None
William E. Aldrich............ Senior Vice President None
Robert W. Crook............... Senior Vice President None
Kevin P. Boman................ Vice President None
Michael J. Brady.............. Vice President None
Vice President and Assistant
Sharon Creveling.............. Treasurer None
Mark A. DeSario............... Vice President None
James T. Fatseas.............. Vice President None
Stanley Graczyk............... 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
Lisa Gobora................... Assistant Vice President None
Susan Kibler.................. Assistant Vice President None
Mark A. Maguire............... Assistant Vice President None
Richard Romm.................. Assistant Vice President None
Patricia A. Schena............ Assistant Vice President None
Robert Harris................. Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder will be maintained at the offices of the Registrant and its Custodian
and 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
Fund -- 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.
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-7
<PAGE> 122
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF
THE REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO THE
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
TOWNSHIP OF PLAINSBORO, AND STATE OF NEW JERSEY, ON THE 24TH DAY OF NOVEMBER,
1995.
Merrill Lynch Strategic Dividend
Fund
(Registrant)
By /s/ ARTHUR ZEIKEL
---------------------------------
(Arthur Zeikel, President)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE(S)
- ------------------------------------------ -------------------------- ------------------
<C> <S> <C>
/s/ ARTHUR ZEIKEL President and Trustee November 24, 1995
- ------------------------------------------ (Principal Executive
(Arthur Zeikel) Officer)
/s/ GERALD M. RICHARD Treasurer (Principal November 24, 1995
- ------------------------------------------ Financial and Accounting
(Gerald M. Richard) Officer)
* Trustee
- ------------------------------------------
(Ronald W. Forbes)
* Trustee
- ------------------------------------------
(Cynthia A. Montgomery)
* Trustee
- ------------------------------------------
(Charles C. Reilly)
* Trustee
- ------------------------------------------
(Kevin A. Ryan)
* Trustee
- ------------------------------------------
(Richard R. West)
*By /s/ ARTHUR ZEIKEL November 24, 1995
- ------------------------------------------
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>
C-8
<PAGE> 123
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE NO.
- ------ --------
<S> <C> <C> <C>
1(d) -- Certificate of Amendment to Declaration of Trust and Establishment and
Designation of Class C and D shares dated October 19, 1994
10 -- Opinion of Shereff, Friedman, Hoffman & Goodman LLP, Counsel to
Registrant
11(a) -- Consent of Deloitte & Touche LLP, independent auditors for Registrant
16(c) -- Schedules for computation of each performance quotation for Class C and
Class D shares provided in Registration Statement in response to Item 22
17(b) -- Financial Data Schedule for Class A Shares
17(c) -- Financial Data Schedule for Class B Shares
17(d) -- Financial Data Schedule for Class C Shares
17(e) -- Financial Data Schedule for Class D Shares
</TABLE>
<PAGE> 1
DECLARATION OF TRUST Ex-99.1(a)
OF
MERRILL LYNCH DIVIDEND APPRECIATION FUND
THE DECLARATION OF TRUST of Merrill Lynch Dividend
Appreciation Fund is made this 14th day of May, 1987, 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 interest 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> 2
ARTICLE I
The Trust
1.1. Name. The name of the trust created hereby (the
"Trust") shall be "Merrill Lynch Dividend Appreciation 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 its 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> 3
"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
unit's 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 may 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 with the provisions hereof and are then in office, are
herein referred 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 Securities and Exchange Commission.
3.
<PAGE> 4
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 named 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 for 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-thirds of the
remaining Trstees. Any Trustee may be removed at any special
meeting of the Shareholders by a vote of two-thirds of the
outstanding Shares. Upon the resignation or removal of a Trustee,
or his otherwise 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> 5
any Trust Property held in the name of the resigning or removed
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 term 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,
a majority of the 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 be mailed or otherwise given not less than
48 hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. 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 may 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> 6
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
any, 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> 7
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 same 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 may 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, ex-
change, distribute or otherwise deal in or dispose of nego-
tiable 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 limita-
tion, 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 instrumental-
ities, 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 securi-
ties in which the Trust may invest should the investment
7.
<PAGE> 8
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 joint 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 automat-
ically 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 any
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 by mortgaging, pledging or otherwise
subjecting as security the assets 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
8.
<PAGE> 9
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 special
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 may 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 purchase, 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
9.
<PAGE> 10
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 as 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.
10.
<PAGE> 11
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 may 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, firm, trust
or association, although one or more of the Trustees or 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 voidable 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
<PAGE> 12
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.
12.
<PAGE> 13
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 personal
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 Person; 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 held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and liabilities,
to which such Shareholder may 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 him 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)
13.
<PAGE> 14
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, 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.
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 make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or by said
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
14.
<PAGE> 15
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, employees and agents of the Trust shall not personally
be bound by or liable thereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made therein to
the Declaration, and may contain any further recital which they
may deem appropriate, but the omission of such recital shall not
operate to impose personal 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
Property, 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 judgment 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.
15.
<PAGE> 16
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 interests 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
relected (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.
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
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 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
16.
<PAGE> 17
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 held in the treasury, to such party or parties and for such
amount not less than par value and type of consideration, includ-
ing 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 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 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 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,
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 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 an'. 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
17.
<PAGE> 18
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 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 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
on the register of the Trust.
18.
<PAGE> 19
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 same upon written order;
(2) to receive and receipt for any moneys due to the
Trust and 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
19.
<PAGE> 20
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.
20.
<PAGE> 21
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, charge fees for effecting such redemption,
at such rates as the Trustees may establish, as and to the extent
permitted under the 1940 Act and may, 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 may 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 them (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 question 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
21.
<PAGE> 22
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 time 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.
22.
<PAGE> 23
ARTICLE IX
Determination of Net Asset Value,
Net Income and Distributions
9.1. Net Asset Value. The net asset value of each
outstanding Share 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 may determine.
The Trustees may suspend the daily determination of net asset
value to the extent permitted by the 1940 Act.
9.2. Distributions to Shareholders. The Trustees shall from
time to time distribute ratably among the Shareholders such
proportion of the net profits, surplus (including paid-in
surplus), capital, or assets held by the Trustees as they may deem
proper with any expenses being borne solely by a class of Shares
being reflected in 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 may deem proper. Such distributions may be
among the Shareholders of record at the time 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.
2 3 .
<PAGE> 24
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 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.
24.
<PAGE> 25
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 Shares shall be divided into classes
as provided 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 soley 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
Shares present in person or by proxy shall 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 constitutes the action of the Shareholders, unless the
1940 Act, the laws of the Commonwealth of Massachusetts or other
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 reqirements 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 his
25.
<PAGE> 26
registered address, mailed at least 10 days and not more than 60
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 the
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 be 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
be 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
cast, 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> 27
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 semi-annually 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 may be taken 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> 28
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:
<TABLE>
<CAPTION>
Name Address Date of Birth
---- ------- -------------
<S> <C> <C>
Lindsay Rider MacKinnon Mountain Farm Road January 27, 1981
Tuxedo Park, N.Y. 10987
Eric Alfred Pietrzak 95 Corona Avenue January 29, 1981
Pelham, N.Y. 10803
Angus Washburn Smith 12 Masterton Road October 15, 1982
Bronxville, N.Y. 10708
Ashley Chapin Smith 12 Masterton Road May 20, 1972
Bronxville, N.Y. 10708
Elisabeth Lyon Smith 12 Masterton Road October 15, 1982
Bronxville, N.Y. 10708
Thomas Ervin Smith 12 Masterton Road November 14, 1973
Bronxville, N.Y. 10708
</TABLE>
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.
(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
28.
<PAGE> 29
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 the
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 holders of a 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, with-
out 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 con-
sent of Shareholders if they deem it necessary to conform this
Declaration to the requirements of applicable Federal laws or reg-
ulations 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.
(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
29.
<PAGE> 30
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 pur-
pose by the affirmative vote of the holders of not less than two-
thirds of the Shares, or by an instrument or instruments in writ-
ing 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 Com-
monwealth 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
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 indi-
rectly have any interest, and to sell, convey and transfer the
Trust Property to any such corporation, trust, association or
30.
<PAGE> 31
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 corpo-
ration, 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 any 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
effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associ-
ations or other organizations and selling, conveying or transfer-
ring a portion of the Trust Property to such organizations or
entities.
31.
<PAGE> 32
ARTICLE XII
Miscellaneous
12.1. Filing. This Declaration and any amendment hereto
shall be 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 amend-
ment so filed shall be accompanied by a certificate signed and
acknowleged 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 time 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 02109. The Trustees may designate a successor
resident agent, provided, 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,
3 2 .
<PAGE> 33
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.
3 3
<PAGE> 34
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/ ROBERT HARRIS
-------------------------------
Robert Harris
22 Zeloof Drive
Lawrenceville, New Jersey 08648
/s/ PHILIP L. KIRSTEIN
-------------------------------
Philip L. Kirstein
79 West Shore Drive
Pennington, New Jersey 08534
/s/ BARBARA G. FRASER
-------------------------------
Barbara G. Fraser
324 Cedar Lane
Swarthmore, Pennsylvania 19081
/s/ WILLIAM E. ALDRICH
-------------------------------
William E. Aldrich
1ll Windsor Road
Needham, Massachusetts 02192
34.
<PAGE> 1
EXHIBIT 99.1(b)
MERRILL LYNCH DIVIDEND APPRECIATION FUND
The undersigned, constituting a majority of the Trustees of
Merrill Lynch Dividend Appreciation Fund (the "Fund"), a
Massachusetts business trust having no shareholders as of the
date hereof, hereby certify that the Trustees of the Fund have
duly adopted the following amendment to the Declaration of Trust
of the Fund dated the 14th day of May, 1987.
VOTED: That the Declaration of Trust dated May 14, 1987 be and
it hereby is amended to change the name of the Fund
from "Merrill Lynch Dividend Appreciation Fund" to
"Merrill Lynch Strategic Dividend Fund" in the
following manner:
1.1. Name. The name of the trust created hereby
(the "Fund") shall be "Merrill Lynch Strategic Dividend
Fund", and so far as may be practicable the Trustees
shall conduct the Fund's activities, execute all
documents and sue or be sued under that name, which
name (and the word "Fund" 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 Fund.
However, should the Trustees determine that the use of
such name is not advisable, they may select such other
name for the Fund as they deem proper and the Fund may
hold its property and conduct its 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.
IN WITNESS WHEREOF, the undersigned, constituting a majority
of the Trustees of the Trust, have signed this Certificate in
duplicate original counterparts and have caused a duplicate
original to be lodged among the records of the Fund as required
<PAGE> 2
by Article XI, Section 11.3(c) of the Declaration of Trust, as of
the 14th day of July , 1987.
/s/ ARTHUR ZEIKEL
----------------------------
Arthur Zeikel
279 Watchung Fork
Westfield, New Jersey 07090
/s/ HOWARD 0. COLGAN, JR.
----------------------------
Howard 0. Colgan, Jr.
650 Beach Road, Apt. 245
Vero Beach, Florida 32960
/s/ RONALD W. FORBES
----------------------------
Ronald W. Forbes
1400 Washington Avenue
Albany, New York 12222
/s/ THOMAS H. LENAGH
----------------------------
Thomas H. Lenagh
Greenwich Office Park, OP-6
Greenwich, Connecticut 06830
/s/ RICHARD T. O'REILLY
----------------------------
Richard T. O'Reilly
Rockwood Lane Spur
Greenwich, Connecticut 06830
/s/ RICHARD R. WEST
----------------------------
Richard R. West
100 Trinity Place
New York, New York 10006
/s/ MARC A. WHITE
----------------------------
Marc A. White
1050 Highland Road
Ithaca, New York 14850
-2-
<PAGE> 1
Ex-99.1(c)
MERRILL LYNCH STRATEGIC DIVIDEND 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 Strategic Dividend Fund, a Massachusetts business trust (the
"Trust"), acting pursuant to Section 6.1 of the Declaration of
Trust, as amended, dated May 14, 1987 (the "Declaration") of the
Trust, do hereby divide the shares of beneficial interest of the
Trust, par value $.10 per share ("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 price, 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.
<PAGE> 2
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 26th day of October, 1988.
<TABLE>
<S> <C>
/s/ HOWARD 0. COLGAN /s/ RICHARD R. WEST
- ---------------------------- ------------------------------
Howard 0. Colgan Richard R. West
448D, Bromley Place 29 Washington Square West
Wyckoff, New Jersey 07481 New York, New York 10011
/s/ RONALD W. FORBES /s/ MARC A. WHITE
- ---------------------------- ------------------------------
Ronald W. Forbes Marc A. White
58 Euclid Avenue 1050 Highland Road
Delmar, New York 12054 Ithaca, New York 14850
/s/ THOMAS H. LENAGH /s/ ARTHUR ZEIKEL
- ---------------------------- ------------------------------
Thomas H. Lenagh Arthur Zeikel
one Brookside Drive 279 Watchung Fork
Westport, Connecticut 06880 Westfield, New Jersey 07090
</TABLE>
The Declaration of Trust establishing Merrill Lynch Strategic
Dividend Fund, dated May 14, 1987, 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 Strategic Dividend 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 Strategic
Dividend 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 Strategic Dividend Fund but the
Trust Property only shall be liable.
2.
<PAGE> 1
Ex-99.2
================================================================================
BY-LAWS
OF
MERRILL LYNCH DIVIDEND APPRECIATION FUND
================================================================================
<PAGE> 2
MERRILL LYNCH DIVIDEND APPRECIATION FUND
BY-LAWS
These By-Laws are made and adopted pursuant to Section 2.7
of the Declaration of Trust establishing MERRILL LYNCH DIVIDEND
APPRECIATION FUND, dated May _, 1987, as from time to time
amended (hereinafter called the "Declaration"). All words and
terms 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 Shareholders; in his absence, the
President shall act as chairman; and in the absence of the
Chairman 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 repre-
sented 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> 3
Section 1.3. Closinq 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 or fix a record date
in the manner provided in Section 10.4 of the Declaration. If
the Trustees do not prior to any meeting of Shareholders so fix a
record date or close the transfer books, then the date of mailing
notice of the meeting or the date upon which the dividend
resolution is adopted, as the case may be, shall be the record
date.
Section 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
appointed, 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> 4
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 in connection with the right to vote, shall count and
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 Trust
and a list of the Shareholders of the Trust, certified to be true
and correct by the Secretary or other proper agent of the Trust,
as of the record date of the meeting or the date of closing of
3.
<PAGE> 5
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 Trust 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> 6
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 of 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> 7
ARTICLE III
Officers
Section 3.1. Officers of the Trust. The officers of the
Trust 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 Trust need be a
Trustee.
Section 3.2. Election and Tenure. At the initial organ-
izational 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 Trust. 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 .
<PAGE> 8
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
Chairman, 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 may
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
Trust and, subject to the control of the Trustees, shall have
general supervision, direction and control of the business of the
Trust and of its employees and shall exercise such general powers
of management as are usually vested in the office of President of
7.
<PAGE> 9
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
Trust 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 Trust.
Unless otherwise directed 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 Trust at any meetings of business organizations
in which the Trust 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> 10
president, each Vice-President shall have the power in the name
and on behalf of the Trust 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 Trust, 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 Trust 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 Trust. The
Secretary shall also perform any other duties commonly incident
to such office in 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 Trust, and shall have and
exercise under the supervision of the Trustees and of the
9.
<PAGE> 11
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 Trust or to its order. He shall
deposit all funds of the Trust in such depositories as the
Trustees shall designate. He shall be responsible for such
disbursement of the funds of the Trust as may be ordered by the
Trustees or the President. He shall keep accurate account of the
books of the Trust's transactions which shall be the property of
the Trust, and which together with all other property of the
Trust 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 Trust and shall also be the principal
financial officer of the Trust. 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 Trust.
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 Trust. 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> 12
officer, employee and agent of the Trust 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 Trust 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 time to time
authorize.
Section 4.2. Signatures. All contracts and other
instruments shall be executed on behalf of the Trust 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 Trust, 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 and with the same effect as
if done by a Massachusetts business corporation.
11.
<PAGE> 13
ARTICLE V
Share Certificates and Share Transfers
Section 5.1. Share Certificates. Each holder of Shares of
the Trust 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 Trust 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 Trust. 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 Trust 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 Trust as the
Trustees shall deem necessary or desirable and may require all
certificates for Shares to bear the signature or signatures of
12.
<PAGE> 14
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 Trust
shall be transferable on the books of the Trust only upon
delivery to the Trustees or a transfer agent of the Trust of
proper documentation as provided in Section 6.7 of the Declara-
tion, 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 Trust, 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 Trust 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 may make such
additional rules and regulations, not inconsistent with these
By-Laws, as it may deem expedient concerning the issue, transfer
and registration of certificates for Shares of the Trust.
13.
<PAGE> 15
Section 5.6. Lost, Destroyed or Mutilated Certificates.
The holder of any certificate representing Shares of the Trust
shall immediately notify the Trust of any loss, destruction or
mutilation of such certificate, and the Trust may issue a new
certificate in the place of any certificate theretofore issued by
it which the owner thereof shall allege to have been lost or
destroyed or which shall have been mutilated, and the Trustees
may, in their discretion, require such owner or his legal
representatives to give the Trust 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 Trust 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 accor-
dance 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> 16
By-Laws shall be taken by an affirmative 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 incon-
sistency shall be construed in favor of the related provisions in
the Declaration.
The Declaration establishing Merrill Lynch Dividend
Appreciation Fund, a copy of which, together with all amendments
thereto, is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name "Merrill
Lynch Dividend Appreciation 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 Dividend Appreciation 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
Dividend Appreciation Fund but the "Trust Property" only shall be
liable.
15.
<PAGE> 1
Ex-99 .5
MANAGEMENT AGREEMENT
AGREEMENT made this loth day of August, 1987, by and between
MERRILL LYNCH STRATEGIC DIVIDEND 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 a
diversified portfolio of dividend-paying common stocks which
yield more than the Standard & Poor's 500 Composite Stock Price
Index; 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> 2
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 polices 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 other-wise
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
2.
<PAGE> 3
such 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 determine from time to time which securities shall be
purchased, sold or exchanged and what portion of the assets of
3.
<PAGE> 4
the Fund shall be held in the various securities in which the
Fund invests or cash, 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 make decisions for the Fund as to
foreign currency matters and make 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, make 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
4.
<PAGE> 5
selection of such brokers or dealers and the placing of such
orders with respect to assets of the Fund, the Manager is
directed at all times to seek to obtain execution and prices
within the policy guidelines determined by the 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
5
<PAGE> 6
portfolio transactions expenses of redemption of shares,
Securities and 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
beneficial shares of interest in the Fund.
ARTICLE III
Compensation of the Manager
(a) Management and Investrent Advisory Fee. For the
services rendered, the facilities furnished and expenses assume
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 0.60 of 1.0% (0.60%) 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
6
<PAGE> 7
terminate before the last day of a month, compensation for that
part of the month this 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 an
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
may 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 fees and
commissions, distribution fees and extraordinary expenses
(including but not limited to legal claims and liabilities and
7
<PAGE> 8
litigation costs and any indemnification related thereto) paid or
payable by the Fund. Whenever the expenses of the Fund exceed a
pro rata portion of the applicable annual 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 the
8.
<PAGE> 9
Article V referred to as "affiliates") is free to render services
to others. it is understood that Trustees, officers, employees
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 May 31, 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
Agreement shall automatically terminate in the event of its
assignment.
9.
<PAGE> 10
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
persons"' 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 Investment Company
Act, the latter shall control.
10.
<PAGE> 11
ARTICLE X
Personal Liability
The Declaration of Trust establishing Merrill Lynch
Strategic Dividend Fund, dated May 14, 1987, 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 Strategic
Dividend 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 Strategic Dividend 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
Strategic Dividend Fund, but the "Trust Property" only shall be
liable.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
/s/ ARTHUR ZEIKEL
--------------------
By Arthur Zeikel
MERRILL LYNCH ASSET MANAGEMENT, INC.
PHILIP L. KIRSTEIN
--------------------
By Arthur Zeikel
11.
<PAGE> 1
Ex-99. 6(a)
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 21st day of October 1994 between MERRILL LYNCH
STRATEGIC DIVIDEND 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 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Fund to offer its shares for
sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Class A shares of
beneficial interest in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class A shares of beneficial interest in the Fund (sometimes herein referred to
as "Class A shares") to
<PAGE> 2
eligible investors (as defined below) and hereby agrees during the term of this
Agreement to sell Class A shares of the Fund to the Distributor upon the terms
and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class A shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class A
shares from the Fund shall not apply to Class A shares issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of
all (or substantially all) the assets or the outstanding Class A shares of any
such company by the Fund.
(c) Such exclusive right also shall not apply to Class A shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE> 3
(d) Such exclusive right also shall not apply to Class A shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class A shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class A shares from the Fund.
(a) The Distributor shall have the right to buy from the Fund the Class A
shares needed, but not more than the Class A shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class A shares of the
Fund placed with the Distributor by eligible investors or securities dealers.
Investors eligible to purchase Class A shares shall be those persons so
identified in the currently effective prospectus and statement of additional
information of the Fund (the "prospectus" and "statement of additional
information", respectively) under the Securities Act of 1933, as amended (the
"Securities Act"), relating to such Class A shares ("eligible investors"). The
price which the Distributor shall pay for the Class A shares so purchased from
the Fund shall be the net asset value, determined as set forth in Section 3(d)
hereof, used in determining the public offering price on which such orders were
based.
(b) The Class A shares are to be resold by the Distributor to eligible
investors at the public offering price, as set forth in Section 3(c) hereof, or
to securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
3
<PAGE> 4
(c) The public offering price(s) of the Class A shares, i.e., the price
per share at which the Distributor or selected dealers may sell Class A shares
to eligible investors, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class A
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class A shares, plus a sales charge not to exceed 5.25% of the
public offering price (5.54% of the net amount invested), subject to reductions
for volume purchases. Class A shares may be sold to certain Trustees, officers
and employees of the Fund, directors and employees of Merrill Lynch & Co., Inc.
and its subsidiaries, and to certain other persons described in the prospectus
and statement of additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the prospectus and
statement of additional information. If the public offering price does not
equal an even cent, the public offering price may be adjusted to the nearest
cent. All payments to the Fund hereunder shall be made in the manner set forth
in Section 3(f).
(d) The net asset value of Class A shares shall be determined by the Fund
or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information of the Fund and guidelines
established by the Trustees.
4
<PAGE> 5
(e) The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend
the sale of its Class A shares if trading on the New York Stock Exchange shall
have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or inadvisable to
sell the Class A shares.
(f) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class A shares received by
the Distributor. Any order may be rejected by the Fund; provided, however,
that the Fund will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class A shares from eligible investors.
The Fund (or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its agent) of
payment therefor, will deliver deposit receipts or certificates for such Class
A shares pursuant to the instructions of the Distributor. Payment shall be
made to the Fund in New York Clearing House funds. The Distributor agrees to
cause such payment and such instructions to be delivered promptly to the Fund
(or its agent).
5
<PAGE> 6
Section 4. Repurchase or Redemption of Class A shares by the Fund.
(a) Any of the outstanding Class A shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class A shares so
tendered in accordance with its obligations as set forth in Article VIII of its
Declaration of Trust, as amended from time to time, and in accordance with the
applicable provisions set forth in the prospectus and statement of additional
information. The price to be paid to redeem or repurchase the Class A shares
shall be equal to the net asset value calculated in accordance with the
provisions of Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in the
prospectus and statement of additional information of the Fund. All payments
by the Fund hereunder shall be made in the manner set forth below. The
redemption or repurchase by the Fund of any of the Class A shares purchased by
or through the Distributor will not affect the sales charge secured by the
Distributor or any selected dealer in the course of the original sale, except
that if any Class A shares are tendered for redemption or repurchase within
seven business days after the date of the confirmation of the original
purchase, the right to the sales charge shall be forfeited by the Distributor
and the selected dealer which sold such Class A shares.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of
6
<PAGE> 7
the Distributor in New York Clearing House funds on or before the seventh
business day subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable CDSC shall be paid to the Distributor, and
(ii) the balance shall be paid to or for the account of the shareholder, in
each case in accordance with the applicable provisions of the prospectus and
statement of additional information.
(b) Redemption of Class A shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class A 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
7
<PAGE> 8
such number of copies of the prospectus and statement of additional information
as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the Class A shareholders, all necessary action to fix the number of
authorized Class A shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be available for sale
such number of Class A shares as the Distributor may reasonably be expected to
sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class A shares for sale under the
securities laws of such states as the Distributor and the Fund may approve.
Any such qualification may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund but shall not be obligated to sell any
specific number of Class A shares. The
8
<PAGE> 9
services of the Distributor to the Fund hereunder are not to be deemed
exclusive and nothing herein contained shall prevent the Distributor from
entering into like arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby.
(b) In selling the Class A shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by the
officers of the Fund, for the confirmation of sales to eligible investors and
selected dealers, the collection of amounts payable by eligible investors and
selected dealers on such sales, and the cancellation of unsettled transactions,
as may be necessary to comply with the requirements of the National Association
of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice
9
<PAGE> 10
("selected dealers") for the sale of Class A shares and fix therein the portion
of the sales charge which may be allocated to the selected dealers; provided
that the Fund shall approve the forms of agreements with dealers and the dealer
compensation set forth therein. Class A shares sold to selected dealers shall
be for resale by such dealers only at the public offering price(s) set forth in
the prospectus and statement of additional information. The form of agreement
with selected dealers to be used during the continuous offering of the Class A
shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class
A shares only to such selected dealers as are members in good standing of the
NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and interim reports and proxy materials to
Class A shareholders (including but not limited to the expense of setting in
type any such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
10
<PAGE> 11
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are to
be used in connection with the offering of Class A shares to selected dealers
or eligible investors pursuant to this Agreement. The Distributor shall bear
the costs and expenses of preparing, printing and distributing any other
literature used by the Distributor or furnished by it for use by selected
dealers in connection with the offering of the Class A shares for sale to
eligible investors and any expenses of advertising incurred by the Distributor
in connection with such offering.
(c) The Fund shall bear the cost and expenses of qualification of the
Class A shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing qualification therein
until the Fund decides to discontinue such qualification pursuant to Section
5(c) hereof.
11
<PAGE> 12
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class A shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that
the registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, unless
such statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the indemnity of the
Fund in favor of the Distributor and any such controlling persons to be deemed
to protect such Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of the reckless disregard
12
<PAGE> 13
of their obligations and duties under this Agreement; or (ii) is the Fund to be
liable under its indemnity agreement contained in this paragraph with respect
to any claim made against the Distributor or any such controlling persons,
unless the Distributor or such controlling persons, as the case may be, shall
have notified the Fund in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the Fund elects to
assume the defense of any such suit and retain such counsel, the Distributor or
such controlling person or persons, defendant or defendants 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
reim-
13
<PAGE> 14
burse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any of the Class A
shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Trustees and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to Class A shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund
and each person so indemnified shall have the rights and duties given to the
Distributor by the provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program,
14
<PAGE> 15
the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to offer and sell shares of the Fund, as agent for
the Fund, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of shares, the
proceeds to be paid to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until October __, 1995 and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Trustees or
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) by the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by vote of a majority of the outstanding 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
15
<PAGE> 16
person", when used in this Agreement, shall have the respective meanings
specified in the Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Trustees or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Trustees of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York,
or any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
Section 14. This Agreement supersedes the prior Distribution Agreement
entered into by the parties hereto with respect to the Class A shares of the
Fund.
Section 15. Personal Liability. The Declaration of Trust establishing
the Fund, dated May 14, 1987, 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 Strategic
Dividend Fund" refers to the Trustees under the Declaration
16
<PAGE> 17
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 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 STRATEGIC DIVIDEND FUND
By [SIG]
--------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By [SIG]
--------------------------------------
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH STRATEGIC DIVIDEND FUND
CLASS A SHARES OF BENEFICIAL INTEREST
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Strategic Dividend Fund, a Massachusetts business trust (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class A
shares of beneficial interest, par value $0.10 per share (herein referred to as
"Class A shares"), of the Fund and as such has the right to distribute Class A
shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its Class
A shares are registered under the Securities Act of 1933, as amended. You have
received a copy of the Class A shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made herein to
certain provisions of such Distribution Agreement. The terms "Prospectus" and
"Statement of Additional Information" used herein refer to the prospectus and
statement of additional information, respectively, on file with the Securities
and Exchange Commission which is part of the most recent effective registration
statement pursuant to the Securities Act of 1933, as amended. We offer to sell
to you, as a member of the Selected Dealers Group, Class A shares of the Fund
for resale to investors identified in the Prospectus and Statement of
Additional Information as eligible to purchase Class A shares ("eligible
investors") upon the following terms and conditions:
1. In all sales of these Class A shares to eligible investors, you shall
act as dealer for your own account and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time to time agree,
in which case you shall have authority to offer and sell shares, as agent for
the Fund, to participants in such program.
1
<PAGE> 19
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 5 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Sales Charge Selected
Sales Charge as Percentage* Dealers as
as Percentage of the Net Percentage
of the Amount of the
Amount of Purchase Offering Price Invested Offering Price
- ------------------ -------------- --------------- -----------
<S> <C> <C> <C>
Less than $25,000.... 5.25% 5.54% 5.00%
$25,000 but less
than $50,000........ 4.75 4.99 4.50
$50,000 but less
than $100,000....... 4.00 4.17 3.75
$100,000 but less
than $250,000....... 3.00 3.09 2.75
$250,000 but less
than $1,000,000.. 2.00 2.04 1.80
$1,000,000 and over**.. 0.00 0.00 0.00
</TABLE>
- --------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchases may be subject to a contingent deferred sales charge as
set forth in the current Prospectus and Statement of Additional Information.
2
<PAGE> 20
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class A shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class A shares for
a single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act of 1940, as
amended, but does not include purchases by any such company which has not been
in existence for at least six months or which has no purpose other than the
purchase of Class A shares of the Fund or Class A shares of other registered
investment companies at a discount; provided, however, that it shall not
include purchases by any group of individuals whose sole organizational nexus
is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which certain eligible investors are permitted to purchase Class A shares
of the Fund at the offering price applicable to the total of (a) the public
offering price of the shares then being purchased plus (b) an amount equal to
the then current net asset value or cost, whichever is higher, of the
purchaser's combined holdings of Class A, Class B, Class C and Class D shares
of the Fund and of any other investment company with an initial sales charge
for which the Distributor acts as the distributor. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or you, with sufficient information to permit
confirmation of qualification, and acceptance of the purchase order is subject
to such confirmation.
The reduced sales charges are applicable to purchases aggregating $25,000 or
more of Class A shares or of Class D shares of any other investment company
with an initial sales charge for which the Distributor acts as the distributor
made through you within a thirteen-month period starting with the first
purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. A purchase not originally made pursuant to a Letter of Intention
may be included under a subsequent letter executed within 90 days of such
purchase if the Distributor is informed in writing of this intent within such
90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of any sales
made by you to eligible investors qualifying for reduced
3
<PAGE> 21
sales charges. Further information as to the reduced sales charges pursuant to
the right of accumulation or a Letter of Intention is set forth in the
Prospectus and Statement of Additional Information.
4. You shall not place orders for any of the Class A shares unless you
have already received purchase orders for such Class A shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class A shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class A shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish
to any person any information relating to the Class A 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.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class A shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement and subject
to the compensation provisions of Section 3 hereof and (ii) to tender Class A
shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
6. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
7. If any Class A shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are
tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class A shares.
4
<PAGE> 22
8. No person is authorized to make any representations concerning Class A
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class A
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
5
<PAGE> 23
13. Upon application to us, we will inform you as to the states in which we
believe the Class A shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class A shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class A shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
15. Your first order placed pursuant to this Agreement for the purchase of
Class A shares of the Fund will represent your acceptance of this Agreement.
16. This Agreement supersedes any prior Selected Dealers Agreement
entered into by the parties hereto with respect to the Class A shares of the
Fund.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By [SIG]
-----------------------------------
(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: Merrill Lynch, Pierce, Fenner & Smith Inc.
--------------------------------------------
By: [SIG]
---------------------------------------------------
Address: 800 Scudders Mill Road
----------------------------------------------
Plainsboro, New Jersey 08536
------------------------------------------------------
Date: October 21, 1994
-------------------------------------------------
6
<PAGE> 1
EX-99.6(b)
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 10th day of August, 1987 between
MERRILL LYNCH STRATEGIC DIVIDEND 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, a Fund is registered under the Investment Company
Act of 1940, as amended to date (the "Investment Company Act"), as
an open-end investment company and it is affirmatively in the
interest of the Fund to offer its shares for sale continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly
to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the 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
the Fund (sometimes herein referred to as "shares") to the public
<PAGE> 2
and hereby agrees during the term 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 time 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 such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive rights granted to the Distributor to
purchase shares from the Fund shall not apply to shares of the
Fund issued in connection with the merger or consolidation of any
other investment company or personal holding company with the
Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any
such company by the Fund.
(c) Such exclusive rights also shall not apply to shares
issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
<PAGE> 3
(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 may 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(d) hereof,;
(c) The shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(d)
hereof, or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7
hereof.
<PAGE> 4
(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 of the Fund and guidelines established by
the Trustees.
(e) The Fund shall have the right to suspend the sale of
its shares at times when redemption is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Fund shall also
have the right to suspend the sale of its shares if trading on
the New York Stock Exchange shall have been suspended, if a
banking moratorium shall have been declared by Federal or New
York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or
inadvisable to sell the 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
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 be made to the Fund in New York
Clearing House funds. The Distributor agrees to cause such
<PAGE> 5
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 time, 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 be 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
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.
<PAGE> 6
(b) Redemption of shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading on
said Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund
fairly to determine the value of 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 number of copies of its prospectus and statement of
additional information as the Distributor shall reasonably
request.
(b) The Fund shall take, from time to time, but subject to
the necessary approval of the shareholders, all necessary action
to fix the number of authorized shares and such steps as may be
necessary to register the same under the Securities Act of 1933,
as amended (the "Securities Act"), to the end that there will be
<PAGE> 7
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 may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of shares of the Fund, but shall not be 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
<PAGE> 8
the requirements of all Federal and state laws relating to the
sale of such securities. Neither the Distributor nor any
selected dealer nor any other person is authorized by the Fund to
give any information or to make any representations, other than
those contained in the registration statement or related
prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of 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 agreement with selected dealers to be used
during the subscription period described in Section 3(a) is
attached hereto as Exhibit A and the initial form of agreement
<PAGE> 9
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 required
registration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to shareholders (including but not limited to the
expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial
consultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of shares to
selected dealers or investors pursuant to this Agreement. The
<PAGE> 10
Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in
connection with the offering of the 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 or other jurisdictions as shall be selected by the
Fund and the Distributor pursuant to Section 5(c) hereof and the
cost and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the
Distributor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith, arising by reason of any,
<PAGE> 11
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 from time to time amended
and supplemented, or an annual or interim report to shareholders
of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and
in conformity with, information furnished to the Fund in
connection therewith by or on behalf of the Distributor;
provided, however, that in no case (i) is the indemnity of the
Fund in favor of the Distributor and any such controlling persons
to be deemed to protect such Distributor or any such controlling
persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons
would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and
duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained this paragraph with
respect to any claim made against the Distributor or any such
controlling persons, unless the Distributor or such controlling
persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall
<PAGE> 12
have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have
received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any
such liability, but if the Fund elects to assume the defense,
such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the
Fund elects to assume the defense of any such suit and retain
such counsel, the Distributor or such controlling person or
persons, defendant or defendants in the suit, shall bear the fees
and expenses of any additional counsel retained by them, but, in
case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them.
The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any
of its officers or trustees in connection with the issuance or
sale of any of the shares.
<PAGE> 13
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its trustees and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense described in the foregoing indemnity contained
in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim reports to shareholders. In case any action
shall be brought against the Fund or any person so indemnified,
in respect of which indemnity may be sought against the
Distributor, the Distributor shall have the rights and duties
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 May 31, 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
<PAGE> 14
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.
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 be construed and interpreted in accordance with
the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
<PAGE> 15
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 Strategic Dividend Fund, dated May
14, 1987, 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 Strategic Dividend 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 be had to their private property for
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.
MERRIL LYLNCH STRATEGIC DIVIDEND FUND
/S/ ARTHUR ZEIKEL
--------------------
By Arthur Zeikel
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
<PAGE> 16
EXHIBIT A
MERRILL LYNCH STRATEGIC DIVIDEND 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 Strategic Dividend 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
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 terms and
conditions:
1. The subscription period referred to in Section 3(a) of
the Distribution Agreement will continue through May 31, 1989.
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 terms hereof
and of the Distribution Agreement. All orders are subject to
<PAGE> 17
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 time. 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 , as 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 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 informa-
tion 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
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
<PAGE> 18
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.
S. 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.
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 Department 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.
<PAGE> 19
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:
-------------------------------------
<PAGE> 20
EXHIBIT B
MERRILL LYNCH STRATEGIC DIVIDEND FUND
SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMET
Gentlemen:
Merrill Lynch Funds Distributor Inc. (the "Distributor")
has an agreement with Merrill Lynch Strategic Dividend 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
amended. You have received a copy of the Distribution Agreement
between ourself and the Fund and reference is made herein to
certain provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" as used
herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and
Exchange Commission which is part of the most recent effective
registration statement pursuant to the Securities Act of 1933, as
amended. As principal, we offer to sell to you, as a member of
the Selected Dealers Group, 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 ember of the Selected Dealers Group.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 4 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders shall be 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
applicable public offering prices and subject to the terms hereof
and of the Distribution Agreement. You agree that you will not
<PAGE> 21
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 supple-
mented) 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 supple-
mented) 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 condi-
tions 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 informa-
tion 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 making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional Information at or prior to
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional Information,
<PAGE> 22
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.
<PAGE> 23
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> 1
Ex-99.6(c)
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 21st day of October 1994, between MERRILL LYNCH
STRATEGIC DIVIDEND 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 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Fund to offer its shares for
sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Fund's Class C shares
in order to promote the growth of the Fund and facilitate the distribution of
its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class C shares of beneficial interest in the Fund (sometimes herein referred to
as "Class C
<PAGE> 2
shares") to the public and hereby agrees during the term 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 of the Class C shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class C shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class C shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class C
shares from the Fund shall not apply to Class C 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 Class C
shares of any such company by the Fund.
2
<PAGE> 3
(c) Such exclusive right also shall not apply to Class C shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive right also shall not apply to Class C shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class C shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class C Shares from the Fund.
(a) It is contemplated that the Fund will commence an offering of its
Class C shares, and thereafter the Distributor shall have the right to buy from
the Fund the Class C shares needed, but not more than the Class C shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Class C shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class C shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class C shares. The price
which the Distributor shall pay for the Class C shares so purchased from the
Fund shall be the net asset value, determined as set forth in Section 3(c)
hereof.
3
<PAGE> 4
(b) The Class C shares are to be resold by the Distributor to investors
at net asset value, as set forth in Section 3(c) hereof, or to securities
dealers having agreements with the Distributor upon the terms and conditions
set forth in Section 7 hereof.
(c) The net asset value of Class C shares of the Fund shall be determined
by the Fund or any agent of the Fund in accordance with the method set forth in
the prospectus and statement of additional information and guidelines
established by the Board of Trustees.
(d) The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend
the sale of its Class C shares if trading on the New York Stock Exchange shall
have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or inadvisable to
sell the Class C shares.
(e) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class C shares received by
the Distributor. Any order may be rejected by the Fund; provided, however,
that the Fund will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class C shares. The Fund
4
<PAGE> 5
(or its agent) will confirm orders upon their receipt, will make appropriate
book entries and, upon receipt by the Fund (or its agent) of payment therefor,
will deliver deposit receipts or certificates for such Class C shares pursuant
to the instructions of the Distributor. Payment shall be made to the Fund in
New York Clearing House 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 Class C Shares by the Fund.
(a) Any of the outstanding Class C shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class C shares so
tendered in accordance with its obligations as set forth in Article VIII of its
Declaration of Trust, as amended from time to time, and in accordance with the
applicable provisions set forth in the prospectus and statement of additional
information of the Fund. The price to be paid to redeem or repurchase the
Class C shares shall be equal to the net asset value calculated in accordance
with the provisions of Section 3(c) hereof, less any contingent deferred sales
charge ("CDSC"), redemption fee or other charge(s), if any, set forth in the
prospectus and statement of additional information of the Fund. All payments
by the Fund hereunder shall be made in the manner set forth below.
5
<PAGE> 6
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class C shares of the
Fund, and this shall include, upon request by the Distributor, one certified
copy of all
6
<PAGE> 7
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
prospectus and statement of additional information as the Distributor shall
reasonably request.
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the shareholders, all necessary action to fix the number of
authorized shares and such steps as may be necessary to register the same under
the Securities Act to the end that there will be available for sale such number
of Class C 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 Class C shares for sale under the
securities laws of such states as the Distributor and the Fund may approve.
Any such qualification may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
7
<PAGE> 8
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class C shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by the
officers of the Fund, for the confirmation of sales to investors and selected
dealers, the collection of amounts payable by investors and selected dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the National Association
8
<PAGE> 9
of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class C shares; provided, that the Fund shall approve the forms of
agreements with dealers. Class C shares sold to selected dealers shall be for
resale by such dealers only at net asset value determined as set forth in
Section 3(c) hereof. The form of agreement with selected dealers to be used
during the continuous offering of the shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class
C shares only to such selected dealers that are members in good standing of the
NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and interim reports and proxy materials to
Class C shareholders (including but not limited to the expense of setting in
type any such registration statements,
9
<PAGE> 10
prospectuses, statements of additional information, annual or interim reports
or proxy materials).
(b) The Distributor shall be responsible for any payments made to selected
dealers as reimbursement for their expenses associated with payments of sales
commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class C shares to selected dealers or investors pursuant
to this Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Class C shares for sale to the public and any expenses of
advertising incurred by the Distributor in connection with such offering. It is
understood and agreed that so long as the Fund's Class C Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act remains in effect,
any expenses incurred by the Distributor hereunder may be paid from amounts
recovered by it from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class C shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of quali-
10
<PAGE> 11
fying the Fund as a broker or dealer in such states of the United States or
other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5(c) hereof and the cost and expenses payable to each such
state for continuing qualification therein until the Fund decides to
discontinue such qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class C shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that
the registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to Class C 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)
11
<PAGE> 12
is the indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of the reckless
disregard of their obligations and duties under this Agreement; or (ii) is the
Fund to be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or any such controlling
persons, unless the Distributor or such controlling persons, as the case may
be, shall have notified the Fund in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Distributor or such controlling persons
(or after the Distributor or such controlling persons shall have received
notice of such service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which it may have to
the person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Fund will be entitled to
participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be
12
<PAGE> 13
conducted by counsel chosen by it and satisfactory to the Distributor or such
controlling person or persons, defendant or defendants in the suit. In the
event the Fund elects to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses, as incurred, of any
additional counsel retained by them, but in case the Fund does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses, as incurred, of any counsel retained by them.
The Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or Trustees in
connection with the issuance or sale of any of the Class C shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Trustees and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense, as incurred, described
in the foregoing indemnity contained in subsection (a) of this Section, but
only with respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by or on behalf
of the Distributor for use in connection with the registration statement or
related prospectus and statement of additional information, as from time to
time amended, or the
13
<PAGE> 14
annual or interim reports to shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity
may be sought against the Distributor, the Distributor shall have the rights
and duties given to the Fund, and the Fund and each person so indemnified shall
have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized
to offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above written
and shall remain in force until October 21, 1995 and thereafter, but only for
so long as such continuance is specifically approved at least annually by (i)
the Trustees or by the vote of a majority of the outstanding voting securities
of the Fund and (ii) by the vote of a majority of those Trustees who are not
parties to this Agreement or interested persons of any
14
<PAGE> 15
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.
Section 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Trustees or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Trustees of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York,
or any
15
<PAGE> 16
EXHIBIT 99.6(c)
of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
Section 14. Personal Liability. The Declaration of Trust establishing
the Fund, dated May 14, 1987, 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 Strategic
Dividend 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 be had to their private property for 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 STRATEGIC DIVIDEND FUND
By [SIG]
-------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ GERALD M. RICHARD
-------------------------------------
Title:
16
<PAGE> 17
EXHIBIT A
MERRILL LYNCH STRATEGIC DIVIDEND FUND
CLASS C SHARES OF BENEFICIAL INTEREST
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Strategic Dividend Fund, a Massachusetts business trust (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class C
shares of beneficial interest, par value $0.10 per share (herein referred to as
the "Class C shares"), of the Fund and as such has the right to distribute
Class C shares of the Fund for resale. The Fund is an open-end investment
company registered under the Investment Company Act of 1940, as amended, and
its Class C shares being offered to the public are registered under the
Securities Act of 1933, as amended. You have received a copy of the Class C
Shares Distribution Agreement (the "Distribution Agreement") between ourself
and the Fund and reference is made herein to certain provisions of such
Distribution Agreement. The terms "Prospectus" and "Statement of Additional
Information" as used herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement pursuant to
the Securities Act of 1933, as amended. We offer to sell to you, as a member
of the Selected Dealers Group, Class C shares of the Fund upon the following
terms and conditions:
1. In all sales of these Class C shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 4 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
1
<PAGE> 18
or the Fund in the sole discretion of either. The minimum initial and
subsequent purchase requirements are as set forth in the current Prospectus and
Statement of Additional Information of the Fund.
3. You shall not place orders for any of the Class C shares unless you
have already received purchase orders for such Class C shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class C shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class C shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish
to any person any information relating to the Class C shares of the Fund which
is inconsistent in any respect with the information contained in the Prospectus
and Statement of Additional Information (as then amended or supplemented) or
cause any advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class C shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement and (ii) to
tender Class C shares directly to the Fund or its agent for redemption subject
to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class C
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class C
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall
2
<PAGE> 19
have no liability or responsibility to you in these respects unless expressly
assumed in connection therewith.
7. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class C shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
11. Upon application to us, we will inform you as to the states in which
we believe the Class C shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class C shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class C shares, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
3
<PAGE> 20
13. Your first order placed pursuant to this Agreement for the purchase of
Class C shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By [SIG]
-----------------------------------
(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: Merrill Lynch, Pierce, Fenner & Smith Inc.
----------------------------------------------
By: [SIG]
----------------------------------------------------
Address: 800 Scudders Mill Road
------------------------------------------------
Plainsboro, New Jersey 08536
--------------------------------------------------------
Date: October 21, 1994
---------------------------------------------------
4
<PAGE> 1
Ex-99.6(d)
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 21st day of October 1994 between MERRILL LYNCH
STRATEGIC DIVIDEND 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 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Fund to offer its shares for
sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Class D shares of
beneficial interest in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Class D shares of beneficial interest in the Fund (sometimes herein referred to
as "Class D shares") to
<PAGE> 2
the public and hereby agrees during the term of this Agreement to sell Class D
shares of the Fund to the Distributor upon the terms and conditions herein set
forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class D shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class D shares in the areas so designated shall terminate,
but this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class D
shares from the Fund shall not apply to Class D shares issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of
all (or substantially all) the assets or the outstanding Class D shares of any
such company by the Fund.
(c) Such exclusive right also shall not apply to Class D shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE> 3
(d) Such exclusive right also shall not apply to Class D shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class D shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class D Shares from the Fund.
(a) It is contemplated that the Fund will commence an offering of its
Class D shares, and thereafter the Distributor shall have the right to buy from
the Fund the Class D shares needed, but not more than the Class D shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Class D shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class D shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class D shares. The price
which the Distributor shall pay for the Class D shares so purchased from the
Fund shall be the net asset value, determined as set forth in Section 3(d)
hereof, used in determining the public offering price on which such orders were
based.
(b) The Class D shares are to be resold by the Distributor to investors
at the public offering price, as set forth in Section 3(c) hereof, or to
securities dealers having agreements
3
<PAGE> 4
with the Distributor upon the terms and conditions set forth in Section 7
hereof.
(c) The public offering price(s) of the Class D shares, i.e., the price
per share at which the Distributor or selected dealers may sell Class D shares
to the public, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class D
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class D shares, plus a sales charge not to exceed 5.25% of the
public offering price (5.54% of the net amount invested), subject to reductions
for volume purchases. Class D shares may be sold to certain Trustees, officers
and employees of the Fund, directors and employees of Merrill Lynch & Co., Inc.
and its subsidiaries, and to certain other persons described in the prospectus
and statement of additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the prospectus and
statement of additional information. If the public offering price does not
equal an even cent, the public offering price may be adjusted to the nearest
cent. All payments to the Fund hereunder shall be made in the manner set forth
in Section 3(f).
(d) The net asset value of Class D shares 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
4
<PAGE> 5
information of the Fund and guidelines established by the Trustees.
(e) The Fund shall have the right to suspend the sale of its Class D
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend
the sale of its Class D shares if trading on the New York Stock Exchange shall
have been suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or inadvisable to
sell the Class D shares.
(f) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class D shares received by
the Distributor. Any order may be rejected by the Fund; provided, however,
that the Fund will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class D shares. The Fund (or its agent)
will confirm orders upon their receipt, will make appropriate book entries and,
upon receipt by the Fund (or its agent) of payment therefor, will deliver
deposit receipts or certificates for such Class D shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund in New York
Clearing House funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
5
<PAGE> 6
Section 4. Repurchase or Redemption of Class D Shares by the Fund.
(a) Any of the outstanding Class D shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class D shares so
tendered in accordance with its obligations as set forth in Article VIII of its
Declaration of Trust, as amended from time to time, and in accordance with the
applicable provisions set forth in the prospectus and statement of additional
information. The price to be paid to redeem or repurchase the Class D shares
shall be equal to the net asset value calculated in accordance with the
provisions of Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in the
prospectus and statement of additional information of the Fund. All payments
by the Fund hereunder shall be made in the manner set forth below. The
redemption or repurchase by the Fund of any of the Class D shares purchased by
or through the Distributor will not affect the sales charge secured by the
Distributor or any selected dealer in the course of the original sale, except
that if any Class D shares are tendered for redemption or repurchase within
seven business days after the date of the confirmation of the original
purchase, the right to the sales charge shall be forfeited by the Distributor
and the selected dealer which sold such Class D shares.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of
6
<PAGE> 7
the Distributor in New York Clearing House funds on or before the seventh
business day subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable CDSC shall be paid to the Distributor, and
(ii) the balance shall be paid to or for the account of the shareholder, in
each case in accordance with the applicable provisions of the prospectus and
statement of additional information.
(b) Redemption of Class D shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period
when the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class D shares of the
Fund, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
7
<PAGE> 8
such number of copies of the prospectus and statement of additional information
as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the Class D shareholders, all necessary action to fix the number of
authorized Class D shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be available for sale
such number of Class D shares as the Distributor may reasonably be expected to
sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class D shares for sale under the
securities laws of such states as the Distributor and the Fund may approve.
Any such qualification may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class D shares of the Fund but shall not be obligated to sell any
specific number of Class D shares. The
8
<PAGE> 9
services of the Distributor to the Fund hereunder are not to be deemed
exclusive and nothing herein contained shall prevent the Distributor from
entering into like arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby.
(b) In selling the Class D shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by the
officers of the Fund, for the confirmation of sales to investors and selected
dealers, the collection of amounts payable by investors and selected dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the National Association of Securities
Dealers, Inc. (the "NASD"), as such requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice
9
<PAGE> 10
("selected dealers") for the sale of Class D shares and fix therein the portion
of the sales charge which may be allocated to the selected dealers; provided
that the Fund shall approve the forms of agreements with dealers and the dealer
compensation set forth therein. Class D shares sold to selected dealers shall
be for resale by such dealers only at the public offering price(s) set forth in
the prospectus and statement of additional information. The form of agreement
with selected dealers to be used during the continuous offering of the Class D
shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class
D shares only to such selected dealers as are members in good standing of the
NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund, including
fees and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and interim reports and proxy materials to
Class D shareholders (including but not limited to the expense of setting in
type any such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
10
<PAGE> 11
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments
of sales commissions to financial consultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the
costs and expenses of printing and distributing any copies thereof which are to
be used in connection with the offering of Class D shares to selected dealers
or investors pursuant to this Agreement. The Distributor shall bear the costs
and expenses of preparing, printing and distributing any other literature used
by the Distributor or furnished by it for use by selected dealers in connection
with the offering of the Class D shares for sale to the public and any expenses
of advertising incurred by the Distributor in connection with such offering.
It is understood and agreed that so long as the Fund's Class D Shares
Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act
remains in effect, any expenses incurred by the Distributor hereunder in
connection with account maintenance activities may be paid from amounts
recovered by it from the Fund under such plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class D shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund
11
<PAGE> 12
and the Distributor pursuant to Section 5(c) hereof and the cost and expenses
payable to each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class D shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that
the registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, unless
such statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the indemnity of the
Fund in favor of the Distributor and any such controlling persons to be deemed
to protect such Distributor or any such controlling persons thereof against any
liability to the
12
<PAGE> 13
Fund or its security holders to which the Distributor or any such controlling
persons would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of their duties or by reason of the
reckless disregard of their obligations and duties under this Agreement; or
(ii) is the Fund to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Distributor or any such
controlling persons, unless the Distributor or such controlling persons, as the
case may be, shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the Distributor or such controlling
persons (or after the Distributor or such controlling persons shall have
received notice of such service on any designated agent), but failure to notify
the Fund of any such claim shall not relieve it from any liability which it may
have to the person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph. The Fund will
be entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Distributor or such
controlling person or persons, defendant or defendants in the suit. In the
event the Fund elects to assume the defense of any such suit and retain such
counsel, the
13
<PAGE> 14
Distributor or such controlling person or persons, defendant or defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them, but in case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of
any counsel retained by them. The Fund shall promptly notify the Distributor
of the commencement of any litigation or proceedings against it or any of its
officers or Trustees in connection with the issuance or sale of any of the
Class D shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Trustees and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to Class D shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund
and each person so indemnified
14
<PAGE> 15
shall have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
with the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized
to offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until October 21, 1995 and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Trustees or
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) by the vote of a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This
15
<PAGE> 16
Agreement shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
by the parties only if such amendment is specifically approved by (i) the
Trustees or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Trustees of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment
Company Act. To the extent that the applicable law of the State of New York,
or any of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
Section 14. Personal Liability. The Declaration of Trust establishing
the Fund, dated May 14, 1987, 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 Strategic
16
<PAGE> 17
EXHIBIT 99.6D
Dividend 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 be had to their private property for 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 STRATEGIC DIVIDEND FUND
By [SIG]
--------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ GERALD M. RICHARD
--------------------------------------
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH STRATEGIC DIVIDEND FUND
CLASS D SHARES OF BENEFICIAL INTEREST
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Strategic Dividend Fund, a Massachusetts business trust (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class D
shares of beneficial interest, par value $0.10 per share (herein referred to as
"Class D shares"), of the Fund and as such has the right to distribute Class D
shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its Class
D shares being offered to the public are registered under the Securities Act of
1933, as amended. You have received a copy of the Class D Shares Distribution
Agreement (the "Distribution Agreement") between ourself and the Fund and
reference is made herein to certain provisions of such Distribution Agreement.
The terms "Prospectus" and "Statement of Additional Information" used herein
refer to the prospectus and statement of additional information, respectively,
on file with the Securities and Exchange Commission which is part of the most
recent effective registration statement pursuant to the Securities Act of 1933,
as amended. We offer to sell to you, as a member of the Selected Dealers
Group, Class D shares of the Fund upon the following terms and conditions:
1. In all sales of these Class D shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 5 hereof and
instructions
1
<PAGE> 19
which we or the Fund shall forward from time to time to you. All orders are
subject to acceptance or rejection by the Distributor or the Fund in the sole
discretion of either. The minimum initial and subsequent purchase requirements
are as set forth in the current Prospectus and Statement of Additional
Information of the Fund.
3. The sales charges for sales to the public, computed as percentages of
the public offering price and the amount invested, and the related discount to
Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
------------------ -------------- ------------- -----------
<S> <C> <C> <C>
Less than $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.
** Initial sales charges will be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchases may be subject to a contingent deferred sales charge as
set forth in the current Prospectus and Statement of Additional Information.
2
<PAGE> 20
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class D shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class D shares for
a single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act of 1940, as
amended, but does not include purchases by any such company which has not been
in existence for at least six months or which has no purpose other than the
purchase of Class D shares of the Fund or Class D shares of other registered
investment companies at a discount; provided, however, that it shall not
include purchases by any group of individuals whose sole organizational nexus
is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which eligible investors are permitted to purchase Class D shares of the
Fund at the offering price applicable to the total of (a) the public offering
price of the shares then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the Fund
and of any other investment company with an initial sales charge for which the
Distributor acts as the distributor. For any such right of accumulation to be
made available, the Distributor must be provided at the time of purchase, by
the purchaser or you, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation.
The reduced sales charges are applicable to purchases aggregating $25,000 or
more of Class A shares or of Class D shares of any other investment company
with an initial sales charge for which the Distributor acts as the distributor
made through you within a thirteen-month period starting with the first
purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. A purchase not originally made pursuant to a Letter of Intention
may be included under a subsequent letter executed within 90 days of such
purchase if the Distributor is informed in writing of this intent within such
90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of any sales
made by you to the public qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant to the
3
<PAGE> 21
right of accumulation or a Letter of Intention is set forth in the Prospectus
and Statement of Additional Information.
4. You shall not place orders for any of the Class D shares unless you
have already received purchase orders for such Class D shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class D shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class D shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish
to any person any information relating to the Class D shares of the Fund which
is inconsistent in any respect with the information contained in the Prospectus
and Statement of Additional Information (as then amended or supplemented) or
cause any advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class D shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement and subject
to the compensation provisions of Section 3 hereof and (ii) to tender Class D
shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
6. You shall not withhold placing orders received from your customers
so as to profit yourself as a result of such withholding: e.g., by a change in
the "net asset value" from that used in determining the offering price to your
customers.
7. If any Class D shares sold to you under the terms of this Agreement
are repurchased by the Fund or by us for the account of the Fund or are
tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class D shares.
4
<PAGE> 22
8. No person is authorized to make any representations concerning Class D
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class D
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class D shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this
paragraph is intended to operate as, and the provisions of this paragraph shall
not in any way whatsoever constitute, a waiver by you of compliance with any
provision of the Securities Act of 1933, as amended, or of the rules and
regulations of the Securities and Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Rules of Fair Practice of such
Association.
5
<PAGE> 23
13. Upon application to us, we will inform you as to the states in which we
believe the Class D shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class D shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class D shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
15. Your first order placed pursuant to this Agreement for the purchase of
Class D shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By [SIG]
-----------------------------------
(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: Merrill Lynch, Pierce, Fenner & Smith Inc.
----------------------------------------------
By: [SIG]
----------------------------------------------------
Address: 800 Scudders Mill Road
------------------------------------------------
Plainsboro, New Jersey 08536
--------------------------------------------------------
Date: October 21, 1994
---------------------------------------------------
6
<PAGE> 1
Ex-99.8
CUSTODIAN CONTRACT
Between
MERRILL LYNCH STRATEGIC DIVIDEND FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
1. Employment of Custodian and Property 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................................3
2.3 Registration of Securities............................7
2.4 Bank Accounts.........................................8
2.5 Investment and Availability of Federal Funds..........9
2.6 Collection of Income..................................9
2.7 Payment of Fund Monies................................10
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased.......................13
2.9 Appointment of Agents.................................13
2.10 Deposit of Securities in Securities System............13
2.10A Fund Assets Held in the Custodian's Direct
Paper System..........................................16
2.11 Segregated Account....................................18
2.12 Ownership Certificates for Tax Purposes...............19
2.13 Proxies...............................................19
2.14 Communications Relating to Fund
Portfolio Securities..................................20
2.15 Reports to Fund by Independent Public
Accountants...........................................20
3. Duties of the Custodian with Respect to Property of
the Fund Held outside of the United States...................21
3.1 Appointment of Foreign Sub-Custodians.................21
3.2 Assets to be Held.....................................22
3.3 Foreign Securities Depositories.......................22
3.4 Segregation of Securities.............................22
3.5 Agreements with Foreign Banking Institutions..........23
3.6 Access of Independent Accountants of the Fund.........23
3.7 Reports by Custodian..................................24
3.8 Transactions in Foreign Custody Account...............24
3.9 Liability of Foreign Sub-Custodians...................25
3.10 Monitoring Responsibilities...........................26
3.11 Branches of U.S. Banks................................26
4. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund........................................27
5. Proper Instructions..........................................28
6. Actions Permitted Without Express Authority..................28
7. Evidence of Authority........................................29
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
8. Duties of Custodian with Respect to the Books of
Account and Calculations of Net Asset Value and
Net Income...................................................30
9. Records......................................................30
10. Opinion of Fund's Independent Accountant.....................31
Compensation of Custodlan....................................31
12. Responsibility of Custodian..................................31
13. Effective Period, Termination and Amendment..................33
14. Successor Custodian..........................................35
15. Interpretive and Additional Provisions.......................36
16. Massachusetts Law to Apply...................................37
17. Prior Contracts..............................................37
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between Merrill Lynch Strategic Dividend
Fund, a business trust organized and existing under the laws of
Massachusetts, having its principal place of business at 800
Scudders Mill Road, Plainsboro, New Jersey 08536, hereinafter
called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of
business at 225 Franklin Street, Boston, Massachusetts, 02110,
hereinafter called the "Custodian",
WITNESSETH: 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 Custodian 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 held outside the United States ("foreign
securities") pursuant to the provisions of the 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 consideration received by it for such new or
treasury shares of capital stock, $.10 par value, ("Shares") of
the Fund as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of the Fund
held or received by the Fund and not delivered to the Custodian.
<PAGE> 5
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 Fund on account of any actions
or omissions of any sub-custodian so employed than any such sub-custodian has
to the Custodian. The Custodian may 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 hold 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 securities owned by the Fund, other
than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency 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" and (b) commercial paper of an
issuer for which State Street Bank and Trust Company acts as issuing and
paying agent ("Direct Paper") which is deposited and/or maintained in the
Direct Paper System of the Custodian pursuant to Section 2.10A.
-2-
<PAGE> 6
2.2 Delivery of Securities. The Custodian shall release and
deliver domestic securities owned by the Fund held by the
Custodian or in a Securities System account of the
Custodian or in the Custodian's Direct Paper book entry
system account ("Direct Paper System Account") only upon
receipt of Proper instructions, which may be continuing
instructions 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 entered into by the Fund;
3) In the case of a sale effected 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
-3-
<PAGE> 7
the name of any nominee or nominees of the
Custodian or into the name 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
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) Upon the sale of such securities for the
account of the Fund, to the broker or its
clearing agent, against a receipt, for
examination in accordance with "street
delivery" custom; provided that in any such
case, the Custodian shall have no
responsibility or liability for any loss
arising from the delivery of such securities
prior to receiving payment for such
securities except as may arise from the
Custodian's own negligence or willful
misconduct;
For exchange or conversion pursuant to any
plan of merger, consolidation,
recapitalization, reorganization or
readjustment of the securities of the issuer
-4-
<PAGE> 8
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 new
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;
10) For delivery in connection with any loans of
securities made by the Fund, but only agains.
receipt of adequate collateral as agreed upon
from time to time by the Custodian and the
Fund, which may be in the form of cash or
obligations issued 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
-5-
<PAGE> 9
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
and of any registered national securities
exchange, or of any similar organization or
organizations, regarding escrow or other
arrangements in connection 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,
-6-
<PAGE> 10
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
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, specifying the
securities to be delivered, setting forth the
purpose for which such delivery is 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 held by
the Custodian (other than bearer securities) shall be
-7-
<PAGE> 11
registered in the name of the Fund or in the name of any
nominee of the Fund or of any nominee 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 name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodlan appointed pursuant to
Article 1. All securities accepted by the Custodian on
behalf of the Fund under the terms of :his 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
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 bank account established and
used in accordance with Rule 17f-3 under the Investment
Company Act of 1940. Funds held by the Custodian for the
Fund 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 deem
necessary or desirable; provided, however, that every
such bank or trust company shall be qualified to act as a
-8-
<PAGE> 12
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 as Custodian and shall be
withdrawable by the Custodian only in 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 amount of checks received in payment for.
Shares of the Fund which are deposited into the Fund's
account.
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
-9-
<PAGE> 13
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 on United States securities loaned
pursuant to the provisions of Section 2.2 (10) shall be
the responsibility of the Fund. The Custodian will 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 in arranging for the
timely delivery to the Custodian of the Income to which
the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper
instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall
pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities,
options, 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 such
options, futures contracts or options on
futures contracts, to the Custodian (or 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 amended, to act as a custodian
and has been designated by the Custodian as
-10-
<PAGE> 14
its agent for this purpose) registered in the
name of the Fund or in the name of a nominee
of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in
the case of a purchase effected through a
Securitles System, Iinaccordance with the
conditions set forth in Section 2.10 hereof
or (in the case of a purchase involving
the Direct Paper System, In accordance with
the conditions set forth In Section 2.IOA; or
(d) in the case of repurchase 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
(ii) against delivery of the receipt
evidencing purchase by the Fund of securities
owned by the Custodian along with written
evidence of the agreement by the 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 in Section 2.2 hereof;
-11-
<PAGE> 15
3) For the redemption or repurchase of Shares
issued by the Fund as set forth in Article 4
hereof;
4) For the payment of any expense or liability
incurred by the Fund, including but not
limited to the following payments for the
account of the Fund: interest, taxes,
management, accounting, transfer agent 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 sold short;
7 For any other proper purpose, but only upon
receipt of, in addition to Proper
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 an Assistant Secretary,
specifying the amount of such payment,
setting forth the purpose for which such
payment is to be made, declaring such purpose
-12-
<PAGE> 16
to be a proper purpose, and naming the person
or persons to whom such payment 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
times in its discretion appoint (and may at any time
remove) any other bank or trust company which is itself
qualified under the Investment Company Act of 1940, as
amended, to act as a custodian, as its agent to carry out
such of the provisions of this Article 2 as the Custodian
may from time to time direct; _provided, however, that the
appointment of any agent shall not relieve the Custodian
of its responsibilities or liabilities hereunder.
2.10 Deposit of Securities in Securities Systems. The
Custodian may deposit and/or maintain domestic securities
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
-13-
<PAGE> 17
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
held 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 shall
identify by book-entry those securities
belonging to the Fund;
3) The Custodian shall pay for domestic
securities purchased for the account of the
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 for the account of the Fund. The
Custodian shall transfer domestic securities
-14-
<PAGE> 18
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
Custodian to reflect such transfer and
payment for the account of the Fund. Copies
of all advlces from the Securities System of
transfers of domestic securities for the
account of the Fund 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 transfer 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.
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;
-15-
<PAGE> 19
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.
2.10A Fund Assets Held in the Custodian's Direct_Paper System.
The Custodian may deposit and/or maintain securities
owned by the Fund in the Direct Paper System of the
Custodian subject to the following provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions;
2) The Custodian may keep securities of the Fund
in the Direct Paper System only if such
-16-
<PAGE> 20
securities are represented in an account
("Account") of the Custodian in the Direct
Paper System which shall not include any
assets of the Custodian other then assets
held as a fiduciary, Custodian or otherwise
for customers;
3) The records of the Custodian with respect to
securities of the Fund which are maintained
in the Direct Paper System shall identify by
book-entry those securities belonging to the
Fund;
4) The Custodian shall pay for securities
purchased for the account of the Fund upon
the making of an entry on the records of the
Custodian to reflect such payment and
transfer of securities to the account of the
Fund. The Custodian shall transfer
securities sold for the account of the Fund
Upon the making of an entry on the records of
the Custodian to reflect such transfer and
receipt of payment for the account of the
Fund;
5) The custodian shall furnish the Fund
confirmation of each transfer to or from the
account of the Fund, in the form of a written
advice or notice, of Direct Paper on the next
business day following such transfer and
-17-
<PAGE> 21
shall furnish to the Fund copies of daily
transaction sheets reflecting each day's
transaction in the Securities System for the
account of the Fund;
6) The Custodian shall provide the Fund with any
report on its system of internal accounting
control as the Fund may reasonably request
from time to time;"
2.11 Segregated Account. The Custodian shall upon receipt of
Proper Instructions establish and maintain a segregated
account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or
securities, including securities maintained in an account
by the Custodian pursuant to Section 2.10 hereof, (1) 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 Commodity
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 similar 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
-18-
<PAGE> 22
commodity futures contracts or options thereon purchased
or sold by the Fund, (iii) for the purposes of compliance
by the Fund with the procedures required by Investment
Company Act 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
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 all 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 connection 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 name
of the Fund or a nominee of the Fund, all proxies,
without indication of the manner in which such proxies
-19-
<PAGE> 23
are to be voted, and shall promptly deliver to the Fund
such proxies, all proxy soliciting materials and all
notices relating to such securities.'
2.14 Communications Relating to Fund Portfolio Securities.
The Custodian shall transmit promptly to the Fund all
written information (including, without limitation,
pendency of calls and maturities of domestic securities
and expirations of rights in connection therewith and
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
issuers of the domestic securities being held for the
Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly 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 agents) making the tender or
exchange offer. If the Fund desires to take action with
respect 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 Independent Public Accountants.
The Custodian shall provide the Fund, at such times as
the Fund may reasonably require, with reports by
independent public accountants on the accounting system,
internal accounting control and procedures for
-20-
<PAGE> 24
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 shall be of sufficient scope
and in sufficient detail, as may reasonably be required
by the Fund. to provide reasonable assurance that any
material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the
reports shall so state.
3. Duties of the Custodian with Respect to Property of the
Fund Held 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 no re
of such sub-custodians for maintaining custody of the
Fund's assets.
-21-
<PAGE> 25
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",
as defined in paragraph (c)(1) of Rule 17f-5 under the
Investmeat 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.
3.3 Forgign 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
securities 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 held by each foreign
sub-custodian. Each agreement pursuant 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 Fund 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 a foreign securities
depository, that it shall identify on its books as
belonging to the Custodian, as agent for the Fund, the
securities so deposited (all collectively referred to as
the "Account").
-22-
<PAGE> 26
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
institution or its creditors, except a claim of payment
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 representatives of the Custodian, including 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 instructions of
the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon
request of the Fund, the Custodian will use its beat
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
-23-
<PAGE> 27
the performance of such foreign banking Institutions
under its agreement with the Custodian.
3.7 Reports by Custo'dian. The Custodian will supply to the
Fund from time to time, as mutually agreed upon,
statements in respect of the securities and other assets
of the Fund held by foreign sub-custodians, including but
not limited to an identification of entities having
possession of the Fund's securities and other assets and
advices or notifications of any transfers 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 possession of
such securities.
3.8 Transactions in Foreign Custody Account. (a) upon
receipt of Proper instructions, which may be continuing
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 instructions, which may be
continuing instructions when deemed appropriate by the
parties the Custodian shall 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 2.7.
-24-
<PAGE> 28
(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 account of the Fund may be effected in
accordance with the customary or established securities
trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer)
against a receipt with the expectation of receiving later
payment for such securities from such purchaser 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 extent as set forth in
Section 2.3 of this Contract and the Fund agrees to hold
any such nominee harmless from any liability as a holder
of record of such securities.
j.9 Liability of Foreign Sub-Custodians. Each agreement
pursuant to which the Custodian 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 instltution's
performance of such obligations. At the election of the
-25-
<PAGE> 29
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.
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 likehood that its
shareholders' equity will decline below $2OO 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 set forth in
this Contract, the provisions hereof shall not apply
where the custody of the Fund assets maintained in a
foreign branch of a banking institution which is a "bank"
-26-
<PAGE> 30
as defined by Section 2(a) (5) of the Investment Company
Act of 1940 which meets the qualification set forth in
Section 26(a) of said Act. The-appointment of any such
branch as a sub-custodian shall be governed by Article I
of this Contract.
4. Payments for Repurchases or Redemptions and Sales of-
Shares of the 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 Transfer Agent, make funds available for payment to holders
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 bank designated by the
redeeming shareholders. In connection with the redemption or
repurchase of Shares of the Fund, the Custodian shall 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 time to time 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
-27-
<PAGE> 31
of the Fund issued or sold from time 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.
5. Proper Instructions
Proper instructions as used herein means a writing signed
or initialled by one or more person or persons as the Board of
Trustees shall have from tlme 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 them to have been given by a person
authorized to give 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
Secretary or an Assistant Secretary as to the authorization by
the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees,
Proper instructions may include communications effected directly
between electromechanical or electronic devices provided that
the Board of Trustees and the Custodian are satisfied that such
procedures afford adequate safeguards for the Fund's assets.
6. Actions Permitted without Express- Authority
The Custodian may in its discretion, without express
authority from the Fund:
-28-
<PAGE> 32
1) make payments to itself or others for minor
expenses of handling securities or other similar items relating
to its duties under this Contract, provided that all such
payments shall be accounted for to the Fund;
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 the securities and property of
the Fund except as otherwise directed by the Board of Trustees of
the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been
properly executed by or on behalf of the Fund. The Custodian may
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 Trustees pursuant
to the Declaration of Trust as described in such vote, and such
vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
-29-
<PAGE> 33
8. Duties of Custodian with Respect to the Books of Account
and Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
Trustees of the Fund to keep the books of account of the Fund
and/or compute the net asset value per share of the outstanding
shares of the Fund or, if directed in writing to do so 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 the net income 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 amounts of such
net Income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of
the division of such net Income among its various components.
The calculations of the net asset value per share and the daily
income of the Fund shall be made at the time or times described
from time 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 3la-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
-30-
<PAGE> 34
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'
requested to do so by the Fund and for such compensation as shall
be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
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-lA, 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 as 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 held harmless in acting upon any notice,
-31-
<PAGE> 35
request, consents 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
without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all
matters, aud 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 effected 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 as set forth in
Article 1 hereof with respect to sub-custodians located in the
United States and, regardless of whether assets are maintained in
the custody of a foreign banking institution, a foreign
securities depository 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.
-32-
<PAGE> 36
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 Custodian or its nominee assigned to the Fund being
liable for the payment of money or incurring liability of some
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 purpose 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 the
Fund fail to repay the Custodian promptly following receipt of
notice of the Custodian' expenditures in this regard, the
Custodian shall 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 shall become effective as of its execution,
shall continue in full force and effect until terminated as
hereinafter 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 writing delivered or mailed, postage
-33-
<PAGE> 37
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 initial
certificate of the Secretary or an Assistant Secretary that the
Board of Trustees of the Fund has approved the initial use of a
particular Securities System and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the
Board of Trustees has 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 and that the
Custodian shall not act under Section 2.10A hereof in the absence
of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the
initial use of the Direct Paper System and the receipt of an
annual certificate of the Secretary or au Assistant Secretary
that the Board of Trustees has reviewed the use by the Fund of
the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of
any applicable federal or state regulations, or any provision of
the Declaration of Trust, and further provided, that the Fund may
at any time by action of its Board of Trustees (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 the Comptroller of
the Currency or upon the happening of a like event at the
-34-
<PAGE> 38
direction of an appropriate regulatory agency or court of
competent 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 Trustees of the Fund, the Custodian shall, upon termination,
deliver to such successor custodian 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.
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
Trustees 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 aggregate capital, surplus, and undivided
-35-
<PAGE> 39
profits, as shown by its last published report, 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 this Contract and
to transfer to an account of such successor custodian all of the
Fund's securities held 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 the Custodian after the date of
termination hereof owing to failure of the Fund to procure the
certified copy of the vote referred to or of the Board of
Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period
as the Custodian retains 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 time agree on 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 interpretive or
additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any
-36-
<PAGE> 40
applicable federal or state regulations or any provision of the
Declaration of Trust 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 Contract supersedes 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.
IN WITNESS WHEREOF, each of the parties has caused this
Instrument to be executed in its name and behalf by Its duly
authorized representative and its seal to be hereunder affixed as
of the 10th day of August, 1987.
ATTEST MERRILL LYNCH STRATEGIC DIVIDEND FUND
/s/ Robert Harris By /s/ Terry K. Glenn
- --------------------- -----------------------------
ATTEST STATE STATE BANK AND TRUST PANY
By /S/
- --------------------- --------------------------------
Assistant Secretary Vice President
-37-
<PAGE> 41
Schedule A
The following foreign banking Institutions and foreign
securities depositories have been approved by the Board of
Trustees of Merrill Lynch Strategic Dividend Fund for use as
sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
-38-
<PAGE> 1
Ex-99.9
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREENENT
THIS AGREEMENT made as of the 10th day of August, 1987
by and between Merrill Lynch Strategic Dividend Fund (the "Fund")
and Merrill Lynch Financial Data Service, Inc. ("MLFDS"), 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 is 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 Transfer 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 the Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term "Act" means the 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 Retirement 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> 2
(III) Acting as agent for the Fund 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 as agent of the Fund and/or MLPF&S,
maintaining such records as 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 behalf 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 MFDS to MLFD.
(VI) Exchanging the investment 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 enclosures, including
appropriate income tax, information and income tax forms duly
completed, as required by applicable law;
(XII) Acting as 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> 3
(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, any officer, accountant, attorney or
authorized agent of 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> 4
(b) Upon termination of this 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 may be
amended or modified only by further written 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 duly authorized
officers and their respective corporate seals hereunto duly
affixed and attested, as of the day and year above written.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
By:/S/ TERRY K. GLENN
-------------------
Title:
----------------
MERRILL LYNCH FINANCIAL DATA SERVICE, INC.
By:/S/ HERBERT HIRSCHE JR.
-----------------------------
Title: MLFDS CORPORATE SECRETARY
--------------------------
<PAGE> 1
Ex-99.11(b)
CONSENT OF MORNINGSTAR, INC.
We consent to the reference to our firm under the caption
"Performance Data" appearing in the Prospectus of Merrill Lynch
Strategic Dividend Fund.
The use of our ratings and information in advertisements and
sales literature is permissible upon approval by Morningstar.
Morningstar, Inc.
Date:11/25/92 By:/s/ Mariann Lindsey
------------------- ----------------------
Morningstar, Inc.
53 West Jackson Blvd.
Suite 460
Chicago, IL 60604
<PAGE> 1
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 the
Merrill Lynch Strategic Dividend 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 if it redeems any
portion of such shares prior to the amortization of the Fund's
prepaid 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 /S/ ARTHUR ZEIKEL
----------------------
Arthur Zeikel, President
Dated: July 31, 1987
<PAGE> 1
Ex-99.15(b)
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH STRATEGIC DIVIDEND FUND
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 21st day of October 1994, by and between
Merrill Lynch Strategic Dividend Fund, 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 proposes to enter into a Class C Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class C
shares of beneficial interest, par value $0.10 per share (the "Class C
shares"), of the Fund to the public; and
WHEREAS, the Fund desires to adopt this Class C Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee and a distribution fee to
MLFD with respect to the Fund's Class C 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
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:
<PAGE> 2
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 C shares to compensate MLFD and securities firms
with which MLFD enters into related agreements pursuant to Paragraph 3 hereof
("Sub-Agreements") for providing account maintenance activities with respect to
Class C shareholders of the Fund. Expenditures under the Plan may consist of
payments to financial consultants for maintaining accounts in connection with
Class C shares of the Fund and payment of expenses incurred in connection with
such account maintenance activities including the costs of making services
available to shareholders including assistance in connection with inquiries
related to shareholder accounts.
2. The Fund shall pay MLFD a distribution fee under the Plan at the end
of each month at the annual rate of .75% of average daily net assets of the
Fund relating to Class C shares to compensate MLFD and securities firms with
which MLFD enters into related Sub-Agreements for providing sales and
promotional activities and services. Such activities and services will relate
to the sale, promotion and marketing of the Class C shares of the Fund. Such
expenditures may consist of sales commissions to financial consultants for
selling Class C shares of the Fund, compensation, sales incentives and payments
to sales and marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising expenditures related to
the Fund and the costs of preparing and distributing promotional materials.
The distribution fee may also be used to pay the financing costs of carrying
the unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the
above-mentioned activities and services. Such Sub-Agreement shall provide that
the Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Trustees, and
the Trustees shall review, at leastquarterly, a written report complying with
the requirements of Rule 12b-1
2
<PAGE> 3
regarding the disbursement of the account maintenance fee and the distribution
fee during such period.
5. This Plan shall not take effect until it has been approved by a vote
of at least a majority, as defined in the Investment Company Act, of the
outstanding Class C voting securities of the Fund.
6. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Trustees of
the Fund and (b) those Trustees of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Trustees"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
7. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees, or by vote of a majority of the outstanding Class C voting
securities of the Fund.
9. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class C
voting securities of the Fund, and by the 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.
12. The Declaration of Trust establishing the Fund, dated May 14,
1987, 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
3
<PAGE> 4
name "Merrill Lynch Strategic Dividend 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 be had to their private property
for 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 Distribution
Plan as of the date first above written.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
By [SIG]
-------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By [SIG]
-------------------------------------
Title:
4
<PAGE> 5
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the 21st day of October 1994, by and between Merrill
Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities
Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Strategic
Dividend Fund, a Massachusetts business trust (the "Fund"), pursuant to which
it acts as the exclusive distributor for the sale of Class C shares of
beneficial interest, par value $0.10 per share (the "Class C shares"), of the
Fund; and
WHEREAS, MLFD and the Fund have entered into a Class C Shares Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"), pursuant to which MLFD receives an account
maintenance fee from the Fund at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class C shares for account maintenance
activities related to Class C shares of the Fund and a distribution fee from
the Fund at the annual rate of .75% of average daily net assets of the Fund
relating to Class C shares for providing sales and promotional activities and
services related to the distribution of Class C shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for
the Fund's Class C shareholders and the Securities Firm is willing to perform
such activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class C shares of the Fund and incur expenditures
in connection with such activities and services of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities and
services with respect to the sale of the Class C shares of the Fund, and incur
distribution expenditures, of the types referred to in Paragraph 2 of the Plan.
<PAGE> 6
3. As compensation for its activities and services performed under this
Agreement, MLFD shall pay the Securities Firm an account maintenance fee and a
distribution fee at the end of each calendar month in an amount agreed upon by
the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the 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 [SIG]
-------------------------------------
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By [SIG]
-------------------------------------
Title:
2
<PAGE> 1
Ex-99.15(c)
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH STRATEGIC DIVIDEND FUND
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 21st day of October 1994, by and
between Merrill Lynch Strategic Dividend Fund, 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 proposes to enter into a Class D Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class D
shares of beneficial interest, par value $0.10 per share (the "Class D
shares"), of the Fund to the public; and
WHEREAS, the Fund desires to adopt this Class D Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee to MLFD with respect to the
Fund's Class D 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
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the
terms of, the Plan in accordance with Rule 12b-1 under the Investment Company
Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class D shares to compensate MLFD and securities
firms with which MLFD enters into related agreements ("Sub-Agreements")
pursuant to Paragraph
<PAGE> 2
2 hereof for providing account maintenance activities with respect to Class D
shareholders of the Fund. Expenditures under the Plan may consist of payments
to financial consultants for maintaining accounts in connection with Class D
shares of the Fund and payment of expenses incurred in connection with such
account maintenance activities including the costs of making services available
to shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities of the type referred to in Paragraph 1. MLFD may reallocate all
or a portion of its account maintenance fee to such Securities Firms as
compensation for the above-mentioned activities. Such Sub-Agreement shall
provide that the Securities Firms shall provide MLFD with such information as
is reasonably necessary to permit MLFD to comply with the reporting
requirements set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of Trustees,
and the Trustees shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee during such period.
4. This Plan shall not take effect until it has been approved by a
vote of at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund.
5. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a) the
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.
6. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees, or by vote of a majority of the outstanding Class D
voting securities of the Fund.
2
<PAGE> 3
8. The Plan may not be amended to increase materially the rate of
payments provided for in Paragraph 1 hereof unless such amendment is approved
by at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund, and by the Trustees of the
Fund in the manner provided for in Paragraph 5 hereof, and no material
amendment to the Plan shall be made unless approved in the manner provided for
approval and annual renewal in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Trustees who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Trustees who are
not interested persons.
10. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
11. The Declaration of Trust establishing the Fund, dated May 14,
1987, 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 Strategic Dividend
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 be had to their private property for 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 Distribution
Plan as of the date first above written.
MERRILL LYNCH STATEGIC DIVIDEND FUND
By [SIG]
-------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By [SIG]
-------------------------------------
Title:
3
<PAGE> 4
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the 21st day of October 1994, by and between
Merrill Lynch Funds Distributor, Inc. a Delaware corporation ("MLFD"), and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Strategic Dividend Fund, a Massachusetts business trust (the "Fund"), pursuant
to which it acts as the exclusive distributor for the sale of Class D shares of
beneficial interest, par value $0.10 per share (the "Class D shares"), of the
Fund; and
WHEREAS, MLFD and the Fund have entered into a Class D Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class D shares for providing account
maintenance activities and services with respect to Class D shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and services, including assistance in connection with
inquiries related to shareholder accounts, for the Fund's Class D shareholders
and the Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
and services with respect to the Class D shares of the Fund and incur
expenditures in connection with such activities and services, of the types
referred to in Paragraph 1 of the Plan.
2. As compensation for its services performed under this Agreement,
MLFD shall pay the Securities Firm a fee at the end of each calendar month in
an amount agreed upon by the parties hereto.
3. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule
<PAGE> 5
12b-1 regarding the disbursement of the fee during such period referred to in
Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Trustees of the Fund and (b) those Trustees
of the Fund who are not "interested persons" of the Fund, as defined in the
Act, and have no direct or indirect financial interest in the operation of the
Plan, this Agreement or any agreements related to the Plan or this Agreement
(the "Rule 12b-1 Trustees"), cast in person at a meeting or meetings called for
the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By [SIG]
-------------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By [SIG]
-------------------------------------
2
<PAGE> 1
Ex-99.16(a)
Merrill Lynch Strategic Dividend
Class A
Total Return
<TABLE>
<CAPTION>
Period from
11/29/88 Annual
(inception) Total
to 07/31/89 Return*
------------
<S> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by
Maximum Offering Price 11.45
----------
Divided by Net Asset Value 10.71
----------
Equals Shares Purchased 87.34 93.37
Plus Shares Acquired through
Dividend Reinvestment 4.82 5.19
Equals Shares Held
at 07/31/89 92.16 98.56
Multiplied by Not Asset
Value at 07/31/89 12.38 12.38
---------- ----------
Equals Ending Redeemable
Value at $1.000
Investment (ERV) at 07/31/89 $1,140.90 $1,220.20
Divided by $1,000 (P) 1.1409 1.2202
Subtract 1 0.1409 0.2202
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) 14.09%
===========
Expressed as a percentage
equals the Aggregate Total
Return for the Period
22.02%
===========
ERV divided by P 1.1409
Raise to the power of 1 / .6685
Eequals 1.2190
Subtract 1 0.2180
Expressed as a percentage
equals the Average
Annualized Total Return 21.80%
</TABLE> ===========
*Does not include sales charge for the period.
<PAGE> 1
Ex-99.16(b)
STRATEGIC DIVIDEND.
TOTAL RETURN
<TABLE>
<CAPTION>
Since Annual
Inception Total
11/25/87 Return*
<S> <C> <C>
Initial Investment $1,000.00 $1,000
Divided by
maxim= Offering Price 10.00 10.00
------
Equals Shares Purchased 100.00 100.00
Plus Shares Acquired Thrugh
Dividend Reinvestment 2.35 2.35
----
Equals Shares Held
at 7/31/88 102.35 102.35
Multiplied by Not Asset
Value at 7/31/88 10.76 10.76
Equals Ending Value before
deduction for contingent
deferred sales charge $1,101.30 $1,101.30
Deduction for deferred
sales charge 40.0O -o-
------
Equals Ending Redeemable
Value of a $1,000
Investment (ERV) $1,061.30 $1,101.30
Divided by $1,000 (P) 1.0613 1.1013
Subtract 1 .0613 .1013
Expressed as a percentage
equals the Aggregate Total
Return for the Period 6.13%
=====
Expressed as a percentage
equals the Annual
Total Return (T) 10.13%
=======
ERV divided by P 1.0613
Raise to the power of 1/.682
Equals
1.0898
Subtract I
.0899
Expressed as a percentage
equals the Average
Annualized Total Return 8.98%
=====
</TABLE>
*Does not includs sales charge for the period.
<PAGE> 1
EXHIBIT 1(d)
MERRIL LYNCH STRATEGIC DIVIDEND FUND
Certification Of Amendment
To Declaration Of Trust
and
Establishment and Designation of Classes
The undersigned, constituting a majority of the Trustees of Merrill Lynch
Strategic Dividend Fund (the "Trust"), a Massachusetts business trust, hereby
certify that the Trustees of the Trust have duly adopted the following
amendments, as approved by a majority of the shareholders of the Trust, to the
Trust's Declaration of Trust.
VOTED: That Section 6.1 of Article VI of the Declaration of Trust be, and it
hereby is, amended by adding the following:
The Trustees may provide that shares of a class will be exchanged for shares of
another class without any act or deed on the part of the holder of shares of
the class being exchanged, whether or not shares of such class are issued and
outstanding, all on terms and conditions as the Trustees may specify. The
Trustees may redesignate a class or series of shares of beneficial interest or
a portion of a class or series of shares of beneficial interest whether or not
shares of such class or series are issued and outstanding, provided that such
redesignation does not substantially adversely affect the preference,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such issued
and outstanding shares of beneficial interest.
VOTED: That Section 6.2 of Article VI of the Declaration of Trust be, and it
hereby is, amended in its entirety to read as follows:
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 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
<PAGE> 2
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 and except as may be specified by the Trustees in
connection with the division of shares into classes or the redesignation of
classes or portions of classes in accordance with Section 6.1).
VOTED: That Section 10.1 of Article X of the Declaration of Trust be, and it
hereby is, amended in its entirety to read as follows:
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 Shares
shall be divided into classes as provided 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 whether or not
shares of such class are issued and outstanding.
The undersigned, being a majority of the Trustees of the Trust, acting
pursuant to Section 6.1 of the Declaration of Trust, do hereby divide the
shares of beneficial interest of each series of the Trust to create four clases
of shares, within the meaning of said Section 6.1, as follows:
1. The four classes of shares are designated "Class A Shares,"
"Class B Shares," "Class C Shares," and "Class D Shares."
2. Class A Shares, Class B Shares, Class C Shares and Class D
Shares shall be entitled to all of the rights and preferences
accorded to Shares under the Declaration of Trust.
3. The purchase price, the method of determination of net asset
value, the price, terms and manner of redemption, and the
relative dividend rights of holders of Class A Shares, Class B
Shares, Class C Shares and Class D Shares shall be established
by the Trustees of the Trust in accordance with the provisions
of the Declaration of Trust and shall be set forth in the
currently effective prospectus and statement of additional
information of the Trust relating to each series of the Trust,
as amended from time to time, contained in the Trust's
registration statement under the Securities Act of 1933, as
amended.
4. Class A Shares, Class B Shares, Class C Shares and Class D
Shares shall vote together as a single class except that
shares of a class may vote separately on
2
<PAGE> 3
matters affecting only that class and shares of a class not
affected by a matter will not vote on that matter.
5. A class of shares of any series of the Trust may be terminated
by the Trustees by written notice to the Shareholders of the
class.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees, have signed this certificate in duplicate original 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
18th day of October, 1994.
/s/Ronald W. Forbes
---------------------------------- ----------------------------------
Ronald W. Forbes Cynthia A. Montgomery
58 Euclid Avenue Harvard Business School
Delmar, NY 12054 Morgan Hall
Soldiers Field Road
Boston, MA 02163
---------------------------------- ----------------------------------
Charles C. Reilly Kevin A. Ryan
9 Hampton Harbor Road 127 Commonwealth Avenue
Hampton Bays, NY 11946 Chestnut Hill, MA 92167
---------------------------------- ----------------------------------
Richard R. West Arthur Zeikel
482 Tepi Drive 300 Woodland Avenue
Southbury, CT 06488 Westfield, NJ 07090
The Declaration of Trust establishing Merrill Lynch Strategic Dividend
Fund, dated May 14, 1987, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name of the Trust, "Merrill
Lynch Strategic Dividend Fund," refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employees or agent of Merrill Lynch Strategic Dividend
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.
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees, have signed this certificate in duplicate original 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
18th day of October, 1994.
/s/Cynthia A. Montgomery
---------------------------------- ----------------------------------
Ronald W. Forbes Cynthia A. Montgomery
58 Euclid Avenue Harvard Business School
Delmar, NY 12054 Morgan Hall
Soldiers Field Road
Boston, MA 02163
---------------------------------- ----------------------------------
Charles C. Reilly Kevin A. Ryan
9 Hampton Harbor Road 127 Commonwealth Avenue
Hampton Bays, NY 11946 Chestnut Hill, MA 92167
---------------------------------- ----------------------------------
Richard R. West Arthur Zeikel
482 Tepi Drive 300 Woodland Avenue
Southbury, CT 06488 Westfield, NJ 07090
The Declaration of Trust establishing Merrill Lynch Strategic Dividend
Fund, dated May 14, 1987, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name of the Trust, "Merrill
Lynch Strategic Dividend Fund," refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employees or agent of Merrill Lynch Strategic Dividend
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.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees, have signed this certificate in duplicate original 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
18th day of October, 1994.
---------------------------------- ---------------------------------
Ronald W. Forbes Cynthia A. Montgomery
58 Euclid Avenue Harvard Business School
Delmar, NY 12054 Morgan Hall
Soldiers Field Road
Boston, MA 02163
/s/ Kevin A. Ryan
---------------------------------- ---------------------------------
Charles C. Reilly Kevin A. Ryan
9 Hampton Harbor Road 127 Commonwealth Avenue
Hampton Bays, NY 11946 Chestnut Hill, MA 92167
---------------------------------- ---------------------------------
Richard R. West Arthur Zeikel
482 Tepi Drive 300 Woodland Avenue
Southbury, CT 06488 Westfield, NJ 07090
The Declaration of Trust establishing Merrill Lynch Strategic Dividend
Fund, dated May 14, 1987, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name of the Trust, "Merrill
Lynch Strategic Dividend Fund," refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employees or agent of Merrill Lynch Strategic Dividend
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.
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees, have signed this certificate in duplicate original 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
18th day of October, 1994.
---------------------------------- ---------------------------------
Ronald W. Forbes Cynthia A. Montgomery
58 Euclid Avenue Harvard Business School
Delmar, NY 12054 Morgan Hall
Soldiers Field Road
Boston, MA 02163
---------------------------------- ---------------------------------
Charles C. Reilly Kevin A. Ryan
9 Hampton Harbor Road 127 Commonwealth Avenue
Hampton Bays, NY 11946 Chestnut Hill, MA 92167
/s/Arthur Zeikel
---------------------------------- ---------------------------------
Richard R. West Arthur Zeikel
482 Tepi Drive 300 Woodland Avenue
Southbury, CT 06488 Westfield, NJ 07090
The Declaration of Trust establishing Merrill Lynch Strategic Dividend
Fund, dated May 14, 1987, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name of the Trust, "Merrill
Lynch Strategic Dividend Fund," refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employees or agent of Merrill Lynch Strategic Dividend
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.
7
<PAGE> 8
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
Trustees, have signed this certificate in duplicate original 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
15th day of October, 1994.
---------------------------------- ---------------------------------
Ronald W. Forbes Cynthia A. Montgomery
58 Euclid Avenue Harvard Business School
Delmar, NY 12054 Morgan Hall
Soldiers Field Road
Boston, MA 02163
---------------------------------- ---------------------------------
Charles C. Reilly Kevin A. Ryan
9 Hampton Harbor Road 127 Commonwealth Avenue
Hampton Bays, NY 11946 Chestnut Hill, MA 92167
/s/Richard West
---------------------------------- ---------------------------------
Richard R. West Arthur Zeikel
482 Tepi Drive 300 Woodland Avenue
Southbury, CT 06488 Westfield, NJ 07090
The Declaration of Trust establishing Merrill Lynch Strategic Dividend
Fund, dated May 14, 1987, a copy of which, together with all amendments thereto
(the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name of the Trust, "Merrill
Lynch Strategic Dividend Fund," refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employees or agent of Merrill Lynch Strategic Dividend
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.
8
<PAGE> 1
EXHIBIT 10
[SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP LETTERHEAD]
November 27, 1995
Merrill Lynch Strategic Dividend Fund
P.O. Box 9011
Princeton, New Jersey 08540-9011
Ladies and Gentlemen:
Merrill Lynch Strategic Dividend Fund, a Massachusetts
business trust (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, as amended (the "1933 Act") and the Investment
Company Act of 1940, as amended (the "1940 Act") on Form N-1A (Securities Act
File No. 33-14517, 1940 Act File No. 811-5178) relating to the registration
under the 1933 Act of 4,812,178 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 at the time of sale. 4,788,192 of the Additional Shares 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
July 31, 1995. 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
1940 Act on previous filings of post-effective amendments to the Fund's
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 corporate and
other proceedings relating to the Fund and to the proposed issuance of the
Additional Shares. We have examined copies, either certified or otherwise
proved to our satisfaction to be genuine, of its Declaration of Trust and
By-Laws, as currently in effect, and other documents relating to its
organization and operation. We have received a certificate from the Office of
the Secretary of State of the Commonwealth of Massachusetts, dated November 16,
1995, confirming that the Fund is currently in good standing in that
Commonwealth. We have also reviewed the above-mentioned Registration
Statement, as amended, and the documents filed as exhibits thereto. We are
generally familiar with the corporate affairs of the Fund.
<PAGE> 2
Merrill Lynch Strategic Dividend Fund
November 27, 1995
Page 2
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.
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 par value thereof, and
not less than the net asset value thereof as required by the 1940 Act and in
accordance with the terms of the Registration Statement, such shares will be
legally issued and outstanding and fully paid and non-assessable. However, we
note that as set forth in the Registration Statement, the Fund's Shareholders
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 part of the above-mentioned
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 1933 Act.
We are members of the Bar of the State of New York and do not
hold ourselves out as being conversant with the laws of any jurisdiction other
than those of the United States of America and the State of New York. We note
that we are not licensed to practice law in the Commonwealth of Massachusetts,
and to the extent that any opinion herein involves the law 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
Massachusetts and, where applicable, published cases, rules or regulations of
regulatory bodies of that Commonwealth.
Very truly yours,
/s/Shereff, Friedman, Hoffman & Goodman, LLP
--------------------------------------------
Shereff, Friedman, Hoffman & Goodman, LLP
SFHG:JHG:MKN:SSD:fs
<PAGE> 1
EXHIBIT 11(A)
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Strategic Dividend Fund:
We consent to the use in Post-Effective Amendment No. 9 to Registration
Statement No. 33-14517 of our report dated August 31, 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
November 27, 1995
<PAGE> 1
EXHIBIT 16.C
<TABLE>
<CAPTION>
Strategic Dividend - Class C
10/21/94 - 07/31/95
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ------------
<S> <C> <C>
Initial Investment $ 1,000.00 $ 1,000.00
Divided by Net Asset Value 11.84 11.84
---------- ----------
Equals Shares Purchased 84.459 84.459
Plus Shares Acquired through
Dividend Reinvestment 8.406 8.406
---------- ----------
Equals Shares Held at 7/31/95 92.865 92.865
Multiplied by Net Asset Value at 7/31/95 12.20 12.20
---------- ----------
Equals Ending Value before deduction for
contingent deferred sales charge 1,132.95 1,132.95
Loss deferred sales charge (10.00) 0.00
---------- ----------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,122.95 1,132.95
---------- ----------
Divided by $1,000 (P) 1.1230 1.1330
Subtract 1 0.1230 0.1330
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 12.30%
==========
Expressed as a percentage equals the
Aggregate Total Return for the Period 13.30%
===========
ERV divided by P 1.1230
Raise to the power of 1.2898
Equals 1.1613
----------
Subtract 1 0.1613
Expressed as a percentage equals the
Average Annualized Total Return 16.13%
==========
</TABLE>
* Does not include sales charge for the period.
<PAGE> 2
EXHIBIT 16.C
<TABLE>
<CAPTION>
Strategic Dividend - Class D
10/21/94 - 07/31/95
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- ------------
<S> <C> <C>
Initial Investment $ 1,000.00 $ 1,000.00
Divided by Initial Maximum Offering Price 12.51
----------
Divided by Net Asset Value 11.85
----------
Equals Shares Purchased 79.958 84.388
Plus Shares Acquired through
Dividend Reinvestment 8.273 8.732
---------- ----------
Equals Shares Held at 7/31/95 88.231 93.120
Multiplied by Net Asset Value at 07/31/95 12.24 12.24
---------- ----------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,079.95 1,139.79
Divided by $1,000 (P) 1.0799 1.1398
Subtract 1 0.0799 0.1398
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 7.99%
==========
Expressed as a percentage equals the
Aggregate Total Return for the Period 13.98%
==========
ERV divided by P 1.0799
Raise to the power of 1.2898
Equals 1.1043
Subtract 1 0.1043
Expressed as a percentage equals the
Average Annualized Total Return 10.43%
==========
</TABLE>
* Does not include sales charge for the period.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814507
<NAME> MERRILL LYNCH STRATEGIC DIVIDEND FUND
<SERIES>
<NUMBER> 001
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 141596763
<INVESTMENTS-AT-VALUE> 165115071
<RECEIVABLES> 2621346
<ASSETS-OTHER> 69527
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 167805944
<PAYABLE-FOR-SECURITIES> 1091996
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2306928
<TOTAL-LIABILITIES> 3398924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 126989327
<SHARES-COMMON-STOCK> 1526875
<SHARES-COMMON-PRIOR> 1710051
<ACCUMULATED-NII-CURRENT> 8064
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13891277
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23518352
<NET-ASSETS> 18687144
<DIVIDEND-INCOME> 6824508
<INTEREST-INCOME> 726726
<OTHER-INCOME> 0
<EXPENSES-NET> 3299141
<NET-INVESTMENT-INCOME> 4252093
<REALIZED-GAINS-CURRENT> 25348235
<APPREC-INCREASE-CURRENT> (9619672)
<NET-CHANGE-FROM-OPS> 19980656
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 668538
<DISTRIBUTIONS-OF-GAINS> 2560061
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 181563
<NUMBER-OF-SHARES-REDEEMED> 587662
<SHARES-REINVESTED> 222923
<NET-CHANGE-IN-ASSETS> 25335836
<ACCUMULATED-NII-PRIOR> 192681
<ACCUMULATED-GAINS-PRIOR> 11110308
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1019890
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3299141
<AVERAGE-NET-ASSETS> 19183484
<PER-SHARE-NAV-BEGIN> 12.78
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> 1.10
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> 1.61
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.24
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814507
<NAME> MERRILL LYNCH STRATEGIC DIVIDEND FUND
<SERIES>
<NUMBER> 002
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 141596763
<INVESTMENTS-AT-VALUE> 165115071
<RECEIVABLES> 2621346
<ASSETS-OTHER> 69527
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 167805944
<PAYABLE-FOR-SECURITIES> 1091996
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2306928
<TOTAL-LIABILITIES> 3398924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 126989327
<SHARES-COMMON-STOCK> 10701025
<SHARES-COMMON-PRIOR> 13146375
<ACCUMULATED-NII-CURRENT> 8064
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13891277
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23518352
<NET-ASSETS> 130920666
<DIVIDEND-INCOME> 6824508
<INTEREST-INCOME> 726726
<OTHER-INCOME> 0
<EXPENSES-NET> 3299141
<NET-INVESTMENT-INCOME> 4252093
<REALIZED-GAINS-CURRENT> 25348235
<APPREC-INCREASE-CURRENT> (9619672)
<NET-CHANGE-FROM-OPS> 19980656
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3464874
<DISTRIBUTIONS-OF-GAINS> 19570649
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1056552
<NUMBER-OF-SHARES-REDEEMED> 5160878
<SHARES-REINVESTED> 1658976
<NET-CHANGE-IN-ASSETS> 25335836
<ACCUMULATED-NII-PRIOR> 192681
<ACCUMULATED-GAINS-PRIOR> 11110308
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1019890
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3299141
<AVERAGE-NET-ASSETS> 142518699
<PER-SHARE-NAV-BEGIN> 12.77
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> 1.07
<PER-SHARE-DIVIDEND> .29
<PER-SHARE-DISTRIBUTIONS> 1.61
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.23
<EXPENSE-RATIO> 2.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814507
<NAME> MERRILL LYNCH STRATEGIC DIVIDEND FUND
<SERIES>
<NUMBER> 003
<NAME> CLASS C
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 141596763
<INVESTMENTS-AT-VALUE> 165115071
<RECEIVABLES> 2621346
<ASSETS-OTHER> 69527
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 167805944
<PAYABLE-FOR-SECURITIES> 1091996
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2306928
<TOTAL-LIABILITIES> 3398924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 126989327
<SHARES-COMMON-STOCK> 66491
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 8064
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13891277
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23518352
<NET-ASSETS> 811088
<DIVIDEND-INCOME> 6824508
<INTEREST-INCOME> 726726
<OTHER-INCOME> 0
<EXPENSES-NET> 3299141
<NET-INVESTMENT-INCOME> 4252093
<REALIZED-GAINS-CURRENT> 25348235
<APPREC-INCREASE-CURRENT> (9619672)
<NET-CHANGE-FROM-OPS> 19980656
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8975
<DISTRIBUTIONS-OF-GAINS> 13005
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 76521
<NUMBER-OF-SHARES-REDEEMED> 10993
<SHARES-REINVESTED> 963
<NET-CHANGE-IN-ASSETS> 25335836
<ACCUMULATED-NII-PRIOR> 192681
<ACCUMULATED-GAINS-PRIOR> 11110308
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1019890
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3299141
<AVERAGE-NET-ASSETS> 398162
<PER-SHARE-NAV-BEGIN> 11.84
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> 1.21
<PER-SHARE-DIVIDEND> .25
<PER-SHARE-DISTRIBUTIONS> .81
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.20
<EXPENSE-RATIO> 2.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000814507
<NAME> MERRILL LYNCH STRATEGIC DIVIDEND FUND
<SERIES>
<NUMBER> 004
<NAME> CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 141596763
<INVESTMENTS-AT-VALUE> 165115071
<RECEIVABLES> 2621346
<ASSETS-OTHER> 69527
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 167805944
<PAYABLE-FOR-SECURITIES> 1091996
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2306928
<TOTAL-LIABILITIES> 3398924
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 126989327
<SHARES-COMMON-STOCK> 1142637
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 8064
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13891277
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23518352
<NET-ASSETS> 13988122
<DIVIDEND-INCOME> 6824508
<INTEREST-INCOME> 726726
<OTHER-INCOME> 0
<EXPENSES-NET> 3299141
<NET-INVESTMENT-INCOME> 4252093
<REALIZED-GAINS-CURRENT> 25348235
<APPREC-INCREASE-CURRENT> (9619672)
<NET-CHANGE-FROM-OPS> 19980656
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 247242
<DISTRIBUTIONS-OF-GAINS> 470632
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1345175
<NUMBER-OF-SHARES-REDEEMED> 256985
<SHARES-REINVESTED> 54447
<NET-CHANGE-IN-ASSETS> 25335836
<ACCUMULATED-NII-PRIOR> 192681
<ACCUMULATED-GAINS-PRIOR> 11110308
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1019890
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3299141
<AVERAGE-NET-ASSETS> 9140404
<PER-SHARE-NAV-BEGIN> 11.85
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> 1.23
<PER-SHARE-DIVIDEND> .29
<PER-SHARE-DISTRIBUTIONS> .81
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.24
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
