MERRILL LYNCH GLOBAL UTILITY FUND INC
485B24E, 1995-03-28
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     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1995
    
 
                                                      REGISTRATION NOS. 33-37103
                                                                        811-6180
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                       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. 7                      /X/
    
                                     AND/OR
        REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940      / /
                                AMENDMENT NO. 9                              /X/
 
                        (Check appropriate box or boxes)
                              -------------------
                    MERRILL LYNCH GLOBAL UTILITY FUND, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
 
<TABLE>
<S>                                                 <C>
                  P.O. BOX 9011
              PRINCETON, NEW JERSEY                                     08543-9011
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                           (ZIP CODE)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
                                 ARTHUR ZEIKEL
                    MERRILL LYNCH GLOBAL UTILITY FUND, INC.
              800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
        MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
                    (NAME AND ADDRESS OF AGENT FOR SERVICE)
                              -------------------
 
                                   COPIES TO:
 
   
<TABLE>
<S>                                                 <C>
              COUNSEL FOR THE FUND:                              PHILIP L. KIRSTEIN, ESQ.
              JOEL H. GOLDBERG, ESQ.                          MERRILL LYNCH ASSET MANAGEMENT
    SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP                         P.O. BOX 9011
    919 THIRD AVENUE, NEW YORK, NEW YORK 10022               PRINCETON, NEW JERSEY 08543-9011
</TABLE>
    
 
                              -------------------
 
    IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
 
   
<TABLE>
<S>    <C>
/X/    IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485, OR
/ /    60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(I)
/ /    ON (DATE) PURSUANT TO PARAGRAPH (B)
/ /    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
</TABLE>
    
 
    IF APPROPRIATE, CHECK THE FOLLOWING BOX:
 
/ /    THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
       PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT
 
                              -------------------
 
   
        CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
    
 
[CAPTION]
   
<TABLE>
                                          AMOUNTS OF      PROPOSED MAXIMUM   PROPOSED MAXIMUM     AMOUNT OF
         TITLE OF SECURITIES             SHARES BEING      OFFERING PRICE        AGGREGATE      REGISTRATION
           BEING REGISTERED               REGISTERED          PER UNIT        OFFERING PRICE*        FEE
<S>                                      <C>                <C>                <C>                <C>
Shares of Common Stock (par value
$0.10 per share)......................    9,904,107          $12.48            $289,997.76         $100
</TABLE>
    
 
   
2*(1) The calculation of the maximum aggregate offering price is made pursuant
 2    to Rule 24e-2 under the Investment Company Act of 1940.
    
   
 (2) The total amount of securities redeemed or repurchased during Registrant's
     previous fiscal year was 19,965,755 shares.
    
   
 (3) 10,084,885 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) 9,880,870 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.
    
                              -------------------
 
   
    PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT
PREVIOUSLY ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES OF ITS COMMON
STOCK, PAR VALUE $0.10 PER SHARE. A RULE 24F-2 NOTICE WAS LAST FILED ON JANUARY
25, 1995.
    
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
   
                    MERRILL LYNCH GLOBAL UTILITY FUND, INC.
                  POST-EFFECTIVE AMENDMENT NO. 7 ON FORM N-1A
                             CROSS REFERENCE SHEET
         (AS REQUIRED BY RULE 481(A) UNDER THE SECURITIES ACT OF 1933)
    
 
   
<TABLE>
<CAPTION>
                           N-1A ITEM NO.                     LOCATION IN PROSPECTUS
               -------------------------------------  -------------------------------------
<S>            <C>                                    <C>
PART A
 
    Item  1.   Cover Page...........................  Cover Page
    Item  2.   Synopsis.............................  Fee Table
    Item  3.   Condensed Financial Information......  Financial Highlights
    Item  4.   General Description of Registrant....  Cover Page; Special and Risk
                                                      Considerations; 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; Merrill Lynch Select
                                                      PricingSM System; Additional
                                                      Information
    Item  7.   Purchase Securities Being Offered....  Merrill Lynch Select PricingSM
                                                      System; Fee Table; Purchase of
                                                      Shares; Shareholder Services;
                                                      Additional Information; Inside Back
                                                      Cover Page
    Item  8.   Redemption or Repurchase.............  Fee Table; Redemption of Shares
    Item  9.   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........................  Not Applicable
    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--Description of
                                                      Shares
    Item 19.   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.   Calculations of Performance Data.....  Performance Data
    Item 23.   Financial Statements.................  Financial Statements
 
PART C
 
    Information required to be included is set forth under the appropriate Item, so
numbered, in Part C to this Post-Effective Amendment to the Registration Statement.
</TABLE>
    
<PAGE>
PROSPECTUS
   
MARCH 28, 1995
    
 
                    MERRILL LYNCH GLOBAL UTILITY FUND, INC.
   P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
                              -------------------
 
   
    Merrill Lynch Global Utility Fund, Inc. (the "Fund") is a diversified mutual
fund seeking both 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 which are, in the opinion of Merrill Lynch Asset
Management, L.P. (the "Manager" or "MLAM"), primarily engaged in the ownership
or operation of facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water. There can be no assurance that the Fund's
investment objective will be achieved. The Fund may employ a variety of
instruments and techniques to enhance income and to hedge against market and
currency risk. Investments on an international basis involve special
considerations. See "Special and Risk Considerations." For more information on
the Fund's investment objective and policies, please see "Investment Objective
and Policies" on page 12.
    
                              -------------------
   
    Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes is
most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares, and other relevant circumstances. See
"Merrill Lynch Select PricingSM System" on page 4.
    
 
    Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011, (609)
282-2800, and other securities dealers which have entered into selected dealers
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 March 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>
                                   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)...............     4.00%(c)              None                 None           4.00%(c)
 Sales Charge Imposed on Dividend
   Reinvestments...................     None                  None                 None           None
 
<CAPTION>
 Deferred Sales Charge (as a
   percentage of original purchase
   price or redemption proceeds,
   whichever is lower).............     None(d)         4.0% during the      1% for one year      None(d)
                                                          first year,
                                                        decreasing 1.0%
                                                      annually thereafter
                                                       to 0.0% after the
                                                          fourth year
<S>                                  <C>              <C>                    <C>               <C>
 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                  0.50%                0.55%          None
<CAPTION>
                                                        (Class B shares
                                                       convert to Class D
                                                      shares automatically
                                                      after approximately
                                                      ten years and cease
                                                        being subject to
                                                       distribution fees)
<S>                                  <C>              <C>                    <C>               <C>
   Other Expenses
     Custodial Fees................     0.05%                 0.05%                0.05%          0.05%
     Shareholder Servicing
Costs(h)...........................     0.10%                 0.12%                0.12%          0.10%
     Other.........................     0.11%                 0.11%                0.11%          0.11%
                                       -----                 -----                -----          -----
       Total Other Expenses........     0.26%                 0.28%                0.28%          0.26%
                                       -----                 -----                -----          -----
TOTAL FUND OPERATING EXPENSES......     0.86%                 1.63%                1.68%          1.11%
                                       -----                 -----                -----          -----
                                       -----                 -----                -----          -----
</TABLE>
    
 
- ------------
 
   
<TABLE>
<C>   <S>
 (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 32.
 (b)  Class B shares convert to Class D shares automatically approximately ten years after
      initial purchase. See "Purchase of Shares--Deferred Sales Charge Alternatives--Class B
      and Class C Shares"--page 34.
 (c)  Reduced for purchases of $25,000 and over. Class A or Class D purchases of $1,000,000 or
      more may not be subject to an initial sales charge. See "Purchase of Shares--Initial
      Sales Charge Alternatives--Class A and Class D Shares"--page 32.
 (d)  Class A and Class D shares may not be subject to a contingent deferred sales charge
      ("CDSC"), except that 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 November
      30, 1994. Information under "Other Expenses" for Class C and Class D shares is estimated
      for the fiscal year ending November 30, 1995.
 (f)  See "Management of the Fund--Management and Advisory Arrangements"--page 28.
 (g)  See "Purchase of Shares--Distribution Plans"--page 37.
 (h)  See "Management of the Fund--Transfer Agency Services"--page 29.
</TABLE>
    
 
                                       2
<PAGE>
 
   
<TABLE><CAPTION>
EXAMPLE:
An investor would pay the following expenses on a
$1,000 investment including the maximum $40.00
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)                  CUMULATIVE EXPENSES PAID
redemption at the end of the period:                             FOR THE PERIOD OF:
                                                      ----------------------------------------
                                                      1 YEAR    3 YEARS    5 YEARS    10 YEARS
                                                      ------    -------    -------    --------
<S>                                                   <C>       <C>        <C>        <C>
 Class A...........................................   $   48    $    66    $    86    $    142
 Class B...........................................   $   57    $    71    $    89    $    193*
 Class C...........................................   $   27    $    53    $    91    $    199
 Class D...........................................   $   51    $    74    $    99    $    170


An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at
the end of the period:
 Class A...........................................   $   48    $    66    $    86    $    142
 Class B...........................................   $   17    $    51    $    89    $    193*
 Class C...........................................   $   17    $    53    $    91    $    199
 Class D...........................................   $   51    $    74    $    99    $    170
</TABLE>
    
 
- ------------
 
   
* Assumes conversion to Class D shares approximately ten 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. (the "NASD"). Merrill Lynch may
charge its customers a processing fee (presently $4.85) for confirming purchases
and repurchases. Purchases and redemptions directly through the Fund's Transfer
Agent are not subject to the processing fee. See "Purchase of Shares" and
"Redemption of Shares."
    
 
                                       3
<PAGE>
                     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."
    
 
    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 most beneficial under his particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of Shares."
 
                                       4
<PAGE>
 
[CAPTION]
<TABLE>
                                                     ACCOUNT
                                                   MAINTENANCE    DISTRIBUTION
 CLASS               SALES CHARGE(1)                   FEE            FEE         CONVERSION FEATURE
<C>      <S>                                       <C>            <C>            <C>
   A     Maximum 4.00% initial sales                  No             No                   No
         charge(2)(3)
   B     CDSC for a period of 4 years, at a rate    0.25%           0.50%        B shares convert to
             of 4.0% during the first year,                                            D shares
                 decreasing 1.0% annually                                        automatically after
                       to 0.0%                                                      approximately
                                                                                     ten years(4)
   C     1.0% CDSC for one year                     0.25%           0.55%                 No
   D     Maximum 4.00% 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. Contingent deferred sales charges ("CDSCs") are imposed
    if the redemption occurs within the applicable CDSC time period. The charge
    will be assessed on an amount equal to the lesser of the proceeds of
    redemption or the cost of the shares being redeemed.
 
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
    Charge Alternatives--Class A and Class D Shares--Eligible Class A
    Investors."
 
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
    purchases of $1,000,000 or more may not be subject to an initial sales
    charge but instead will be subject to a 1.0% CDSC for one year. See "Class
    A" and "Class D" below.
 
(4) The conversion period for dividend reinvestment shares and certain
    retirement plans is modified. Also, Class B shares of certain other
    MLAM-advised mutual funds into which exchanges may be made have an eight
    year conversion period. If Class B shares of the Fund are exchanged for
    Class B shares of another MLAM-advised mutual fund, the conversion period
    applicable to the Class B shares acquired in the exchange will apply, and
    the holding period for the shares exchanged will be tacked onto the holding
    period for the shares acquired.
 
   
    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 directors
and employees of Merrill Lynch & Co., Inc. ("ML & Co.") and its subsidiaries
(the term "subsidiaries," when used herein with respect to ML & Co., includes
MLAM, FAM and certain other entities directly or indirectly wholly-owned and
controlled by ML & Co.) and to members of the Boards of MLAM-advised mutual
funds. The maximum initial sales charge is 4.00%, which is reduced for purchases
of $25,000 and over. Purchases of $1,000,000 or more may not be subject to an
initial sales charge but if the initial sales charge is waived such purchases
will be subject to a CDSC of 1.0% if the shares are redeemed within one year
after purchase. Sales charges also are reduced under a right of accumulation
which takes into account the investor's holdings of all classes of all
MLAM-advised mutual funds. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares."
    
 
   
    Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.50% 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 ten 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
    
 
                                       5
<PAGE>
   
convert into Class D shares automatically after approximately eight years. If
Class B shares of the Fund are exchanged for Class B shares of another
MLAM-advised mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares acquired.
Automatic conversion of Class B shares 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 for certain retirement plans is modified as described under "Purchase
of Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares."
    
 
    Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25% and an
ongoing distribution fee of 0.55% of the Fund's average net assets attributable
to the Class C shares. Class C shares are also subject to a CDSC if they are
redeemed within one year of purchase. Although Class C shares are subject to a
1.0% CDSC for only one year (as compared to four years for Class B), Class C
shares have no conversion feature and, accordingly, an investor that purchases
Class C shares will be subject to distribution fees that will be imposed on
Class C shares for an indefinite period subject to annual approval by the Fund's
Board of Directors and regulatory limitations.
 
   
    Class D: Class D shares incur an initial sales charge when they are
purchased and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to the 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. Class D shares will also 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 his
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
 
                                       6
<PAGE>
exceed the initial sales charge and, in the case of Class D shares, the account
maintenance fee. Although some investors that previously purchased Class A
shares may no longer be eligible to purchase Class A shares of other
MLAM-advised mutual funds, those previously purchased Class A shares, together
with Class B, Class C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for reduced initial sales charges on
new initial sales charge purchases. In addition, the ongoing Class B and Class C
account maintenance and distribution fees will cause Class B and Class C shares
to have higher expense ratios, pay lower dividends and have lower total returns
than the initial sales charge shares. The ongoing Class D account maintenance
fees will cause Class D shares to have a higher expense ratio, pay lower
dividends and have a lower total return than Class A shares.
 
    Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Fund after a
conversion period of approximately ten years, and thereafter investors will be
subject to lower ongoing fees.
 
    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>
                              FINANCIAL HIGHLIGHTS
 
   
    The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the year ended
November 30, 1994 and the independent auditors' report thereon are included in
the Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's most recent annual report to
shareholders, which may be obtained, without charge, by calling or by writing
the Fund at the telephone number or address on the front cover of this
Prospectus.
    
   
<TABLE>
<CAPTION>
                                                                                                        CLASS B
                                                              CLASS A                            ----------------------
                                          -----------------------------------------------
                                                                                 FOR THE
                                                                                  PERIOD
                                                    FOR THE YEAR                 DEC. 28,             FOR THE YEAR
                                                   ENDED NOV. 30,                 1990+              ENDED NOV. 30,
                                          ---------------------------------      TO NOV.         ----------------------
                                           1994         1993         1992        30, 1991          1994          1993
                                          -------      -------      -------      --------        --------      --------
<S>                                       <C>          <C>          <C>          <C>             <C>           <C>
The following per share data and
 ratios have been derived from
 information provided in the
 financial statements.
Increase (Decrease) in Net Asset
 Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
   period............................     $ 13.22      $ 11.23      $ 10.67      $  10.00        $  13.17      $  11.20
                                          -------      -------      -------      --------        --------      --------
 Investment income--net..............         .94          .40          .47           .49             .74           .33
 Realized and unrealized gain (loss)
  on investments and foreign currency
   transactions--net.................       (1.57)        2.01          .57           .56           (1.46)         1.98
                                          -------      -------      -------      --------        --------      --------
Total from investment operations.....        (.63)        2.41         1.04          1.05            (.72)         2.31
                                          -------      -------      -------      --------        --------      --------
Less dividends and distributions:
 Investment income--net..............        (.47)        (.41)        (.48)         (.38)           (.37)         (.33)
 Realized gain on investments--net...        (.04)        (.01)       --            --               (.04)         (.01)
                                          -------      -------      -------      --------        --------      --------
Total dividends and distributions....        (.51)        (.42)        (.48)         (.38)           (.41)         (.34)
                                          -------      -------      -------      --------        --------      --------
Net asset value, end of period.......     $ 12.08      $ 13.22      $ 11.23      $  10.67        $  12.04      $  13.17
                                          -------      -------      -------      --------        --------      --------
                                          -------      -------      -------      --------        --------      --------
TOTAL INVESTMENT RETURN:**
 Based on net asset value per
   share.............................       (4.89%)      21.80%       10.05%        10.83%++        (5.60%)       20.86%
                                          -------      -------      -------      --------        --------      --------
                                          -------      -------      -------      --------        --------      --------
RATIOS TO AVERAGE NET ASSETS:
 Expenses, excluding distribution
   fees..............................         .86%         .82%        1.01%         1.28%*           .88%          .84%
                                          -------      -------      -------      --------        --------      --------
                                          -------      -------      -------      --------        --------      --------
 Expenses............................         .86%         .82%        1.01%         1.28%*          1.63%         1.59%
                                          -------      -------      -------      --------        --------      --------
                                          -------      -------      -------      --------        --------      --------
 Investment income--net..............        3.58%        3.57%        4.47%         5.57%*          2.82%         2.81%
                                          -------      -------      -------      --------        --------      --------
                                          -------      -------      -------      --------        --------      --------
SUPPLEMENTAL DATA:
 Net assets, end of period (in
   thousands)........................     $56,659      $81,718      $29,772      $ 20,579        $459,185      $596,455
                                          -------      -------      -------      --------        --------      --------
                                          -------      -------      -------      --------        --------      --------
 Portfolio turnover..................       17.02%        8.92%       30.91%        20.51%          17.02%         8.92%
                                          -------      -------      -------      --------        --------      --------
                                          -------      -------      -------      --------        --------      --------
<CAPTION>
 
                                                     FOR THE
                                                      PERIOD
                                                     DEC. 28,
                                                      1990+
                                                        TO
                                                     NOV. 30,
                                         1992          1991
                                       --------      --------
<S>                                    <C>           <C>
The following per share data and
 ratios have been derived from
 information provided in the
 financial statements.
Increase (Decrease) in Net Asset
 Value:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
   period............................  $  10.65      $  10.00
                                       --------      --------
 Investment income--net..............       .39           .40
 Realized and unrealized gain (loss)
  on investments and foreign currency
   transactions--net.................       .57           .58
                                       --------      --------
Total from investment operations.....       .96           .98
                                       --------      --------
Less dividends and distributions:
 Investment income--net..............      (.41)         (.33)
 Realized gain on investments--net...     --            --
                                       --------      --------
Total dividends and distributions....      (.41)         (.33)
                                       --------      --------
Net asset value, end of period.......  $  11.20      $  10.65
                                       --------      --------
                                       --------      --------
TOTAL INVESTMENT RETURN:**
 Based on net asset value per
   share.............................      9.20%        10.05%++
                                       --------      --------
                                       --------      --------
RATIOS TO AVERAGE NET ASSETS:
 Expenses, excluding distribution
   fees..............................      1.02%         1.29%*
                                       --------      --------
                                       --------      --------
 Expenses............................      1.77%         2.04%*
                                       --------      --------
                                       --------      --------
 Investment income--net..............      3.65%         4.78%*
                                       --------      --------
                                       --------      --------
SUPPLEMENTAL DATA:
 Net assets, end of period (in
   thousands)........................  $200,396      $ 90,966
                                       --------      --------
                                       --------      --------
 Portfolio turnover..................     30.91%        20.51%
                                       --------      --------
                                       --------      --------
</TABLE>
    
 
- ------------
 * Annualized.
** Total investment returns exclude the effects of sales loads.
 + Commencement of operations.
   
++ Aggregate total investment return.
    
 
                                       8
<PAGE>
   
                        FINANCIAL HIGHLIGHTS (CONCLUDED)
    
 
   
                                                            FOR THE PERIOD
                                                          OCTOBER 21, 1994+
                                                         TO NOVEMBER 30, 1994
                                                       ------------------------
                                                       CLASS C       CLASS D
                                                       -------       -------
The following per share data and ratios have been                   
  derived from information provided                                 
  in the financial statements.                                      
Increase (Decrease) in Net Asset Value:                             
PER SHARE OPERATING PERFORMANCE:                                    
Net asset value, beginning of period................   $ 12.34       $ 12.37
                                                       -------       -------
 Investment income--net.............................       .01           .02
 Realized and unrealized gain (loss) on 
  investments and foreign currency 
  transactions--net.................................      (.30)         (.30)
                                                       -------       -------
Total from investment operations....................      (.29)         (.28)
                                                       -------       -------
Less dividends and distributions:                                   
 Investment income--net.............................        --            --
 Realized gain on investments--net..................        --            --
                                                       -------       -------
Total dividends and distributions...................        --            --
                                                       -------       -------
Net asset value, end of period......................   $ 12.05       $ 12.09
                                                       -------       -------
                                                       -------       -------
TOTAL INVESTMENT RETURN:**                                          
 Based on net asset value per share.................     (2.35%)++     (2.26%)++
                                                       -------       -------
                                                       -------       -------
RATIOS TO AVERAGE NET ASSETS:                                       
 Expenses, excluding distribution fees..............       .80%*         .83%*
                                                       -------       -------
                                                       -------       -------
 Expenses...........................................      1.60%*        1.08%*
                                                       -------       -------
                                                       -------       -------
 Investment income--net.............................      3.01%*        3.25%*
                                                       -------       -------
                                                       -------       -------
SUPPLEMENTAL DATA:                                                  
 Net assets, end of period (in thousands)...........   $   445       $   239
                                                       -------       -------
                                                       -------       -------
 Portfolio turnover.................................     17.02%        17.02%
                                                       -------       -------
                                                       -------       -------
    
 
- ------------
   
 * Annualized.
    
   
** Total investment returns exclude the effects of sales loads.
    
   
 + Commencement of operations.
    
   
++ Aggregate total investment return.
    
 
                                       9
<PAGE>
                        SPECIAL AND RISK CONSIDERATIONS
 
   
    International Investing. As a global fund, the Fund may invest in United
States and foreign securities. Investments in securities of foreign entities and
securities denominated in foreign currencies involve risks not typically
involved in domestic investments, including fluctuations in foreign exchange
rates, future foreign political and economic developments, different legal
systems and the existence or possible imposition of exchange controls or other
foreign or United States governmental laws or restrictions applicable to such
investments. Securities prices in different countries are subject to different
economic, financial, political and social factors. Since the Fund may invest
heavily in securities denominated or quoted in currencies other than the United
States dollar, changes in foreign currency exchange rates may affect the value
of investments in the portfolio and the unrealized appreciation or depreciation
of investments insofar as United States investors are concerned. Changes in
foreign currency exchange rates relative to the U.S. dollar will affect the U.S.
dollar value of the Fund's assets denominated in that currency and the Fund's
yield on such assets. The rate of exchange between the dollar and other
currencies is determined by forces of supply and demand in the foreign exchange
markets. These forces are, in turn, affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation, and other factors. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. Also, many of the
securities held by the Fund will not be registered with the Securities and
Exchange Commission nor will the issuers thereof be subject to the reporting
requirements of such agency.
    
 
   
    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 to which United States entities are subject. As
a result, traditional investment measurements such as price earnings ratios, as
used in the United States, may not be applicable in certain capital markets.
Certain foreign investments may be subject to foreign withholding taxes.
Investors will be able to deduct such taxes in computing their taxable income or
to use such amounts as credits against their United States income taxes if more
than 50% of the Fund's total assets at the close of any taxable year consists of
stock or securities in foreign corporations. See "Additional
Information--Taxes."
    
 
   
    Foreign capital markets, while growing in volume, typically have
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. Brokerage commissions, custodial services, and
other costs relating to investment in foreign capital markets are generally more
expensive than in the United States. Foreign markets also have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Further,
satisfactory custodial services for investment securities may not be available
in some countries, which may result in the Fund incurring additional costs and
delays in transporting and custodying such securities outside such
    
 
                                       10
<PAGE>
   
countries. 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. Brokerage commissions and other 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,
brokers and issuers in foreign countries than there is in the United States.
    
 
   
    The Fund has made, and may continue to make, substantial investments in the
utility securities of issuers in Latin America, the Far East, and other lesser
developed capital markets. The risks of investment in foreign securities
described above tend to be particularly significant when investing in lesser
developed capital markets.
    
 
    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
because the expenses of the Fund, such as custodial and brokerage costs, are
higher.
 
   
    Some countries prohibit or impose substantial restrictions on investment in
their capital markets, particularly their equity markets, by foreign entities
such as the Fund. As illustrations, certain countries require governmental
approval prior to investment by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company which may
have less advantageous terms than securities of the company available for
purchase by nationals.
    
 
   
    Hedging Strategies. 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 and debt markets and
exchange rates between currencies by the use of options, futures and options
thereon. Utilization of options and futures transactions involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are the subject of
the hedge. Options and futures transactions in foreign markets are also subject
to the risk factors associated with foreign investments generally, as discussed
above. There can be no assurance that a liquid secondary market for options and
futures contracts will exist at any specific time. See "Investment Objective and
Policies--Portfolio Strategies Involving Options and Futures."
    
 
   
    Other. The net asset value of the Fund's shares will be affected by changes
in the general level of interest rates. When interest rates decline, the value
of a portfolio of debt and equity securities of utility companies can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
of debt and equity securities of utility companies can be expected to decline.
    
 
   
    Because of its emphasis on securities of companies in the utilities
industries, the Fund should be considered a vehicle for diversification and not
as a balanced investment program.
    
 
                                       11
<PAGE>
                       INVESTMENT OBJECTIVE AND POLICIES
 
   
    The Fund is a diversified, open-end management investment company. The
Fund's investment objective is to seek both 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 which are, in the opinion of
the Manager, primarily engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity, telecommunications, gas or
water. This objective is a fundamental policy which the Fund may not change
without a vote of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act"). There can be no assurance that the Fund's investment objective
will be achieved. The Fund may employ a variety of instruments and techniques to
enhance income and to hedge against market and currency risk, as described below
under "Portfolio Strategies Involving Options and Futures."
    
 
   
    The Fund at all times, except during temporary defensive periods, will
maintain at least 65% of its total assets invested in equity and debt securities
issued by domestic and foreign companies in the utilities industries. 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. Under normal circumstances, the Fund will invest at least 65% of
its total assets in issuers domiciled in at least three countries, one of which
may be the United States, although the Manager expects the Fund's portfolio to
be more geographically diversified. Under normal conditions, it is anticipated
that the percentage of assets invested in U.S. securities will be higher than
that invested in securities of any other single country. It is possible that at
times the Fund may have 65% or more of its total assets invested in foreign
securities. Certain foreign investments may be subject to foreign withholding
taxes. Investors will be able to deduct such taxes in computing their taxable
income or to use such amounts as credits against their United States income
taxes if more than 50% of the Fund's total assets at the close of any taxable
year consists of stock or securities in foreign corporations. See "Additional
Information--Taxes."
    
 
    The Fund will invest in common stocks (including preferred or debt
securities convertible into common stocks), preferred stocks and debt
securities. The relative weightings among common stocks, debt securities and
preferred stocks will vary from time to time based upon the Manager's judgment
of the extent to which investments in each category will contribute to meeting
the Fund's investment objective. Fixed income securities in which the Fund will
invest generally will be limited to those rated investment grade, that is, rated
in one of the four highest rating categories by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's"), or deemed to be of
equivalent quality (i.e., securities rated at least BBB by S&P or Baa by
Moody's) in the judgment of the Manager. Securities rated Baa by Moody's are
described by it as having speculative characteristics and, according to S&P,
fixed income securities rated BBB normally exhibit adequate protection
parameters, although adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal.
The Fund's commercial paper investments at the time of purchase will be rated
"A-1" or "A-2" by S&P or "Prime-1" or "Prime-2" by Moody's or, if not rated,
will be of comparable quality as determined by the Directors of the Fund. The
Fund may also invest up to 5% of its total assets at the time of purchase in
fixed income securities having a minimum rating no lower than
 
                                       12
<PAGE>
Caa by Moody's or CCC by S&P. The Fund may, but need not, dispose of any
security if it is subsequently downgraded. For a description of ratings of debt
securities, see the Appendix to the Statement of Additional Information.
 
    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
because the expenses of the Fund, such as custodial and brokerage costs, are
higher.
 
    The Fund may invest in the securities of foreign issuers in the form of
American Depository Receipts ("ADRs"), European Depository 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 an American bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are receipts issued in Europe
which evidence a similar ownership arrangement. Generally, ADRs, which are
issued in registered form, are designed for use in the United States securities
markets, and EDRs, which are issued in bearer form, are designed for use in
European securities markets. The Fund may invest in ADRs and EDRs through both
sponsored and unsponsored arrangements. In a sponsored ADR or EDR arrangement,
the foreign issuer assumes the obligation to pay some or all of the depository's
transaction fees, whereas in an unsponsored arrangement the foreign issuer
assumes no obligations and the depository'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.
 
    A change in prevailing interest rates is likely to affect the Fund's net
asset value because prices of debt and equity securities of utility companies
tend to increase when interest rates decline and decrease when interest rates
rise.
 
UTILITY INDUSTRIES--DESCRIPTION AND RISKS
 
    Under normal circumstances, the Fund will invest at least 65% of its total
assets in common stocks (including preferred or debt securities convertible into
common stocks), debt securities and preferred stocks of domestic and/or foreign
companies in the utility industries. To meet its objective of current income,
the Fund may invest in domestic utility companies that pay higher than average
dividends, but have a lesser potential for capital appreciation. The average
dividend yields of common stocks issued by domestic utility companies
historically have significantly exceeded those of industrial companies' common
stocks, while the prices of domestic utility stocks have tended to be less
volatile than stocks of industrial companies. For certain periods, the total
return of utility companies' securities has underperformed that of industrial
companies' securities. There can be no assurance that positive relative returns
on utility securities will occur in the future. The Manager believes that the
average dividend yields of common stocks issued by foreign utility companies
have also historically exceeded those of foreign industrial companies' common
stocks. To meet its objective of capital appreciation, the Fund may invest in
foreign utility companies which pay lower than average dividends, but have a
greater potential for capital appreciation.
 
                                       13
<PAGE>
    The utility companies in which the Fund will invest include companies which
are, in the opinion of the Manager, primarily engaged in the ownership or
operation of facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water.
 
    Risks that are intrinsic to the utility industries include difficulty in
obtaining an adequate return on invested capital, difficulty in financing large
construction programs during an inflationary period, restrictions on operations
and increased cost and delays attributable to environmental considerations and
regulation, difficulty in raising capital in adequate amounts on reasonable
terms in periods of high inflation and unsettled capital markets, technological
innovations which may render existing plants, equipment or products obsolete,
the potential impact of natural or man-made disasters, increased costs and
reduced availability of certain types of fuel, occasionally reduced availability
and high costs of natural gas for resale, the effects of energy conservation,
the effects of a national energy policy and lengthy delays and greatly increased
costs and other problems associated with the design, construction, licensing,
regulation and operation of nuclear facilities for electric generation,
including, among other considerations, the problems associated with the use of
radioactive materials and the disposal of radioactive wastes. There are
substantial differences between the regulatory practices and policies of various
jurisdictions, and any given regulatory agency may make major shifts in policy
from time to time. There is no assurance that regulatory authorities will, in
the future, grant rate increases or that such increases will be adequate to
permit the payment of dividends on common stocks. Additionally, existing and
possible future regulatory legislation may make it even more difficult for these
utilities to obtain adequate relief. Certain of the issuers of securities of the
portfolio may own or operate nuclear generating facilities. Governmental
authorities may from time to time review existing policies, and impose
additional requirements governing the licensing, construction and operation of
nuclear power plants. Prolonged changes in climatic conditions can also have a
significant impact on both the revenues of an electric and gas utility as well
as the expenses of a utility, particularly a hydro-based electric utility.
 
    Utility companies in the United States and in foreign countries are
generally subject to regulation. In the United States, most utility companies
are regulated by state and/or federal authorities. Such regulation is intended
to ensure appropriate standards of service and adequate capacity to meet public
demand. Generally, prices are also regulated in the United States and in foreign
countries with the intention of protecting the public while ensuring that the
rate of return earned by utility companies is sufficient to allow them to
attract capital in order to grow and continue to provide appropriate services.
There can be no assurance that such pricing policies or rates of return will
continue in the future.
 
    The nature of regulation of the utility industries is evolving both in the
United States and in foreign countries. In recent years, changes in regulation
in the United States increasingly have allowed utility companies to provide
services and products outside their traditional geographic areas and lines of
business, creating new areas of competition within the industries. In some
instances, utility companies are operating on an unregulated basis. Because of
trends toward deregulation and the evolution of independent power producers as
well as new entrants to the field of telecommunications, non-regulated providers
of utility services have become a significant part of their respective
industries. The Manager believes that the emergence of competition and
deregulation will result in certain utility companies being able to earn more
than their traditional regulated rates of return, while others may be forced to
defend their core business from increased competition and may be less
profitable. The Manager seeks to
 
                                       14
<PAGE>
take advantage of favorable investment opportunities that may arise from these
structural changes. Of course, there can be no assurance that favorable
developments will occur in the future.
 
   
    Foreign utility companies are also subject to regulation, although such
regulations may or may not be comparable to that in the United States. Foreign
utility companies may be more heavily regulated by their respective governments
than utilities in the United States and, as in the U.S., generally are required
to seek government approval for rate increases. In addition, many foreign
utilities use fuels that may cause more pollution than those used in the United
States, which may require such utilities to invest in pollution control
equipment to meet any proposed pollution restrictions. Foreign regulatory
systems vary from country to country and may evolve in ways different from
regulation in the United States.
    

    
    The Fund's investment policies are designed to enable it to capitalize on
evolving investment opportunities throughout the world. For example, the rapid
growth of certain foreign economies will necessitate expansion of capacity in
the utility industries in those countries. Although many foreign utility
companies currently are government-owned, thereby limiting current investment
opportunities for the Fund, the Manager believes that, in order to attract
significant capital for growth, foreign governments are likely to seek global
investors through the privatization of their utility industries. Privatization,
which refers to the trend toward investor ownership of assets rather than
government ownership, is expected to occur in newer, faster-growing economies
and in mature economies. Of course, there is no assurance that such favorable
developments will occur or that investment opportunities in foreign markets for
the Fund will increase.
    
 
    The revenues of domestic and foreign utility companies generally reflect the
economic growth and developments in the geographic areas in which they do
business. The Manager will take into account anticipated economic growth rates
and other economic developments when selecting securities of utility companies.
The principal sectors of the global utility industries are discussed below.
 
   
    Electric. The electric utility industry consists of companies that are
engaged principally in the generation, transmission and sale of electric energy,
although many also provide other energy-related services. In recent years,
domestic electric utility companies, in general, have been favorably affected by
lower fuel and financing costs and the full or near completion of major
construction programs. In addition, many of these companies recently have
generated cash flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into unregulated
businesses. Some electric utilities have also taken advantage of the right to
sell power outside of their traditional geographic areas. Electric utility
companies have historically been subject to the risks associated with increases
in fuel and other operating costs, high interest costs on borrowings needed for
capital construction programs, costs associated with compliance with
environmental and safety regulations and changes in the regulatory climate. As
interest rates declined, many utilities refinanced high cost debt and in doing
so improved their fixed charges coverage. Regulators, however, lowered allowed
rates of return as interest rates declined and thereby caused the benefits of
the rate declines to be shared wholly or in part with customers.
    
 
    In the United States, the construction and operation of nuclear power
facilities is subject to increased scrutiny by, and evolving regulations of, the
Nuclear Regulatory Commission and state agencies having comparable jurisdiction.
Increased scrutiny might result in higher operating costs and
 
                                       15
<PAGE>
higher capital expenditures, with the risk that the regulators may disallow
inclusion of these costs in rate authorizations or the risk that a company may
not be permitted to operate or complete construction of a facility. In addition,
operators of nuclear power plants may be subject to significant costs for
disposal of nuclear fuel and for de-commissioning of such plants.
 
    In October 1993, S&P stiffened its debt-ratings formula for the electric
utility industry, stating that the industry is in long-term decline. In
addition, Moody's stated that it expected a drop in the next three years in its
average credit ratings for the industry. Reasons set forth for these outlooks
included slowing demand and increasing cost pressures as a result of competition
from rival providers.
 
   
    Telecommunications. The telecommunications industry today includes both
traditional telephone companies, with a history of broad market coverage and
highly regulated businesses, and cable companies, which began as small, lightly
regulated businesses focused on limited markets. Today these two historically
different businesses are converging in an industry which is trending toward
larger, competitive, national and international markets with an emphasis on
deregulation. Companies that distribute telephone services and provide access to
the telephone networks still comprise the greatest portion of this segment, but
non-regulated activities such as cellular telephone services, paging, data
processing, equipment retailing, computer software and hardware services are
becoming increasingly significant components as well. The presence of
unregulated companies in this industry and the entry of traditional telephone
companies into unregulated or less regulated businesses provide significant
investment opportunities with companies which may increase their earnings at
faster rates than had been allowed in traditional regulated businesses. Still,
increasing competition, technological innovations and other structural changes
could adversely affect the profitability of such utilities and the growth rate
of their dividends. Given mergers, certain marketing tests currently underway
and proposed legislation and enforcement changes, it is likely that both
traditional telephone companies and cable companies will soon provide a greatly
expanded range of utility services, including two-way video and informational
services to both residential, corporate and governmental customers.
    
 
   
    Gas. Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the United States, interstate transmission
companies are regulated by the Federal Energy Regulatory Commission, which is
reducing its regulation of the industry. Many companies have diversified into
oil and gas exploration and development, making returns more sensitive to energy
prices. In the recent decade, gas utility companies have been adversely affected
by disruptions in the oil industry and have also been affected by increased
concentration and competition. In the opinion of the Manager, however,
environmental considerations could improve the gas industry outlook in the
future. For example, natural gas is the cleanest of the hydrocarbon fuels, and
this may result in incremental shifts in fuel consumption toward natural gas and
away from oil and coal, even for electricity generation.
    
 
    Water. Water supply utilities are companies that collect, purify, distribute
and sell water. In the United States and around the world, the industry is
highly fragmented because most of the supplies are owned by local authorities.
Companies in this industry are generally mature and are experiencing little or
no per capita volume growth. In the opinion of the Manager, there may be
opportunities for certain companies to acquire other water utility companies and
for foreign acquisition of domestic companies.
 
                                       16
<PAGE>
The Manager believes that favorable investment opportunities may result from
consolidation of this segment.
 
    There can be no assurance that the positive developments noted above,
including those relating to privatization and changing regulation, will occur or
that risk factors other than those noted above will not develop in the future.
 
INVESTMENT OUTSIDE THE UTILITY INDUSTRIES
 
    The Fund is permitted to invest up to 35% of its assets in securities of
issuers that are outside the utility industries. Such investments may include
common stocks, debt securities or preferred stocks and will be selected to meet
the Fund's investment objective of both capital appreciation and current income.
These securities may be issued by either U.S. or non-U.S. companies. Some of
these issuers may be in industries related to utility industries and, therefore,
may be subject to similar risks. Securities that are issued by foreign companies
or are denominated in foreign currencies are subject to the risks outlined
above. See "Special and Risk Considerations."
 
    The Fund is also permitted to invest in securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities ("U.S. Government
Securities"). Such investments may be backed by the "full faith and credit" of
the United States, including U.S. Treasury bills, notes and bonds as well as
certain agency securities and mortgage-backed securities issued by the
Government National Mortgage Association ("GNMA"). The guarantees on these
securities do not extend to the securities' yield or value or to the yield or
value of the Fund's shares. Other investments in agency securities are not
necessarily backed by the "full faith and credit" of the United States, such as
certain securities issued by the Federal National Mortgage Association ("FNMA"),
the Federal Home Loan Mortgage Corporation, the Student Loan Marketing
Association and the Farm Credit Bank.
 
    The Fund may invest in securities issued or guaranteed by foreign
governments. Such securities are typically denominated in foreign currencies and
are subject to the currency fluctuation and other risks of foreign securities
investments outlined above. See "Special and Risk Considerations." The foreign
government securities in which the Fund intends to invest generally will consist
of obligations supported by national, state or local governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, including international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Examples include the International Bank for Reconstruction
and Development (the "World Bank"), the European Investment Bank, the Asian
Development Bank and the Inter-American Development Bank.

    
    Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units. An example of a multinational currency unit is the European
Currency Unit. A European Currency Unit represents specified amounts of the
currencies of certain of the member states of the European Economic Community.
Debt securities of quasi-governmental agencies are issued by entities owned by
either a national or local government or are obligations of a political unit
that is not backed by the national government's full faith and credit and
general taxing powers. Foreign government securities also include
mortgage-related securities issued or guaranteed by national or local
governmental instrumentalities including quasi-governmental agencies. Foreign
government securities will not be considered government securities for purposes
of determining the Fund's compliance with diversification and concentration
policies.
    
 
                                       17
<PAGE>
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 adverse movements in the equity, debt and currency markets.
The Fund has authority to write (i.e., sell) covered put and call options on its
portfolio securities, purchase put and call options on securities and engage in
transactions in stock index options, stock index futures and financial futures,
and related options on such futures. The Fund may also deal in forward foreign
exchange transactions and foreign currency options and futures, and related
options on such futures. Each of these portfolio strategies is described below.
Although certain risks are involved in options and futures transactions (as
discussed below and in "Risk Factors in Options and Futures Transactions"
below), the Manager believes that, because the Fund will (i) write only covered
options on portfolio securities, and (ii) engage in other options and futures
transactions only for hedging purposes, the options and futures portfolio
strategies of the Fund will not subject the Fund to the risks frequently
associated with the speculative use of options and futures transactions. While
the Fund's use of hedging strategies is intended to reduce the volatility of the
net asset value of Fund shares, the Fund's net asset value will fluctuate. There
can be no assurance that the Fund's hedging transactions will be effective.
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, debt and currency markets occur. Reference is made to the Statement of
Additional Information for further information concerning these strategies.
 
    Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A covered
call option is an option where the Fund in return for a premium gives another
party a right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. The principal reason for
writing call options is to attempt to realize, through the receipt of premiums,
a greater return than would be realized on the securities alone. By writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction. A closing purchase transaction cancels out the
Fund's position as the writer of an option by means of an offsetting purchase of
an identical option prior to the expiration of the option it has written.
Covered call options serve as a partial hedge against the price of the
underlying security declining.
 
    The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so long
as the Fund is obligated as the writer of the option it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S. Government
Securities or other high grade liquid debt or equity securities denominated in
U.S. dollars or non-U.S. currencies with a securities depository with a value
equal to or greater than the exercise price of the underlying securities. By
writing a put, the Fund will be obligated to purchase the underlying security at
a price that may be higher than the
 
                                       18
<PAGE>
market value of that security at the time of exercise for as long as the option
is outstanding. The Fund may engage in closing transactions in order to
terminate put options that it has written.
 
    Purchasing Options. The Fund is authorized to purchase put options to hedge
against a decline in the market value of its securities. By buying a put option
the Fund has a right to sell the underlying security at the exercise price, thus
limiting the Fund's risk of loss through a decline in the market value of the
security until the put option expires. The amount of any appreciation in the
value of the underlying security will be partially offset by the amount of the
premium paid for the put option and any related transaction costs. Prior to its
expiration, a put option may be sold in a closing sale transaction and profit or
loss from the sale will depend on whether the amount received is more or less
than the premium paid for the put option plus the related transaction costs. A
closing sale transaction cancels out the Fund's position as the purchaser of an
option by means of an offsetting sale of an identical option prior to the
expiration of the option it has purchased. In certain circumstances, the Fund
may purchase call options on securities held in its portfolio on which it has
written call options or on securities which it intends to purchase. The Fund may
also purchase put options on U.S. Treasury securities for the purpose of hedging
its portfolio of interest rate sensitive equity securities against the adverse
effects of anticipated movements in interest rates. The Fund will not purchase
options on securities (including stock index options discussed below) if as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
 
    Stock Index Options and Futures and Financial Futures. The Fund is
authorized to engage in transactions in stock index options and futures and
financial futures, and related options on such futures. The Fund may purchase or
write put and call options on stock indices to hedge against the risks of
market-wide stock price movements in the securities in which the Fund invests.
Options on indices are similar to options on securities except that on exercise
or assignment, the parties to the contract pay or receive an amount of cash
equal to the difference between the closing value of the index and the exercise
price of the option times a specified multiple. The Fund may invest in stock
index options based on a broad market index, e.g., the S&P 500 Index, or on a
narrow index representing an industry or market segment, e.g., the AMEX Oil &
Gas Index.
 
    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 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
connection with equity securities in which it invests and in financial futures
contracts in connection with the debt securities in which it invests.
Transactions by the Fund in stock index futures and financial futures are
subject to limitations as described below under "Restrictions on the Use of
Futures Transactions."
 
                                       19
<PAGE>
    The Fund may sell 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 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 purchases are made, an equivalent amount of 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 futures contract or the purchase of a
call option or the writing of a put option on a 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 also has authority to purchase and write call and put options on
futures contracts and stock indices 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 and stock indices rather than selling
the underlying futures contract in anticipation of a decrease in the market
value of its securities. Similarly, the Fund may purchase call options, or write
put options on futures contracts and stock indices, as a substitute for the
purchase of such futures to hedge against the increased cost resulting from an
increase in the market value of securities which the Fund intends to purchase.
The Fund may also purchase put options on futures contracts for U.S. Treasury
securities for the purpose of hedging its portfolio of interest rate sensitive
equity securities against the adverse effects of anticipated movements in
interest rates.
 
    The Fund may engage in options and futures transactions on U.S. and foreign
exchanges and in 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 and
multinational currency units 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 purchase or sale of one forward foreign currency for another currency with
respect to portfolio security positions denominated or quoted in such foreign
currency to offset the effect of an anticipated substantial appreciation or
depreciation, respectively, in the value of such currency relative
 
                                       20
<PAGE>
to the U.S. dollar. In this situation, the Fund also may, for example, enter
into a forward contract to sell or purchase a different foreign currency for a
fixed U.S. dollar amount where it is believed that the U.S. dollar value of the
currency to be sold or bought pursuant to the forward contract will fall or
rise, as the case may be, whenever there is a decline or increase, respectively,
in the U.S. dollar value of the currency in which portfolio securities of the
Fund are denominated (this practice being referred to as a "cross-hedge").
 
    The Fund will not speculate in forward foreign exchange. Hedging against a
decline in the value of a currency does not eliminate fluctuations in the prices
of portfolio securities or prevent losses if the prices of such securities
decline. Such transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be possible for the
Fund to hedge against a devaluation that is so generally anticipated that the
Fund is not able to contract to sell the currency at a price above the
devaluation level it anticipates.
 
    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 yen denominated security. In such
circumstances, for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of yen for dollars at a specified price
by a future date. To the extent the hedge is successful, a loss in the value of
the yen 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 yen for dollars at a specified price
by a future date (a technique called "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 yen 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. 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. Further, the Fund will segregate
at its custodian U.S. Government or other high quality securities having a
market value substantially representing any subsequent net decrease in the
market value of such hedged positions, including net positions with respect to
cross-currency hedges. The Fund may not incur potential net liabilities with
respect to currency and securities positions, including net liabilities with
respect to cross-currency
 
                                       21
<PAGE>
hedges, of more than 33 1/3% of its total assets from foreign currency options,
futures or related options and forward currency transactions.
 
    Restrictions on the Use of Futures Transactions. Under regulations of the
Commodity Futures Trading Commission ("CFTC"), the futures trading activities
described herein will not result in the Fund being deemed to be a "commodity
pool," as defined under such regulations, provided that the Fund adheres to
certain restrictions. In particular, the Fund may (i) purchase and sell futures
contracts and options thereon for bona fide hedging purposes, as defined under
CFTC regulations, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) the Fund may enter into
non-hedging transactions, provided that the Fund not enter into such 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 contract, thereby
insuring that the use of such futures is unleveraged.
 
    Restrictions on OTC Options. The Fund will engage in OTC options, including
over-the-counter stock index options, over-the-counter foreign currency options
and options on foreign currency futures, only with 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 pursuant to
which it will not purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such transaction, the sum of the market value of
OTC options currently outstanding which are held by the Fund, the market value
of the underlying securities covered by OTC call options currently outstanding
which were sold by the Fund and margin deposits on the Fund's existing OTC
options on futures contracts exceed 15% (10% to the extent required by certain
state laws) of the total assets of the Fund, taken at market value, together
with all other assets of the Fund which are illiquid or are not otherwise
readily marketable. However, if the OTC option is sold by the Fund to a primary
U.S. Government securities dealer recognized by the Federal Reserve Bank of New
York and 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
    
 
                                       22
<PAGE>
equal to the repurchase price less the amount by which the option is
"in-the-money" (i.e., current market value of the underlying security minus the
option's strike price). The repurchase price with the primary dealers is
typically a formula price which is generally based on a multiple of the premium
received for the option, plus the amount by which the option is "in-the-money."
This policy as to OTC options is not a fundamental policy of the Fund and may be
amended by the Directors of the Fund without the approval of the Fund's
shareholders. However, the Fund will not change or modify this policy prior to
the change or modification by the Commission staff of its 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 and movements in
the price of the securities 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
hedged securities or currencies, 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. This risk applies particularly to the Fund's use of cross-hedging, which
means that the security which is the subject of the hedged transaction is
different from the security being hedged. The successful use of options and
futures also depends on the Manager's ability to correctly predict price
movements in the market involved in a particular options or futures transaction.
To compensate for imperfect correlations, the Fund may purchase or sell stock
index options or futures contracts in a greater dollar amount than the hedged
securities if the volatility of the hedged securities is historically greater
than the volatility of the stock index options or futures contracts. Conversely,
the Fund may purchase or sell fewer stock index options or futures contracts if
the volatility of the price of the hedged securities is historically less than
that of the stock index options or futures contracts. The risk of imperfect
correlation generally tends to diminish as the maturity date of the stock index
option or futures contract approaches.
 
    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 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.
 
                                       23
<PAGE>
OTHER INVESTMENT POLICIES AND PRACTICES
 
    Portfolio Transactions. Since portfolio transactions may be effected on
foreign securities exchanges, the Fund may incur settlement delays on certain of
such exchanges. See "Special and Risk Considerations" above. Where possible, the
Fund will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their own
account. On occasion, securities may be purchased directly from the issuer. Such
portfolio securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. Securities firms may
receive brokerage commissions on certain portfolio transactions, including
options, futures and options on futures transactions and the purchase and sale
of underlying securities upon exercise of options. The Fund has no obligation to
deal with any broker in the execution of transactions in portfolio securities.
Under the Investment Company Act, persons affiliated with the Fund, including
Merrill Lynch, are prohibited from dealing with the Fund as a principal in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Commission. Affiliated persons of the Fund may
serve as its broker in transactions conducted on an exchange and in
over-the-counter transactions conducted on an agency basis. In addition,
consistent with the Rules of Fair Practice of the NASD, the Fund may consider
sales of shares of the Fund as a factor in the selection of brokers or dealers
to execute portfolio transactions for the Fund. It is expected that the majority
of the shares of the Fund will be sold by Merrill Lynch. Costs associated with
transactions in foreign securities are generally higher than with transactions
in United States securities, although the Fund will endeavor to achieve the best
net results in effecting such transactions.
 
    When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government Securities or
other high grade liquid debt or equity securities denominated in U.S. dollars or
non-U.S. currencies in an aggregate amount equal to the amount of its commitment
in connection with such purchase transactions.
 
   
    Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which may
be issued and sold to the Fund at the option of the issuer. The price and coupon
of the security is fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether or
not the security is ultimately issued, which is typically approximately 0.5% of
the aggregate purchase price of the security which the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price which
is considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale, will not exceed 15% (10% to
the extent required by certain state
    
 
                                       24
<PAGE>
   
laws) of its total assets taken at the time of acquisition of such commitment or
security. The Fund will at all times maintain a segregated account with its
custodian of cash, cash equivalents, U.S. Government Securities or other high
grade liquid debt or equity securities denominated in U.S. dollars or non-U.S.
currencies in an aggregate amount equal to the purchase price of the securities
underlying the commitment.
    
 
    There can be no assurance that the securities subject to a standby
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
 
    The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment fee.
In the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
 
   
    Repurchase Agreements. The Fund may invest in 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 in a specified
currency, 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 although it may be affected by currency fluctuations. In the case of
repurchase agreements, the prices at which the trades are conducted do not
reflect accrued interest on the underlying obligation. Such agreements usually
cover short periods, such as under one week. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured by
the securities transferred to the purchaser. In the case of a repurchase
agreement, as a 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 disposition of the collateral. In the event of a
default under such a repurchase agreement, instead of the contractual fixed
rate, 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. The Fund may not invest more
than 15% (10% to the extent required by certain state laws) of its total assets
in repurchase agreements maturing in more than seven days.
    
 
    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
 
                                       25
<PAGE>
and receive collateral in cash or securities issued or guaranteed by the United
States Government. Such collateral will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities.
This limitation is a fundamental policy, and it may not be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act. During the period of such
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 could experience delays
and costs in gaining access to the collateral and could suffer a loss to the
extent that the value of the collateral falls below the market value of the
borrowed securities.
 
   
    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 that 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 Directors has not determined to be liquid, if,
regarding all such securities, more than 15% of its total assets, taken at
market value, would be invested in such securities. Although not a fundamental
policy, the Fund will include OTC options and the securities underlying such
options (to the extent provided under "Portfolio Strategies Involving Options
and Futures--Restrictions on OTC Options", above) in calculating the amount of
its total assets subject to the limitation on illiquid securities. 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.
    
 
   
    The Fund may purchase, without regard to the above limitation, securities
that are not registered under Securities Act of 1933, as amended (the
"Securities Act") but that can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act, provided that the Fund's Board
of Directors, or the Manager pursuant to guidelines adopted by the Board,
continuously determines, based on the trading markets for the specific Rule 144A
security, that it is liquid. The Board of Directors, however, will retain
oversight and is ultimately responsible for the determinations. Since it is not
possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Board of Directors
will carefully monitor the Fund's investments in these securities, focusing on
such factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these securities.
    
 
   
    Investment Restrictions. The Fund's investment activities are subject to
further restrictions that are described in the Statement of Additional
Information. Investment restrictions and policies which are fundamental policies
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 (a) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(b) more than 50% of the outstanding shares). Among the Fund's more significant
investment policies, with respect to 75% of its total assets, the Fund may not
invest in the securities of any one issuer if, immediately after and as a result
of such investment, the value of the holdings of the Fund in the securities of
such issuer exceeds 5% of the Fund's total assets, taken at
    
 
                                       26
<PAGE>
   
market value, or the Fund owns more than 10% of the outstanding voting
securities of such issuer, except that such restriction shall not apply to
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. The Fund will concentrate in equity and debt securities
issued by domestic and foreign companies in the utilities industries. Other
fundamental policies include policies which restrict the issuance of senior
securities and limit bank borrowings. The Fund does not presently intend to make
any investment that would result in the Fund becoming subject to the provisions
of the Public Utility Holding Company Act of 1935 ("PUCA"). Non-fundamental
policies of the Fund (which maybe be changed by vote of the Board of Directors)
include policies which (i) prohibit investment in the securities of other
investment companies except to the extent permitted by applicable law, (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 the acquisition more than
15% of its total assets (or 10% to the extent required by state law) would be
invested in such securities and (iii) prohibit the Fund from borrowing money,
except from banks for extraordinary purposes or to meet redemptions in amounts
of up to 10% of its total assets. Securities purchased in accordance with Rule
144A under the Securities Act and determined to be liquid by the Board of
Directors are not subject to the 15% (or 10%) limitation set forth in clause
(ii). Although not a fundamental policy, the Fund will not purchase securities
while borrowings exceed 5% of its total assets. The Fund has no present
intention to borrow money in amounts exceeding 5% of its total assets. In
addition, although not a fundamental policy, the Fund will include OTC options
and the securities underlying such options in calculating the amount of its
total assets subject to the limitation set forth in clause (i) above. However,
as discussed above, the Fund may treat the securities it uses as cover for
written OTC options as liquid, and therefore, will be excluded from this
restriction, 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.
    
 
   
    Portfolio Turnover. The Manager will effect portfolio transactions without
regard to a holding period, if, in its judgment, such transactions are advisable
in light of a change in circumstance in general market, economic or financial
conditions. As a result of its investment policies, the Fund may engage in a
substantial number of portfolio transactions. 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 securities
whose maturities at the time of acquisition were one year or less) by the
monthly average value of the securities in the portfolio during the year. High
portfolio turnover involves correspondingly greater transaction costs in the
form of dealer spreads and brokerage commissions, which are borne directly by
the Fund. For the fiscal years ended November 30, 1994 and November 30, 1993,
the rate of portfolio turnover for the Fund was 17.02% and 8.92%, respectively.
    
 
                             MANAGEMENT OF THE FUND
 
BOARD OF DIRECTORS
 
    The Board of Directors of the Fund consists of six individuals, five of whom
are not "interested persons" of the Fund as defined in the Investment Company
Act. The Board of Directors of the Fund is responsible for the overall
supervision of the operations of the Fund and performs the various duties
imposed on the directors of investment companies by the Investment Company Act.
 
                                       27
<PAGE>
   
    The Directors of the Fund 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.
 
        CYNTHIA A. MONTGOMERY--Professor, Harvard Business School since 1989.
 
        CHARLES C. REILLY--Adjunct Professor, Columbia University 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 since 1982;
    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.
 
- ------------
 
* Interested person, as defined in the Investment Company Act, of the Fund.
 
MANAGEMENT AND ADVISORY ARRANGEMENTS
 
   
    The Manager, with offices at 800 Scudders Mill Road, Plainsboro, New Jersey
(mailing address: P.O. Box 9011, Princeton, New Jersey 08543-9011) acts as the
manager for the Fund and provides the Fund with management and investment
advisory services. The Manager is owned and controlled by ML & Co., a financial
services holding company and the parent of Merrill Lynch. The Manager or its
affiliate, FAM, acts as the manager for more than 130 other registered
investment companies. The Manager also offers portfolio management and portfolio
analysis services to individuals and institutions. As of February 28, 1995, the
Manager and FAM had a total of approximately $168.2 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 Board of Directors 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 Board of Directors.
 
    Walter D. Rogers is the portfolio manager for the Fund. Mr. Rogers is a Vice
President of the Manager and has been employed by the Manager in this capacity
since 1987. For the past five years, Mr. Rogers has acted as portfolio manager
of one or more other registered investment companies sponsored by the Manager,
and continues to act in such capacity.
 
    The Manager is obligated to perform certain administrative and management
services for the Fund and is obligated to provide all of the office space,
facilities, equipment and personnel necessary to perform its duties under the
Management Agreement.
 
                                       28
<PAGE>
   
    The Fund pays the Manager a monthly fee at the annual rate of 0.60% of the
average daily net assets of the Fund. In addition, the Management Agreement
obligates the Fund to pay certain expenses incurred in its operations including,
among other things, the investment advisory fee, legal and audit fees,
registration fees, unaffiliated Directors' 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. For the fiscal year ended
November 30, 1994, the fee paid by the Fund to the Manager was $3,831,948 (based
upon average net assets of approximately $638.9 million). At February 28, 1995,
the net assets of the Fund aggregated approximately $486.9 million. At this
level, the annual management fee would aggregate approximately $2.9 million. For
the fiscal year ended November 30, 1994, the ratio of total expenses to average
net assets was 0.86% for the Class A shares and 1.63% for the Class B shares.
For Class C and D shares for the period October 21, 1994 (commencement of
operations) to November 30, 1994, the ratio of total expenses to average net
assets was 1.60% for Class C shares and 1.08% for Class D shares.
    
 
TRANSFER AGENCY SERVICES
 
   
    Financial Data Services, Inc. (the "Transfer Agent"), which is a
wholly-owned subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant
to a transfer agency, dividend disbursing agency and shareholder servicing
agency agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer
Agency Agreement, the Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives
a fee of $11.00 per Class A and Class D shareholder account and $14.00 per Class
B and Class C shareholder account and is entitled to reimbursement for out-of-
pocket expenses incurred by it under the Transfer Agency Agreement. For the
fiscal year ended November 30, 1994, the total fee paid by the Fund to the
Transfer Agent was $781,265. At February 28, 1995, the Fund had 5,317 Class A
shareholder accounts, 40,714 Class B shareholder accounts, 149 Class C
shareholder accounts and 74 Class D shareholder accounts. At this level of
accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $631,383 plus out-of-pocket expenses.
    
 
REIMBURSEMENT FOR PORTFOLIO ACCOUNTING SERVICES
 
   
    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 November 30, 1994, the Fund
reimbursed the Manager $133,772 for accounting services.
    
 
   
CODE OF ETHICS
    
 
   
    The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act which incorporates the Code of Ethics of the
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.
    
 
                                       29
<PAGE>
   
    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 of 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
 
   
    Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Manager and Merrill Lynch, acts as the distributor of shares of the
Fund. 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. Different minimums may apply through the Merrill Lynch BlueprintSM
Program.
    
 
   
    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 the day the orders
are placed with the Distributor, provided the Distributor in turn receives
orders from the securities brokers prior to 30 minutes after the close of
business on the New York Stock Exchange on that day. If the purchase orders are
not received prior to 30 minutes after the close of business on the New York
Stock Exchange, such orders shall be deemed received on the next business day.
The Fund or the Distributor may suspend the continuous offering of the Fund's
shares of any class at any time in response to conditions in the securities
markets or otherwise and may thereafter resume such offering from time to time.
Any order may be rejected by the Distributor or the Fund. Neither the
Distributor nor the dealers are permitted to withhold placing orders to benefit
themselves by a price change. Merrill Lynch may charge its customers a
processing fee (presently $4.85) to confirm a sale of shares to such customers.
Purchases directly through the Fund's Transfer Agent are not subject to the
processing fee.
    
 
    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 shares of Class B and Class C
are sold to investors choosing the
 
                                       30
<PAGE>
   
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 4.
    
 
    Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, will be imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid. See "Distribution Plans" below. Each class has different exchange
privileges. See "Shareholder Services--Exchange Privilege."
 
    Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Fund. The distribution-related revenues paid
with respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
 
    The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System.
 
<TABLE>
<CAPTION>
                                                     ACCOUNT
                                                   MAINTENANCE    DISTRIBUTION
CLASS               SALES CHARGE(1)                    FEE            FEE         CONVERSION FEATURE
- ----------------------------------------------------------------------------------------------------
<S>     <C>                                        <C>            <C>            <C>
  A     Maximum 4.00% initial sales charge(2)(3)      No             No                   No
- ----------------------------------------------------------------------------------------------------
  B     CDSC for a period of 4 years, at a rate     0.25%           0.50%        B shares convert to
             of 4.0% during the first year,                                            D shares
            decreasing 1.0% annually to 0.0%                                     automatically after
                                                                                  approximately ten
                                                                                       years(4)
- ----------------------------------------------------------------------------------------------------
  C              1.0% CDSC for one year             0.25%           0.55%                 No
- ----------------------------------------------------------------------------------------------------
  D      Maximum 4.00% initial sales charge(3)      0.25%            No                   No
- ----------------------------------------------------------------------------------------------------
</TABLE>
 
                                                   (Footnotes on following page)
 
                                       31
<PAGE>
(Footnotes for preceding page)
- ------------
(1) Initial sales charges are imposed at the time of purchase as a percentage of
    the offering price. CDSCs may be imposed if the redemption occurs within the
    applicable CDSC time period. The charge will be assessed on an amount equal
    to the lesser of the proceeds of redemption or the cost of the shares being
    redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge
    Alternatives--Class A and Class D Shares--Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
    purchases of $1,000,000 or more may not be subject to an initial sales
    charge but instead will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
    retirement plans is modified. Also, Class B shares of certain other
    MLAM-advised mutual funds into which exchanges may be made have an
    eight-year conversion period. If Class B shares of the Fund are exchanged
    for Class B shares of another MLAM-advised mutual fund, the conversion
    period applicable to the Class B shares acquired in the exchange will apply,
    and the holding period for the shares exchanged will be tacked onto the
    holding period for the shares acquired.
 
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
 
    Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
 
    The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternative is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
 
<TABLE>
<CAPTION>
                                                                         SALES LOAD AS
                                                                          PERCENTAGE*        DISCOUNT TO
                                                       SALES LOAD AS      OF THE NET       SELECTED DEALERS
                                                      A PERCENTAGE OF       AMOUNT         AS PERCENTAGE OF
    AMOUNT OF PURCHASE                                OFFERING PRICE       INVESTED       THE OFFERING PRICE
- ---------------------------------------------------   ---------------    -------------    ------------------
<S>                                                   <C>                <C>              <C>
Less than $25,000..................................         4.00%             4.17%              3.75%
$25,000 but less than $50,000......................         3.75              3.90               3.50
$50,000 but less than $100,000.....................         3.25              3.36               3.00
$100,000 but less than $250,000....................         2.50              2.56               2.25
$250,000 but less than $1,000,000..................         1.50              1.52               1.25
$1,000,000 and over**..............................         0.00              0.00               0.00
</TABLE>
 
- ------------
 * Rounded to the nearest one-hundredth percent.
 
   
** The initial sales charge may be waived on Class A and Class D purchases of
   $1,000,000 or more made on or after October 21, 1994. If the sales charge is
   waived, such purchases will be subject to a CDSC of 1.0% if the shares are
   redeemed within one year after purchase. Class A purchases made prior to
   October 21, 1994 may be subject to a CDSC, in lieu of an initial sales
   charge, if the shares are redeemed within one year of purchase at the
   following rates: 1.00% on purchases of $1,000,000 to $2,500,000; 0.60% on
   purchases of $2,500,001 to $3,500,000; 0.40% on purchases of $3,500,001 to
   $5,000,000; and 0.25% on purchases of more than $5,000,000. The charge will
   be assessed on an amount equal to the lesser of the proceeds of redemption or
   the cost of the shares being redeemed. A sales charge of 0.75% will be
   charged on purchases of $1,000,000 or more of Class A or Class D shares by
   certain Employer Sponsored Retirement or Savings Plans.
    
 
   
    The Distributor may reallow discounts to such dealers and retain the balance
over such discounts. At times the Distributor may reallow the entire sales
charge to such dealers. Since securities dealers selling Class A and Class D
shares of the Fund will receive a concession equal to most of the sales charge,
they may be deemed to be underwriters under the Securities Act of 1933, as
amended (the "Securities Act"). During the fiscal year ended November 30, 1994,
the Fund sold 1,418,075 Class A shares for aggregate net proceeds of
$18,617,407. The gross sales charges for the sale of Class A shares
    
 
                                       32
<PAGE>
   
of the Fund for that year were $336,856, of which $19,018 and $317,838 were
received by the Distributor and Merrill Lynch, respectively. CDSCs of $468 were
received with respect to Class A shares for which the initial sales charge was
waived during the fiscal year ended November 30, 1994. During the period October
21, 1994 (commencement of operations for Class D shares) to November 30, 1994,
the Fund sold 35,477 Class D shares for aggregate net proceeds of $437,644. The
gross sales charges for the sale of Class D shares of the Fund for that period
were $6,159, of which $565 and $5,594 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, 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 D shares are offered at net asset value to an investor who has a
business relationship with a financial consultant who joined Merrill Lynch from
another investment firm within six months prior to the date of purchase if
certain conditions set forth in the Statement of Additional Information are met.
Class D shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies. Class D shares also are
offered at net asset value, without sales charge, to an investor who has a
business relationship with a Merrill Lynch financial consultant and who has (i)
 
                                       33
<PAGE>
invested in a mutual fund sponsored by a non-Merrill Lynch company for which
Merrill Lynch has served as a selected dealer and where Merrill Lynch has either
received or given notice that such arrangement will be terminated, or (ii)
invested in a mutual fund sponsored by a non-Merrill Lynch company for which
Merrill Lynch has not served as a selected dealer, if certain conditions set
forth in the Statement of Additional Information are met.
 
    Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
BlueprintSM Program.
 
    Additional information concerning these reduced initial sales charges,
including information regarding investments by Employee Sponsored Retirement or
Savings Plans, is set forth in the Statement of Additional Information.
 
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
 
    Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
 
    The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately ten years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares 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 as discussed below under
"Distribution Plans." In addition, Class B and Class C shares are subject to
distribution fees of 0.50% and 0.55%, respectively.
 
    Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
 
    Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares from its own funds. The combination of the CDSC and
the ongoing distribution fee facilitates the ability of the Fund to sell the
Class B and Class C shares without a sales charge being deducted at the time of
purchase.
 
    Approximately ten 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 eight years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable
 
                                       34
<PAGE>
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for the
shares acquired.
 
    Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations on
the Payment of Deferred Sales Charges" below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities.
 
    Class B shareholders of the Fund exercising the exchange privilege described
under "Shareholder Services--Exchange Privilege" will continue to be subject to
the Fund's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares acquired as a result of the exchange.
 
    Contingent Deferred Sales Charges--Class B Shares. Class B shares which are
redeemed within four years of purchase may be subject to a CDSC at the rates set
forth below charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
 
    The following table sets forth the rates of the Class B CDSC:
 
<TABLE>
<CAPTION>
                                                                                 CLASS B CDSC
                                                                                AS A PERCENTAGE
YEAR SINCE PURCHASE                                                            OF DOLLAR AMOUNT
  PAYMENT MADE                                                                 SUBJECT TO CHARGE
- ----------------------------------------------------------------------------   -----------------
<S>                                                                            <C>
0-1.........................................................................         4.00%
1-2.........................................................................         3.00%
2-3.........................................................................         2.00%
3-4.........................................................................         1.00%
4 and thereafter............................................................         0.00%
</TABLE>
 
   
    For the fiscal year ended November 30, 1994, the Distributor received CDSCs
of $1,469,812 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 from a
shareholder's account to another account will be assumed to be made in the same
order as a redemption.
 
   
    To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his 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.
    
 
                                       35
<PAGE>
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
2.0% (the applicable rate in the third year after purchase).
 
   
    The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an 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 which are rolled over into a Merrill Lynch or Merrill Lynch Trust Company
custodied IRA and held in such account at the time of redemption. The Class B
CDSC also is waived for any Class B shares which are purchased by a Merrill
Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan
managed by the MLAM Private Portfolio Group and held in such account at the time
of redemption. Additional information concerning the waiver of the Class B CDSC
is set forth in the Statement of Additional Information.
    
 
    Contingent Deferred Sales Charges--Class C Shares. Class C shares which are
redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a
percentage of the dollar amount subject thereto. The charge will be assessed on
an amount equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. Accordingly, no Class C CDSC will be imposed on increases
in net asset value above the initial purchase price. In addition, no Class C
CDSC will be assessed on shares derived from reinvestment of dividends or
capital gains distributions.
 
    In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the redemption is first
of shares held for over one year or shares acquired pursuant to reinvestment of
dividends or distributions and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of purchase. A transfer of shares
from a shareholder's account to another account will be assumed to be made in
the same order as a redemption.
 
   
    For the fiscal period October 21, 1994 (commencement of operations for Class
C shares) to November 30, 1994, the Distributor received no CDSCs with respect
to the redemption of Class C shares.
    
 
   
    Conversion of Class B Shares to Class D Shares. After approximately ten
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares 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
 
                                       36
<PAGE>
the Fund in a single account will result in less than $50 worth of Class B
shares being left in the account, all of the Class B shares of the Fund held in
the account on the Conversion Date will be converted to Class D shares of the
Fund.
 
    Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
 
    In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
 
    The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchasers of Class B shares ("Class B Retirement Plans").
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value per
share.
 
DISTRIBUTION PLANS
 
   
    The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each, a
"Distribution Plan") with respect to the account 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.
 
                                       37
<PAGE>
    The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.50% and
0.55%, respectively, of the average daily net assets of the Fund attributable to
the shares of the relevant class in order to compensate the Distributor and
Merrill Lynch (pursuant to a sub-agreement) for providing shareholder and
distribution services, and bearing certain distribution-related expenses of the
Fund, including payments to financial consultants for selling Class B and Class
C shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
 
   
    Prior to July 6, 1993, the Fund paid the Distributor an ongoing distribution
fee, accrued daily and payable monthly, at the annual rate of 0.75% of the
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 November 30, 1994, the Fund paid the Distributor
$4,239,815 (based on average net assets relating to the Class B shares of
approximately $565.3 million) pursuant to the Class B Distribution Plan, all of
which was paid to Merrill Lynch for providing account maintenance and
distribution-related services in connection with the Class B shares. For the
period October 21, 1994 (commencement of operations for Class C and Class D
shares) to November 30, 1994, the Fund paid the Distributor $88 (based on
average net assets relating to the Class C shares of approximately $100,697)
pursuant to the Class C Distribution Plan, all of which was paid to Merrill
Lynch for providing account maintenance and distribution-related services in
connection with the Class C shares. For the same period, the Fund paid the
Distributor $32 (based on average net assets relating to the Class D shares of
approximately $115,992) pursuant to the Class D Distribution Plan, all of which
was paid to Merrill Lynch for providing account maintenance-related services in
connection with the Class D shares. At February 28, 1995, the net assets of the
Fund subject to the Class B Distribution Plan aggregated approximately $432.2
million. At this net asset level, the annual fee payable pursuant to the Class B
Distribution Plan would aggregate approximately $3.2 million. At February 28,
1995, the net assets of the Fund subject to the Class C Distribution Plan
aggregated approximately $1.4 million. At this asset level, the annual fee
payable pursuant to the Class C Distribution Plan would aggregate approximately
$11,175. At February 28, 1995, the net assets of the Fund subject to the Class D
Distribution Plan aggregated approximately $1.0 million. At this asset level,
the annual fee payable pursuant to the Class D Distribution Plan would aggregate
approximately $2,584.
    
 
   
    The payments under the Distribution Plans are based upon a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred and, accordingly, distribution-
    
 
                                       38
<PAGE>
   
related revenues from the Distribution Plans may be more or less than
distribution-related expenses. Information with respect to the
distribution-related revenues and expenses is presented to the Directors for
their consideration in connection with their deliberations as to the continuance
of the Class B and Class C Distribution Plans. This information is presented
annually as of December 31 of each year on a "fully allocated accrual" basis and
quarterly on a "direct expense and revenue/cash" basis. On the fully allocated
accrual basis, revenues consist of the account maintenance fees, the
distribution fees, the CDSCs and certain other related revenues, and expenses
consist of financial consultant compensation, branch office and regional
operation center selling and transaction processing expenses, advertising, sales
promotion and marketing expenses, corporate overhead and interest expense. On
the direct expense and revenue/cash basis, revenues 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 for which
fully allocated accrual data is available, the fully allocated accrual expenses
incurred by the Distributor and Merrill Lynch since the Class B shares commenced
operations on December 28, 1990 exceeded fully allocated revenues for such
period by approximately $10,514,000 (approximately 2.4% of Class B net assets at
that date). For Class B shares as of December 31, 1994, direct cash revenues for
the same period exceeded direct cash expenses by $1,769,416 (.40% 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 for Class C shares) exceeded direct cash revenues by $2,592 (.27% of
Class C net assets at that date).
    
 
   
    The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and there is no
assurance that the Board of Directors of the Fund will approve the continuance
of the Distribution Plans from year to year. However, the Distributor intends to
seek annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class will not be used to subsidize the sale of shares of another class.
Payment of the distribution fee on Class B shares will terminate upon conversion
of those Class B shares into Class D shares as set forth under "Deferred Sales
Charge Alternatives--Class B and Class C Shares--Conversion of Class B Shares to
Class D Shares."
    
 
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
 
    The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the Fund's
distribution fee and the CDSC borne by the Class B and Class C shares, but not
the account maintenance fee. Charges are applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the aggregate of
distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible
gross sales of Class B shares and Class C shares, computed separately (defined
to exclude shares issued pursuant to dividend reinvestment and exchanges), plus
(2) interest on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). In connection with the
 
                                       39
<PAGE>
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 receive upon redemption all
dividends reinvested through the date of redemption. The value of shares at the
time of redemption may be more or less than the shareholder's cost, depending on
the market value of the securities held by the Fund at such time.
 
REDEMPTION
 
    A shareholder wishing to redeem shares may do so without charge by tendering
the shares directly to the Fund's Transfer Agent, Financial Data Services, Inc.,
Transfer Agency Mutual Fund Operations, P.O. Box 45289, Jacksonville, Florida
32232-5289. Redemption requests delivered other than by mail should be delivered
to Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484. Redemption requests
should not be sent to the Fund. 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. The
notice in either event requires the signatures of all persons in whose names the
shares are registered, signed exactly as their names appear on the Transfer
Agent's register or on the certificate, as the case may be. The signature(s) on
the notice must be guaranteed by an "eligible guarantor institution" as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, the
existence and validity of which may be verified by the Transfer Agent through
the use of industry publications. Notarized signatures are not sufficient. In
certain instances, the Transfer Agent may require additional documents, such as,
but not limited to, trust instruments, death certificates, appointments as
executor or administrator, or certificates of corporate authority. For
shareholders redeeming directly with the Transfer Agent, payment will be mailed
within seven days of receipt of a proper notice of redemption.
 
    At various times the Fund may be requested to redeem shares for which it has
not yet received good payment. The Fund may delay or cause to be delayed the
mailing of a redemption check until such time
 
                                       40
<PAGE>
as it has assured itself that good payment (e.g., cash or certified check drawn
on a United States bank) has been collected for the purchase of such shares.
Normally, this delay will not exceed 10 days.
 
REPURCHASE
 
   
    The Fund will repurchase shares through a shareholder's listed securities
dealer. The Fund normally will accept orders to repurchase shares by wire or
telephone from dealers for their customers at the net asset value next computed
after receipt of the order by the dealer, 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 foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any applicable
CDSC). Securities firms which do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its
customers a processing fee (presently $4.85) to confirm a repurchase of shares
to such customers. Redemptions 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. A shareholder whose order for repurchase is
rejected by the Fund, however, may redeem shares as set forth above.
 
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
 
    Shareholders who have redeemed their Class A or Class D shares have a
one-time privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds. The reinstatement privilege is a one-time privilege and
may be exercised by the Class A or Class D shareholder only the first time such
shareholder makes a redemption.
 
                              SHAREHOLDER SERVICES
 
    The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in its shares. Full
details as to each of such services, copies of the various plans described below
and instructions as to how to participate in the various plans and services, or
to change options with respect thereto, can be obtained from the Fund by calling
the telephone number on the cover page hereof or from the Distributor or Merrill
Lynch. Included in such services are the following:
 
                                       41
<PAGE>
INVESTMENT ACCOUNT
 
   
    Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gains distributions. The statements will also show any
other activity in the account since the preceding statement. Shareholders will
receive separate transaction confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment of ordinary
income dividends and long-term capital gains distributions. Shareholders may
make additions to their Investment Account at any time by mailing a check
directly to the Transfer Agent. Shareholders also may maintain their accounts
through Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch
brokerage account, an Investment Account in the transferring shareholder's name
will be opened automatically, without charge, at the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm or such shareholder
must continue to maintain an Investment Account at the Transfer Agent for those
Class A or Class D shares. Shareholders interested in transferring their Class B
or Class C shares from Merrill Lynch and who do not wish to have an Investment
Account maintained for such shares at the Transfer Agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the Transfer Agent.
Shareholders considering transferring a tax-deferred retirement account such as
an individual retirement account from Merrill Lynch to another brokerage firm or
financial institution should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of shares of the Fund, a
shareholder must either redeem the shares (paying any applicable CDSC) so that
the cash proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement account at Merrill Lynch for
those shares.
    
 
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
 
                                       42
<PAGE>
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 Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
 
    Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see "Shareholder Services--Exchange
Privilege" in the Statement of Additional Information.
 
    The Fund's exchange privilege is modified with respect to purchases of Class
A and Class D shares under the Merrill Lynch Mutual Fund Adviser Program
("MFA"). 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.
 
                                       43
<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
 
    All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund, without a sales charge, at the net
asset value per share next determined on the ex-dividend date of such dividends
and distributions. 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 or about the payment date.
Cash payments can also be directly deposited to the shareholder's bank account.
No CDSC will be imposed upon redemption of shares issued as a result of the
automatic reinvestment of dividends or capital gains distributions.
 
    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 being
transferred will not take delivery of shares of the Fund, the shareholder must
either redeem the shares (paying any applicable CDSC) so that the cash proceeds
can be transferred to the account at the new firm, or continue to maintain a
retirement account at Merrill Lynch for those shares.
 
SYSTEMATIC WITHDRAWAL PLANS
 
    A Class A or Class D shareholder may elect to receive systematic withdrawal
payments from such shareholder's Investment Account in the form of payments by
check or through automatic payment by direct deposit to such shareholder's bank
account on either a monthly or quarterly basis. A Class A or Class D shareholder
whose shares are held within a CMA(R), CBA(R) or Retirement Account may elect to
have shares redeemed on a monthly, bi-monthly, quarterly, semiannual or annual
basis through the Systematic Redemption Program, subject to certain conditions.
 
AUTOMATIC INVESTMENT PLANS
 
    Regular additions of Class A, Class B, Class C or Class D shares may be made
in an investor's Investment Account by prearranged charges of $50 or more to
such investor's regular bank account. Investors who maintain CMA(R) accounts may
arrange to have periodic investments made in the Fund in their CMA(R) account or
in certain related accounts in amounts of $100 or more through the CMA(R)
Automated Investment Program.
 
    Retirement Plans. Self-directed individual retirement accounts and other
retirement plans are available from Merrill Lynch. Under these plans,
investments may be made in the Fund and in certain of the other mutual funds
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. In
addition, eligible shareholders of the Fund may participate in a variety of
qualified employee benefit plans which are available from the Distributor. The
minimum initial purchase to establish any such plan is $100 and the minimum
subsequent purchase is $1.
 
                                       44
<PAGE>
                                PERFORMANCE DATA
 
    From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula specified by the Commission.
 
    Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including 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 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 generally will be lower than average annual total return data since
the average annual rates of return reflect compounding; aggregate total return
data generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time. In
advertisements directed to investors whose purchases are subject to waiver of
the CDSC in the case of Class B and Class C shares (such as investors in certain
retirement plans) or to reduced sales charges in the case of Class A and Class D
shares, performance data may take into account the reduced, and not the maximum,
sales charge or may not take into account the CDSC and therefore may reflect
greater total return since, due to the reduced sales charges or waiver of the
CDSC, a lower amount of expenses may be deducted. See "Purchase of Shares." The
Fund's total return may be expressed either as a percentage or as a dollar
amount in order to illustrate the effect of such total return on a hypothetical
$1,000 investment in the Fund at the beginning of each specified period.
 
    Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.
 
                                       45
<PAGE>
   
    On occasion, the Fund may compare its performance to the Financial
Times-Actuaries World Index, Financial Times-Actuaries Utility Index, Standard &
Poor's 500 Composite Stock Price Index, the Value Line Composite Index or the
Dow Jones Industrial Average, or to data contained in publications such as
Lipper Analytical Services, Inc., or performance data published by 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.
    
 
                             ADDITIONAL INFORMATION
 
DIVIDENDS AND DISTRIBUTIONS
 
    It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such net investment income are paid quarterly. All net
realized long-or short-term capital gains, if any, are distributed to the Fund's
shareholders at least annually. The per share dividends and distributions on
each class of shares will be reduced as a result of any account maintenance,
distribution and transfer agent 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 below whether they are reinvested in shares of the
Fund or received in cash. 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.
 
   
    Certain gains or losses attributable to foreign currency-related gains or
losses from certain of the Fund's investments may increase or decrease the
amount of the Fund's income available for distribution to shareholders. If such
losses exceed other income during a taxable year, (a) the Fund would not be able
to make any ordinary dividend distributions, and (b) distributions made before
the losses were realized would be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
tax basis in his Fund shares for Federal income tax purposes. For a detailed
discussion of the Federal tax considerations relevant to foreign currency
transactions, see "Additional Information--Taxes." If in any fiscal year the
Fund has net income from certain foreign currency transactions, such income will
be distributed at least annually.
    
 
    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. Dividends and distributions are taxable to
shareholders as described below whether they are reinvested in shares of any
portfolio or received in cash.
 
                                       46
<PAGE>
DETERMINATION OF NET ASSET VALUE
 
   
    Net asset value of the shares of all classes of the Fund is determined once
daily as of 15 minutes after the close of business on the New York Stock
Exchange (generally 4:00 P.M. New York time) on each day during which the New
York Stock Exchange is open. Any assets or liabilities initially expressed in
terms of non-U.S. dollar currencies will be translated into U.S. dollars at the
prevailing market rates as quoted by one or more banks or dealers on the day of
valuation. 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.
Expenses, including the fees payable to the Manager and any account maintenance
and/or distribution fees payable to the Distributor, are accrued daily. The per
share net asset value of Class A shares generally will be higher than the per
share net asset value of shares of the other classes, reflecting the daily
expense accruals of the account maintenance, distribution and higher transfer
agency fees applicable with respect to the Class B and Class C shares and the
daily expense accruals of the account maintenance fees applicable with respect
to Class D shares; moreover, the per share net asset value of Class D shares
generally will be higher than the per share net asset value of Class B and Class
C shares, reflecting the daily expense accruals of the distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares. It
is expected, however, that the per share net asset value of the classes will
tend to converge (although not necessarily meet) immediately after the payment
of dividends or distributions, which will differ by approximately the amount of
the expense accrual differentials between the classes. The Fund employs Merrill
Lynch Securities Pricing Service ("MLSPS"), an affiliate of the Manager, to
provide certain securities prices for the Fund. The Fund paid fees to MLSPS in
the amount of $829 for the fiscal year ended November 30, 1994.
    
 
   
    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. 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. 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 market value, as determined in good faith by or
under the direction of the Board of Directors of the Fund, including valuations
furnished by a pricing service retained by the Fund.
    
 
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, in any taxable year in
which it distributes at least 90% of its taxable net income, the Fund (but not
its shareholders) will not be subject to Federal income tax to the extent that
it distributes its net investment income and 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.
 
                                       47
<PAGE>
    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.
 
    Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market, from futures contracts
that are not "regulated futures contracts" and from unlisted options will
generally be treated as ordinary income or loss. Such 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.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing each shareholder's basis in his Fund
shares.
 
    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 amount of any ordinary income dividends or capital gains
dividends. A portion of the Fund's ordinary income dividends may be eligible for
the 70% 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 date in such month, then such dividend or distribution will be treated for
tax purposes as being paid by the RIC and received by its shareholders on
December 31 of the year in which the dividend was declared.
 
    Redemptions and exchanges of Fund shares are taxable events, and,
accordingly, shareholders may realize gains or losses on such transactions.
Under the Code, if a shareholder exercises the exchange privilege within 90 days
of acquiring Class A shares of the Fund to acquire shares in a second fund ("New
Fund"), then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent the charge paid to the Fund
reduces any charge the shareholder would have owed upon purchase of the New Fund
shares in the absence of the exchange privilege. Instead, such charges will be
treated as an amount paid for the New Fund shares and will be included in the
basis of such shares. See "Shareholder Services--Exchange Privilege."
 
    Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provisions of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
 
    Pursuant to the investment objectives of the Fund, the Fund may invest in
foreign securities. Dividends and interest received by the Fund with respect to
these investments may give rise to withholding and other taxes imposed by
foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders may be able to claim
United States foreign tax credits with respect to such taxes, subject to certain
provisions and limitations
 
                                       48
<PAGE>
contained in the Code. If more than 50% in value of the Fund's total assets at
the close of its taxable year consists of stock or securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of the Fund will be
required to include their proportionate share of such withholding taxes in their
United States income tax returns as gross income, treat such proportionate share
as taxes paid by them, and deduct such proportionate share in computing their
taxable income or, alternatively, use them as foreign tax credits against their
United States income taxes. The Fund will report annually to its shareholders
the amount per share of such withholding taxes. Please note that foreign tax
credits cannot be claimed on the investments of foreign securities held in the
Fund by certain retirement accounts.
 
    Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom 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 he is not
otherwise subject to backup withholding.

    
    No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period for the converted Class B shares.
    
 
    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 these 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 advisers as to whether any portion
of the dividends they receive from the Fund is exempt from state income tax and
as to any other specific questions as to Federal, foreign, state or local taxes.
Foreign investors should consider applicable foreign taxes in their evaluation
of an investment in the Fund.
 
ORGANIZATION OF THE FUND
 
    The Fund was incorporated under Maryland law on September 26, 1990. It has
an authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of
 
                                       49
<PAGE>
100,000,000 shares. Class A, Class B, Class C and Class D Common Stock represent
interests in the same assets of the Fund and are identical in all respects
except that Class B, Class C and Class D shares bear certain expenses related to
the account maintenance associated with such shares, and Class B and Class C
shares bear certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating to account
maintenance and distribution expenditures, as applicable. See "Purchase of
Shares." The Fund has received an order from the Commission permitting the
issuance and sale of multiple classes of Common Stock. The Board of Directors of
the Fund may classify and reclassify the shares of the Fund into additional
classes of Common Stock at a future date.

    
    Shareholders are entitled to one vote for each full share held and to
fractional votes for fractional shares held in the election of Directors (to the
extent hereafter provided) and on other matters submitted to the vote of
shareholders. All shares of the Fund have equal voting rights, except, as noted
above, a class of shares will have exclusive voting rights with respect to
matters relating to the account maintenance and distribution expenses being
borne solely by such class. There normally will be no meeting of shareholders
for the purpose of electing Directors unless and until such time as less than a
majority of the Directors holding office have been elected by the shareholders,
at which time the Directors then in office will call a shareholders' meeting for
the election of Directors. Shareholders may, in accordance with the terms of the
Articles of Incorporation, cause a meeting of shareholders to be held for the
purpose of voting on the removal of Directors. Also, the Fund will be required
to call a special meeting of shareholders in accordance with the requirements of
the Investment Company Act to seek approval of new management and advisory
arrangements, of a material increase in distribution or account maintenance fees
or of a change in fundamental policies, objectives or restrictions. Except as
set forth above, the Directors shall continue to hold office and appoint
successor Directors. Each issued and outstanding share is entitled to
participate equally in dividends and distributions declared and in net assets
upon liquidation or dissolution remaining after satisfaction of outstanding
liabilities except that, as noted above, the Class B, Class C and Class D shares
bear certain additional expenses. Shares issued are fully paid and
non-assessable by the Fund and have no pre-emptive rights. Shares have the
conversion rights described in this Prospectus. Voting rights for Directors are
not cumulative.
    
 
SHAREHOLDER INQUIRIES
 
    Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
 
SHAREHOLDER REPORTS
 
    Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
 
                       Financial Data Services, Inc.
                       Attn: TAMFO
                       P.O. Box 45289
                       Jacksonville, Florida 32232-5289
 
    The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch and/or mutual fund account numbers. If
you have any questions regarding this please call your Merrill Lynch financial
consultant or Financial Data Services, Inc. at 800-637-3863.
 
                                       50
<PAGE>
                   MERRILL LYNCH GLOBAL UTILITY FUND, INC.--
                          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 Global Utility Fund, Inc. and establish an Investment Account
as described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
 
  Basis for establishing an Investment Account:
 
  A. I enclose a check for $  ......... payable to Financial Data Services,
Inc., as an initial investment (minimum $1,000). I understand that this purchase
will be executed at the applicable offering price next to be determined after
this Application is received by you.
 
  B. I already own shares of the following Merrill Lynch mutual funds that would
qualify for the right of accumulation as outlined in the Statement of Additional
Information: (Please list all funds. Use a separate sheet of paper if
necessary.)
 
1......................................  4......................................

2......................................  5......................................

3......................................  6......................................
 
Name ...........................................................................
                 First Name                 Initial                 Last Name
 
Name of Co-Owner (if any) ......................................................
                            First Name              Initial            Nast Name
 
Address .............................

 ....................................
                          (Zip Code)    Name and Address of Employer............

Occupation...........................   ........................................

 .....................................   ........................................

 .....................................   ........................................
        Signature of Owner                     Signature of Co-Owner (if any)

(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)

- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS

Ordinary Income Dividends                          Long-Term Capital Gains
- -------------------------                          -----------------------
Select   / / Reinvest                              Select   / / Reinvest
One:    / / Cash                                   One:    / / Cash
- -------------------------                          -----------------------

If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
 
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU:   / / Check
or    / / Direct Deposit to bank account
 
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
 
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Global Utility Fund, Inc. Authorization Form.
 
SPECIFY TYPE OF ACCOUNT (CHECK ONE): / / checking / / savings
 
Name on your Account............................................................
 
Bank Name.......................................................................
 
Bank Number ..........................  Account Number .........................
 
Bank Address....................................................................
 
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING THIS
SERVICE.
 
Signature of Depositor..........................................................
 
Signature of Depositor ................................. Date...................
(If joint account, both must sign)
 
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
      MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY
      THIS APPLICATION.
 
                                       51
<PAGE>
                   MERRILL LYNCH GLOBAL UTILITY FUND, INC.--
                    AUTHORIZATION FORM (PART 1)--(CONTINUED)
- --------------------------------------------------------------------------------
 
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
                   --------------------------
                   --------------------------
            Social Security Number or Taxpayer Identification Number
 
   Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
"Additional Information--Taxes") either because I have not been notified that I
am subject thereto as a result of a failure to report all interest or dividends,
or the Internal Revenue Service ("IRS") has notified me that I am no longer
subject thereto.
 
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
 
 .......................................  .......................................
              Signature of Owner                 Signature of Co-Owner (if any)
 
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
   THE STATEMENT OF ADDITIONAL INFORMATION)
 
                                                   .................. , 19 .....
                                                        Date of Initial Purchase
   Dear Sir/Madam:
 
   Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Global Utility Fund, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which the Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13-month period which will
equal or exceed:
 
/ / $25,000         / / $50,000         / / $100,000         / / $250,000
/ / $1,000,000
 
   Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Global Utility Fund,
Inc. Prospectus.
 
   
   I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Global Utility 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...............................  (2) Name...............................
Account Number.........................  Account Number.........................
 
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
     Branch Office, Address, Stamp
                                       We hereby authorize Merrill Lynch Funds 
                                       Distributor, Inc. to act as our agent in 
                                       connection with transactions under this 
                                       authorization form and agree to notify 
                                       the Distributor of any purchases made 
                                       under a Letter of Intention or Systematic
                                       Withdrawal Plan. We guarantee the 
                                       shareholder's signature.

                                       .........................................
                                                 Dealer Name and Address
 
                                        By......................................
                                               Authorized Signature of Dealer
 
This form, when completed, should be 
  mailed to:
  Merrill Lynch Global Utility Fund, Inc.
  c/o Financial Data Services, Inc.
  Transfer Agency Mutual Fund Operations
  P.O. Box 45289                           / / / /    / / / / /    .............
  Jacksonville, Florida 32232-5289        Branch Code  F/C No.     F/C Last Name

                                          Dealer's Customer Account No.
                                          / / / /    / / / / / /
 
                                       52
<PAGE>
                   MERRILL LYNCH GLOBAL UTILITY FUND, INC.--
                          AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
 
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC
INVESTMENT PLANS ONLY.
 
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION                        ---------------------------------
Name of Owner..........................        ---------------------------------
                                                      Social Security Number
                                               or Taxpayer Identification Number
Name of Co-Owner (if any).............
                                             
Address...............................       Account Number.....................
                                             (if existing account)
 ....................................
 
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND 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 Global Utility
Fund, Inc. at cost or current offering price. Withdrawals to be made either
(check one) / / Monthly on the 24th day of each month, or / / Quarterly on the
24th day of March, June, September and December. If the 24th falls on a weekend
or holiday, the next succeeding business day will be utilized. Begin systematic
withdrawal on ________ (month) or as soon as possible thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): / / $_______
or / / ____% of the current value of
/ / Class A or / / Class D shares in the account.
 
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
 
   
DRAW CHECKS PAYABLE (CHECK ONE):
    
 
(a) I hereby authorize payment by check
 
    / / as indicated in Item 1.
    / / to the order of.........................................................
 
Mail to (check one)
 
    / / the address indicated in Item 1.
    / / Name (please print).....................................................
 
Address.........................................................................
 ...............................................................................
Signature of Owner.........................................Date ................
Signature of Co-Owner (if any)..................................................
 
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING
THIS SERVICE.
 
Specify type of account (check one): / / checking / / savings
   
Name on your Account............................................................
    
Bank Name.......................................................................
Bank Number ..........................  Account Number .........................
Bank Address....................................................................
 ...............................................................................
Signature of Depositor.....................................Date ................
Signature of Depositor..........................................................
(If joint account, both must sign)
 
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
 
                                       53
<PAGE>

                   MERRILL LYNCH GLOBAL UTILITY FUND, INC.--
                    AUTHORIZATION FORM (PART 2)--(CONTINUED)

- --------------------------------------------------------------------------------
 
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
 
   I hereby request that Financial Data Services, Inc. draw an automated
clearing house ("ACH") debit on my checking account as described below each
month to purchase: (choose one)
 
          / / Class A shares      / / Class B shares      / / Class C shares
          / / Class D shares
 
of Merrill Lynch Global Utility Fund, Inc. subject to the terms set forth below.
In the event that I am not eligible to purchase Class A shares, I understand
that Class D shares will be purchased.
 
                           FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Global Utility Fund, Inc. as indicated below: 

    Amount of each check of ACH debit $.........................................
    Account Number .............................................................

Please date and invest ACH debits on the 20th of each month beginning ..........
 ...... (month) or as soon thereafter as possible.
                                              
   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, Financial Data Services,
 
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 FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
                              (Investor's Bank)
Bank Address....................................................................
 
City ......................... State ......................... Zip Code ........

Account Number.................................................................

   
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 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.



                                      54


<PAGE>
                                    MANAGER

                         Merrill Lynch Asset Management
                            Administrative Offices:
                             800 Scudders Mill Road
                             Plainsboro, New Jersey
 
                                Mailing Address:
                                 P.O. Box 9011
                        Princeton, New Jersey 08543-9011

                                  DISTRIBUTOR

                     Merrill Lynch Funds Distributor, Inc.

                            Administrative Offices:
                             800 Scudders Mill Road
                             Plainsboro, New Jersey
 
                                Mailing Address:
                                 P.O. Box 9011
                        Princeton, New Jersey 08543-9011

                                   CUSTODIAN

                         The Chase Manhattan Bank, N.A.
                        4 Metro Tech Center, 18th Floor
                            Brooklyn, New York 11245

                                 TRANSFER AGENT

                         Financial Data Services, Inc.

                            Administrative Offices:
                     Transfer Agency Mutual Fund Operations
                           4800 Deer Lake Drive East
                        Jacksonville, Florida 32246-6484

                                Mailing Address:
                                 P.O. Box 45289
                        Jacksonville, Florida 32232-5289

                              INDEPENDENT AUDITORS

                             Deloitte & Touche LLP
                                117 Campus Drive
                          Princeton, New Jersey 08540

   
                                    COUNSEL
                   Shereff, Friedman, Hoffman & Goodman, LLP
                                919 Third Avenue
                            New York, New York 10022
    

<PAGE>
    NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
STATEMENT OF ADDITIONAL INFORMATION, 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
 
   
                                         PAGE
                                         ----
Fee Table.............................     2
Merrill Lynch Select PricingSM
System................................     4
Financial Highlights..................     8
Special and Risk Considerations.......    10
Investment Objective and Policies.....    12
Management of the Fund................    27
Purchase of Shares....................    30
  Initial Sales Charge Alternatives--
Class A and Class D Shares............    32
  Deferred Sales Charge Alternatives--
Class B and Class C Shares............    34
  Distribution Plans..................    37
  Limitations on the Payment of
Deferred Sales Charges................    39
Redemption of Shares..................    40
  Redemption..........................    40
  Repurchase..........................    41
  Reinstatement Privilege--Class A and
Class D Shares........................    41
Shareholder Services..................    41
Performance Data......................    45
Additional Information................    46
  Dividends and Distributions.........    46
  Determination of Net Asset Value....    47
  Taxes...............................    47
  Organization of the Fund............    49
  Shareholder Inquiries...............    50
  Shareholder Reports.................    50
Authorization Form....................    51
                            Code #11281-0395
    
- -----------------------------------------------------------------------

   


        [LOGO]

        Merrill Lynch
        Global Utility
        Fund, Inc.


       [INSERT ART HERE]


        PROSPECTUS

        March 28, 1995

        Distributor:
        Merrill Lynch
        Funds Distributor, Inc.

        This prospectus should be
        retained for future reference.

    


<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
 
                    MERRILL LYNCH GLOBAL UTILITY FUND, INC.
   P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
 
                              -------------------

    Merrill Lynch Global Utility Fund, Inc. (the "Fund") is a diversified mutual
fund seeking both 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 which are, in the opinion of Merrill Lynch Asset
Management, L.P. (the "Manager" or "MLAM"), primarily engaged in the ownership
or operation of facilities used to generate, transmit or distribute electricity,
telecommunications, gas or water. There can be no assurance that the Fund's
investment objective will be achieved. The Fund may employ a variety of
instruments and techniques to enhance income and to hedge against market and
currency risk.

    Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes is
most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances.
 
                              -------------------
 
   
    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 March 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.
    
 
                              -------------------
 
                    MERRILL LYNCH ASSET MANAGEMENT--MANAGER
 
               MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
 
                              -------------------
 
   
    The date of this Statement of Additional Information is March 28, 1995.
    

<PAGE>
                       INVESTMENT OBJECTIVE AND POLICIES
 
    The Fund is a diversified, open-end management investment company. The
Fund's investment objective is to seek both 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 which are, in the opinion of
the Manager, primarily engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity, telecommunications, gas or
water. This objective is a fundamental policy which the Fund may not change
without a vote of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act"). There can be no assurance that the Fund's investment objective
will be achieved. The Fund may employ a variety of instruments and techniques to
enhance income and to hedge against market and currency risk, as described under
"Portfolio Strategies Involving Options and Futures" below.
 
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, debt and currency markets. The Fund has authority to
write (i.e., sell) covered put and call options on its portfolio securities,
purchase put and call options on securities and engage in transactions in stock
index options, stock index futures and stock futures and financial futures, and
related options on such futures. The Fund may also deal in forward foreign
transactions and foreign currency options and futures, and related options on
such futures. Each of such portfolio strategies is described in the Prospectus.
Although certain risks are involved in options and futures transactions (as
discussed in the Prospectus and below), the Manager believes that, because the
Fund will (i) write only covered 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. The following is further information relating to
portfolio strategies involving options and futures the Fund may utilize.
 
    Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A covered
call option is an option where the Fund, in return for a premium, gives another
party a right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. 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
 
                                       2
<PAGE>

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.
 
   
    The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so long
as the Fund is obligated as the writer of the option it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S. Government
securities or other high-grade liquid debt or equity securities denominated in
U.S. dollars or non-U.S. currencies with a securities depository with a value
equal to or greater than the exercise price of the underlying securities. By
writing a put, the Fund will be obligated to purchase the underlying security at
a price that may be higher than the market value of that security at the time of
exercise for as long as the option is outstanding. The Fund may engage in
closing transactions in order to terminate put options that it has written.
    
 
    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, New York Stock Exchange, Philadelphia Stock Exchange, Pacific Stock
Exchange and Midwest Stock Exchange. Options referred to herein and in the
Fund's Prospectus may also be options traded on foreign securities exchanges
such as the London Stock Exchange and the Amsterdam Stock Exchange. An option
position may be closed out only on an exchange which provides a secondary market
for an option of the same series. If a secondary market does not exist, it might
not be possible to effect closing transactions in particular options, with the
result, in the case of a covered call option, that the Fund will not be able to
sell the underlying security until the option expires or 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.
 
                                       3
<PAGE>
    The Fund may also enter into over-the-counter 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 are illiquid securities.
 
    Purchasing 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. In certain circumstances, the Fund may purchase
call options on securities held in its portfolio on which it has written call
options or on securities which it intends to purchase. The Fund may purchase
either exchange traded options or OTC options. The Fund may also purchase put
options on U.S. Treasury securities for the purpose of hedging its portfolio of
interest rate sensitive equity securities against the adverse effects of
anticipated movements in interest rates. The Fund will not purchase options on
securities (including stock index options discussed below) if as a result of
such purchase, the aggregate cost of all outstanding options on securities held
by the Fund would exceed 5% of the market value of the Fund's total assets.
 
    Stock Index Options and Futures and Financial Futures. 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.
The Fund may also purchase put options on futures contracts for U.S. Treasury
securities for the purpose of hedging its portfolio of interest rate sensitive
equity securities against the adverse effects of anticipated movements in
interest rates. 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 as "contracts markets" by
the Commodities 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"
 
                                       4
<PAGE>

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.
 
    An order has been obtained from the Commission exempting the Fund from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act in
connection with its strategy of investing in futures contracts. Section 17(f)
relates to the custody of securities and other assets of an investment company
and may be deemed to prohibit certain arrangements between the Fund and
commodities brokers with respect to initial and variation margin. Section 18(f)
of the Investment Company Act prohibits an open-end investment company such as
the Fund from issuing a "senior security" other than a borrowing from a bank.
The staff of the Commission has in the past indicated that a futures contract
may be a "senior security" under the Investment Company Act.
 
    Restrictions on Use of Futures Transactions. Regulations of the CFTC
applicable to the Fund permit the Fund's futures and options on futures
transactions to include (i) bona fide hedging transactions without regard to the
percentage of the Fund's assets committed to margin and option premiums, and
(ii) non-hedging transactions, provided that the Fund 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 of
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 one tenth 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
 
                                       5
<PAGE>

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 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
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 yen-denominated security. In such
circumstances, for example, the Fund may purchase a foreign currency put option
enabling it to sell a specified amount of Japanese yen for dollars at a
specified price by a future date. To the extent the hedge is successful, a loss
in the value of the yen relative to the dollar will tend to be offset by an
increase in the value of the put option. To offset, in whole or 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 yen 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 yen 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
price of options and futures and movements in the price of the securities or
currencies which is the subject of the hedge. If the price of the options and
 
                                       6
<PAGE>

futures moves more or less than the price of the hedged securities or currency,
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. This risk applies
particularly to the Fund's use of cross-hedging, which means that the security
which is the subject of the hedged transaction is different from the security
being hedged. The successful use of options and futures also depends on the
Manager's ability to correctly predict price movements in the market involved in
a particular options or futures transaction.
 
    Prior to exercise or expiration, an exchange-traded option or futures
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 over-the-counter 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.
 
    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. 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
 
   
    When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase securities on a when-issued basis, and it may purchase or sell
securities for delayed delivery. These transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the
future to secure what is considered an advantageous yield and price to the Fund
at the time of entering into the transaction. Although the Fund has not
established any limit on the percentage of its assets that may be committed in
connection with such transactions, the Fund will maintain a segregated account
with its custodian of cash, cash equivalents, U.S. Government securities or
other high-grade liquid debt
    
 
                                       7
<PAGE>
or equity securities denominated in U.S. dollars or non-U.S. currencies in an
aggregate amount equal to the amount of its commitment in connection with such
purchase transactions.
 
   
    Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed income security which may
be issued and sold to the Fund at the option of the issuer. The price and coupon
of the security is fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether or
not the security is ultimately issued, which is typically approximately 0.5% of
the aggregate purchase price of the security which the Fund has committed to
purchase. The Fund will enter into such agreement only for the purpose of
investing in the security underlying the commitment at a yield and price which
is considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale, will not exceed 15% (10% to
the extent required by certain state laws) of its total assets taken at the time
of acquisition of such commitment or security. The Fund will at all times
maintain a segregated account with its custodian of cash, cash equivalents, U.S.
Government securities or other high-grade liquid debt or equity securities
denominated in U.S. dollars or non-U.S. currencies in an aggregate amount equal
to the purchase price of the securities underlying the commitment.
    
 
    There can be no assurance that the securities subject to a standby
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of a decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.
 
    The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment fee.
In the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
 
   
    Repurchase Agreements. The Fund may invest in 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 in a specified
currency, 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 although it may be affected by currency fluctuations. In the case of
repurchase agreements, the prices at which the trades are conducted do not
reflect the accrued interest on the underlying obligations. Such agreements
usually cover short periods, often 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. In the case of a repurchase
agreement, as a 
    
 
                                       8
<PAGE>

   
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 constitute only
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 will depend on 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. The Fund may not invest more than 15%
(10% to the extent required by certain state laws) of its total assets in
repurchase agreements maturing in more than seven days.
    
 
   
    Lending of Portfolio Securities. 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 loan 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. With respect to the lending of portfolio securities, there is the risk of
failure by the borrower to return the securities involved in such transactions.
    
 
   
    Illiquid Securities. The Fund may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 as amended
(the "Securities Act"), but can be offered and sold to "qualified institutional
buyers" under Rule 144A under the Securities Act. However, the Fund will not
invest more than 15% of its total assets in illiquid investments (or 10% to the
extent required by state law), which includes securities for which there is no
readily available market, securities subject to contractual restrictions on
resale, certain investments in asset-backed and receivable-backed securities and
restricted securities, unless the Fund's Board of Directors continuously
determines, based on the trading markets for the specific restricted security,
that it is liquid. The Board of Directors may adopt guidelines and delegate to
the Manager the daily function of determining and monitoring liquidity of
restricted securities. The Board of Directors, however, will retain sufficient
oversight and be ultimately responsible for the determinations.
    
 
   
    The Board of Directors monitors the Fund's investments in these securities
purchased pursuant to Rule 144A, focusing on such factors, among others, as
valuation, liquidity and availability of information. These investments in
securities purchased pursuant to Rule 144A could have the effect of increasing
the level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
    
 
                                       9
<PAGE>

   
    High Yield-High Risk Bonds. Fixed income securities in which the Fund will
invest generally will be limited to those rated investment grade; that is, rated
in one of the four highest rating categories by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's"), or deemed to be of
equivalent quality (i.e., securities rated at least BBB by S&P or Baa by
Moody's) in the judgment of the Manager. The Fund is authorized to invest up to
5% of its total assets at the time of purchase in fixed income securities having
a minimum rating no lower than Caa by Moody's or CCC by S&P ("high yield-high
risk bonds"). Investment in high yield-high risk bonds involves substantial
risk. Investments in high yield-high risk bonds will be made only when, in the
judgment of the Manager, such securities provide attractive total return
potential, relative to the risk of such securities, as compared to higher
quality debt securities. Securities rated BB or lower by S&P or Ba or lower by
Moody's are considered by those rating agencies to have varying degrees of
speculative characteristics. Consequently, although high yield-high risk bonds
can be expected to provide higher yields, such securities may be subject to
greater market price fluctuations and risk of loss and principal than lower
yielding, higher rated fixed income securities. The Fund will not invest in debt
securities rated lower than CCC for S&P or Caa for Moody's.
    
 
    High yield-high risk bonds may be issued by less creditworthy companies or
by larger, highly leveraged companies, and are frequently issued in corporate
restructurings such as mergers and leveraged buy-outs. Such securities are
particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. High yield-high risk bonds frequently are junior
obligations of their issuers, so that in the event of the issuer's bankruptcy,
claims of the holders of high yield-high risk bonds will be satisfied only after
satisfaction of the claims of senior securityholders. While the high yield-high
risk bonds in which the Fund may invest normally do not include securities
which, at the time of investment, are in default or the issuers of which are in
bankruptcy, there can be no assurance that such events will not occur after the
Fund purchases a particular security, in which case the Fund may experience
losses and incur costs. The terms "high yield-high risk" and "below investment
grade bonds" are commonly known as "junk bonds."
 
   
    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).
 
    Under the fundamental investment restrictions, the Fund may not:
    
 
        1. Make any investment inconsistent with the Fund's classification as a
    diversified company under the Investment Company Act.
 
        2. Invest more than 25% of its assets, taken at market value, in the
    securities of issuers in any particular industry (excluding the U.S.
    Government and its agencies and instrumentalities) except that, under normal
    circumstances, the Fund will invest more than 25% of its total assets in the
    securities of issuers in the utility industry.
 
                                       10
<PAGE>
        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 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 following non-fundamental investment restrictions have been adopted by
the Fund and may be changed by the Board of Directors. Under these 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."
    
 
                                       11
<PAGE>

   
        c. Invest in securities which cannot be readily resold because of legal
    or contractual restrictions or which cannot otherwise be marketed, redeemed
    or put to the issuer or a third party, if at the time of acquisition more
    than 15% of its total assets would be invested in such securities. This
    restriction shall not apply to securities which mature within seven days or
    securities which the Board of Directors of the Fund has otherwise determined
    to be liquid pursuant to applicable law. Notwithstanding the 15% limitation
    herein, to the extent the laws of any state in which the Fund's shares are
    registered or qualified for sale require a lower limitation, the Fund will
    observe such limitation. As of the date hereof, therefore, the Fund will not
    invest more than 10% of its total assets in securities which are subject to
    this investment restriction (c). Securities purchased in accordance with
    Rule 144A under the Securities Act (a "Rule 144A security") and determined
    to be liquid by the Fund's Board of Directors are not subject to the
    limitations set forth in this investment restriction (c). Notwithstanding
    the fact that the Board may determine that a Rule 144A security is liquid
    and not subject to the 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 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.
 
                                       12
<PAGE>
        i. Notwithstanding fundamental restriction (7) above, borrow amounts in
    excess of 10% 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 exceed
    5% (taken at market value) of its total assets.
 
   
    The staff of the Commission has taken the position that purchased
over-the-counter options ("OTC options") and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Fund has adopted an
investment policy pursuant to which it will not purchase or sell OTC options if,
as a result of such transaction, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and margin deposits on the Fund's existing OTC options on
futures contracts exceed 15% (10% to the extent required by certain state laws)
of the total assets of the Fund, taken at market value, together with all other
assets of the Fund which are illiquid or are not otherwise readily marketable.
However, if the OTC option is sold by the Fund to a primary U.S. Government
securities dealer recognized by the Federal Reserve Bank of New York and the
Fund has the unconditional contractual right to repurchase such OTC option from
the dealer at a predetermined price, then the Fund will treat as illiquid such
amount of the underlying securities as is equal to the repurchase price less the
amount by which the option is "in-the-money" (i.e., current market value of the
underlying security minus the option's strike price). The repurchase price with
the primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money." This policy as to OTC options is not a fundamental
policy of the Fund and may be amended by the Directors of the Fund without the
approval of the Fund's shareholders. However, the Fund will not change or modify
this policy prior to the change or modification by the Commission staff of its
position.
    
 
    Because of the affiliation of the Manager with the Fund, the Fund is
prohibited from engaging in certain transactions involving the Manager's
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act.
See "Portfolio Transactions and Brokerage." Without such an exemptive order, the
Fund is prohibited from engaging in portfolio transactions with Merrill Lynch or
its affiliates acting as principal and from purchasing securities in public
offerings which are not registered under the Securities Act of 1933 in which
such firms or any of their affiliates participate as an underwriter or dealer.
 
                                       13
<PAGE>
                             MANAGEMENT OF THE FUND
 
DIRECTORS AND OFFICERS
 
   
    The Directors and executive officers of the Fund, their ages and their
principal occupations for at least the last five years are set forth below.
Unless otherwise noted, the address of each executive officer and Director is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
    
 
   
       ARTHUR ZEIKEL (62)--President and Director (1)--President of the Manager
(which term as used herein includes its corporate predecessors) since 1977;
President and Chief Investment Officer 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 since 1990 and Senior Vice
President thereof from 1985 to 1990; Executive Vice President of Merrill Lynch &
Co., Inc. ("ML & Co.") since 1990; Director of Merrill Lynch Funds Distributor,
Inc. ("MLFD" or the "Distributor").
    
 
   
       RONALD W. FORBES (53)--Director--School of Business, BA 309, SUNY Albany,
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 (42)--Director--Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 02163. 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, UNUM
Corporation.
    
 
   
       CHARLES C. REILLY (63)--Director--9 Hampton Harbor Road, Hampton Bays,
New York 11946. President and Chief Investment Officer of Verus Capital, Inc.
from 1979-1990; Senior Vice President of Arnhold and S. Bleichroeder, Inc. from
1973-1990; Adjunct Professor, Columbia University Graduate School of Business
since 1990; Adjunct Professor, Wharton School, University of Pennsylvania, 1990.
    
 
   
       KEVIN A. RYAN (61)--Director--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 the Advancement
of Ethics and Character; Formerly taught on the faculties of the University of
Chicago, Stanford University and The Ohio State University.
    
 
   
       RICHARD R. WEST (56)--Director--482 Tepi Drive, Southbury, Connecticut
06488. Professor of Finance, and Dean from 1984 to 1993, of New York University
Leonard N. Stern School of Business Administration since 1984; Professor of
Finance at the Amos Tuck School of Business Administration, Dartmouth College,
from 1976 to 1984 and Dean from 1976 to 1983; Director of Bowne & Co., Inc.,
Director of Vornado, Inc. (real estate holding corporation), Re Capital Corp.
(reinsurance holding corporation), Smith Corona Corporation (manufacturer of
typewriters and word processors) and Alexander's Inc. (department store).
    
 
                                       14
<PAGE>

   
       TERRY K. GLENN (54)--Executive Vice President (1)--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 (61)--Senior Vice President (1)--Senior Vice President
of the Manager and FAM since 1982.
    
 
   
       WALTER D. ROGERS (52)--Vice President (1)--Vice President of the Manager
since 1987; Vice President of Continental Insurance Asset Management from 1984
to 1987.
    
 
   
       GERALD M. RICHARD (45)--Treasurer (1)--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.
    
 
   
       DONALD C. BURKE (34)--Vice President (1)--Vice President and Director of
Taxation of the Manager since 1990; Employee with Deloitte & Touche LLP from
1982 until 1990.
    
 
   
       PATRICK D. SWEENEY (40)--Secretary (1)--Vice President of the Manager
since 1990; Vice President and Associate Counsel of Security Pacific Merchant
Bank from 1988 to 1990; Lawyer in private practice from 1981 to 1988.
    
- ------------
 
   

(1) Interested person, as defined in the Investment Company Act, of the Fund.
 
    As of February 28, 1995, the officers and Directors 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 of the Fund as well as the fees of all
Directors who are affiliated persons of the Manager. The Fund pays each Director
not affiliated with the Manager a fee of $1,000 per year plus $400 per meeting
attended, together with such Director's out-of-pocket expenses relating to
attendance at meetings. The Fund also compensates members of its Audit and
Nominating Committee, which consists of all of the Directors of the Fund who are
not interested persons of the Fund, with a fee of $1,000 per year; the Chairman
of the Audit and Nominating Committee receives an additional annual fee of
$1,000 per year. For the fiscal year ended November 30, 1994, fees and expenses
paid to the unaffiliated Directors aggregated $18,508.
    
 
   
    The following table sets forth the compensation paid by the Fund to the
non-interested Directors for the fiscal year ended November 30, 1994 and the
aggregate compensation paid by all investment companies advised by MLAM and its
affiliate, FAM ("MLAM/FAM Advised Funds") to the non-interested Directors for
the calendar year ended December 31, 1994.
    
 
                                       15
<PAGE>
 
   
<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      DIRECTOR(1)
- -----------------------------------------   ------------    ---------------------    ----------------
<S>                                         <C>             <C>                      <C>
Ronald W. Forbes.........................      $3,600                None                $143,300
Cynthia A. Montgomery....................      $3,600                None                $143,300
Charles C. Reilly........................      $3,600                None                $265,800
Kevin A. Ryan............................      $3,600                None                $143,300
Richard R. West..........................      $4,600                None                $289,800
</TABLE>
    
 
- ------------
 
   
(1) In addition to the Fund, the Directors served on other MLAM/FAM Advised
    Funds as follows: Mr. Forbes (23 boards); Ms. Montgomery (23 boards); Mr.
    Reilly (40 boards); Mr. Ryan (23 boards); and Mr. West (40 boards).
    
 
MANAGEMENT AND ADVISORY ARRANGEMENTS
 
    The Manager is a Delaware limited partnership and is owned and controlled by
ML & Co., a financial services holding company and the parent of Merrill Lynch.
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 held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Manager or its affiliates act as an adviser. Because of different objectives or
other factors, a particular security may be bought for one or more clients when
one or more clients are selling the same security. If purchases or sales of
securities by the Manager for the Fund or other funds for which it acts as
investment adviser or for its advisory clients arise for consideration at or
about the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed equitable to
all. To the extent that transactions on behalf of more than one client of the
Manager or its affiliates during the same period may increase the demand for
securities being purchased or the supply of securities being sold there may be
an adverse effect on price.
 
   
    The Fund has entered into a management agreement with the Manager (the
"Management Agreement"). 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 November
30, 1994, November 30, 1993 and November 30, 1992, the total management fees
paid by the Fund to the Manager aggregated $3,831,948, $2,346,433 and $939,280,
respectively. At February 28, 1995, the net assets of the Fund aggregated
approximately $486.9 million. At this level, the annual management fee would
aggregate approximately $2.9 million.
    

    California imposes limitations on the expenses of the Fund. These expense
limitations require that the Manager reimburse the Fund in an amount necessary
to prevent the ordinary operating expenses of the Fund (excluding interest,
taxes, distribution fees, brokerage fees and commissions and extraordinary
charges such as litigation costs) from exceeding 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 remaining average daily net assets. The
Manager's obligation to reimburse the Fund is limited to the amount of the

 
                                       16
<PAGE>

management fee. No fee payment will be made to the Manager during any fiscal
year which will cause such expenses to exceed the most restrictive expense
limitation applicable at the time of such payment. To date, no reimbursement of
expenses has been required pursuant to the applicable expense limitation
provisions discussed above.
 
   
    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 Directors of the Fund who are affiliated persons of the Manager or any of
their affiliates. The Fund pays all other expenses incurred in the operation of
the Fund, including, among other things, taxes; expenses for legal and auditing
services; costs of printing proxies, stock certificates, shareholder reports and
prospectuses and statements of additional information (except to the extent paid
by the Distributor); charges of the Custodian, any sub-custodian and Transfer
Agent; expenses of redemption of shares; Securities and Exchange Commission
fees; expenses of registering the shares under Federal, state or foreign laws;
fees and expenses of unaffiliated Directors; 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 agreement, the Distributor will pay the promotional
expenses of the Fund incurred in connection with the offering of its shares.
Certain expenses in connection with the offering of the Fund's Class B, Class C
and Class D shares will be financed by the Fund pursuant to each class's
respective Distribution Plan in compliance with Rule 12b-1 under the Investment
Company Act. See "Purchase of Shares--Distribution Plans."
    
 
    Duration and Termination. Unless earlier terminated as described herein, the
Management Agreement will remain in effect for two years from the date of its
adoption. Thereafter, it will remain in effect from year to year if approved
annually (a) by the Board of Directors or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors who are not parties to
such contract or interested persons (as defined in the Investment Company Act)
of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.
 
                               PURCHASE OF SHARES
 
    Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
 
    The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives and shares of Class B and Class C are sold
to investors choosing the deferred sales charge alternatives. Each Class A,
Class B, Class C and Class D share of the Fund represents an identical interest
in the investment portfolio of the Fund and has the same rights, except that
Class B, Class C and Class D shares bear the expenses of the
 
                                       17
<PAGE>

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 PricingSM System is used by more than 50 mutual
funds advised by the Manager or its affiliate, 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 offering of each class of shares
of the Fund (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Management Agreement described
above.
 
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
 
   
    The gross sales charges for the sale of Class A shares for the fiscal years
ended November 30, 1994, November 30, 1993 and November 30, 1992 were $336,856,
$1,510,325 and $488,917, respectively, of which the Distributor received
$19,018, $89,960 and $12,177, respectively, and Merrill Lynch received $317,838,
$1,420,365 and $476,740, respectively. During the fiscal year ended November 30,
1994, the Distributor received CDSCs of $468 on Class A shares for which the
initial sales charge was waived. The gross sales charges for the sale of Class D
shares of the Fund for the fiscal period October 21, 1994 (commencement of
operations for Class D shares) to November 30, 1994 were $6,159, of which $565
and $5,594, 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.
    
 

    The term "purchase," as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund, refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company," as that
term is defined in the Investment Company Act, but does not include purchases of
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

 
                                       18
<PAGE>

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 and 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 and Class D shares; however, its
execution will result in the purchaser paying a lower sales charge at the
appropriate quantity purchase level. A purchase not originally made pursuant to
a Letter of Intention may be included under a subsequent Letter of Intention
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and Class
D shares of the Fund and of other MLAM-advised mutual funds presently held, at
cost or maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intention, may be included as a credit toward the
completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total
amount of shares does not equal the amount stated in the Letter of Intention
(minimum of $25,000), the investor will be notified and must pay, within 20 days
of the expiration of such Letter, the difference between the sales charge on the
Class A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to at least five percent of the intended amount will be held in
escrow during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the reduced percentage sales charge
which would be applicable to a single purchase equal to the total dollar value
of the Class A shares then
 
                                       19
<PAGE>

being purchased under such Letter, but there will be no retroactive reduction of
the sales charges on any previous purchase. The value of any shares redeemed or
otherwise disposed of by the purchaser prior to termination or completion of the
Letter of Intention will be deducted from the total purchases made under such
Letter. An exchange from a MLAM-advised money market fund into the Fund that
creates a sales charge will count toward completing a new or existing Letter of
Intention from the Fund.
 
    Merrill Lynch BlueprintSM Program. Class D shares of the Fund are offered to
participants in the Merrill Lynch BlueprintSM Program ("Blueprint"). In
addition, participants in Blueprint who own Class A shares of the Fund may
purchase additional Class A shares of the Fund through Blueprint. Blueprint is
directed to small investors, group 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 $5,000 at 3.5%, and $5,000.01 or
more at the standard sales charge rates disclosed in the Prospectus). In
addition, Class A or Class D shares of the Fund are being offered at net asset
value plus a sales charge of 1/2 of 1% for corporate or group IRA programs
placing orders to purchase their Class A or Class D shares through Blueprint.
Services, including the exchange privilege, available to Class A and Class D
investors through Blueprint, however, may differ from those available to other
investors in Class A or Class D shares. Orders for purchases and redemptions of
Class A or Class D shares of the Fund may be grouped for execution purposes
which, in some circumstances, may involve the execution of such orders two
business days following the day such orders are placed. The minimum initial
purchase price is $100, with a $50 minimum for subsequent purchases through
Blueprint. There are no minimum initial or subsequent purchase requirements for
participants who are part of an automatic investment plan.
 
    Class A and Class D shares are offered at net asset value to participants in
Blueprint through the Merrill Lynch Directed IRA Rollover Program ("IRA Rollover
Program") available from Merrill Lynch Business Financial Services, a business
unit of Merrill Lynch. The IRA Rollover Program is available to custodian
rollover assets from Employer Sponsored Retirement and Savings Plans (see
definition below) whose Trustee and/or Plan Sponsor offers the Merrill Lynch
Directed IRA Rollover Program.
 
   
    Orders for purchases and redemptions of Class A or Class D shares of the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
    
 
                                       20
<PAGE>
   
    Employer Sponsored Retirement and Savings Plans. Class A and Class D shares
are offered at net asset value to employer sponsored retirement or savings
plans, such as tax qualified retirement plans within the meaning of Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), deferred
compensation plans within the meaning of Section 403(b) and 457 of the Code,
other deferred compensation arrangements, Voluntary Employee Benefits
Association ("VEBA") plans, and non-qualified After Tax Savings and Investment
programs, maintained on the Merrill Lynch Group Employee Services system, herein
referred to as "Employer Sponsored Retirement or Savings Plans," provided the
plan has accumulated at least $20 million in MLAM-advised mutual funds (in the
case of Class A shares) or $5 million in MLAM-advised mutual funds in the case
of Class D shares, Class D shares may be offered at net asset value to new
Employer Sponsored Retirement or Savings Plans, provided the plan has $3 million
or more initially invested in MLAM-advised mutual funds. Assets of Employer
Sponsored Retirement or Savings Plans sponsored by the same sponsor or an
affiliated sponsor may be aggregated. Class A shares and Class D shares also are
offered at net asset value to Employer Sponsored Retirement or Savings Plans
that have at least 1,000 employees eligible to participate in the plan (in the
case of Class A shares) or between 500 and 999 employees eligible to participate
in the plan (in the case of Class D shares). Employees eligible to participate
in Employer Sponsored Retirement or Savings Plans of the same sponsoring
employer or its affiliates may be aggregated. Tax qualified retirement plans
within the meaning of Section 401(a) of the Code meeting any of the foregoing
requirements and which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a wide
range of investments including individual corporate equities and other
securities in addition to mutual fund shares) by the Merrill Lynch BlueprintSM
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 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 B 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 requirements are waived in connection with all
the above referenced Employer Sponsored Retirement or Savings Plans.
    
 
   
    Purchase Privileges of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, directors and employees
of ML & Co., and its subsidiaries (the term "subsidiaries," when used herein
with respect to ML & Co., includes MLAM, FAM and certain 
    
                                       21
<PAGE>
   
other entities directly or indirectly wholly-owned and controlled by ML & 
Co.), and any trust, pension, profit-sharing or other benefit plan for such 
persons, may purchase Class A shares of the Fund at net asset value. Under 
such programs, the Fund realizes economies of scale and reduction of 
sales-related expenses by virtue of familiarity with the Fund.
     
    Employees and directors or trustees wishing to purchase shares of the Fund
must satisfy the Fund's suitability standards.
 
   
    Class D shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a financial
consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis. Second, the investor must also establish that such redemption 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 also will be offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied. First, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and such fund was
subject to a sales charge either at the time of purchase or on a deferred basis.
Second, such purchase of Class D shares must be made within 90 days after such
notice.
 
    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 of a sale of their closed-end fund shares of common
stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and wish to reinvest the net proceeds from a sale
of their closed-end fund shares are offered Class A shares (if eligible to buy
Class A shares) or Class D shares of the Fund and other MLAM-advised mutual
funds ("Eligible Class D Shares"), if the following conditions are met. First,
the sale of closed-end fund shares must be made 
 
                                       22
<PAGE>
through Merrill Lynch, and the net proceeds therefrom must be immediately 
reinvested in Eligible Class A or Class D shares. Second, the closed-end fund 
shares must either have been acquired in the initial public offering or be 
shares representing dividends from shares of common stock acquired in such 
offering. Third, the closed-end fund shares must have been continuously 
maintained in a Merrill Lynch securities account. Fourth, there must be a 
minimum purchase of $250 to be eligible for the investment option.
 
    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.
 
    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).
 
    TMASM Managed Trusts. Class A shares are offered to TMASM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services at net
asset value.
 
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 
 
                                       23
<PAGE>
to such classes.
   

    Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall provide
and the Directors shall review quarterly reports of the disbursement of the
account maintenance fees and/or distribution fees paid to the Distributor. In
their consideration of each Distribution Plan, the Directors must consider all
factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Fund and its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund, as defined in the Investment Company Act (the
"Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that such Distribution Plan will benefit the Fund and its
related class of shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the Independent Directors or
by the vote of the holders of a majority of the outstanding related class of
voting securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of the Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund preserve copies of each Distribution Plan and any report
made pursuant to such plan for a period of not less than six years from the date
of such Distribution Plan or such report, the first two years in an easily
accessible place.
    
 
   
    For the fiscal year ended November 30, 1994, the Fund paid the Distributor
$4,239,815 (based on average net assets relating to the Class B shares of
approximately $565.3 million) pursuant to the Class B Distribution Plan, all of
which was paid to Merrill Lynch for providing account maintenance and
distribution-related services in connection with the Class B shares. For the
period October 21, 1994 (commencement of operations) to November 30, 1994, the
Fund paid the Distributor $88 (based on average net assets relating to the Class
C shares of approximately $100,697) pursuant to the Class C Distribution Plan,
all of which was paid to Merrill Lynch for providing account maintenance and
distribution-related services in connection with the Class C shares. For the
same period, the Fund paid the Distributor $32 (based on average net assets
relating to the Class D shares of approximately $115,992) pursuant to the Class
D Distribution Plan, all of which was paid to Merrill Lynch for providing
account maintenance-related services in connection with the Class D shares. At
February 28, 1995, the net assets of the Fund subject to the Class B
Distribution Plan aggregated approximately $432.2 million. At this asset level,
the annual fee payable pursuant to the Class B Distribution Plan would aggregate
approximately $3.2 million. At February 28, 1995, the net assets of the Fund
subject to the Class C Distribution Plan aggregated approximately $1.4 million.
At this asset level, the annual fee payable pursuant to the Class C Distribution
Plan would aggregate approximately $11,175. At February 28, 1995, the net assets
of the Fund subject to the Class D Distribution Plan aggregated approximately
$1.0 million. At this asset level, the annual fee pursuant to the Class D
Distribution Plan would aggregate approximately $2,584.
    
 
                                       24
<PAGE>
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 CDSC). In
connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the "voluntary maximum") in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances, payment in excess of the amount payable
under the NASD formula will not be made.
 
   
    The following table sets forth comparative information as of November 30,
1994 with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and the Distributor's voluntary maximum (Class B shares only) for the
period December 28, 1990 (commencement of the public offering of Class B shares)
to November 30, 1994, with respect to Class B shares, and for the period October
21, 1994 (commencement of public offering of Class C shares) to November 30,
1994, with respect to Class C shares.
    
 
   
                    DATA CALCULATED AS OF NOVEMBER 30, 1994
    
 
   
                                    CLASS B
                                 (IN THOUSANDS)
    
 
   
<TABLE>
<CAPTION>
                                                                                                                  ANNUAL
                                                                                                               DISTRIBUTION
                                               ALLOWABLE   ALLOWABLE                 AMOUNTS                      FEE AT
                                    ELIGIBLE   AGGREGATE    INTEREST    MAXIMUM     PREVIOUSLY     AGGREGATE   CURRENT NET
                                     GROSS       SALES     ON UNPAID    AMOUNT       PAID TO        UNPAID        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........  $612,022    $38,251      $4,840     $43,091       $7,983        $35,108       $2,295
Under Distributor's Voluntary
Waiver............................  $612,022    $38,251      $3,060     $41,311       $7,983        $33,327       $2,295
</TABLE>
    
 
                                       25
<PAGE>
   
                                    CLASS C
                               (NOT IN THOUSANDS)
    
   
<TABLE><CAPTION>
                                                                                                                  ANNUAL
                                                                                                               DISTRIBUTION
                                               ALLOWABLE   ALLOWABLE                 AMOUNTS                      FEE AT
                                    ELIGIBLE   AGGREGATE    INTEREST    MAXIMUM     PREVIOUSLY     AGGREGATE   CURRENT NET
                                     GROSS       SALES     ON UNPAID    AMOUNT       PAID TO        UNPAID        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........  $107,450    $ 7,250       $ 25      $7,275         $ 61         $ 6,677       $2,448
</TABLE>
    
 
   
- ------------
(1) Purchase price of all eligible Class B shares sold since December 28, 1990
    (commencement of the public offering of Class B shares) and all eligible
    Class C shares sold since October 21, 1994 (commencement of the public
    offering of Class C shares) other than shares acquired through dividend
    reinvestment and the exchange privilege.
    
(2) Interest is computed on a monthly basis based upon the prime rate, as
    reported in the Wall Street Journal, plus 1%, 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 0.75% rate, 0.50% has been treated as a
    distribution fee and 0.25% has been treated as 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 only for any period during which trading on the New
York Stock Exchange is restricted as determined by the Commission or such
Exchange is closed (other than customary weekend and holiday closings), for any
period during which an emergency exists as defined by the Commission as a result
of which disposal of portfolio securities or determination of the net asset
value of the Fund is not reasonably practicable, and for such other periods as
the Commission may by order permit for the protection of shareholders of the
Fund.
 
    Shares are redeemable at the option of the Fund if, in the opinion of the
Fund, ownership of the shares has or may become concentrated to the extent which
would cause the Fund to be deemed a personal holding company within the meaning
of the Code.
 
   
DEFERRED SALES CHARGES--CLASS B AND CLASS C SHARES
    
 
    As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives-- Class B and Class C Shares," while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in connection with certain
post-retirement withdrawals from an 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
 
                                       26
<PAGE>
   
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
November 30, 1994, November 30, 1993 and November 30, 1992, the Distributor
received CDSCs of $1,469,812, $537,201 and $311,445, 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 November 30, 1994 the
Distributor received no CDSCs with respect to redemption of Class C shares.
    
 
    Merrill Lynch BlueprintSM Program. Class B shares are offered to
participants in Blueprint. Blueprint is directed to small investors, group IRAs
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 shareholders through Blueprint, however, may
differ from those available to other Class B investors. Orders for purchases and
redemptions of Class B shares of the Fund will be grouped for execution purposes
which, in some circumstances, may involve the execution of such orders two
business days following the day such orders are placed. The minimum initial
purchase price is $100, with a $50 minimum for subsequent purchases through
Blueprint. There is no minimum initial or subsequent purchase requirement for
investors who are part of a Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any annual fees or
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
 
    Retirement Plans. Any Retirement Plan which does not meet the qualifications
to purchase Class A or Class D shares at net asset value has the option of
purchasing Class A or Class D shares at the sales charge schedule disclosed in
the Prospectus, or if the Retirement Plan meets the following requirements, then
it may purchase Class B shares with a waiver of the CDSC upon redemption. The
CDSC is waived for any Eligible 401(k) Plan redeeming Class B shares. "Eligible
401(k) Plan" is defined as a retirement plan qualified under Section 401(k) of
the Code with a salary reduction feature offering a menu of investments to plan
participants. The CDSC is also waived for redemptions from a 401(a) plan
qualified under the Code, provided, however, that each such plan has the same or
an affiliated sponsoring employer as an Eligible 401(k) Plan purchasing Class B
shares of MLAM-advised mutual funds ("Eligible 401(a) Plan"). Other tax
qualified retirement plans within the meaning of Section 401(a) and 403(b) of
the Code which are provided specialized services (e.g., plans whose participants
may direct on a daily basis their plan allocations among a menu of investments)
by independent administration firms contracted through Merrill Lynch also may
purchase Class B shares with a waiver of the CDSC. The CDSC also is waived for
any Class B or Class C shares which are purchased by an Eligible 401(k) Plan or
Eligible 401(a) Plan and are rolled over into a Merrill Lynch or Merrill Lynch
Trust 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
 
                                       27
<PAGE>
   
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.
    
 
                      PORTFOLIO TRANSACTIONS AND BROKERAGE
 
    Reference is made to "Investment Objective and Policies--Other Investment
Policies and Practices" in the Prospectus.
 
   
    Subject to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund's portfolio
transactions. In executing such transactions, the Manager seeks to obtain the
best net results for the Fund, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution and operational facilities of the firm involved and the
firm's risk in positioning a block of securities. Subject to obtaining the best
price and execution, brokers who provide supplemental investment research to the
Manager 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 under the Management Agreement and the expenses of the Manager
will not necessarily be reduced as a result of the receipt of such supplemental
information. If in the judgment of the Manager the Fund will be benefitted 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. In addition, consistent with the Rules of Fair Practice of the NASD
and policies established by the Directors of the Fund, the Manager may consider
sales of shares of the Fund as a factor in the selection of brokers or dealers
to execute portfolio transactions for the Fund.
    
 
   
    For the fiscal year ended November 30, 1994, the Fund paid total brokerage
commissions of $432,917, of which $27,114 or 6.3% was paid to Merrill Lynch for
effecting 6.6% of the aggregate amount of transactions in which the Fund paid
brokerage commissions. For the fiscal year ended November 30, 1993, the Fund
paid total brokerage commissions of $435,246, of which $11,578 or 2.7% was paid
to Merrill Lynch for effecting 2.0% of the aggregate amount of transactions in
which the Fund paid brokerage commissions. For the fiscal year ended November
30, 1992, the Fund paid total brokerage commissions of $212,168, of which $4,605
or 2.17% was paid to Merrill Lynch for effecting 2.32% of the aggregate amount
of transactions in which the Fund paid brokerage commissions.
    
 
    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 stock exchange transactions
are generally higher than in the United States, although the Fund will endeavor
to achieve the best net results in effecting its portfolio transactions. There
is generally less governmental supervision and regulation of foreign stock
exchanges and brokers than in the United States.
 
    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
 
                                       28
<PAGE>
Act, persons affiliated 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 its broker
in over-the-counter transactions conducted on an agency basis provided that,
among other things, the fee or commission received by such affiliated broker
is reasonable and fair compared to the fee or commission received by
non-affiliated brokers in connection with comparable transactions.
 
    The Fund's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on a daily
basis in United States dollars, the Fund intends to manage its portfolio so as
to give reasonable assurance that it will be able to obtain United States
dollars to the extent necessary to meet anticipated redemptions. Under present
conditions, it is not believed that these considerations will have any
significant effect on its portfolio strategy.
 
   
    Pursuant to Section 11(a) of the Securities Exchange Act of 1934, as
amended, Merrill Lynch may execute transactions for the Fund on the floor of any
national securities exchange provided that prior authorization of such
transactions is obtained and Merrill Lynch furnishes a statement to the Fund at
least annually setting forth the compensation it has received in connection with
such transactions.
    
 
    The Directors have considered the possibilities of seeking to recapture for
the benefit of the Fund brokerage commissions and other expenses of possible
portfolio transactions by conducting portfolio transactions through affiliated
entities. For example, brokerage commissions received by affiliated brokers
could be offset against the advisory fee paid by the Fund. After considering all
factors deemed relevant, the Directors made a determination not to seek such
recapture. The Directors 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 as 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
    
 
                                       29
<PAGE>
   
applicable with respect to the Class B and Class C shares and the daily
expense accruals of the account maintenance fees applicable with respect to
the Class D shares; moreover the per share net asset value of the Class B
and Class C shares generally will be lower than the per share net asset
value of the 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 classes will tend to converge
(although not necessarily meet) immediately after the payment of dividends
or distributions, which will differ by approximately the amount of the
expense accrual differential among the classes.
    
 
   
    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. 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.
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. 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 market
value, as determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by a pricing service
retained by the Fund. Such valuations and procedures will be reviewed
periodically by the Board of Directors.
    
 
                              SHAREHOLDER SERVICES
 
    The Fund offers a number of shareholder services described below which are
designed to facilitate investment in its shares. Full details as to each of such
services and copies of the various plans described below can be obtained from
the Fund, the Distributor or Merrill Lynch. Certain of these services are
available only to United States investors.
 
INVESTMENT ACCOUNT
 
   
    Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of income dividends and
long-term capital gains distributions. The quarterly statements will also show
any other activity in the account since the preceding statement. Shareholders
will receive separate transaction confirmations for each purchase or sale
transaction other than automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gains distributions. A
shareholder may make additions to his Investment Account at any time by mailing
a check directly to the Transfer Agent.
    
 
    Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment
 
                                       30
<PAGE>
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 the Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer or by mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Fund is authorized through
pre-authorized checks or automated clearing house debits of $50 or more to
charge the regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder. For
investors who buy shares of the Fund through Merrill Lynch BlueprintSM Program,
no minimum charge to the investors bank account is required. Investors who
maintain CMA(R) accounts may arrange to have periodic investments made in the
Fund, in the CMA(R) accounts or in certain related accounts in amounts of $100
or more ($1 for retirement accounts) through the CMA Automated Investment
Program.
    
 
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
 
    Unless specific instructions are given as to the method of payment of
dividends and capital gains distributions, dividends and distributions will be
reinvested automatically in additional shares of the Fund. Such reinvestment
will be at the net asset value of shares of the Fund, without sales charge, as
of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing or by telephone (1-800-MER-FUND)
to receive either their income dividends or capital gains distributions, or
both, in cash, in which event payment will be mailed or direct deposited on or
about the payment date.
 
    Shareholders may, at any time, notify the Transfer Agent in writing that
they no longer wish to have their dividends and/or distributions reinvested in
shares of the Fund or vice versa and, commencing ten days after the receipt by
the Transfer Agent of such notice, those instructions will be effected.
 
                                       31
<PAGE>
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 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,
bi-monthly, quarterly, semiannual or annual basis through the Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $25. The
proceeds of systematic redemptions will be posted to the shareholder's account
five business days after the date the shares are redeemed. Monthly systematic
redemptions will be made at net asset value on the first Monday of each month,
bi-monthly systematic redemptions will be made at net asset value on the first
Monday of every other month, and quarterly, semiannual or annual redemptions are
made at net asset value on the first Monday of months selected at the
shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automatic Investment Program. For
more information on the Systematic Redemption Program, eligible shareholders
should contact their financial consultant.
 
                                       32
<PAGE>
RETIREMENT PLANS
 
    Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and certain of the other mutual funds sponsored by Merrill Lynch as well as
in other securities. Merrill Lynch charges an initial establishment fee and an
annual custodial fee for each account. Information with respect to these plans
is available on request from Merrill Lynch. The minimum initial purchase to
establish any such plan is $100 and the minimum subsequent purchase is $1.
 
    Capital gains and income received in each of the plans referred to above are
exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan.
 
EXCHANGE PRIVILEGE
 
    Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select PricingSM System, Class A shareholders may exchange Class A shares
of the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund, and the
shareholder does not hold Class A shares of the second fund in his account at
the time of the exchange and is not otherwise eligible to acquire Class A shares
of the second fund, the shareholder will receive Class D shares of the second
fund as a result of the exchange. Class D shares also may be exchanged for Class
A shares of a second MLAM-advised mutual fund at any time as long as, at the
time of the exchange, the shareholder holds Class A shares of the second fund in
the account in which the exchange is made or is otherwise eligible to purchase
Class A shares of the second fund. Class B, Class C and Class D shares will be
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Fund is "tacked" to the holding period of the newly acquired
shares of the other Fund as more fully described below. Class A, Class B, Class
C and Class D shares also will be exchangeable for shares of certain
MLAM-advised money market funds specifically designated below as available for
exchange by holders of Class A, Class B, Class C or Class D shares. Shares with
a net asset value of at least $100 are required to qualify for the exchange
privilege, and any shares utilized in an exchange must have been held by the
shareholder for 15 days. It is contemplated that the exchange privilege may be
applicable to other new mutual funds whose shares may be distributed by the
Distributor.
 
   
    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
    
 
                                       33
<PAGE>
exchanges have taken place, the "sales charge previously paid" shall include the
aggregate of the sales charges paid with respect to such Class A or Class D
shares in the initial purchase and any subsequent exchange. Class A or Class D
shares issued pursuant to dividend reinvestment are sold on a no-load basis in
each of the funds offering Class A or Class D shares. For purposes of the
exchange privilege, dividend reinvestment Class A and Class D shares shall be
exchanged into the Class A or Class D shares of the other funds or into shares
of the Class A and Class D money market funds with 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 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 load that may be payable on a
disposition of the new Class B or Class C shares, the period of time that the
outstanding Class B or Class C shares were held will count toward satisfaction
of the holding period of the new Class B or Class C shares. For example, an
investor may exchange Class B shares of the Fund for those of Merrill Lynch
Special Value Fund, Inc. ("Special Value Fund") after having held the Fund's
Class B shares for two and a half years. The 2% sales load that generally would
apply to a redemption would not apply to the exchange. Three years later the
investor may decide to redeem the Class B shares of Special Value Fund and
receive cash. There will be no CDSC due on this redemption, since by "tacking"
the two-and-a-half-year holding period of the Fund's Class B shares to the three
year holding period for the Special Value Fund Class B shares, the investor will
be deemed to have held the new Class B shares for more than five years.
 
    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
toward satisfaction of the holding period requirement for purposes of reducing
the CDSC or with respect to Class B shares, toward satisfaction of the
conversion period. However, shares of a money market fund which were acquired as
a result of an exchange for Class B or Class C shares of the Fund may, in turn,
be exchanged back into Class B or Class C shares, respectively, of any fund
offering such shares, in which event the holding period for Class B or Class C
shares of the fund will be aggregated with previous holding periods for purposes
of reducing the CDSC. Thus, for example, an investor may exchange Class B shares
of the Fund for shares of Merrill Lynch Institutional Fund ("Institutional
Fund") after having held the 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.
 
                                       34
<PAGE>
    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:
 
<TABLE>
<CAPTION>
<S>                                            <C>
MERRILL LYNCH ADJUSTABLE RATE SECURITIES
FUND, INC. ..................................  High current income consistent with a policy
                                               of limiting the degree of fluctuation in net
                                                 asset value by investing primarily in a
                                                 portfolio of adjustable rate securities,
                                                 consisting principally of mortgage-backed
                                                 and asset-backed securities.
MERRILL LYNCH AMERICAS INCOME FUND, INC. ....  A high level of current income, consistent
                                               with prudent investment risk, by investing
                                                 primarily in debt securities denominated in
                                                 a currency of a country located in the
                                                 Western Hemisphere (i.e., North and South
                                                 America and the surrounding waters).
MERRILL LYNCH ARIZONA LIMITED MATURITY
MUNICIPAL BOND FUND..........................  A portfolio of Merrill Lynch Multi-State
                                               Limited Maturity Municipal Series Trust, a
                                                 series fund, whose objective is to provide
                                                 as high a level of income exempt from
                                                 Federal and Arizona income taxes as is
                                                 consistent with prudent investment
                                                 management through investment in a
                                                 portfolio primarily of intermediate-term
                                                 investment grade Arizona Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL BOND FUND....  A portfolio of Merrill Lynch Multi-State
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide investors
                                                 with as high a level of income exempt from
                                                 Federal and Arizona income taxes as is
                                                 consistent with prudent investment
                                                 management.
MERRILL LYNCH ARKANSAS MUNICIPAL BOND FUND...  A portfolio of Merrill Lynch Multi-State
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide as high a
                                                 level of income exempt from Federal and
                                                 Arkansas income taxes as is consistent with
                                                 prudent investment management.
</TABLE>
 
                                       35
<PAGE>
 
   
<TABLE>
<S>                                            <C>
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
                                                 shareholders with as high a level of income
                                                 exempt from Federal and California income
                                                 taxes as is consistent with prudent
                                                 investment management through investment in
                                                 a portfolio primarily of intermediate-term
                                                 investment grade California Municipal
                                                 Bonds.
</TABLE>
    
 
                                       36
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<TABLE>
<S>                                            <C>
MERRILL LYNCH CALIFORNIA MUNICIPAL BOND
FUND.........................................  A portfolio of Merrill Lynch California
                                               Municipal Series Trust, a series fund, whose
                                                 objective is to provide as high a level of
                                                 income exempt from Federal and California
                                                 income taxes as is consistent with prudent
                                                 investment management.

MERRILL LYNCH CAPITAL FUND, INC. ............  The highest total investment return
                                               consistent with prudent risk through a fully
                                                 managed investment policy utilizing equity,
                                                 debt and convertible securities.

MERRILL LYNCH COLORADO MUNICIPAL BOND 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
                                                 issuers domiciled in developing countries
                                                 located in Asia and the Pacific Basin.

MERRILL LYNCH EUROFUND.......................  Capital appreciation primarily through
                                                 investment in equity securities of
                                                 corporations domiciled in Europe.
</TABLE>
    
 
                                       37
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<TABLE>
<S>                                            <C>
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 to provide as high a
                                                 level of income exempt from Federal income
                                                 taxes as is consistent with prudent
                                                 investment management while seeking to
                                                 offer shareholders the opportunity to own
                                                 securities exempt from Florida intangible
                                                 personal property taxes.

MERRILL LYNCH FUND FOR TOMORROW, INC. .......  Long-term growth through investment in a
                                                 portfolio of good quality securities,
                                                 primarily common stock, potentially
                                                 positioned to benefit from demographic and
                                                 cultural changes as they affect consumer
                                                 markets.

MERRILL LYNCH FUNDAMENTAL GROWTH FUND,
INC. ........................................  Long-term growth through investment in a
                                                 diversified portfolio of equity securities
                                                 in placing particular emphasis on companies
                                                 that have exhibited an above-average growth
                                                 rate in earnings.
</TABLE>
 
                                       38
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<TABLE>
<S>                                            <C>
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.
</TABLE>
    
 
                                       39
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<TABLE>
<S>                                            <C>
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 combination of which will vary
                                                 depending upon changing market and economic
                                                 trends.

MERRILL LYNCH GLOBAL RESOURCES TRUST.........  Long-term growth and protection of capital
                                               from investment in securities of domestic and
                                                 foreign companies that possess substantial
                                                 natural resource assets.

MERRILL LYNCH GLOBAL SMALLCAP FUND, INC. ....  Long-term growth of capital by investing
                                                 primarily in equity securities of companies
                                                 with relatively small market
                                                 capitalizations located in various foreign
                                                 countries and in the United States.

MERRILL LYNCH GROWTH FUND FOR INVESTMENT AND
RETIREMENT...................................  Growth of capital and, secondarily, income
                                                 from investment in a diversified portfolio of
                                                 equity securities placing principal
                                                 emphasis on those securities which
                                                 management of the fund believes to be
                                                 undervalued.

MERRILL LYNCH HEALTHCARE FUND, INC.
  (Residents of Wisconsin must meet investor
suitability standards).......................  Capital appreciation through worldwide
                                                 investment in equity securities of
                                                 companies that derive or are expected to
                                                 derive a substantial portion of their sales
                                                 from products and services in healthcare.

MERRILL LYNCH INTERNATIONAL EQUITY FUND......  Capital appreciation and, secondarily, income
                                               by investing in a diversified portfolio of
                                                 equity securities of issuers located in
                                                 countries other than the United States.

MERRILL LYNCH LATIN AMERICA FUND, INC. ......  Capital appreciation by investing primarily
                                               in Latin American equity and debt securities.
</TABLE>
    
 
                                       40
<PAGE>
<TABLE>
<S>                                            <C>
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..........................  A portfolio of Merrill Lynch Multi-State
                                               Limited Municipal Series Trust, a series
                                                 fund, whose objective is to provide as high
                                                 a level of income exempt from Federal and
                                                 Michigan income taxes as is consistent with
                                                 prudent investment management through
                                                 investment in a portfolio primarily of
                                                 intermediate-term investment grade Michigan
                                                 Municipal Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL BOND 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.
</TABLE>
 
                                       41
<PAGE>
<TABLE>
<S>                                            <C>
MERRILL LYNCH MINNESOTA MUNICIPAL BOND
FUND.........................................  A portfolio of Merrill Lynch Multi-State
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide as high a
                                                 level of income exempt from Federal and
                                                 Minnesota personal income taxes as is
                                                 consistent with prudent investment
                                                 management.

MERRILL LYNCH MUNICIPAL BOND FUND, INC. .....  Tax-exempt income from three separate
                                                 diversified portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL INTERMEDIATE TERM
FUND.........................................  Currently the only portfolio of Merrill Lynch
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide as high a
                                                 level as possible of income exempt from
                                                 Federal income taxes by investing in
                                                 investment grade obligations with a dollar
                                                 weighted average maturity of five to twelve
                                                 years.
MERRILL LYNCH NEW JERSEY LIMITED MATURITY
MUNICIPAL BOND FUND..........................  A portfolio of Merrill Lynch Multi-State
                                               Limited Maturity Municipal Series Trust, a
                                                 series fund, whose objective is to provide
                                                 as high a level of income exempt from
                                                 Federal and New Jersey income taxes as is
                                                 consistent with prudent investment
                                                 management through a portfolio primarily of
                                                 intermediate-term investment grade New
                                                 Jersey Municipal Bonds.

MERRILL LYNCH NEW JERSEY MUNICIPAL BOND
FUND.........................................  A portfolio of Merrill Lynch Multi-State
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide as high a
                                                 level of income exempt from Federal and New
                                                 Jersey state 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.
</TABLE>
 
                                       42
<PAGE>
<TABLE>
<S>                                            <C>
MERRILL LYNCH NEW YORK LIMITED MATURITY
MUNICIPAL BOND FUND..........................  A portfolio of Merrill Lynch Multi-State
                                               Limited Maturity Municipal Series Trust, a
                                                 series fund, whose objective is to provide
                                                 as high a level of income exempt from
                                                 Federal, New York State and New York City
                                                 income taxes as is consistent with prudent
                                                 investment management through investment in
                                                 a portfolio primarily of intermediate-term
                                                 investment grade New York Municipal Bonds.

MERRILL LYNCH NEW YORK MUNICIPAL BOND FUND...  A portfolio of Merrill Lynch Multi-State
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide as high a
                                                 level of income exempt from Federal, New
                                                 York State and New York City income taxes
                                                 as is consistent with prudent investment
                                                 management.
MERRILL LYNCH NORTH CAROLINA MUNICIPAL BOND
FUND.........................................  A portfolio of Merrill Lynch Multi-State
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide as high a
                                                 level of income exempt from Federal and
                                                 North Carolina income taxes as is
                                                 consistent with prudent investment
                                                 management.

MERRILL LYNCH OHIO MUNICIPAL BOND FUND.......  A portfolio of Merrill Lynch Multi-State
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide 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.
</TABLE>
 
                                       43
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<TABLE>
<S>                                            <C>
MERRILL LYNCH PENNSYLVANIA LIMITED MATURITY
MUNICIPAL BOND FUND..........................  A portfolio of Merrill Lynch Multi-State
                                               Limited Maturity Municipal Series Trust, a
                                                 series fund, whose objective is to provide
                                                 as high a level of income exempt from
                                                 Federal and Pennsylvania income taxes as is
                                                 consistent with prudent investment
                                                 management through investment in a
                                                 portfolio of intermediate-term investment
                                                 grade Pennsylvania Municipal Bonds.

MERRILL LYNCH PENNSYLVANIA MUNICIPAL BOND
FUND.........................................  A portfolio of Merrill Lynch Multi-State
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide as high a
                                                 level of income exempt from Federal and
                                                 Pennsylvania state 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 multi-currency units having
                                                 remaining maturities not exceeding three
                                                 years.
</TABLE>
    
 
                                       44
<PAGE>
<TABLE>
<S>                                            <C>
MERRILL LYNCH SPECIAL VALUE FUND, INC. ......  Long-term growth of capital from investments
                                               in securities, primarily common stocks, or
                                                 relatively small companies believed to have
                                                 special investment value and emerging
                                                 growth companies regardless of size.

MERRILL LYNCH STRATEGIC DIVIDEND FUND........  Long-term total return from investment in
                                                 dividend paying common stocks which yield
                                                 more than Standard & Poor's 500 Composite
                                                 Stock Price Index.

MERRILL LYNCH TECHNOLOGY FUND, INC. .........  Capital appreciation through worldwide
                                                 investment in equity securities of
                                                 companies that derive or are expected to
                                                 derive a substantial portion of their sales
                                                 from products and services in technology.

MERRILL LYNCH TEXAS MUNICIPAL BOND FUND......  A portfolio of Merrill Lynch Multi-State
                                                 Municipal Series Trust, a series fund,
                                                 whose objective is to provide 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 distribute
                                                 electricity, telecommunications, gas or
                                                 water.
</TABLE>
    
 
                                       45
<PAGE>
   
<TABLE>
<S>                                            <C>
MERRILL LYNCH WORLD INCOME FUND, INC. .......  High current income by investing in a global
                                                 portfolio of fixed income securities
                                                 denominated in various currencies,
                                                 including multinational currencies.
Class A Share Money Market Funds:
 
MERRILL LYNCH READY ASSETS TRUST.............  Preservation of capital, liquidity and the
                                               highest possible current income consistent
                                                 with the foregoing objectives from the
                                                 short-term money market securities in which
                                                 the Trust invests.
MERRILL LYNCH RETIREMENT RESERVES MONEY FUND
  (Available only for exchanges within
certain retirement plans)....................  Currently the only portfolio of Merrill Lynch
                                                 Retirement Series Trust, a series fund,
                                                 whose objectives are current income,
                                                 preservation of capital and liquidity
                                                 available from investing in a diversified
                                                 portfolio of short-term money market
                                                 securities.

MERRILL LYNCH U.S.A. GOVERNMENT RESERVES.....  Preservation of capital, current income and
                                                 liquidity available from investing in
                                                 direct obligations of the U.S. Government
                                                 and repurchase agreements relating to such
                                                 securities.

MERRILL LYNCH U.S. TREASURY MONEY FUND.......  Preservation of capital, liquidity and
                                               current income through investment exclusively
                                                 in a diversified portfolio of short-term
                                                 marketable securities which are direct
                                                 obligations of the U.S. Treasury.
Class B, Class C and Class D Share
  Money Market Funds:
MERRILL LYNCH GOVERNMENT FUND................  A portfolio of Merrill Lynch Funds for
                                                 Institutions Series, a series fund, whose
                                                 objective is to provide current income
                                                 consistent with liquidity and security of
                                                 principal from investment in securities
                                                 issued or guaranteed by the U.S.
                                                 Government, its agencies and
                                                 instrumentalities and in repurchase
                                                 agreements secured by such obligations.
</TABLE>
    
 
                                       46
<PAGE>
 
<TABLE>
<S>                                            <C>
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.
</TABLE>
 
    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 transfer through their securities dealers. The Fund
reserves the right to require a properly completed Exchange Application. This
exchange privilege may be modified or terminated in accordance with the rules of
the Commission. The Fund reserves the right to limit the number of times an
investor may exercise the exchange privilege. Certain funds may suspend the
continuous offering of their shares to the general public at any time and may
thereafter resume such offering from time to time. The exchange privilege is
available only to U.S. shareholders in states where the exchange legally may be
made.
 
                       DIVIDENDS, DISTRIBUTIONS AND TAXES
 
DIVIDENDS AND DISTRIBUTIONS
 
    It is the Fund's intention to distribute all of its net investment income,
if any. Dividends from such 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

 
                                       47
<PAGE>
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 taxable year. Premiums from 
expired call options written by the Fund and net gains from closing purchase 
transactions are treated as short-term capital gains for Federal income tax 
purposes. See "Shareholder Services--Automatic Reinvestment of Dividends and 
Capital Gains Distributions" for information concerning the manner in which 
dividends and distributions may be reinvested automatically in shares of the 
Fund. Shareholders may elect in writing to receive any such dividends or 
distributions, or both, in cash.  Dividends and distributions are taxable to 
shareholders as described below whether they are invested in shares of the 
Fund or received in cash. The per share dividends and distributions on Class B 
and Class C shares will be lower than the per share dividends and distributions
on Class A and Class D shares as a result of the account maintenance, 
distribution and higher transfer agency fees applicable with respect to the 
Class B and Class C shares; similarly, the per share dividends and 
distributions on Class D shares will be lower than the per share dividends and 
distributions on Class A shares as a result of the account maintenance fees 
applicable with respect to the Class D shares. See "Determination of Net Asset 
Value."
 
TAXES
 
   
    The Fund has qualified and intends to continue to qualify for the special
tax treatment afforded regulated investment companies ("RICs") under the
Internal Revenue Code of 1986, as amended (the "Code"). As a RIC, the Fund will
not be subject to Federal income tax on the part of its net ordinary income and
net realized capital gains which it distributes to Class A, Class B, Class C and
Class D shareholders (together, the "shareholders"). In order to qualify, the
Fund must, among other things, (i) derive at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, gains
from the sale of securities, certain gains from foreign currencies, or other
income (including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; (ii) derive less than 30% of its gross income from
gains from the sale or other disposition of securities, options, futures,
forward contracts and certain investments in foreign currencies held for less
than three months; (iii) distribute at least 90% of its dividend, interest and
certain other taxable income each year; (iv) at the end of each fiscal quarter
maintain at least 50% of the value of its total assets in cash, government
securities, securities of other RICs, and other securities of issuers which
represent, with respect to each issuer, no more than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities of such issuer;
and (v) at the end of each fiscal quarter have no more than 25% of its assets
invested in the securities (other than those of the government or other RICs) of
any one issuer or of two or more issuers which the Fund controls and which are
engaged in the same, similar or related trades and businesses.
    
 
    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. However, any loss on a subsequent
sale or exchange of shares held for six months or less will be treated as
long-term capital loss to the extent of any long-term capital gain distribution
thereon.
 
                                       48
<PAGE>
    Not later than 60 days after the close of its taxable year, the Fund will
provide its shareholders with a written notice designating the amounts of any
dividends or capital gains distributions. The portion of the Fund's ordinary
income dividends which is attributable to dividends received by the Fund from
U.S. corporations (other than dividends received on preferred stocks of public
utilities) may be eligible for the 70% 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 date in such a month, then such dividend
or distribution will be treated for tax purposes as being paid on December 31,
and will be taxable to its shareholders on December 31 of the year in which the
dividend was declared.
 
    Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gains dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom a certified taxpayer identification
number is not on file with the Fund or who, to the Fund's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
shareholder is not otherwise subject to backup withholding taxes.
 
    Ordinary income dividends paid by the Fund to shareholders who are
non-resident aliens or foreign entities generally will be subject to a 30%
United States withholding tax under existing provisions of the Code applicable
to foreign individuals and entities unless a reduced rate of withholding or a
withholding exemption is provided under applicable treaty law. Non-resident
shareholders are urged to consult their own tax advisers concerning the
applicability of the United States withholding tax.
 
    Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. Shareholders
may be able to claim United States foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code. If
more than 50% in value of the Fund's total assets at the close of its taxable
year consists of stock or securities of foreign corporations, the Fund will be
eligible, and intends, to file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include their
proportionate share of such withholding taxes in their United States income tax
returns as gross income, treat such proportionate share as taxes paid by them,
and deduct such proportionate share in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their United States
income taxes. The Fund will report annually to its shareholders the amount per
share of such withholding taxes. For this purpose, the Fund will allocate
foreign taxes and foreign source income among the classes of shareholders
according to a method similar to that described above for the allocation of
dividends eligible for the dividends received deduction.
 
                                       49
<PAGE>
    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 the exchange privilege within 90 days of
acquiring the shares, then the loss he can recognize on the exchange will be
reduced (or the gain increased) to the extent the sales charge paid to the Fund
reduces any sales charge the shareholder would have owed upon purchase of the
new shares in the absence of the exchange privilege. Instead, such 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 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 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 transactions in
options and futures contracts will be 60% long-term and 40% short-term capital
gain or loss. The mark-to-market rules outlined above, however, will not apply
to certain transactions entered into by the Fund solely to reduce the risk of
changes in price or interest rates with respect to its investments.
 
    Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's transactions in options 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 option or futures contract.
 
                                       50
<PAGE>
    Special Rules for Certain Foreign Currency Transactions. In general, gains
from "foreign currencies" and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies will be qualifying income for purposes of
determining whether the Fund qualifies as a RIC. It is currently unclear,
however, who will be treated as the issuer of a foreign currency instrument or
how foreign currency options, futures, forward foreign currency or forward
foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the Fund.
 
    Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain forward contracts not
traded in the interbank market, from futures contracts that are not "regulated
futures contracts," and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income, rather than increasing or decreasing the amount of the Fund's
net capital gain. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary dividend distributions, and any distributions made
before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing each
shareholder's basis in his Fund shares.
 
    The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
 
    Dividends and capital gains distributions also may be subject to state and
local taxes.
 
    Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
 
                                PERFORMANCE DATA
 
    From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B, Class
C and Class D shares in accordance with a formula specified by the Securities
and Exchange 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
 
                                       51
<PAGE>
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. Such data will be
computed as described above, except that (i) as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather than average
annual data, may be quoted and (ii) the maximum applicable sales charges will
not be included. Actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time.
 
   
    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
                                                                   VALUE OF A                            VALUE OF A
                                                                  HYPOTHETICAL                          HYPOTHETICAL
                                              EXPRESSED AS A         $1,000         EXPRESSED AS A         $1,000
                                             PERCENTAGE BASED     INVESTMENT AT    PERCENTAGE BASED     INVESTMENT AT
                                             ON A HYPOTHETICAL     THE END OF      ON A HYPOTHETICAL     THE END OF
                  PERIOD                     $1,000 INVESTMENT     THE PERIOD      $1,000 INVESTMENT     THE PERIOD
- ------------------------------------------   -----------------    -------------    -----------------    -------------
                                                                   AVERAGE ANNUAL TOTAL RETURN
                                                           (INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S>                                          <C>                  <C>              <C>                  <C>
One Year Ended November 30, 1994..........         (8.70%)          $  913.00            (9.25%)          $  907.50
December 28, 1990 (Inception) to November
 30, 1994.................................          8.07%           $1,356.40             8.17%           $1,361.10
<CAPTION>
 
                                                                       ANNUAL TOTAL RETURN
                                                           (EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S>                                          <C>                  <C>              <C>                  <C>
Year Ended November 30, 1994..............         (4.89%)          $  951.10            (5.60%)          $  944.00
Year Ended November 30, 1993..............         21.80%           $1,218.00            20.86%           $1,208.60
Year Ended November 30, 1992..............         10.05%           $1,100.50             9.20%           $1,092.00
December 28, 1990 (Inception) to November
 30, 1991.................................         10.83%           $1,108.30            10.05%           $1,100.50
<CAPTION>
 
                                                                      AGGREGATE TOTAL RETURN
                                                           (EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S>                                          <C>                  <C>              <C>                  <C>
December 28, 1990 (Inception) to November
 30, 1994.................................         35.64%           $1,356.40            36.11%           $1,361.10
</TABLE>
    
 
                                       52
<PAGE>
   
<TABLE>
<CAPTION>
                                                      CLASS C SHARES*                       CLASS D SHARES*
                                             ----------------------------------    ----------------------------------
                                                                   REDEEMABLE                            REDEEMABLE
                                                                   VALUE OF A                            VALUE OF A
                                                                  HYPOTHETICAL                          HYPOTHETICAL
                                              EXPRESSED AS A         $1,000         EXPRESSED AS A         $1,000
                                             PERCENTAGE BASED     INVESTMENT AT    PERCENTAGE BASED     INVESTMENT AT
                                             ON A HYPOTHETICAL     THE END OF      ON A HYPOTHETICAL     THE END OF
                  PERIOD                     $1,000 INVESTMENT     THE PERIOD      $1,000 INVESTMENT     THE PERIOD
- ------------------------------------------   -----------------    -------------    -----------------    -------------

                                                                   AVERAGE ANNUAL TOTAL RETURN
                                                           (INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S>                                          <C>                  <C>              <C>                  <C>
Inception (October 21, 1994) 
  to November 30, 1994....................        (26.56%)          $  966.70           (44.09%)          $  938.30
 
<CAPTION>
                                                                       ANNUAL TOTAL RETURN
                                                           (EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)

<S>                                          <C>                  <C>              <C>                  <C>
Inception (October 21, 1994) 
  to November 30, 1994....................         (2.35%)          $  976.50            (2.26%)          $  977.40
<CAPTION>
                                                                      AGGREGATE TOTAL RETURN
                                                           (INCLUDING MAXIMUM APPLICABLE SALES CHARGES)

<S>                                          <C>                  <C>              <C>                  <C>
Inception (October 21, 1994) 
  to November 30, 1994....................         (3.33%)          $  966.70            (6.17%)          $  938.30
</TABLE>
    
 
- -------------------
   
* Class C Shares and Class D Shares commenced operations on October 21, 1994.
    
 
   
    In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares," respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses may be
deducted.
    
 
    From time to time, the Fund may include the Fund's Morningstar risk-adjusted
performance rating in advertisements or supplemental sales literature.
 
                              GENERAL INFORMATION
 
DESCRIPTION OF SHARES
 
    The Fund was incorporated under Maryland law on September 26, 1990. It has
an authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock each of which consists of 100,000,000 shares. Class A, Class B,
Class C and Class D Common Stock each represent an interest in the same assets
of the Fund and are identical in all respects except that the Class B, Class C
and Class D shares bear certain expenses related to the account maintenance
and/or distribution of such shares and have exclusive voting rights with respect
to matters relating to such account maintenance and/or distribution
expenditures. The Fund has received an order from the Commission permitting the
issuance and sale of multiple classes of Common Stock. The Board of Directors of
the Fund may classify and reclassify the shares of the Fund into additional
classes of Common Stock at a future date.
 
    Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The 

 
                                       53
<PAGE>
Fund does not intend to hold meetings of shareholders in any year in which the 
Investment Company Act does not require shareholders to act upon any of the 
following matters: (i) election of Directors; (ii) approval of an investment 
advisory agreement; (iii) approval of a distribution agreement; and (iv) 
ratification of selection of independent accountants. Also, the by-laws of the
Fund require that a special meeting of stockholders be held upon the written
request of at least 10% of the outstanding shares of the Fund entitled to vote
at such meeting. Voting rights for Directors are not cumulative. Shares issued
are fully paid and non-assessable and have no preemptive rights. Redemption and
conversion rights are discussed elsewhere herein and in the Prospectus. Each
share is entitled to participate equally in dividends and distributions declared
by the Fund and in the net assets of the Fund upon liquidation or dissolution
after satisfaction of outstanding liabilities. Stock certificates are issued by
the transfer agent only on specific request. Certificates for fractional shares
are not issued in any case.
 
    The Manager provided the initial capital for the Fund by purchasing 5,000
shares of each class of stock for an aggregate of $100,000. Such shares were
acquired for investment and can only be disposed of by redemption. The
organizational expenses of the Fund will be paid by the Fund and amortized over
a period not exceeding five years. The proceeds realized by the Manager upon
redemption of any of such shares will be reduced by the proportionate amount of
the unamortized organizational expenses which the number of shares 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 November 30, 1994, is calculated as set forth below. Class B
and Class C shares commenced operations on October 21, 1994.
    
 
   
<TABLE>
<CAPTION>
                                       CLASS A        CLASS B       CLASS C     CLASS D
                                     -----------    ------------    --------    --------
<S>                                  <C>            <C>             <C>         <C>
Net Assets........................   $56,658,641    $459,184,758    $445,104    $238,663
                                     -----------    ------------    --------    --------
                                     -----------    ------------    --------    --------
Number of Shares Outstanding......     4,689,468      38,140,203      36,926      19,741
                                     -----------    ------------    --------    --------
                                     -----------    ------------    --------    --------
Net Asset Value Per Share (net
  assets divided by number of
shares outstanding)...............   $     12.08    $      12.04    $  12.05    $  12.09
                                     -----------    ------------    --------    --------
Sales Charge* (for Class A shares:
  4.0% of offering price (4.19% of
net asset value per share)).......          0.50         **            **           0.50
                                     -----------    ------------    --------    --------
Offering Price....................   $     12.58    $      12.04    $  12.05    $  12.59
                                     -----------    ------------    --------    --------
                                     -----------    ------------    --------    --------
</TABLE>
    
 
- ------------
 * Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
   applicable.
 
   
** Class B and Class C shares are not subject to an initial sales charge but may
   be subject to a CDSC on redemption. See "Purchase of Shares--Deferred Sales
   Charge Alternatives--Class B and Class C Shares" in the Prospectus and
   "Redemption of Shares--Deferred Sales Charges--Class B and Class C Shares"
   herein.
    
 
INDEPENDENT AUDITORS
 
    Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, have
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the 
 
                                       54
<PAGE>
Fund's shareholders in years when an annual meeting of shareholders is held. In
addition, employment of such auditors may be terminated without any penalty by 
vote of a majority of the outstanding shares of the Fund at a meeting called for
the purpose of terminating such employment. The independent auditors are 
responsible for auditing the annual financial statements of the Fund.
 
CUSTODIAN
 
    The Chase Manhattan Bank, N.A., acts as the Custodian of the Fund's assets.
Under its contract with the Fund, the Custodian is authorized to establish
separate accounts in foreign currencies and to cause foreign securities owned by
the Fund to be held in its offices outside the United States and with certain
foreign banks and securities depositories. 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.
 
TRANSFER AGENT
 
    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 November 30 of each year. The Fund sends to
its shareholders at least quarterly reports showing the Fund's portfolio and
other information. An annual report, containing financial statements audited by
independent auditors, is sent to shareholders each year. After the end of each
year shareholders will receive Federal income tax information regarding
dividends and capital gains distributions.
 
ADDITIONAL INFORMATION
 
    The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act, to which reference is hereby made.
 
    Under a separate agreement Merrill Lynch has granted the Fund the right to
use the "Merrill Lynch" name and has reserved the right to withdraw its consent
to the use of such name by the Fund at any time or to grant the use of such name
to any other company, and the Fund has granted Merrill Lynch, under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by Merrill Lynch.
 
   
    To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on March 1, 1995.
    
 
                                       55
<PAGE>
                                    APPENDIX
                       RATINGS OF FIXED INCOME SECURITIES
 DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") CORPORATE RATINGS
 
<TABLE>
<S>   <C>
AAA   Bonds which are rated Aaa are judged to be of the best quality. They carry the
      smallest degree of investment risk and are generally referred to as "gilt edge."
      Interest payments are protected by a large or by an exceptionally stable margin and
      principal is secure. While the various protective elements are likely to change, such
      changes as can be visualized are most unlikely to impair the fundamentally strong
      position of such issues.
 
AA    Bonds which are rated Aa are judged to be of high quality by all standards. Together
      with the Aaa group they comprise what are generally known as high grade bonds. They
      are rated lower than the best bonds because margins of protection may not be as large
      as in Aaa securities or fluctuation of protective elements may be of greater
      amplitude or there may be other elements present which make the long-term risks
      appear somewhat larger than in Aaa securities.
 
A     Bonds which are rated A possess many favorable investment attributes and are to be
      considered as upper medium grade obligations. Factors giving security to principal
      and interest are considered adequate, but elements may be present which suggest a
      susceptibility to impairment sometime in the future.
 
BAA   Bonds which are rated Baa are considered as medium grade obligations; i.e., they are
      neither highly protected nor poorly secured. Interest payments and principal security
      appear adequate for the present but certain protective elements may be lacking or may
      be characteristically unreliable over any great length of time. Such bonds lack
      outstanding investment characteristics and in fact have speculative characteristics
      as well.
 
BA    Bonds which are rated Ba are judged to have speculative elements; their future cannot
      be considered as well assured. Often the protection of interest and principal
      payments may be very moderate, and therefore not well safeguarded during both good
      and bad times over the future. Uncertainty of position characterizes bonds in this
      class.
 
B     Bonds which are rated B generally lack characteristics of desirable investments.
      Assurance of interest and principal payments or of maintenance of other terms of the
      contract over any long period of time may be small.
 
CAA   Bonds which are rated Caa are of poor standing. Such issues may be in default or
      there may be present elements of danger with respect to principal or interest.
 
CA    Bonds which are rated Ca represent obligations which are speculative in a high
      degree. Such issues are often in default or have other marked shortcomings.
 
C     Bonds which are rated C are the lowest rated class of bonds, and issues so rated can
      be regarded as having extremely poor prospects of ever attaining any real investment
      standing.
</TABLE>
 
    NOTE: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
 
                                       56
<PAGE>
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
 
    The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act of
1933, as amended.
 
    Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations are
exempt from registration under the Securities Act of 1933, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
 
    Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
 
    --Leading market positions in well established industries
 
    --High rates of return on funds employed
 
    --Conservative capitalization structures with moderate reliance on debt and
ample asset protection
 
    --Broad margins in earnings coverage of fixed financial charges and high
internal cash generation
 
    --Well established access to a range of financial markets and assured
sources of alternate liquidity.
 
    Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
 
    Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
 
    Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
 
    If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, then the name or names of
such supporting entity or entities are listed within parentheses beneath the
name of the issuer, or there is a footnote referring the reader to another page
for the name or names of the supporting entity or entities. In assigning ratings
to such issuers, Moody's evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the total rating
assessment. Moody's makes no representation and gives no opinion on the legal
validity or
 
                                       57
<PAGE>
enforceability of any support arrangement. You are cautioned to review with your
counsel any questions regarding particular support arrangements.
 
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
 
    Because of the fundamental differences between preferred stocks and bonds, a
variation of the bond rating symbols is being used in the quality ranking of
preferred stocks. The symbols, presented below, are designed to avoid comparison
with bond quality in absolute terms. It should always be borne in mind that
preferred stocks occupy a junior position to bonds within a particular
capitalstructure and that these securities are rated within the universe of
preferred stocks.
 
    Preferred stock rating symbols and their definitions are as follows:
 
<TABLE>
<S>        <C>
     AAA   An issue which is rated "aaa" is considered to be a top-quality preferred stock.
           This rating indicates good asset protection and the least risk of dividend
           impairment within the universe of preferred stocks.
 
     AA    An issue which is rated "aa" is considered a high-grade preferred stock. This
           rating indicates that there is reasonable assurance that earnings and asset
           protection will remain relatively well maintained in the foreseeable future.
 
     A     An issue which is rated "a" is considered to be an upper-medium grade preferred
           stock. While risks are judged to be somewhat greater than in the "aaa" and "aa"
           classifications, earnings and asset protection are, nevertheless, expected to be
           maintained at adequate levels.
 
     BAA   An issue which is rated "baa" is considered to be medium grade, neither highly
           protected nor poorly secured. Earnings and asset protection appear adequate at
           present but may be questionable over any great length of time.
 
     BA    An issue which is rated "ba" is considered to have speculative elements and its
           future cannot be considered well assured. Earnings and asset protection may be
           very moderate and not well safeguarded during adverse periods. Uncertainty of
           position characterizes preferred stocks in this class.
 
     B     An issue which is rated "b" generally lacks the characteristics of a desirable
           investment. Assurance of dividend payments and maintenance of other terms of the
           issue over any long period of time may be small.
 
     CAA   An issue which is rated "caa" is likely to be in arrears on dividend payments.
           This rating designation does not purport to indicate the future status of
           payments.
 
     CA    An issue which is rated "ca" is speculative in a high degree and is likely to be
           in arrears on dividends with little likelihood of eventual payment.
 
     C     This is the lowest rated class of preferred or preference stock. Issues so rated
           can be regarded as having extremely poor prospects of ever attaining any real
           investment standing.
</TABLE>
 
    NOTE: Moody's may apply numerical modifiers 1, 2 and 3 in each rating
classification from "aa" through "b" in its preferred stock rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
 
                                       58
<PAGE>
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP'S ("STANDARD & POOR'S") CORPORATE
DEBT RATINGS
 
    A Standard & Poor's corporate or municipal rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
 
    The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
 
    The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
 
    The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
 
<TABLE>
     <S>    <C>
     AAA    Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
            pay interest and repay principal is extremely strong.
 
     AA     Debt rated AA has a very strong capacity to pay interest and repay principal and
            differs from the highest-rated issues only in small degree.
 
     A      Debt rated A has a strong capacity to pay interest and repay principal although
            it is somewhat more susceptible to the adverse effects of changes in
            circumstances and economic conditions than debt in higher-rated categories.
 
     BBB    Debt rated BBB is regarded as having an adequate capacity to pay interest and
            repay principal. Whereas it normally exhibits adequate protection parameters,
            adverse economic conditions or changing circumstances are more likely to lead to
            a weakened capacity to pay interest and repay principal for debt in this category
            than for debt in higher-rated categories.
 
     DEBT   rated BB, B, CCC, CC and C are regarded as having predominantly speculative
            characteristics with respect to capacity to pay interest and repay principal. BB
            indicates the least degree of speculation and C the highest degree of
            speculation. While such debt will likely have some quality and protective
            characteristics, these are outweighed by large uncertainties or major risk
            exposures to adverse conditions.
 
     BB     Debt rated BB has less near-term vulnerability to default than other speculative
            grade debt. However, it faces major ongoing uncertainties or exposure to adverse
            business, financial or economic conditions which could lead to inadequate
            capacity to meet timely interest and principal payment. The BB rating category is
            also used for debt subordinated to senior debt that is assigned an actual or
            implied BBB- rating.
</TABLE>
 
                                       59
<PAGE>
<TABLE>
     <S>    <C>
     B      Debt rated B has a greater vulnerability to default but presently has the
            capacity to meet interest payments and principal repayments. Adverse business,
            financial or economic conditions would likely impair capacity or willingness to
            pay interest and repay principal. The B rating category is also used for debt
            subordinated to senior debt that is assigned an actual or implied BB or BB-
            rating.
 
     CCC    Debt rated CCC has a current identifiable vulnerability to default, and is
            dependent upon favorable business, financial and economic conditions to meet
            timely payments of interest and repayments of principal. In the event of adverse
            business, financial or economic conditions, it is not likely to have the capacity
            to pay interest and repay principal. The CCC rating category is also used for
            debt subordinated to senior debt that is assigned an actual or implied B or B-
            rating.
 
     CC     The rating CC is typically applied to debt subordinated to senior debt which is
            assigned an actual or implied CCC rating.
 
     C      The rating C is typically applied to debt subordinated to senior debt which is
            assigned an actual or implied CCC- debt rating. The C rating may be used to cover
            a situation where a bankruptcy petition has been filed but debt service payments
            are continued.
 
     CI     The rating CI is reserved for income bonds on which no interest is being paid.
 
     D      Debt rated D is in default. The D rating is assigned on the day an interest or
            principal payment is missed. The D rating also will be used upon the filing of a
            bankruptcy petition if debt service payments are jeopardized.
</TABLE>
 
    Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
 
    PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
 
    L The letter "L" indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is insured
by the Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance
Corp. and interest is adequately collateralized.
 
    * Continuance of the rating is contingent upon Standard & Poor's receipt of
an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
 
    NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
 
    Debt Obligations of Issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
 
                                       60
<PAGE>
    BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
 
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
 
    A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The four categories are as
follows:
 
<TABLE>
     <S>   <C>
     A     Issues assigned this highest rating are regarded as having the greatest capacity
           for timely payment. Issues in this category are delineated with the numbers 1, 2
           and 3 to indicate the relative degree of safety.
 
     A-1   This designation indicates that the degree of safety regarding timely payment is
           either overwhelming or very strong. Those issues determined to possess
           overwhelming safety characteristics are denoted with a plus (+) sign designation.
 
     A-2   Capacity for timely payment on issues with this designation is strong. However,
           the relative degree of safety is not as high as for issues designated "A-1".
 
     A-3   Issues carrying this designation have a satisfactory capacity for timely payment.
           They are, however, somewhat more vulnerable to the adverse effects of changes in
           circumstances than obligations carrying the higher designations.
 
     B     Issues rated "B" are regarded as having only adequate capacity for timely
           payment. However, such capacity may be damaged by changing conditions or
           short-term adversities.
 
     C     This rating is assigned to short-term debt obligations with a doubtful capacity
           for payment.
 
     D     This rating indicates that the issue is either in default or is expected to be in
           default upon maturity.
</TABLE>
 
    The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
 
DESCRIPTION OF STANDARD & POOR'S PREFERRED STOCK RATINGS
 
    A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the bond rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
 
                                       61
<PAGE>
    The preferred stock ratings are based on the following considerations:
 
<TABLE>
     <S>   <C>
     I.    Likelihood of payment-capacity and willingness of the issuer to meet the timely
           payment of preferred stock dividends and any applicable sinking fund requirements
           in accordance with the terms of the obligation.
 
     II.   Nature of, and provisions of, the issue.
 
     III.  Relative position of the issue in the event of bankruptcy, reorganization, or
           other arrangements affecting creditors' rights.
 
     AAA   This is the highest rating that may be assigned by Standard & Poor's to a
           preferred stock issue and indicates an extremely strong capacity to pay the
           preferred stock obligations.
 
     AA    A preferred stock issue rated "AA" also qualifies as a high-quality fixed income
           security. The capacity to pay preferred stock obligations is very strong,
           although not as overwhelming as for issues rated "AAA."
 
     A     An issue rated "A" is backed by a sound capacity to pay the preferred stock
           obligations, although it is somewhat more susceptible to the adverse effects of
           changes in circumstances and economic conditions.
 
     BBB   An issue rated "BBB" is regarded as backed by an adequate capacity to pay the
           preferred stock obligations. Whereas it normally exhibits adequate protection
           parameters, adverse economic conditions or changing circumstances are more likely
           to lead to a weakened capacity to make payments for a preferred stock in this
           category than for issues in the "A" category.
 
     BB    Preferred stock rated "BB", "B", and "CCC" are regarded, on balance, as
           predominantly
     B     speculative with respect to the issuer's capacity to pay preferred stock
           obligations. "BB"
     CCC   indicates the lowest degree of speculation and "CCC" the highest degree of
           speculation. While such issues will likely have some quality and protection
           characteristics, these are outweighed by large uncertainties or major risk
           exposures to adverse conditions.
 
     CC    The rating "CC" is reserved for a preferred stock issue in arrears on dividends
           or sinking fund payments but that is currently paying.
 
     C     A preferred stock rated "C" is a non-paying issue.
 
     D     A preferred stock rated "D" is a non-paying issue with the issuer in default on
           debt instruments.
 
     NR    Indicates that no rating has been requested, that there is insufficient
           information on which to base a rating, or that S&P does not rate a particular
           type of obligation as a matter of policy.
</TABLE>
 
    Plus (+) or minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition of
a plus or minus sign to show relative standing within the major rating
categories.
 
                                       62
<PAGE>
    The preferred stock ratings are not a recommendation to purchase or sell a
security, inasmuch as market price is not considered in arriving at the rating.
Preferred stock ratings are wholly unrelated to Standard & Poor's earnings and
dividend rankings for common stocks.
 
    The ratings are based on current information furnished to Standard & Poor's
by the issuer, and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information.
 
                                       63
<PAGE>
   
                          INDEPENDENT AUDITORS' REPORT
    
 
   
The Board of Directors and Shareholders,
MERRILL LYNCH GLOBAL UTILITY FUND, INC.:
    
 
   
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Global Utility Fund, Inc. as of
November 30, 1994, the related statements of operations for the year then ended
and changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for the three-year period then ended and the
period December 28, 1990 (commencement of operations) to November 30, 1991.
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 November
30, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
    
 
   
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch Global
Utility Fund, Inc. as of November 30, 1994, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
    
 
   
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
January 6, 1995
    
 
                                       64
<PAGE>
                    [THIS PAGE IS INTENTIONALLY LEFT BLANK]
 
                                       65
<PAGE>


<TABLE>
SCHEDULE OF INVESTMENTS                                                                                    (in US dollars)
<CAPTION>
                                        Shares                                                          Value    Percent of
COUNTRY      Industries                  Held       Common Stocks & Warrants              Cost        (Note 1a)  Net Assets
<S>          <S>                    <C>         <S>                                  <C>            <C>              <C>
Argentina    Telecommunications       138,479   Telecom Argentina Stet S.A.
                                                (ADR)++ (c)                          $  5,075,039   $  7,650,965       1.5%
                                      128,513   Telefonica de Argentina S.A.
                                                (ADR)++                                 4,824,906      7,148,535       1.4
                                                                                     ------------   ------------     ------
                                                                                        9,899,945     14,799,500       2.9

             Utilities--Electric        6,600   Central Costanera S.A. (ADR)++
                                                (c)                                       158,400        202,950       0.0

                                                Total Common Stocks in Argentina       10,058,345     15,002,450       2.9


Australia    Utilities--Gas         2,556,885   Australian Gas & Light Co., Ltd.        6,603,543      8,233,208       1.6

                                                Total Common Stocks in Australia        6,603,543      8,233,208       1.6


Austria      Utilities--Gas            34,850   Energie Versorgung Niederoesterreich
                                                AG (EVN)                                3,050,015      4,362,949       0.8

                                                Total Common Stocks in Austria          3,050,015      4,362,949       0.8


Brazil       Utilities--Electric      160,000   Companhia Energetica de Minas
                                                Gerais (CEMIG)
                                                (ADR)++ (c)                             3,840,000      4,200,000       0.8

                                                Total Common Stocks in Brazil           3,840,000      4,200,000       0.8

Canada       Telecommunications       321,700   BC Telecom, Inc.                        6,009,937      5,585,882       1.1

             Utilities--Electric      458,600   Nova Scotia Power Co.                   4,322,473      3,793,873       0.7

             Utilities--Gas           573,700   Transcanada Pipeline Co. Ltd.
                                                (ADR)++                                 8,602,384      7,242,962       1.4
                                      400,000   Westcoast Energy Inc.                   6,901,727      6,800,000       1.3
                                                                                     ------------   ------------     ------
                                                                                       15,504,111     14,042,962       2.7

                                                Total Common Stocks in Canada          25,836,521     23,422,717       4.5


Chile        Telecommunications        84,300   Compania de Telefonos de Chile
                                                S.A. (ADR)++                            5,871,894      7,249,800       1.4

             Utilities--Electric       65,000   Chilgener S.A. (ADR)++                  1,495,000      1,885,000       0.4
                                      186,000   Distribuidora Chilectra Metro-
                                                politana S.A. (ADR)++ (c)               5,031,451      9,636,660       1.9
                                       28,000   Enersis S.A. (ADR)++                      544,224        836,500       0.1
                                                                                     ------------   ------------     ------
                                                                                        7,070,675     12,358,160       2.4

                                                Total Common Stocks in Chile           12,942,569     19,607,960       3.8

                                       66
<PAGE>

Denmark      Telecommunications       331,000   Tele Danmark A/S (ADR)++                7,787,106      8,564,625       1.7

                                                Total Common Stocks in Denmark          7,787,106      8,564,625       1.7


France       Utilities--Water         107,688   Compagnie Generale des Eaux            11,509,640     10,303,062       2.0
                                       40,000   Lyonnaise des Eaux-Dumez                3,989,365      3,600,357       0.7
                                                                                     ------------   ------------     ------
                                                                                       15,499,005     13,903,419       2.7

                                                Total Common Stocks in France          15,499,005     13,903,419       2.7


Germany      Utilities--Electric       20,000   VEBA AG                                 6,526,985      6,563,854       1.3

                                                Total Common Stocks in Germany          6,526,985      6,563,854       1.3


Hong Kong    Telecommunications     7,644,000   Hong Kong Telecommunications,
                                                Ltd. PLC                               12,600,067     15,122,737       3.0

             Utilities--Electric    2,704,700   China Light & Power Co., Ltd.          16,998,370     11,646,130       2.3
                                    1,552,000   Hong Kong Electric Holdings, Ltd.       3,897,526      3,853,109       0.7
                                                                                     ------------   ------------     ------
                                                                                       20,895,896     15,499,239       3.0
             Utilities--Gas         2,626,800   The Hong Kong & China Gas Co.,
                                                Ltd.                                    4,674,416      4,279,725       0.8
                                      218,900   The Hong Kong & China Gas Co.,
                                                Ltd. (Warrants)(a)(b)                           0         34,815       0.0
                                                                                     ------------   ------------     ------
                                                                                        4,674,416      4,314,540       0.8

                                                Total Common Stocks & Warrants
                                                in Hong Kong                           38,170,379     34,936,516       6.8


India        Utilities--Electric       49,500   CESC Ltd. (Units)                       2,640,330      2,450,250       0.5

                                                Total Common Stocks in India            2,640,330      2,450,250       0.5


Indonesia    Telecommunications         5,500   P.T. Indonesian Satellite Corp.
                                                (Indosat)(ADR)++                          176,275        209,000       0.0

                                                Total Common Stocks in Indonesia          176,275        209,000       0.0


Italy        Telecommunications     3,091,700   Societa Finanziaria Telefonica
                                                S.p.A. (STET)                           5,780,442      7,415,569       1.5

                                    5,000,000   Telecom Italia S.p.A.                   7,383,795     12,950,886       2.5
                                                                                     ------------   ------------     ------
                                                                                       13,164,237     20,366,455       4.0

             Utilities--Gas         1,786,300   Italgas Torino                          5,169,953      5,278,345       1.0

                                                Total Common Stocks in Italy           18,334,190     25,644,800       5.0
</TABLE>
                                       67
<PAGE>


<TABLE>
SCHEDULE OF INVESTMENTS (continued)                                                                         (in US dollars)
<CAPTION>
                                        Shares                                                          Value    Percent of
COUNTRY      Industries                  Held       Common Stocks & Warrants              Cost        (Note 1a)  Net Assets
<S>          <S>                    <C>         <S>                                  <C>            <C>              <C>
Korea        Utilities--Electric      199,200   Korea Electric Power Corp.
                                                (KEPCO)(ADR)++(b)                    $  4,008,900   $  4,183,200       0.8%

                                                Total Common Stocks in Korea            4,008,900      4,183,200       0.8

Malaysia     Telecommunications     1,385,000   Telekom Malaysia BHD                    9,502,659     10,189,802       2.0

                                                Total Common Stocks in Malaysia         9,502,659     10,189,802       2.0


Mexico       Telecommunications       140,000   Telefonos de Mexico, S.A. de C.V.
                                                (ADR)++                                 7,377,170      7,420,000       1.4

                                                Total Common Stocks in Mexico           7,377,170      7,420,000       1.4


New Zealand  Telecommunications       166,500   Telecom Corporation of New
                                                Zealand Ltd. (ADR)++                    6,009,095      9,011,813       1.7

                                                Total Common Stocks in New
                                                Zealand                                 6,009,095      9,011,813       1.7


Philippines  Telecommunications       100,000   Philippine Long Distance
                                                Telephone Co. (ADR)++                   4,311,241      5,125,000       1.0

             Utilities--Electric       38,000   Manila Electric Co. (MERALCO) 'B'         497,246        519,280       0.1

                                                Total Common Stocks in the
                                                Philippines                             4,808,487      5,644,280       1.1


Spain        Telecommunications       537,300   Telefonica de Espana S.A.               6,164,064      6,890,565       1.3

             Utilities--Electric      154,800   Empresa Nacional de Electricidad
                                                S.A. (ADR)++                            5,123,952      7,004,700       1.4
                                       92,000   Hidrocantabrico S.A.                    3,107,921      2,696,794       0.5
                                      808,500   Iberdrola I S.A.                        4,998,321      5,424,973       1.1
                                                                                     ------------   ------------     ------
                                                                                       13,230,194     15,126,467       3.0

                                                Total Common Stocks in Spain           19,394,258     22,017,032       4.3


Thailand     Telecommunications        15,000   TelecomAsia Corporation Public
                                                Co., Ltd. (ADR)++(c)                      328,050        450,000       0.1

             Utilities--Electric      332,000   Electricity Generating Public
                                                Co., Ltd. (EGAT)                          296,433        536,724       0.1

                                                Total Common Stocks in Thailand           624,483        986,724       0.2

United       Telecommunications       845,000   British Telecommunications PLC
Kingdom                                         (Ord.)                                  5,900,759      5,027,463       1.0
                                      180,000   Vodafone Group PLC (ADR)++              5,355,931      5,850,000       1.1
                                                                                     ------------   ------------     ------
                                                                                       11,256,690     10,877,463       2.1

             Utilities--Electric      445,000   Powergen PLC (Ord.)                     3,253,482      3,797,214       0.7

                                                Total Common Stocks in the
                                                United Kingdom                         14,510,172     14,674,677       2.8


United       Telecommunications       160,100   Airtouch Communications, Inc.           3,031,722      4,342,712       0.8
States                                201,800   Ameritech Corp.                         7,640,760      7,971,100       1.5
                                      138,700   Bell Atlantic Corp.                     7,358,558      6,952,337       1.3
                                      149,400   BellSouth Corp.                         8,454,788      7,750,125       1.5
                                      235,700   GTE Corp.                               8,322,438      7,218,312       1.4
                                      147,700   NYNEX Corp.                             6,204,823      5,557,212       1.1
                                      160,100   Pacific Telesis Group                   4,187,524      4,642,900       0.9
                                      197,900   Southwestern Bell Corp.                 6,889,718      8,188,112       1.6
                                      217,900   U S West Inc.                          10,138,272      7,680,975       1.5
                                                                                     ------------   ------------     ------
                                                                                       62,228,603     60,303,785      11.6
                                       68
<PAGE>

             Utilities--Electric      289,500   Allegheny Power System, Inc.            7,707,195      6,296,625       1.2
                                      207,200   Boston Edison Co.                       5,530,724      4,739,700       0.9
                                      184,000   Central & SouthWest Corp.               5,218,349      3,910,000       0.8
                                      371,962   CINergy Corp. (d)                       8,749,712      8,276,155       1.6
                                      218,200   Consolidated Edison Co.
                                                of New York                             6,893,524      5,645,925       1.1
                                      138,900   Detroit Edison Co.                      4,670,083      3,715,575       0.7
                                      110,250   Dominion Resources, Inc.                4,427,302      4,093,031       0.8
                                      215,000   Duke Power Co.                          8,718,203      8,761,250       1.7
                                      324,300   General Public Utilities Corp.          9,600,670      8,350,725       1.6
                                      234,100   Houston Industries, Inc.               11,139,344      7,959,400       1.5
                                      244,800   NIPSCO Industries, Inc.                 6,616,371      7,160,400       1.4
                                      221,000   New York State Electric &
                                                Gas Corp.                               7,952,312      4,116,125       0.8
                                      185,700   Northeast Utilities Co.                 4,974,996      3,969,338       0.8
                                      295,500   PECO Energy Co.                         8,689,805      7,128,937       1.4
                                      323,000   PacifiCorp                              6,465,176      5,975,500       1.1
                                      192,000   Public Service Co. of Colorado          5,832,890      5,472,000       1.1
                                      283,000   SCEcorp                                 6,379,546      3,962,000       0.8
                                      381,200   Southern Co.                            6,665,086      7,909,900       1.5
                                      178,300   Texas Utilities Co.                     7,234,091      5,817,037       1.1
                                      177,300   Western Resources Co.                   5,664,717      4,986,562       1.0
                                                                                     ------------   ------------     ------
                                                                                      139,130,096    118,246,185      22.9

             Utilities--Gas           130,000   The Brooklyn Union Gas Co.              3,371,550      2,892,500       0.6
                                      226,000   The Coastal Corp.                       6,038,593      5,819,500       1.1
                                      108,300   El Paso Natural Gas Co.                 4,196,831      3,641,588       0.7
                                      284,000   Enron Corp.                             6,456,111      7,668,000       1.5
                                      244,300   NICOR Inc.                              5,363,453      5,496,750       1.1
                                       79,000   National Fuel Gas Company               2,374,740      2,054,000       0.4
                                      108,000   New Jersey Resources Corp.              3,063,867      2,470,500       0.5
                                      236,000   Questar Corp.                           6,554,436      6,372,000       1.2
                                      247,300   Sonat, Inc.                             5,395,134      6,955,312       1.3
                                       90,000   Washington Gas Light Co.                3,241,317      3,003,750       0.6
                                                                                     ------------   ------------     ------
                                                                                       46,056,032     46,373,900       9.0

                                                Total Common Stocks in the
                                                United States                         247,414,731    224,923,870      43.5

                                                Total Investments in Common
                                                Stocks & Warrants                     465,115,218    466,153,146      90.2

                                      Face
                                     Amount           Fixed-Income Securities
<S>          <S>               <S>  <C>         <S>                                     <C>            <C>             <C>
Australia    Telecommuni-      US$  7,960,000   Telstra Corp., Ltd., 6.50% due
             cations                            7/31/2003 (c)                           8,115,578      6,930,175       1.3

                                                Total Fixed-Income Securities
                                                in Australia                            8,115,578      6,930,175       1.3


Canada       Utilities--Electric    2,000,000   Hydro-Quebec, 9.23% due 12/04/2000      2,038,540      2,061,540       0.4

                                                Total Fixed-Income Securities
                                                in Canada                               2,038,540      2,061,540       0.4


Japan        Telecommunications     4,000,000   Nippon Telegraph & Telephone
                                                Corp., 9.50% due 7/27/1998              4,244,380      4,174,040       0.8

                                                Total Fixed-Income Securities
                                                in Japan                                4,244,380      4,174,040       0.8
</TABLE>
                                       69
<PAGE>


<TABLE>
SCHEDULE OF INVESTMENTS (concluded)                                                                          (in US dollars)
<CAPTION>
                                      Face                                                              Value     Percent of
COUNTRY      Industries              Amount           Fixed-Income Securities             Cost        (Note 1a)   Net Assets
<S>          <S>                <S> <C>         <S>                                  <C>            <C>              <C>
Korea        Telecommuni-       US$ 2,500,000   Korea Telecom, 7.40% due
             cations                            12/01/1999                           $  2,499,500   $  2,368,450       0.4%

             Utilities--Electric    6,000,000   Korea Electric Power Corp.,
                                                6.375% due 12/01/2003                   5,913,060      5,067,900       1.0

                                                Total Fixed-Income Securities
                                                in Korea                                8,412,560      7,436,350       1.4

United       Telecommunications     3,500,000   Bell Cablemedia PLC, 11.75%*
Kingdom                                         due 7/15/2004                           2,046,245      1,855,000       0.4

                                                Total Fixed-Income Securities
                                                in the United Kingdom                   2,046,245      1,855,000       0.4


United       Telecommuni-           4,000,000   Rochester Telephone Corp., 9.25%
States       cations                            due 6/01/2000                           4,111,200      4,155,160       0.8
             
	     Utilities--            4,000,000   Consumer Power Co., 8.875%
             Electric                           due 11/15/1999                          4,190,000      3,988,800       0.8
                                    4,000,000   Niagara Mohawk Power Corp.,
                                                9.50% due 6/01/2000                     4,197,640      4,033,400       0.8
                                                                                     ------------   ------------     ------
                                                                                        8,387,640      8,022,200       1.6

                                                Total Fixed-Income Securities
                                                in the United States                   12,498,840     12,177,360       2.4

                                                Total Investments in Fixed-
                                                Income Securities                      37,356,143     34,634,465       6.7


                                                     Short-Term Securities
             <S>                    <C>         <S>                                  <C>            <C>              <C>

             Repurchase            14,706,000   Swiss Bank Corp., purchased on
             Agreement**                        11/30/1994 to yield 5.68% to
                                                12/01/1994                             14,706,000     14,706,000       2.9

                                                Total Investments in Short-Term
                                                Securities                             14,706,000     14,706,000       2.9


             Total Investments                                                       $517,177,361    515,493,611      99.8
                                                                                     ============               
             Other Assets Less Liabilities                                                             1,033,555       0.2
                                                                                                    ------------     ------
             Net Assets                                                                             $516,527,166     100.0%
                                                                                                    ============     ======
          <FN>
            *Represents the yield to maturity.
           **Repurchase Agreements are fully collateralized
             by US Government and Agency Obligations.
           ++American Depositary Receipts (ADR).
          (a)Warrants entitle the Fund to purchase a prede-
             termined number of shares of Common Stock.
             The purchase price and number of shares are
             subject to adjustment under certain conditions
             until the expiration date.
          (b)Non-income producing security.
          (c)Restricted securities as to resale. The value of the Fund's
             investment in restricted securities was approximately 
	     $29,071,000, representing 5.6% of net assets.

             <CAPTION>
                                                       Aquisition                           Value
             Issue                                       Date(s)              Cost        (Note 1a)
             <S>                                  <C>                     <C>            <C>
             Central Costanera S.A. (ADR)              12/17/1993         $   158,400    $   202,950
             Companhia Energetica de Minas Gerais
                (CEMIG) (ADR)                           9/22/1994           3,840,000      4,200,000
             Distribuidora Chilectra Metropolitana
                S.A. (ADR)                        2/12/1992--12/21/1993     5,031,451      9,636,660
             Telecom Argentina Stet S.A. (ADR)    3/23/1992--12/22/1993     5,075,039      7,650,965
             TelecomAsia Corporation Public Co.,
                Ltd. (ADR)                             11/15/1993             328,050        450,000
             Telstra Corp., Ltd., 6.50%
                due 7/31/2003                      7/26/1993--9/29/1993     8,115,578      6,930,175

             Total                                                        $22,548,518    $29,070,750
                                                                          ===========    ===========

          (d)Formerly PSI Resources, Inc.

             See Notes to Financial Statements.
</TABLE>

                                       70
<PAGE>

<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
               As of November 30, 1994
<S>            <C>                                                                          <C>             <C>
Assets:        Investments, at value (identified cost--$517,177,361)(Note 1a)                               $515,493,611
               Cash                                                                                              247,529
               Receivables:
                  Dividends                                                                $  2,125,977
                  Interest                                                                      868,552
                  Capital shares sold                                                           727,238        3,721,767
                                                                                           ------------
               Deferred organization expenses (Note 1f)                                                           22,634
               Prepaid registration fees and other assets (Note 1f)                                               29,118
                                                                                                            ------------
               Total assets                                                                                  519,514,659
                                                                                                            ------------
Liabilities:   Payables:
                  Capital shares redeemed                                                     1,998,820
                  Distributor (Note 2)                                                          290,437
                  Investment adviser (Note 2)                                                   261,043        2,550,300
                                                                                           ------------
               Accrued expenses and other liabilities                                                            437,193
                                                                                                            ------------
               Total liabilities                                                                               2,987,493
                                                                                                            ------------

Net Assets:    Net assets                                                                                   $516,527,166
                                                                                                            ============

Net Assets     Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of:    authorized                                                                                   $    468,947
               Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
               authorized                                                                                      3,814,020
               Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
               authorized                                                                                          3,693
               Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
               authorized                                                                                          1,974
               Paid-in capital in excess of par                                                              512,402,330
               Undistributed investment income--net                                                            2,733,344
               Accumulated realized capital losses on investments and foreign currency
               transactions--net (Note 6)                                                                     (1,216,717)
               Unrealized depreciation on investments and foreign currency trans-
               actions--net                                                                                   (1,680,425)
                                                                                                            ------------
               Net assets                                                        .                          $516,527,166
                                                                                                            ============

Net Asset      Class A--Based on net assets of $56,658,641 and 4,689,468 shares
Value:         outstanding                                                                                  $      12.08
                                                                                                            ============
               Class B--Based on net assets of $459,184,758 and 38,140,203 shares
               outstanding                                                                                  $      12.04
                                                                                                            ============
               Class C--Based on net assets of $445,104 and 36,926 shares
               outstanding                                                                                  $      12.05
                                                                                                            ============
               Class D--Based on net assets of $238,663 and 19,741 shares
               outstanding                                                                                  $      12.09
                                                                                                            ============

               See Notes to Financial Statements.
</TABLE>
                                       71
<PAGE>

<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
               For the Year Ended November 30, 1994
<S>            <C>                                                                          <C>             <C>
Investment     Dividends (net of $860,480 foreign withholding tax)                                          $ 23,802,839
Income         Interest and discount earned                                                                    4,586,840
(Notes 1d                                                                                                   ------------
& 1e):         Total income                                                                                   28,389,679
                                                                                                            ------------

Expenses:      Distribution fees--Class B (Note 2)                                         $  4,239,815
               Investment advisory fees (Note 2)                                              3,831,948
               Transfer agent fees--Class B (Note 2)                                            704,461
               Custodian fees                                                                   342,032
               Printing and shareholder reports                                                 232,478
               Accounting services (Note 2)                                                     133,772
               Registration fees (Note 1f)                                                      125,316
               Professional fees                                                                 97,683
               Transfer agent fees--Class A (Note 2)                                             76,804
               Amortization of organization expenses (Note 1f)                                   20,893
               Directors' fees and expenses                                                      18,508
               Pricing fees                                                                         829
               Other                                                                             17,383
                                                                                           ------------
               Total expenses                                                                                  9,841,922
                                                                                                            ------------
               Investment income--net                                                                         18,547,757
                                                                                                            ------------

Realized &     Realized gain (loss) from:
Unrealized        Investments--net                                                           (1,319,689)
Gain (Loss)       Foreign currency transactions--net                                             49,645       (1,270,044)
on Invest-                                                                                 ------------
ments &        Change in unrealized appreciation/depreciation on:
Foreign           Investments--net                                                          (52,886,482)
Currency          Foreign currency transactions--net                                              2,881      (52,883,601)
Transactions--                                                                             ------------     ------------
Net(Notes      Net realized and unrealized loss on investments and
1b, 1e & 3):   foreign currency transactions                                                                 (54,153,645)
                                                                                                            ------------
               Net Decrease in Net Assets Resulting from Operations                                         $(35,605,888)
                                                                                                            ------------

               See Notes to Financial Statements.
</TABLE>

                                       72
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
                                                                                                 For the Year Ended
                                                                                                    November 30,
               Increase (Decrease) in Net Assets:                                               1994             1993
<S>            <C>                                                                         <C>              <C>
Operations:    Investment income--net                                                      $ 18,547,757     $ 11,336,371
               Realized gain (loss) on investments and foreign currency
               transactions--net                                                             (1,270,044)       4,716,322
               Change in unrealized appreciation/depreciation on investments
               and foreign currency transactions--net                                       (52,883,601)      37,518,154
                                                                                           ------------     ------------
               Net increase (decrease) in net assets resulting from operations              (35,605,888)      53,570,847
                                                                                           ------------     ------------

Dividends &    Investment income--net:
Distribu-         Class A                                                                    (2,661,239)      (1,417,410)
tions to          Class B                                                                   (16,205,857)      (8,066,873)
Shareholders   Realized gain on investments--net:
(Note 1g):        Class A                                                                      (219,759)         (33,059)
                  Class B                                                                    (1,627,301)        (223,915)
                                                                                           ------------     ------------
               Net decrease in net assets resulting from dividends and
               distributions to shareholders                                                (20,714,156)      (9,741,257)
                                                                                           ------------     ------------

Capital Share  Net increase (decrease) in net assets derived from
Transactions   capital share transactions                                                  (105,325,044)     404,174,719
(Note 4):                                                                                  ------------     ------------

Net Assets:    Total increase (decrease) in net assets                                     (161,645,088)     448,004,309
               Beginning of year                                                            678,172,254      230,167,945
                                                                                           ------------     ------------
               End of year*                                                                $516,527,166     $678,172,254
                                                                                           ============     ============

              <FN>
              *Undistributed investment income--net                                        $  2,733,344     $  3,052,683
                                                                                           ============     ============

               See Notes to Financial Statements.
</TABLE>


                                       73
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
                                                                                                        Class A
                                                                                                                        For the
                                                                                                                        Period
               The following per share data and ratios have been derived                                                Dec. 28,
               from information provided in the financial statements.                          For the Year            1990++ to
                                                                                             Ended November 30,         Nov. 30,
               Increase (Decrease) in Net Asset Value:                                1994        1993        1992        1991
<S>            <C>                                                                 <C>         <C>         <C>         <C>
Per Share      Net asset value, beginning of period                                $  13.22    $  11.23    $  10.67    $  10.00
Operating                                                                          --------    --------    --------    --------
Performance:   Investment income--net                                                   .94         .40         .47         .49
               Realized and unrealized gain (loss) on investments and
               foreign currency transactions--net                                     (1.57)       2.01         .57         .56
                                                                                   --------    --------    --------    --------
               Total from investment operations                                        (.63)       2.41        1.04        1.05
                                                                                   --------    --------    --------    --------
               Less dividends and distributions:
                 Investment income--net                                                (.47)       (.41)       (.48)       (.38)
                 Realized gain on investments--net                                     (.04)       (.01)         --          --
                                                                                   --------    --------    --------    --------
               Total dividends and distributions                                       (.51)       (.42)       (.48)       (.38)
                                                                                   --------    --------    --------    --------
               Net asset value, end of period                                      $  12.08    $  13.22    $  11.23    $  10.67
                                                                                   ========    ========    ========    ========


Total          Based on net asset value per share                                    (4.89%)     21.80%      10.05%      10.83%+++
Investment                                                                         ========    ========    ========    ========
Return:**

Ratios to      Expenses                                                                .86%        .82%       1.01%       1.28%*
Average                                                                            ========    ========    ========    ========
Net Assets:    Investment income--net                                                 3.58%       3.57%       4.47%       5.57%*
                                                                                   ========    ========    ========    ========

Supplemental   Net assets, end of period (in thousands)                            $ 56,659    $ 81,718    $ 29,772    $ 20,579
Data:                                                                              ========    ========    ========    ========
               Portfolio turnover                                                    17.02%       8.92%      30.91%      20.51%
                                                                                   ========    ========    ========    ========
<CAPTION>
                                                                                                      Class B
                                                                                                                       For the
                                                                                                                       Period
               The following per share data and ratios have been derived                                               Dec. 28,
               from information provided in the financial statements.                         For the Year            1990++ to
                                                                                            Ended November 30,         Nov. 30,
               Increase (Decrease) in Net Asset Value:                                1994       1993         1992       1991
<S>            <S>                                                                 <C>         <C>         <C>         <C>
Per Share      Net asset value, beginning of period                                $  13.17    $  11.20    $  10.65    $  10.00
Operating                                                                          --------    --------    --------    --------
Performance:   Investment income--net                                                   .74         .33         .39         .40
               Realized and unrealized gain (loss) on investments and foreign
               currency transactions--net                                             (1.46)       1.98         .57         .58
                                                                                   --------    --------    --------    --------
               Total from investment operations                                        (.72)       2.31         .96         .98
                                                                                   --------    --------    --------    --------
               Less dividends and distributions:
                 Investment income--net                                                (.37)       (.33)       (.41)       (.33)
                 Realized gain on investments--net                                     (.04)       (.01)         --          --
                                                                                   --------    --------    --------    --------
               Total dividends and distributions                                       (.41)       (.34)       (.41)       (.33)
                                                                                   --------    --------    --------    --------
                                       74
<PAGE>
               Net asset value, end of period                                      $  12.04    $  13.17    $  11.20    $  10.65
                                                                                   ========    ========    ========    ========

Total          Based on net asset value per share                                    (5.60%)     20.86%       9.20%      10.05%+++
Investment                                                                         ========    ========    ========    ========
Return:**

Ratios to      Expenses, excluding account maintenance and/or
Average        distribution fees                                                       .88%        .84%       1.02%       1.29%*
Net Assets:                                                                        ========    ========    ========    ========
               Expenses                                                               1.63%       1.59%       1.77%       2.04%*
                                                                                   ========    ========    ========    ========
               Investment income--net                                                 2.82%       2.81%       3.65%       4.78%*
                                                                                   ========    ========    ========    ========

Supplemental   Net assets, end of period (in thousands)                            $459,185    $596,455    $200,396     $90,966
Data:                                                                              ========    ========    ========    ========
               Portfolio turnover                                                    17.02%       8.92%      30.91%      20.51%
                                                                                   ========    ========    ========    ========



<CAPTION>
               The following per share data and ratios have been derived                          For the Period
               from information provided in the financial statements.                           October 21, 1994++
                                                                                               to November 30, 1994
               Increase (Decrease) in Net Asset Value:                                        Class C         Class D
<S>            <S>                                                                         <C>              <C>
Per Share      Net asset value, beginning of period                                        $      12.34     $      12.37
Operating                                                                                  ------------     ------------
Performance:   Investment income--net                                                               .01              .02
               Realized and unrealized gain on investments and foreign currency
               transactions--net                                                                   (.30)            (.30)
                                                                                           ------------     ------------
               Total from investment operations                                                    (.29)            (.28)
                                                                                           ------------     ------------
               Net asset value, end of period                                              $      12.05     $      12.09
                                                                                           ============     ============

Total          Based on net asset value per share                                                (2.35%)+++       (2.26%)+++
Investment                                                                                 ============     ============
Return:**

Ratios to      Expenses, excluding account maintenance and/or
Average        distribution fees                                                                   .80%*            .83%*
Net Assets:                                                                                ============     ============
               Expenses                                                                           1.60%*           1.08%*
                                                                                           ============     ============
               Investment income--net                                                             3.01%*           3.25%*
                                                                                           ============     ============

Supplemental   Net assets, end of period (in thousands)                                    $        445     $        239
Data:                                                                                      ============     ============
               Portfolio turnover                                                                17.02%           17.02%
                                                                                           ============     ============

            <FN>
              *Annualized.
             **Total investment returns exclude the effect of sales loads.
             ++Commencement of Operations.
            +++Aggregate total investment return.

               See Notes to Financial Statements.
</TABLE>


NOTES TO FINANCIAL STATEMENTS
                                       75
<PAGE>

1. Significant Accounting Policies:
Merrill Lynch Global Utility Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select 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 Securities--Securities traded in the over-the-
counter market are valued at the last available bid price or yield
equivalents obtained from one or more dealers in the over-the-
counter market prior to the time of valuation. Portfolio securities
which are traded on stock exchanges are valued at the last sale
price on the principal market 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. Short-
term securities are valued at amortized cost, which approximates
market value.

Options written are valued based upon the last asked price in the
case of exchange-traded options or, in the case of options traded in
the over-the-counter market, at the average of the last asked price
as obtained from one or more dealers. Options purchased by the Fund
are valued at their last bid price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter
market, at the average of the last bid price as obtained from two or
more dealers. Other investments, including futures contracts and
related options, are stated at market value.

Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund.

(b) Foreign Currency Transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) receivables or payables expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.

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.

(c) Options--The Fund is authorized to purchase and write call and
put options. When the Fund sells an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.

When a security is 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 is less than or exceeds the premiums paid or
received).

Written and purchased options are non-income producing investments.

(d) Income Taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute 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). Interest income (including amortization of
discount) is recognized on the accrual basis. 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.
Realized gains and losses on security transactions are determined on
the identified cost basis.

                                       76
<PAGE>
(f) Deferred Organization Expenses and Prepaid Registration Fees--
Deferred organization expenses are charged to expense over a five-
year period. Prepaid registration fees are charged to expense as the
related shares are issued.

(g) Dividends and Distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.

2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co. ("ML & Co."). The limited
partners are ML & Co. and Merrill Lynch Investment Management, Inc.
("MLIM"), which is also an indirect wholly-owned subsidiary of ML &
Co. The Fund has also entered into a Distribution Agreement and a
Distribution Plan with Merrill Lynch Funds Distributor, Inc. ("MLFD"
or "Distributor"), a wholly-owned subsidiary of MLIM.

MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operation 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. The most
restrictive annual expense limitation requires that the Investment
Adviser reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Fund's
first $30 million of average daily net assets, 2.0% of the next $70
million of average daily net assets and 1.5% of the average daily
net assets in excess thereof. MLAM's obligation to reimburse the
Fund is limited to the amount of the advisory fee. No fee payment
will be made to the Investment Adviser during any fiscal year which
will cause such expenses to exceed the most restrictive expense
limitation applicable at the time of such payment.

Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:

                                           Account
                                         Maintenance    Distribution
                                             Fee            Fee

Class B                                     0.25%          0.50%
Class C                                     0.25%          0.55%
Class D                                     0.25%           --


Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.

For the year ended November 30, 1994, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D shares as follows:


                                       MLFD           MLPF&S

Class A                               $19,018       $317,838
Class D                               $   565       $  5,594


MLPF&S received contingent deferred sales charges of $1,469,812
relating to transactions in Class B Shares of Common Stock, and
$27,114 in commissions on the execution of portfolio security
transactions for the Fund for the year ended November 30, 1994.

For the year ended November 30, 1994, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $829 for security
price quotations.

Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.

Accounting services are provided to the Fund by MLAM at cost.

Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, MLIM, MLPF&S, FDS, MLFD, and/or ML & Co.

3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended November 30, 1994 were $99,947,597 and
$116,423,543, respectively.

Net realized and unrealized gains (losses) as of November 30, 1994
were as follows:

                                  Realized        Unrealized
                                   Gains            Gains
                                  (Losses)         (Losses)

Long-term investments           $(1,319,689)  $   (1,683,750)
Foreign currency transactions        49,645            3,325
                                -----------   --------------
Total                           $(1,270,044)  $   (1,680,425)
                                ===========   ==============

                                       77
<PAGE>

NOTES TO FINANCIAL STATEMENTS (concluded)

As of November 30, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $1,683,750, of which $43,003,345
related to appreciated securities and $44,687,095 related to
depreciated securities. The aggregate cost of investments at
November 30, 1994 for Federal income tax purposes was $517,177,361.

4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(105,325,044) and $404,174,719 for the years ended
November 30, 1994 and November 30, 1993, respectively.

Transactions in capital shares for each class were as follows:


Class A Shares for the Year                         Dollar
Ended November 30, 1994            Shares           Amount

Shares sold                       1,418,075    $  18,617,407
Shares issued to shareholders
in reinvestment of dividends &
distributions                       175,820        2,216,368
                                -----------   --------------
Total issued                      1,593,895       20,833,775
Shares redeemed                  (3,085,387)     (39,503,880)
                                -----------   --------------
Net decrease                     (1,491,492)    $(18,670,105)
                                ===========   ==============

Class A Shares for the Year                        Dollar
Ended November 30, 1993            Shares          Amount

Shares sold                       4,349,217     $ 56,997,490
Shares issued to shareholders
in reinvestment of dividends &
distributions                        85,983        1,081,152
                                -----------   --------------
Total issued                      4,435,200       58,078,642
Shares redeemed                    (905,090)     (11,584,655)
                                -----------   --------------
Net increase                      3,530,110   $   46,493,987
                                ===========   ==============


Class B Shares for the Year                         Dollar
Ended November 30, 1994            Shares           Amount

Shares sold                       8,594,406     $112,616,998
Shares issued to shareholders
in reinvestment of dividends &
distributions                     1,125,104       14,149,052
                                -----------   --------------
Total issued                      9,719,510      126,766,050
Shares redeemed                 (16,864,631)    (214,110,349)
                                -----------   --------------
Net decrease                     (7,145,121)  $  (87,344,299)
                                ===========   ==============



Class B Shares for the Year                        Dollar
Ended November 30, 1993            Shares          Amount

Shares sold                      30,702,352    $ 399,813,619
Shares issued to shareholders in
reinvestment of dividends &
distributions                       501,195        6,292,835
                                -----------   --------------
Total issued                     31,203,547      406,106,454
Shares redeemed                  (3,809,433)     (48,425,722)
                                -----------   --------------
Net increase                     27,394,114    $ 357,680,732
                                ===========   ==============

Class C Shares for the Period                       Dollar
Oct. 21, 1994++ to Nov. 30, 1994     Shares         Amount

Shares sold                          36,927   $      446,777
Shares redeemed                          (1)             (13)
                                -----------   --------------
Net increase                         36,926   $      446,764
                                ===========   ==============
[FN]
++Commencement of Operations.



Class D Shares for the Period                        Dollar
Oct. 21, 1994++ to Nov. 30, 1994     Shares          Amount

Shares sold                          35,477   $      437,644
Shares redeemed                     (15,736)        (195,048)
                                -----------   --------------
Net increase                         19,741   $      242,596
                                ===========   ==============

[FN]
++Commencement of Operations.


5. Commitments:
At November 30, 1994, the Fund had entered into forward exchange
contracts under which it agreed to sell various currencies with
approximate values of $1,311,563.

6. Capital Loss Carryforward:
At November 30, 1994, the Fund had a capital loss carryforward
of approximately $567,000, all of which expires in 2002. This
amount will be available to offset like amounts of any future
taxable gains.

7. Subsequent Event:
On December 15, 1994, the Fund's Board of Directors declared an
ordinary income dividend in the amount of $0.12550 per Class A

Share, $0.100809 per Class B Share, $0.117250 per Class C Share, and
$0.123948 per Class D Share, payable on December 22, 1994 to
shareholders on record as of December 14, 1994.

 
                                       78
<PAGE>
                    [THIS PAGE IS INTENTIONALLY LEFT BLANK]
 
                                       79
<PAGE>
                               TABLE OF CONTENTS
   
                                         PAGE
                                         ----
Investment Objective and Policies.....     2
 Portfolio Strategies Involving
   Options and Futures................     2
 Other Investment Policies and
Practices.............................     7
Management of the Fund................    14
 Directors and Officers...............    14
 Management and Advisory
Arrangements..........................    16
Purchase of Shares....................    17
 Initial Sales Charge
   Alternatives--Class A and Class D
Shares................................    18
 Reduced Initial Sales Charges........    19
 Distribution Plans...................    23
 Limitations on the Payment of
   Deferred Sales Charges.............    25
Redemption of Shares..................    26
 Deferred Sales Charges--Class B and
Class C Shares........................    26
Portfolio Transactions and
Brokerage.............................    28
Determination of Net Asset Value......    29
Shareholder Services..................    30
 Investment Account...................    30
 Automatic Investment Plans...........    31
 Automatic Reinvestment of Dividends
   and Capital Gains Distributions....    31
 Systematic Withdrawal Plans--Class A
and Class D Shares....................    32
 Retirement Plans.....................    33
 Exchange Privilege...................    33
Dividends, Distributions and Taxes....    47
 Dividends and Distributions..........    47
 Taxes................................    48
 Tax Treatment of Options and Futures
Transactions..........................    50
Performance Data......................    51
General Information...................    53
 Description of Shares................    53
 Computation of Offering Price Per
Share.................................    54
 Independent Auditors.................    54
 Custodian............................    55
 Transfer Agent.......................    55
 Legal Counsel........................    55
 Reports to Shareholders..............    55
 Additional Information...............    55
Appendix..............................    56
Independent Auditors' Report..........    64
Financial Statements..................    66
    

   
                            Code #11280-0395
    
[INSERT ART HERE]
 
Merrill Lynch
Global Utility
Fund, Inc.

STATEMENT OF
ADDITIONAL
INFORMATION
 
   
March 28, 1995
    

Distributor:
 
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
                           PART C. OTHER INFORMATION
 
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
 
    (A) FINANCIAL STATEMENTS:
 
        Contained in Part A, the Prospectus:
 
   
<TABLE>
<S>         <C>
            Financial Highlights for each of the years in the three-year period ended
             November 30, 1994 and the period December 28, 1990 (commencement of operations)
             to November 30, 1991.
</TABLE>
    
 
        Contained in Part B, the Statement of Additional Information:
 
   
<TABLE>
<S>         <C>
            Schedule of Investments as of November 30, 1994.
            Statement of Assets and Liabilities as of November 30, 1994.
            Statement of Operations for the year ended November 30, 1994.
            Statements of Changes in Net Assets for the years ended November 30, 1994 and
             November 30, 1993.
            Financial Highlights for each of the years in the three-year period ended
             November 30, 1994 and the period December 28, 1990 (commencement of operations)
             to November 30, 1991.
            Notes to Financial Statements for the year ended November 30, 1994.
</TABLE>
    
 
    (B) EXHIBITS:
 
   
<TABLE>
<CAPTION>
EXHIBIT NUMBER                                    DESCRIPTION
- --------------   -----------------------------------------------------------------------------
<S>              <C>
       1(a)      --Articles of Incorporation of Registrant.(a)
        (b)      --Articles of Amendment.
        (c)      --Articles Supplementary.
       2         --Amended and Restated By-Laws of Registrant.(h)
       3         --None.
       4(a)      --Specimen Certificate for shares of Class A Common Stock of Registrant.(a)
        (b)      --Specimen Certificate for shares of Class B Common Stock of Registrant.(a)
        (c)      --Instruments Defining Rights of Shareholders. Incorporated by reference to
                   Exhibits 1 and 2 above.
       5         --Management Agreement between Registrant and Merrill Lynch Asset Management.(f)
       6(a)      --Class A Shares Distribution Agreement between Registrant and Merrill Lynch
                   Funds Distributor, Inc.(i)
        (b)      --Class B Shares Distribution Agreement between Registrant and Merrill Lynch
                   Funds Distributor, Inc.(f)
        (c)      --Class C Distribution Agreement between Registrant and Merrill Lynch Funds
                   Distributor, Inc.(i)
        (d)      --Class D Distribution Agreement between Registrant and Merrill Lynch Funds
                   Distributor, Inc.(i)
       7         --None
       8         --Custody Agreement between Registrant and The Chase Manhattan Bank, N.A.(f)
       9(a)      --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
                   Agency Agreement between Registrant and Financial Data Services, Inc.(f)
        (b)      --License Agreement Relating to Use of Name between Merrill Lynch & Co., Inc.
                   and Registrant.(f)
      10         --Opinion and consent of Shereff, Friedman, Hoffman & Goodman, LLP, counsel
                   for Registrant.
      11         --Consent of Deloitte & Touche LLP, independent auditors for the Registrant.

</TABLE>
    
 
                                      C-1
<PAGE>
   
<TABLE>
<CAPTION>
EXHIBIT NUMBER                                    DESCRIPTION
- --------------   -----------------------------------------------------------------------------
<C>              <S>
      12         --None.
      13         --Certificate of Merrill Lynch Asset Management.(c)
      14         --Not applicable
      15(a)      --Amended and Restated Class B Distribution Plan of the Registrant and Class
                   B Distribution Plan Sub-Agreement.(h)
        (b)      --Class C Distribution Plan and Class C Distribution Plan Sub-Agreement.(i)
        (c)      --Class D Distribution Plan and Class D Distribution Plan Sub-Agreement.(i)
      16(a)      --Schedule for computation of each performance quotation for Class A and
                   Class B Shares provided in the Registration Statement in response to Item
                   22.
        (b)      --Schedule for computation of each performance quotation for Class C and
                   Class D Shares provided in the Registration Statement in response to Item
                   22.(f)
      17(a)      --Other Exhibits.
                 Powers of Attorney for Officers and Directors
                 Arthur Zeikel(g)
                 Gerald M. Richard(g)
                 Ronald W. Forbes(g)
                 Cynthia A. Montgomery(i)
                 Charles C. Reilly(g)
                 Kevin A. Ryan(g)
                 Richard R. West(g)
        (b)      --Financial Data Schedule for Class A Shares.
        (c)      --Financial Data Schedule for Class B Shares.
        (d)      --Financial Data Schedule for Class C Shares.
        (e)      --Financial Data Schedule for Class D Shares.
</TABLE>
    
 
- ------------
 
   
<TABLE>
<C>   <S>
 (a)  Incorporated by reference to repective exhibits to the Fund's initial Registration
      Statement (File No. 33-37103).
 (b)  Incorporated by reference to Exhibit 10 in Pre-Effective Amendment No. 2 to the
      Fund's Registration Statement (File No. 33-37103).
 (c)  Incorporated by reference to Exhibit 13 in Pre-Effective Amendment No. 2 to the
      Fund's Registration Statement (File No. 33-37103).
 (d)  Incorporated by reference to Exhibit 14 to Pre-Effective Amendment No. 1 to the
      Registration Statement under the Securities Act of 1933 on Form N-1 (File No.
      2-74584) of Merrill Lynch Retirement Series Trust, filed on January 26, 1982.
 (e)  Incorporated by reference to Exhibit 14 to Post-Effective Amendment No. 3 to the
      Registration Statement under the Securities Act of 1933 on Form N-1A (File No. 2-74584)
      of Merrill Lynch Retirement Series Trust, filed on December 29, 1983.
 (f)  Incorporated by reference to respective exhibits to Post-Effective Amendment No. 1
      to the Fund's Registration Statement (File No. 33-37103).
 (g)  Incorporated by reference to Exhibit 17 to Post-Effective Amendment No. 3 to the
      Fund's Registration Statement (File No. 33-37103).
 (h)  Incorporated by reference to respective exhibits of Post-Effective Amendment No. 3 to
      the Fund's Registration Statement (File No. 33-37103).
 (i)  Incorporated by reference to respective exhibits of Post-Effective Amendment No. 6 to
      the Fund's Registration Statement (File No. 33-37103).
</TABLE>
    
 
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
 
    Not Applicable.
 
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
 
   
<TABLE>
<CAPTION>
                                                                               NUMBER OF RECORD
                                                                                  HOLDERS AT
                                                                               FEBRUARY 28, 1995
                              TITLE OF CLASS                                         
- ---------------------------------------------------------------------------   ------------------
<S>                                                                           <C>
Class A Common Stock, par value $.10 per share.............................           125
Class B Common Stock, par value $.10 per share.............................           836
Class C Common Stock, par value $.10 per share.............................             2
Class D Common Stock, par value $.10 per share.............................             3
</TABLE>
    
 
                                      C-2
<PAGE>
 
   
ITEM 27. INDEMNIFICATION.

    Reference is made to Article VI of Registrant's Articles of Incorporation,
as amended to date, Article VI of Registrant's Amended and Restated By-Laws (the
"By-Laws") and Section 2-418 of the Maryland General Corporation Law and Section
9 of the Distribution Agreements.
    
 
    Article VI of the By-Laws provides that each officer and Director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors,
after review of the facts, that such officer or director is not guilty of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification.

 
    Each officer and director of the Registrant claiming indemnification with
the scope of Article VI of the By-Laws shall be entitled to advances from the
Registrant for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Registrant has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Registrant for his undertaking; (b) the Registrant is insured against losses
arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Registrant at the
time the advance is proposed to be made, that there is reason to believe that
the person seeking indemnification will ultimately be found to be entitled to
indemnification.
 
    The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
 
    The Registrant may indemnify or purchase insurance to the extent provided in
Article VI on behalf of an employee or agent who is not an officer or director
of the Registrant.
 
    In Section 9 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the 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.
 
    Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, 
                                      C-3
<PAGE>

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 director, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against 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"), acts as the
investment adviser for the following companies: Convertible Holdings, Inc.,
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 Bond Fund for Investment and Retirement, Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc. Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch High Income Municipal Bond 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 Senior Floating Rate Fund, Inc., 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. Treasury Money
Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income
Fund, Inc. and Merrill Lynch Variable Series Funds, Inc. Fund Asset Management,
L.P. ("FAM"), an affiliate of the Manager, acts as the investment adviser for
the following registered investment companies: Apex Municipal Fund, Inc., 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., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial Institutions Series
Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., 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 Municipal Series Trust, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World
Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, 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 Arizona Fund
II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund,
Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality 


 
                                      C-4
<PAGE>


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, 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 MLAM, FAM, Princeton Services, Inc. ("Princeton
Services"), Merrill Lynch Funds Distributor, Inc. and Princeton Administrators,
L.P. ("Princeton Administrators") is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. The address
of Financial Data Services, Inc. ("FDS") is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
    
 
   
    Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
January 30, 1993, for such person's or entity's own account or in the capacity
of director, officer, partner or trustee. In addition, Mr. Zeikel is President,
Mr. Richard is Treasurer and Mr. Glenn is Executive Vice President of all or
substantially all of the investment companies described in the preceding
paragraph. Mr. Zeikel is a director of substantially all of such companies, and
Mr. Glenn is a director of certain of such companies. Messrs. Durnin, Giordano,
Harvey, Hewitt, Monagle and Ms. Griffin are directors or officers of one or more
of such companies.
    
 
   
<TABLE>
<CAPTION>
                                      POSITION WITH            OTHER SUBSTANTIAL BUSINESS,
            NAME                       THE MANAGER         PROFESSION, VOCATION OR EMPLOYMENT
- -----------------------------   -------------------------  -----------------------------------
<S>                             <C>                        <C>
ML & Co......................   Limited Partner            Financial Services Holding Company
Merrill Lynch Investment
Management, Inc..............   Limited Partner            Investment Advisory Services
Princeton Services, Inc.
("Princeton Services").......   General Partner            General Partner of FAM
Arthur Zeikel................   President                  President of FAM; President and
                                                             Director of Princeton Services;
                                                             Director of Merrill Lynch Funds
                                                             Distributor, Inc. ("MLFD");
                                                             Executive Vice President of ML &
                                                             Co.; Executive Vice President of
                                                             Merrill Lynch
Terry K. Glenn...............   Executive Vice President   Executive Vice President of FAM;
                                                             Executive Vice President and
                                                             Director of Princeton Services;
                                                             President and Director of MLFD;
                                                             President of Princeton
                                                             Administrators; Director of FDS
Bernard J. Durnin............   Senior Vice President      Senior Vice President of FAM;
                                                           Senior Vice President of Princeton
                                                             Services
Vincent R. Giordano..........   Senior Vice President      Senior Vice President of FAM;
                                                           Senior Vice President of Princeton
                                                             Services
Elizabeth 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
</TABLE>
    
 
                                      C-5
<PAGE>
   
<TABLE>
<CAPTION>
                                      POSITION WITH            OTHER SUBSTANTIAL BUSINESS,
            NAME                       THE MANAGER         PROFESSION, VOCATION OR EMPLOYMENT
- -----------------------------   -------------------------  -----------------------------------
<S>                             <C>                        <C>
Philip L. Kirstein...........   Senior Vice President,     Senior Vice President, General
                                  General Counsel and        Counsel and Secretary of FAM;
                                  Secretary                  Senior Vice President, General
                                                             Counsel, Director and Secretary
                                                             of Princeton Services; Director
                                                             of MLFD
Ronald M. Kloss..............   Senior Vice President and  Senior Vice President and
                                  Controller               Controller of FAM; Senior Vice
                                                             President and Controller of
                                                             Princeton Services
Stephen M. M. Miller.........   Senior Vice President      Executive Vice President of
                                                           Princeton Administrators, L.P.

Joseph T. Monagle, Jr........   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; Senior Vice President and
                                                             Treasurer of Princeton Services;
                                                             Vice President and Treasurer of
                                                             MLFD
Ronald L. Welburn............   Senior Vice President      Senior Vice President of FAM;
                                                           Senior Vice President of Princeton
                                                             Services
Anthony Wiseman..............   Senior Vice President      Senior Vice President of FAM;
                                                           Senior Vice President of Princeton
                                                             Services
</TABLE>
    
 
ITEM 29. PRINCIPAL UNDERWRITERS.
 
   
    (a) MLFD acts as the principal underwriter for the Registrant and for each
of the investment companies referred to in the first paragraph of Item 28 except
Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA
Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, Convertible Holdings, Inc., The Corporate Fund Accumulation
Program, 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., MuniAssets Fund, Inc., MuniBond Income Fund,
Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, 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 Fund, MuniYield Arizona Fund, Inc., MuniYield
Arizona Fund II, Inc., MuniYield California Fund, Inc., MuniYield California
Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield
Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield
Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield New York Insured Fund III,
Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield
Quality Fund II, Inc., Summit Cash Reserves Fund, Merrill Lynch Basic Value
Fund, Inc., Merrill Special Value Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch World Income Fund, Inc.,
Merrill Lynch Federal Securities Trust, Senior High Income Portfolio, Inc.,
Senior High Income Portfolio II, Inc., Senior Strategic Income Fund, Inc.,
Taurus MuniCalifornia Holdings, Inc., Taurus MuniNew York Holdings, Inc. and
Worldwide DollarVest, Inc.  
    
 
    (b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that  

                                     C-6
<PAGE>


the address of Messrs. Crook, Aldrich, Graczyk, Fatseas, Maguire, Schera and
Wasel is One Financial Center, Boston, Massachusetts 02111-2665.

   
<TABLE>
<CAPTION>
                                                                                   (3)
                                                     (2)                  POSITIONS AND OFFICES
                 (1)                      POSITIONS AND OFFICES WITH               WITH
                 NAME                                MLFD                       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
William M. Breen......................   Vice President                  None
Michael J. Brady......................   Vice President                  None
Sharon Creveling......................   Vice President and Assistant    None
                                         Treasurer
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 are maintained at the offices of the Registrant and its Transfer
Agent, FDS, 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 party to any
management-related service contact.
 
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>
                                   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
City of New York, and State of New York, on the 24th day of March, 1995.
    
 
                                            MERRILL LYNCH GLOBAL UTILITY FUND,
                                                           INC.
                                                       (Registrant)
 
                                                  By /s/ ARTHUR ZEIKEL
                                                ----------------------------
                                                (Arthur Zeikel, President)
 
    Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the date(s) indicated.
 
   
<TABLE>
<CAPTION>
             SIGNATURE                               TITLE                         DATE
- ------------------------------------  ------------------------------------   ----------------
 
<C>                                   <S>                                    <C>
          /s/ARTHUR ZEIKEL            President (Principal Executive           March 24, 1995
          (Arthur Zeikel)               Officer) and Director
 
        /s/GERALD M. RICHARD          Treasurer (Principal Financial           March 24, 1995
        (Gerald M. Richard)             and Accounting Officer)
 
                 *                    Director
         (Ronald W. Forbes)
 
                 *                    Director
      (Cynthia A. Montgomery)
 
                 *                    Director
        (Charles C. Reilly)
 
                 *                    Director
          (Kevin A. Ryan)
 
                 *                    Director
         (Richard R. West)
</TABLE>
    
 
   
<TABLE>
<C>                                   <S>                                    <C>
        *By /s/ARTHUR ZEIKEL                                                   March 24, 1995
 (Arthur Zeikel, Attorney-in-Fact)
</TABLE>
    
 
* This Amendment has been signed by each of the persons so indicated by the
  undersigned as Attorney-in-Fact.
 
                                      C-8
<PAGE>
   
                               INDEX TO EXHIBITS
    
 
   
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                               DESCRIPTION
- --------  --------------------------------------------------------------------
 
<S>       <C>                                                                    <C>

    1(b)  --Articles of Amendment.
 
     (c)  --Articles Supplementary.
 
 
   10     --Opinion and consent of Shereff, Friedman, Hoffman & Goodman, LLP,
            counsel for Registrant.
 
   11     --Consent of Deloitte & Touche LLP, independent auditors for the
            Registrant.

   16(b)  --Schedule for computation of each performance quotation for Class C
            and Class D Shares provided in the Registration Statement in
            response to Item 22.
 
   17(b)  --Financial Data Schedule for Class A Shares.
 
     (c)  --Financial Data Schedule for Class B Shares.
 
     (d)  --Financial Data Schedule for Class C Shares.
 
     (e)  --Financial Data Schedule for Class D Shares.

 
</TABLE>
    


[.EX99_1C]1-3

[.EX99_1B]1-4

[.EX99_17A]1-4

[.EX99_4A]1-2

[.EX99_4A]1-2

[.EX99_8]1-22

[.EX99_16A]1-2

[.EX99_16B]1-2

[.EX99_13]1

[.EX99_9A]1-7

[.EX99_9B]1-4

[.EX99_15C]1-5

[.EX99_15B]1-6

[.EX99_6D]1-23

[.EX99_6C]1-20

[.EX99_6B]1-24

[.EX99_6A]1-23

[.EX99_5]1-11

[.EX99_1A]1-13

                                                                   EXHIBIT 10
<PAGE>





                      SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
                                   919 Third Avenue
                            New York, New York  10022-9998
                                    (212) 758-9500



                                             March 24, 1995



          Merrill Lynch Global Utility Fund, Inc.
          P.O. Box 9011
          Princeton, New Jersey  08540-9011

          Dear Sirs:

                    Merrill Lynch Global Utility Fund, Inc., a Maryland
          corporation (the "Fund"), is filing with the Securities and
          Exchange Commission Post-Effective Amendment No. 7 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 (1933 Act File No. 33-
          37103, 1940 Act File No. 811-6180) relating to the registration
          under the 1933 Act of 9,904,107 additional shares of common
          stock, par value $0.10 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.  9,880,870 of the Additional Shares are previously
          outstanding shares of common stock of the Fund, par value $0.10
          per share, which were redeemed by the Fund during its fiscal year
          ended November 30, 1994.  According to Post-Effective Amendment
          No. 7 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 fiscal 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 Articles of Incorporation 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 State of Maryland,
          dated March 21, 1995, confirming that the Fund is currently in
          good standing in that State.  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>






          Merrill Lynch Global Utility Fund, Inc.
          March 24, 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 State of Maryland.

                    2.   The Fund is authorized to issue an unlimited
          number of shares of common stock.

                    3.   Subject to the effectiveness of the above-
          mentioned Post-Effective Amendment No. 7 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.  

                    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. 7 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 State of Maryland, and to the extent that any
          opinion herein involves the law of Maryland, such opinion should
          be understood to be based solely upon our review of the documents
          referred to above, the published statutes of the State of
          Maryland and, where applicable, published cases, rules or
          regulations of regulatory bodies of that State.

                                        Very truly yours,


                              /s/Shereff, Friedman, Hoffman & Goodman, LLP
                              Shereff, Friedman, Hoffman & Goodman, LLP

          SFHG:JHG:MKN:VAZ:fs




                                                                      EXHIBIT 11
<PAGE>










          INDEPENDENT AUDITORS' CONSENT

          Merrill Lynch Global Utility Fund, Inc.:


          We consent to the use in Post-Effective Amendment No. 7 to
          Registration Statement No. 33-37103 of our report dated January
          6, 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.



          /s/ DELOITTE & TOUCHE LLP
          DELOITTE & TOUCHE LLP
          Princeton, New Jersey
          March 24, 1995







   
                                                                   EXHIBIT 16(b)
    
<PAGE>
   
                                                                   EXHIBIT 16(b)
    
 
   
                            GLOBAL UTILITY--CLASS C
                               10/21/94--11/30/94
    
 
   
<TABLE>
<CAPTION>
                                                                    SINCE INCEPTION
                                                                        AVERAGE        SINCE INCEPTION
                                                                     ANNUAL RETURN      TOTAL RETURN*
                                                                    ---------------    ---------------
<S>                                                                 <C>                <C>
Initial Investment...............................................      $1,000.00          $1,000.00
Divided by Net Asset Value.......................................          12.34              12.34
                                                                    ---------------    ---------------
Equals Shares Purchased..........................................         81.037             81.037
Plus Shares Acquired through Dividend Reinvestment...............          0.000              0.000
                                                                    ---------------    ---------------
Equals Shares Held at 11/30/94...................................         81.037             81.037
Multiplied by Net Asset Value at 11/30/94........................          12.05              12.05
                                                                    ---------------    ---------------
Equals Ending Value before deduction for contingent deferred
  sales charge...................................................         976.50             976.50
Less deferred sales charge.......................................          (9.77)              0.00
                                                                    ---------------    ---------------
Equals Ending Redeemable Value at $1,000 Investment (ERV) at
11/30/94.........................................................         966.73             976.50
                                                                    ---------------    ---------------
Divided by $1,000 (P)............................................         0.9667             0.9765
Subtract 1.......................................................        -0.0333            -0.0235
Expressed as a percentage equals the Aggregate Total Return for
  the Period (T).................................................          -3.33%
                                                                    ---------------
                                                                    ---------------
Expressed as a percentage equals the Aggregate Total Return for
  the Period.....................................................                             -2.35%
                                                                                       ---------------
                                                                                       ---------------
ERV divided by P.................................................         0.9667
Raise to the power of............................................         9.1250
Equals...........................................................         0.7344
Subtract 1.......................................................        -0.2656
Expressed as a percentage equals the Average Annualized Total
Return...........................................................         -26.56%
                                                                    ---------------
                                                                    ---------------
</TABLE>
    
 
- ------------
   
* Does not include sales charge for the period.
    
<PAGE>
   
                                                                   EXHIBIT 16(b)
    
 
   
                            GLOBAL UTILITY--CLASS D
                               10/21/94--11/30/94
    
 
   
<TABLE>
<CAPTION>
                                                                    SINCE INCEPTION
                                                                        AVERAGE        SINCE INCEPTION
                                                                     ANNUAL RETURN      TOTAL RETURN*
                                                                    ---------------    ---------------
<S>                                                                 <C>                <C>
Initial Investment...............................................      $1,000.00          $1,000.00
Divided by Initial Maximum Offering Price........................          12.89
                                                                    ---------------
Divided by Net Asset Value.......................................                             12.37
                                                                                       ---------------
Equals Shares Purchased..........................................         77.607             80.841
Plus Shares Acquired through Dividend Reinvestment...............          0.000              0.000
                                                                    ---------------    ---------------
Equals Shares Held at 11/30/94...................................         77.607             80.841
Multiplied by Net Asset Value at 11/30/94........................          12.09              12.09
                                                                    ---------------    ---------------
Equals Ending Redeemable Value at $1,000 Investment (ERV) at
11/30/94.........................................................      $  938.27          $  977.36
Divided by $1,000 (P)............................................         0.9383             0.9774
Subtract 1.......................................................        -0.0617            -0.0226
Expressed as a percentage equals the Aggregate Total Return for
  the Period (T).................................................          -6.17%
                                                                    ---------------
                                                                    ---------------
Expressed as a percentage equals the Aggregate Total Return for
  the Period.....................................................                             -2.26%
                                                                                       ---------------
                                                                                       ---------------
ERV divided by P.................................................         0.9383
Raise to the power of............................................         9.1250
Equals...........................................................         0.5591
Subtract 1.......................................................        -0.4409
Expressed as a percentage equals the Average Annualized Total
Return...........................................................         -44.09%
                                                                    ---------------
                                                                    ---------------
</TABLE>
    
 
- ------------
   
* Does not include sales charge for the period.
    


<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
<NAME> 0000868452
<NUMBER> 1
<CIK> 0000868452
<NAME> MERRILL LYNCH GLOBAL UTILITY FUND, INC.
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          NOV-30-1994
<PERIOD-START>                             DEC-01-1993
<PERIOD-END>                               NOV-30-1994
<INVESTMENTS-AT-COST>                        517177361
<INVESTMENTS-AT-VALUE>                       515493611
<RECEIVABLES>                                  3721767
<ASSETS-OTHER>                                  229281
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               519514659
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      2987493
<TOTAL-LIABILITIES>                            2987493
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     516690964
<SHARES-COMMON-STOCK>                          4689468
<SHARES-COMMON-PRIOR>                          6180960
<ACCUMULATED-NII-CURRENT>                      2733344
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                              0
<OVERDISTRIBUTION-GAINS>                       1216717
<ACCUM-APPREC-OR-DEPREC>                     (1680425)
<NET-ASSETS>                                  56658641
<DIVIDEND-INCOME>                             23802839
<INTEREST-INCOME>                              4586840
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 9841922
<NET-INVESTMENT-INCOME>                       18547757
<REALIZED-GAINS-CURRENT>                     (1270044)
<APPREC-INCREASE-CURRENT>                   (52883601)
<NET-CHANGE-FROM-OPS>                       (35605888)
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                      2661239
<DISTRIBUTIONS-OF-GAINS>                        219759
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        1418075
<NUMBER-OF-SHARES-REDEEMED>                    3085387
<SHARES-REINVESTED>                             175820
<NET-CHANGE-IN-ASSETS>                     (161645088)
<ACCUMULATED-NII-PRIOR>                        3052683
<ACCUMULATED-GAINS-PRIOR>                      1900387
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                          3831948
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                9841922
<AVERAGE-NET-ASSETS>                          73325578
<PER-SHARE-NAV-BEGIN>                            13.22
<PER-SHARE-NII>                                    .94
<PER-SHARE-GAIN-APPREC>                         (1.57)
<PER-SHARE-DIVIDEND>                               .47
<PER-SHARE-DISTRIBUTIONS>                          .04
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              12.08
<EXPENSE-RATIO>                                    .86
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
<NAME> 0000868452
<NUMBER> 2
<CIK> 0000868452
<NAME> MERRILL LYNCH GLOBAL UTILITY FUND, INC.
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          NOV-30-1994
<PERIOD-START>                             DEC-01-1993
<PERIOD-END>                               NOV-30-1994
<INVESTMENTS-AT-COST>                        517177361
<INVESTMENTS-AT-VALUE>                       515493611
<RECEIVABLES>                                  3721767
<ASSETS-OTHER>                                  299281
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               519514659
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      2987493
<TOTAL-LIABILITIES>                            2987493
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     516690964
<SHARES-COMMON-STOCK>                         38140203
<SHARES-COMMON-PRIOR>                         45285324
<ACCUMULATED-NII-CURRENT>                      2733344
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                              0
<OVERDISTRIBUTION-GAINS>                       1216717
<ACCUM-APPREC-OR-DEPREC>                     (1680425)
<NET-ASSETS>                                 459184758
<DIVIDEND-INCOME>                             23802839
<INTEREST-INCOME>                              4586840
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 9841922
<NET-INVESTMENT-INCOME>                       18547757
<REALIZED-GAINS-CURRENT>                     (1270044)
<APPREC-INCREASE-CURRENT>                   (52883601)
<NET-CHANGE-FROM-OPS>                       (35605888)
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                     16205857
<DISTRIBUTIONS-OF-GAINS>                       1627301
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        8594406
<NUMBER-OF-SHARES-REDEEMED>                   16864631
<SHARES-REINVESTED>                            1125104
<NET-CHANGE-IN-ASSETS>                     (161645088)
<ACCUMULATED-NII-PRIOR>                        3052683
<ACCUMULATED-GAINS-PRIOR>                      1900387
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                          3831948
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                9841922
<AVERAGE-NET-ASSETS>                         565308717
<PER-SHARE-NAV-BEGIN>                            13.17
<PER-SHARE-NII>                                    .74
<PER-SHARE-GAIN-APPREC>                         (1.46)
<PER-SHARE-DIVIDEND>                               .37
<PER-SHARE-DISTRIBUTIONS>                          .04
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              12.04
<EXPENSE-RATIO>                                   1.63
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
<NAME> 0000868452
<NUMBER> 3
<CIK> 0000868452
<NAME> MERRILL LYNCH GLOBAL UTIITY FUND, INC.
<PERIOD-TYPE>                   OTHER
<FISCAL-YEAR-END>                          NOV-30-1994
<PERIOD-START>                             OCT-21-1994
<PERIOD-END>                               NOV-30-1994
<INVESTMENTS-AT-COST>                        517177361
<INVESTMENTS-AT-VALUE>                       515493611
<RECEIVABLES>                                  3721767
<ASSETS-OTHER>                                  299281
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               519514659
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      2987493
<TOTAL-LIABILITIES>                            2987493
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     516690964
<SHARES-COMMON-STOCK>                            36926
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                      2733344
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                              0
<OVERDISTRIBUTION-GAINS>                       1216717
<ACCUM-APPREC-OR-DEPREC>                     (1680425)
<NET-ASSETS>                                    445104
<DIVIDEND-INCOME>                             23802839
<INTEREST-INCOME>                              4586840
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                 9841922
<NET-INVESTMENT-INCOME>                       18547757
<REALIZED-GAINS-CURRENT>                     (1270044)
<APPREC-INCREASE-CURRENT>                   (52883601)
<NET-CHANGE-FROM-OPS>                       (35605888)
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                          36927
<NUMBER-OF-SHARES-REDEEMED>                          1
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                     (161645088)
<ACCUMULATED-NII-PRIOR>                        3052683
<ACCUMULATED-GAINS-PRIOR>                      1900387
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                          3831948
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                9841922
<AVERAGE-NET-ASSETS>                            100697
<PER-SHARE-NAV-BEGIN>                            12.34
<PER-SHARE-NII>                                    .01
<PER-SHARE-GAIN-APPREC>                          (.30)
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              12.05
<EXPENSE-RATIO>                                   1.60
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
<NAME> 0000868452
<NUMBER> 4
<CIK> 0000868452
<NAME> MERRILL LYNCH GLOBAL UTILITY FUND, INC.
<PERIOD-TYPE>                   OTHER
<FISCAL-YEAR-END>                          NOV-30-1994
<PERIOD-START>                             OCT-21-1994
<PERIOD-END>                               NOV-30-1994
<INVESTMENTS-AT-COST>                        517177361
<INVESTMENTS-AT-VALUE>                       515493611
<RECEIVABLES>                                  3721767
<ASSETS-OTHER>                                  299281
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               519514659
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      2987493
<TOTAL-LIABILITIES>                            2987493
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     516690964
<SHARES-COMMON-STOCK>                            19741
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                      2733344
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