<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 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. / /
POST-EFFECTIVE AMENDMENT NO. 3 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 4 /X/
(CHECK APPROPRIATE BOX OR BOXES)
---------------
MERRILL LYNCH TECHNOLOGY FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH TECHNOLOGY FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
<TABLE>
<S> <C>
Counsel for the Company: Philip L. Kirstein, Esq.
BROWN & WOOD MERRILL LYNCH ASSET
One World Trade Center MANAGEMENT
New York, N.Y. 10048-0557 Box 9011
Attention: Thomas R. Smith, Jr., Esq. Princeton, N.J. 08543-9011
Frank P. Bruno, Esq.
</TABLE>
---------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/X/ immediately upon filing pursuant to paragraph (b), or
/ / on (date) pursuant to paragraph (b), or
/ / 60 days after filing pursuant to paragraph (a), or
/ / on (date) pursuant to paragraph (a) of Rule 485.
---------------
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> 2
MERRILL LYNCH TECHNOLOGY FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
------------------------
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM
NO. LOCATION
- ---------- --------
<S> <C> <C>
PART A
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Fee Table; 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
Offered............................. Cover Page; Fee Table; Alternative
Sales Arrangements; Purchase of
Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase.............. Fee Table; Alternative Sales
Arrangements; 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
Services............................ Management of the Company; 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> 3
PROSPECTUS
JULY 27, 1994
MERRILL LYNCH TECHNOLOGY FUND, INC.
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".
The Company offers two classes of shares which may be purchased at a price
equal to the next determined net asset value per share, plus a sales charge
which, at the election of the purchaser, may be imposed (i) at the time of
purchase (the "Class A shares"), or (ii) on a deferred basis (the "Class B
shares"). The original charges to which the Class B shares are subject shall
consist of a contingent deferred sales charge which may be imposed on
redemptions made within four years of purchase and an ongoing account
maintenance fee and distribution fee. These alternatives permit an investor to
choose the method of purchasing shares that is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other circumstances. Investors should understand that the purpose and function
of the deferred sales charges with respect to the Class B shares are the same as
those of the initial sales charge with respect to the Class A shares. Investors
should also understand that over time the deferred sales charges related to
Class B shares may exceed the initial sales charge with respect to Class A
shares. See "Alternative Sales Arrangements" on page 4.
Each Class A and Class B share represents identical interests in the
investment portfolio of the Company and has the same rights, except that Class B
shares bear the expenses of the account maintenance fee and distribution fee and
certain other costs resulting from the deferred sales charge arrangement, which
will cause Class B shares to have a higher expense ratio and to pay lower
dividends than Class A shares and that Class B shares have exclusive voting
rights with respect to the account maintenance fee and distribution fee. The two
classes also have different exchange privileges.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), 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 July 27, 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> 4
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to Class A shares and Class B shares follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
INITIAL SALES DEFERRED SALES
SHAREHOLDER TRANSACTION EXPENSES: CHARGE ALTERNATIVE CHARGE ALTERNATIVE
------------------ ------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)....... 6.50%(a) None
Sales Charge Imposed on Dividend
Reinvestments............................. None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)............. None(f) 4.0% during the first
year, decreasing 1.0%
annually to 0% after
the fourth year(b)
Exchange Fee................................ None None
ANNUALIZED FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS) FOR THE
FISCAL YEAR ENDED MARCH 31, 1994:
Investment Advisory Fees(c)................. 1.00% 1.00%
Rule 12b-1 Fees............................. None 1.00%(d)
Other Expenses
Shareholder Servicing Costs(e)......... 0.16% 0.17%
Custodian Fees......................... 0.02% 0.02%
Other.................................. 0.17% 0.17%
---- ----
Total Other Expenses.............. 0.35% 0.36%
------ ------
Total Company Operating Expenses................. 1.35% 2.36%
============= =============
</TABLE>
- ---------------
(a) Reduced for purchases of $10,000 and over, decreasing to 0.75% for purchases
of $1,000,000 and over. Certain investors making purchases of $1,000,000 and
over may, however, pay a contingent deferred sales charge ranging from a
high of 1.00% to a low of 0.25% of amounts redeemed within the first year
after purchase in lieu of the 0.75% initial sales charge. See "Purchase of
Shares-- Initial Sales Charge Alternative--Class A Shares"--page 20.
(b) See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares"--page 22.
(c) See "Management of the Company--Advisory and Management Arrangements"--page
17.
(d) See "Purchase of Shares--Deferred Sales Charge Alternative--Class B
Shares--Distribution Plan"--page 23. This amount represents the 0.25%
account maintenance fee and the 0.75% distribution fee applicable to Class B
Shares of the Company.
(e) See "Management of the Company--Transfer Agency Services"--page 18.
(f) Certain investors making purchases of $1,000,000 and over may, however, pay
a contingent deferred sales charge ranging from a high of 1.00% to a low of
0.25% of amounts redeemed within the first year after purchase in lieu of
the 0.75% initial sales charge. See "Purchase of Shares--Initial Sales
Charge Alternative--Class A Shares"--page 20.
2
<PAGE> 5
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
---------------------------------------
10
EXAMPLE. 1 YEAR 3 YEARS 5 YEARS YEARS
------ ------- ------- -------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including, for Class A shares, the maximum
$65 front-end sales charge and assuming (1) an
operating expense ratio of 1.35% for Class A shares and
2.36% for Class B shares, (2) a 5% annual return
throughout the periods and (3) redemption at the end of
the period:
Class A........................................... $77.85 $104.98 $134.13 $216.83
Class B........................................... $63.91 $ 93.65 $126.04 $269.62
An investor would pay the following expenses on the same
$1,000 investment assuming no redemption at the end of
the period:
Class A........................................... $77.85 $104.98 $134.13 $216.83
Class B........................................... $23.91 $ 73.65 $126.04 $269.62
</TABLE>
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 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 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. 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".
3
<PAGE> 6
ALTERNATIVE SALES ARRANGEMENTS
Shares of the Company may be purchased at a price equal to the next
determined net asset value per share, plus a sales charge which, at the election
of the purchaser, may be imposed either (i) at the time of the purchase (the
"initial sales charge alternative"), or (ii) on a deferred basis (the "deferred
sales charge alternative").
Class A Shares. An investor who elects the initial sales charge alternative
acquires Class A shares. Although Class A shares incur a sales charge when they
are purchased, they enjoy the benefit of not being subject to any ongoing
account maintenance fee or distribution fee or any sales charge when they are
redeemed. Certain purchases of Class A shares qualify for reduced initial sales
charges. See "Purchase of Shares--Initial Sales Charge Alternative--Class A
Shares".
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B shares. Class B shares do not incur a sales charge
when they are purchased, but they are subject to ongoing account maintenance and
distribution fees and a sales charge if they are redeemed within four years of
purchase. Class B shares provide the benefit of permitting all of the investor's
dollars to work from the time the investment is made. The ongoing account
maintenance and distribution fees paid by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than Class A shares.
Payment of the distribution fee is subject to certain limits as set forth under
"Purchase of Shares--Deferred Sales Charge Alternative--Class B Shares".
As an illustration, investors who qualify for significantly reduced sales
charges might elect the initial sales charge alternative because similar sales
charge reductions are not available for purchases under the deferred sales
charge alternative. Moreover, shares acquired under the initial sales charge
alternative would not be subject to ongoing account maintenance and distribution
fees. However, because initial sales charges are deducted at the time of
purchase, such investors would not have all their funds invested initially.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might also elect the
initial sales charge alternative because over time the accumulated continuing
account maintenance and distribution fees may exceed the initial sales charge.
Again, however, such investors must weigh this consideration against the fact
that not all their funds will be invested initially. Furthermore, the ongoing
account maintenance and distribution fees will be offset to the extent any
return is realized on the additional funds initially invested under the deferred
sales charge alternative. However, there can be no assurance as to the return,
if any, which will be realized on such additional funds. Certain other investors
might determine it to be more advantageous to have all their funds invested
initially, although remaining subject to continued account maintenance and
distribution fees and, for a four-year period of time, a contingent deferred
sales charge.
The distribution expenses incurred by the Distributor and dealers
(primarily Merrill Lynch) in connection with the sale of the shares will be
paid, in the case of the Class A shares, from the proceeds of the initial sales
charge and, in the case of the Class B shares, from the proceeds of the ongoing
account maintenance and distribution fees and the contingent deferred sales
charge incurred upon redemption within four years of purchase. Sales personnel
may receive different compensation for selling Class A or Class B shares.
Investors should understand that the purpose and function of the deferred sales
charges and account maintenance fee with respect to the Class B shares are the
same as those of the initial sales charge with respect to the Class A shares.
4
<PAGE> 7
Dividends paid by the Company with respect to Class A and Class B 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 Class B shares will be borne exclusively by that class. See
"Additional Information--Determination of Net Asset Value". Class A and Class B
shareholders of the Company each have an exchange privilege for Class A and
Class B shares, respectively, of certain other mutual funds sponsored by Merrill
Lynch. Class A and Class B shareholders of the Company also may exchange their
shares for shares of certain money market funds sponsored by Merrill Lynch. See
"Shareholder Services--Exchange Privilege".
The Directors of the Company have determined that currently no conflict of
interest exists between the Class A and Class B shares. On an ongoing basis, the
Directors of the Company, pursuant to their fiduciary duties under the
Investment Company Act of 1940, as amended (the "Investment Company Act") and
state laws, will seek to assure that no such conflict arises.
THE ALTERNATIVE SALES ARRANGEMENTS PERMIT AN INVESTOR TO CHOOSE THE METHOD
OF PURCHASING SHARES THAT IS MOST BENEFICIAL GIVEN THE AMOUNT OF THE PURCHASE,
THE LENGTH OF TIME THE INVESTOR EXPECTS TO HOLD THE SHARES AND OTHER
CIRCUMSTANCES. INVESTORS SHOULD DETERMINE WHETHER UNDER THEIR PARTICULAR
CIRCUMSTANCES IT IS MORE ADVANTAGEOUS TO INCUR AN INITIAL SALES CHARGE AND NOT
BE SUBJECT TO ONGOING ACCOUNT MAINTENANCE AND DISTRIBUTION FEES OR TO HAVE THE
ENTIRE INITIAL PURCHASE PRICE INVESTED IN THE COMPANY WITH THE INVESTMENT
THEREAFTER BEING SUBJECT TO ONGOING ACCOUNT MAINTENANCE AND DISTRIBUTION FEES.
TO ASSIST INVESTORS IN MAKING THIS DETERMINATION, THE FEE TABLE ON PAGE 2 SETS
FORTH THE CHARGES APPLICABLE TO EACH CLASS OF SHARES, AND A DISCUSSION OF
FACTORS RELEVANT TO MAKING SUCH DETERMINATION IS SET FORTH UNDER "PURCHASE OF
SHARES--ALTERNATIVE SALES ARRANGEMENTS" ON PAGE 19.
5
<PAGE> 8
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, 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. 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 B
CLASS A ----------------------------
----------------------------- FOR THE PERIOD
FOR THE FOR THE PERIOD FOR THE APRIL 27,
YEAR ENDED APRIL 27, 1992+ YEAR ENDED 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 PERFORMANCE:
Net Asset Value, Beginning 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 investments--
net................................... (1.41) (.34) (1.38) (.34)
-------- --------- -------- --------
Net Asset Value, End of Period.......... $ 5.17 $ 5.08 $ 5.08 $ 5.03
======== ========= ======== ========
TOTAL INVESTMENT RETURN:***
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 Period (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.
6
<PAGE> 9
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
7
<PAGE> 10
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 instruments,
factory automation, office automation, and in other companies substantially
involved in the more
8
<PAGE> 11
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.
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), 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
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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 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
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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 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
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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 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
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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 security minus the
option's strike price). The repurchase price with the primary dealers is
typically a formula
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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
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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 Fund 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
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period of such a loan, the Company receives the income on both the loaned
securities and the collateral and thereby increases its yield.
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.
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.
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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.; 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.
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* 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 Merrill Lynch &
Co., Inc., 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 90 other registered investment
companies and provides investment advisory services to individual and
institutional accounts. As of June 30, 1994, the Investment Adviser and FAM had
a total of approximately $161.4 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 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,
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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 Merrill Lynch & Co., Inc., 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 $7.00 per Class A shareholder account and $9.00 per
Class B 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). At this level
of accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $497,957, plus miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
The Distributor, a subsidiary of the Investment Adviser and an affiliate of
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 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 at a public offering price equal to the
next determined net asset value per share plus sales charges which, at the
option of the purchaser, may be imposed either at the time of purchase (the
"initial sales charge alternative") or on a deferred basis (the "deferred sales
charge alternative"), 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 net asset value on the previous day,
the applicable offering price will be based on the net asset value determined 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 by the
Distributor prior to 4:30 p.m., New York time, such orders shall be deemed
received on the next business day. Any order may be rejected by the Distributor
or the Company. The Company or the Distributor may suspend the continuous
offering of the Company's shares at any time in
18
<PAGE> 21
response to conditions in the securities markets or otherwise and may thereafter
resume such offering from time to time. 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 two classes of shares: Class A shares are sold to
investors choosing the initial sales charge alternative, and Class B shares are
sold to investors choosing the deferred sales charge alternative. The two
classes of shares each represent interests in the same portfolio of investments
of the Company, have the same rights and are identical in all respects, except
that Class B shares bear the expenses of the deferred sales arrangements, any
expenses (including incremental transfer agency costs) resulting from such sales
arrangements and the expenses paid by the account maintenance fee and have
exclusive voting rights with respect to the Rule 12b-1 distribution plan
pursuant to which the account maintenance and distribution fees are paid. The
two classes also have different exchange privileges. See "Shareholder
Services--Exchange Privilege". The net income attributable to Class B shares and
the dividends payable on Class B shares will be reduced by the amount of the
account maintenance and distribution fees and incremental transfer agency costs
relating to Class B shares; accordingly, the net asset value of the Class B
shares will be reduced by such amount to the extent the Company has
undistributed net income. Due to inclusion of the 0.75% distribution fee and
0.25% account maintenance fee, total operating expenses for the Class B shares
may be higher than those of most mutual funds (front-end loads, such as on the
Class A shares, are not included in operating expenses, but are an expense to
the investor. See "Alternative Sales Arrangements" and "Purchase of
Shares--Alternative Sales Arrangements"). Sales personnel may receive different
compensation for selling Class A or Class B shares. Investors are advised that
only Class A shares may be available for purchase through securities dealers,
other than Merrill Lynch, which are eligible to sell shares.
ALTERNATIVE SALES ARRANGEMENTS
The alternative sales arrangements of the Company permit investors to
choose the method of purchasing shares that is most beneficial given the amount
of the purchase, the length of time the investor expects to hold the shares and
other relevant circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur an initial sales
charge and not be subject to ongoing charges, as discussed below, or to have the
entire initial purchase price invested in the Company with the investment
thereafter being subject to ongoing charges.
As an illustration, investors who qualify for significantly reduced sales
charges, as described below, might elect the initial sales charge alternative
because similar sales charge reductions are not available for purchases under
the deferred sales charge alternative. Moreover, shares acquired under the
initial sales charge alternative would not be subject to an ongoing account
maintenance fee and distribution fee as described below. However, because
initial sales charges are deducted at the time of purchase, such investors would
not have all their funds invested initially.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might also elect the
initial sales charge alternative because over time the accumulated continuing
account maintenance and distribution fees may exceed the initial sales charge.
Again, however, such investors must weigh this consideration against the fact
that not all their funds will be invested initially. Furthermore, the ongoing
account maintenance and distribution fees will be offset to the extent any
return is
19
<PAGE> 22
realized on the additional funds initially invested under the deferred
alternative. Another factor that may be applicable under certain circumstances
is that the payment of the Class B distribution fee and contingent deferred
sales charge is subject to certain limits as set forth below under "Purchase of
Shares--Deferred Sales Charge Alternative--Class B Shares".
Certain other investors might determine it to be more advantageous to have
all their funds invested initially, although remaining subject to continuing
account maintenance and distribution fees and, for a four-year period of time, a
contingent deferred sales charge as described below. For example, an investor
subject to the 6.50% initial sales charge will have to hold his investment at
least 6 1/2 years for the ongoing 0.25% account maintenance fee and 0.75%
distribution fee to exceed the initial sales charge. This example does not take
into account the time value of money which further reduces the impact of the
ongoing account maintenance and distribution fees on the investment,
fluctuations in net asset value, the effect of the return on the investment over
this period of time or the effect of any limits that may be imposed upon the
payment of the distribution fee and the contingent deferred sales charge.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The public offering price of Class A shares for purchasers choosing the
initial sales charge alternative is the next determined net asset value plus
varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES CHARGE
AS DISCOUNT TO
SALES CHARGE 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 $10,000................................. 6.50% 6.95% 6.25%
$10,000 but less than $25,000..................... 6.00 6.38 5.75
$25,000 but less than $50,000..................... 5.00 5.26 4.75
$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............................... .75 .76 .65
</TABLE>
- ------------
*Rounded to the nearest one-hundredth percent.
Initial sales charges may be waived for shareholders purchasing $1 million
or more in a single transaction (other than an employer sponsored retirement or
savings plan, such as a tax qualified retirement plan under Section 401 of the
Internal Revenue Code of 1986, as amended (the "Code"), a deferred compensation
plan under Section 403(b) and Section 457 of the Code, other deferred
compensation arrangements, 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"),
or a purchase by a TMA(SM) Managed Trust, of Class A shares of the Company. In
addition, purchases of Class A shares of the Company made in connection with a
single investment of $1 million or more under the Merrill Lynch Mutual Fund
Adviser Program will not be subject to an initial sales charge. Purchases
described in this
20
<PAGE> 23
paragraph will be subject to a contingent deferred sales charge if the shares
are redeemed within one year after purchase at the following rates:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
AMOUNT OF PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------ -------------------------------
<S> <C>
$1 million up to $2.5 million..................................... 1.00%
Over $2.5 million up to $3.5 million.............................. 0.60%
Over $3.5 million up to $5 million................................ 0.40%
Over $5 million................................................... 0.25%
</TABLE>
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 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 to the Company of $66,764,420. The gross sales charges
for the sale of Class A shares for the fiscal year ended March 31, 1994, were
$735,190, of which $690,731 was received by Merrill Lynch and $44,459 was
received by the Distributor.
Reduced Initial Sales Charges. Sales charges are reduced under a Right of
Accumulation and a Letter of Intention. Class A shares of the Company are
offered at net asset value to Directors of the Company, to Directors of Merrill
Lynch & Co., Inc., to directors and trustees of certain other Merrill Lynch
sponsored investment companies, to participants in certain benefit plans, to an
investor who has a business relationship with a financial consultant who joined
Merrill Lynch from another investment firm within six months prior to the date
of purchase if certain conditions set forth in the Statement of Additional
Information are met and to employees of Merrill Lynch & Co., Inc. and its
subsidiaries. Class A shares may be offered at net asset value in connection
with the acquisition of assets of other investment companies. No initial sales
charges are imposed upon Class A shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions. Class A 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 if the following conditions are satisfied: first, the investor must
purchase Class A shares of the Company with proceeds from a redemption of shares
of such other mutual fund and such fund imposed a sales charge either at the
time of purchase or on a deferred basis; second, such purchase of Class A shares
must be made within 90 days after such notice of termination. Class A shares are
offered with reduced sales charges and, in certain circumstances, at net asset
value, to participants in the Merrill Lynch Blueprint(SM) Program. Class A
shares are offered at net asset value to (i) certain retirement plans, including
eligible 401(k) plans, provided such plans meet the required minimum number of
eligible employees or required amount of assets advised by the Investment
Adviser or any of its affiliates and (ii) certain Employer Sponsored Retirement
or Savings Plans, provided such plans meet the required minimum number of
eligible employees or required amount of assets advised by the Investment
Adviser or any of its affiliates. Class A shares of the Company are also offered
at net asset value to shareholders of certain closed-end funds advised by the
Investment Adviser or FAM who wish to reinvest the net proceeds from a sale of
their closed-end fund shares of common stock in shares of the Company, provided
certain conditions are met. For example, Class A shares of the Company and
certain other
21
<PAGE> 24
mutual funds advised by the Investment Adviser or FAM 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 such funds.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Investors choosing the deferred sales charge alternative purchase Class B
shares at net asset value per share without the imposition of a sales charge at
the time of purchase. The Class B shares are being 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 shares at the time of purchase from its own funds. The proceeds
of the contingent deferred sales charge and the ongoing distribution fee
discussed below are used to defray Merrill Lynch's expenses, including
compensating its financial consultants. The proceeds from the ongoing account
maintenance fee are used to compensate Merrill Lynch for providing continuing
account maintenance activities.
Proceeds from the contingent deferred sales charge 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 shares, such as the payment of compensation to financial consultants for
selling Class B shares. Payments by the Company to the Distributor of the
distribution fee under the distribution plan described below also may be used in
whole or in part by the Distributor for this purpose. The combination of the
contingent deferred sales charge and the ongoing distribution fee facilitates
the ability of the Company to sell the Class B shares without a sales charge
being deducted at the time of purchase. 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
contingent deferred sales charge schedule if such schedule is higher than the
deferred sales charge schedule relating to the Class B shares acquired as a
result of the exchange.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
four years of purchase may be subject to a contingent deferred sales charge 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
current market value or the cost of the shares being redeemed. Accordingly, no
sales charge will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. For the fiscal year
ended March 31, 1994, the Distributor received contingent deferred sales charges
of $315,184 with respect to the redemption of Class B shares, all of which was
paid to Merrill Lynch.
22
<PAGE> 25
The following table sets forth the rates of the contingent deferred sales
charge:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ------------------- -------------------------
<S> <C>
0-1.................................................................... 4.0%
1-2.................................................................... 3.0%
2-3.................................................................... 2.0%
3-4.................................................................... 1.0%
4 and thereafter....................................................... None
</TABLE>
In determining whether a contingent deferred sales charge is applicable to
a redemption, the calculation will be determined in the manner that results in
the lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares held
longest during the four-year period. The charge will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase. A transfer of shares from a shareholder's account to another account
will be assumed to be made in the same order as a redemption.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12, and during such time, the investor has acquired 10
additional shares though dividend reinvestment. If at such time the investor
makes his first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to the charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge 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 contingent deferred sales charge 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 contingent deferred sales charge also is waived on redemptions
of shares by certain eligible 401(a) and eligible 401(k) plans and in connection
with certain group plans placing orders through the Merrill Lynch BlueprintSM
Program. The contingent deferred sales charge 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. Additional information
concerning the waiver of the contingent deferred sales charge is set forth in
the Statement of Additional Information.
Distribution Plan. Pursuant to a distribution plan (the "Distribution
Plan") adopted by the Company as of July 7, 1993, pursuant to Rule 12b-1 under
the Investment Company Act, the Company pays the Distributor an ongoing account
maintenance fee and a 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 the Class B shares of the Company. Pursuant to a
sub-agreement with the Distributor, Merrill Lynch also provides account
maintenance and distribution services to the Company. The ongoing account
maintenance fee compensates the Distributor and Merrill Lynch for providing
account maintenance services to Class B
23
<PAGE> 26
shareholders. The ongoing distribution fee compensates the Distributor and
Merrill Lynch for providing shareholder and distribution services and bearing
certain distribution-related expenses of the Company, including payments to
financial consultants for selling Class B shares of the Company.
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 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
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. At May 31, 1994, the
net assets of the Company subject to the Distribution Plan aggregated
approximately $477.6 million. At this asset level, the annual fees payable
pursuant to the Distribution Plan would aggregate approximately $4,776,079. Both
the Distribution Plan and the Prior Plan were designed to permit an investor to
purchase Class B shares through dealers without the assessment of a front-end
sales charge and at the same time permit the dealer to compensate its financial
consultants in connection with the sale of the Class B shares. In this regard,
the purpose and function of the distribution fee under either the Distribution
Plan or the Prior Plan and the contingent deferred sales charge are the same as
those of the initial sales charge with respect to the Class A shares of the
Company in that the deferred sales charges provide for the financing of the
distribution of the Company's Class B shares.
The payments under the Distribution Plan, as was the case with the Prior
Plan, are based on a percentage of average daily net assets regardless of the
amount of expenses incurred, and accordingly, distribution-related revenues 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 Distribution Plan. This information is presented annually as of December
31 of each year on a "fully allocated accrual" basis and quarterly on a "direct
expense and revenue/cash" basis. On the fully allocated accrual basis, revenues
consist of the account maintenance fees, the distribution fees, the contingent
deferred sales charges and certain other related revenues, and expenses consist
of financial consultant compensation, branch office and regional operation
center selling and transaction processing expenses, advertising, sales promotion
and marketing expenses, corporate overhead and interest expense. On the direct
expense and revenue/cash basis, revenues consist of the account maintenance
fees, the distribution fees and contingent deferred sales charges, 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 $827,376 (0.29% of Class B net assets at that date). As of December
31, 1993, the fully allocated accrual 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-related expenses
incurred by the Distributor and Merrill Lynch in connection with the Class B
shares, and there is no assurance that the Board of Directors
24
<PAGE> 27
of the Company will approve the continuance of the Distribution Plan from year
to year. However, the Distributor intends to seek annual continuation of the
Distribution Plan. In their review of the Distribution Plan, the Directors will
not be asked to take into consideration expenses incurred in connection with the
distribution of Class A shares or of shares of other funds for which the
Distributor acts as distributor. The account maintenance fee, the distribution
fee and the contingent deferred sales charge in the case of Class B shares will
not be used to subsidize the sale of Class A shares.
Limitations on the Payment of Deferred Sales Charges. The maximum sales
charge rule in the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ("NASD") imposes a limitation on certain asset-based
sales charges such as the Company's distribution fee and the contingent deferred
sales charge but not the account maintenance fee. As applicable to the Company,
the maximum sales charge rule limits the aggregate of distribution fee payments
and contingent deferred sales charges payable by the Company to (1) 6 1/4% of
eligible gross sales of Class B shares (defined to exclude shares issued
pursuant to dividend reinvestments and exchanges) plus (2) interest on the
unpaid balance 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 contingent deferred sales charge). 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") 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, and any contingent
deferred sales charges 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 fiscal period April 27, 1992
(commencement of operations) to March 31, 1994.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF MARCH 31, 1994
(IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C>
Under NASD Rule As
Adopted................... $163,359 $10,210 $440
Under Distributor's
Voluntary Waiver.......... $163,359 $10,210 $817
<CAPTION>
DATA CALCULATED AS OF MARCH 31, 1994
(IN THOUSANDS)
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under NASD Rule As
Adopted................... $10,650 $1,523 $9,126 $1,682
Under Distributor's
Voluntary Waiver.......... $11,027 $1,523 $9,503 $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 the Prior Plan at the 1.00% 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.
(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.
25
<PAGE> 28
REDEMPTION OF SHARES
The Company is required to redeem for cash all full and fractional 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 contingent deferred sales charge
which may be applicable to Class B shares, 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 Fund
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.
26
<PAGE> 29
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Company (other than any
applicable contingent deferred sales charge in the case of Class B shares).
Securities firms which do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the 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 SHARES
Shareholders who have redeemed their Class A shares have a one-time
privilege to reinstate their accounts by purchasing Class A shares 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 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 its shares.
Certain of such services are not available to investors who place purchase
orders for the Company's shares through the Merrill Lynch BlueprintSM Program.
Full details as to each of such services, copies of the various plans described
below and instructions as to how to participate in the various services or
plans, or to change options with respect thereto, can be obtained from the
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 quarterly statements
from the Transfer Agent. These quarterly statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
ordinary income dividends and long-term capital gain distributions. The
quarterly statements will also show any other activity in the account since the
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of ordinary income dividends and
long-term capital gain distributions. A shareholder may make additions to his
Investment Account at any time by mailing a check directly to the Transfer
Agent. Shareholders may also 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 shares from Merrill Lynch to another brokerage firm or financial
institution should be aware that, if the firm to which the Class A shares are to
be transferred will not take delivery of shares of the Company, a shareholder
either must redeem the Class A 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
27
<PAGE> 30
for those Class A shares. Shareholders interested in transferring their Class B
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. 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 contingent deferred sales charge) 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 Withdrawals and Automatic Investment Plans. A Class A
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 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. Regular additions of Class A 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 accounts may arrange to have
periodic investments made in the Company in their CMA account or in certain
related accounts in amounts of $250 or more through the CMA Automatic Investment
Program. The Automatic Investment Program is not available to shareholders whose
shares are held in a brokerage account with Merrill Lynch (other than a CMA
account).
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. No contingent deferred sales charge will
be imposed on redemption of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions. The Automatic
Investment Program is not available to shareholders whose shares are held in a
brokerage account with Merrill Lynch (other than a CMA(R) account).
Exchange Privilege. U.S. Class A and Class B shareholders of the Company
each have an exchange privilege with certain other mutual funds sponsored by
Merrill Lynch. There is currently no limitation on the number of times a
shareholder may exercise the exchange privilege. The exchange privilege may be
modified or terminated in accordance with the rules of the Securities and
Exchange Commission. Class A shareholders of the Company may exchange their
shares ("outstanding Class A shares") for Class A shares of another fund ("new
Class A shares") on the basis of relative net asset value per Class A share. The
Company's exchange privilege is modified with respect to purchases of Class A
shares under the Merrill Lynch Mutual Fund Adviser program. First, the initial
allocation of assets is made under the program. Then, any subsequent
28
<PAGE> 31
exchange under the program of Class A shares of a fund for Class A 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 fund and the
sales charge payable on the shares of the Company being acquired in the exchange
under this program.
Class B shareholders of the Company may exchange their shares ("outstanding
Class B shares") for Class B shares of another fund ("new Class B shares") on
the basis of relative net asset value per share without the payment of any
contingent deferred sales charge that might otherwise be due upon redemption of
the outstanding Class B shares. Class B shareholders of the Company exercising
the exchange privilege will continue to be subject to the Company's contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge 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 contingent deferred sales charge schedule if such
schedule is higher than the deferred sales charge schedule relating to the Class
B shares of the fund from which the exchange has been made. For purposes of
computing the contingent deferred sales charge that may be payable upon a
disposition of the new Class B shares, the holding period for the outstanding
Class B shares is "tacked" to the holding period of the new Class B shares.
Class A and Class B shareholders of the Company may also exchange their shares
for shares of certain money market funds, but in the case of an exchange for
Class B shares, the period of time that shares are held in a money market fund
will not count toward satisfaction of the holding period requirement for
purposes of reducing the contingent deferred sales charge. 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.
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 and Class B 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 the maximum sales charge in the case of Class A shares and the
contingent deferred sales charge that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B shares. Dividends paid by the Company with respect to Class A and Class
B 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 Class B shares will be borne exclusively by that class.
The Company will include performance data for both Class A and Class B shares of
the Company in any advertisement or information including performance data of
the Company.
29
<PAGE> 32
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 shares or waiver of the
contingent deferred sales charge in the case of Class B 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
contingent deferred sales charge and therefore may reflect greater total return
since, due to the reduced sales charges or waiver of the contingent deferred
sales charge, a lower amount of expenses 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, 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 Class B shares will be lower than the per share
dividends and distributions on Class A shares as a result of the account
maintenance, distribution and higher transfer agency fees applicable to the
Class B shares. 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
30
<PAGE> 33
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
and Class B 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).
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
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<PAGE> 34
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 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).
If a Class A shareholder exercises the 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 Class A shares in the absence of the exchange
privilege. Instead, such charge will be treated as an amount paid for the new
Class A shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether under the Automatic
Dividend Reinvestment Plan 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.
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<PAGE> 35
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 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 and, under certain circumstances, on other days. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation.
The net asset value is computed by dividing the value of the securities
held by the 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 the account maintenance
and distribution fees payable to the Distributor, are accrued daily. The per
share net asset value of the Class B 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 shares. It is expected, however,
that the per share net asset value of the two 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.
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<PAGE> 36
The Company was incorporated under Maryland law on August 27, 1991. It has
an authorized capital of 200,000,000 shares of Common Stock, par value $0.10 per
share, divided into two classes, designated Class A and Class B Common Stock,
each of which consists of 100,000,000 shares. Both Class A and Class B Common
Stock represent an interest in the same assets of the Company and are identical
in all respects except that the Class B shares bear certain expenses related to
the account maintenance and distribution of such shares and have exclusive
voting rights with respect to matters relating to such account maintenance and
distribution expenditures. 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.
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 or conversion rights. Each share of Class A and Class B 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 shares bear certain expenses related to the distribution of such shares.
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: Document Evaluation Unit
P.O. Box 45290
Jacksonville, FL 32232-5290
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.
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<PAGE> 37
MERRILL LYNCH TECHNOLOGY FUND, INC.--AUTHORIZATION FORM
- --------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING (800) 637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase ........ Class A shares or ........
Class B shares (choose one) of Merrill Lynch Technology Fund, Inc. and establish
an Investment Account as described in the Prospectus.
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) (subsequent investments $50 or
more). 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:
<TABLE>
<S> <C>
1. ...................................................... 4. ......................................................
2. ...................................................... 5. ......................................................
3. ...................................................... 6. ......................................................
</TABLE>
(Please list all Funds. Use a separate sheet of paper if necessary.)
Until you are notified by me in writing, the following options with
respect to dividends and distributions are elected:
<TABLE>
<S> <C> <C>
------------------------------------- -------------------------------------
Distribution Elect / / reinvest dividends Elect / / reinvest capital gains
Options One / / pay dividends in cash One / / pay capital gains in cash
------------------------------------- -------------------------------------
</TABLE>
If no election is made, dividends and capital gains will be reinvested
automatically at net asset value without a sales charge.
------------------------
<TABLE>
<S> <C>
(PLEASE PRINT) ---------------------------
Name................................................................................ ---------------------------
First Name Initial Last Name Social Security No.
or Taxpayer Identification No.
Name of Co-Owner (if any)...........................................................
First Name Initial Last Name
..................... , 19....
Address............................................................................. Date
....................................................................................
(Zip Code)
</TABLE>
Occupation......................................................................
Name and Address of Employer....................................................
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security No. or Taxpayer Identification No. and (2) that I am not
subject to backup withholding (as discussed in the Prospectus under "Additional
Information--Taxes") either because I have not been notified that I am subject
thereto as a result of a failure to report all interest or dividends, or the
Internal Revenue Service ("IRS") has notified me that I am no longer subject
thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
Signature of Owner .............................................................
Signature of Co-Owner (if any) .................................................
In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.
- --------------------------------------------------------------------------------
2. LETTER OF INTENTION--CLASS A SHARES ONLY (SEE TERMS AND CONDITIONS IN THE
STATEMENT OF ADDITIONAL INFORMATION)
Gentlemen: ......................, 19.....
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:
/ / $10,000 / / $25,000 / / $50,000 / / $100,000 / / $250,000
/ / $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Technology Fund,
Inc. prospectus.
I agree to the terms and conditions of the Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc. my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Technology Fund, Inc. held as security.
<TABLE>
<S> <C>
By........................................................... .............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name..................................................... (2) Name.....................................................
</TABLE>
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<PAGE> 38
MERRILL LYNCH TECHNOLOGY FUND, INC.--AUTHORIZATION FORM
- --------------------------------------------------------------------------------
3. SYSTEMATIC WITHDRAWAL PLAN--CLASS A SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
Minimum Requirements: $10,000 for monthly disbursements, $5,000 for
quarterly, of shares in Merrill Lynch Technology Fund, Inc., at cost or current
offering price. Begin systematic withdrawal on ..............., 19....
(date)
Withdrawals to be made either (check one) / / Monthly / / Quarterly*
*Quarterly withdrawals are made on the 24th day of March, June, September and
December.
Specify withdrawal amount (check one): / / $ .................. or / /
..........% of the current value of Class A shares in the account.
Specify withdrawal method: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
- --------------------------------------------------------------------------------
(A) I HEREBY AUTHORIZE PAYMENT BY CHECK
Draw checks payable
(check one)
/ / 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..............................................................
Signature of Co-Owner (if any)..................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND (IF
NECESSARY) DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE IN ERROR TO
MY ACCOUNT.
Specify type of account (check one): / / checking / / savings
I agree that this authorization will remain in effect until I provide written
notification to Financial Data Services, Inc. amending or terminating this
service.
Name on your Account............................................................
Bank............................................................................
Bank #................. Account #...............................................
Bank Address....................................................................
Signature of Depositor ........................... Date.........................
Signature of Depositor (if joint account).......................................
NOTE: If Automatic Direct Deposit is elected, your blank, unsigned check marked
"VOID" or a deposit slip from your savings account should accompany this
Application.
- --------------------------------------------------------------------------------
4. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw a check or an
automated clearing house ("ACH") debit on my checking account described below
each month to purchase ..... Class A shares or ..... Class B shares (choose one)
of Merrill Lynch Technology Fund, Inc. subject to the terms set forth below.
- --------------------------------------------------------------------------------
FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw a check or an ACH debit each month on my bank
account for investment in Merrill Lynch Technology Fund, Inc. as indicated
below:
Amount of each check or ACH debit $............................................
Account No.....................................................................
Please date and invest checks or draw ACH debits on the 20th of
each month beginning...........................................................
(Month)
or as soon thereafter as possible.
I agree that you are preparing these checks or drawing these debits voluntarily
at my request and that you shall not be liable for any loss arising from any
delay in preparing or failure to prepare any such check or debit. If I change
banks or desire to terminate or suspend this program, I agree to notify you
promptly in writing.
I further agree that if a check or 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 check or dishonored debit.
<TABLE>
<S> <C>
...................... ........................................
Date Signature of Depositor
........................................
Signature of Depositor
(If joint account, both must sign)
</TABLE>
AUTHORIZATION TO HONOR CHECKS OR ACH DEBITS
DRAWN BY FINANCIAL DATA SERVICES, INC.
To......................................................................... Bank
(Investor's Bank)
Bank Address....................................................................
City........................ State.......... Zip Code........
As a convenience to me, I hereby request and authorize you to pay and charge to
my account checks or ACH debits drawn on my account by and payable to Financial
Data Services, Inc., Transfer Agency Mutual Fund Operations, Jacksonville,
Florida 32232-5289. I agree that your rights in respect to each such check or
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked personally by me in
writing. Until you receive such notice, you shall be fully protected in honoring
any such check or debit. I further agree that if any such check or debit be
dishonored, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability.
<TABLE>
<S> <C>
...................... ........................................
Date Signature of Depositor
...................... ........................................
Bank Account Number Signature of Depositor
(If joint account, both must sign)
</TABLE>
NOTE: If Automatic Investment Plan is elected, your blank, unsigned check marked
"VOID" should accompany this Application.
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp
This form when completed should be mailed to:
Merrill Lynch Technology Fund, Inc.
c/o Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our
agent in connection with transactions under this authorization form and
agree to notify the Distributor of any purchases made under a Letter of
Intention or Systematic Withdrawal Plan. We guarantee the shareholder's
signature.
...........................................................................
Dealer Name and Address
By..........................................................................
Authorized Signature of Dealer
<TABLE>
<S> <C> <C> <C>
------- ----------
------- ---------- ............................
Branch-Code F/C No. F/C Last Name
------- ------------
------- ------------
Dealer's Customer A/C No.
</TABLE>
36
<PAGE> 39
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37
<PAGE> 40
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38
<PAGE> 41
INVESTMENT ADVISER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
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:
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
Chase MetroTech Center
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Deloitte & Touche
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE> 42
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE INVESTMENT ADVISER OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table............................... 2
Alternative Sales Arrangements.......... 4
Financial Highlights.................... 6
Risk Factors and Special
Considerations........................ 7
Investment Objective and Policies....... 8
Hedging Techniques.................... 10
Other Investment Practices............ 14
Investment Restrictions............... 16
Management of the Company............... 16
Board of Directors.................... 16
Advisory and Management
Arrangements........................ 17
Transfer Agency Services.............. 18
Purchase of Shares...................... 18
Alternative Sales Arrangements........ 19
Initial Sales Charge
Alternative--Class A Shares......... 20
Deferred Sales Charge
Alternative--Class B Shares......... 22
Redemption of Shares.................... 26
Shareholder Services.................... 27
Performance Data........................ 29
Additional Information.................. 30
Dividends and Distributions........... 30
Taxes................................. 31
Determination of Net Asset Value...... 33
Organization of the Company........... 33
Shareholder Reports................... 34
Shareholder Inquiries................. 34
Authorization Form...................... 35
Code #16089-0794
</TABLE>
Merrill Lynch
Merrill Lynch
Technology Fund, Inc.
Prospectus
July 27, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE> 43
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH TECHNOLOGY FUND, INC.
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.
The Company offers two classes of shares which may be purchased at a price
equal to the next determined net asset value per share, plus a sales charge
which, at the election of the purchaser, may be imposed (i) at the time of
purchase (the "Class A shares"), or (ii) on a deferred basis (the "Class B
shares"). These alternatives permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase, the
length of time the investor expects to hold the shares and other circumstances.
Investors should understand that the purpose and function of the deferred sales
charges with respect to the Class B shares are the same as those of the initial
sales charge with respect to the Class A shares. Each Class A and Class B share
represents identical interests in the investment portfolio of the Company and
has the same rights, except that Class B shares bear the expenses of the account
maintenance fee and distribution fee and certain other costs resulting from the
deferred sales charge arrangement and have exclusive voting rights with respect
to the account maintenance and distribution fees. The two classes also have
different exchange privileges.
---------------------------------
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 July
27, 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 July 27, 1994.
<PAGE> 44
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
2
<PAGE> 45
associated with more established companies. The securities of smaller companies
may be subject to more 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.
3
<PAGE> 46
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 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
4
<PAGE> 47
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 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
5
<PAGE> 48
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 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.
6
<PAGE> 49
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. 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
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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. 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.
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
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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.
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.)
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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.
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
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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 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
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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.
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 Box 9011,
Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL--President and Director(1)(2)--President of the Investment
Adviser and its predecessor since 1977 and Chief Investment Officer since 1976;
President of Fund Asset Management, L.P. ("FAM") and its predecessor 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. 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 and their predecessors 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 and their predecessors since 1982; Senior Vice
President of Princeton Services since 1993.
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JAMES K. RENCK--Vice President(1)--Vice President of the Investment Adviser
and its predecessor and Portfolio Manager since 1986; Assistant Vice President
of the Investment Adviser and its predecessor and Associate Portfolio Manager
from 1985 to 1986; Fund Analyst for the Investment Adviser's predecessor from
1983 to 1985.
DONALD C. BURKE--Vice President(1)(2)--Vice President and Director of
Taxation of the Investment Adviser and its predecessor since 1990; employee of
Deloitte & Touche from 1982 to 1990.
GERALD M. RICHARD--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Investment Adviser and FAM and their predecessors 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
and its predecessor since 1984 and attorney associated with the Investment
Adviser and its predecessor 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 July 18, 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 Merrill Lynch & Co., Inc.
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 committee, which consists of all
the non-affiliated Directors. 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.
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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 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".
Merrill Lynch & Co., Inc., 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 below, the
Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the
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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.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
ALTERNATIVE SALES ARRANGEMENTS
The Company issues two classes of shares: Class A shares are sold to
investors choosing the initial sales charge alternative, and Class B shares are
sold to investors choosing the deferred sales charge alternative. The two
classes of shares each represent interests in the same portfolio of investments
of the Company, have the same rights and are identical in all respects, except
that Class B shares bear the expenses of the deferred sales arrangements, any
expenses (including incremental transfer agency costs) resulting from such sales
arrangements and the expenses of the account maintenance fee and have exclusive
voting rights with respect to the Rule 12b-1 distribution plan pursuant to which
the account maintenance and distribution fees are paid. The two classes also
have different exchange privileges. See "Shareholder Services--Exchange
Privilege".
The Company has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of Class A and Class B
shares of the Company (the "Distribution Agreements"). The Distribution
Agreements obligate the Distributor to pay certain expenses in connection with
the offering of the Class A and Class B 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 under "Management of
the Company--Advisory and Management Arrangements".
INITIAL SALES CHARGE ALTERNATIVE--CLASS A 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
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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 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.
REDUCED INITIAL SALES CHARGES--CLASS A SHARES
Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
Class A shares of the Company at the offering price applicable to the total of
(a) the public offering price of the Class A shares then being purchased plus
(b) an amount equal to the then current net asset value or cost, whichever is
higher, of the purchaser's combined holdings of the Class A and Class B shares
of the Company and of any other investment company with a sales charge for which
the Distributor acts as the distributor. For any such right of accumulation to
be made available, the Distributor must be provided at the time of purchase, by
the purchaser or 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. The reduced sales charges are applicable to a purchase
aggregating $10,000 or more of Class A shares of the Company or any other
investment company with a sales charge or deferred sales charges for which the
Distributor acts as the distributor 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 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 shares of the Company and of other
investment companies with a sales charge for which the Distributor acts as the
distributor 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
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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 $10,000), 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 shares purchased at the reduced rate and the sales
charge applicable to the shares actually purchased through the Letter. Class A
shares equal to five percent of the intended amount will be held in escrow
during the thirteen-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 Merrill Lynch Ready
Assets Trust, Merrill Lynch Retirement Reserves Money Fund, Merrill Lynch U.S.
Treasury Money Fund or Merrill Lynch U.S.A. Government Reserves into the Fund
that creates a sales charge will count toward completing a new or existing
Letter of Intention from the Fund.
Merrill Lynch Blueprint SM Program. Class A shares of the Company are
offered to participants in the Merrill Lynch Blueprint SM Program ("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 shares of the Company through
Blueprint will acquire the Class A shares at net asset value plus a sales charge
calculated in accordance with the Blueprint sales charge schedule (i.e., up to
$300 at 5.5%, $300.01 up to $5,000 at 4.5% plus $3, and $5,000.01 or more at the
standard sales charge rates disclosed in the Prospectus). In addition, Class A
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 shares through Blueprint. Services, including the exchange privilege,
available to Class A shareholders through Blueprint, however, may differ from
those available to other Class A shares investors.
Class A shares are offered at net asset value, with a waiver of the
front-end sales charge, to participants in Blueprint through the Merrill Lynch
Directed IRA Rollover Program ("IRA Rollover Program") available from Merrill
Lynch Business Financial Services, a business unit of Merrill Lynch. The IRA
Rollover Program is available to custodian rollover assets from Eligible
Retirement Plans (see definition below) whose Trustee and/or Plan Sponsor offers
the Merrill Lynch Directed IRA Rollover Program. Eligible Retirement Plans
include: (a) plans qualified under Section 401(k) of the Code with a salary
reduction feature offering a menu of investments to plan participants, provided
such plan initially has 1,000 or more employees eligible to participate in the
plan (employees eligible to participate in retirement plans of the same
sponsoring employer or its affiliates may be aggregated); or (b) tax qualified
retirement plans within the meaning of Section 401(a) of the Code or deferred
compensation plans within the meaning of Section 403(b) of the Code, provided
the plan (i) initially invested $5 million or more in existing plan assets in
portfolios, mutual funds or trusts advised by the Investment Adviser or its
subsidiaries or (ii) has accumulated $5 million or more in existing plan assets
invested in mutual funds advised by the Investment Adviser or its subsidiaries,
which charge a front-end sales charge or contingent deferred sales charge
(assets of retirement plans with the same sponsor or an affiliated sponsor may
be aggregated).
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Orders for purchases and redemptions of Class A 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 BlueprintSM Program, P.O. Box
30441, New Brunswick, New Jersey 08989-0441.
Employer Sponsored Retirement and Savings Plans. Class A 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, 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 $5 million or more in existing plan assets initially
invested in portfolios, mutual funds or trusts advised by the Investment Adviser
either directly or through an affiliate. Class A shares are being offered at net
asset value to Employer Sponsored Retirement or Savings Plans, provided the plan
has accumulated $5 million or more in existing plan assets invested in mutual
funds advised by the Investment Adviser charging a front-end sales charge or
contingent deferred sales charge. Assets of Employer Sponsored Retirement or
Savings Plans sponsored by the same sponsor or an affiliated sponsor may be
aggregated. The Class A share reduced load breakpoints also apply to these
aggregated assets. Class A shares may be offered at net asset value to multiple
plans sponsored by the same sponsor or an affiliated sponsor provided that the
addition of one or more of the multiple plans results in aggregate assets of $5
million or more invested in portfolios, mutual funds or trusts advised by the
Investment Adviser either directly or through an affiliate. Employer Sponsored
Retirement or Savings Plans are also offered Class A shares at net asset value,
provided such plan initially has 1,000 or more employees eligible to participate
in the plan. 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)
of the Code meeting any of the foregoing requirements and which are provided
specialized services (e.g., plans whose participants may direct on a daily basis
their plan allocations among a wide range of investments including individual
corporate equities and other securities in addition to mutual fund shares) by
the Merrill Lynch BlueprintSM Program, are offered Class A shares at a price
equal to net asset value per share plus a reduced sales charge of 0.50%. Any
Employer Sponsored Retirement or Savings Plan which does not meet the above
described qualifications to purchase Class A shares at net asset value has the
option of purchasing Class A shares at the sales charge schedule disclosed in
the Prospectus, or if the Employer Sponsored Retirement or Savings Plan is a
qualified retirement plan and meets the specified requirements, then it may
purchase Class B shares with a waiver of the contingent deferred sales charge
upon redemption. 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, directors
and trustees of certain other Merrill Lynch sponsored investment companies,
directors of Merrill Lynch & Co., Inc., employees of Merrill Lynch & Co., Inc.
and its subsidiaries 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.
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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.
Class A shares of the Company are offered at net asset value to
shareholders of certain closed-end funds advised by the Investment Adviser or
FAM who wish to reinvest the net proceeds from a sale of their closed-end fund
shares of common stock in shares of the Company. In order to exercise this
investment option, closed-end fund shareholders must (i) sell their closed-end
fund shares through Merrill Lynch and reinvest the proceeds immediately in the
Company, (ii) have acquired the shares in the closed-end fund's initial public
offering or through reinvestment of dividends earned on shares purchased in such
offering, (iii) have maintained their closed-end fund shares continuously in a
Merrill Lynch account, and (iv) purchase a minimum of $250 worth of Company
shares.
Class A 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 purchase Class A shares of
the Company with proceeds from a redemption of shares of a mutual fund that was
sponsored by the financial consultant's previous firm and imposed a sales charge
either at the time of purchase or on a deferred basis. Second, such redemption
must have been made within 60 days prior to the investment in the Company, and
the proceeds from the redemption must have been maintained in the interim in
cash or a money market fund.
Class A 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, if the following conditions are satisfied:
first, the investor must purchase Class A shares of the Company with proceeds
from a redemption of shares of such other mutual fund and such fund imposed a
sales charge either at the time of purchase or on a deferred basis; second, such
purchase of Class A shares must be made within 90 days after such notice of
termination.
Acquisition of Certain Investment Companies. The public offering price of
Class A shares may be reduced to the net asset value per Class A 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
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disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Company.
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.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Distribution Plan. Reference is made to "Purchase of Shares--Deferred Sales
Charge Alternative Class B Shares--Distribution Plan" in the Prospectus for
certain information with respect to the distribution plan of the Company (the
"Distribution Plan").
The payment of the account maintenance and distribution fees is subject to
the provisions of Rule 12b-1 under the Investment Company Act. Among other
things, the Distribution Plan provides that the Distributor shall provide and
the Directors shall review quarterly reports of the disbursement of the account
maintenance and distribution fees paid to the Distributor. In their
consideration of the 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 Class B shareholders. The 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 the Distribution Plan in accordance with Rule 12b-1, the
Independent Directors concluded that there is reasonable likelihood that the
Distribution Plan will benefit the Company and its Class B shareholders. The
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 Class B voting securities of the Company. The
Distribution Plan cannot be amended to increase materially the amount to be
spent by the Company without Class B shareholder approval, and all material
amendments are required to be approved by the vote of Directors, including a
majority of the Independent Directors who have no direct or indirect financial
interest in the Distribution Plan, cast in person at a meeting called for that
purpose. Rule 12b-1 further requires that the Company preserve copies of the
Distribution Plan and any report made pursuant to such plan for a period of not
less than six years from the date of the Distribution Plan or such report, the
first two years in an easily accessible place.
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.
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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.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares--Deferred Sales
Charge Alternative--Class B Shares", while Class B shares redeemed within four
years of purchase are subject to a contingent deferred sales charge under most
circumstances, the charge is waived on redemptions of Class B shares in
connection with certain post-retirement withdrawals from an 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 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 contingent deferred sales charges
of $59,092 and $315,184, respectively, with respect to the redemption of shares,
all of which was paid to Merrill Lynch.
Merrill Lynch Blueprint(SM) 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 contingent deferred sales charge 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 Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A shares at net asset value has the option of
purchasing Class A 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 contingent deferred sales
charge upon redemption. The contingent deferred sales charge is waived for any
Eligible 401(k) Plan redeeming Class B shares. The contingent deferred sales
charge 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 a
mutual fund advised by the Investment Adviser or FAM ("Eligible 401(a) Plan").
The contingent deferred sales charge is 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
contingent deferred sales charge
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is also waived for any Class B shares which are purchased by a Merrill Lynch
rollover IRA, that was funded by a rollover from a terminated 401(k) plan
managed by the MLAM Private Portfolio Group, and held in such account at the
time of redemption. 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.
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
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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--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.
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
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to the Investment Adviser and the account maintenance and distribution fees
payable to the Distributor, are accrued daily. The per share net asset value of
the Class B 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 shares. It is expected, however, that the per share net
asset value of the two 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.
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.
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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 quarterly statements from the transfer
agent. These quarterly statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income dividends
and long-term capital gain distributions. The quarterly statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital 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 shares from Merrill
Lynch to another brokerage firm or financial institution should be aware that,
if the firm to which the Class A shares are to be transferred will not take
delivery of shares of the Company, a shareholder either must redeem the Class A
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 shares. Shareholders interested in transferring
their Class B 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 PLAN
A U.S. shareholder may make additions to an Investment Account at any time
by purchasing 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 $250 or more through the CMA(R) Automatic Investment
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Program. The Automatic Investment Program is not available to shareholders whose
shares are held in a brokerage account with Merrill Lynch other than a CMA(R)
account.
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, without sales charge, 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 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 SHARES
A Class A 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 for shareholders with Class A
shares with such a value of $10,000 or more.
At the time of each withdrawal payment, sufficient Class A 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 shares.
Redemptions will be made at net asset value as determined at the close of
business of the New York Stock Exchange 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 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 shares in the Investment Account are automatically reinvested in the
Company's Class A shares. A shareholder's Systematic Withdrawal Plan may be
terminated at any time, without charge or penalty, by the shareholder, the
Company, the transfer agent or the Distributor.
Withdrawal payments should not be considered as dividends, yield or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholder's original investment may be
correspondingly reduced. Purchase of additional Class A 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 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.
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EXCHANGE PRIVILEGE
Class A and Class B shareholders of the Company may exchange their Class A
or Class B shares for shares of the same class of the funds that issue Class A
and Class B shares listed below. In addition, Class A shareholders of the
Company may exchange their Class A shares of the Company for the shares of the
"Class A money market funds", and Class B shareholders of the Company may
exchange their shares for shares of the "Class B money market funds", on the
basis described below. Shares with a net asset value of at least $100 are
required to qualify for the exchange privilege, and any shares utilized in an
exchange must have been held by the shareholder for at least 15 days. Certain
funds into which exchanges may be made may impose a redemption fee (not in
excess of 2.00% of the amount redeemed) on shares purchased through the exchange
privilege when such shares are subsequently redeemed, including redemption
through subsequent exchanges. Such redemption fee would be in addition to any
contingent deferred sales charge otherwise applicable to a redemption of Class B
shares. It is contemplated that the exchange privilege may be applicable to
other new mutual funds whose shares may be distributed by the Distributor.
Under the exchange privilege, each of the funds with Class A shares
outstanding offers to exchange its Class A shares ("new Class A shares") for
Class A shares ("outstanding Class A shares") of any of the other funds, on the
basis of relative net asset value per Class A share, plus an amount equal to the
difference, if any, between the sales charge previously paid on the outstanding
Class A shares and the sales charge payable at the time of the exchange on the
new Class A shares. With respect to outstanding Class A 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
shares in the initial purchase and any subsequent exchange. Class A shares
issued pursuant to dividend reinvestment are sold on a no-load basis in each of
the funds offering Class A shares. For purposes of the exchange privilege, Class
A shares acquired through dividend reinvestment shall be deemed to have been
sold with a sales charge equal to the sales charge previously paid on the Class
A shares on which the dividend was paid. Based on this formula, Class A shares
of the Company generally may be exchanged into the Class A shares of the other
funds or into shares of a money market fund advised by the Investment Adviser or
its affiliates with a reduced or without a sales charge.
In addition, each of the funds with Class B shares outstanding offers to
exchange its Class B shares ("new Class B shares") for Class B shares
("outstanding Class B shares") of any of the other funds on the basis of
relative net asset value per Class B share, without the payment of any
contingent deferred sales charge 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 contingent
deferred sales charge schedule if such schedule is higher than the deferred
sales charge 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
contingent deferred sales charge schedule if such schedule is higher than the
deferred sales charge 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 shares, the holding
period for the outstanding Class B shares is "tacked" to the holding period of
the new Class B 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's 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 contingent
deferred sales charge
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<PAGE> 70
due on this redemption, since by "tacking" the two and a half year holding
period of the Company's Class B shares to the three year holding period for the
Special Value Fund Class B shares, the investor will be deemed to have held the
new Class B shares for more than five years.
Shareholders also may exchange Class A shares and Class B 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 the Class B shares are held in a
money market fund will not count towards satisfaction of the holding period
requirement for purposes of reducing the contingent deferred sales charge.
However, shares of a money market fund which were acquired as a result of an
exchange for Class B shares of the Company may, in turn, be exchanged back into
Class B shares of any fund offering such shares, in which event the holding
period for Class B shares of the fund will be aggregated with previous holding
periods for purposes of reducing the contingent deferred sales charge. Thus, for
example, an investor may exchange Class B shares of the Company for shares of
Merrill Lynch Institutional Fund after having held the Class B shares for two
and a half years and three years later decide to redeem the shares of Merrill
Lynch Institutional Fund for cash. At the time of this redemption, the 2%
contingent deferred sales charge that would have been due had the Class B shares
of the Company been redeemed for cash rather than exchanged for shares of
Merrill Lynch Institutional Fund will be payable. If instead of such redemption
the shareholder exchanged such shares for Class B shares of a fund which the
shareholder continued to hold for an additional two and a half years, any
subsequent redemption will not incur a contingent deferred sales charge.
Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds issuing Class A and Class B Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. High current income consistent with a
policy of limiting the degree of
fluctuation in net asset value by
investing primarily in a portfolio
of adjustable rate securities,
consisting principally of
mortgage-backed and asset-backed
securities.
MERRILL LYNCH AMERICAS
INCOME FUND, INC. 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).
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MERRILL LYNCH ARIZONA LIMITED MATURITY
MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is to provide
as high a level of income exempt
from Federal and Arizona income
taxes as is consistent with prudent
investment management through
investment in a portfolio primarily
of intermediate-term investment
grade Arizona Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series Fund, whose objective is
to provide investors with as high a
level of income exempt from Federal
and Arizona income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT As high a level of total investment
return as in consistent with
reasonable risk by investing in
common stock and other types of
securities, including fixed income
securities and convertible
securities.
MERRILL LYNCH BASIC VALUE FUND, INC. Capital appreciation and,
secondarily, income 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 Municipal Series Trust,
a series fund, whose objective is
to provide shareholders with as
high a level of income exempt from
Federal and California income taxes
as is consistent with prudent
investment management through
investment in a portfolio
consisting primarily of insured
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
shareholders with as high a level
of income exempt from Federal and
California income taxes as is
consistent with pru-
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dent investment
management 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 Municipal 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
consistent with prudent investment
management.
MERRILL LYNCH CAPITAL FUND, INC. The highest total investment return
consistent with prudent risk
through a fully managed investment
policy utilizing equity, debt and
convertible securities.
MERRILL LYNCH COLORADO MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal and Colorado income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH CONNECTICUT MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal and Connecticut income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH CORPORATE BOND
FUND, INC. Current income from three separate
diversified portfolios of fixed
income securities.
MERRILL LYNCH DEVELOPING CAPITAL
MARKETS FUND, INC. Long-term appreciation through
investments in securities,
principally equities, of issuers in
countries having smaller capital
markets.
MERRILL LYNCH DRAGON FUND, INC. Capital appreciation primarily
through investment in equity and
debt securities of issuers
domiciled in developing countries
located in Asia and the Pacific
Basin, other than Japan, Australia
and New Zealand.
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MERRILL LYNCH EUROFUND Capital appreciation primarily
through investment in equity
securities of corporations
domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES TRUST High current return through
investments in U.S. Government and
Government agency securities,
including GNMA mortgage-backed
certificates and other
mortgage-backed Government
securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
income taxes as is consistent with
prudent investment management while
serving to offer shareholders the
opportunity to own securities
exempt from Florida intangible
personal property taxes through
investment in a portfolio primarily
of intermediate-term investment
grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal income taxes as is
consistent with prudent investment
management while seeking to offer
shareholders the opportunity to own
securities exempt from Florida
intangible personal property taxes.
MERRILL LYNCH FUND FOR TOMORROW, INC. Long-term growth through investment
in a portfolio of good quality
securities, primarily common stock,
potentially positioned to benefit
from demographic and cultural
changes as they affect consumer
markets.
MERRILL LYNCH FUNDAMENTAL GROWTH
FUND, INC. Long-term growth through investment
in a diversified portfolio of
equity securities 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
combination of which will
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<PAGE> 74
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
multi-national currency units.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC. High total return from investment
primarily in an internationally
diversified portfolio of
convertible debt securities,
convertible preferred stock and
"synthetic" convertible securities
consisting of a combination of debt
securities or preferred stock and
warrants or options.
MERRILL LYNCH GLOBAL HOLDINGS
(residents of Arizona must meet
investor
suitability standards).............. The highest total investment return
consistent with prudent risk
through worldwide investment in an
internationally diversified
portfolio of securities.
MERRILL LYNCH GLOBAL RESOURCES TRUST Long-term growth and protection of
capital from investment in
securities of foreign and domestic
companies that possess substantial
natural resource assets.
MERRILL LYNCH GLOBAL 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
ownership or operation of
facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT Growth of capital and, secondarily,
income from investment in a
diversified portfolio of equity
securities placing principal
emphasis on those securities which
management of the Fund believes to
be undervalued.
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<PAGE> 75
MERRILL LYNCH HEALTHCARE FUND, INC.
(residents of Wisconsin must meet
investor
suitability standards) Capital appreciation through
world-wide investment in equity
securities of companies that derive
or are expected to derive a
substantial portion of their sales
from products and services in
healthcare.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND Capital appreciation and,
secondarily, income by investing in
a diversified portfolio of equity
securities of issuers located in
countries other than the United
States.
MERRILL LYNCH LATIN AMERICA FUND,
INC. Capital appreciation by investing
primarily in Latin American equity
and debt securities.
MERRILL LYNCH MARYLAND MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
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 as high a
level of income exempt from Federal
and Massachusetts income taxes as
is consistent with prudent
investment management through
investment in a portfolio primarily
of intermediate-term investment
grade Massachusetts Municipal
Bonds.
MERRILL LYNCH MASSACHUSETTS MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal and Massachusetts
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and Michigan income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily
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<PAGE> 76
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
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
as high a level of income exempt
from Federal and Minnesota income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC. Tax-exempt income from three separate
diversified portfolios of municipal
bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND Currently the only portfolio of
Merrill Lynch Municipal Series
Trust, a series fund, whose
objective is to provide as high a
level as possible of income exempt
from Federal income taxes by
investing in investment grade
obligations with a dollar weighted
average maturity of five to twelve
years.
MERRILL LYNCH NEW JERSEY LIMITED
MATURITY MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Limited Maturity
Municipal Series Trust, a series
fund, whose objective is as high a
level of income exempt from Federal
and New Jersey income taxes as is
consistent with prudent investment
management through a portfolio
primarily of intermediate-term
investment grade New Jersey
Municipal Bonds.
MERRILL LYNCH NEW JERSEY MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal and New Jersey income
taxes as is consistent with prudent
investment management.
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<PAGE> 77
MERRILL LYNCH NEW MEXICO
MUNICIPAL BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal 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 as high a
level of income exempt from
Federal, New York State and New
York City income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of
intermediate-term investment grade
New York Municipal Bonds.
MERRILL LYNCH NEW YORK MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
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
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
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
as high a level of income exempt
from Federal and Oregon income
taxes as is consistent with prudent
investment management.
MERRILL LYNCH PACIFIC FUND, INC. Capital appreciation by investing in
equity securities of corporations
domiciled in Far Eastern and
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<PAGE> 78
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 Federal and Pennsylvania
income taxes as is consistent with
prudent investment management
through investment in a portfolio
of intermediate-term investment
grade Pennsylvania Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal and Pennsylvania
income taxes as is consistent with
prudent management.
MERRILL LYNCH PHOENIX FUND, INC. Long-term growth of capital by
investing in equity and fixed
income securities, including
tax-exempt securities, of issuers
in weak financial condition or
experiencing poor operating results
believed to be undervalued relative
to the current or prospective
condition of such issuer.
MERRILL LYNCH SHORT-TERM GLOBAL INCOME
FUND, INC. As high a level of current income as
is consistent with prudent
investment management from a global
portfolio of high quality debt
securities denominated in various
currencies and multi-national
currency units and having remaining
maturities not exceeding three
years.
MERRILL LYNCH SPECIAL VALUE FUND,
INC. Long-term growth of capital from
investments in securities,
primarily 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.
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<PAGE> 79
MERRILL LYNCH TEXAS MUNICIPAL
BOND FUND A portfolio of Merrill Lynch
Multi-State Municipal Series Trust,
a series fund, whose objective is
as high a level of income exempt
from Federal income taxes as is
consistent with prudent investment
management by investing primarily
in a portfolio of long-term,
investment grade obligations issued
by the State of Texas, its
political subdivisions, agencies
and instrumentalities.
MERRILL LYNCH UTILITY INCOME FUND,
INC. High current income through
investment in equity and debt
securities issued by companies
which are primarily engaged in the
ownership or operation of
facilities used to generate,
transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME FUND, INC. High current income by investing in
a global portfolio of fixed income
securities denominated in various
currencies, including multinational
currencies.
Class A Money Market Funds:
MERRILL LYNCH READY ASSETS TRUST Preservation of capital, liquidity
and the highest possible current
income consistent with the
foregoing objectives from the
short-term money market securities
in which the Trust invests.
MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND (available only for
exchanges within certain retirement
plans).............................. Currently the only portfolio of
Merrill Lynch Retirement Series
Trust, a series fund, whose
objectives are current income,
preservation of capital and
liquidity available from investing
in a diversified portfolio of
short-term money market securities.
MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES Preservation of capital, current
income and liquidity available from
investing in direct obligations of
the U.S. Government and repurchase
agreements relating to such
securities.
MERRILL LYNCH U.S. TREASURY MONEY FUND Preservation of capital, liquidity
and current income through
investment exclusively in a
diversified portfolio of short-term
marketable securities which are
direct obligations of the U.S.
Treasury.
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<PAGE> 80
Class B Money Market Funds:
MERRILL LYNCH GOVERNMENT FUND A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose objective is to provide
current income consistent with
liquidity and security of principal
from investment in securities
issued or guaranteed by the U.S.
Government, its agencies and
instrumentalities and in repurchase
agreements secured by such
obligations.
MERRILL LYNCH INSTITUTIONAL FUND A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose objective is to provide
maximum current income consistent
with liquidity and the maintenance
of a high-quality portfolio of
money market securities.
MERRILL LYNCH INSTITUTIONAL TAX-EXEMPT
FUND Current income exempt from Federal
income taxes, preservation of
capital and liquidity available
from investing in a diversified
portfolio of short-term, high
quality municipal bonds.
MERRILL LYNCH TREASURY FUND A portfolio of Merrill Lynch Funds
for Institutions Series, a series
fund, whose objective is to provide
current income consistent with
liquidity and security of principal
from investment in direct
obligations of the U.S. Treasury
and up to 10% of its total assets
in repurchase agreements secured by
such obligations.
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the 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 to the general public at any time and may
thereafter resume such offering from time to time. The exchange privilege is
available only to U.S. shareholders in states where the exchange legally may be
made.
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DIVIDENDS, DISTRIBUTIONS AND 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
and Class B 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. 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 between the Class A and
Class B 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 and Class B 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.
39
<PAGE> 82
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 between the Class A and Class B shareholders
according to a method similar to that described above for the allocation of
dividends eligible for the dividends received deduction.
If a Class A shareholder exercises the 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 Class A shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid for the
new Class A shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether under the Automatic
Dividend Reinvestment Plan 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.
TAX TREATMENT OF OPTIONS, FUTURES AND FORWARD FOREIGN EXCHANGE 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
40
<PAGE> 83
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 may 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 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
41
<PAGE> 84
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 and Class B 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 shares and
the contingent deferred sales charge that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B 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,
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.
42
<PAGE> 85
Set forth below is total return information for the Class A shares and
Class B shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------------------- -------------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
OF A OF A
HYPOTHETICAL HYPOTHETICAL
$1,000 $1,000
EXPRESSED AS A INVESTMENT EXPRESSED AS A INVESTMENT
PERCENTAGE BASED AT THE END OF PERCENTAGE BASED AT THE END OF
ON A HYPOTHETICAL THE ON A HYPOTHETICAL THE
PERIOD $1,000 INVESTMENT PERIOD $1,000 INVESTMENT PERIOD
- -------------------------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
One Year Ended March 31, 1994... 26.86% $ 1,268.60 30.22% $ 1,302.20
Inception (April 27, 1992)
to March 31, 1994............. 35.79% $ 1,802.60 38.00% $ 1,859.50
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
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
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
Inception (April 27, 1992)
to March 31, 1994............. 80.26% $ 1,802.60 85.95% $ 1,859.50
</TABLE>
In order to reflect the reduced sales charges, in the case of Class A
shares, or the waiver of the contingent deferred sales charge, in the case of
Class B 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 contingent deferred sales charge and therefore may reflect greater
total return since, due to the reduced sales charges or the waiver of sales
charges, a lower amount of expenses may be deducted.
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 200,000,000 shares of Common Stock, par value of $0.10
per share, dividend into two classes, designated Class A and Class B Common
Stock, each of which consists of 100,000,000 shares. Both Class A and Class B
Common Stock represent an interest in the same assets of the Company and are
identical in all respects except that the Class B shares bear certain expenses
related to the account maintenance and distribution of such shares and that they
have exclusive voting rights with respect to matters relating to such account
43
<PAGE> 86
maintenance and 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 or conversion rights. Redemption 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.
44
<PAGE> 87
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 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 number
of shares outstanding)................................. $5.17 $5.08
Sales Charge (for Class A shares: 6.50% of offering price
(6.95% of net amount invested))*....................... $0.36 $ **
Offering Price........................................... $5.53 $5.08
</TABLE>
- ---------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B shares are not subject to an initial sales charge but may be subject
to a contingent deferred sales charge on redemption of shares within four
years of purchase. See "Purchase of Shares--Deferred Sales Charge
Alternative--Class B Shares" in the prospectus and "Redemption of
Shares--Contingent Deferred Sales Charge--Class B Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche, 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., Chase MetroTech Center, 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 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.
45
<PAGE> 88
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 July 18, 1994.
46
<PAGE> 89
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
Princeton, New Jersey
April 29, 1994
47
<PAGE> 90
<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>
48
<PAGE> 91
<TABLE>
<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.
See Notes to Financial Statements.
</TABLE>
49
<PAGE> 92
<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>
50
<PAGE> 93
<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>
51
<PAGE> 94
<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>
52
<PAGE> 95
<TABLE>
<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.
53
<PAGE> 96
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.
54
<PAGE> 97
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
========== ============
<CAPTION>
Class B Shares for the Period Dollar
April 27, 1992++ to March 31, 1993 Shares Amount
<S> <C> <C>
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>
55
<PAGE> 98
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
Investment Restrictions............ 8
Management of the Company............ 12
Directors and Officers............. 12
Advisory and Management
Arrangements.................... 13
Purchase of Shares................... 15
Redemption of Shares................. 20
Portfolio Transactions and
Brokerage.......................... 22
Determination of Net Asset Value..... 23
Shareholder Services................. 25
Dividends, Distributions and Taxes... 39
Performance Data..................... 42
General Information.................. 43
Description of Shares.............. 43
Computation of Offering Price Per
Share........................... 45
Independent Auditors............... 45
Custodian.......................... 45
Transfer Agent..................... 45
Legal Counsel...................... 46
Reports to Shareholders............ 46
Additional Information............. 46
Security Ownership of Certain
Beneficial Owners............... 46
Independent Auditors' Report......... 47
Financial Statements................. 48
Code #16090-0794
</TABLE>
MERRILL LYNCH
MERRILL LYNCH
TECHNOLOGY FUND, INC.
Statement of Additional Information
JULY 27, 1994
DISTRIBUTOR:
MERRILL LYNCH
FUNDS DISTRIBUTOR, INC.
<PAGE> 99
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material
omitted from this EDGAR Submission File due to ASCII-incompatibility
and cross-references this material to the location of each occurrence in
the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
---------------------- -------------------
Merrill Lynch logo and illustration of
part of compass plate and circular
graph plate........................... Back cover of Prospectus and
back cover of Statement of
Additional Information
<PAGE> 100
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 fiscal 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.
Statement 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)
</TABLE>
<TABLE>
<C> <S>
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.
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.
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, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, Inc. (b)
14 -- None.
15 -- Amended and Restated Distribution Plan of Registrant. (e)
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>
C-1
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------
<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)
17 -- Power of Attorney.
</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.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS MAY 31, 1994
--------------------------------------------------------------------- -----------------
<S> <C>
Class A Common Stock, par value $0.10 per share...................... 5,212
Class B Common Stock, par value $0.10 per share...................... 363
</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
C-2
<PAGE> 102
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.
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 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,
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
C-3
<PAGE> 103
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Emerging Tigers Fund, Inc., Financial Institutions Series
Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal
Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World
Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California
Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund
II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, 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 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,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
- ----------------------------- -------------------------- -------------------------------------
<S> <C> <C>
ML & Co...................... Limited Partner Financial Services Holding Company
Merrill Lynch Investment Limited Partner Investment Advisory Services; Limited
Management, Inc............ Partner of FAM
Princeton Services, Inc. General Partner General Partner of FAM
("Princeton Services").....
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-4
<PAGE> 104
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION,
NAME INVESTMENT ADVISER VOCATION 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; Senior
Secretary Vice President, General Counsel,
Director and Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss.............. Senior Vice President and Senior Vice President and Controller
Controller of FAM; Senior Vice President and
Controller of Princeton Services
Stephen M.M. Miller.......... Senior Vice President Executive Vice President of Princeton
Administrators, L.P.
Joseph T. Monagle, Jr. ...... Senior Vice President Senior Vice President of FAM; Senior
Vice President of Princeton
Services
Gerald M. Richard............ Senior Vice President and Senior Vice President and Treasurer
Treasurer of FAM; Senior Vice President and
Treasurer of Princeton Services;
Vice President and Treasurer of
MLFD
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>
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,
C-5
<PAGE> 105
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 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
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............... Assistant Vice President None
Robert Harris............... Secretary Secretary
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder are maintained at the offices of the Registrant, 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
C-6
<PAGE> 106
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.
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Registrant's annual report to shareholders, upon request
and without charge.
C-7
<PAGE> 107
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 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 26TH DAY OF JULY 1994.
MERRILL LYNCH TECHNOLOGY FUND, INC.
(REGISTRANT)
By /s/ ARTHUR ZEIKEL
------------------------------------
(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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE(S)
- ------------------------------------------ ------------------------------- -------------------
<S> <C> <C>
/s/ ARTHUR ZEIKEL President and Director July 26, 1994
- ------------------------------------------ (Principal Executive Officer)
(ARTHUR ZEIKEL)
/s/ GERALD M. RICHARD Treasurer (Principal Financial July 26, 1994
- ------------------------------------------ and Accounting Officer)
(GERALD M. RICHARD)
DONALD CECIL* Director July 26, 1994
- ------------------------------------------
(DONALD CECIL)
EDWARD H. MEYER* Director July 26, 1994
- ------------------------------------------
(EDWARD H. MEYER)
CHARLES C. REILLY* Director July 26, 1994
- ------------------------------------------
(CHARLES C. REILLY)
RICHARD R. WEST* Director July 26, 1994
- ------------------------------------------
(RICHARD R. WEST)
*By /s/ ARTHUR ZEIKEL July 26, 1994
---------------------------------------
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT)
</TABLE>
C-8
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ---------------------------------------------------------------------------- ------
<S> <C> <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. ............
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. ................................................................
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, independent auditors for the
Registrant. .............................................................
12 -- None. ...................................................................
13 -- Certificate of Merrill Lynch Asset Management, Inc. (b) .................
14 -- None. ...................................................................
15 -- Amended and Restated Distribution Plan of Registrant. (e) ...............
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 -- Power of Attorney........................................................
</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.
C-9
<PAGE> 1
EXHIBIT 99.5(b)
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
MERRILL LYNCH ASSET MANAGEMENT
As of January 1, 1994 Merrill Lynch Investment Management, Inc. d/b/a Merrill
Lynch Asset Management was reorganized as a limited partnership, formally known
as Merrill Lynch Asset Management, L.P. and continuing to do business under the
name Merrill Lynch Asset Management ("MLAM"). The general partner of MLAM is
Princeton Services, Inc. and the limited partners are Merrill Lynch Investment
Management, Inc. and Merrill Lynch & Co., Inc. Pursuant to Rule 202(a)(1)-1
under the Investment Advisers Act of 1940 and Rule 2a-6 under the Investment
Company Act of 1940 such reorganization did not constitute an assignment of
this investment advisory agreement since it did not involve a change of control
or management of the investment adviser. Pursuant to the requirements of
Section 205 of the Investment Advisers Act of 1940, however, Merrill Lynch
Asset Management hereby supplements this investment advisory agreement by
undertaking to advise you of any change in the membership of the partnership
within a reasonable time after any such change occurs.
By /s/ Arthur Zeikel
-------------------------
Dated: January 3, 1994
<PAGE> 1
EXHIBIT 99.6(c)
September 15, 1993
Merrill Lynch Funds Distributor, Inc.
Post Office Box 9011
Princeton, New Jersey 08543-9011
Each of the undersigned open-end investment companies (the "Funds")
has entered into a Distribution Agreement with Merrill Lynch Funds Distributor,
Inc. (the "Distributor"). Under the terms of such agreements, the Distributor
is authorized to offer shares of each Fund and to purchase, as principal, such
number of shares from each of the Funds as are needed to fill unconditional
orders for shares of such Fund placed with the Distributor by investors or by
securities dealers.
This letter confirms the agreement by each Fund with the Distributor
that, in connection with the Merrill Lynch Mutual Fund Adviser program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are also authorized
<PAGE> 2
to offer and sell shares of such Fund, as agent for the Fund, to participants
in such program. This letter further confirms that the terms of the
Distribution Agreement between each Fund and the Distributor shall apply to
such sales, including terms as to the offering price of shares, the proceeds
to be paid to each Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of each Fund and the Distributor.
If the foregoing is consistent with your understanding of our
agreement, please sign and return one copy of the enclosed agreement.
Very truly yours,
The Investment Companies listed
on Schedule A hereto
By: /s/ Terry K. Glenn
-------------------------
Authorized Signatory
Accepted as of the date
set forth above
Merrill Lynch Funds Distributor, Inc.
By: /s/ Gerald M. Richard
--------------------------------
Authorized Signatory
2
<PAGE> 3
The Declaration of Trust establishing each investment company listed
on Schedule A hereto which has been organized as a Massachusetts trust (each, a
"Fund"), a copy of which, together with all amendments thereto, is on file in
the office of the Secretary of the Commonwealth of Massachusetts, provides that
the name of the Fund refers to the Trustees under the Declaration collectively
as Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund,
but the Fund estate only shall be liable.
3
<PAGE> 4
SCHEDULE A
EQUITY FUNDS:
Merrill Lynch Balanced Fund for Investment and Retirement
Merrill Lynch Basic Value Fund, Inc.
Merrill Lynch Capital Fund, Inc.
Merrill Lynch Developing Capital Markets Fund, Inc.
Merrill Lynch Dragon Fund, Inc.
Merrill Lynch EuroFund
Merrill Lynch Fundamental Growth Fund, Inc.
Merrill Lynch Fund for Tomorrow, Inc.
Merrill Lynch Global Allocation Fund, Inc.
Merrill Lynch Global Utility Fund, Inc.
Merrill Lynch Growth Fund for Investment and Retirement
Merrill Lynch Healthcare Fund, Inc.
Merrill Lynch International Equity Fund
Merrill Lynch International Holdings, Inc.
Merrill Lynch Latin America Fund, Inc.
Merrill Lynch Natural Resources Trust
Merrill Lynch Pacific Fund, Inc.
Merrill Lynch Phoenix Fund, Inc.
Merrill Lynch Special Value Fund, Inc.
Merrill Lynch Strategic Dividend Fund
Merrill Lynch Technology Fund, Inc.
FIXED INCOME FUNDS:
Merrill Lynch Adjustable Rate Securities Fund, Inc.
Merrill Lynch Americas Income Fund, Inc.
Merrill Lynch Corporate Bond Fund, Inc.
Merrill Lynch Federal Securities Trust
Merrill Lynch Global Bond Fund for Investment and Retirement
Merrill Lynch Global Convertible Fund, Inc.
Merrill Lynch Short-Term Global Income Fund, Inc.
Merrill Lynch World Income Fund, Inc.
TAX-EXEMPT FIXED INCOME FUNDS:
Merrill Lynch Arizona Municipal Bond Fund
Merrill Lynch California Municipal Bond Fund
Merrill Lynch California Insured Municipal Bond Fund
Merrill Lynch Florida Municipal Bond Fund
Merrill Lynch Massachusetts Municipal Bond Fund
Merrill Lynch Michigan Municipal Bond Fund
Merrill Lynch Minnesota Municipal Bond Fund
Merrill Lynch Municipal Bond Fund, Inc.
A-1
<PAGE> 5
Merrill Lynch Municipal Income Fund
Merrill Lynch New Jersey Municipal Bond Fund
Merrill Lynch New York Municipal Bond Fund
Merrill Lynch North Carolina Municipal Bond Fund
Merrill Lynch Ohio Municipal Bond Fund
Merrill Lynch Pennsylvania Municipal Bond Fund
Merrill Lynch Texas Municipal Bond Fund
INSTITUTIONAL MONEY MARKET FUNDS:
Merrill Lynch Institutional Fund
Merrill Lynch Government Fund
Merrill Lynch Treasury Fund
Merrill Lynch Institutional Tax-Exempt Fund
A-2
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
MERRILL LYNCH TECHNOLOGY FUND, INC.
We consent to the use in Post-Effective Amendment No. 3 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
Princeton, New Jersey
July 27, 1994
<PAGE> 1
EXHIBIT 99.17
POWER OF ATTORNEY
I, Edward H. Meyer, hereby authorize Arthur Zeikel, Terry K.
Glenn and Gerald M. Richard, or any of them, as attorney-in- fact, to sign on
my behalf any amendments to the Registration Statement for Merrill Lynch
Technology Fund, Inc. and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.
Dated: July 26, 1994 /s/ Edward H. Meyer
---------------------------
Edward H. Meyer, Director
Merrill Lynch Technology
Fund, Inc.
