<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1994
SECURITIES ACT FILE NO. 33-42639
INVESTMENT COMPANY ACT FILE NO. 811-6407
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 4
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 [X]
[X]
AMENDMENT NO. 5
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH TECHNOLOGY FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH TECHNOLOGY FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
COUNSEL FOR THE COMPANY: PHILIP L. KIRSTEIN, ESQ.
BROWN & WOOD MERRILL LYNCH ASSET
ONE WORLD TRADE CENTER MANAGEMENT
NEW YORK, N.Y. 10048-0557
ATTENTION: THOMAS R. SMITH, JR., ESQ. P.O. BOX 9011
FRANK P. BRUNO, ESQ. PRINCETON, N.J. 08543-9011
----------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX):
[_] immediately upon filing pursuant to paragraph (b)
[X] on October 21, 1994 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] on (date) pursuant to paragraph (a) (i)
[_] 75 days after filing pursuant to paragraph (a) (ii)
[_] on (date) pursuant to paragraph (a) (ii) of rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_this]post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
----------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF STOCK
UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT
COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S MOST
RECENT FISCAL YEAR WAS FILED ON MAY 24, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH TECHNOLOGY FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
----------------
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. LOCATION
-------- --------
<C> <C> <S>
PART A
Item 1. Cover Page.......................... Cover Page
Item 2. Synopsis............................ Fee Table; Alternative Sales
Arrangements
Item 3. Condensed Financial Information..... Financial Highlights
Item 4. General Description of Registrant... Risk Factors and Special
Considerations; Investment
Objective and Policies;
Additional Information
Item 5. Management of the Fund.............. Fee Table; Management of the
Company; Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance........................ Not Applicable
Item 6. Capital Stock and Other Securities.. Cover Page; Additional
Information
Item 7. Purchase of Securities Being Cover Page; Fee Table; Merrill
Offered............................ Lynch Select Pricing SM System;
Purchase of Shares; Shareholder
Services; Additional
Information; Inside Back Cover
Page
Item 8. Redemption or Repurchase............ Fee Table; Merrill Lynch Select
Pricingsm System; Shareholder
Services; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings........... Not Applicable
PART B
Item 10. Cover Page.......................... Cover Page
Item 11. Table of Contents................... Back Cover Page
Item 12. General Information and History..... General Information
Item 13. Investment Objectives and Policies.. Investment Objective and
Policies
Item 14. Management of the Fund.............. Management of the Company
Item 15. Control Persons and Principal
Holders of Securities.............. Management of the Company
Item 16. Investment Advisory and Other Management of the Company;
Services........................... Purchase of Shares; General
Information
Item 17. Brokerage Allocation................ Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other Securities.. General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase of Shares; Redemption
of Shares; Determination of Net
Asset Value; Shareholder
Services; General Information
Item 20. Tax Status.......................... Dividends and Distributions;
Taxes
Item 21. Underwriters........................ Purchase of Shares
Item 22. Calculation of Performance Data..... Performance Data
Item 23. Financial Statements................ Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
OCTOBER 21, 1994
MERRILL LYNCH TECHNOLOGY FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Technology Fund, Inc. (the "Company") is a non-diversified,
open-end investment company seeking long-term capital appreciation through
worldwide investment in equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial portion of their
sales from products and services in technology. While the Company will not
concentrate its investments in any one industry, it is contemplated that
substantial investments will be made in companies involved in such technology
related areas as communications, computers (including software and hardware),
electronics, and factory and office automation. The Company will pursue its
investment objective by investing in a global portfolio of securities of
companies in various stages of development. It is presently contemplated that
the Company's assets will be primarily invested in the United States, Japan
and in Western Europe. However, at times the Company may invest substantially
all of its assets in the United States. See "Investment Objective and
Policies".
Pursuant to the Merrill Lynch Select Pricing SM System, the Company offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing SM System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances. See "Merrill Lynch Select Pricing SM System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from securities dealers which have entered into dealer
agreements with the Distributor, including Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). The minimum initial purchase 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 Company'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 Company that
is relevant to making an investment in the Company. This Prospectus should be
retained for future reference. A statement containing additional information
about the Company, dated October 21, 1994 (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 Company at the
above telephone number or address. The Statement of Additional Information is
hereby incorporated by reference into this Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Company follows:
<TABLE>
<CAPTION>
CLASS A(A) CLASS B(B) CLASS C(C) CLASS D(C)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price)........ 5.25%(d) None None 5.25%(d)
Sales Charge Imposed on
Dividend Reinvestments. None None None None
Deferred Sales Charge None(e) 4.0% during the 1.0% for None(e)
(as a percentage of first year, one year
original purchase price decreasing 1.0%
or redemption proceeds, annually
whichever is lower).... thereafter to 0.0%
after the fourth
year
Exchange Fee............ None None None None
ANNUAL COMPANY OPERATING
EXPENSES (AS A PERCENTAGE
OF AVERAGE NET ASSETS)(F)
Investment Advisory
Fees(g)................ 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(h):
Account Maintenance
Fees................. None 0.25% 0.25% 0.25%
Distribution Fees..... None 0.75% 0.75% None
(Class B shares
convert to Class D
shares
automatically
after
approximately
eight years and
cease being
subject to
distribution fees)
Other Expenses:
Custodial Fees........ .02% .02% .02% .02%
Shareholder Servicing
Costs (i).............. .16% .17% .17% .16%
Other................... .17% .17% .17% .17%
--- --- --- ---
Total Other Expenses .35% .36% .36% .35%
---- ---- ---- ----
Total Company Operating 1.35% 2.36% 2.36% 1.60%
Expenses............... ==== ==== ==== ====
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and investment programs.
See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and
Class D Shares"--page 22.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares"--page 24.
(c) Prior to the date of this Prospectus, the Company has not offered its
Class C or Class D shares to the public.
(d) 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 22.
(e) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that purchases of $1,000,000 or more which may not
be subject to an initial sales charge will instead be subject to a CDSC of
1.0% of amounts redeemed within the first year after purchase.
(f) Information for Class A and Class B shares is stated for the fiscal year
ended March 31, 1994. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending March 31, 1995.
(g) See "Management of the Company--Advisory and Management Arrangements"--
page 19.
(h) See "Purchase of Shares--Distribution Plans" page 27.
(i) See "Management of the Company--Transfer Agency Services"--page 20.
2
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID
FOR THE PERIOD OF:
-------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment including the maximum
$52.50 initial sales charge (Class A and
Class D shares only) and assuming (1) the
Total Company Operating Expenses for each
class set forth above; (2) a 5% annual return
throughout the periods and (3) redemption at
the end of the period:
Class A..................................... $66 $ 93 $123 $206
Class B..................................... $64 $ 94 $126 $251*
Class C..................................... $34 $ 74 $126 $270
Class D..................................... $68 $100 $135 $233
An investor would pay the following expenses
on the same $1,000 investment assuming no
redemption at the end of the period:
Class A..................................... $66 $ 93 $123 $206
Class B..................................... $24 $ 74 $126 $251*
Class C..................................... $24 $ 74 $126 $270
Class D..................................... $68 $100 $135 $233
</TABLE>
- --------
* Assumes conversion to Class D shares approximately eight years after
purchase.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Company 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 ("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 hold their shares for an extended period of time may pay more
in Rule 12b-1 distribution fees than the economic equivalent of the maximum
front-end sales charges permitted under the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD"). Merrill Lynch may
charge its customers a processing fee (presently $4.85) for confirming
purchases and redemptions. Purchases and redemptions directly through the
Company's transfer agent are not subject to the processing fee. See "Purchase
of Shares" and "Redemption of Shares".
MERRILL LYNCH SELECT PRICING SM SYSTEM
The Company offers four classes of shares under the Merrill Lynch Select
Pricing SM System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D
are sold to investors choosing the initial sales charge alternatives, and
shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. The Merrill Lynch Select Pricing SM System is used
by more
3
<PAGE>
than 50 mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM"
or the "Investment Adviser") or an affiliate of MLAM, Fund Asset Management,
L.P. ("FAM"). Funds advised by MLAM or FAM are referred to herein as "MLAM-
advised mutual funds".
Each Class A, Class B, Class C or Class D shares of the Company represents
an identical interest in the investment portfolio of the Company 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 Company 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 Company
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 Company. The distribution-
related revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing SM System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing SM System that the investor
believes is most beneficial under his particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of
Shares".
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(2)(3)
- -----------------------------------------------------------------------------------------
B CDSC for periods of 4 0.25% 0.75% B Shares convert to D
years, at a rate of 4.0% shares automatically after
during the first year, approximately eight
decreasing 1.0% annually years(4)
to 0.0%
- -----------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- -----------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(3)
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. Contingent deferred sales charges ("CDSCs") are
imposed if the redemption occurs within the applicable CDSC time period.
The charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed.
(continued on next page)
4
<PAGE>
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Alternatives--Class A and Class D Shares--Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year. See "Class
A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Company are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors that currently own Class A shares in a shareholder account
are entitled to purchase additional Class A shares in that account.
Other eligible investors include certain retirement plans and
participants in certain investment programs. In addition, Class A
shares will be offered to directors and employees of Merrill Lynch &
Co., Inc. ("ML & Co.") and its subsidiaries (the term "subsidiaries",
when used herein with respect to Merrill Lynch & Co., Inc., includes
MLAM, FAM and certain other entities directly or indirectly wholly-
owned and controlled by Merrill Lynch & Co., Inc.) and to members of
the Boards of MLAM-advised mutual funds. The maximum initial sales
charge is 5.25%, which is reduced for purchases of $25,000 and over.
Purchases of $1,000,000 or more may not be subject to an initial
sales charge but if the initial sales charge is waived, such
purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. Sales charges also are
reduced under a right of accumulation which takes into account the
investor's holdings of all classes of all MLAM-advised mutual funds.
See "Purchase of Shares--Initial Sales Charge Alternatives--Class A
and Class D Shares".
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Company's average net
assets attributable to the Class B shares, and a CDSC if they are
redeemed within four years of purchase. Approximately eight years
after issuance, Class B shares will convert automatically into Class
D shares of the Company, which are subject to an account maintenance
fee but no distribution fee; Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made convert into
Class D shares automatically after approximately ten years. If Class
B shares of the Company are exchanged for Class B shares of another
MLAM-advised mutual fund, the conversion period applicable to the
Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding
period for the shares acquired. Automatic conversion of Class B
shares into Class D shares will occur at least once a month on the
basis of the relative net asset values of the shares of the two
classes on the conversion date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D
shares will not be deemed a purchase or sale of the shares for
Federal income tax purposes. Shares purchased through reinvestment of
dividends on Class B shares also will convert automatically to Class
D shares. The conversion period for dividend reinvestment shares and
for certain retirement plans is modified as described under "Purchase
of Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares--Conversion of Class B Shares to Class D Shares".
5
<PAGE>
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Company's average net
assets attributable to Class C shares. Class C shares are also
subject to a CDSC if they are redeemed within one year of purchase.
Although Class C shares are subject to a 1.0% CDSC for only one year
(as compared to four years for Class B), Class C shares have no
conversion feature and, accordingly, an investor that purchases Class
C shares will be subject to distribution fees that will be imposed on
Class C shares for an indefinite period subject to annual approval by
the Company'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
Company's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC
when they are redeemed. Purchases of $1,000,000 or more may not be
subject to an initial sales charge but if the initial sales charge is
waived, such purchases will be subject to a CDSC of 1.0% if the
shares are redeemed within one year after purchase. The schedule of
initial sales charges and reductions for Class D shares is the same
as the schedule for Class A shares. Class D shares also will be
issued upon conversion of Class B shares as described above under
"Class B". See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing SM System that the investor believes is most beneficial 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 exceed the initial sales charge and, in
the case of Class D shares, the account maintenance fee. Although some
investors that previously purchased Class A shares may no longer be eligible
to purchase Class A shares of other MLAM-advised mutual funds, those
previously purchased Class A shares, together with Class B, Class C and Class
D share holdings, will count toward a right of accumulation which may qualify
the investor for reduced initial sales charges on new initial sales charge
purchases. In addition, the ongoing Class B and Class C account maintenance
and distribution fees will cause Class B and Class C shares to have higher
expense ratios, pay lower dividends and have lower total returns than the
initial sales charge shares. The ongoing Class D account maintenance fees will
cause Class D shares to have a higher expense ratio, pay lower dividends and
have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be particularly
appealing to
6
<PAGE>
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 Company after a
conversion period of approximately eight years, and thereafter investors will
be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend
to hold their shares for an extended period of time. Investors in Class B
shares should take into account whether they intend to redeem their shares
within the CDSC period and, if not, whether they intend to remain invested
until the end of the conversion period and thereby take advantage of the
reduction in ongoing fees resulting from the conversion into Class D shares.
Other investors, however, may elect to purchase Class C shares if they
determine that it is advantageous to have all their assets invested initially
and they are uncertain as to the length of time they intend to hold their
assets in MLAM-advised mutual funds. Although Class C shareholders are subject
to a shorter CDSC period at a lower rate, they forego the Class B conversion
feature, making their investment subject to account maintenance and
distribution fees for an indefinite period of time. In addition, while both
Class B and Class C distribution fees are subject to the limitations on asset-
based sales charges imposed by the NASD, the Class B distribution fees are
further limited under a voluntary waiver of asset-based sales charges. See
"Purchase of Shares--Limitations on the Payment of Deferred Sales Charges".
7
<PAGE>
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 fiscal year
ended March 31, 1994, and the independent auditors' report thereon are included
in the Statement of Additional Information. Financial information is not
presented for Class C or Class D shares, since no shares of those classes are
publicly issued as of the date of this Prospectus. Further information about
the performance of the Company is contained in the Company's most recent annual
report to shareholders which may be obtained, without charge, by calling or by
writing the Company at the telephone number or address on the front cover of
this Prospectus.
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------- ---------------------------
FOR THE FOR THE PERIOD FOR THE FOR THE PERIOD
YEAR ENDED APRIL 27, 1992+ YEAR ENDED APRIL 27, 1992+
MARCH 31, TO MARCH 31, MARCH 31, TO MARCH 31,
1994* 1993* 1994* 1993*
---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSET VALUE:
PER SHARE OPERATING PER-
FORMANCE:
Net Asset Value, Begin-
ning of Period......... $ 5.08 $ 3.83 $ 5.03 $ 3.83
-------- -------- -------- -------
Investment loss--net... (.01) -- (.05) (.04)
Realized and unrealized
gain on investments
and foreign currency
transactions--net..... 1.51 1.59 1.48 1.58
-------- -------- -------- -------
Total from investment
operations............. 1.50 1.59 1.43 1.54
-------- -------- -------- -------
Less Distributions:
Realized gain on invest-
ments--net............. (1.41) (.34) (1.38) (.34)
-------- -------- -------- -------
Net Asset Value, End of
Period................. $ 5.17 $ 5.08 $ 5.08 $ 5.03
======== ======== ======== =======
TOTAL INVESTMENT RE-
TURN:***
Based on net asset value
per share.............. 35.68% 42.09%++ 34.22% 40.77%++
======== ======== ======== =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
account maintenance and
distribution fees...... 1.35% 1.59%** 1.36% 1.53%**
======== ======== ======== =======
Expenses................ 1.35% 1.59%** 2.36% 2.53%**
======== ======== ======== =======
Investment income
(loss)--net............ (.11)% .04%** (1.08)% .93%**
======== ======== ======== =======
SUPPLEMENTAL DATA:
Net Assets, End of Pe-
riod (in thousands).... $174,809 $100,830 $224,330 $57,592
======== ======== ======== =======
Portfolio Turnover...... 553.69% 482.79% 553.69% 482.79%
======== ======== ======== =======
</TABLE>
- --------
* Based on average shares outstanding during the period.
** Annualized.
*** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++Aggregate total investment return.
8
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
International Investments. Investments on an international basis involve
certain risks not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
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 Company may invest heavily in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. Changes in foreign currency exchange
rates relative to the U.S. dollar will affect the U.S. dollar value of the
Company's assets denominated in those currencies and the Company's yield on
such assets. The rates of exchange between the dollar and other currencies are
determined by forces of supply and demand in the foreign exchange markets.
These forces are, in turn, affected by the international balance of payments,
the level of interest and inflation rates and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
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 Company 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 investments in those countries.
There may be less publicly available information about foreign companies than
about U.S. companies, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those
of U.S. companies. In addition, certain foreign investments may be subject to
foreign withholding taxes. See "Additional Information--Taxes".
Foreign financial markets, while generally growing in trading volume,
typically have substantially less volume than U.S. markets, and securities of
many foreign companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The foreign markets also have
different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the
Company are uninvested and no return is earned thereon. The inability of the
Company to make intended security purchases due to settlement problems could
cause the Company to miss attractive investment opportunities. Inability to
dispose of a portfolio security due to settlement problems either could result
in losses to the Company due to subsequent declines in value of the portfolio
security or, if the Company has entered into a contract to sell the security,
could result in possible liability to the purchaser. Brokerage commissions and
other transaction costs on foreign securities exchanges are generally higher
than in the United States. There is generally less governmental supervision and
regulation of exchanges, brokers and issuers in foreign countries than there is
in the United States.
Investments in Technology. Technology oriented investment companies such as
the Company, as with other sector funds, may be subject to rapidly changing
asset inflows and outflows. Moreover, the Company's investments in securities
of technology related companies present certain risks that may not exist to the
same degree as in other types of investments. Technology stocks, in general,
tend to be relatively volatile as
9
<PAGE>
compared to other types of investments. Any such volatility will be reflected
in changes in the Company's net asset value. While volatility may create
investment opportunities, it does entail risk. The Investment Adviser attempts
to manage risk and optimize returns by concentrating investments in a limited
number of companies, primarily in the semiconductor, communications and
software industries. See "Investment Objective and Policies" below.
While the Company will invest in the securities of entities in several
different industries considered by management of the Company to be technology
related, many of those entities share common characteristics which may affect
an investment in the Company. For example, industries throughout the technology
field include many smaller and less seasoned companies. These types of
companies may present greater opportunities for capital appreciation, but may
also involve greater risks. Such companies may have limited product lines,
markets, or financial resources, or may depend on a limited management group.
In addition, the securities of smaller companies may be subject to more
volatile market movements than the securities of larger, more established
companies. The companies in which the Company invests are also strongly
affected by worldwide scientific or technological developments, and their
products may rapidly fall into obsolescence. Certain of such companies also
offer products or services that are subject to governmental regulation and may,
therefore, be affected adversely by governmental policies.
Other Considerations. The operating expense ratio of the Company can be
expected to be higher than that of an investment company investing exclusively
in U.S. securities since the expenses of the Company, such as custodial costs
and advisory fees, are higher. Other special considerations are that the
Company may invest up to 10% of its net assets in illiquid securities
(including venture capital investments), that certain foreign investments may
be subject to foreign withholding taxes, and that the Company may invest more
than 5% of its assets in securities issued or guaranteed by certain foreign
governments.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek long-term capital
appreciation through worldwide investment in equity securities of companies
that, in the opinion of management, derive or are expected to derive a
substantial portion of their sales from products and services in technology.
The Company will pursue this objective by investing in a global portfolio of
securities of companies in various stages of development. The Company may,
however, for defensive purposes, invest in non-convertible fixed income
securities, including money market securities. Current income from dividends
and interest will not be an important consideration in selecting portfolio
securities. There can be no assurance that the investment objective of the
Company will be realized. The investment objective of the Company described in
the first sentence of this paragraph is a fundamental policy of the Company and
may not be changed without the approval of the holders of a majority of the
Company's outstanding voting securities.
The investment objective of the Company is based upon the belief that
advances in technology are providing companies throughout the world with
opportunities to develop innovative products and services and that investment
in such companies offers significant long-term growth possibilities. While the
Company will seek investments that have a technological orientation, it will
maintain a flexible approach as to the types of industries in which it will
invest, and it will not invest more than 25% of its total assets in any one
industry. Thus, the Company will invest in companies offering products and
services in such areas as computers (including software and hardware),
communications, consumer electronics, electronic components and
10
<PAGE>
instruments, factory automation, office automation, and in other companies
substantially involved in the more general field of technology. The Company
also expects to make investments in energy conservation and development, new
materials, specialty chemicals, aerospace and military technology. The Company
may invest up to 10% of its net assets (together with all other illiquid
investments) in venture capital investments in new and early stage companies
whose securities are illiquid. The Company will not, however, invest in
securities of issuers having a record, together with predecessors, of less than
three years of continuous operation if more than 5% of the Company's total
assets, taken at market value, would be invested in such securities.
The Company will invest in an international portfolio of securities of
companies located throughout the world. While there are no prescribed limits on
geographic asset distribution, based upon the public market values in the world
equity markets and anticipated technological innovations, it is presently
contemplated that a majority of the Company's assets will be invested at all
times in the securities of issuers domiciled in the United States, Japan and
Western Europe. Western European countries include, among others, the United
Kingdom, Germany, The Netherlands, Switzerland, Sweden, France, Italy, Belgium,
Norway, Denmark, Finland, Portugal, Austria and Spain. The Company may restrict
the securities markets in which its assets will be invested and may increase
the proportion of assets invested in the U.S. securities markets. As a result,
when the Investment Adviser believes it is in the best interests of the
shareholders of the Company, the Company may have few or no investments outside
the United States.
The Company's current investment strategy differs from that of many other
mutual funds. In managing the Company's portfolio, the Investment Adviser
attempts to generate positive returns for shareholders instead of outperforming
a particular stock market index; however, there is no assurance that the
Investment Adviser will be able to generate positive returns for the Company,
especially in light of the inherently volatile nature of the stock sector in
which its assets are invested. While volatility may create investment
opportunities, it does entail risk. The Investment Adviser attempts to manage
risk and optimize returns by concentrating investments in a limited number of
companies, primarily in the semiconductor, communications and software
industries and by conducting primary research.
Investment emphasis will be on equities, primarily common stocks and, to a
lesser extent, securities convertible into common stocks and rights to
subscribe for common stock. The Company anticipates that under normal
conditions at least 65% of its total assets will be invested in technology
companies. The Company reserves the right, as a temporary defensive measure and
to provide for redemptions, to hold cash or cash equivalents (in U.S. dollars
or foreign currencies) and other types of securities, the issuers of which may
not be involved in technology, including non-convertible preferred stocks and
investment grade debt securities and government and money market securities, in
such proportions as, in the opinion of the Investment Adviser, prevailing
market or economic conditions warrant. Because of the inherently volatile
nature of stocks in the technology sector, the Investment Adviser may be more
likely to sell particular stocks and hold a large cash position than would the
manager of a mutual fund that invests in stocks of companies in a variety of
other industries.
The Company also may invest in securities subject to repurchase agreements
with banks or securities firms if the underlying securities are those which
otherwise qualify for investment by the Company and if, as a result thereof,
not more than 10% of its net assets would be invested in illiquid securities,
including repurchase agreements maturing in more than seven days. The Company
may invest in the securities of foreign issuers in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
11
<PAGE>
Global Depositary Receipts (GDRs) or other securities convertible into
securities of foreign issuers. The Company may invest in unsponsored ADRs. The
issuers of unsponsored ADRs are not obligated to disclose material information
in the United States, and therefore, there may not be a correlation between
such information and the market value of such ADRs.
HEDGING TECHNIQUES
The Company may engage in various portfolio strategies to hedge its portfolio
against investment, interest rate and currency risks. These strategies include
the use of options on portfolio securities, stock index options, stock index
futures, financial futures, currency futures, options on such futures and
forward foreign exchange transactions. The Company may enter into such
transactions only in connection with its hedging strategies. While the net
asset value of the Company's shares will fluctuate and no assurance can be
given that the Company's hedging transactions will be effective, the Investment
Adviser believes that the ability of the Company to engage in these hedging
transactions would enhance the Company's ability to reduce the volatility of
the net asset value of its shares. Furthermore, the Company will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities when movements in the equity markets, interest rates or
currency exchange rates occur. Reference is made to the Statement of Additional
Information for further information concerning these strategies.
Although certain risks are involved in options and futures transactions (as
discussed below in "Risk Factors in Options, Futures and Currency
Transactions"), the Investment Adviser believes that, because the Company will
only engage in these transactions for hedging purposes, the options and futures
portfolio strategies of the Company will not subject the Company to the risks
frequently associated with the speculative use of options and futures
transactions. Tax requirements may limit the Company's ability to engage in the
hedging transactions and strategies described below.
Set forth below is a description of the hedging instruments that the Company
may utilize with respect to investment, interest rate and currency risks.
Writing Covered Call Options. The Company is authorized to purchase and 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 Company, in return for a
premium, gives another party a right to buy specified securities owned by the
Company at a specified future date and price set at the time of the contract.
By writing covered call options, the Company 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 Company's ability to sell the underlying security will be
limited while the option is in effect unless the Company effects a closing
purchase transaction. A closing purchase transaction cancels out the Company's
position as the writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has written. Covered
call options serve as a partial hedge against the price of the underlying
security declining.
Purchasing Put Options. The Company is authorized to purchase put options to
hedge against a decline in the market value of its securities. By buying a put
option the Company has a right to sell the underlying security at the stated
exercise price, thus limiting the Company's risk of loss through a decline in
the market value of the security until the put expires. The amount of any
appreciation in the value of the underlying
12
<PAGE>
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 Company's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option it
has purchased. The Company will not purchase put 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 Company would exceed 5% of the market value of the Company's total assets.
Stock Index Options and Futures and Financial Futures. The Company is
authorized to engage in transactions in stock index options and futures and
financial futures, and related options on such futures. The Company 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
Company 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 Company
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 Company 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 Company may effect transactions in stock index futures
contracts in connection with the equity securities in which it invests and in
financial futures contracts in connection with the debt securities in which it
invests. Transactions by the Company in stock index futures and financial
futures are subject to limitations as described below under "Restrictions on
the Use of Futures Transactions".
The Company is authorized to sell futures contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
the Company's securities portfolio that might otherwise result. When the
Company is not fully invested in the securities markets and anticipates a
significant market advance, it would be able to purchase futures in order to
gain rapid market exposure that may in part or entirely offset increases in the
cost of securities that the Company intends to purchase. As such purchases are
made, an equivalent amount of futures contracts will be terminated by
offsetting sales. The Company 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 Company 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 Company experiences a significant amount of redemptions), a long
futures position may be terminated without the corresponding purchase of
securities.
The Company also is authorized to purchase and write call and put options on
futures contracts and stock indices in connection with its hedging activities.
Generally, these strategies would be utilized under the same market and market
sector conditions (i.e., conditions relating to specific types of investments)
in which
13
<PAGE>
the Company enters into futures transactions. The Company 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 Company can 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 Company
intends to purchase.
The Company is also authorized to 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 prices
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.
The Company is 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 could be effected with respect to
hedges on non-U.S. dollar denominated securities owned by the Company, sold by
the Company but not yet delivered, or committed or anticipated to be purchased
by the Company. As an illustration, the Company may use such techniques to
hedge the stated value in U.S. dollars of an investment in a yen denominated
security. In such circumstances, for example, the Company can 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 Company 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 a call option in this illustration, the Company
gives up the opportunity to profit without limit from increases in the relative
value of the yen to the dollar. The Investment Adviser believes that
"straddles" of the type which may be utilized by the Company 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 or futures exchanges. The
Company will not speculate in foreign currency options, futures or related
options. Accordingly, the Company 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 Company but not yet delivered, the
proceeds thereof in its denominated currency. The Company will not incur
potential net liabilities of more than 20% of its total assets from foreign
currency options, futures or related options.
Forward Foreign Exchange Transactions. The Company has authority to deal in
forward foreign exchange between 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 between 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 Company's dealings in forward foreign
14
<PAGE>
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
Company accruing in connection with the purchase and sale of its portfolio
securities, the sale and redemption of shares of the Company or the payment of
dividends and distributions by the Company. Position hedging is the sale of
forward foreign currency with respect to portfolio security positions
denominated or quoted in such foreign currency. The Company will not attempt to
hedge all of its foreign portfolio positions. The Company may not commit more
than 15% of its assets, taken at market value, to position hedging. If the
Company enters into a position hedging transaction, its custodian bank will
place cash or liquid debt securities in a separate account of the Company in an
amount equal to the value of the Company'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
Company's commitment with respect to such contracts.
Restrictions on the Use of Futures Transactions. Regulations of the Commodity
Futures Trading Commission applicable to the Company provide that the futures
trading activities described herein will not result in the Company being deemed
a "commodity pool" as defined under such regulations if the Company adheres to
certain restrictions. In particular, the Company may purchase and sell futures
contracts and options thereon (i) for bona fide hedging purposes and (ii) for
non-hedging purposes, if the aggregate initial margin and premiums required to
establish positions in such contracts and options does not exceed 5% of the
liquidation value of the Company's portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts and options.
When the Company 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 Company'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 contract is unleveraged.
Restrictions on OTC Options. The Company 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 U.S. 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 staff of the Securities and Exchange Commission (the "Commission") has
taken the position that purchased OTC options and the assets used as cover for
written OTC options are illiquid securities. Therefore, the Company 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 Company, the market value of the underlying securities
covered by OTC call options currently outstanding which were sold by the
Company and margin deposits on the Company's existing OTC options on futures
contracts exceeds 10% of the net assets of the Company, taken at market value,
together with all other assets of the Company which are illiquid or are not
otherwise readily marketable. However, if the OTC option is sold by the Company
to a primary U.S. Government securities dealer recognized by the Federal
Reserve Bank of New York and if the Company has the unconditional contractual
right to repurchase such OTC option from the dealer at a predetermined price,
then the Company 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
15
<PAGE>
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 Company and may be amended by the Board of Directors of the
Company without the approval of the Company's shareholders. However, the
Company will not change or modify this policy prior to the change or
modification by the Commission staff of its position.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
options and futures transactions to hedge the portfolio involves the risk of
imperfect correlation in movements in the price of options and futures 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 Company will experience a
gain or loss which will not be completely offset by movements in the price of
the subject of the hedge. The successful use of options and futures also
depends on the Investment Adviser's ability to predict correctly price
movements in the market involved in a particular options or futures
transaction. To compensate for imperfect correlations, the Company 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 Company 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 Company 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. 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
Company's ability to hedge effectively its portfolio. There is also the risk of
loss by the Company of margin deposits or collateral in the event of bankruptcy
of a broker with whom the Company has an open position in an option, a futures
contract or related option.
The exchanges on which options on portfolio securities and currency options
are traded 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 in one or more accounts or
through one or more brokers). "Trading limits" are imposed on the maximum
number of contracts which any person may trade on a particular trading day. The
Investment Adviser does not believe that these trading and position limits will
have any adverse impact on the portfolio strategies for hedging the Company's
portfolio.
Because the Company will engage in the options and futures transactions
described above solely in connection with its hedging activities, the
Investment Adviser does not believe that such options and futures transactions
necessarily will have any significant effect on the Company's portfolio
turnover.
OTHER INVESTMENT PRACTICES
Non-Diversified Status. The Company is classified as non-diversified within
the meaning of the Investment Company Act, which means that the Company is not
limited by such Act in the proportion of its
16
<PAGE>
assets that it may invest in the securities of a single issuer. The Company's
investments will be limited, however, in order to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"). See "Additional Information--Taxes". To qualify, the
Company must comply with certain requirements, including limiting its
investments so that at the close of each quarter of the taxable year (i) not
more than 25% of the market value of the Company's total assets will be
invested in the securities of a single issuer, and (ii) with respect to 50% of
the market value of its total assets, not more than 5% of the market value of
its total assets will be invested in the securities of a single issuer, and the
Company will not own more than 10% of the outstanding voting securities of a
single issuer. Foreign government securities (unlike U.S. Government
securities) are not exempt from the diversification requirements of the Code
and are considered obligations of a single issuer. A fund which elects to be
classified as "diversified" under the Investment Company Act must satisfy the
foregoing 5% and 10% requirements with respect to 75% of its total assets. To
the extent that the Company assumes large positions in the securities of a
small number of issuers, the Company's net asset value may fluctuate to a
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers, and the
Company may be more susceptible to any single economic, political or regulatory
occurrence than a diversified company.
Portfolio Transactions. In executing portfolio transactions, the Investment
Adviser seeks to obtain the best net results for the Company, taking into
account such factors as price (including the applicable brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While the Investment Adviser generally seeks reasonably competitive
commission rates, the Company does not necessarily pay the lowest commission or
spread available. The Company has no obligation to deal with any broker or
group of brokers in execution of transactions in portfolio securities.
Brokerage commissions and other transaction costs on foreign stock exchange
transactions are generally higher than in the United States, although the
Company will endeavor to achieve the best net results in effecting its
portfolio transactions.
Portfolio Turnover. The Company may dispose of securities without regard to
the time they have been held when such actions, for defensive or other reasons,
appear advisable to the Investment Adviser. While it is not possible to predict
portfolio turnover rates with any certainty, at present it is anticipated that
the Company's annual portfolio turnover rate, under normal circumstances, may
be in excess of 300%. This rate of portfolio turnover may be higher than that
of most investment companies. The high rate of portfolio turnover is in large
measure a function of the traditional volatility of technology stocks, which as
a whole is considerably greater than that of stocks generally. The Company's
portfolio turnover rates for the fiscal period April 27, 1992 (commencement of
operations) to March 31, 1993, and for the fiscal year ending March 31, 1994,
were 482.79% and 553.69%, respectively. (The portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the particular fiscal year by the monthly average of the value of the
portfolio securities owned by the Company during the particular fiscal year.)
High portfolio turnover involves correspondingly greater transaction costs in
the form of dealer spreads and brokerage commissions, which are borne directly
by the Company.
Lending of Portfolio Securities. The Company may from time to time lend
securities from its portfolio, with a value not exceeding 10% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. Government
which will be maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities. During the period of such a
loan, the Company receives the income on both the loaned securities and the
collateral and thereby increases its yield.
17
<PAGE>
INVESTMENT RESTRICTIONS
The Company 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
Company's outstanding voting securities as defined in the Investment Company
Act. Among the more significant restrictions, the Company may not invest more
than 25% of its total assets (taken at market value at the time of each
investment) in the securities of issuers in any particular industry. Other
fundamental policies include policies which limit investments in securities
which cannot be readily resold because of legal or contractual restrictions or
which are not otherwise readily marketable if, regarding all such securities,
more than 10% of the Company's net assets, taken at market value, would be
invested in such securities.
While the Company will not purchase illiquid securities in an amount
exceeding 10% of its net assets, the Company may purchase, without regard to
that limitation, securities that are not registered under the Securities Act of
1933, as amended (the "Securities Act"), but that can be offered and sold to
"qualified institutional buyers" under Rule 144A under the Securities Act,
provided that the Company's Board of Directors continuously determines, based
on the trading markets for the specific Rule 144A security, that it is liquid.
The Board of Directors has determined to treat as liquid Rule 144A securities
which are freely tradeable in their primary markets offshore. The Board of
Directors may adopt guidelines and delegate to the Investment Adviser the daily
functions of determining and monitoring liquidity of other restricted
securities. The Board of Directors, however, will retain sufficient oversight
and be ultimately responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market for
restricted securities sold and offered under Rule 144A will develop, the Board
of Directors will carefully monitor the Company'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 Company to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
Nothing in the foregoing investment restrictions shall be deemed to prohibit
the Company from purchasing the securities of any issuer pursuant to the
exercise of subscription rights distributed to the Company by the issuer,
except that no such purchase may be made if as a result the Company will fail
to meet the diversification requirements of the Code.
The Board of Directors of the Company, at a meeting held on August 4, 1994,
approved certain changes to the fundamental and non-fundamental investment
restrictions of the Company. These changes were proposed in connection with the
creation of a set of standard fundamental and non-fundamental investment
restrictions that would be adopted, subject to shareholder approval, by all of
the non-money market mutual funds advised by MLAM or FAM. The proposed uniform
investment restrictions are designed to provide each of these funds, including
the Company, with as much investment flexibility as possible under the
Investment Company Act and applicable state securities regulation, help promote
operational efficiencies and facilitate monitoring of compliance. The
investment objective and policies of the Company will be unaffected by the
adoption of the proposed investment restrictions.
The full text of the proposed investment restrictions is set forth under
"Investment Objective and Policies--Proposed Uniform Investment Restrictions"
in the Statement of Additional Information. Shareholders of
18
<PAGE>
the Company are currently considering whether to approve the proposed revised
investment restrictions. If such shareholder approval is obtained, the
Company's current investment restrictions will be replaced by the proposed
restrictions, and the Company's Prospectus and Statement of Additional
Information will be supplemented to reflect such change.
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS
The Board of Directors of the Company consists of five individuals, four of
whom are not "interested persons" of the Company as defined in the Investment
Company Act. The Board of Directors of the Company is responsible for the
overall supervision of the operations of the Company and performs the various
duties imposed on the directors of investment companies by the Investment
Company Act.
The Directors of the Company are:
Arthur Zeikel*--President and Chief Investment Officer of the Investment
Adviser; President and Director of Princeton Services, Inc.; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co."); Executive Vice President
of Merrill Lynch; Director of the Distributor.
Donald Cecil--Special Limited Partner of Cumberland Partners (an investment
partnership).
Edward H. Meyer--Chairman of the Board, President and Chief Executive Officer
of Grey Advertising Inc.
Charles C. Reilly--Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital, Inc.; former Senior Vice President
of Arnhold and S. Bleichroeder, Inc.; Adjunct Professor, Columbia University
Graduate School of Business.
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 Company.
ADVISORY AND MANAGEMENT ARRANGEMENTS
The Company's investment adviser is Merrill Lynch Asset Management, L.P.,
which does business as Merrill Lynch Asset Management (the "Investment
Adviser"). The Investment Adviser is owned and controlled by ML & Co., a
financial services holding company and the parent of Merrill Lynch. The
Investment Adviser or an affiliate, Fund Asset Management, L.P. ("FAM"), acts
as the investment adviser to more than 100 other registered investment
companies and provides investment advisory services to individual and
institutional accounts. As of August 31, 1994, the Investment Adviser and FAM
had a total of approximately $165.7 billion in investment company and other
portfolio assets under management, including accounts of certain affiliates of
the Investment Adviser.
As compensation for its services to the Company, the Investment Adviser
receives monthly compensation at the annual rate of 1.0% of the average daily
net assets of the Company. For the fiscal year ended March 31, 1994, the fee
paid by the Company to the Investment Adviser was $2,476,639 (based on average
net assets of approximately $247.8 million). At May 31, 1994, the net assets of
the Company aggregated approximately $477.6 million. At this asset level, the
annual investment advisory fee would
19
<PAGE>
aggregate approximately $4,776,079. This fee is higher than those of most
mutual funds but the Company believes it is justified by the specialized
investment focus of the Company.
Subject to the direction of the Directors, the Investment Adviser is
responsible for the actual management of the Company's portfolio and constantly
reviews the Company's holdings in light of its own research analysis and that
from other relevant sources. The responsibility for making decisions to buy,
sell or hold a particular security rests with the Investment Adviser. The
Investment Adviser performs certain of the other administrative services and
provides all the office space, equipment and necessary personnel for management
of the Company.
James K. Renck, Vice President of the Company, is the Company's Portfolio
Manager. Mr. Renck has been a Vice President and Portfolio Manager of the
Investment Adviser and its predecessor since 1986. Mr. Renck has been primarily
responsible for the management of the Company's portfolio since its inception.
The Company pays certain expenses incurred in its operations, including,
among other things, taxes, expenses for legal and auditing services, costs of
printing proxies, stock certificates, shareholder reports, prospectuses and
statements of additional information. Also, accounting services are provided to
the Company by the Investment Adviser, and the Company reimburses the
Investment Adviser for its costs in connection with such services on a semi-
annual basis. For the fiscal year ended March 31, 1994, the Company reimbursed
the Investment Adviser $41,958 for accounting services. For the same period,
for the Class A shares, the ratio of total expenses to average net assets was
1.35%, and for Class B shares, the ratio of total expenses excluding account
maintenance and distribution fees to average net assets was 1.36%, and the
ratio of total expenses including account maintenance and distribution fees to
average net assets was 2.36%.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly-owned
subsidiary of ML&Co., acts as the Company'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 or Class D shareholder account and $14.00 per Class B or
Class C shareholder account, nominal miscellaneous fees (e.g., account closing
fees) and is entitled to reimbursement for out-of-pocket expenses incurred by
it under the Transfer Agency Agreement. For the fiscal year ended March 31,
1994, the Company paid the Transfer Agent $414,883 pursuant to the Transfer
Agency Agreement. At April 30, 1994, the Company had 35,984 Class A shareholder
accounts and 27,341 Class B shareholder accounts (including certain subaccounts
on which the standard annual transfer agency fees are assessed), no Class C
shareholder accounts and no Class D shareholder accounts. At this level of
accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $778,598, plus miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
both the Investment Adviser and Merrill Lynch, acts as the distributor of the
shares of the Company. Shares of the Company are offered continuously for sale
by the Distributor and other eligible securities dealers (including Merrill
Lynch). Shares
20
<PAGE>
of the Company may be purchased from securities dealers or by mailing a
purchase order directly to the Transfer Agent. The minimum initial purchase is
$1,000, and the minimum subsequent purchase is $50, except that for retirement
plans, the minimum initial purchase is $100, and the minimum subsequent
purchase is $1.
The Company 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 investors under the Merrill
Lynch Select Pricing SM System, as described below. The applicable offering
price for purchase orders is based upon the net asset value of the Company
next determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to 4:15 p.m., New York
time, which includes orders received after the determination of the net asset
value on the previous day, the applicable offering price will be based on the
net asset value as of 4:15 p.m., New York time, on the day the order is placed
with the Distributor, provided the order is received by the Distributor prior
to 4:30 p.m., New York time, on that day. If the purchase orders are not
received prior to 4:30 p.m., New York time, such orders shall be deemed
received on the next business day. The Company or the Distributor may suspend
the continuous offering of the Company'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 Company. 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
Transfer Agent are not subject to the processing fee.
The Company issues four classes of shares under the Merrill Lynch Select
Pricing SM System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Company with the
investment thereafter being subject to a contingent deferred sales charge and
ongoing distribution fees. A discussion of the factors that investors should
consider in determining the method of purchasing shares under the Merrill
Lynch Select Pricing SM System is set forth under "Merrill Lynch Select
Pricing SM System" on page 3.
Each Class A, Class B, Class C and Class D share of the Company represents
identical interests in the investment portfolio of the Company 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 charge 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 Company 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 Company 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
21
<PAGE>
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 Company. The distribution-related
revenues paid with respect to a class will not be used to finance the
distribution expenditures of another class. Sales personnel may receive
different compensation for selling different classes of shares. Investors are
advised that only Class A and Class D shares may be available for purchase
through securities dealers, other than Merrill Lynch, which are eligible to
sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales
charge(2)(3)
- -------------------------------------------------------------------------------------
B CDSC for periods of 4 0.25% 0.75% B shares converted to D
years, at a rate of 4.0% shares
during the first year, automatically after
decreasing 1.0% annually approximately
to 0.0% eight years(4)
- -------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- -------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales
charge(3)
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of the redemption or 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 shares
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 price for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other MLAM-
advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Company 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.
22
<PAGE>
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net
asset value plus varying sales charges (i.e., sales loads), as set forth
below.
<TABLE>
<CAPTION>
SALES LOAD AS DISCOUNT TO
SALES LOAD AS PERCENTAGE* OF SELECTED DEALERS
PERCENTAGE OF THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED THE OFFERING PRICE
- ------------------ -------------- -------------- ------------------
<S> <C> <C> <C>
Less than $25,000............. 5.25% 5.54% 5.00%
$25,000 but less than $50,000. 4.75 4.99 4.50
$50,000 but less than
$100,000..................... 4.00 4.17 3.75
$100,000 but less than
$250,000..................... 3.00 3.09 2.75
$250,000 but less than
$1,000,000................... 2.00 2.04 1.80
$1,000,000 and over**......... 0.00 0.00 0.00
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more made on or after October 21, 1994. 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 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 in lieu of paying an initial sales charge. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. A sales charge of
0.75% will be charged on purchases of $1 million or more of Class A or
Class D shares by certain 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers, selling Class A and
Class D shares of the Company will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act.
During the fiscal year ended March 31, 1994, the Company sold 12,878,911 Class
A shares for aggregate net proceeds of $66,764,420. The gross sales charges
for the sale of Class A shares of the Fund for that year were $735,190, of
which $44,459 and $690,731 were received by the Distributor and Merrill Lynch,
respectively. For the fiscal year ended March 31, 1994, the Distributor
received no CDSCs with respect to redemption within one year after purchase of
Class A shares purchased subject to front-end sales charge waivers.
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 in a
shareholder account, including participants in the Merrill Lynch Blueprint SM
Program, are entitled to purchase additional Class A shares in that account.
Certain employer sponsored retirement or savings plans, including eligible
401(k) plans, may purchase Class A shares at net asset value provided such
plans meet the required minimum number of eligible employees or required
amount of assets advised by MLAM or any of its affiliates. Class A shares are
available at net asset value to corporate warranty insurance reserve fund
programs provided that the program has $3 million or more initially invested
in MLAM-advised mutual funds. Also eligible to purchase Class A shares at net
asset value are participants in certain investment programs including TMASM
Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services and certain purchases made in connection with the Merrill
Lynch Mutual Fund Adviser program. In addition, Class A shares will be offered
at net asset value to ML & Co. and its subsidiaries and their directors and
employees and to members of the Boards of MLAM-advised investment companies,
including the Company. 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
23
<PAGE>
of the Company also may purchase Class A shares of the Company if certain
conditions set forth in the Statement of Additional Information are met. For
example, Class A shares of the Company 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 without sales charge to an
investor who has a business relationship with a financial consultant, if
certain conditions set forth in the Statement of Additional Information are
met. Class D shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint SM Program.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employee Sponsored Retirement or
Savings Plans, is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares are automatically converted into Class D shares of the Company and
thereafter will be subject to lower continuing fees. See "Conversion of Class B
Shares to Class D Shares" below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and a distribution fee of
0.75% of net assets as discussed below under "Distribution Plans".
Class B and Class C shares are sold without an initial sales charge so that
the Company 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. The proceeds from the account maintenance fees are used to
compensate Merrill Lynch for providing continuing account maintenance
activities.
24
<PAGE>
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 Company 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 Company to
sell the Class B and Class C shares without a sales charge being deducted at
the time of purchase. Approximately eight years after issuance, Class B shares
will convert automatically into Class D shares of the Company, 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 to
convert into Class D shares automatically after approximately ten years. If
Class B shares of the Company are exchanged for Class B shares of another MLAM-
advised mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the shares
exchanged will be tacked onto the holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C shares
is limited by the NASD asset-based sales charge rule. See "Limitations on the
Payment of Deferred Sales Charges" below. The proceeds from the ongoing account
maintenance fee are used to compensate Merrill Lynch for providing continuing
account maintenance activities. Class B shareholders of the Company exercising
the exchange privilege described under "Shareholder Services--Exchange
Privilege" will continue to be subject to the Company's CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares
acquired as a result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares which are
redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price. In
addition, no CDSC will be assessed on shares derived from reinvestment of
dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC
AS A PERCENTAGE
OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT MADE 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 March 31, 1994, the Distributor received CDSCs of
$315,184 with respect to redemptions of Class B shares, all of which were 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
25
<PAGE>
or distributions and then of shares held longest during the four-year period.
The charge will not be applied to dollar amounts representing an increase in
the net asset value since the time of purchase. A transfer of shares from a
shareholder's account to another account will be assumed to be made in the
same order as a redemption.
To provide an example, assume an investor purchases 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired
10 additional shares through dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to the CDSC because of dividend reinvestment. With
respect to the remaining 40 shares, the CDSC is applied only to the original
cost of $10 per share and not to the increase in net asset value of $2 per
share. Therefore, $400 of the $600 redemption proceeds will be charged at a
rate of 2.0% (the applicable rate in the third year after purchase).
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 Blueprint SM Program. The CDSC also
is waived for any Class B shares which are purchased by eligible 401(k) or
eligible 401(a) plans which are rolled over into a Merrill Lynch or Merrill
Lynch Trust Company custodied IRA and held in such account at the time of
redemption. The Class B CDSC also is waived for any Class B shares which are
purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a
terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in
such account at the time of redemption. Additional information concerning the
waiver of the Class B CDSC is set forth in the Statement of Additional
Information.
Contingent Deferred Sales Charges--Class C Shares. Class C shares which are
redeemed within one year after purchase may be subject to a 1.0% CDSC charged
as a percentage of the dollar amount subject thereto. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no Class C CDSC will be
imposed on increases in net asset value above the initial purchase price. In
addition, no Class C CDSC will be assessed on shares derived from reinvestment
of dividends or capital gains distributions.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the one-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted
automatically into Class D shares of the Company. Class D shares are subject
to an ongoing account maintenance fee of 0.25% of the 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
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charge. Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of the Company 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
Company held in the account on the Conversion Date will be converted to Class D
shares of the Company.
Share certificates for Class B shares of the Company to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion Period, or vice versa, the
Conversion Period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised mutual
funds held in that Class B Retirement Plan will be converted into Class D
shares of the appropriate funds. Subsequent to such conversion, that Class B
Retirement Plan will be sold Class D shares of the appropriate funds at net
asset value.
DISTRIBUTION PLANS
The Company 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 Company 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 Company 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 Company 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.
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The Distribution Plans for Class B and Class C shares each provide that the
Company also pays the Distributor a distribution fee relating to the shares of
the relevant class, accrued daily and paid monthly, at the annual rate of 0.75%
of the average daily net assets of the Company 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 Company
including payments to financial consultants for selling Class B and Class C
shares of the Company. 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 Company in that the deferred sales charges provide for the
financing of the distribution of the Company's Class B and Class C shares.
Prior to July 7, 1993, the Company paid the Distributor an ongoing
distribution fee, accrued daily and paid monthly, at the annual rate of 1.00%
of average daily net assets of the Class B shares of the Company under a
distribution plan previously adopted by the Company (the "Prior Plan") to
compensate the Distributor and Merrill Lynch for providing account maintenance
and distribution-related activities and services to Class B shareholders. The
fee rate payable and the services provided under the Prior Plan are identical
to the aggregate fee rate payable and the services provided under the Class B
Distribution Plan, the difference being that the account maintenance and
distribution services have been unbundled.
For the fiscal year ended March 31, 1994, the Company paid the Distributor
$1,173,695 pursuant to the Prior Plan and the Class B Distribution Plan (based
on average net assets subject to the Prior Plan and the Distribution Plan of
approximately $117.5 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with Class B shares. The Company did not begin to offer shares of
Class C or Class D publicly until the date of this Prospectus. Accordingly, no
payments have been made pursuant to the Class C or Class D Distribution Plans
prior to the date of this Prospectus. At May 31, 1994, the net assets of the
Company subject to the Class B Distribution Plan aggregated approximately
$247.0 million. At this asset level, the annual fees payable pursuant to the
Class B Distribution Plan would aggregate approximately $2,470,000.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the 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, distribution fees, CDSCs and certain other
related revenues, and expenses consist of financial consultant compensation,
branch office and regional operation center selling and transaction processing
expenses, advertising, sales promotion and marketing expenses, corporate
overhead and interest expense. On the direct expense and revenue/cash basis,
revenues consist of the account maintenance fees, distribution fees and CDSCs,
and the expenses consist of financial consultant compensation.
As of May 31, 1994, direct cash expenses for the period since inception
exceeded direct cash revenues by $724,167 (0.26% of Class B net assets at that
date). As of December 31, 1993, the fully allocated accrual
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expenses incurred by the Distributor and Merrill Lynch for the period since
commencement of operations exceeded fully allocated accrual revenues for such
period by approximately $2,685,000 (1.90% of Class B net assets at that date).
The Company has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Company will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or
distribution of each class of shares separately. The initial sales charges, the
account maintenance fee, the distribution fee and/or the CDSCs received with
respect to one class will not be used to subsidize the sale of shares of
another class. Payments of the distribution fee on Class B shares will
terminate upon conversion of those Class B shares into Class D shares as set
forth under "Deferred Sales Charge Alternatives--Class B and Class C Shares--
Conversion of Class B Shares to Class D Shares".
Limitations on the Payment of Deferred Sales Charges. The maximum sales
charge rule in the Rules of Fair Practice of the NASD imposes a limitation on
certain asset-based sales charges such as the 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 Company, the maximum sales charge rule limits the aggregate
of distribution fee payments and CDSCs payable by the Company to (1) 6 1/4% of
eligible gross sales of Class B shares and Class C shares computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges) plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Company will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Company rather than to the Distributor;
however, the Company 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.
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REDEMPTION OF SHARES
The Company is required to redeem for cash all shares of the Company on
receipt of a written request in proper form. The redemption price is the net
asset value per share next determined after the initial receipt of proper
notice of redemption. Except for any CDSC which may be applicable, there will
be no charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption. The value
of shares at the time of redemption may be more or less than the shareholder's
cost, depending on the market value of the securities held by the Company at
such time.
REDEMPTION
A shareholder wishing to redeem shares may do so without charge by tendering
the shares directly to the 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 Funds
Operations, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. 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 signatures on the notice must be guaranteed by an
"eligible guarantor institution" (including, for example, Merrill Lynch branch
offices and certain other financial institutions) as such term is defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, 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 Company may be requested to redeem shares for which it
has not yet received good payment. The Company may delay or cause to be delayed
the mailing of a redemption check until such time as good payment (e.g., cash
or certified check drawn on a U.S. bank) has been collected for the purchase of
such shares. Normally, this delay will not exceed 10 days.
REPURCHASE
The Company also will repurchase shares through a shareholder's listed
securities dealer. The Company 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 on the day received and such request is received
by the Company from such dealer not later than 4:30 p.m., New York time, on the
same day. Dealers have the responsibility of submitting such repurchase
requests to the Company not later than 4:30 p.m., New York time, in order to
obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of shareholders
and do not involve a charge by the Company (other than any applicable CDSC).
Securities firms which do not have selected dealer
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agreements with the Distributor, however, may impose a transaction charge on
the shareholder for transmitting the notice of repurchase to the Company.
Merrill Lynch may charge its customers a processing fee (presently $4.85) to
confirm a repurchase of shares to such customers. Redemptions directly through
the Transfer Agent are not subject to the processing fee. The Company 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 Company
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 Company 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 Company offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Company. Certain of such services are not available to investors who place
purchase orders for the Company's shares through the Merrill Lynch
Blueprint SM Program. Full details as to each of such services, copies of the
various plans described below and instructions as to how to participate in the
various services or plans, or to change options with respect thereto, can be
obtained from the Company, the Distributor or Merrill Lynch. Certain of these
services are available only to U.S. investors.
Investment Account. Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
statements will also show any other activity in the account since the
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of ordinary income dividends and
long-term capital gain distributions. A shareholder may make additions to his
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 Company, 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
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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 Company, 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.
Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to his
bank account on either a monthly or quarterly basis. A Class A or Class D
shareholder whose shares are held within a CMA (R), CBA (R) or Retirement
Account may elect to have shares redeemed on a monthly, bimonthly, quarterly,
semiannual or annual basis through the Systematic Redemption Program, subject
to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
or Class D shares may be made to an investor's Investment Account by
prearranged charges of $50 or more to his regular bank account. Investors who
maintain CMA (R) accounts may arrange to have periodic investments made in the
Company in their CMA (R) account or in certain related accounts in amounts of
$100 or more through the CMA (R) Automated Investment Program.
Automatic Reinvestment of Dividends and Distributions. All dividends and
capital gains distributions are automatically reinvested in full and
fractional shares of the Company, without sales charge, at the net asset value
per share next determined after the close of the New York Stock Exchange on
the payable date of such dividend or distribution. A shareholder may at any
time, by written notification to Merrill Lynch if the shareholder's account is
maintained with Merrill Lynch or by written notification or telephone call (1-
800-MER-FUND) to the Transfer Agent if the shareholder's account is maintained
with the Transfer Agent, elect to have subsequent dividends, or both dividends
and capital gains distributions, paid in cash rather than reinvested, in which
event payment will be mailed on or about the payment date. Cash payments can
also be directly deposited to the shareholder's bank account. No CDSC will be
imposed on redemption of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission.
Under the Merrill Lynch Select Pricing SM System, Class A shareholders may
exchange Class A shares of the Company 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
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hold Class A shares of the second fund in his account at the time of the
exchange and is not otherwise eligible to acquire Class A shares of the second
fund, the shareholder will receive Class D shares of the second fund as a
result of the exchange. Class D shares also may be exchanged for Class A shares
of a second MLAM-advised mutual fund at any time as long as, at the time of the
exchange the shareholder holds Class A shares of the second fund in the account
in which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the relative
net asset values per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares will be exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Company which are subject to a CDSC will be exchangeable on the
basis of relative net asset value per share without the payment of any CDSC
that might otherwise be due upon redemption of the shares of the Company. 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 Company is "tacked" to the holding period of the newly acquired
shares of the other Company.
Class A, Class B, Class C and Class D shares also will be exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Company exercising the exchange privilege will
continue to be subject to the Company'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 Company acquired through use of the exchange privilege
will be subject to the Company'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 Company's exchange privilege is modified with respect to purchases of
Class A and Class D shares under the Merrill Lynch Mutual Fund Adviser ("MFA")
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D
shares of a MLAM-advised mutual fund for Class A or Class D shares of the
Company 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
Company being acquired in the exchange under the MFA program.
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PERFORMANCE DATA
From time to time the Company 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 Company 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 and distribution fees and any incremental transfer agency costs
relating to each class of shares will be borne exclusively by that class. The
Company will include performance data for all classes of shares of the Company
in any advertisement or information including performance data of the Company.
The Company also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return, and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual
or annualized total return data generally will be lower than average annual
total return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over longer
periods of time. In advertisements distributed to investors whose purchases are
subject to reduced sales charges in the case of Class A and Class D shares or
waiver of the CDSC in the case of Class B and Class C shares (such as investors
in certain retirement plans), performance data may take into account the
reduced, and not the maximum, sales charge or may not take into account the
CDSC and therefore may reflect greater total return since, due to the reduced
sales charges or waiver of the CDSC, a lower amount of expenses may be
deducted. See "Purchase of Shares". The Company'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 Company at the
beginning of each specified period.
Total return figures are based on the Company's historical performance and
are not intended to indicate future performance. The Company's total return
will vary depending on market conditions, the securities comprising the
Company's portfolio, the Company'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 Company will fluctuate, and an investor's shares,
when redeemed, may be worth more or less than their original cost.
On occasion, the Company may compare its performance to the Standard & Poor's
500 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services,
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Inc., Morningstar Publications, Inc., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine, Fortune
Magazine or other industry publications. In addition, from time to time the
Company may include the Company's risk-adjusted performance ratings assigned by
Morningstar Publications, Inc. in advertising or supplemental sales literature.
As with other performance data, performance comparisons should not be
considered representative of the Company's relative performance for any future
period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Company's intention to distribute all its net investment income, if
any. Dividends from such net investment income will be paid at least annually.
All net realized long- or short-term capital gains, if any, will be distributed
to the Company'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 agency fees applicable to that
class. See "Additional Information--Determination of Net Asset Value".
Dividends and distributions may be reinvested automatically in shares of the
Company at net asset value without a sales charge. Shareholders may elect in
writing to receive any such dividends or distributions, or both, in cash.
Dividends and distributions are taxable to shareholders as discussed below
whether they are reinvested in shares of the Company or received in cash.
Certain gains or losses attributable to foreign currency gains or losses from
certain forward contracts may increase or decrease the amount of the Company's
income available for distribution to shareholders. If such losses exceed other
income during a taxable year, (a) the Company 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
Company shares for Federal income tax purposes. See "Additional Information--
Taxes".
TAXES
The Company intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue
Code of 1986, as amended (the "Code"). If it so qualifies, the Company (but not
its shareholders) will not be subject to Federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
Class A, Class B, Class C and Class D shareholders (together, the
"shareholders"). The Company intends to distribute substantially all of such
income.
Dividends paid by the Company from its ordinary income and distributions of
the Company'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 Company's net realized long-term
capital gains (including long-term gains from certain transactions in futures
and options) ("capital gain dividends") are taxable to shareholders as long-
term capital gains, regardless of the length of time the shareholder has owned
Company shares. Distributions in excess of the Company's earnings and profits
will first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
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Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Company. Not later than 60 days after the close of its
taxable year, the Company will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. A portion of the Company's ordinary income dividends may be eligible
for the dividends received deduction allowed to corporations under the Code, if
certain requirements are met. If the Company pays a dividend in January which
was declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Company and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Company to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Dividends and interest received by the Company may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Company. If more than 50% in value of the Company's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Company will be eligible, and intends, to file an election
with the Internal Revenue Service pursuant to which shareholders of the Company
will be required to include their proportionate shares of such withholding
taxes in their U.S. income tax returns as gross income, treat such
proportionate shares as taxes paid by them, and deduct such proportionate
shares in computing their taxable incomes or, alternatively, use them as
foreign tax credits against their U.S. income taxes. No deductions for foreign
taxes, however, may be claimed by noncorporate shareholders who do not itemize
deductions. A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the Company's election described in this paragraph but may not be able to claim
a credit or deduction against such U.S. tax for the foreign taxes treated as
having been paid by such shareholder. The Company will report annually to its
shareholders the amount per share of such withholding taxes.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain 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 Company or who, to the Company's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are
not "regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Company'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 Company would not be able to make any
ordinary dividend distributions, and any distributions made before the losses
were realized but in the same
36
<PAGE>
taxable year would be recharacterized as a return of capital to shareholders,
thereby reducing the basis of each shareholder's Company shares, and resulting
in a capital gain for any shareholder who received a distribution greater than
such shareholder's basis in Company shares (assuming the shares were held as a
capital asset).
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent the sales charge paid to the
Company 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 Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Company.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for all classes of the Company is determined once
daily as of 4:15 p.m., New York time, on each day during which the New York
Stock Exchange is open for trading. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation.
37
<PAGE>
The net asset value is computed by dividing the value of the securities held
by the Company 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 Investment Adviser and any account
maintenance and/or distribution fees payable to the Distributor, are accrued
daily. The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of the other classes, reflecting
the daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares and
the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; in addition, 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 immediately after the payment of dividends or
distributions which will differ by approximately the amount of the expense
accrual differential between the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the
time of valuation. 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 Company.
ORGANIZATION OF THE COMPANY
The Company was incorporated in connection with a reorganization (the
"Reorganization") of Sci/Tech Holdings, Inc. ("Sci/Tech"), a Merrill Lynch-
sponsored diversified, open-end investment company. Sci/Tech invested primarily
in the equity securities of companies engaged in science and technology.
Pursuant to the Reorganization, which occurred on April 27, 1992, Sci/Tech
transferred all of its technology oriented securities and certain other assets
(net of liabilities) in exchange for all the stock of the Company (other than
seed capital), which Sci/Tech then distributed pro rata to its stockholders.
Thus, the Company's initial portfolio of technology oriented securities
consisted of securities received from Sci/Tech. Sci/Tech retained its
healthcare related investments, changed its name, and now operates as Merrill
Lynch Healthcare Fund, Inc.
The Company was incorporated under Maryland law on August 27, 1991. 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. Shares of
Class A, Class B, Class C and Class D Common Stock represent interests in the
same assets of the Company 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
Company has received an order from the Commission permitting the issuance and
sale of multiple classes of Common Stock. The Directors of the Company may
classify and reclassify the shares of the Company into additional classes of
Common Stock at a future date.
38
<PAGE>
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matters submitted to a shareholder vote. The Company does not intend
to hold meetings of shareholders in any year in which the Investment Company
Act does not require shareholders to act on 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 auditors. Voting rights for Directors are not cumulative. Shares
issued are fully paid and non-assessable and have no preemptive rights. Shares
have the conversion rights described in this Prospectus. Each share of Common
Stock is entitled to participate equally in dividends and distributions
declared by the Company and in the net assets of the Company upon liquidation
or dissolution after satisfaction of outstanding liabilities, except that, as
noted above, the Class B, Class C and Class D shares bear certain additional
expenses.
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, FL 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this,
please call your Merrill Lynch financial consultant or Financial Data Services,
Inc. at 1-800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Company at the address or
telephone number set forth on the cover page of this Prospectus.
39
<PAGE>
[This page is intentionally left blank.]
40
<PAGE>
MERRILL LYNCH TECHNOLOGY FUND, INC.--AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT SM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT SM
PROGRAM APPLICATION BY CALLING (800) 637-3766.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class
C shares [_] Class D shares
of Merrill Lynch Technology 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 Last Name
Address...................................................................
............................................ Date...................
Occupation...........................(Zip Code)
Name and Address of Employer ...
................................
................................
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
Long-Term Capital
Ordinary Income Dividends Gains
Select One: [_] Reinvest
[_] Reinvest
Select One:
[_] Cash [_] 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 Technology 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.
- -------------------------------------------------------------------------------
41
<PAGE>
MERRILL LYNCH TECHNOLOGY FUND, INC.--AUTHORIZATION FORM (PART 1) --
(CONTINUED)
3. SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed 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 UNDER-REPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
................................ ................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
Dear Sir/Madam:
.............., 19......
Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Technology Fund, Inc. or any other investment company with an initial
sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13 month period which will
equal or exceed:
[_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Fund's prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc. my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Technology Fund, Inc. held as security.
By ............................. ................................
Signature of Owner Signature of Co-Owner
(If registered in joint names,
both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name........................ (2) Name........................
Account Number.................. Account Number..................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp. We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
- - - our agent in connection with
transactions under this
- - - authorization form and agree to
notify the Distributor of any
purchases made under a Letter of
Intention or Systematic Withdrawal
Plan. We guarantee the shareholder's
signature.
......................................
Dealer Name and Address
This form when completed should be By ...................................
mailed to: Authorized Signature of Dealer
Merrill Lynch Technology Fund, Inc. [_][_][_] [_][_][_][_] ............
c/o Financial Data Services, Inc. Branch- F/C No. F/C Last
Transfer Agency Mutual Fund Operations Code Name
P.O. Box 45289
Jacksonville, FL 32232-5289 [_][_][_] [_][_][_][_][_]
Dealer's Customer A/C No.
42
<PAGE>
MERRILL LYNCH TECHNOLOGY 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.................
Name of Co-Owner (if any)..... Social Security No. or
Taxpayer Identification
Number
Address....................... Account Number ...............
(if existing account)
..............................
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [_] Class A or [_] Class D shares in Merrill Lynch Technology
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.
43
<PAGE>
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw an automated
clearing house ("ACH") debit on my checking account described below each month
to purchase: (choose one)
[_] Class A share [_] Class B share [_] Class C share [_] Class D shares
of Merrill Lynch Technology 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.
AUTHORIZATION TO HONOR ACH DEBITS
FINANCIAL DATA SERVICES, INC. DRAWN BY FINANCIAL DATA SERVICES,
INC.
You are hereby authorized to draw
checks or an ACH debit each month on To..........................Bank
my bank account for investment in (Investor's Bank)
Merrill Lynch Technology Fund, Inc.
as indicated below: Bank Address....................
City.... State.... Zip Code....
As a convenience to me, I hereby
request and authorize you to pay and
charge to my account ACH debits
Amount of each ACH debit $... drawn on my account by and payable
to Financial Data Services, Inc., I
agree that your rights in respect to
Account Number .............. each such debit shall be the same as
if it were a check drawn on you and
Please date and invest ACH debits on signed personally by me. This
the 20th of each month beginning authority is to remain in effect
until revoked by me in writing.
..................................... Until you receive such notice, you
shall be fully protected in honoring
................(month) any such debit. I further agree that
if any such debit be dishonored,
or as soon thereafter as possible. whether with or without cause and
whether intentionally or
I agree that you are drawing these inadvertently, you shall be under no
ACH debits voluntarily at my request liability.
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 Date Signature of
program, I agree to notify you Depositor
promptly in writing. I hereby
authorize you to take any action to
correct erroneous ACH debits of my ....... ................
bank account or purchases of fund Bank Signature of
shares including liquidating shares Account Depositor
of the Fund and crediting my bank Number (If joint account,
account. I further agree that if a both must sign)
debit is not honored upon
presentation, Financial Data
Services, Inc. is authorized to
discontinue immediately the Automatic
Investment Plan and to liquidate
sufficient shares held in my account
to offset the purchase made with the
returned dishonored debit.
....... ................
Date Signature of
Depositor
.................
Signature of Depositor
(If joint account,
both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
44
<PAGE>
[This page is intentionally left blank.]
45
<PAGE>
[This page is intentionally left blank.]
46
<PAGE>
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
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
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAV-
ING BEEN AUTHORIZED BY THE COMPANY, THE INVESTMENT ADVISER OR THE DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OF-
FERING MAY NOT LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 2
Merrill Lynch Select PricingSM System...................................... 3
Financial Highlights....................................................... 8
Risk Factors and Special Considerations.................................... 9
Investment Objective and Policies.......................................... 10
Hedging Techniques........................................................ 12
Other Investment Practices................................................ 16
Investment Restrictions................................................... 18
Management of the Company.................................................. 19
Board of Directors........................................................ 19
Advisory and Management Arrangements 19
Transfer Agency Services.................................................. 20
Purchase of Shares......................................................... 20
Initial Sales Charge Alternatives--
Class A and Class D Shares............................................... 22
Deferred Sales Charge Alternatives--Class B and Class C Shares............ 24
Distribution Plans........................................................ 27
Limitations on the Payment of Deferred Sales Charges...................... 29
Redemption of Shares....................................................... 30
Shareholder Services....................................................... 31
Performance Data........................................................... 34
Additional Information..................................................... 35
Dividends and Distributions............................................... 35
Taxes..................................................................... 35
Determination of Net Asset Value.......................................... 37
Organization of the Company............................................... 38
Shareholder Reports....................................................... 39
Shareholder Inquiries..................................................... 39
Authorization Form......................................................... 41
</TABLE>
Code #16089-1094
[ART]
- --------------------------------------------------------------------------------
[LOGO] MERRILL LYNCH
MERRILL LYNCH TECHNOLOGY FUND, INC.
Prospectus
October 21, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH TECHNOLOGY FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Technology Fund, Inc. (the "Company") is a non-diversified,
open-end investment company seeking long-term capital appreciation through
worldwide investment in equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial portion of their
sales from products and services in technology. While the Company will not
concentrate its investments in any one industry, it is contemplated that
substantial investments will be made in companies involved in such technology-
related areas as communications, computers (including software and hardware),
electronics, and factory and office automation. The Company will pursue its
investment objective by investing in a global portfolio of securities of
companies in various stages of development. It is presently contemplated that
the Company's assets will be invested primarily in the United States, Japan
and Western Europe. However, at times the Company may invest substantially all
of its assets in the United States.
Pursuant to the Merrill Lynch Select PricingSM System, the Company offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing SM System
permits an investor to choose the method of purchasing shares that the
investor believes is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other relevant
circumstances.
----------------
The Statement of Additional Information of the Company is not a prospectus
and should be read in conjunction with the Prospectus of the Company, dated
October 21, 1994 (the "Prospectus"), which has been filed with the Securities
and Exchange Commission and can be obtained, without charge, by calling or by
writing the Company at the above telephone number or address. This Statement
of Additional Information has been incorporated by reference into the
Prospectus.
----------------
MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
----------------
The date of this Statement of Additional Information is October 21, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek long-term capital
appreciation through worldwide investment in equity securities of companies
that, in the opinion of management, derive or are expected to derive a
substantial portion of their sales from products and services in technology.
Reference is made to "Investment Objective and Policies" in the Prospectus for
a discussion of the investment objective and policies of the Company.
TECHNOLOGY
The Company will invest in companies offering products and services in such
areas as computers (including software and hardware), communications, consumer
electronics, electronic components and instruments, factory automation, office
automation and other companies substantially involved in the field of
technology. The Company also expects to make investments in energy conservation
and development, new materials, specialty chemicals, aerospace and military
technology. While rapid changes in technology present attractive opportunities
for investment in companies in such fields, such companies may face special
risks that their products or services may not prove to be commercially
successful or may be rendered obsolete by further scientific and technological
developments. The value of the Company's investment in a company whose products
are not commercially successful or are rendered obsolete may decrease
substantially. See "Risk Factors and Special Considerations" in the Prospectus.
Investors in the Company will receive the benefit of the specialized research
and analysis of Merrill Lynch Asset Management, L.P., doing business as Merrill
Lynch Asset Management (the "Investment Adviser").
INTERNATIONAL DIVERSIFICATION
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce
risk for the Company's portfolio as a whole. This negative correlation also may
offset unrealized gains the Company has derived from movements in a particular
market. To the extent the various markets move independently, total portfolio
volatility is reduced when the various markets are combined into a single
portfolio. Of course, movements in the various securities markets may be offset
by changes in foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities market may be affected by changes in exchange rates.
TYPES OF PORTFOLIO COMPANIES
The Company will attempt to maximize opportunity and reduce risk by investing
in a portfolio of companies in different stages of development. Portfolio
companies will range from large, well-established companies to medium-sized
companies and smaller, less seasoned companies in an earlier stage of
development.
Investments in larger companies present certain advantages attributable to
their greater financial resources: more extensive research and development,
manufacturing, marketing and service capabilities; more stability; and greater
depth of management and technical personnel. Investments in smaller, less
seasoned companies may present greater opportunities for growth but also
involve greater risks than customarily are associated with more established
companies. The securities of smaller companies may be subject to more
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abrupt or erratic market movements than larger, more established companies.
These companies may have limited product lines, markets or financial resources,
or they may be dependent upon a limited management group. Their securities may
be traded only in the over-the-counter market or on a regional securities
exchange and may not be traded every day or in the volume typical of trading on
a national securities exchange. As a result, the disposition by the Company of
portfolio securities to meet redemptions or otherwise may require the Company
to sell these securities at a discount from market prices or during periods
when such disposition is not desirable or to make many small sales over a
lengthy period of time.
The Company may invest up to 10% of its net assets (together with all other
illiquid investments) in illiquid venture capital investments in new and early-
stage companies whose securities are not publicly traded. Venture capital
investments may present significant opportunities for capital appreciation but
involve a high degree of business and financial risk that can result in
substantial losses and should be considered as speculative investments. The
Company's venture capital investments may include limited partnership
interests. The disposition of U.S. venture capital investments normally will be
restricted under Federal securities laws. Generally, restricted securities may
be sold only in privately negotiated transactions or in public offerings
registered under the Securities Act of 1933, as amended (the "Securities Act").
The Company also may be subject to restrictions contained in the securities
laws of other countries in disposing of portfolio securities. As a result, the
Company may be unable to dispose of such investments at times when such
disposition ordinarily would be deemed appropriate due to investment or
liquidity considerations. Alternatively, the Company may be forced to dispose
of such investments at less than their fair market value. Where registration is
required, the Company may be obligated to pay part or all of the expenses of
such registration. Market quotations may not be readily available for such
securities, and for purposes of determining the offering and redemption prices
of Company shares, these investments will be valued at fair value. See
"Determination of Net Asset Value".
OTHER FACTORS
The Company may invest in securities subject to repurchase agreements with
banks or securities firms, which are instruments under which the purchaser (i.e
., the Company) acquires a debt security, and the seller agrees, at the time of
sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. The
underlying securities are limited to those which otherwise qualify for
investment by the Company. In the event of default by the seller under a
repurchase agreement, the Company may suffer time delays and incur costs or
losses in connection with the disposition of the underlying securities. The
Company will not enter into a repurchase agreement if, as a result thereof,
more than 10% of its net assets would be subject to repurchase agreements
maturing in more than seven days.
The Company may invest in the securities of foreign issuers in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
Global Depositary Receipts (GDRs) or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued globally, typically by banking
institutions, and evidence a similar ownership arrangement. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets, and EDRs,
in bearer form, are designed for use in European securities markets. GDRs are
tradeable both in the U.S. and Europe
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and are designed for use throughout the world. The Company may invest in
unsponsored ADRs. The issuers of unsponsored ADRs are not obligated to disclose
material information in the U.S., and therefore, there may not be a correlation
between such information and the market value of such ADRs.
The Investment Adviser will effect portfolio transactions without regard to
holding period if in its judgment such transactions are advisable in light of a
change in circumstances of a particular company or within a particular industry
or in general market, economic or financial conditions. As a result of the
investment policies described in the Prospectus, the Company's portfolio
turnover may be higher than that of other investment companies; however, it is
extremely difficult to predict portfolio turnover rates with any degree of
accuracy. The portfolio turnover rate is calculated by dividing the lesser of
the Company's annual sales or purchases of portfolio securities (exclusive of
purchases or sales of U.S. Government securities and of all other 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. For
the fiscal period April 27, 1992 (commencement of operations) to March 31,
1993, and for the fiscal year ended March 31, 1994, the Company's portfolio
turnover rates were 482.79% and 553.69%, respectively. The Company is subject
to the Federal income tax requirement that less than 30% of the Company's gross
income be derived from gains from the sale or other disposition of securities
held for less than three months. See "Investment Objective and Policies--Other
Investment Practices--Portfolio Turnover" in the Prospectus.
HEDGING TECHNIQUES
Reference is made to the discussion under the caption "Investment Objective
and Policies--Hedging Techniques" in the Prospectus for information with
respect to various portfolio strategies involving options and futures. The
Company may seek to hedge its portfolio against movements in the equity
markets, interest rates and exchange rates between currencies through the use
of options and futures transactions and forward foreign exchange transactions.
The Company has authority to write (i.e., sell) covered call options on its
portfolio securities, purchase put options on securities and engage in
transactions in stock index options, stock index futures and financial futures,
and related options on such futures. The Company may also deal in forward
foreign exchange transactions and forward currency options and futures and
related options on such futures. The Company is authorized to enter into such
options and futures transactions either on exchanges or in the over-the-counter
("OTC") markets. 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 Investment Adviser
believes that, because the Company will only engage in these transactions for
hedging purposes, the options and futures portfolio strategies of the Company
will not subject the Company to the risks frequently associated with the
speculative use of options and futures transactions. While the Company's use of
hedging strategies is intended to reduce the volatility of the net asset value
of its shares, the net asset value of the Company's shares will fluctuate.
There can be no assurance that the Company's hedging transactions will be
effective. The following is further information relating to portfolio
strategies involving options and futures the Company may utilize.
Hedging Investment and Interest Rate Risks. The Company may write (i.e.,
sell) covered call options on the equity securities in which it may invest and
may enter into closing purchase transactions with respect to certain of such
options. Covered call options serve as a partial hedge against the decline in
price of the underlying security. A covered call option is an option where the
Company, in return for a premium, gives another party a right to buy specified
securities owned by the Company at a specified future date and price set at the
time of the contract. By writing covered call options, the Company gives up the
opportunity, while
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the option is in effect, to profit from any price increase in the underlying
security above the option exercise price. In addition, the Company's ability to
sell the underlying security will be limited while the option is in effect
unless the Company effects a closing purchase transaction. A closing purchase
transaction cancels out the Company'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. 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 Company may also purchase put options to hedge against a decline in the
market value of its equity holdings. By buying a put, the Company has a right
to sell the underlying security at the exercise price, thus limiting the
Company's risk of loss through a decline in the market value of the security
until the put option expires. The amount of any appreciation in the value of
the underlying security will be offset partially by the amount of the premium
paid for the put option and any related transaction costs. Prior to its
expiration, a put option may be sold in a closing sale transaction, and profit
or loss from the sale will depend on whether the amount received is more or
less than the premium paid for the put option plus the related transaction
cost. A closing sale transaction cancels out the Company's position as the
purchaser of an option by means of an offsetting sale of an identical option
prior to the expiration of the option it has purchased.
The Company also may engage in transactions in stock index options and
futures, financial futures in U.S. and foreign agency and government securities
and corporate debt securities, and related options on such futures. A futures
contract is an agreement between two parties to buy and sell a security or, in
the case of an index-based futures contract, to make and accept a cash
settlement for a set price on a future date. A majority of transactions in
futures contracts, however, do not result in the actual delivery of the
underlying instrument or cash settlement but are settled through liquidation,
i.e., by entering into an offsetting transaction. Futures contracts have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase or sale of a futures contract differs from the purchase or sale
of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as "initial" margin and
represents a "good faith" deposit assuring the performance of both the
purchaser and seller under the futures contract. Subsequent payments to and
from the broker, called "variation margin", are required to be made on a daily
basis as the price of the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process known
as "mark to the market". At any time prior to the settlement date of the
futures contract, the position may be closed out by taking an opposite position
which will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker, and the purchaser realizes a loss or
gain. In addition, a nominal commission is paid on each completed sale
transaction.
The Company has received an order from the Securities and Exchange Commission
(the "Commission") exempting it from the provisions of Section 17(f) and
Section 18(f) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), in connection with its strategy of investing in
futures
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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 Company 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 Company 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.
Risk Factors in Options and Futures Transactions. Utilization of options and
futures transactions involves the risk of imperfect correlation in movements in
the prices of options and futures contracts and movements in the prices of the
securities or currencies which are the subject of the hedge. If the price of
the options and futures contract moves more or less than the prices of the
hedged securities or currencies, the Company will experience a gain or loss
which will not be completely offset by movements in the prices of the subject
of the hedge. The successful use of options and futures also depends on the
Investment Adviser's ability to predict correctly price movements in the market
involved in a particular options or futures transaction.
Prior to exercise or expiration, an exchange-traded option position can only
be terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options of the same
series. The Company 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. In the case of a futures position or an option on a futures position
written by the Company, in the event of adverse price movements, the Company
would continue to be required to make daily cash payments of variation margin.
In such situations, if the Company 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 Company may be required to
take or make delivery of the security or currency underlying futures contracts
it holds. The inability to close options and futures positions also could have
an adverse impact on the Company's ability to effectively hedge its portfolio.
There is also the risk of loss by the Company of margin deposits in the event
of bankruptcy of a broker with whom the Company has an open position in a
futures contract or related option. The risk of loss from investing in futures
transactions is theoretically unlimited.
The exchanges on which the Company intends to conduct options transactions
have generally established limitations governing the maximum number of call or
put options on the same underlying currency (whether or not covered) which may
be written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). "Trading limits" are imposed on the maximum number of contracts which
any person may trade on a particular trading day. An exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose other sanctions or restrictions. The Investment Adviser does not believe
that these trading and position limits will have any adverse impact on the
portfolio strategies for hedging the Company's portfolio.
Hedging Foreign Currency Risks. Generally, the foreign exchange transactions
of the Company will be conducted on a spot, i.e., cash, basis at the spot rate
then prevailing for purchasing or selling currency in the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than 1/10 of 1% due to the costs of
converting from one currency to another.
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However, the Company has authority to deal in forward foreign exchange between
currencies of Far Eastern, European and Western Pacific countries and the
dollar as a hedge against possible variations in the foreign exchange rates
between these currencies. This is accomplished through contractual agreements
to purchase or to sell a specified currency at a specified future date and
price set at the time of the contract. The Company'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 Company accruing in connection with the purchase and sale of
its portfolio securities, the sale and redemption of shares of the Company or
the payment of dividends and distributions by the Company. Position hedging is
the sale of forward foreign currency with respect to portfolio security
positions denominated or quoted in such foreign currency. The Company will not
speculate in forward foreign exchange. All dealings in forward exchange will be
limited to contracts involving currencies of Far Eastern, European and Western
Pacific countries and the dollar. The Company 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 Company enters into a position hedging transaction, its custodian will
place cash or liquid debt securities in a separate account of the Company in an
amount equal to the value of the Company'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
Company's commitment with respect to such contracts. The Company will not
attempt to hedge all of its portfolio positions and will enter into such
transaction only to the extent, if any, deemed appropriate by the Investment
Adviser of the Company. The Company will not enter into a position hedging
commitment if, as a result thereof, the Company would have more than 15% of the
value of its assets committed to such contracts. The Company will not enter
into a forward contract with a term of more than one year.
As discussed in the Prospectus, the Company may also purchase or sell listed
or OTC foreign currency options, foreign currency futures and related options
on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the price 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 Company to hedge against a devaluation that is
so generally anticipated that the Company is not able to contract to sell the
currency at a price above the devaluation level it anticipates. It is possible
that, under certain circumstances, the Company may have to limit its currency
transactions to qualify as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"); in this regard, the Company
presently intends to limit its gross income from currency hedging transactions
to less than 10% of its gross income in any taxable year until such time as the
Company determines that income from the transaction is not subject to this
restriction. The cost to the Company 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.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such
as the Company. If such restrictions should be reinstituted it might become
necessary for the Company to invest all or substantially all of its assets in
U.S.
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securities. In such event, the Company would review its investment objective
and investment policies to determine whether changes are appropriate.
The Company'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 Company are redeemable on a
daily basis in U.S. dollars, the Company intends to manage its portfolio so as
to give a reasonable assurance that it will be able to obtain U.S. 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.
OTHER INVESTMENT POLICIES AND PRACTICES
Non-Diversified Status. The Company is classified as non-diversified within
the meaning of the Investment Company Act, which means that the Company is not
limited by such Act in the proportion of its assets that it may invest in
securities of a single issuer. The Company's investments will be limited,
however, in order to qualify as a "regulated investment company" for purposes
of the Code. See "Dividends, Distributions and Taxes". To qualify, the Company
will comply with certain requirements, including limiting its investments so
that at the close of each quarter of the taxable year (i) not more than 25% of
the market value of the Company's total assets will be invested in the
securities of a single issuer, and (ii) with respect to 50% of the market value
of its total assets, not more than 5% of the market value of its total assets
will be invested in the securities of a single issuer, and the Company will not
own more than 10% of the outstanding voting securities of a single issuer. A
fund which elects to be classified as "diversified" under the Investment
Company Act must satisfy the foregoing 5% and 10% requirements with respect to
75% of its total assets. To the extent that the Company assumes large positions
in the securities of a small number of issuers, the Company's net asset value
may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers, and the Company may be more susceptible to any single economic,
political or regulatory occurrence than a diversified company.
CURRENT INVESTMENT RESTRICTIONS
In addition to the investment restrictions set forth in the Prospectus, the
Company 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
Company's outstanding voting securities (which for this purpose and under the
Investment Company Act means the lesser of (i) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). The Company may not:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter or dealer's commission or profit, other than
customary broker's commission, is involved and only if immediately
thereafter not more than 10% of the Company's total assets, taken at market
value, would be invested in such securities.
3. Purchase or sell real estate (including interests in real estate
limited partnerships), provided that the Company may invest in securities
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
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4. Purchase or sell commodities or commodity contracts, except that the
Company may deal in forward foreign exchange between currencies of the
different countries in which it may invest and the Company may purchase or
sell stock index and currency options, stock index futures, financial
futures and currency futures contracts and related options on such futures.
5. Purchase any securities on margin, except that the Company may obtain
such short-term credit as may be necessary for the clearance of purchase
and sales of portfolio securities, or make short sales of securities or
maintain a short position. The payment by the Company of initial or
variation margin in connection with futures or related options
transactions, if applicable, shall not be considered the purchase of a
security on margin. Also, engaging in futures transactions and related
options will not be deemed a short sale or maintenance of a short position
in securities.
6. Make loans to other persons (except as provided in (7) below);
provided that for purposes of this restriction the acquisition of bonds,
debentures, or other corporate debt securities and investment in Government
obligations, short-term commercial paper, certificates of deposit, bankers'
acceptances and repurchase agreements shall not be deemed to be the making
of a loan.
7. Lend its portfolio securities in excess of 10% of its total assets,
taken at market value, provided that such loans shall be made in accordance
with the guidelines set forth below.
8. Borrow amounts in excess of 10% of its total assets, taken at market
value, and then only from banks as a temporary measure for extraordinary or
emergency purposes such as the redemption of Company shares. Utilization of
borrowings may exaggerate increases or decreases in an investment company's
net asset value. However, the Company will not purchase securities while
borrowings are outstanding except to exercise prior commitments and to
exercise subscription rights. (See restriction (9) below regarding the
exclusion from this restriction of arrangements with respect to options,
futures contracts and options on futures contracts.)
9. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (7) above), as security for indebtedness, any securities owned
or held by the Company except as may be necessary in connection with
borrowings mentioned in (8) above, and then such mortgaging, pledging or
hypothecating may not exceed 10% of the Company's total assets, taken at
market value. [In order to comply with certain state statutes, the Company
will not, as a matter of operating policy, mortgage, pledge or hypothecate
its portfolio securities to the extent that at any time the percentage of
the value of pledged securities plus the maximum sales charge will exceed
10% of the value of the Company's shares at the maximum offering price.]
(For the purpose of this restriction and restriction (8) above, collateral
arrangements with respect to the writing of options, futures contracts,
options on futures contracts and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets, and
neither such arrangements nor the purchase and sale of options, futures or
related options are deemed to be the issuance of a senior security.)
10. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which are not otherwise readily marketable
if, regarding all such securities, more than 10% of its net assets, taken
at market value, would be invested in such securities.
11. Underwrite securities of other issuers, except insofar as the Company
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
12. Purchase or sell interests in oil, gas or other mineral exploration
or development programs.
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Subject to investment restriction (7) above, the Company may from time to
time lend securities from its portfolio to brokers, dealers and financial
institutions such as banks and trust companies and receive collateral in cash
or securities issued or guaranteed by the U.S. Government which will be
maintained in an amount equal to at least 100% of the current market value of
the loaned securities. Such cash will be invested in short-term securities,
which will increase the current income of the Company. Such loans will not be
for more than 30 days and will be terminable at any time. The Company will have
the right to regain ownership of loaned securities to exercise beneficial
rights such as voting rights, subscription rights and rights to dividends,
interest or other distributions. The Company may pay reasonable fees to persons
unaffiliated with the Company for services in arranging 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.
With respect to investment restriction (10) above, while the Company does not
intend to purchase illiquid securities in an amount exceeding 10% of its net
assets, the Company may purchase, without regard to that limitation, securities
that are not registered under the Securities Act, but that can be offered and
sold to "qualified institutional buyers" under Rule 144A under the Securities
Act, provided that the Company's Board of Directors continuously determines,
based on the trading markets for the specific Rule 144A security, that it is
liquid. The Board of Directors may adopt guidelines regarding such securities
which may be held by the Company and delegate to the Investment Adviser the
daily function of determining and monitoring liquidity of such securities. 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 Company'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 Company to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
securities.
The Board of Directors has established a non-fundamental policy that the
Company will not purchase or retain the securities of any issuer if those
individual officers and directors of the Company, the officers and general
partner of the Investment Adviser, the directors of such general partner or the
officers and directors of Merrill Lynch Funds Distributor, Inc. (the
"Distributor"), each owning beneficially more than one-half of 1% of the
securities of such issuer, own in the aggregate more than 5% of the securities
of such issuer. Portfolio securities of the Company may not be purchased from,
sold or loaned to the Investment Adviser or its affiliates or any of their
directors, general partners, officers or employees, acting as principal.
The Company has adopted a non-fundamental policy pursuant to which it will
not invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if more than 5%
of the Company's total assets, taken at market value, would be invested in such
securities. In addition, the Company has adopted a non-fundamental policy
pursuant to which it will not invest in warrants if, at the time of
acquisition, its investment in warrants, valued at the lower of cost or market
value, would exceed 5% of the Company's net assets; included within such
limitation, but not to exceed 2% of the Company's net assets, are warrants
which are not listed on the New York or American Stock Exchanges. For purposes
of this policy, warrants acquired by the Company in units or attached to
securities may be deemed to be without value. The two policies set forth in
this paragraph may be amended without the approval of the Company's
shareholders.
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 Company has adopted an investment
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policy pursuant to which it will not purchase or sell OTC options if, as a
result of such transactions, the sum of the market value of OTC options
currently outstanding which are held by the Company, the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Company and margin deposits on the Company's existing OTC
options on futures contracts exceed 10% of the net assets of the Company, taken
at market value, together with all other assets of the Company which are
illiquid or are not otherwise readily marketable. However, if an OTC option is
sold by the Company to a primary U.S. Government securities dealer recognized
by the Federal Reserve Bank of New York and if the Company has the
unconditional contractual right to repurchase such OTC option from the dealer
at a predetermined price, then the Company will treat as illiquid such amount
of the underlying securities as is equal to the repurchase price less the
amount by which the option is "in-the-money" (i.e., current market value of the
underlying securities minus the option's strike price). The repurchase price
with the primary dealers is typically a formula price which is generally based
on a multiple of the premium received for the option, plus the amount by which
the option is "in-the-money". This policy as to OTC options is not a
fundamental policy of the Company and may be amended by the Board of Directors
of the Company without the approval of the Company's shareholders. However, the
Company 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 Investment Adviser, the Company is
prohibited from engaging in certain transactions involving such firm or its
affiliates except for brokerage transactions permitted under the Investment
Company Act involving only usual and customary commissions or transactions
pursuant to an exemptive order under the Investment Company Act. See "Portfolio
Transactions and Brokerage". Without such an exemptive order, the Company would
be prohibited from engaging in portfolio transactions with the Investment
Adviser or its affiliates acting as principal and from purchasing securities in
public offerings which are not registered under the Securities Act in which
such firm or any of its affiliates participate as an underwriter or dealer.
The investment restrictions set forth in the Prospectus contain an exception
that permits the Company to purchase securities pursuant to the exercise of
subscription rights, subject to the condition that such purchase will not
result in the Company ceasing to be a diversified investment company under the
Code. Japanese and European corporations frequently issue additional capital
stock by means of subscription rights offerings to existing shareholders at a
price substantially below the market price of the shares. The failure to
exercise such rights would result in the Company's interest in the issuing
company being diluted. The market for such rights is not well developed, and
accordingly, the Company may not always realize full value on the sale of
rights. Therefore, the exception applies in cases where the limits set forth in
the investment restrictions in the Prospectus would otherwise be exceeded by
exercising rights or have already been exceeded as a result of fluctuations in
the market value of the Company's portfolio securities with the result that the
Company would otherwise be forced either to sell securities at a time when it
might not otherwise have done so or to forego exercising the rights.
Proposed Uniform Investment Restrictions. As discussed in the Prospectus
under "Investment Objective and Policies--Investment Restrictions", the Board
of Directors of the Company has approved the replacement of the Company's
existing investment restrictions with the fundamental and non-fundamental
investment restrictions set forth below. These uniform investment restrictions
have been proposed for adoption by all of the non-money market mutual funds
advised by Fund Asset Management, L.P. ("FAM") or its affiliate, Merrill Lynch
Asset Management, L.P. ("MLAM" or the "Investment Adviser"). The investment
objective and policies of the Company will be unaffected by the adoption of the
proposed investment restrictions.
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Shareholders of the Company are currently considering whether to approve the
proposed revised investment restrictions. If such shareholder approval is
obtained, the Company's current investment restrictions will be replaced by the
proposed restrictions and the Company's Prospectus and Statement of Additional
Information will be supplemented to reflect such change.
Under the proposed fundamental investment restrictions, the Company may not:
1. 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).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Company 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.
4. 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 Company 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 Company's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Company 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 Company may borrow
up to an additional 5% of its total assets for temporary purposes, (iii)
the Company may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the
Company may purchase securities on margin to the extent permitted by
applicable law. The Company may not pledge its assets other than to secure
such borrowings or, to the extent permitted by the Company'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.
7. Underwrite securities of other issuers except insofar as the Company
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act"), in selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Company may do so in accordance with applicable law and
the Company's Prospectus and Statement of Additional Information, as they
may be amended from time to time, and without registering as a commodity
pool operator under the Commodity Exchange Act.
Under the proposed non-fundamental investment restrictions, the Company 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 Company currently does not
intend to engage in short sales, except short sales "against the box".
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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 Company 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
Company's shares are registered or qualified for sale require a lower
limitation, the Company will observe such limitation. As of the date
hereof, therefore, the Company 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 Company'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
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 Company
will not invest more than 5% of its total assets in securities of issuers
that are restricted as to disposition, including Rule 144A securities.
d. Invest in warrants if, at the time of acquisition, its investments in
warrants, valued at the lower of cost or market value, would exceed 5% of
the Company's net assets. Included within such limitation, but not to
exceed 2% of the Company'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
Company 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 Company'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 Company, the officers and general partner of
the Investment Adviser, the directors of such general partner or the
officers and directors of any subsidiary thereof each owning beneficially
more than one-half of one percent of the securities of such issuer own in
the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Company 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 Company's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (6) above, borrow
amounts in excess of 10% of its total assets, taken at market value, and
then only from banks as a temporary measure for extraordinary or emergency
purposes such as the redemption of Company shares. In addition, the Company
will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights.
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MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The Directors and executive officers of the Company 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--President and Director(1)(2)--President of the Investment
Adviser (which term as used herein includes its corporate predecessors) since
1977 and Chief Investment Officer since 1976; President of Fund Asset
Management, L.P. ("FAM") (which term as used herein includes its corporate
predecessors) since 1977 and Chief Investment Officer since 1976; President and
Director of Princeton Services, Inc. ("Princeton Services") since 1993;
Executive Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") since 1990 and a Senior Vice President thereof from 1985 to
1990; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since
1990; Director of the Distributor.
Donald Cecil--Director(2)--1114 Avenue of the Americas, New York, New York
10036. Special Limited Partner of Cumberland Partners (an investment
partnership) since 1982; Member of Institute of Chartered Financial Analysts;
Member and Chairman of Westchester County (N.Y.) Board of Transportation.
Edward H. Meyer--Director(2)--777 Third Avenue, New York, New York 10017.
President of Grey Advertising Inc. since 1968, Chief Executive Officer since
1970 and Chairman of the Board of Directors since 1972; Director of The May
Department Stores Company, Bowne & Co., Inc. (financial printers), Ethan Allen
Interiors Inc. and Harman International Industries, Inc.
Charles C. Reilly--Director(2)--9 Hampton Harbor Road, Hampton Bays, New York
11946. Self-employed financial consultant since 1990; President and Chief
Investment Officer of Verus Capital, Inc. from 1979 to 1990; former Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business since 1990; Adjunct
Professor, Wharton School, University of Pennsylvania, 1990; Director, Harvard
Business School Alumni Association.
Richard R. West--Director(2)--482 Tepi Drive, Southbury, Connecticut 06488.
Professor of Finance since 1984, and Dean from 1984 to 1993, of New York
University Leonard N. Stern School of Business Administration; Director of Re
Capital Corp. (reinsurance holding company), Bowne & Co., Inc. (financial
printers), Vornado, Inc. (real estate holding company), Smith-Corona
Corporation (manufacturer of typewriters and word processors) and Alexander's
Inc. (real estate company).
Terry K. Glenn--Executive Vice President(1)(2)--Executive Vice President of
the Investment Adviser and FAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President and Director of the
Distributor since 1986.
Norman R. Harvey--Senior Vice President(1)(2)--Senior Vice President of the
Investment Adviser and FAM since 1982; Senior Vice President of Princeton
Services since 1993.
James K. Renck--Vice President(1)--Vice President of the Investment Adviser
and Portfolio Manager since 1986; Assistant Vice President of the Investment
Adviser and Associate Portfolio Manager from 1985 to 1986; Fund Analyst for the
Investment Adviser from 1983 to 1985.
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Donald C. Burke--Vice President(1)(2)--Vice President and Director of
Taxation of the Investment Adviser since 1990; employee of Deloitte & Touche
LLP from 1982 to 1990.
Gerald M. Richard--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Investment Adviser 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.
Robert Harris--Secretary(1)(2)--Vice President of the Investment Adviser
since 1984 and attorney associated with the Investment Adviser since 1980;
Secretary of the Distributor since 1982.
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(1) Interested person, as defined in the Investment Company Act, of the
Company.
(2) Such Director or officer is a director, trustee or officer of one or more
additional investment companies for which the Investment Adviser or its
affiliate FAM acts as investment adviser.
At September 30, 1994, the Directors and officers of the Company as a group
(11 persons) owned an aggregate of less than 1% of the outstanding shares of
the Company. At such date, Mr. Zeikel, a Director of the Company, and the other
officers of the Company owned less than 1% of the outstanding shares of common
stock of ML & Co.
The Company pays each Director not affiliated with the Investment Adviser a
fee of $1,750 per year plus $250 per meeting attended, together with such
Directors' actual out-of-pocket expenses relating to attendance at meetings.
The Company also compensates members of its Audit and Nominating Committee (the
"Committee"), which consists of all the non-affiliated Directors at a rate of
$250 per meeting attended. The Chairman of the Committee receives an additional
fee of $125 per meeting attended. For the fiscal year ended March 31, 1994,
fees and expenses paid to unaffiliated Directors aggregated $15,364.
ADVISORY AND MANAGEMENT ARRANGEMENTS
Reference is made to "Management of the Company--Advisory and Management
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Company.
Securities held by the Company also may be held by other funds or investment
advisory clients for which the Investment Adviser or its affiliates act as an
adviser. Securities may be held by, or be appropriate investments for, the
Company as well as other clients of the Investment Adviser or its affiliates.
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 Investment Adviser for the
Company or other funds for which it acts as investment adviser or for its other
advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Investment Adviser
or its affiliates during the same period may increase the demand for securities
being purchased or supply of securities being sold, there may be an adverse
effect on price.
As discussed in the Prospectus, the Company has entered into an Investment
Advisory Agreement between the Company and the Investment Adviser, pursuant to
which the Company will pay the Investment Adviser a fee for its services at the
annual rate of 1.0% of the Company's average daily net assets. For the
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fiscal period April 27, 1992 (commencement of operations) to March 31, 1993,
and for the fiscal year ended March 31, 1994, the investment advisory fees paid
by the Company to the Investment Adviser aggregated $1,013,212 and $2,476,639,
respectively.
California imposes limitations on the expenses of the Company. These expense
limitations require that the Investment Adviser reimburse the Company in an
amount necessary to prevent the ordinary operating expenses of the Company
(excluding interest, taxes, distribution fees, brokerage fees and commissions
and extraordinary charges such as litigation costs) from exceeding 2.5% of the
Company'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 Investment Adviser's obligation to reimburse the Company is limited
to the amount of the investment 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. For the fiscal period April 27, 1992 (commencement of operations) to
March 31, 1993, and for the fiscal year ended March 31, 1994, no reimbursement
of expenses was required pursuant to the applicable expense limitations.
The Investment Advisory Agreement obligates the Investment Adviser to provide
investment advisory services and to pay all compensation of and furnish space
for officers and employees of the Company connected with investment and
economic research, trading and investment management of the Company, as well as
the fees of all Directors of the Company who are affiliated persons of the
Investment Adviser or any of its affiliates. The Company pays all other
expenses incurred in its operation including, among other things, taxes;
expenses for legal and auditing services; costs of printing proxies, stock
certificates, shareholders' reports and prospectuses and statements of
additional information (except to the extent paid by the Distributor); charges
of the custodian, any sub-custodian and transfer agent; expenses of redemption
of shares; 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 Company.
Accounting services are provided to the Company by the Investment Adviser, and
the Company reimburses the Investment Adviser for its costs in connection with
such services on a semiannual basis. For the fiscal year ended March 31, 1994,
the amount of such reimbursement was $41,958. As required by the Company's
distribution agreements, its underwriters will pay the promotional expenses of
the Company incurred in connection with the offering of its shares. Certain
expenses in connection with the distribution of Class B shares will be financed
by the Company pursuant to a distribution plan in compliance with Rule 12b-1
under the Investment Company Act. See "Purchase of Shares--Deferred Sales
Charge Alternative--Class B Shares--Distribution Plan".
ML & Co., Merrill Lynch Investment Management, Inc. and Princeton Services
are "controlling persons" of the Investment Adviser as defined under the
Investment Company Act because of their ownership of its voting securities or
their power to exercise a controlling influence over its management or
policies.
Duration and Termination. Unless earlier terminated as described herein, the
Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Company or by a majority
of the outstanding shares of the Company 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 contract is 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 Company.
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PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
The Company issues four classes of shares under the Merrill Lynch Select
Pricing SM System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives, and shares of Class B and
Class C are sold to investors choosing the deferred sales charge alternatives.
Each Class A, Class B, Class C and Class D share of the Company represents
identical interests in the investment portfolio of the Company and has the
same rights, except that Class B, Class C and Class D shares bear the expenses
of the ongoing account maintenance fees, and Class B and Class C shares bear
the expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
Class B, Class C and Class D shares each have exclusive voting rights with
respect to the Rule 12b-1 distribution plan adopted with respect to such class
pursuant to which account maintenance and/or distribution fees are paid. Each
class has different exchange privileges. See "Shareholder Services--Exchange
Privilege".
The Merrill Lynch Select Pricing SM System is used by more than 50 mutual
funds advised by the Investment Adviser or its affiliate, FAM. Funds advised
by the Investment Adviser or FAM are referred to herein as "MLAM-advised
mutual funds".
The Company has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Company (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 Company. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, the Distributor pays for the printing
and distribution of copies thereof used in connection with the offering to
dealers and investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to
the same renewal requirements and termination provisions as the Investment
Advisory Agreement described above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
The Company sells its Class A shares through the Distributor and Merrill
Lynch, as dealers. During the fiscal period April 27, 1992 (commencement of
operations) to March 31, 1993, the Company sold 5,334,065 Class A shares for
aggregate net proceeds to the Company of $29,685,648. The gross sales charges
for the sale of Class A shares for that period were $333,650, of which
$319,730 was received by Merrill Lynch and $13,920 was received by the
Distributor. During the fiscal year ended March 31, 1994, the Company sold
12,878,911 Class A shares for aggregate net proceeds to the Company of
$66,764,420. The gross sales charges for the sale of Class A shares of the
Company for that year were $735,190, of which $690,731 was received by Merrill
Lynch and $44,459 was received by the Distributor.
The term "purchase" as used in the Prospectus and this Statement of
Additional Information 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 single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing or
other employee benefit
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trust created pursuant to a plan qualified under Section 401 of the Code)
although more than one beneficiary is involved. The term "purchase" also
includes purchases by any "company", as that term is defined in the Investment
Company Act, but does not include purchases by any such company which has not
been in existence for at least six months or which has no purpose other than
the purchase of shares of the Company or shares of other registered investment
companies at a discount. The term "purchaser" shall not include purchases by
any group of individuals whose sole organizational nexus is that the
participants therein are credit cardholders of a company, policyholders of an
insurance company, customers of either a bank or broker-dealer or clients of an
investment adviser. The term "purchase" also includes purchases by employee
benefit plans not qualified under Section 401 of the Code, including purchases
by employees or by employers on behalf of employees, by means of a payroll
deduction plan or otherwise, of shares of the Company. Purchases by such a
company or non-qualified employee benefit plan will qualify for the quantity
discounts discussed above only if the Company and the Distributor are able to
realize economies of scale in sales effort and sales related expense by means
of the company, employer or plan making the Company's Prospectus available to
individual investors or employees and forwarding investments by such persons to
the Company and by any such employer or plan bearing the expense of any payroll
deduction plan.
Closed-End Fund Investment Option. Class A shares of the Company 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 MLAM or the
Investment Adviser who purchased such closed-end fund shares prior to October
21, 1994, and wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in Eligible Class A Shares, if the conditions set
forth below are satisfied. Alternatively, closed-end fund shareholders who
purchased such shares on or after October 21, 1994, and wish to reinvest the
net proceeds from a sale of their closed-end fund shares are offered Class A
shares (if eligible to buy Class A shares) or Class D shares of the Company and
other MLAM-advised mutual funds ("Eligible Class D Shares"), if the following
conditions are met. First, the sale of the closed-end fund shares must be made
through Merrill Lynch, and the net proceeds therefrom must be immediately
reinvested in Eligible Class A or Class D Shares. Second, the closed-end fund
shares 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 Company are offered at net asset value to shareholders
of Merrill Lynch Senior Floating Rate Fund, Inc. (formerly known as Merrill
Lynch Prime 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 the Company. In order to exercise this investment
option, Merrill Lynch Senior Floating Rate Fund, Inc. shareholders must sell
their Merrill Lynch Senior Floating Rate Fund, Inc. shares to the Merrill Lynch
Senior Floating Rate Fund, Inc. in connection with a tender offer conducted by
the Merrill Lynch Senior Floating Rate Fund, Inc. and reinvest the proceeds
immediately in the Company. This investment option is available only with
respect to the proceeds of Merrill Lynch Senior Floating Rate Fund, Inc. shares
as to which no Early Withdrawal Charge (as defined in the Merrill Lynch Senior
Floating Rate Fund, Inc. prospectus) is applicable. Purchase orders from
Merrill Lynch Senior Floating Rate Fund, Inc. shareholders wishing to exercise
this investment option will be accepted only on the day that the related
Merrill Lynch Senior Floating Rate Fund, Inc. tender offer terminates and will
be effected at the net asset value of the Company at such day.
REDUCED INITIAL SALES CHARGES--CLASS A AND CLASS D SHARES
Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Company subject to an initial sales charge at
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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 Company 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, and 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 a purchase
aggregating $25,000 or more of Class A or Class D shares of the Company or any
other MLAM-advised mutual funds made within a thirteen-month period starting
with the first purchase pursuant to a Letter of Intention in the form provided
in the Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Company's transfer agent. The Letter of
Intention is not available to employee benefit plans for which Merrill Lynch
provides plan participant record-keeping services. The Letter of Intention is
not a binding obligation to purchase any amount of Class A or Class D shares,
but its execution will result in the purchaser paying a lower sales charge at
the appropriate quantity purchase level. A purchase not originally made
pursuant to a Letter of Intention may be included under a subsequent Letter
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and
Class D shares of the Company 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 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 purchased does not equal the amount stated in the Letter
of Intention (minimum of $25,000), the investor will be notified and must pay,
within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased at the reduced rate and
the sales charge applicable to the shares actually purchased through the
Letter. Class A or Class D shares equal to five percent of the intended amount
will be held in escrow during the 13-month period (while remaining registered
in the name of the purchaser) for this purpose. The first purchase under the
Letter of Intention must be at least five percent of the dollar amount of such
Letter. If 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 shares then being purchased under such
Letter, but there will be no retroactive reduction of the sales charges on any
previous purchase. The value of any shares redeemed or otherwise disposed of by
the purchaser prior to termination or completion of the Letter of Intention
will be deducted from the total purchases made under such Letter. An exchange
from a MLAM-advised money market fund into the Company that creates a sales
charge will count toward completing a new or existing Letter of Intention from
the Company.
Merrill Lynch Blueprint SM Program. Class D shares of the Company are offered
to participants in the Merrill Lynch Blueprint SM Program ("Blueprint"). In
addition, participants in Blueprint who own Class A shares of the Company may
purchase additional Class A shares of the Company through Blueprint. Blueprint
is directed to small investors, group 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 Company through
Blueprint will acquire the Class A or Class D shares at net asset value plus a
sales charge
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calculated in accordance with the Blueprint sales charge schedule (i.e., up to
$300 at 4.25%, $300.01 up to $5,000 at 3.25% plus $3, and $5,000.01 or more at
the standard sales charge rates disclosed in the Prospectus). In addition,
Class A or Class D shares of the Company are 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 Class A
or Class D shares investors.
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 has entered into a
Merrill Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Company may be grouped for execution purposes which, in some circumstances,
may involve the execution of such orders two business days following the day
such orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum
initial or subsequent purchase requirements for participants who are part of
an automatic investment plan. Additional information concerning purchases
through Blueprint, including any annual fees and transaction charges, is
available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint SM Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA SM Managed Trusts. Class A shares are offered to TMA SM Managed Trusts
to which Merrill Lynch Trust Company provides discretionary trustee services
at net asset value.
Employer Sponsored Retirement 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 $20 million or more in MLAM-advised mutual
funds (in the case of Class A shares) or $5 million or more 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 Plan of the same sponsoring employer or its
affiliates may be aggregated. Tax qualified retirement plans within the
meaning of Section 401(a) or 403(b) of the Code meeting any of the foregoing
requirements and which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a wide
range of investments including individual corporate equities and other
securities in addition to mutual fund shares) by the Merrill Lynch
Blueprint SM Program, are offered Class A shares at a price equal to net asset
value per share plus a
20
<PAGE>
reduced sales charge of 0.50%. Any Employer Sponsored Retirement or Savings
Plan which does not meet the above described qualifications to purchase Class A
shares at net asset value has the option of (i) purchasing Class A shares at
the initial sales charge schedule and possible CDSC schedule disclosed in the
Prospectus if it is otherwise eligible to purchase Class A shares, (ii)
purchasing Class D shares at the initial sales charge and possible CDSC
schedule disclosed in the Prospectus, (iii) if the Employer Sponsored
Retirement or Savings Plan meets the specified requirements, purchasing Class B
shares with a waiver of the CDSC upon redemption, or if the Employer Sponsored
Retirement or Savings Plan does not qualify to purchase Class B shares with a
waiver of the CDSC upon redemption, purchasing Class C shares at the CDSC
schedule disclosed in the Prospectus. The minimum initial and subsequent
purchase requirements are waived in connection with all the above referenced
Employer Sponsored Retirement or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Company, 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 Merrill Lynch & Co., Inc., includes MLAM, FAM and certain other
entities directly or indirectly wholly-owned and controlled by Merrill Lynch &
Co., Inc.) and any trust, pension, profit-sharing or other benefit plan for
such persons may purchase Class A shares of the Company at net asset value.
Class D shares of the Company will be 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 Company 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 also must establish that such redemption
had been made within 60 days prior to the investment in the Company, and the
proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Company are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Company with
proceeds from a redemption of shares of such other mutual fund and such fund
was subject to a sales charge either at the time of purchase or on a deferred
basis; second, such purchase of Class D shares must be made within 90 days
after such notice.
Class D shares of the Company will be offered at net asset value, without a
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 Company with proceeds from the redemption of
such shares of the mutual funds and that such shares have been outstanding for
a period of no less than six months. Second, such purchase of Class D shares
must be made within 60 days after the redemption and the proceeds from the
redemption must be maintained in the interim in cash or a money market fund.
21
<PAGE>
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 public or private investment company. The value of the assets or company
acquired in a tax-free transaction may in appropriate cases be adjusted to
reduce possible adverse tax consequences to the Company 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 Company. 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 Company; (ii) are acquired for
investment and not for resale (subject to the understanding that the
disposition of the Company'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 Company may acquire through such
transactions restricted or illiquid securities to the extent the Company does
not exceed the applicable limits on acquisition of such securities set forth
under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares--Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Company to the Distributor
with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are subject
to the provisions of Rule 12b-1 under the Investment Company Act. Among other
things, each Distribution Plan provides that the Distributor shall provide and
the 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 Company and to 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 Company, 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 Company 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 Company. A Distribution Plan cannot
be amended to increase materially the amount to be spent by the Company 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 Company 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.
22
<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 Company, the maximum sales charge rule limits the aggregate
of distribution fee payments and CDSCs payable by the Company to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges), plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any
time. To the extent payments would exceed the voluntary maximum, the Company
will not make further payments of the distribution fee with respect to Class B
shares, and any CDSCs will be paid to the Company rather than to the
Distributor; however, the Company 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 March 31, 1994
with respect to the Class B shares of the Company indicating the maximum
allowable payments that can be made under the NASD maximum sales charge rule
and the Distributor's voluntary maximum for the period April 27, 1992
(commencement of operations) to March 31, 1994. Since Class C shares of the
Company had not been publicly issued prior to the date of this Statement of
Additional Information, information concerning Class C shares is not yet
provided below.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF MARCH 31, 1994
- -------------------------------------------------------------------------------------------------------
ANNUAL
ALLOWABLE ALLOWABLE AMOUNTS DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEE AT CURRENT
GROSS SALES UNPAID AMOUNT PAID TO UNPAID NET ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
-------- --------- ----------- ------- -------------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule
As Adopted............. 163,359 10,210 440 10,650 1,523 9,127 1,682
Under Distributor's
Voluntary Waiver....... 163,359 10,210 817 11,027 1,523 9,504 1,682
</TABLE>
- --------
(1) Purchase price of all eligible Class B shares sold since April 27, 1992
(commencement of operations) other than shares acquired through dividend
reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the average prime rate,
as reported in The Wall Street Journal, plus 1%, as permitted under the
NASD Rule.
(3) Consists of contingent deferred sales charge payments, distribution fee
payments and accruals. Of the distribution fee payments made prior to July
7, 1993, under a prior plan at the 1.0% rate, 0.75% of average daily net
assets has been treated as a distribution fee and 0.25% of average daily
net assets has been deemed to have been a service fee and not subject to
the NASD maximum sales charge rule. See "Purchase of Shares--Distribution
Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any contingent deferred sales
charge payments) is amortizing the unpaid balance. No assurance can be
given that payments of the distribution fee will reach either the
voluntary maximum or the NASD maximum.
23
<PAGE>
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Company shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange is restricted, as determined by
the Commission, or 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 Company is not reasonably
practicable, and for such other periods as the Commission may by order permit
for the protection of shareholders of the Company.
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
Company at such time.
DEFERRED SALES CHARGES--CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares", while Class B shares redeemed
within four years of purchase are subject to a CDSC under most circumstances,
the charge is waived on redemptions of Class B shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability of a
Class B shareholder. Redemptions for which the waiver applies are: (a) any
partial or complete redemption in connection with a tax-free distribution
following retirement under a tax-deferred retirement plan or attaining age 59
1/2 in the case of an IRA or other retirement plan, or part of a series of
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) or any redemption resulting from the tax-free return of an
excess contribution to an IRA; or (b) any partial or complete redemption
following the death or disability (as defined in the 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 period April 27,
1992 (commencement of operations) to March 31, 1993, and for the fiscal year
ended March 31, 1994, the Distributor received CDSCs of $59,092 and $315,184,
respectively, with respect to the redemption of shares, all of which was paid
to Merrill Lynch.
Merrill Lynch BlueprintSM Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Company are offered through Blueprint only
to members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may
differ from those available to other investors in Class B shares. Orders for
purchases and redemptions of Class B shares of the Company 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 the 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.
24
<PAGE>
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) or 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 is also waived for any Class B shares which are purchased by an
Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled over into a Merrill
Lynch or Merrill Lynch Trust Company custodied Individual Retirement Account
and held in such account at the time of redemption. The Class B CDSC also is
waived for any Class B shares which are purchased by a Merrill Lynch rollover
IRA that was funded by a rollover from a terminated 401(k) plan managed by the
MLAM Private Portfolio Group and held in such account at the time of
redemption. The minimum initial and subsequent purchase requirements are waived
in connection with all the above referenced Retirement Plans.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Investment Objective and Policies--Other Investment
Practices" in the Prospectus.
Subject to policies established by the Board of Directors of the Company, the
Investment Adviser is primarily responsible for the execution of the Company's
portfolio transactions and the allocation of the brokerage. In executing such
transactions, the Investment Adviser seeks to obtain the best net results for
the Company, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved and the firm's risk
in positioning a block of securities. While the Investment Adviser generally
seeks reasonably competitive commission rates, the Company does not necessarily
pay the lowest commission or spread available. The Company has no obligation to
deal with any broker or group of brokers in the execution of transactions in
portfolio securities. Subject to obtaining the best price and execution,
brokers who provide supplemental investment research to the Investment Adviser
may receive orders for transactions by the Company. Information so received
will be in addition to and not in lieu of the services required to be performed
by the Investment Adviser under the Investment Advisory Agreement, and the
expenses of the Investment Adviser will not necessarily be reduced as a result
of the receipt of such supplemental information. It is possible that certain of
the supplementary investment research so received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, the Company may be the primary beneficiary
of the research or services received as a result of portfolio transactions
effected for such other accounts or investment companies. In addition,
consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and policies established by the Directors of the
Company, the Investment Adviser may consider sales of shares of the Company as
a factor in the selection of brokers or dealers to execute portfolio
transactions for the Company.
25
<PAGE>
The Company anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the U.S. 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 Company will
endeavor to achieve the best net results in effecting its portfolio
transactions. There is generally less government supervision and regulation of
foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Company in the form of ADRs,
EDRs, GDRs or securities convertible into foreign equity securities. ADRs, EDRs
and GDRs may be listed on stock exchanges or traded in over-the-counter markets
in the United States or Europe, as the case may be. ADRs, like other securities
traded in the U.S., as well as GDRs traded in the United States, will be
subject to negotiated commission rates.
The Company may invest in securities traded in the over-the-counter markets
and intends to deal directly with the dealers who make markets in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Company and persons who are affiliated with such affiliated
persons are prohibited from dealing with the Company as principal in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Commission. Since transactions in the over-
the-counter market usually involve transactions with dealers acting as
principal for their own account, the Company will not deal with affiliated
persons, including Merrill Lynch and its affiliates, in connection with such
transactions. However, affiliated persons of the Company may serve as its
broker in listed or 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.
See "Investment Objective and Policies--Current Investment Restrictions".
The Board of Directors has considered the possibility of seeking to recapture
for the benefit of the Company 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 Company. After
considering all factors deemed relevant, the Board of Directors made a
determination not to seek such recapture. The Board will reconsider this matter
from time to time.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts which
they manage unless the member (i) has obtained prior express authorization from
the account to effect such transactions, (ii) at least annually furnishes the
account with a statement disclosing the aggregate compensation received by the
member in effecting such transactions, and (iii) complies with any rules the
Commission has prescribed with respect to the requirements of clauses (i) and
(ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a
broker for the Company in any of its portfolio transactions executed on any
such securities exchange of which it is a member, appropriate consents have
been obtained from the Company, and annual statements as to aggregate
compensation will be provided to the Company.
For the fiscal period April 27, 1992 (commencement of operations) to March
31, 1993, the Company paid total brokerage commissions of $609,621, none of
which was paid to Merrill Lynch. For the fiscal year ended March 31, 1994, the
Company paid brokerage commissions of $976,986, none of which was paid to
Merrill Lynch.
26
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Company is determined once daily
Monday through Friday as of 4:15 p.m., New York time, on each day during which
the New York Stock Exchange is open for trading. The New York Stock Exchange is
not open on New Year's Day, President's 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.
Net asset value is computed by dividing the value of the securities held by
the Company 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 fee payable to the Investment Adviser and any account maintenance
and/or distribution fees are accrued daily. The per share net asset value of
the Class B, Class C and Class D shares generally will be lower than the per
share net asset value of the Class A shares reflecting the daily expense
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to the Class B and Class C shares and the daily
expense accruals of the account maintenance fees applicable with respect to the
Class D shares; moreover, the per share net asset value of the Class B and
Class C shares generally will be lower than the per share net asset value of
its Class D shares reflecting the daily expense accruals of the distribution
fees and higher transfer agency fees applicable with respect to the Class B and
Class C shares of the Fund. It is expected, however, that the per share net
asset value of the four classes will tend to converge immediately after the
payment of dividends or distributions, which will differ by approximately the
amount of the expense accrual differential between the classes.
Portfolio securities, including ADRs, EDRs or GDRs, which are traded on stock
exchanges are valued at the last sale price (regular way) on the exchange on
which such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price. In cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the authority of
the Board of Directors as the primary market. Securities traded in the over-
the-counter market are valued at the last available bid price in the over-the-
counter market prior to the time of valuation.
Securities and assets for which market quotations are not readily available
(including venture capital investments, which are subject to limitations as to
their sale) are valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Company. Such valuations and
procedures will be reviewed periodically by the Board of Directors. The fair
market value for venture capital investments for which no market exists cannot
be precisely determined. There is a range of values which is reasonable for
such investments at any particular time. In the early stages of development,
venture capital investments will typically be valued based upon their original
cost to the Company (the "cost method"). The cost method will be utilized until
significant developments affecting the portfolio company provide a basis for
use of an appraisal valuation (the "appraisal method"). The appraisal method
will be based upon such factors affecting the portfolio company as earnings and
net worth, the market prices for similar securities of comparable companies and
an assessment of the company's future prospects. In the case of unsuccessful
operations, the appraisal may be based upon liquidation value. Valuations based
on the appraisal method are necessarily subjective. The Company will also use
third party transactions (actual or proposed) in the portfolio company's
securities as the basis of valuation (the "private market method"). The private
market method will only be used with respect to actual transactions or actual
firm offers by sophisticated, independent investors.
27
<PAGE>
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange.
The values of such securities used in computing the net asset value of the
Company's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they are determined
and the close of the New York Stock Exchange which will not be reflected in
the computation of the Company's net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair value as determined in good faith by
the Directors.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services described below which
are designed to facilitate investment in its shares. Certain of such services
are not available to investors who place orders for the Company's shares
through the Merrill Lynch Blueprint SM Program. Full details as to each of
such services, copies of the various plans described below and instructions as
to how to participate in the various services or plans, or how to change
options with respect thereto, can be obtained from the Company, the
Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements, at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the transfer agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Company, 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 U.S. shareholder may make additions to an Investment Account at any time
by purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class
28
<PAGE>
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
Company is authorized through preauthorized 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. An investor whose shares of the Company are held within a
CMA (R) account may arrange to have periodic investments made in the Company in
amounts of $100 or more ($1 for retirement accounts) through the CMA (R)
Automated Investment Program.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will automatically be reinvested in additional shares of the
Company. Such reinvestment will be at the net asset value of the shares of the
Company as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect to receive 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 or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or distributions reinvested in shares of the Company or vice versa, and
commencing ten days after receipt by the transfer agent of such notice, those
instructions will be effected.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A shares of the Company having a value, based upon cost or the current
offering price, of $5,000 or more, and monthly withdrawals are available for
shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D shares
are redeemed from those on deposit in the shareholder's account to provide the
withdrawal payment specified by the shareholder. The shareholder may specify
either a dollar amount or a percentage of the value of his Class A or Class D
shares. Redemptions will be made at net asset value as determined at the close
of business of the New York Stock Exchange (currently 4:00 p.m., New York time)
on the 24th day of each month or the 24th day of the last month of each
quarter, whichever is applicable. If the Exchange is not open for business on
such date, the Class A or Class D shares will be redeemed at the close of
business on the preceding business day. The check for the withdrawal payment
will be mailed, or the direct deposit of the withdrawal payment will be made,
on the next business day following redemption. When a shareholder is making
systematic withdrawals, dividends and distributions on all Class A or Class D
shares in the Investment Account are reinvested automatically in Class A or
Class D shares of the Company, respectively. A shareholder's Systematic
Withdrawal Plan may be terminated at any time, without charge or penalty, by
the shareholder, the Company, the Company'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
29
<PAGE>
investment may be correspondingly reduced. Purchase 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 Company will
not knowingly accept purchase orders for Class A or Class D shares of the
Company from investors who maintain a Systematic Withdrawal Plan unless such
purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.
A Class A or Class D shareholder whose shares are held within a CMA (R),
CBA (R) or Retirement Account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $25. The
proceeds of systematic redemptions will be posted to the shareholder's account
five business days after the date the shares are redeemed. Monthly systematic
redemptions will be made at net asset value on the first Monday of each month,
bimonthly systematic redemptions will be made at net asset value on the first
Monday of every other month, and quarterly, semiannual or annual redemptions
are made at net asset value on the first Monday of months selected at the
shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
Systematic Redemption Program is not available if Company shares are being
purchased with the account pursuant to the Automatic Investment Program. For
more information on the Systematic Redemption Program, eligible shareholders
should contact their Financial Consultant.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds listed below. Under the
Merrill Lynch Select Pricing SM System, Class A shareholders may exchange
Class A shares of the Company 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, but 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 the 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 Company 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 will 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
30
<PAGE>
equal to the difference, if any, between the sales charge previously paid on
the outstanding Class A or Class D shares and the sales charge payable at the
time of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have taken
place, the "sales charge previously paid" shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares acquire through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales charge
previously paid on the Class A or Class D shares on which the dividend was
paid. Based on this formula, Class A and Class D shares of the Company
generally may be exchanged into the Class A or Class D shares of the other
funds or into shares of the Class A and Class D money market funds with a
reduced or without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another MLAM-
advised mutual fund ("new Class B or Class C shares") on the basis of relative
net asset value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Company exercising the exchange privilege will continue to
be subject to the Company'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 Company acquired through
use of the exchange privilege will be subject to the Company's CDSC schedule if
such schedule is higher than the CDSC schedule relating to the Class B shares
of the fund from which the exchange has been made. For purposes of computing
the sales charge that may be payable on a disposition of the new Class B or
Class C shares, the holding period for the outstanding Class B or Class C
shares is "tacked" to the holding period of the new Class B or Class C shares.
For example, an investor may exchange Class B shares of the Company for those
of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having
held the Company Class B shares for two and a half years. The 2% sales charge
that generally would apply to a redemption would not apply to the exchange.
Three years later the investor may decide to redeem the Class B shares of
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
Company 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 Company into shares of a money
market fund advised by the Investment Adviser or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC or with respect to Class B shares, towards satisfaction of
the conversion period. However, shares of a money market fund which were
acquired as a result of an exchange for Class B or Class C shares of the
Company 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 Company 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 Company for shares of Merrill
Lynch Institutional Fund ("Institutional Fund") after having held the Company
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 Company been
redeemed for cash rather than exchanged for shares of Institutional Fund will
be payable. If instead of such redemption the shareholder exchanged such
31
<PAGE>
shares for Class B shares of a fund which the shareholder continued to hold for
an additional two and a half years, any subsequent redemption will not incur a
CDSC.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds Issuing Class A, Class B, Class C and Class D Shares:
Merrill Lynch Adjustable Rate
Securities Fund, Inc............
High current income consistent with a pol-
icy of limiting the degree of fluctuation
in net asset value by investing primarily
in a portfolio of adjustable rate securi-
ties, 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 Fed-
eral and Arizona income taxes as is con-
sistent with prudent investment management
through investment in a portfolio primar-
ily 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 manage-
ment.
Merrill Lynch Arkansas Municipal
Bond Fund..................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Arkansas income taxes as is consistent
with prudent investment management.
Merrill Lynch Asset Growth Fund,
Inc. ......................
High total investment return, consistent
with prudent risk, from investment in
United States and foreign equity, debt and
money market securities the combination of
which will be varied both with respect to
types of securities and markets in re-
sponse to changing market and economic
trends.
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<PAGE>
Merrill Lynch Asset Income Fund,
Inc. ......................
A high level of current income through in-
vestment primarily in United States fixed
income securities.
Merrill Lynch Balanced Fund For
Investment And Retirement.......
As high a level of total investment return
as is consistent with reasonable risk by
investing in common stock and other types
of securities, including fixed income se-
curities and convertible securities.
Merrill Lynch Basic Value Fund,
Inc. ...........................
Capital appreciation and, secondarily, in-
come through investment in securities,
primarily equities, that are undervalued
and therefore represent basic investment
value.
Merrill Lynch California Insured
Municipal Bond Fund.............
A portfolio of Merrill Lynch California Mu-
nicipal Series Trust, a series fund, whose
objective is to provide as high a level of
income exempt from Federal and California
income taxes as is consistent with prudent
investment management through investment
in a portfolio consisting primarily of in-
sured California Municipal Bonds.
Merrill Lynch California Limited
Maturity Municipal Bond Fund....
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from Fed-
eral and California income taxes as is
consistent with prudent investment manage-
ment through investment in a portfolio
primarily of intermediate-term investment
grade California Municipal Bonds.
Merrill Lynch California
Municipal Bond Fund.............
A portfolio of Merrill Lynch California Mu-
nicipal Series Trust, a series fund, whose
objective is to provide investors with as
high a level of income exempt from Federal
and California income taxes as is consis-
tent with prudent investment management.
Merrill Lynch Capital Fund, The highest total investment return consis-
Inc. ........................... tent with prudent risk through a fully
managed investment policy utilizing equi-
ty, 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.
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<PAGE>
Merrill Lynch Connecticut
Municipal Bond Fund.............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Connecticut income taxes as is consistent
with prudent investment management.
Merrill Lynch Corporate Bond
Fund, Inc.......................
Current income from three separate diversi-
fied portfolios of fixed income securi-
ties.
Merrill Lynch Developing Capital
Markets Fund, Inc...............
Long-term appreciation through investments
in securities, principally equities, of
issuers in countries having smaller capi-
tal markets.
Merrill Lynch Dragon Fund, Inc... Capital appreciation primarily through in-
vestment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin,
other than Japan, Australia and New Zea-
land.
Merrill Lynch EuroFund........... Capital appreciation primarily through in-
vestment in equity securities of corpora-
tions domiciled in Europe.
Merrill Lynch FederalSecurities
Trust...........................
High current return through investments in
U.S. Government and Government agency se-
curities, 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 Fed-
eral income taxes as is consistent with
prudent investment management while serv-
ing to offer shareholders the opportunity
to own securities exempt from Florida in-
tangible personal property taxes through
investment in a portfolio primarily of in-
termediate-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 in-
vestment management while seeking to offer
shareholders the opportunity to own secu-
rities exempt from Florida intangible per-
sonal property taxes.
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<PAGE>
Merrill Lynch Fund forTomorrow,
Inc. ...........................
Long-term growth through investment in a
portfolio of good quality securities, pri-
marily common stock, potentially posi-
tioned to benefit from demographic and
cultural changes as they affect consumer
markets.
Merrill Lynch Fundamental Growth
Fund, Inc. .....................
Long-term growth through investment in a
diversified portfolio of equity securities
placing particular emphasis on companies
that have exhibited above-average growth
rates in earnings.
Merrill Lynch Global Allocation
Fund, Inc. .....................
High total return consistent with prudent
risk, through a fully managed investment
policy utilizing U.S. and foreign equity,
debt and money market securities, the com-
bination of which will be varied from time
to time both with respect to the types of
securities and markets in response to
changing market and economic trends.
Merrill Lynch Global Bond Fund
for Investment and Retirement...
High total investment return from investing
in a global portfolio of debt instruments
denominated in various currencies and mul-
ti-national currency units.
Merrill Lynch Global Convertible
Fund, Inc. .....................
High total return from investment primarily
in an internationally diversified portfo-
lio of convertible debt securities, con-
vertible preferred stock and "synthetic"
convertible securities consisting of a
combination of debt securities or pre-
ferred stock and warrants or options.
Merrill Lynch Global Holdings,
Inc. (residents of Arizona must
meet investor suitability
standards)................. The highest total investment return consis-
tent with prudent risk through worldwide
investment in an internationally diversi-
fied portfolio of securities.
Merrill Lynch Global Resources
Trust...........................
Long-term growth and protection of capital
from investment in securities of foreign
and domestic companies that possess sub-
stantial natural resource assets.
Merrill Lynch Global SmallCap
Fund, Inc. ................
Long-term growth of capital by investing
primarily in equity securities of compa-
nies with relatively small market capital-
izations located in various foreign coun-
tries and in the United States.
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<PAGE>
Merrill Lynch Global Utility
Fund, Inc. .....................
Capital appreciation and current income
through investment of at least 65% of its
total assets in equity and debt securities
issued by domestic and foreign companies
which are primarily engaged in the owner-
ship or operation of facilities used to
generate, transmit or distribute electric-
ity, telecommunications, gas or water.
Merrill Lynch Growth Fund for
Investment and Retirement.......
Growth of capital and, secondarily, income
from investment in a diversified portfolio
of equity securities placing principal em-
phasis on those securities which manage-
ment of the Fund believes to be underval-
ued.
Merrill Lynch Healthcare Fund,
Inc. (residents of Wisconsin
must meet investor suitability
standards)......................
Capital appreciation through world-wide in-
vestment 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, in-
come by investing in a diversified portfo-
lio of equity securities of issuers lo-
cated in countries other than the United
States.
Merrill Lynch Latin America
Fund, Inc.......................
Capital appreciation by investing primarily
in Latin American equity and debt securi-
ties.
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 Fed-
eral and Massachusetts income taxes as is
consistent with prudent investment manage-
ment through investment in a portfolio
primarily of intermediate-term investment
grade Massachusetts Municipal Bonds.
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<PAGE>
Merrill Lynch Massachusetts
Municipal Bond Fund.............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Massachusetts income taxes as is consis-
tent with prudent investment management.
Merrill Lynch Michigan Limited
Maturity Municipal Bond Fund....
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from Fed-
eral and Michigan income taxes as is con-
sistent with prudent investment management
through investment in a portfolio primar-
ily of intermediate-term investment grade
Michigan Municipal Bonds.
Merrill Lynch Michigan Municipal
Bond Fund.......................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Michigan income taxes as is consistent
with prudent investment management.
Merrill Lynch Minnesota
Municipal Bond Fund.............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Minnesota personal income taxes as is
consistent with prudent investment
management.
Merrill Lynch Municipal Bond
Fund, Inc.......................
Tax-exempt income from three separate di-
versified 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 Fed-
eral and New Jersey income taxes as is
consistent with prudent investment manage-
ment through a portfolio primarily of in-
termediate-term investment grade New Jer-
sey Municipal Bonds.
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<PAGE>
Merrill Lynch New Jersey
Municipal Bond Fund.............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
New Jersey income taxes as is consistent
with prudent investment management.
Merrill Lynch New Mexico
Municipal Bond Fund.............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
New Mexico income taxes as is consistent
with prudent investment management.
Merrill Lynch New York Limited
Maturity Municipal Bond Fund....
A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from Fed-
eral, New York State and New York City in-
come taxes as is consistent with prudent
investment management through investment
in a portfolio primarily of intermediate-
term investment grade New York Municipal
Bonds.
Merrill Lynch New York Municipal
Bond Fund.......................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal, New
York State and New York City income taxes
as is consistent with prudent investment
management.
Merrill Lynch North Carolina
Municipal Bond Fund.............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
North Carolina income taxes as is
consistent with prudent investment
management.
Merrill Lynch Ohio Municipal
Bond Fund.......................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Ohio income taxes as is consistent with
prudent investment management.
Merrill Lynch Oregon Municipal
Bond Fund.......................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Oregon income taxes as is consistent with
prudent investment management.
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<PAGE>
Merrill Lynch Pacific Fund, Capital appreciation by investing in equity
Inc............................. securities of corporations domiciled in
Far Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong and
Singapore.
Merrill Lynch Pennsylvania
Limited Maturity Municipal Bond
Fund............................ A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from Fed-
eral and Pennsylvania income taxes as is
consistent with prudent investment manage-
ment through investment in a portfolio of
intermediate-term investment grade Penn-
sylvania Municipal Bonds.
Merrill Lynch Pennsylvania
Municipal Bond Fund.............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal and
Pennsylvania income taxes as is consistent
with prudent management.
Merrill Lynch Phoenix Fund, Long-term growth of capital by investing in
Inc............................. equity and fixed income securities, in-
cluding tax-exempt securities, of issuers
in weak financial condition or experienc-
ing poor operating results believed to be
undervalued relative to the current or
prospective condition of such issuer.
Merrill Lynch Short-Term Global
Income Fund, Inc................
As high a level of current income as is
consistent with prudent investment manage-
ment from a global portfolio of high qual-
ity debt securities denominated in various
currencies and multi-national currency
units and having remaining maturities not
exceeding three years.
Merrill Lynch Special Value
Fund, Inc.......................
Long-term growth of capital from invest-
ments in securities, primarily equities,
of relatively small companies believed to
have special investment value and emerging
growth companies regardless of size.
Merrill Lynch Strategic Dividend
Fund............................
Long-term total return from investment in
dividend paying common stocks which yield
more than Standard & Poor's 500 Composite
Stock Price Index.
Merrill Lynch Texas Municipal
Bond Fund.......................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high a
level of income exempt from Federal income
taxes as is consistent with prudent in-
vestment management by investing primarily
in a portfolio of long-term, investment
grade obligations issued by the State of
Texas, its political subdivisions, agen-
cies and instrumentalities.
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<PAGE>
Merrill Lynch Utility Income
Fund, Inc. .....................
High current income through investment in
equity and debt securities issued by com-
panies which are primarily engaged in the
ownership or operation of facilities used
to generate, transmit or distribute elec-
tricity, telecommunications, gas or water.
Merrill Lynch World Income Fund,
Inc. ...........................
High current income by investing in a
global portfolio of fixed income securi-
ties denominated in various currencies,
including multinational currencies.
Class A Share Money Market Funds:
Merrill Lynch Ready Assets Preservation of capital, liquidity and the
Trust........................... 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 secu-
rities.
Merrill Lynch U.S.A. Government
Reserves........................
Preservation of capital, current income and
liquidity available from investing in di-
rect obligations of the U.S. Government
and repurchase agreements relating to such
securities.
Merrill Lynch U.S. Treasury Preservation of capital, liquidity and cur-
Money Fund...................... rent income through investment exclusively
in a diversified portfolio of short-term
marketable securities which are direct ob-
ligations 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 In-
stitutions 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. Govern-
ment, its agencies and instrumentalities
and in repurchase agreements secured by
such obligations.
40
<PAGE>
Merrill Lynch Institutional A portfolio of Merrill Lynch Funds for In-
Fund............................ stitutions 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 In-
stitutions Series, a series fund, whose
objective is to provide current income ex-
empt from Federal income taxes, preserva-
tion 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 In-
stitutions Series, a series fund, whose
objective is to provide current income
consistent with liquidity and security of
principal from investment in direct obli-
gations of the U.S. Treasury and up to 10%
of its total assets in repurchase agree-
ments secured by such obligations.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their Merrill
Lynch financial consultant, who will advise the Company of the exchange.
Shareholders of the Company, and shareholders of the other funds described
above with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Company
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 Company 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 at any time and thereafter may 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.
41
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Company intends to qualify for the special tax treatment afforded
regulated investment companies ("RICs") under the Internal Revenue Code of
1986, as amended (the "Code"). If it so qualifies, the Company (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D shareholders (together, the "shareholders"). The
Company intends to distribute substantially all of such income.
Dividends paid by the Company from its ordinary income and distributions of
the Company'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 Company's net realized long-term
capital gains (including long-term gains from certain transactions in options)
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Company
shares. Any loss upon the sale or exchange of Company shares held for six
months or less, however, will be treated as long-term capital loss to the
extent of any capital gain dividends received by the shareholder. Distributions
in excess of the Company's earnings and profits will first reduce the adjusted
tax basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming the shares are
held as a capital asset).
Dividends 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 Company will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or capital gain
dividends. A portion of the Company's ordinary income dividends may be eligible
for the dividends received deduction allowed to corporations under the Code, if
certain requirements are met. For this purpose, the Company will allocate
dividends eligible for the dividends received deduction among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Securities and Exchange Commission exemptive
order permitting the issuance and sale of multiple classes of stock) that is
based on the gross income allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as the Internal
Revenue Service may prescribe. If the Company pays a dividend in January which
was declared in the previous October, November or December to shareholders of
record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Company and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Company to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain 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 Company or who, to the Company's knowledge, have
furnished an incorrect number. When establishing an account, an investor must
certify under penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup withholding.
42
<PAGE>
Dividends and interest received by the Company may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Shareholders may be
able to claim U.S. foreign tax credits with respect to such taxes, subject to
certain conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Company. If more than 50% in value of the Company's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Company will be eligible, and intends, to file an election
with the Internal Revenue Service pursuant to which shareholders of the Company
will be required to include their proportional shares of such withholding taxes
in their U.S. income tax returns as gross income, treat such proportional
shares as taxes paid by them, and deduct such proportionate shares in computing
their taxable incomes or, alternatively, use them as foreign tax credits
against their U.S. income taxes. No deductions for foreign taxes, however, may
be claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the Company's
election described in this paragraph but may not be able to claim a credit or
deduction against such U.S. tax for the foreign taxes treated as having been
paid by such shareholder. The Company will report annually to its shareholders
the amount per share of such withholding taxes. For this purpose, the Company
will allocate foreign taxes and foreign source income among the Class A, Class
B, Class C and Class D shareholders according to a method similar to that
described above for the allocation of dividends eligible for the dividends
received deduction.
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 exchanged, and the holding period of the acquired Class D shares will
include the holding period for the exchanged Class B shares.
If a shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange will be
reduced (or the gain increased) to the extent the sales charge paid to the
Company reduces any sales charge the shareholder would have owed upon the
purchase of the new shares in the absence of the exchange privilege. Instead,
such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Company 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 Company's taxable
income and capital gains will be distributed to avoid entirely the imposition
of the tax. In such event, the Company will be liable for the tax only on the
amount by which it does not meet the foregoing distribution requirements.
43
<PAGE>
TAX TREATMENT OF OPTIONS TRANSACTIONS
The Company may write, purchase or sell options, futures and forward foreign
exchange contracts. 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.
Unless such contract is a forward foreign exchange contract, or is a non-equity
option or a regulated futures contract for a non-U.S. currency for which the
Company elects to have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from Section 1256 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 Company solely to reduce the risk of changes in price or interest
or currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The
Company may, nonetheless, elect to treat the gain or loss from certain forward
foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256
contract will be characterized as 60% long-term and 40% short-term capital gain
or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Company's transactions in options, futures and forward foreign
exchange contracts. Under Section 1092, the Company may be required to postpone
recognition for tax purposes of losses incurred in certain closing transactions
in options, futures and forward foreign exchange contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Company's gross income be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Company may be restricted in effecting closing transactions within three months
after entering into an options or futures contract.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Company qualifies as
a RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the RIC diversification requirements applicable to the Company.
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 debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Company may elect
capital gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256 unless
application of Code Section 988 is elected by the Company. In general, Code
Section 988 gains or losses will increase or decrease the amount of the
Company's investment company
44
<PAGE>
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 Company would not be able to make any
ordinary dividend distributions, and any distributions made before the losses
were realized but in the same taxable year would be recharacterized as a return
of capital to shareholders, thereby reducing the basis of each shareholder's
Company shares, and resulting in a capital gain for any shareholder who
received a distribution greater than such shareholder's basis in Company shares
(assuming the shares were held as a capital asset). These rules and the mark-
to-market rules described above, however, will not apply to certain
transactions entered into by the Company solely to reduce the risk or currency
fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action
either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs which
are derived from interest on U.S. Government obligations. State law varies as
to whether dividend income attributable to U.S. Government obligations is
exempt from state income tax.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Company.
PERFORMANCE DATA
From time to time the Company 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 Company's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A shares, Class
B, Class C and Class D shares in accordance with a formula specified by the
Commission.
Average annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B and Class C shares.
The Company also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment for various periods
other than those noted below. Such data will be computed as described above,
45
<PAGE>
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted,
and (2) the maximum applicable sales charge will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
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 longer periods of time.
Set forth below is total return information for the Class A shares and Class
B shares of the Fund for the periods indicated. Since Class C and Class D
shares have not been issued prior to the date of this Statement of Additional
Information, performance information concerning Class C and Class D shares is
not yet provided.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
----------------------------------- -----------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF ON A HYPOTHETICAL AT THE END OF
PERIOD $1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
- ------------------------ ----------------- ----------------- ----------------- -----------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended March 31,
1994................... 28.56% $1,285.60 30.22% $1,302.20
Inception (April 27, 1992)
to March 31, 1994...... 36.73% $1,826.70 38.00% $1,859.50
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Year Ended March 31,
1994................... 35.68% $1,356.80 34.22% $1,342.20
Inception (April 27, 1992)
to March 31, 1993...... 42.09% $1,420.90 40.77% $1,407.70
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
Inception (April 27, 1992)
to March 31, 1994...... 82.67% $1,826.70 85.95% $1,859.50
</TABLE>
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 Company in advertisements directed to such investors may take into
account a 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.
46
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Company was incorporated in connection with a reorganization (the
"Reorganization") of Sci/Tech Holdings, Inc. ("Sci/Tech"), a Merrill Lynch-
sponsored diversified, open-end investment company. Sci/Tech previously
invested primarily in the equity securities of companies engaged in science and
technology. In connection with such Reorganization, which occurred on April 27,
1992, Sci/Tech transferred all of its technology oriented securities and
certain other assets (net of liabilities) in exchange for all the stock of the
Company (other than seed capital), which Sci/Tech then distributed pro rata to
its stockholders.
The Company was incorporated under Maryland law on August 27, 1991. It has an
authorized capital of 400,000,000 shares of Common Stock, par value of $0.10
per share, dividend 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 represent an interest in the same
assets of the Company 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 that they have exclusive
voting rights with respect to matters relating to such account maintenance
and/or distribution expenditures. The Company has received an order from the
Commission permitting the issuance and sale of multiple classes of Common
Stock. The Board of Directors of the Company may classify and reclassify the
shares of the Company 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 Company 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 auditors. Generally, under Maryland law, a meeting of shareholders
may be called for any purpose on the written request of the holders of at least
10% of the outstanding shares of the Company. Voting rights for Directors are
not cumulative. Shares issued are fully paid and nonassessable 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 Company and in the net assets of
the Company 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. Shareholders may, in accordance with Maryland law, cause a meeting of
shareholders to be held for the purpose of voting on the removal of Directors
at the request of 25% of the outstanding shares of the Company. A Director may
be removed at a special meeting of shareholders by a vote of a majority of the
votes entitled to be cast for the election of Directors.
The Investment Adviser provided the initial capital for the Company by
purchasing 10,000 shares for $100,000. Such shares were acquired for investment
and can only be disposed of by redemption. The organizational expenses of the
Company will be paid by the Company and will be amortized over a period not
exceeding five years. The proceeds realized by the Investment Adviser upon the
redemption of any of the shares initially purchased by it 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.
47
<PAGE>
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A and
Class B shares of the Company based on the current sales charge and the value
of the Company's net assets on March 31, 1994, and its shares outstanding on
that date is as follows:
TABLE*
<TABLE>
<CAPTION>
CLASS A CLASS B
------------ ------------
<S> <C> <C>
Net Assets........................................... $174,809,495 $224,330,026
============ ============
Number of Shares Outstanding......................... 33,799,065 44,131,337
============ ============
Net Asset Value Per Share (net assets divided by num-
ber of shares outstanding).......................... $ 5.17 $ 5.08
Sales Charge (for Class A shares: 5.25% of offering
price (5.54% of net amount invested))*.............. $ .29 $ **
------------ ------------
Offering Price....................................... $ 5.46 $ 5.08
============ ============
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares" in the
prospectus and "Redemption of Shares--Deferred Sales Charge--Class B Shares"
herein.
Information is not provided for Class C or Class D shares since no Class C or
Class D shares were publicly offered prior to the date of this Statement of
Additional Information.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Company. The selection of
independent auditors is subject to ratification by the shareholders of the
Company. The independent auditors are responsible for auditing the annual
financial statements of the Company.
CUSTODIAN
The Chase Manhattan Bank, N.A., 4 Chase MetroTech Center, 18th Floor, Global
Securities Services, Brooklyn, New York 11245 (the "Custodian"), acts as the
custodian of the Company's assets. Under its contract with the Company, the
Custodian is authorized to establish separate accounts in foreign currencies
and to cause foreign securities owned by the Company to be held in its offices
outside the U.S. and with certain foreign banks and securities depositories.
The Custodian is responsible for safeguarding and controlling the Company's
cash and securities, handling the receipt and delivery of securities and
collecting interest dividends on the Company's investments.
TRANSFER AGENT
Financial Data Services, Inc., Transfer Agency Mutual Fund Operations, 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484, acts as the Company's
transfer agent (the "Transfer Agent"). The Transfer
48
<PAGE>
Agent is responsible for the issuance, transfer and redemption of shares and
the opening, maintenance and servicing of shareholder accounts. See "Management
of the Company--Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Company.
REPORTS TO SHAREHOLDERS
The fiscal year of the Company ends on March 31 of each year. The Company
sends to its shareholders at least semi-annually reports showing the Company'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 Company has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act and the Investment
Company Act, to which reference is hereby made.
Categories in the Schedule of Investments contained in the financial
statements herein have been adopted by the Investment Adviser and are deemed
appropriate with respect to a specialized sector fund such as the Company.
Under a separate agreement Merrill Lynch has granted the Company 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 Company at any time or to grant the use of such
name to any other company, and the Company 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Company, no person or entity owned beneficially 5% or
more of the Company's common stock on September 30, 1994.
49
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Technology Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Technology Fund, Inc. as of March
31, 1994, the related statements of operations for the year then ended and
changes in net assets and the financial highlights for the year then ended and
for the period April 27, 1992 (commencement of operations) to March 31, 1993.
These financial statements and the financial highlights are the responsibility
of the Company'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 March
31, 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
Technology Fund, Inc. as of March 31, 1994, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
April 29, 1994
50
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51
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industries Shares Held Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Japan
Educational/ 125,000 Sega Enterprises, Ltd. $ 9,119,758 $ 9,307,992 2.3%
Entertainment Software
Total Investments in Japanese Stocks 9,119,758 9,307,992 2.3
Singapore
Microcomputer Software 1,535,000 ++Creative Technology Ltd. 47,079,710 39,526,250 9.9
Total Investments in Singaporean Stocks 47,079,710 39,526,250 9.9
United States
Application Development 500,000 Oracle Systems Corp. 17,482,190 16,000,000 4.0
Software
Applied Technology 152,500 ++Quick Response Services, Inc. 3,584,375 3,202,500 0.8
Educational/ 640,000 Acclaim Entertainment, Inc. 14,524,694 9,920,000 2.5
Entertainment Software 53,000 ++Iwerks Entertainment Inc. 1,759,000 1,099,750 0.3
100,000 ++Software Toolworks, Inc. 1,234,375 1,437,500 0.4
------------ ------------ ------
17,518,069 12,457,250 3.2
Liquid Crystal Display 85,000 ++MRS Technology Inc. 1,126,251 807,500 0.2
Capital Equipment
Microcomputer Software 100,000 Microsoft Corporation 8,432,500 8,475,000 2.1
Semiconductors--Memory 1,175,000 Micron Technology, Inc. 60,212,755 98,112,500 24.6
Semiconductors-- 450,000 ++Advanced Micro Devices, Inc. 13,951,250 13,893,750 3.5
Microprocessors 60,000 ++Cyrix Corporation 1,897,500 1,665,000 0.4
------------ ------------ ------
15,848,750 15,558,750 3.9
Systems Integration 475,000 General Motors Corporation (Class E) 15,969,625 16,268,750 4.0
Systems Software 31,500 ++Veritas Software Inc. 610,250 614,250 0.2
Wireless 240,200 Motorola, Inc. 3,638,026 24,320,250 6.1
Communications
Total Investments in US Stocks 164,422,791 195,816,750 49.1
Total Investments in Stocks 220,622,259 244,650,992 61.3
<CAPTION>
SHORT-TERM
SECURITIES Face Amount Commercial Paper*
<S> <C> <S> <C> <C> <C>
$10,000,000 Bank One Diversified, 3.50% due 4/06/1994 9,995,139 9,995,139 2.5
Ciesco L.P.:
10,000,000 3.40% due 4/05/1994 9,996,222 9,996,222 2.5
10,000,000 3.72% due 5/18/1994 9,951,433 9,951,433 2.5
4,000,000 Delaware Funding Corp., 3.54% due 4/15/1994 3,994,493 3,994,493 1.0
14,000,000 du Pont (E.I.) de Nemours & Co., 3.42%
due 4/12/1994 13,985,370 13,985,370 3.5
18,390,000 Ford Motor Credit Co., 3.40% due 4/04/1994 18,384,790 18,384,790 4.6
10,000,000 Hewlett-Packard Co., 3.57% due 5/06/1994 9,965,486 9,965,486 2.5
Matterhorn Capital Corp.:
5,000,000 3.50% due 4/07/1994 4,997,083 4,997,083 1.3
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
SHORT-TERM
SECURITIES Face Amount Commercial Paper*
<S> <C> <S> <C> <C> <C>
10,000,000 3.57% due 4/07/1994 9,994,067 9,994,067 2.5
National Australia Funding Corp.:
8,000,000 3.42% due 4/22/1994 7,984,040 7,984,040 2.0
2,000,000 3.72% due 5/18/1994 1,990,287 1,990,287 0.5
15,000,000 PHH Corporation, Inc., 3.63% due 5/11/1994 14,939,500 14,939,500 3.7
10,000,000 Sanwa Business Credit Corp., 3.40% due 4/04/1994 9,997,167 9,997,167 2.5
3,000,000 Sheffield Receivables Corp., 3.45% due 4/08/1994 2,997,998 2,997,998 0.8
10,000,000 Southern California Edison Co., 3.52%
due 4/22/1994 9,979,583 9,979,583 2.5
Total Investments in Short-Term Securities 139,152,648 139,152,648 34.9
Total Investments $359,774,907 383,803,640 96.2
============
Other Assets Less Liabilities 15,335,881 3.8
------------ ------
Net Assets $399,139,521 100.0%
============ ======
<FN>
*Commercial Paper is traded on a discount basis; the interest rates shown are
the discount rates paid at the time of purchase by the Fund.
++Non-income producing security.
</TABLE>
53
<PAGE>
See Notes to Financial Statements.
PORTFOLIO CHANGES
For the Quarter Ended March 31, 1994
Additions
Advanced Micro Devices, Inc.
Cyrix Corporation
General Motors Corporation (Class E)
Microsoft Corporation
Sega Enterprises, Ltd.
Deletions
Adobe Systems Inc.
BroadBand Technologies Inc.
Cabletron Systems, Inc.
cisco Systems Inc.
DSC Communications Corp.
FTP Software Inc.
Integrated Device Technology, Inc.
KLA Instruments Corp.
Lam Research Corp.
Mercury Interactive Corp.
Newbridge Networks Corp.
Sybase Inc.
Texas Instruments Inc.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of March 31,1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$359,774,907) (Note 1a) $383,803,640
Cash 19,616,555
Receivables:
Capital shares sold $ 6,567,988
Securities sold 1,137,500
Dividends 72,191 7,777,679
-----------
Deferred organization expenses (Note 1e) 78,089
Prepaid registration fees and other assets (Note 1e) 41,605
------------
Total assets 411,317,568
------------
Liabilities: Payables:
Securities purchased 7,444,250
Capital shares redeemed 4,046,364
Investment adviser (Note 2) 334,177
Distributor (Note 2) 183,497 12,008,288
-----------
Accrued expenses and other liabilities 169,759
------------
Total liabilities 12,178,047
------------
Net Assets: Net assets $399,139,521
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized $ 3,379,906
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 4,413,134
Paid-in capital in excess of par 360,897,435
Undistributed realized capital gains on investments and foreign
currency transactions--net 6,420,096
Unrealized appreciation on investments and foreign currency
transactions--net 24,028,950
------------
Net assets $399,139,521
============
Net Asset Value: Class A--Based on net assets of $174,809,495 and 33,799,065 shares outstanding $ 5.17
============
Class B--Based on net assets of $224,330,026 and 44,131,337 shares outstanding $ 5.08
============
See Notes to Financial Statements.
</TABLE>
54
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the
Year Ended
March 31, l994
<S> <S> <C> <C>
Investment Interest and discount earned $ 2,832,712
Income Dividends (net of $3,126 foreign withholding tax) 274,021
(Notes 1c & 1d): ------------
Total income 3,106,733
------------
Expenses: Investment advisory fees (Note 2) 2,476,639
Distribution fees (Note 2) 1,173,695
Transfer agent fees--Class A (Note 2) 207,716
Transfer agent fees--Class B (Note 2) 207,167
Registration fees (Note 1e) 132,259
Printing and shareholder reports 125,048
Professional fees 69,084
Custodian fees 42,063
Accounting services (Note 2) 41,958
Amortization of organization expenses (Note 1e) 25,326
Directors' fees and expenses 15,364
Other 8,896
------------
Total expenses 4,525,215
------------
Investment loss--net (1,418,482)
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $46,757,179
(Loss) on Foreign currency transactions (130,293) 46,626,886
Investments & -----------
Foreign Currency Change in unrealized appreciation on:
Transactions--Net Investments--net 22,855,920
(Notes 1b, 1d & 3): Foreign currency transactions 130 22,856,050
----------- ------------
Net realized and unrealized gain on investments and foreign
currency transactions 69,482,936
------------
Net Increase in Net Assets Resulting from Operations $ 68,064,454
============
See Notes to Financial Statements.
</TABLE>
55
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the For the Period
Year Ended April 27,1992++
March 31, to March 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment loss--net $ (1,418,482) $ (208,574)
Realized gain on investments and foreign currency transactions--net 46,626,886 30,968,710
Change in unrealized appreciation on investments and foreign currency
transactions--net 22,856,050 1,172,900
------------ ------------
Net increase in net assets resulting from operations 68,064,454 31,933,036
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (32,432,279) (6,075,613)
(Note 1f): Class B (28,396,274) (2,644,278)
------------ ------------
Net decrease in net assets resulting from distributions to shareholders (60,828,553) (8,719,891)
------------ ------------
Capital Share Net increase in net assets derived from capital share transactions 233,481,245 135,109,230
Transactions ------------ ------------
(Note 4):
Net Assets: Total increase in net assets 240,717,146 158,322,375
Beginning of period 158,422,375 100,000
------------ ------------
End of period $399,139,521 $158,422,375
============ ============
<FN>
++Commencement of Operations.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
--------------------------- ----------------------------
The following per share data and ratios have been derived For the For the Period For the Year For the Period
from information provided in the financial statements. Year Ended April 27,1992++ Ended April 27,1992++
March 31, to March 31, March 31, to March 31,
Increase (Decrease) in Net Asset Value: 1994* 1993* 1994* 1993*
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 5.08 $ 3.83 $ 5.03 $ 3.83
Operating -------- -------- -------- --------
Performance: Investment loss--net (.01) -- (.05) (.04)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.51 1.59 1.48 1.58
-------- -------- -------- --------
Total from investment operations 1.50 1.59 1.43 1.54
-------- -------- -------- --------
Less distributions:
Realized gain on investments--net (1.41) (.34) (1.38) (.34)
-------- -------- -------- --------
Net asset value, end of period $ 5.17 $ 5.08 $ 5.08 $ 5.03
======== ======== ======== ========
Total Investment Based on net asset value per share 35.68% 42.09%+++ 34.22% 40.77%+++
Return:*** ======== ======== ======== ========
</TABLE>
56
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A Class B
--------------------------- ----------------------------
The following per share data and ratios have been derived For the For the Period For the Year For the Period
from information provided in the financial statements. Year Ended April 27,1992++ Ended April 27,1992++
March 31, to March 31, March 31, to March 31,
Increase (Decrease) in Net Asset Value: 1994* 1993* 1994* 1993*
<S> <S> <C> <C> <C> <C>
Ratios to Average Expenses, excluding distribution fees 1.35% 1.59%** 1.36% 1.53%**
Net Assets: ======== ======== ======== ========
Expenses 1.35% 1.59%** 2.36% 2.53%**
======== ======== ======== ========
Investment income (loss)--net (.11%) .04%** (1.08%) .93%**
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $174,809 $100,830 $224,330 $ 57,592
Data: ======== ======== ======== ========
Portfolio turnover 553.69% 482.79% 553.69% 482.79%
======== ======== ======== ========
<FN>
*Based on average shares outstanding during the period.
**Annualized.
***Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Technology Fund, Inc. (the "Company") is registered
under the Investment Company Act of 1940 as a non-diversified,
open-end investment management company. The Company commenced
operations on April 27, 1992 (see Note 5). The Company offers both
Class A and Class B Shares. Class A Shares are sold with a front-end
sales charge. Class B Shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except
that Class B Shares bear certain expenses related to the distribution
of such shares and have exclusive voting rights with respect to matters
relating to such distribution expenditures. The following is a summary
of significant accounting policies followed by the Company.
(a) Valuation of securities--Portfolio securities which are traded on
stock exchanges are valued at the last sale price on the exchange on
which such securities are traded, as of the close of business on the
day the securities are being valued or, lacking any sales, at the last
available bid price. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange desig-
nated by or under the authority of the Board of Directors as the
primary market. Securities traded in the over-the-counter market
are valued at the last available bid price in the over-the-counter
market prior to the time of valuation. Short-term investments are
valued at amortized cost, which approximates market. Securities
and assets for which market quotations are not readily available,
including venture capital investments, are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Company.
(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) assets or
liabilities expressed in foreign currencies into US dollars. Realized and
unrealized gains or losses from investments include the effects of foreign
exchange rates on investments.
The Company 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 Company's records.
However, the effect on operations is recorded from the date the Company
enters into such contracts. Premium or discount is amortized over the
life of the contracts.
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
(c) Income taxes--It is the Company's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends,
and capital gains at various rates.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend date, except that if the
ex-dividend date has passed, certain dividends from foreign securities
are recorded as soon as the Company is informed of the ex-dividend date.
Interest income (including amortization of discount) is recognized on
the accrual basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses and prepaid registration fees--Deferred
organization expenses are charged to expense on a straight-line basis over
a five-year period. Prepaid registration fees are charged to expense as the
related shares are issued.
(f) Dividends and distributions to shareholders--Dividends and distributions
paid by the Company are recorded on the ex-dividend dates.
(g) Reclassification--Certain 1993 amounts have been reclassified to conform
to the 1994 presentation. Accumulated investment loss--net, in the amount of
$1,626,669, has been reclassified to undistributed realized capital gains--net.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Company has entered into an Investment Advisory Agreement with Merrill
Lynch Asset Management, L.P. ("MLAM"). Effective January 1, 1994, the
investment advisory business of MLAM was reorganized from a corporation to
a limited partnership. Both prior to and after the reorganization, ultimate
control of MLAM was vested with Merrill Lynch & Co., Inc. ("ML & Co.").
The general partner of MLAM is Princeton Services, Inc., an indirect wholly-
owned subsidiary of 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 Company 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 Company's portfolio and
provides the administrative services necessary for the operation of the
Company. As compensation for its services to the Company, the Investment
Advisor receives monthly compensation at the annual rate of 1.0% of the
average daily net assets of the Company.
Certain states in which shares of the Company are qualified for sale
impose limitations on the expenses of the Company. The most restrictive
annual expense limitation requires that the Investmenet Adviser reimburse
the Company to the extent that expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and extraordinary items)
exceed 2.5% of the Company's first $30 million of average daily net assets,
2.0% of the Company's 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 Company is limited to the amount of the Investment Advisory fee.
No fee payment will be made to MLAM during any fiscal year which will cause
such expenses to exceed the most restrictive expense limitation applicable at
the time of such payment. For the year ended March 31, 1994, MLAM earned fees
of $2,476,639.
Pursuant to a distribution plan (the "Distribution Plan") adopted by the
Company in accordance with Rule 12b-1 under the Investment Company Act of
1940, the Company pays the Distributor an ongoing account maintenance fee
and distribution fee which are accrued daily and paid monthly at the annual
rates of 0.25% and 0.75%, respectively, of the average daily net assets of
Class B Shares of the Company to compensate the Distributor for services
provided and the expenses borne by it under the Plan. As authorized by the
Plan, the Distributor has entered into an agreement with Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), an affiliate of MLIM, which provides
for the compensation of MLPF&S for providing distribution-related services
to the Company. For the year ended March 31, 1994, MLFD earned $1,173,695
under the Plan, all of which was paid to MLPF&S pursuant to the agreement.
For the year ended March 31, 1994, MLFD earned underwriting discounts of
$44,459, and MLPF&S earned dealer concessions of $690,731 on the sales of
the Company's Class A Shares.
MLPF&S also received contingent deferred sales charges of $315,184 from
the redemption of Class B Shares.
58
<PAGE>
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Company's transfer agent.
Accounting services are provided to the Company by MLAM at cost.
Certain officers and/or directors of the Company are officers and/or
directors of MLIM, MLPF&S, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended March 31, 1994 were $652,584,257 and $533,518,539,
respectively.
Net realized and unrealized gains (losses) as of March 31, 1994 were
as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $46,756,782 $24,028,733
Short-term investments 397 --
Foreign currency transactions (130,293) 217
----------- -----------
Total $46,626,886 $24,028,950
=========== ===========
As of March 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $24,028,733, of which $39,318,953
related to appreciated securities and $15,290,220 related to
depreciated securities. The aggregate cost of investments at
March 31, 1994 for Federal income tax purposes was $359,744,907.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $233,481,245 and $ 135,109,230 for the year ended March 31, 1994
and the period ended March 31, 1993.
Transactions in capital shares for Class A and Class B Shares were
as follows:
<TABLE>
<CAPTION>
Class A Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
<S> <C> <C>
Shares sold 12,878,911 $ 66,764,420
Shares issued to shareholders in reinvest-
ment of distributions 6,189,048 28,065,518
---------- ------------
Total issued 19,067,959 94,829,938
Shares redeemed (5,113,371) (26,393,833)
---------- ------------
Net increase 13,954,588 $ 68,436,105
========== ============
<CAPTION>
Class A Shares for the Period Dollar
April 27, 1992++ to March 31, 1993 Shares Amount
<S> <C> <C>
Shares acquired (Note 5) 16,847,112 $ 64,589,199
Shares sold 5,334,065 29,685,648
Shares issued to shareholders in reinvest-
ment of distributions 1,156,221 5,468,924
---------- ------------
Total issued 23,337,398 99,743,771
Shares redeemed (3,505,976) (16,556,366)
---------- ------------
Net increase 19,831,422 $ 83,187,405
========== ============
<FN>
++Prior to April 27, 1992 (commencement of
operations), the Company issued 13,055
shares to MLAM for $50,000.00
</TABLE>
<TABLE>
<CAPTION>
Class B Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
<S> <C> <C>
Shares sold 35,463,009 $182,856,653
Shares issued to shareholders in reinvest-
ment of distributions 5,684,052 25,162,897
---------- ------------
Total issued 41,147,061 208,019,550
Shares redeemed (8,465,704) (42,974,410)
---------- ------------
Net increase 32,681,357 $165,045,140
========== ============
Class B Shares for the Period Dollar
April 27, 1992++ to March 31, 1993 Shares Amount
Shares acquired (Note 5) 1,405,111 $ 5,387,023
Shares sold 11,830,447 55,401,762
Shares issued to shareholders in reinvest-
ment of distributions 496,857 2,330,260
---------- ------------
Total issued 13,732,415 63,119,045
Shares redeemed (2,295,490) (11,197,220)
---------- ------------
Net increase 11,436,925 $ 51,921,825
========== ============
<FN>
++Prior to April 27, 1992 (commencement of
operations), the Company issued 13,055
shares to MLAM for $50,000.00
</TABLE>
59
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................... 2
Technology................................................................ 2
International Diversification............................................. 2
Types of Portfolio Companies.............................................. 2
Other Factors............................................................. 3
Hedging Techniques........................................................ 4
Other Investment Policies and Practices................................... 8
Current Investment Restrictions........................................... 8
Management of the Company.................................................. 14
Directors and Officers.................................................... 14
Advisory and Management Arrangements...................................... 15
Purchase of Shares......................................................... 17
Redemption of Shares....................................................... 24
Portfolio Transactions and Brokerage....................................... 25
Determination of Net Asset Value........................................... 27
Shareholder Services....................................................... 28
Dividends, Distributions and Taxes......................................... 42
Performance Data........................................................... 45
General Information........................................................ 47
Description of Shares..................................................... 47
Computation of Offering Price Per Share................................... 48
Independent Auditors...................................................... 48
Custodian................................................................. 48
Transfer Agent............................................................ 48
Legal Counsel............................................................. 49
Reports to Shareholders................................................... 49
Additional Information.................................................... 49
Security Ownership of Certain Beneficial Owners........................... 49
Independent Auditors' Report............................................... 50
Financial Statements....................................................... 52
</TABLE>
Code #16090-1094
[ART]
- --------------------------------------------------------------------------------
[LOGO] MERRILL LYNCH
MERRILL LYNCH TECHNOLOGY FUND, INC.
Statement of Additional Information
October 21, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for the period April 27, 1992 (commencement of
operations) to March 31, 1993 and the year ended March 31, 1994
Contained in Part B:
Financial Statements:
Schedule of Investments as of March 31, 1994.
Statement of Assets and Liabilities as of March 31, 1994.
Statement of Operations for the year ended March 31, 1994.
Statements of Changes in Net Assets for the period April 27, 1992
(commencement of operations) to March 31, 1993 and the year ended
March 31, 1994.
Financial Highlights for the period April 27, 1992 (commencement of
operations) to March 31, 1993 and the year ended March 31, 1994.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 --Articles of Incorporation of Registrant. (a)
2 --By-Laws of Registrant. (a)
3 --None.
4 --Portions of the Articles of Incorporation and By-Laws of the
Registrant defining the rights of holders of shares of the
Registrant. (d)
5(a) --Investment Advisory Agreement between Registrant and Merrill Lynch
Asset Management, Inc. (b)
(b) --Supplement to Investment Advisory Agreement between Registrant and
Merrill Lynch Asset Management, L.P., dated January 3, 1994. (f)
6(a) --Class A Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (b)
(b) --Class B Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (b)
(c) --Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Advisor Program. (f)
(d) --Form of New Class A Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc.
(e) --Form of Class C Shares Distribution Agreement between Registrant
and Merrill Lynch Funds Distributor, Inc.
(f) --Form of Class D Shares Distribution Agreement between Registrant
and Merrill Lynch Funds Distributor, Inc.
7 --None.
8 --Custody Agreement between Registrant and The Chase Manhattan Bank,
N.A. (b)
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
9(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data
Services, Inc. (b)
(b) --Form of Agreement between Merrill Lynch & Co., Inc. and the
Registrant relating to use by Registrant of Merrill Lynch name. (b)
10 --None.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc. (b)
14 --None.
15(a) --Class B Shares Distribution Plan and Class B Shares Distribution
Plan Sub-Agreement of the Registrant. (e)
(b) --Form of Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of the Registrant.
(c) --Form of Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of the Registrant.
16(a) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
A shares. (c)
(b) --Schedule for computation of each performance quotation provided in
the Registration Statement in response to Item 22 relating to Class
B shares. (c)
17(a) --Financial Data Schedule for Class A Shares
(b) --Financial Data Schedule for Class B Shares
</TABLE>
- --------
(a) Filed on September 6, 1991, in connection with Registrant's Registration
Statement on Form N-1A under the Securities Act of 1933.
(b) Filed on November 13, 1991, in connection with Pre-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(c) Filed on October 30, 1992, in connection with Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(d) Reference is made to Article V, Article VI (sections 3 and 6), Article VII,
Article VIII and Article X of the Registrant's Articles of Incorporation,
previously filed as Exhibit (1) to the Registration Statement; and to
Article II, Article III (section 1, 3, 5, 6 and 17), Article VI, Article
VII, Article XII, Article XIII and Article XIV of the Registrant's By-Laws,
previously filed as Exhibit (2) to the Registration Statement.
(e) Filed on July 28, 1993, in connection with Post-Effective Amendment No. 2
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(f) Filed on July 27, 1994, in connection with Post-Effective Amendment No. 3
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any other
person.
C-2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1994
- -------------- ------------------
<S> <C>
Class A Common Stock, par value $0.10 per share.............. 5,163
Class B Common Stock, par value $0.10 per share.............. 622
Class C Common Stock, par value $0.10 per share.............. 0
Class D Common Stock, par value $0.10 per share.............. 0
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Distribution Agreement.
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 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.
Each officer and director of the Registrant claiming indemnification within
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; or (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.
C-3
<PAGE>
The Registrant may indemnify, make advances or purchase insurance to the
extent provided in Article VI of the By-Laws on behalf of an employee or agent
who is not an officer or director of the Registrant.
In Section 9 of the Class A and B Distribution Agreements relating to the
securities being offered hereby, the Registrant agrees to indemnify the
Distributor and each person, if any, who controls the Distributor within the
meaning of the Securities Act of 1933 (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, 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 INVESTMENT ADVISER.
Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset
Management ("MLAM" or the "Investment Adviser"), acts as investment adviser
for the following investment 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, 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 Utility Fund, Inc., Merrill Lynch Global SmallCap 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 Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, 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 MLAM, acts as the investment adviser for the following
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
C-4
<PAGE>
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,
Inc., MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured
Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund,
Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund,
Inc., MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund
II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield Pennsylvania
Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior
High Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior
Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc. Taurus
MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc. The address of
each of these investment companies is Box 9011, Princeton, New Jersey 08543-
9011, except that the address of Merrill Lynch Funds for Institutions Series
and Merrill Lynch Institutional Intermediate Fund is One Financial Center,
15th Floor, Boston, Massachusetts 02111-2646. The address of the Investment
Adviser and FAM 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. is 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or
employment of a substantial nature in which each such person or entity has
been engaged since April 1, 1992, for his or its 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 substantially all of the investment companies described in the preceding
paragraph, and Messrs. Durnin, Giordano, Harvey, Kirstein and Monagle are
directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION, VOCATION
NAME INVESTMENT ADVISER OR EMPLOYMENT
---- ------------------ ---------------------------
<S> <C> <C>
Limited Partner Financial Services Holding
ML & Co................. Company
Merrill Lynch Investment Investment Advisory Services;
Management, Inc........ Limited Partner Limited Partner of FAM
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
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION, VOCATION
NAME INVESTMENT ADVISER OR EMPLOYMENT
---- ------------------ ---------------------------
<S> <C> <C>
Terry K. Glenn.......... Executive Vice President Executive Vice President of FAM;
Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
Director of Financial Data
Services, Inc. ("FDS");
President of Princeton
Administrators
Bernard J. Durnin....... 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
Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Norman R. Harvey........ Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
N. John Hewitt.......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
Philip L. Kirstein...... Senior Vice President, Senior Vice President, General
General Counsel 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 Senior Vice President and
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 Senior Vice President and
and Treasurer Treasurer of FAM; Senior Vice
President and Treasurer of
Princeton Services; Vice
President and Treasurer of MLFD
Richard L. Rufener...... Senior Vice President Senior Vice President of FAM;
Vice President of MLFD; Senior
Vice President of Princeton
Services
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
Princeton Services
</TABLE>
C-6
<PAGE>
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, MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield
New York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc.,
MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality
Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income
Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus MuniCalifornia
Holdings, Inc., Taurus MuniNew York Holdings, Inc. and Worldwide DollarVest
Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Breen, Graczyk, Fatseas, and Wasel is One Financial Center, Boston,
Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH MLFD WITH REGISTRANT
---- --------------------- ---------------------
<S> <C> <C>
Terry K. Glenn.......... President and Director Executive Vice President
Arthur Zeikel........... Director President and Director
Philip L. Kirstein...... Director None
William E. Aldrich...... Senior Vice President None
Robert W. Crook......... Senior Vice President None
Kevin P. Boman.......... Vice President None
Michael J. Brady........ Vice President None
William M. Breen........ Vice President None
Sharon Creveling........ Vice President and Assistant Treasurer None
Mark A. DeSario......... Vice President None
James T. Fatseas........ Vice President None
Stanley Graczyk......... Vice President None
Michelle T. Lau......... Vice President None
Debra W. Landsman-Yaros. Vice President None
Gerald M. Richard....... Vice President and Treasurer Treasurer
Richard L. Rufener...... Vice President None
Salvatore Venezia....... Vice President None
William Wasel........... Vice President None
Robert Harris........... Secretary Secretary
</TABLE>
(c) Not applicable.
C-7
<PAGE>
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, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and Financial Data Services, Inc., 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the Company--
Advisory and Management Arrangements" in the Prospectus constituting Part A of
the Registration Statement and under "Management of the Company--Advisory and
Management Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, Registrant is not a party to
any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of the Registrant's lastest annual report to shareholders,
upon request and without charge.
C-8
<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 ITS
REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933
AND HAS DULY CAUSED THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF
PLAINSBORO, AND THE STATE OF NEW JERSEY, ON THE 10TH DAY OF OCTOBER 1994.
Merrill Lynch Technology Fund, Inc.
(REGISTRANT)
/s/ Arthur Zeikel
By______________________________
(ARTHUR ZEIKEL,
PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
ITS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATE(S) INDICATED.
SIGNATURE TITLE DATE(S)
President and
/s/ Arthur Zeikel Director (Principal October 10,
- ------------------------------------- Executive Officer) 1994
(ARTHUR ZEIKEL)
Treasurer (Principal
/s/ Gerald M. Richard Financial and October 10,
- ------------------------------------- Accounting Officer) 1994
(GERALD M. RICHARD)
Donald Cecil* Director
- ------------------------------------- October 10,
(DONALD CECIL) 1994
Edward H. Meyer* Director
- ------------------------------------- October 10,
(EDWARD H. MEYER) 1994
Charles C. Reilly* Director
- ------------------------------------- October 10,
(CHARLES C. REILLY) 1994
Richard R. West* Director
- ------------------------------------- October 10,
(RICHARD R. WEST) 1994
/s/ Arthur Zeikel October 10,
*By --------------------------------- 1994
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT)
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
1 --Articles of Incorporation of Registrant. (a)
2 --By-Laws of Registrant. (a)
3 --None.
4 --Portions of the Articles of Incorporation and By-Laws
of the Registrant defining the rights of holders of
shares of the Registrant. (d)
5(a) --Investment Advisory Agreement between Registrant and
Merrill Lynch Asset Management, Inc. (b)
(b) --Supplement to Investment Advisory Agreement between
Registrant and Merrill Lynch Asset Management, L.P.,
dated January 3, 1994. (f)
6(a) --Class A Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (b)
(b) --Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (b)
(c) --Letter Agreement between the Registrant and Merrill
Lynch Funds Distributor, Inc. with respect to the
Merrill Lynch Mutual Fund Advisor Program. (f)
(d) --Form of New Class A Shares Distribution Agreement
between Registrant and Merrill Lynch Funds Distributor,
Inc.
(e) --Form of Class C Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc.
(f) --Form of Class D Shares Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor, Inc.
7 --None.
8 --Custody Agreement between Registrant and The Chase
Manhattan Bank, N.A. (b)
9(a) --Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between
Registrant and Financial Data Services, Inc. (b)
(b) --Form of Agreement between Merrill Lynch & Co., Inc.
and the Registrant relating to use by Registrant of
Merrill Lynch name. (b)
10 --None.
11 --Consent of Deloitte & Touche LLP, independent auditors
for the Registrant.
12 --None.
13 --Certificate of Merrill Lynch Asset Management, Inc. (b)
14 --None.
15(a) --Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant. (e)
(b) --Form of Class C Shares Distribution Plan and Class C
Shares Distribution Plan Sub-Agreement of the
Registrant.
(c) --Form of Class D Shares Distribution Plan and Class D
Shares Distribution Plan Sub-Agreement of the
Registrant.
16(a) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to
Item 22 relating to Class A shares. (c)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
(b) --Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item
22 relating to Class B shares. (c)
27(a) --Financial Data Schedule for Class A Shares.
27(b) --Financial Data Schedule for Class B Shares.
</TABLE>
- --------
(a) Filed on September 6, 1991, in connection with Registrant's Registration
Statement on Form N-1A under the Securities Act of 1933.
(b) Filed on November 13, 1991, in connection with Pre-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(c) Filed on October 30, 1992, in connection with Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(d) Reference is made to Article V, Article VI (sections 3 and 6), Article VII,
Article VIII and Article X of the Registrant's Articles of Incorporation,
previously filed as Exhibit (1) to the Registration Statement; and to
Article II, Article III (section 1, 3, 5, 6 and 17), Article VI, Article
VII, Article XII, Article XIII and Article XIV of the Registrant's By-Laws,
previously filed as Exhibit (2) to the Registration Statement.
(e) Filed on July 28, 1993, in connection with Post-Effective Amendment No. 2
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
(f) Filed on July 27, 1994, in connection with Post-Effective Amendment No. 3
to Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933.
<PAGE>
APPENDIX FOR GRAPHICS AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents fair and
accurate narrative descriptions of graphic and image material omitted from this
EDGAR Submission file due to ASCII-incompatibility and cross-references this
material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- --------------------------------------------------------------------------------
Compass plate, circular graph paper Back cover of Prospectus and
and Merrill Lynch logo including back cover of Statement of
stylized market bull. Additional Information.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NAME> CLASS A
<NUMBER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1994
<PERIOD-START> APR-01-1993
<PERIOD-END> MAR-31-1994
<INVESTMENTS-AT-COST> 359774907
<INVESTMENTS-AT-VALUE> 383803640
<RECEIVABLES> 7777679
<ASSETS-OTHER> 19736249
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 411317568
<PAYABLE-FOR-SECURITIES> 7444250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4733797
<TOTAL-LIABILITIES> 12178047
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 368690475
<SHARES-COMMON-STOCK> 33799065
<SHARES-COMMON-PRIOR> 19844477
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6420096
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24028950
<NET-ASSETS> 174809495
<DIVIDEND-INCOME> 274021
<INTEREST-INCOME> 2832712
<OTHER-INCOME> 0
<EXPENSES-NET> 4525215
<NET-INVESTMENT-INCOME> (1418482)
<REALIZED-GAINS-CURRENT> 46626886
<APPREC-INCREASE-CURRENT> 22856050
<NET-CHANGE-FROM-OPS> 68064454
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 32432279
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12878911
<NUMBER-OF-SHARES-REDEEMED> 5113371
<SHARES-REINVESTED> 6189048
<NET-CHANGE-IN-ASSETS> 240717146
<ACCUMULATED-NII-PRIOR> (208187)
<ACCUMULATED-GAINS-PRIOR> 22248432
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2476639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4525215
<AVERAGE-NET-ASSETS> 130294384
<PER-SHARE-NAV-BEGIN> 5.08
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.51
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.41
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.17
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NAME> CLASS B
<NUMBER> 2
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1994
<PERIOD-START> APR-01-1993
<PERIOD-END> MAR-31-1994
<INVESTMENTS-AT-COST> 359774907
<INVESTMENTS-AT-VALUE> 383803640
<RECEIVABLES> 7777679
<ASSETS-OTHER> 19736249
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 411317568
<PAYABLE-FOR-SECURITIES> 7444250
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4733797
<TOTAL-LIABILITIES> 12178047
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 368690475
<SHARES-COMMON-STOCK> 44131337
<SHARES-COMMON-PRIOR> 11449980
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6420096
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 24028950
<NET-ASSETS> 224330026
<DIVIDEND-INCOME> 274021
<INTEREST-INCOME> 2832712
<OTHER-INCOME> 0
<EXPENSES-NET> 4525215
<NET-INVESTMENT-INCOME> (1418482)
<REALIZED-GAINS-CURRENT> 46626886
<APPREC-INCREASE-CURRENT> 22856050
<NET-CHANGE-FROM-OPS> 68064454
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 28396274
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35463009
<NUMBER-OF-SHARES-REDEEMED> 8465704
<SHARES-REINVESTED> 5684052
<NET-CHANGE-IN-ASSETS> 240717146
<ACCUMULATED-NII-PRIOR> (208187)
<ACCUMULATED-GAINS-PRIOR> 22248432
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2476639
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4525215
<AVERAGE-NET-ASSETS> 117478112
<PER-SHARE-NAV-BEGIN> 5.03
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.38
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.08
<EXPENSE-RATIO> 2.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.6(D)
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between MERRILL LYNCH
TECHNOLOGY FUND, INC., a Maryland corporation (the "Fund"), and MERRILL LYNCH
FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Fund to offer its shares for sale
continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Class A shares of
common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
------------------------------
Distributor as the principal underwriter and distributor of the Fund to sell
Class A shares of common stock in the Fund (sometimes herein referred to as
"Class A shares") to eligible investors (as defined below) and hereby agrees
during
<PAGE>
the term of this Agreement to sell Class A shares of the Fund to the Distributor
upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class A shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class A
shares from the Fund shall not apply to Class A shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class A shares of any such
company by the Fund.
(c) Such exclusive right also shall not apply to Class A shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE>
(d) Such exclusive right also shall not apply to Class A shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class A shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class A shares from the Fund.
----------------------------------------
(a) The Distributor shall have the right to buy from the Fund the Class A
shares needed, but not more than the Class A shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class A shares of the
Fund placed with the Distributor by eligible investors or securities dealers.
Investors eligible to purchase Class A shares shall be those persons so
identified in the currently effective prospectus and statement of additional
information of the Fund (the "prospectus" and "statement of additional
information", respectively) under the Securities Act of 1933, as amended (the
"Securities Act"), relating to such Class A shares ("eligible investors"). The
price which the Distributor shall pay for the Class A shares so purchased from
the Fund shall be the net asset value, determined as set forth in Section 3(d)
hereof, used in determining the public offering price on which such orders were
based.
(b) The Class A shares are to be resold by the Distributor to eligible
investors at the public offering price, as set forth in Section 3(c) hereof, or
to securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
3
<PAGE>
(c) The public offering price(s) of the Class A shares, i.e., the price
- -
per share at which the Distributor or selected dealers may sell Class A shares
to eligible investors, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class A
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class A shares, plus a sales charge not to exceed ____% of the
public offering price (____% of the net amount invested), subject to reductions
for volume purchases. Class A shares may be sold to certain Directors, officers
and employees of the Fund, directors and employees of Merrill Lynch & Co., Inc.
and its subsidiaries, and to certain other persons described in the prospectus
and statement of additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the prospectus and
statement of additional information. If the public offering price does not
equal an even cent, the public offering price may be adjusted to the nearest
cent. All payments to the Fund hereunder shall be made in the manner set forth
in Section 3(f).
(d) The net asset value of Class A shares shall be determined by the Fund
or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information of the Fund and guidelines
established by the Directors.
4
<PAGE>
(e) The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class A shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some other event, which, in
the judgment of the Fund, makes it impracticable or inadvisable to sell the
Class A shares.
(f) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class A shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class A shares from eligible investors. The
Fund (or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its agent) of payment
therefor, will deliver deposit receipts or certificates for such Class A shares
pursuant to the instructions of the Distributor. Payment shall be made to the
Fund in New York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Class A shares by the Fund.
------------------------------------------------------
5
<PAGE>
(a) Any of the outstanding Class A shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class A shares so
tendered in accordance with its obligations as set forth in Article VII of its
Articles of Incorporation, as amended from time to time, and in accordance with
the applicable provisions set forth in the prospectus and statement of
additional information. The price to be paid to redeem or repurchase the Class
A shares shall be equal to the net asset value calculated in accordance with the
provisions of Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in the prospectus
and statement of additional information of the Fund. All payments by the Fund
hereunder shall be made in the manner set forth below. The redemption or
repurchase by the Fund of any of the Class A shares purchased by or through the
Distributor will not affect the sales charge secured by the Distributor or any
selected dealer in the course of the original sale, except that if any Class A
shares are tendered for redemption or repurchase within seven business days
after the date of the confirmation of the original purchase, the right to the
sales charge shall be forfeited by the Distributor and the selected dealer which
sold such Class A shares.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor in New York
Clearing House funds on or before the seventh business day subsequent to its
having received the notice
6
<PAGE>
of redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class A shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class A shares of the
Fund, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor such number of
copies of the prospectus and statement of additional information as the
Distributor shall reasonably request.
7
<PAGE>
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the Class A shareholders, all necessary action to fix the number of
authorized Class A shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be available for sale
such number of Class A shares as the Distributor may reasonably be expected to
sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class A shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
8
<PAGE>
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund but shall not be obligated to sell any
specific number of Class A shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class A shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by the
officers of the Fund, for the confirmation of sales to eligible investors and
selected dealers, the collection of amounts payable by eligible investors and
selected dealers on such sales, and the cancellation of unsettled transactions,
as may be necessary to comply with the requirements of the National
9
<PAGE>
Association of Securities Dealers, Inc. (the "NASD"), as such requirements may
from time to time exist.
Section 7. Selected Dealers Agreements.
---------------------------
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class A shares and fix therein the portion of the sales charge which may
be allocated to the selected dealers; provided that the Fund shall approve the
forms of agreements with dealers and the dealer compensation set forth therein.
Class A shares sold to selected dealers shall be for resale by such dealers only
at the public offering price(s) set forth in the prospectus and statement of
additional information. The form of agreement with selected dealers to be used
during the continuous offering of the Class A shares is attached hereto as
Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class A
shares only to such selected dealers as are members in good standing of the
NASD.
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
10
<PAGE>
materials to Class A shareholders (including but not limited to the expense of
setting in type any such registration statements, prospectuses, statements of
additional information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to selected
dealers as reimbursement for their expenses associated with payments of sales
commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class A shares to selected dealers or eligible investors
pursuant to this Agreement. The Distributor shall bear the costs and expenses
of preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Class A shares for sale to eligible investors and any
expenses of advertising incurred by the Distributor in connection with such
offering.
(c) The Fund shall bear the cost and expenses of qualification of the
Class A shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing
11
<PAGE>
qualification therein until the Fund decides to discontinue such qualification
pursuant to Section 5(c) hereof.
Section 9. Indemnification.
---------------
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class A shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of
12
<PAGE>
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of the reckless disregard of their obligations and duties
under this Agreement; or (ii) is the Fund to be liable under its indemnity
agreement contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Fund will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Fund elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses of any
13
<PAGE>
additional counsel retained by them, but in case the Fund does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or Directors in connection with
the issuance or sale of any of the Class A shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each of
its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Distributor
for use in connection with the registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to Class A shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity may
be sought against the Distributor, the Distributor shall have the rights and
duties given to the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.
14
<PAGE>
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection with
------------------------------------------
the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until October __, 1995 and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
15
<PAGE>
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
----------------------------
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
Section 14. This Agreement supersedes the prior Distribution Agreement
entered into by the parties hereto with respect to the Class A shares of the
Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
16
<PAGE>
MERRILL LYNCH TECHNOLOGY FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
17
<PAGE>
EXHIBIT A
MERRILL LYNCH TECHNOLOGY FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
--------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Technology Fund, Inc., a Maryland Corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class A shares of
common stock, par value $0.10 per share (herein referred to as "Class A
shares"), of the Fund and as such has the right to distribute Class A shares of
the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and its Class A shares are
registered under the Securities Act of 1933, as amended. You have received a
copy of the Class A shares Distribution Agreement (the "Distribution Agreement")
between ourself and the Fund and reference is made herein to certain provisions
of such Distribution Agreement. The terms "Prospectus" and "Statement of
Additional Information" used herein refer to the prospectus and statement of
additional information, respectively, on file with the Securities and Exchange
Commission which is part of the most recent effective registration statement
pursuant to the Securities Act of 1933, as amended. We offer to sell to you, as
a member of the Selected Dealers Group, Class A shares of the Fund for resale to
investors identified in the Prospectus and Statement of Additional Information
as eligible to purchase Class A shares ("eligible investors") upon the following
terms and conditions:
1. In all sales of these Class A shares to eligible investors, you shall
act as dealer for your own account and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time to time agree,
in which case you shall have authority to offer and sell shares, as agent for
the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling
1
<PAGE>
of orders shall be subject to Section 5 hereof and instructions which we or the
Fund shall forward from time to time to you. All orders are subject to
acceptance or rejection by the Distributor or the Fund in the sole discretion of
either. The minimum initial and subsequent purchase requirements are as set
forth in the current Prospectus and Statement of Additional Information of the
Fund.
3. The sales charges for sales to eligible investors, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ----------------------- --------------- --------------- --------------
<S> <C> <C> <C>
Less than $10,000...... % % %
$10,000 but less
than $25,000.......... % % %
$25,000 but less
than $50,000.......... % % %
$50,000 but less
than $100,000......... % % %
$100,000 but less
than $250,000......... % % %
$250,000 but less
than $1,000,000....... % % %
$1,000,000 and over**.. % % %
</TABLE>
- ----------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of
the Fund. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.
2
<PAGE>
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class A shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class A shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act of 1940, as
amended, but does not include purchases by any such company which has not been
in existence for at least six months or which has no purpose other than the
purchase of Class A shares of the Fund or Class A shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which certain eligible investors are permitted to purchase Class A shares
of the Fund at the offering price applicable to the total of (a) the public
offering price of the shares then being purchased plus (b) an amount equal to
the then current net asset value or cost, whichever is higher, of the
purchaser's combined holdings of Class A, Class B, Class C and Class D shares of
the Fund and of any other investment company with an initial sales charge for
which the Distributor acts as the distributor. For any such right of
accumulation to be made available, the Distributor must be provided at the time
of purchase, by the purchaser or you, with sufficient information to permit
confirmation of qualification, and acceptance of the purchase order is subject
to such confirmation.
The reduced sales charges are applicable to purchases aggregating $10,000
or more of Class A shares or of Class D shares of any other investment company
with an initial sales charge for which the Distributor acts as the distributor
made through you within a thirteen-month period starting with the first purchase
pursuant to a Letter of Intention in the form provided in the Prospectus. A
purchase not originally made pursuant to a Letter of Intention may be included
under a subsequent letter executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. If
the intended amount of shares is not purchased within the thirteen-month period,
an appropriate price adjustment will be made pursuant to the terms of the Letter
of Intention.
You agree to advise us promptly at our request as to amounts of any sales
made by you to eligible investors qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant
3
<PAGE>
to the right of accumulation or a Letter of Intention is set forth in the
Prospectus and Statement of Additional Information.
4. You shall not place orders for any of the Class A shares unless you have
already received purchase orders for such Class A shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class A shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class A shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class A shares of the Fund which is
inconsistent in any respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class A shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class A shares
directly to the Fund or its agent for redemption subject to the applicable terms
and conditions set forth in Section 4 of the Distribution Agreement.
6. You shall not withhold placing orders received from your customers so as
to profit yourself as a result of such withholding: e.g., by a change in the
- -
"net asset value" from that used in determining the offering price to your
customers.
7. If any Class A shares sold to you under the terms of this Agreement are
repurchased by the Fund or by us for the account of the Fund or are tendered for
redemption within seven business days after the date of the confirmation of the
original purchase by you, it is agreed that you shall forfeit your right to, and
refund to us, any discount received by you on such Class A shares.
8. No person is authorized to make any representations concerning Class A
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class A
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's
4
<PAGE>
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Fund, and you agree that the Fund shall have no liability or responsibility
to you in these respects unless expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from you
a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A shares entirely or to certain persons
or entities in a class or classes specified by us. Each party hereto has the
right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Rules of Fair Practice of such Association.
13. Upon application to us, we will inform you as to the states in which we
believe the Class A shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class A shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class A shares, if necessary.
14. All communications to us should be sent to the address below. Any notice
to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
5
<PAGE>
15. Your first order placed pursuant to this Agreement for the purchase of
Class A shares of the Fund will represent your acceptance of this Agreement.
16. This Agreement supersedes any prior Selected Dealers Agreement entered
into by the parties hereto with respect to the Class A shares of the Fund.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By __________________________________
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc.
--------------------------------------------
By: __________________________________________
Address: 800 Scudders Mill Road
-----------------------------------------
Plainsboro, New Jersey 08536
-------------------------------------------------
Date: , 1994
------------------------------------------
6
<PAGE>
EXHIBIT 99.6(E)
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ______ day of October 1994, between MERRILL LYNCH
TECHNOLOGY FUND, INC., a Maryland corporation (the "Fund"), and MERRILL LYNCH
FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
-------------------
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Fund to offer its shares for sale
continuously; and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Fund's Class C shares
in order to promote the growth of the Fund and facilitate the distribution of
its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
------------------------------
Distributor as the principal underwriter and distributor of the Fund to sell
Class C shares of common stock in the Fund (sometimes herein referred to as
"Class C shares") to
<PAGE>
the public and hereby agrees during the term of this Agreement to sell shares of
the Fund to the Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Fund to act as principal underwriter and
distributor of the Class C shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class C shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class C shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class C
shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding Class C
shares of any such company by the Fund.
2
<PAGE>
(c) Such exclusive right also shall not apply to Class C shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
(d) Such exclusive right also shall not apply to Class C shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class C shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class C Shares from the Fund.
----------------------------------------
(a) It is contemplated that the Fund will commence an offering of its
Class C shares, and thereafter the Distributor shall have the right to buy from
the Fund the Class C shares needed, but not more than the Class C shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Class C shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class C shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class C shares. The price which
the Distributor shall pay for the Class C shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(c) hereof.
3
<PAGE>
(b) The Class C shares are to be resold by the Distributor to investors at
net asset value, as set forth in Section 3(c) hereof, or to securities dealers
having agreements with the Distributor upon the terms and conditions set forth
in Section 7 hereof.
(c) The net asset value of Class C shares of the Fund shall be determined
by the Fund or any agent of the Fund in accordance with the method set forth in
the prospectus and statement of additional information and guidelines
established by the Board of Directors.
(d) The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class C shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some other event, which, in
the judgment of the Fund, makes it impracticable or inadvisable to sell the
Class C shares.
(e) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class C shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class C shares. The Fund
4
<PAGE>
(or its agent) will confirm orders upon their receipt, will make appropriate
book entries and, upon receipt by the Fund (or its agent) of payment therefor,
will deliver deposit receipts or certificates for such Class C shares pursuant
to the instructions of the Distributor. Payment shall be made to the Fund in
New York Clearing House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund.
--------------------------------------------- --------
(a) Any of the outstanding Class C shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class C shares so
tendered in accordance with its obligations as set forth in Article VII of its
Articles of Incorporation, as amended from time to time, and in accordance with
the applicable provisions set forth in the prospectus and statement of
additional information of the Fund. The price to be paid to redeem or
repurchase the Class C shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(c) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set
forth in the prospectus and statement of additional information of the Fund.
All payments by the Fund hereunder shall be made in the manner set forth below.
5
<PAGE>
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of the Distributor on or before
the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of shares shall be
paid by the Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class C shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class C shares of the
Fund, and this shall include, upon request by the Distributor, one certified
copy of all
6
<PAGE>
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
prospectus and statement of additional information as the Distributor shall
reasonably request.
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the shareholders, all necessary action to fix the number of
authorized shares and such steps as may be necessary to register the same under
the Securities Act to the end that there will be available for sale such number
of Class C shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class C shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
7
<PAGE>
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund but shall not be obligated to sell any
specific number of shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class C shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by the
officers of the Fund, for the confirmation of sales to investors and selected
dealers, the collection of amounts payable by investors and selected dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the National Association
8
<PAGE>
of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements.
--------------------------
(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class C shares; provided, that the Fund shall approve the forms of
agreements with dealers. Class C shares sold to selected dealers shall be for
resale by such dealers only at net asset value determined as set forth in
Section 3(c) hereof. The form of agreement with selected dealers to be used
during the continuous offering of the shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class C
shares only to such selected dealers that are members in good standing of the
NASD.
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class C
shareholders (including but not limited to the expense of setting in type any
such registration statements,
9
<PAGE>
prospectuses, statements of additional information, annual or interim reports or
proxy materials).
(b) The Distributor shall be responsible for any payments made to selected
dealers as reimbursement for their expenses associated with payments of sales
commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class C shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class C shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering. It is understood
and agreed that so long as the Fund's Class C Shares Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder may be paid from amounts recovered by it
from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class C shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of quali-
10
<PAGE>
fying the Fund as a broker or dealer in such states of the United States or
other jurisdictions as shall be selected by the Fund and the Distributor
pursuant to Section 5(c) hereof and the cost and expenses payable to each such
state for continuing qualification therein until the Fund decides to discontinue
such qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
---------------
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class C shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to Class C
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i)
11
<PAGE>
is the indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or any such
controlling persons thereof against any liability to the Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be
12
<PAGE>
conducted by counsel chosen by it and satisfactory to the Distributor or such
controlling person or persons, defendant or defendants in the suit. In the
event the Fund elects to assume the defense of any such suit and retain such
counsel, the Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses, as incurred, of any
additional counsel retained by them, but in case the Fund does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses, as incurred, of any counsel retained by them. The
Fund shall promptly notify the Distributor of the commencement of any litigation
or proceedings against it or any of its officers or Directors in connection with
the issuance or sale of any of the Class C shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each of
its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense, as incurred, described in
the foregoing indemnity contained in subsection (a) of this Section, but only
with respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the
13
<PAGE>
annual or interim reports to shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity may
be sought against the Distributor, the Distributor shall have the rights and
duties given to the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions of subsection
(a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection with
------------------------------------------
the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such sales, including
the terms as to the offering price of shares, the proceeds to be paid to the
Fund, the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until October __, 1995 and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of
14
<PAGE>
any such party cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
----------------------------
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any
15
<PAGE>
of the provisions herein, conflict with the applicable provisions of the
Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MERRILL LYNCH TECHNOLOGY FUND, INC.
By ____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By ____________________________________
Title:
16
<PAGE>
EXHIBIT A
MERRILL LYNCH TECHNOLOGY FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
-------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Technology Fund, Inc., a Maryland corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class C shares of
common stock, par value $0.10 per share (herein referred to as the "Class C
shares"), of the Fund and as such has the right to distribute Class C shares of
the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and its Class C shares
being offered to the public are registered under the Securities Act of 1933, as
amended. You have received a copy of the Class C Shares Distribution Agreement
(the "Distribution Agreement") between ourself and the Fund and reference is
made herein to certain provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" as used herein refer to
the prospectus and statement of additional information, respectively, on file
with the Securities and Exchange Commission which is part of the most recent
effective registration statement pursuant to the Securities Act of 1933, as
amended. We offer to sell to you, as a member of the Selected Dealers Group,
Class C shares of the Fund upon the following terms and conditions:
1. In all sales of these Class C shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
2. Orders received from you will be accepted through us only at the public
offering price applicable to each order, as set forth in the current Prospectus
and Statement of Additional Information of the Fund. The procedure relating to
the handling of orders shall be subject to Section 4 hereof and instructions
which we or the Fund shall forward from time to time to you. All orders are
subject to acceptance or rejection by the Distributor or the Fund in the sole
discretion of either. The minimum ini-
1
<PAGE>
tial and subsequent purchase requirements are as set forth in the current
Prospectus and Statement of Additional Information of the Fund.
3. You shall not place orders for any of the Class C shares unless you
have already received purchase orders for such Class C shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class C shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class C shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class C shares of the Fund which is
inconsistent in any respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class C shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and (ii) to tender
Class C shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
5. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding: e.g., by a change in the
- -
"net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class C
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class C
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall
2
<PAGE>
have no liability or responsibility to you in these respects unless expressly
assumed in connection therewith.
7. You agree to deliver to each of the purchasers making purchases from you
a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to suspend sales
or withdraw the offering of Class C shares entirely or to certain persons or
entities in a class or classes specified by us. Each party hereto has the right
to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
10. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Rules of Fair Practice of such Association.
11. Upon application to us, we will inform you as to the states in which we
believe the Class C shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class C shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class C shares, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
3
<PAGE>
13. Your first order placed pursuant to this Agreement for the purchase of
Class C shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By __________________________________
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc.
------------------------------------------
By: ___________________________________________________
Address: 800 Scudders Mill Road
--------------------------------------------
Plainsboro, New Jersey 08536
-----------------------------------------------------
Date: , 1994
-------------------------------------------------
4
<PAGE>
EXHIBIT 99.6(F)
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between MERRILL LYNCH
TECHNOLOGY FUND, INC., a Maryland corporation (the "Fund"), and MERRILL LYNCH
FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), as an open-end investment company,
and it is affirmatively in the interest of the Fund to offer its shares for sale
continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Class D shares of
common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints the
------------------------------
Distributor as the principal underwriter and distributor of the Fund to sell
Class D shares of common stock in the Fund (sometimes herein referred to as
"Class D shares") to the
<PAGE>
public and hereby agrees during the term of this Agreement to sell Class D
shares of the Fund to the Distributor upon the terms and conditions herein set
forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time to
time designate other principal underwriters and distributors of Class D shares
with respect to areas other than the United States as to which the Distributor
may have expressly waived in writing its right to act as such. If such
designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class D shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class D
shares from the Fund shall not apply to Class D shares issued in connection with
the merger or consolidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding Class D shares of any such
company by the Fund.
(c) Such exclusive right also shall not apply to Class D shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2
<PAGE>
(d) Such exclusive right also shall not apply to Class D shares issued by
the Fund pursuant to any conversion, exchange or reinstatement privilege
afforded redeeming shareholders or to any other Class D shares as shall be
agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class D Shares from the Fund.
----------------------------------------
(a) It is contemplated that the Fund will commence an offering of its
Class D shares, and thereafter the Distributor shall have the right to buy from
the Fund the Class D shares needed, but not more than the Class D shares needed
(except for clerical errors in transmission) to fill unconditional orders for
Class D shares of the Fund placed with the Distributor by eligible investors or
securities dealers. Investors eligible to purchase Class D shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act of 1933, as
amended (the "Securities Act"), relating to such Class D shares. The price which
the Distributor shall pay for the Class D shares so purchased from the Fund
shall be the net asset value, determined as set forth in Section 3(d) hereof,
used in determining the public offering price on which such orders were based.
(b) The Class D shares are to be resold by the Distributor to investors at
the public offering price, as set forth in Section 3(c) hereof, or to securities
dealers having agreements
3
<PAGE>
with the Distributor upon the terms and conditions set forth in Section 7
hereof.
(c) The public offering price(s) of the Class D shares, i.e., the price
- -
per share at which the Distributor or selected dealers may sell Class D shares
to the public, shall be the public offering price as set forth in the prospectus
and statement of additional information relating to such Class D shares, but not
to exceed the net asset value at which the Distributor is to purchase the Class
D shares, plus a sales charge not to exceed ____% of the public offering price
(____% of the net amount invested), subject to reductions for volume purchases.
Class D shares may be sold to certain Directors, officers and employees of the
Fund, directors and employees of Merrill Lynch & Co., Inc. and its subsidiaries,
and to certain other persons described in the prospectus and statement of
additional information, without a sales charge or at a reduced sales charge,
upon terms and conditions set forth in the prospectus and statement of
additional information. If the public offering price does not equal an even
cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(f).
(d) The net asset value of Class D shares shall be determined by the Fund
or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional
4
<PAGE>
information of the Fund and guidelines established by the Directors.
(e) The Fund shall have the right to suspend the sale of its Class D
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class D shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some other event, which, in
the judgment of the Fund, makes it impracticable or inadvisable to sell the
Class D shares.
(f) The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class D shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class D shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and, upon
receipt by the Fund (or its agent) of payment therefor, will deliver deposit
receipts or certificates for such Class D shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).
5
<PAGE>
Section 4. Repurchase or Redemption of Class D Shares by the Fund.
------------------------------------------------------
(a) Any of the outstanding Class D shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class D shares so
tendered in accordance with its obligations as set forth in Article VII of its
Articles of Incorporation, as amended from time to time, and in accordance with
the applicable provisions set forth in the prospectus and statement of
additional information. The price to be paid to redeem or repurchase the Class
D shares shall be equal to the net asset value calculated in accordance with the
provisions of Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in the prospectus
and statement of additional information of the Fund. All payments by the Fund
hereunder shall be made in the manner set forth below. The redemption or
repurchase by the Fund of any of the Class D shares purchased by or through the
Distributor will not affect the sales charge secured by the Distributor or any
selected dealer in the course of the original sale, except that if any Class D
shares are tendered for redemption or repurchase within seven business days
after the date of the confirmation of the original purchase, the right to the
sales charge shall be forfeited by the Distributor and the selected dealer which
sold such Class D shares.
The Fund shall pay the total amount of the redemption price as defined in
the above paragraph pursuant to the instructions of
6
<PAGE>
the Distributor in New York Clearing House funds on or before the seventh
business day subsequent to its having received the notice of redemption in
proper form. The proceeds of any redemption of shares shall be paid by the Fund
as follows: (i) any applicable CDSC shall be paid to the Distributor, and (ii)
the balance shall be paid to or for the account of the shareholder, in each case
in accordance with the applicable provisions of the prospectus and statement of
additional information.
(b) Redemption of Class D shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said Exchange is
suspended, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class D shares of the
Fund, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
7
<PAGE>
such number of copies of the prospectus and statement of additional information
as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any necessary
approval of the Class D shareholders, all necessary action to fix the number of
authorized Class D shares and such steps as may be necessary to register the
same under the Securities Act, to the end that there will be available for sale
such number of Class D shares as the Distributor may reasonably be expected to
sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class D shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class D shares of the Fund but shall not be obligated to sell any
specific number of Class D shares. The
8
<PAGE>
services of the Distributor to the Fund hereunder are not to be deemed exclusive
and nothing herein contained shall prevent the Distributor from entering into
like arrangements with other investment companies so long as the performance of
its obligations hereunder is not impaired thereby.
(b) In selling the Class D shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved by the
officers of the Fund, for the confirmation of sales to investors and selected
dealers, the collection of amounts payable by investors and selected dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the National Association of Securities
Dealers, Inc. (the "NASD"), as such requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
---------------------------
(a) The Distributor shall have the right to enter into selected dealers
agreements with securities dealers of its choice
9
<PAGE>
("selected dealers") for the sale of Class D shares and fix therein the portion
of the sales charge which may be allocated to the selected dealers; provided
that the Fund shall approve the forms of agreements with dealers and the dealer
compensation set forth therein. Class D shares sold to selected dealers shall
be for resale by such dealers only at the public offering price(s) set forth in
the prospectus and statement of additional information. The form of agreement
with selected dealers to be used during the continuous offering of the Class D
shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class D
shares only to such selected dealers as are members in good standing of the
NASD.
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of its counsel and auditors, in connection with the
preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class D
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
10
<PAGE>
(b) The Distributor shall be responsible for any payments made to selected
dealers as reimbursement for their expenses associated with payments of sales
commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class D shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class D shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering. It is understood
and agreed that so long as the Fund's Class D Shares Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder in connection with account maintenance
activities may be paid from amounts recovered by it from the Fund under such
plan.
(c) The Fund shall bear the cost and expenses of qualification of the
Class D shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund
11
<PAGE>
and the Distributor pursuant to Section 5(c) hereof and the cost and expenses
payable to each such state for continuing qualification therein until the Fund
decides to discontinue such qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
---------------
(a) The Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by reason of any
person acquiring any Class D shares, which may be based upon the Securities Act,
or on any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against any
liability to the
12
<PAGE>
Fund or its security holders to which the Distributor or any such controlling
persons would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of their duties or by reason of the
reckless disregard of their obligations and duties under this Agreement; or (ii)
is the Fund to be liable under its indemnity agreement contained in this
paragraph with respect to any claim made against the Distributor or any such
controlling persons, unless the Distributor or such controlling persons, as the
case may be, shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the Distributor or such controlling
persons (or after the Distributor or such controlling persons shall have
received notice of such service on any designated agent), but failure to notify
the Fund of any such claim shall not relieve it from any liability which it may
have to the person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this paragraph. The Fund will be
entitled to participate at its own expense in the defense or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. In the event the Fund
elects to assume the defense of any such suit and retain such counsel, the
13
<PAGE>
Distributor or such controlling person or persons, defendant or defendants in
the suit shall bear the fees and expenses of any additional counsel retained by
them, but in case the Fund does not elect to assume the defense of any such
suit, it will reimburse the Distributor or such controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issuance or sale of any of the Class D
shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each of
its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Distributor
for use in connection with the registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to Class D shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity may
be sought against the Distributor, the Distributor shall have the rights and
duties given to the Fund, and the Fund and each person so indemnified
14
<PAGE>
shall have the rights and duties given to the Distributor by the provisions of
subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program. In connection with
------------------------------------------
the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to
offer and sell shares of the Fund, as agent for the Fund, to participants in
such program. The terms of this Agreement shall apply to such shares, including
terms as to the offering price of shares, the proceeds to be paid to the Fund,
the duties of the Distributor, the payment of expenses and indemnification
obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall become effective as of the date first above written and shall remain in
force until October __, 1995 and thereafter, but only for so long as such
continuance is specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This
15
<PAGE>
Agreement shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be amended
----------------------------
by the parties only if such amendment is specifically approved by (i) the
Directors or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MERRILL LYNCH TECHNOLOGY FUND, INC.
16
<PAGE>
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
17
<PAGE>
EXHIBIT A
MERRILL LYNCH TECHNOLOGY FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
--------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Technology Fund, Inc., a Maryland corporation (the "Fund"),
pursuant to which it acts as the distributor for the sale of Class D shares of
common stock, par value $0.10 per share (herein referred to as "Class D
shares"), of the Fund and as such has the right to distribute Class D shares of
the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and its Class D shares
being offered to the public are registered under the Securities Act of 1933, as
amended. You have received a copy of the Class D Shares Distribution Agreement
(the "Distribution Agreement") between ourself and the Fund and reference is
made herein to certain provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" used herein refer to the
prospectus and statement of additional information, respectively, on file with
the Securities and Exchange Commission which is part of the most recent
effective registration statement pursuant to the Securities Act of 1933, as
amended. We offer to sell to you, as a member of the Selected Dealers Group,
Class D shares of the Fund upon the following terms and conditions:
1. In all sales of these Class D shares to the public, you shall act as
dealer for your own account and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser
program and such other special programs as we from time to time agree, in which
case you shall have authority to offer and sell shares, as agent for the Fund,
to participants in such program.
2. Orders received from you will be accepted through us only at the public
offering price applicable to each order, as set forth in the current Prospectus
and Statement of Additional Information of the Fund. The procedure relating to
the handling of orders shall be subject to Section 5 hereof and instructions
which we or the Fund shall forward from time to time to you. All
1
<PAGE>
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
3. The sales charges for sales to the public, computed as percentages of
the public offering price and the amount invested, and the related discount to
Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ----------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Less than $10,000...... % % %
$10,000 but less
than $25,000.......... % % %
$25,000 but less
than $50,000.......... % % %
$50,000 but less
than $100,000......... % % %
$100,000 but less
than $250,000......... % % %
$250,000 but less
than $1,000,000....... % % %
$1,000,000 and over**.. % % %
</TABLE>
- ----------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of
the Fund. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.
2
<PAGE>
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class D shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class D shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act of 1940, as
amended, but does not include purchases by any such company which has not been
in existence for at least six months or which has no purpose other than the
purchase of Class D shares of the Fund or Class D shares of other registered
investment companies at a discount; provided, however, that it shall not include
purchases by any group of individuals whose sole organizational nexus is that
the participants therein are credit cardholders of a company, policyholders of
an insurance company, customers of either a bank or broker-dealer or clients of
an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which eligible investors are permitted to purchase Class D shares of the
Fund at the offering price applicable to the total of (a) the public offering
price of the shares then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the Fund
and of any other investment company with an initial sales charge for which the
Distributor acts as the distributor. For any such right of accumulation to be
made available, the Distributor must be provided at the time of purchase, by the
purchaser or you, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation.
The reduced sales charges are applicable to purchases aggregating $10,000
or more of Class A shares or of Class D shares of any other investment company
with an initial sales charge for which the Distributor acts as the distributor
made through you within a thirteen-month period starting with the first purchase
pursuant to a Letter of Intention in the form provided in the Prospectus. A
purchase not originally made pursuant to a Letter of Intention may be included
under a subsequent letter executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period. If
the intended amount of shares is not purchased within the thirteen-month period,
an appropriate price adjustment will be made pursuant to the terms of the Letter
of Intention.
You agree to advise us promptly at our request as to amounts of any sales
made by you to the public qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant to the
3
<PAGE>
right of accumulation or a Letter of Intention is set forth in the Prospectus
and Statement of Additional Information.
4. You shall not place orders for any of the Class D shares unless you have
already received purchase orders for such Class D shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class D shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class D shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class D shares of the Fund which is
inconsistent in any respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class D shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement and subject to the
compensation provisions of Section 3 hereof and (ii) to tender Class D shares
directly to the Fund or its agent for redemption subject to the applicable terms
and conditions set forth in Section 4 of the Distribution Agreement.
6. You shall not withhold placing orders received from your customers so as
to profit yourself as a result of such withholding: e.g., by a change in the
- -
"net asset value" from that used in determining the offering price to your
customers.
7. If any Class D shares sold to you under the terms of this Agreement are
repurchased by the Fund or by us for the account of the Fund or are tendered for
redemption within seven business days after the date of the confirmation of the
original purchase by you, it is agreed that you shall forfeit your right to, and
refund to us, any discount received by you on such Class D shares.
8. No person is authorized to make any representations concerning Class D
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class D
shares through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's
4
<PAGE>
Prospectus, Statement of Additional Information, periodic reports and proxy
solicitation material is our sole responsibility and not the responsibility of
the Fund, and you agree that the Fund shall have no liability or responsibility
to you in these respects unless expressly assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases from you
a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend sales
or withdraw the offering of Class D shares entirely or to certain persons or
entities in a class or classes specified by us. Each party hereto has the right
to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Rules of Fair Practice of such Association.
13. Upon application to us, we will inform you as to the states in which we
believe the Class D shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class D shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class D shares, if necessary.
14. All communications to us should be sent to the address below. Any notice
to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
5
<PAGE>
15. Your first order placed pursuant to this Agreement for the purchase of
Class D shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By __________________________________
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc.
--------------------------------------------
By: __________________________________________
Address: 800 Scudders Mill Road
--------------------------------
Plainsboro, New Jersey 08536
----------------------------------
Date: , 1994
---------------------------------------------
6
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH TECHNOLOGY FUND, INC.
We consent to the use in Post-Effective Amendment No. 4 to Registration
Statement No. 33-42639 of our report dated April 29, 1994 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Princeton, New Jersey
October 10, 1994
<PAGE>
EXHIBIT 99.15(B)
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH TECHNOLOGY FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of October 1994, by and between
Merrill Lynch Technology Fund, Inc., a Maryland corporation (the "Fund"), and
Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H:
-------------------
WHEREAS, the Fund is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class C Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class C
shares of common stock, par value $0.10 per share (the "Class C shares"), of the
Fund to the public; and
WHEREAS, the Fund desires to adopt this Class C Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee and a distribution fee to
MLFD with respect to the Fund's Class C shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms
of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on
the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class C shares to compensate MLFD and securities firms with
which MLFD enters
<PAGE>
into related agreements pursuant to Paragraph 3 hereof ("Sub-Agreements") for
providing account maintenance activities with respect to Class C shareholders of
the Fund. Expenditures under the Plan may consist of payments to financial
consultants for maintaining accounts in connection with Class C shares of the
Fund and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Fund shall pay MLFD a distribution fee under the Plan at the end of
each month at the annual rate of ____% of average daily net assets of the Fund
relating to Class C shares to compensate MLFD and securities firms with which
MLFD enters into related Sub-Agreements for providing sales and promotional
activities and services. Such activities and services will relate to the sale,
promotion and marketing of the Class C shares of the Fund. Such expenditures
may consist of sales commissions to financial consultants for selling Class C
shares of the Fund, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its sales and
promotional activities, including advertising expenditures related to the Fund
and the costs of preparing and distributing promotional materials. The
distribution fee may also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment of the
distribution fee described in this Paragraph 2 shall be subject to any
limitations set forth in any applicable regulation of the National Association
of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the above-
mentioned activities and services. Such Sub-Agreement shall provide that the
Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors, and
the Directors shall review, at least quarterly, a written report complying with
the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period.
2
<PAGE>
5. This Plan shall not take effect until it has been approved by a vote of
at least a majority, as defined in the Investment Company Act, of the
outstanding Class C voting securities of the Fund.
6. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
7. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class C voting
securities of the Fund.
9. The Plan may not be amended to increase materially the rate of payments
provided for herein unless such amendment is approved by at least a majority, as
defined in the Investment Company Act, of the outstanding Class C voting
securities of the Fund, and by the Directors of the Fund in the manner provided
for in Paragraph 6 hereof, and no material amendment to the Plan shall be made
unless approved in the manner provided for approval and annual renewal in
Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomination of Directors
who are not interested persons, as defined in the Investment Company Act, of the
Fund shall be committed to the discretion of the Directors who are not
interested persons.
11. The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Paragraph 4 hereof, for a period of not less
than six years from the date of the Plan, or the agreements or such report, as
the case may be, the first two years in an easily accessible place.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Distribution Plan
as of the date first above written.
MERRILL LYNCH TECHNOLOGY FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
4
<PAGE>
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of October 1994, by and between Merrill
Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities
Firm").
W I T N E S S E T H :
--------------------
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Technology
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as
the exclusive distributor for the sale of Class C shares of common stock, par
value $0.10 per share (the "Class C shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class C Shares Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"), pursuant to which MLFD receives an account
maintenance fee from the Fund at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class C shares for account maintenance activities
related to Class C shares of the Fund and a distribution fee from the Fund at
the annual rate of ____% of average daily net assets of the Fund relating to
Class C shares for providing sales and promotional activities and services
related to the distribution of Class C shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class C shareholders and the Securities Firm is willing to perform such
activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class C shares of the Fund and incur expenditures
in connection with such activities and services of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional activities and
services with respect to the sale of the Class C shares of the Fund, and incur
distribution expenditures, of the types referred to in Paragraph 2 of the Plan.
<PAGE>
3. As compensation for its activities and services performed under this
Agreement, MLFD shall pay the Securities Firm an account maintenance fee and a
distribution fee at the end of each calendar month in an amount agreed upon by
the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
Title:
2
<PAGE>
EXHIBIT 99.15(C)
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH TECHNOLOGY FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of October 1994, by and between
Merrill Lynch Technology Fund, Inc., a Maryland corporation (the "Fund"), and
Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
--------------------
WHEREAS, the Fund is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of selling
shares of investment companies either directly to purchasers or through other
securities dealers; and
WHEREAS, the Fund proposes to enter into a Class D Shares Distribution
Agreement with MLFD, pursuant to which MLFD will act as the exclusive
distributor and representative of the Fund in the offer and sale of Class D
shares of common stock, par value $0.10 per share (the "Class D shares"), of the
Fund to the public; and
WHEREAS, the Fund desires to adopt this Class D Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to
which the Fund will pay an account maintenance fee to MLFD with respect to the
Fund's Class D shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms
of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on
the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan at
the end of each month at the annual rate of 0.25% of average daily net assets of
the Fund relating to Class D shares to compensate MLFD and securities firms with
which MLFD enters
<PAGE>
into related agreements ("Sub-Agreements") pursuant to Paragraph 2 hereof for
providing account maintenance activities with respect to Class D shareholders of
the Fund. Expenditures under the Plan may consist of payments to financial
consultants for maintaining accounts in connection with Class D shares of the
Fund and payment of expenses incurred in connection with such account
maintenance activities including the costs of making services available to
shareholders including assistance in connection with inquiries related to
shareholder accounts.
2. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities of the type referred to in Paragraph 1. MLFD may reallocate all
or a portion of its account maintenance fee to such Securities Firms as
compensation for the above-mentioned activities. Such Sub-Agreement shall
provide that the Securities Firms shall provide MLFD with such information as is
reasonably necessary to permit MLFD to comply with the reporting requirements
set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of Directors, and
the Directors shall review, at least quarterly, a written report complying with
the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee during such period.
4. This Plan shall not take effect until it has been approved by a vote of
at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund.
5. This Plan shall not take effect until it has been approved, together
with any related agreements, by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not "interested persons" of
the Fund, as defined in the Investment Company Act, and have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on the Plan and such related
agreements.
6. The Plan shall continue in effect for so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Directors, or by vote of a majority of the outstanding Class D voting
securities of the Fund.
2
<PAGE>
8. The Plan may not be amended to increase materially the rate of payments
provided for in Paragraph 1 hereof unless such amendment is approved by at least
a majority, as defined in the Investment Company Act, of the outstanding Class D
voting securities of the Fund, and by the Directors of the Fund in the manner
provided for in Paragraph 5 hereof, and no material amendment to the Plan shall
be made unless approved in the manner provided for approval and annual renewal
in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of Directors
who are not interested persons, as defined in the Investment Company Act, of the
Fund shall be committed to the discretion of the Directors who are not
interested persons.
10. The Fund shall preserve copies of the Plan and any related agreements
and all reports made pursuant to Paragraph 3 hereof, for a period of not less
than six years from the date of the Plan, or the agreements or such report, as
the case may be, the first two years in an easily accessible place.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Distribution Plan
as of the date first above written.
MERRILL LYNCH TECHNOLOGY FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
4
<PAGE>
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of October 1994, by and between Merrill
Lynch Funds Distributor, Inc. a Delaware corporation ("MLFD"), and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities
Firm").
W I T N E S S E T H :
--------------------
WHEREAS, MLFD has entered into an agreement with Merrill Lynch Technology
Fund, Inc., a Maryland corporation (the "Fund"), pursuant to which it acts as
the exclusive distributor for the sale of Class D shares of common stock, par
value $0.10 per share (the "Class D shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class D Shares Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"), pursuant to which MLFD receives an account
maintenance fee from the Fund at the annual rate of 0.25% of average daily net
assets of the Fund relating to Class D shares for providing account maintenance
activities and services with respect to Class D shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and services, including assistance in connection with
inquiries related to shareholder accounts, for the Fund's Class D shareholders
and the Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities and
services with respect to the Class D shares of the Fund and incur expenditures
in connection with such activities and services, of the types referred to in
Paragraph 1 of the Plan.
2. As compensation for its services performed under this Agreement, MLFD
shall pay the Securities Firm a fee at the end of each calendar month in an
amount agreed upon by the parties hereto.
3. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule
<PAGE>
12b-1 regarding the disbursement of the fee during such period referred to in
Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been approved by
votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 5.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
2
