As filed with the Securities and Exchange Commission on June 30, 1998
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. 8 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 9 [X]
(Check appropriate box or boxes)
---------------
Merrill Lynch Technology Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
---------------
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)
(609) 282-2800
(Registrant's Telephone Number,
including Area Code)
---------------
Arthur Zeikel
Merrill Lynch Technology Fund, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
---------------
Copies to:
<TABLE>
<S> <C>
Counsel for the Fund: Philip L. Kirstein, Esq.
BROWN & WOOD LLP MERRILL LYNCH ASSET
One World Trade Center MANAGEMENT
New York, N.Y. 10048-0557 P.O. 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)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] on (date) pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] on (date) pursuant to paragraph (a) (2) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
---------------
Title of Securities Being Registered: Shares of Common Stock, par value $.10
per share.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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
Item 3. Condensed Financial Information .............. Financial Highlights; Performance Data
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; Merrill Lynch Select Pricing(SM) System;
Additional Information
Item 7. Purchase of Securities Being Offered ......... Cover Page; Fee Table; Merrill Lynch Select Pricing(SM)
System; Purchase of Shares; Shareholder Services; Additional
Information; Inside Back Cover Page
Item 8. Redemption or Repurchase ..................... Fee Table; Merrill Lynch Select Pricing(SM) System;
Shareholder Services; Purchase of Shares; Redemption of
Shares; Shareholder Services
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 Objective 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 and Other Practices ..... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities ........... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered ..................... Purchase of Shares; Redemption of Shares; Determination of
Net Asset Value; Shareholder Services; General Information
Item 20. Tax Status ................................... Dividends and Distributions; Taxes
Item 21. Underwriters ................................. Purchase of Shares
Item 22. Calculation of Performance Data .............. Performance Data
Item 23. Financial Statements ......................... Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
June 30, 1998
Merrill Lynch Technology Fund, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609) 282-2800
----------------
Merrill Lynch Technology Fund, Inc. (the "Company") is a non-diversified,
open-end investment company that seeks 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. For more information on the Fund's
investment objective and policies, please see "Investment Objective and
Policies" on page 12.
----------------
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Company offers
four classes of shares, each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares and other relevant circumstances.
See "Merrill Lynch Select Pricing(SM) System" on page 4.
----------------
Shares may be purchased directly from Merrill Lynch Funds Distributor,
Inc. (the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081,
(609) 282-2800, or from securities dealers that have entered into selected
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,
and for participants in certain fee-based programs the minimum initial purchase
is $250 and the minimum subsequent purchase is $50. Merrill Lynch may charge
its customers a processing fee (presently $5.35) for confirming purchases and
repurchases. Purchases and redemptions made directly through Merrill Lynch
Financial Data Services, Inc. (the "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 NOR HAS THE 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 June 30, 1998 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission (the
"Commission") and is available, without charge, by calling or by writing the
Company at the above telephone number or address. The Commission maintains a
Web site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information regarding
the Company. The Statement of Additional Information is hereby incorporated by
reference into this Prospectus.
----------------
Merrill Lynch Asset Management -- Investment Adviser
Merrill Lynch Funds Distributor, Inc. -- Distributor
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Company follows:
<TABLE>
<CAPTION>
Class A(a)
---------------
<S> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price) .................................. 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments ........................... None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) ........... None(d)
Exchange Fee .............................. None
Annual Company Operating Expenses (as
a percentage of average net assets)
Investment Advisory Fees(g) ............... 1.00%
12b-1 Fees(h):
Account Maintenance Fees ................ None
Distribution Fees ....................... None
Other Expenses:
Shareholder Servicing Costs (i) ......... .21%
Other ................................... .06%
--------
Total Other Expenses ................... .27%
--------
Total Company Operating Expenses .......... 1.27%
========
<CAPTION>
Class B(b) Class C Class D
---------------------------------- ------------------------- ---------------
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering
price) .................................. None None 5.25%(c)
Sales Charge Imposed on Dividend
Reinvestments ........................... None None None
Deferred Sales Charge (as a percentage of
original purchase price or redemption
proceeds, whichever is lower) ........... 4.0% during the first year, 1.0% for one year (f) None(d)
decreasing 1.0% annually
thereafter to 0.0% after the
fourth year(e)
Exchange Fee .............................. None None None
Annual Company Operating Expenses (as
a percentage of average net assets)
Investment Advisory Fees(g) ............... 1.00% 1.00% 1.00%
12b-1 Fees(h):
Account Maintenance Fees ................ 0.25% 0.25% 0.25%
Distribution Fees ....................... 0.75% 0.75% None
(Class B shares convert to
Class D shares automatically
after approximately eight years
and cease being subject to
distribution fees)
Other Expenses:
Shareholder Servicing Costs (i) ......... .25% .27% .21%
Other ................................... .06% .06% .06%
---- ---- --------
Total Other Expenses ................... .31% .33% .27%
---- ---- --------
Total Company Operating Expenses .......... 2.31% 2.33% 1.52%
==== ==== ========
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and participants in certain
fee-based programs. See "Purchase of Shares -- Initial Sales Charge
Alternatives -- Class A and Class D Shares" -- page 24 and "Shareholder
Services -- Fee-Based Programs" -- page 35.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" -- page 25.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans and participants in connection
with certain fee-based programs. Class A or Class D purchases of
$1,000,000 or more may not be subject to an initial sales charge. See
"Purchase of Shares -- Initial Sales Charge Alternatives -- Class A and
Class D Shares" -- page 24.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more which
are not subject to an initial sales charge may instead be subject to a
CDSC of 1.0% of amounts redeemed within the first year after purchase.
Such CDSC may be waived in connection with certain fee-based programs. A
0.75% sales charge for 401(k) purchases over $1,000,000 will apply. See
"Shareholder Services -- Fee-Based Programs" on page 35.
(e) The CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" on page 35.
(f) The CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services -- Fee-Based Programs" on page 35.
(g) See "Management of the Company -- Advisory and Management Arrangements" --
page 20.
(h) See "Purchase of Shares -- Distribution Plans" page 29.
(i) See "Management of the Company -- Transfer Agency Services" -- page 21.
2
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE:
Cumulative Expenses Paid
for the Period of:
--------------------------------------------
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales charge
(Class A and Class D shares only) and assuming (1) the Total
Company Operating Expenses for each class set forth on page 2;
(2) a 5% annual return throughout the periods and (3) redemption
at the end of the period (including any applicable CDSC for Class
B and Class C shares):
Class A ........................................................... $ 65 $ 91 $ 119 $ 198
Class B ........................................................... $ 63 $ 92 $ 124 $ 246*
Class C ........................................................... $ 34 $ 73 $ 125 $ 267
Class D ........................................................... $ 67 $ 98 $ 131 $ 224
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period: .........
Class A ........................................................... $ 65 $ 91 $ 119 $ 198
Class B ........................................................... $ 23 $ 72 $ 124 $ 246*
Class C ........................................................... $ 24 $ 73 $ 125 $ 267
Class D ........................................................... $ 67 $ 98 $ 131 $ 224
</TABLE>
- --------
* Assumes conversion to Class D shares approximately eight years after
purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Company will bear directly or
indirectly. The Example set forth above assumes reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Commission regulations. The Example should not be considered a representation
of past or future expenses or annual rates of return, and actual expenses or
annual rates of return may be more or less than those assumed for purposes of
the Example. Class B and Class C shareholders who hold their shares for an
extended period of time may pay more in Rule 12b-1 distribution fees than the
economic equivalent of the maximum front-end sales charges permitted under the
Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD"). Merrill Lynch may charge its customers a processing fee (presently
$5.35) for confirming purchases and repurchases. Purchases and redemptions made
directly through the Transfer Agent are not subject to the processing fee. See
"Purchase of Shares" and "Redemption of Shares."
3
<PAGE>
MERRILL LYNCH SELECT PRICING(SM) SYSTEM
The Company offers four classes of shares under the Merrill Lynch Select
Pricing(SM) System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D are
sold to investors choosing the initial sales charge alternatives, and shares of
Class B and Class C are sold to investors choosing the deferred sales charge
alternatives. The Merrill Lynch Select Pricing(SM) System is used by more than
50 registered investment companies advised by Merrill Lynch Asset Management,
L.P.("MLAM" or the "Investment Adviser") or its affiliate, Fund Asset
Management, L.P. ("FAM"). Funds advised by MLAM or FAM which utilize the Merrill
Lynch Select Pricing(SM) System are referred to herein as "MLAM-advised mutual
funds."
Each Class A, Class B, Class C or Class D share of the Company represents
an identical interest in the investment portfolio of the Company and has the
same rights, except that Class B, Class C and Class D shares bear the expenses
of the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The CDSCs, distribution and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, are imposed directly against those classes and not against
all assets of the Company and, accordingly, such charges will not affect the
net asset value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Company for each class of
shares will be calculated in the same manner at the same time and will differ
only to the extent that account maintenance and distribution fees and any
incremental transfer agency costs relating to a particular class are borne
exclusively by that class. Each class has different exchange privileges. See
"Shareholder Services -- Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and Class
C shares in that the sales charges and distribution fees applicable to each
class provide for the financing of the distribution of the shares of the
Company. The distribution-related revenues paid with respect to a class will
not be used to finance the distribution expenditures of another class. Sales
personnel may receive different compensation for selling different classes of
shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select Pricing(SM) System that the investor
believes is most beneficial under his or her particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase of
Shares."
4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Account
Maintenance Distribution
Class Sales Charge(1) Fee Fee Conversion Feature
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(2)(3)
- ------------------------------------------------------------------------------------------------------
B CDSC for a period of four years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0%(4) eight years(5)
- ------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year(6) 0.25% 0.75% No
- ------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(3)
- ------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs are imposed if the redemption occurs within
the applicable CDSC time period. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the shares
being redeemed.
(2) Offered only to eligible investors. See "Purchase of Shares -- Initial
Sales Charge Alternatives -- Class A and Class D Shares -- Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchases of
Class A shares by certain retirement plans and participants in connection
with certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but
instead may be subject to a 1.0% CDSC if redeemed within one year. Such
CDSC may be waived in connection with certain fee-based programs. A 0.75%
sales charge for 401(k) purchases over $1,000,000 will apply. See "Class A"
and "Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and certain
retirement plans was modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Company are exchanged for Class
B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares of the Company are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding Class
A shares. Investors who currently own Class A shares of the Company in a
shareholder account are entitled to purchase additional Class A shares
in that account. Other eligible investors include certain retirement
plans and participants in certain fee-based programs. In addition, Class
A shares will be offered at net asset value to Merrill Lynch & Co., Inc.
("ML & Co.") and its subsidiaries (the term "subsidiaries" when used
herein with respect to ML & Co., includes MLAM, FAM and certain other
entities directly or indirectly wholly owned and controlled by ML & Co.)
and their directors and employees and to members of the Boards of
MLAM-advised mutual funds. The maximum initial sales charge of 5.25% is
reduced for purchases of $25,000 and over, and waived for purchases by
certain retirement plans and participants in connection with certain
fee-based programs. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived,
such purchases may be subject to a 1.0% CDSC if the shares are redeemed
within one year after purchase. Such CDSC may be waived in connection
with certain fee-based programs. A 0.75% sales charge for 401(k)
purchases over $1,000,000 will apply. Sales charges also are reduced
under a right of accumulation that takes into account the investor's
holdings of all classes of all MLAM-advised mutual funds. See "Purchase
of Shares -- Initial Sales Charge Alternatives -- Class A and Class D
Shares."
5
<PAGE>
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25% and
an ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class B shares as well as a CDSC if they are redeemed
within four years of purchase. Such CDSC may be modified in connection
with certain fee-based programs. Approximately eight years after
issuance, Class B shares will convert automatically into Class D shares
of the Company, which are subject to an account maintenance fee but no
distribution fee; Class B shares of certain other MLAM-advised mutual
funds into which exchanges may be made convert into Class D shares
automatically after approximately ten years. If Class B shares of the
Company are exchanged for Class B shares of another MLAM-advised mutual
fund, the conversion period applicable to the Class B shares acquired in
the exchange will apply, and the holding period for the shares exchanged
will be tacked onto the holding period for the shares acquired.
Automatic conversion of Class B shares into Class D shares will occur at
least once a month on the basis of the relative net asset values of the
shares of the two classes on the conversion date, without the imposition
of any sales load, fee or other charge. Conversion of Class B shares to
Class D shares will not be deemed a purchase or sale of the shares for
Federal income tax purposes. Shares purchased through reinvestment of
dividends on Class B shares also will convert automatically to Class D
shares. The conversion period for dividend reinvestment shares and the
conversion and holding periods for certain retirement plans is modified
as described under "Purchase of Shares -- Deferred Sales Charge
Alternatives -- Class B and Class C Shares -- Conversion of Class B
Shares to Class D Shares."
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25% and
an ongoing distribution fee of 0.75% of the Company's average net assets
attributable to Class C shares. Class C shares are also subject to a
1.0% CDSC if they are redeemed within one year after purchase. Such CDSC
may be waived in connection with certain fee-based programs. Although
Class C shares are subject to a CDSC for only one year (as compared to
four years for Class B shares), Class C shares have no conversion
feature and, accordingly, an investor who purchases Class C shares will
be subject to distribution fees that will be imposed on Class C shares
for an indefinite period subject to annual approval by the Company's
Board of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Company's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. The maximum initial sales charge of 5.25% is reduced
for purchases of $25,000 and over. Purchases of $1,000,000 or more may
not be subject to an initial sales charge but if the initial sales
charge is waived, such purchases may be subject to a 1.0% CDSC if the
shares are redeemed within one year after purchase. Such CDSC may be
waived in connection with certain fee-based programs. The schedule of
initial sales charges and reductions for Class D shares is the same as
the schedule for Class A shares, except that there is no waiver for
purchases by retirement plans and participants in connection with
certain fee-based programs. Class D shares also will be issued upon
conversion of Class B shares as described above under "Class B." See
"Purchase of Shares -- Initial Sales Charge Alternatives -- Class A and
Class D Shares."
6
<PAGE>
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing(SM) System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative
particularly attractive because similar sales charge reductions are not
available with respect to the CDSCs imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended period of time
also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or
Class C shares may exceed the initial sales charge and, in the case of Class D
shares, the account maintenance fee. Although some investors that previously
purchased Class A shares may no longer be eligible to purchase Class A shares
of other MLAM-advised mutual funds, those previously purchased Class A shares,
together with Class B, Class C and Class D share holdings, will count toward a
right of accumulation which may qualify the investor for reduced initial sales
charges on new initial sales charge purchases. In addition, the ongoing Class B
and Class C account maintenance and distribution fees will cause Class B and
Class C shares to have higher expense ratios, pay lower dividends and have
lower total returns than the initial sales charge shares. The ongoing Class D
account maintenance fees will cause Class D shares to have a higher expense
ratio, pay lower dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be particularly
appealing to investors who do not qualify for a reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution fees potentially may be offset to the extent any
return is realized on the additional funds initially invested in Class B or
Class C shares. In addition, Class B shares will be converted into Class D
shares of the Company after a conversion period of approximately eight years,
and thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine
it to be most advantageous to have all their funds invested initially and
intend to hold their shares for an extended period of time. Investors in Class
B shares should take into account whether they intend to redeem their shares
within the CDSC period and, if not, whether they intend to remain invested
until the end of the conversion period and thereby take advantage of the
reduction in ongoing fees resulting from the conversion into Class D shares.
Other investors, however, may elect to purchase Class C shares if they
determine that it is advantageous to have all their assets invested initially
and they are uncertain as to the length of time they intend to hold their
assets in MLAM-advised mutual funds. Although Class C shareholders are subject
to a shorter CDSC period at a lower rate, they forego the Class B conversion
feature, making their investment subject to account maintenance and
distribution fees for an indefinite period of time. In addition, while both
Class B and Class C distribution fees are subject to the limitations on
asset-based sales charges imposed by the NASD, the Class B distribution fees
are further limited under a voluntary waiver of asset-based sales charges. See
"Purchase of Shares -- Limitations on the Payment of Deferred Sales Charges."
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Company
by Deloitte & Touche LLP, independent auditors. Financial statements for the
fiscal year ended March 31, 1998, 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 A++
---------------------------------------------------------------------
For the Year Ended March 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ......... $ 5.07 $ 4.82 $ 4.89 $ 5.17 $ 5.08
------- ------- -------- ------- -------
Investment income (loss) -- net ............. (.04) (.03) (.03) .05 (.01)
Realized and unrealized gain on
investments and foreign currency
transactions -- net ......................... .46 .72 .28 .11 1.51
-------- -------- -------- ------- -------
Total from investment operations ............. .42 .69 .25 .16 1.50
-------- -------- -------- ------- -------
Less dividends and distributions:
Investment income -- net .................... -- -- -- (.02) --
In excess of investment income -- net........ -- -- -- (.01) --
Realized gain on investments -- net ......... (1.06) (.44) (.17) (.05) (1.41)
In excess of realized gain on
investments -- net .......................... (.16) -- (.15) (.36) --
-------- -------- -------- -------- -------
Total dividends and distributions ............ (1.22) (.44) (.32) (.44) (1.41)
-------- -------- -------- -------- -------
Net asset value, end of period ............... $ 4.27 $ 5.07 $ 4.82 $ 4.89 $ 5.17
======== ======== ======== ======== =======
Total Investment Return:**
Based on net asset value per share ........... 3.96% 14.60% 5.15% 2.86% 35.68%
======== ======== ======== ======== =======
Ratios to Average Net Assets:
Expenses ..................................... 1.27% 1.30% 1.31% 1.33% 1.35%
======== ======== ======== ======== =======
Investment income (loss) -- net .............. (.82)% (.63)% (.62)% .87% (.11)%
======== ======== ======== ======== =======
Supplemental Data:
Net assets, end of period (in thousands) ..... $211,443 $222,118 $246,909 $254,188 $174,809
======== ======== ======== ======== ========
Portfolio turnover ........................... 206.40% 176.51% 108.36% 175.57% 350.64%
======== ======== ======== ======== ========
Average Commission Rate Paid## ............... $ .0538 $ .0604 $ .0366 -- --
========= ========= ========= ======== ========
<CAPTION>
Class A++
-----------------
For the Period
April 27, 1992+
to March 31,
1993
-----------------
<S> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ......... $ 3.83
-------
Investment income (loss) -- net ............. --
Realized and unrealized gain on
investments and foreign currency
transactions -- net ......................... 1.59
-------
Total from investment operations ............. 1.59
-------
Less dividends and distributions:
Investment income -- net .................... --
In excess of investment income -- net........ --
Realized gain on investments -- net ......... (.34)
In excess of realized gain on
investments -- net .......................... --
-------
Total dividends and distributions ............ (.34)
-------
Net asset value, end of period ............... $ 5.08
=======
Total Investment Return:**
Based on net asset value per share ........... 42.09%#
=======
Ratios to Average Net Assets:
Expenses ..................................... 1.59%*
=======
Investment income (loss) -- net .............. .04%*
=======
Supplemental Data:
Net assets, end of period (in thousands) ..... $100,830
========
Portfolio turnover ........................... 482.79%
========
Average Commission Rate Paid## ............... --
========
Class B++
--------------------------------------------------------
For the Year Ended March 31,
--------------------------------------------------------
1998 1997 1996 1995
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ......... $ 4.89 $ 4.66 $ 4.78 $ 5.08
------- ------- -------- -------
Investment income (loss) -- net ............. (.09) (.08) (.09) (.01)
Realized and unrealized gain on
investments and foreign currency
transactions -- net ......................... .46 .69 .29 .11
-------- -------- -------- -------
Total from investment operations ............. .37 .61 .20 .10
-------- -------- -------- -------
Less dividends and distributions:
Investment income -- net .................... -- -- -- --+++
In excess of investment income -- net........ -- -- -- --+++
Realized gain on investments -- net ......... (1.05) (.38) (.17) (.05)
In excess of realized gain on
investments -- net .......................... (.15) -- (.15) (.35)
-------- -------- -------- --------
Total dividends and distributions ............ (1.20) (.38) (.32) (.40)
-------- -------- -------- --------
Net asset value, end of period ............... $ 4.06 $ 4.89 $ 4.66 $ 4.78
======== ======== ======== ========
Total Investment Return:**
Based on net asset value per share ........... 3.09% 13.20% 4.21% 1.78%
======== ======== ======== ========
Ratios to Average Net Assets:
Expenses ..................................... 2.31% 2.35% 2.34% 2.38%
======== ======== ======== ========
Investment income (loss) -- net .............. (1.85)% (1.66)% (1.65)% (.10)%
======== ======== ======== ========
Supplemental Data:
Net assets, end of period (in thousands) ..... $285,193 $375,630 $553,819 $614,935
======== ======== ======== ========
Portfolio turnover ........................... 206.40% 176.51% 108.36% 175.57%
======== ======== ======== ========
Average Commission Rate Paid## ............... $ .0538 $ .0604 $ .0366 --
========= ========= ========= ========
<CAPTION>
Class B++
--------------------------------
For the Year For the Period
Ended March 31, April 27, 1992+
-------------- to March 31,
1994 1993
------------ ----------------
<S> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ......... $ 5.03 $ 3.83
------- -------
Investment income (loss) -- net ............. (.05) (.04)
Realized and unrealized gain on
investments and foreign currency
transactions -- net ......................... 1.48 1.58
------- -------
Total from investment operations ............. 1.43 1.54
------- -------
Less dividends and distributions:
Investment income -- net .................... -- --
In excess of investment income -- net........ -- --
Realized gain on investments -- net ......... (1.38) (.34)
In excess of realized gain on
investments -- net .......................... -- --
------- -------
Total dividends and distributions ............ (1.38) (.34)
------- -------
Net asset value, end of period ............... $ 5.08 $ 5.03
======= =======
Total Investment Return:**
Based on net asset value per share ........... 34.22% 40.77%#
======= =======
Ratios to Average Net Assets:
Expenses ..................................... 2.36% 2.53%*
======= =======
Investment income (loss) -- net .............. (1.08)% .93%*
======= =======
Supplemental Data:
Net assets, end of period (in thousands) ..... $224,330 $57,592
======== =======
Portfolio turnover ........................... 350.64% 482.79%
======== =======
Average Commission Rate Paid## ............... -- --
======== =======
</TABLE>
- -------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding.
+++ Amount is less than $.01 per share.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Company is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average commission rate paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
8
<PAGE>
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
Class C++
---------------------------------------------------------------
For the Year Ended
March 31, For the Period
------------------------------------------- October 21, 1994+
to March 31,
1998 1997 1996 1995
-------------- -------------- ------------- -------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
Per Share Operating Performance:
Net asset value, beginning of period ..... $ 4.87 $ 4.64 $ 4.76 $ 5.75
------- ------- -------- ---------
Investment loss -- net .................. (.09) (.08) (.09) --
Realized and unrealized gain (loss)
on investments and foreign
currency transactions -- net ........... .45 .68 .29 (.62)
-------- -------- -------- -----------
Total from investment operations ......... .36 .60 .20 (.62)
-------- -------- -------- -----------
Less dividends and distributions:
Investment income -- net ................ -- -- -- (.02)
In excess of investment
income -- net .......................... -- -- -- (.01)
Realized gain on
investments -- net ..................... (1.05) (.37) (.17) (.04)
In excess of realized gain on
investments -- net ..................... (.15) -- (.15) (.30)
-------- -------- -------- -----------
Total dividends and distributions ........ (1.20) (.37) (.32) (.37)
-------- -------- -------- -----------
Net asset value, end of period ........... $ 4.03 $ 4.87 $ 4.64 $ 4.76
======== ======== ======== ===========
Total Investment Return:**
Based on net asset value per share ....... 2.87% 13.19% 4.22% (11.11)%#
======== ======== ======== ===========
Ratios to Average Net Assets:
Expenses ................................. 2.33% 2.37% 2.36% 2.59%*
======== ======== ======== ===========
Investment loss -- net ................... (1.87)% (1.68)% (1.69)% (.02)%*
======== ======== ======== ===========
Supplemental Data:
Net assets, end of period (in
thousands) .............................. $ 15,424 $ 19,015 $ 31,090 $ 23,259
======== ======== ======== ===========
Portfolio turnover ....................... 206.40% 176.51% 108.36% 175.57%
======== ======== ======== ===========
Average Commission Rate Paid## ........... $ .0538 $ .0604 $ .0366 --
========= ========= ========= ===========
<CAPTION>
Class D++
--------------------------------------------------------------
For the Year Ended For the Period
March 31, October 21, 1994+
------------------------------------------- to March 31,
1998 1997 1996 1995
-------------- -------------- ------------- ------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Asset
Value:
Per Share Operating Performance:
Net asset value, beginning of period ..... $ 5.05 $ 4.81 $ 4.89 $ 5.88
------- ------- -------- ---------
Investment loss -- net .................. (.05) (.04) (.05) (.02)
Realized and unrealized gain (loss)
on investments and foreign
currency transactions -- net ........... .46 .71 .29 (.60)
-------- -------- -------- -----------
Total from investment operations ......... .41 .67 .24 (.62)
-------- -------- -------- -----------
Less dividends and distributions:
Investment income -- net ................ -- -- -- (.02)
In excess of investment
income -- net .......................... -- -- -- (.01)
Realized gain on
investments -- net ..................... (1.05) (.43) (.17) (.04)
In excess of realized gain on
investments -- net ..................... (.16) -- (.15) (.30)
-------- -------- -------- -----------
Total dividends and distributions ........ (1.21) (.43) (.32) (.37)
-------- -------- -------- -----------
Net asset value, end of period ........... $ 4.25 $ 5.05 $ 4.81 $ 4.89
======== ======== ======== ===========
Total Investment Return:**
Based on net asset value per share ....... 3.90% 14.09% 4.94% (10.76)%#
======== ======== ======== ===========
Ratios to Average Net Assets:
Expenses ................................. 1.52% 1.55% 1.56% 1.80%*
======== ======== ======== ===========
Investment loss -- net ................... (1.07)% (.88)% (.89)% (.81)%*
======== ======== ======== ===========
Supplemental Data:
Net assets, end of period (in
thousands) .............................. $ 34,712 $ 35,372 $ 43,858 $ 32,646
======== ======== ======== ===========
Portfolio turnover ....................... 206.40% 176.51% 108.36% 175.57%
======== ======== ======== ===========
Average Commission Rate Paid## ........... $ .0538 $ .0604 $ .0366 --
========= ========= ========= ===========
</TABLE>
- -------
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Based on average shares outstanding.
# Aggregate total investment return.
## For fiscal years beginning on or after September 1, 1995, the Company is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average commission rate paid" includes
commissions paid in foreign currencies, which have been converted into U.S.
dollars using the prevailing exchange rate on the date of the transaction.
Such conversions may significantly affect the rate shown.
9
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
International Investments. Investments on an international basis involve
certain risks not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions applicable to such investments. Securities
prices in different countries are subject to different economic, financial,
political and social factors. Since the Company may invest heavily in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. Changes in foreign currency exchange
rates relative to the U.S. dollar will affect the U.S. dollar value of the
Company's assets denominated in those currencies and the Company's yield on
such assets. The rates of exchange between the dollar and other currencies are
determined by forces of supply and demand in the foreign exchange markets.
These forces are, in turn, affected by the international balance of payments,
the level of interest and inflation rates and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Also, many of the securities held by the Company will not be
registered with the 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 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. In
addition, since the Company is a non-diversified investment company, it may at
times concentrate its investments in a limited number of companies, primarily
in
10
<PAGE>
the semiconductor, communications and software industries, which may also
increase risk. 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 15% of its total 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. The suitability for any particular investor of a purchase of
shares of the Company will depend upon, among other things, such investor's
investment objectives and such investor's ability to accept the risks of
investing in such industries and markets including the risk of loss of
principal.
The Company may borrow up to 33 1/3% of its total assets (including the
amount borrowed), taken at market value, but only from banks as a temporary
measure for extraordinary or emergency purposes, including to meet redemptions
(so as not to force the Company to liquidate securities at a disadvantageous
time) or to settle securities transactions. The Company will not purchase
securities at any time when borrowings exceed 5% of its total assets, except
(a) to honor prior commitments or (b) to exercise subscription rights when
outstanding borrowings have been obtained exclusively for settlements of other
securities transactions. The purchase of securities while borrowings are
outstanding will have the effect of leveraging the Company. Such leveraging
increases the Company's exposure to capital risk, and borrowed funds are
subject to interest costs that will reduce net income.
11
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek long-term capital
appreciation through worldwide investment in equity securities of companies
that, in the opinion of management, derive or are expected to derive a
substantial portion of their sales from products and services in technology.
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 within the various industries 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 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 15% of its total 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. In seeking to optimize returns the Investment
Adviser may concentrate investments in a limited number of companies or
industries. 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 and may result in a high rate of portfolio turnover. See "Other Investment
Practices -- Portfolio Turnover" below.
12
<PAGE>
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 15% of its total 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 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 on or before a specified future date and
13
<PAGE>
at a specified 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
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 (premiums paid) of all outstanding options on
securities held by the Company would exceed 5% of the market value of the
Company's total assets.
Stock or Other Financial Index Futures and Options. The Company is
authorized to engage in transactions in stock or other financial index options
and futures and related options on such futures. The Company may purchase or
write put and call options on stock or other financial 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 settlement, the parties to the contract pay or receive an amount of
cash equal to the difference between the closing value of the index on the
relevant valuation date and the exercise price of the option times a specified
multiple. The Company may invest in stock or other financial 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 or other financial 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 that
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 any particular 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
14
<PAGE>
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 is also authorized to purchase and write call and put options
on futures contracts (including financial futures) 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 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
("OTC") foreign currency options, foreign currency futures and related options
on foreign currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions 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
"spread"). 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 "spreads"
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
15
<PAGE>
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 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. If the Company enters into a position hedging
transaction, its custodian bank will place cash or liquid 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 ("CFTC") 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 OTC stock index options, OTC 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 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 15% of the total assets of
the Company, taken at market value, together with all other assets of the
Company which
16
<PAGE>
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 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 that 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.
There can be no assurance that a liquid secondary market for options or
futures traded on an exchange or in the OTC 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.
17
<PAGE>
Other Investment Practices
Non-Diversified Status. The Company is classified as non-diversified
within the meaning of the Investment Company Act of 1940, as amended (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 the securities of a
single issuer. The Company's investments will be limited, however, in order to
qualify for the special tax treatment afforded a regulated investment company
("RIC") under 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 that 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. The Company may experience
a high rate of portfolio turnover due, in large measure, to the traditional
volatility of technology stocks, which as a whole is considerably greater than
that of stocks generally. (The portfolio turnover rate is calculated by
dividing the lesser of the Company's purchases or sales 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 are one year or less)
for the particular fiscal period or year by the monthly average of the value of
the portfolio securities owned by the Company during the particular fiscal
year.) High portfolio turnover involves certain tax consequences and
correspondingly greater transaction costs in the form of dealer spreads and
brokerage commissions, which are borne directly by the Company. As a result of
its investment policies, the Company may, in any given year, realize a larger
percentage of short-term capital gains (generally, gains on securities held for
not more than one year) than long-term capital gains.
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
18
<PAGE>
amount equal to at least 100% of the current market value of the loaned
securities. During the period of such a loan, the Company receives the income
on both the loaned securities and the collateral and thereby increases its
yield.
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 (which for this purpose
and under the Investment Company Act means the lesser of (a) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares). Among its
fundamental policies, 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 (excluding the U.S. Government and its
agencies or instrumentalities). Investment restrictions and policies that are
non-fundamental policies may be changed by the Board of Directors without
shareholder approval. As a non-fundamental policy, the Company may not borrow
money or pledge its assets, except that the Company (a) may borrow from a bank
as a temporary measure for extraordinary or emergency purposes or to meet
redemptions in amounts not exceeding 33 1/3% (taken at market value) of its
total assets and pledge its assets to secure such borrowings, (b) may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (c) may purchase securities on margin to the
extent permitted by applicable law. (However, at the present time, applicable
law prohibits the Company from purchasing securities on margin.) (The deposit
or payment by the Company of initial or variation margin in connection with
futures contracts or options transactions is not considered to be the purchase
of a security on margin). The purchase of securities while borrowings are
outstanding will have the effect of leveraging the Company. Such leveraging or
borrowing increases the Company's exposure to capital risk, and borrowed funds
are subject to interest costs which will reduce net income.
As a non-fundamental policy, the Company will not invest in securities
which cannot be readily resold because of legal or contractual restrictions or
that cannot otherwise be marketed, redeemed or put to the issuer or a third
party, including repurchase agreements maturing in more than seven days, if,
regarding all such securities, more than 15% of its total assets taken at
market value would be invested in such securities. Notwithstanding the
foregoing, the Company may purchase without regard to this 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 and delegate to
the Investment Adviser the daily function of determining and monitoring
liquidity of restricted securities. The Board has determined that securities
which are freely tradeable in their primary market offshore should be deemed
liquid. The Board, however, will retain sufficient oversight and be ultimately
responsible for the determinations.
MANAGEMENT OF THE COMPANY
Board of Directors
The Board of Directors of the Company consists of six individuals, five 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.
19
<PAGE>
The Directors of the Company are:
ARTHUR ZEIKEL* -- Chairman of the Investment Adviser and its affiliate,
FAM; Chairman and Director of Princeton Services, Inc. ("Princeton Services");
and Executive Vice President of ML & Co.
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.
RICHARD R. WEST -- Dean Emeritus, New York University Leonard N. Stern
School of Business Administration.
EDWARD D. ZINBARG -- Former Executive Vice President of The Prudential
Insurance Company of America. --------
* Interested person, as defined in the Investment Company Act, of the Company.
Advisory and Management Arrangements
MLAM acts as the investment adviser. The Investment Adviser is owned and
controlled by ML & Co., a financial services holding company and the parent of
Merrill Lynch. The Asset Management Group of ML & Co. (which includes the
Investment Adviser), acts as the investment adviser to more than 100 registered
investment companies and offers portfolio management services to individuals
and institutions. As of May, 1998, the Asset Management Group had a total of
approximately $485 billion in investment company and other portfolio assets
under management. This amount includes assets managed for certain affiliates of
the Investment Adviser.
The Investment Adviser receives compensation at the annual rate of 1.0% of
the average daily net assets of the Company. For the fiscal year ended March
31, 1998, the fee paid by the Company to the Investment Adviser was $6,780,768
(based on average net assets of approximately $678.1 million). This fee is
higher than those of many other mutual funds but the Company believes it is
justified by the specialized investment focus of the Company.
The Company has entered into an investment advisory agreement with the
Investment Adviser (the "Investment Advisory Agreement"). The Investment
Advisory Agreement provides that, 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.
The Investment Adviser has entered into a sub-advisory agreement (the
"Sub-Advisory Agreement") with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K."), an indirect, wholly owned subsidiary of ML & Co. and an
affiliate of the Investment Adviser, pursuant to which the Investment Adviser
pays MLAM U.K. a fee for providing investment advisory services to the
Investment Adviser with respect to the Company in an amount to be determined
from time to time by the Investment Adviser and MLAM U.K. but in no event in
excess of the amount the Investment Adviser actually receives for providing
services to the Company pursuant to the Investment Advisory Agreement. For the
fiscal year ended March 31, 1998, the Investment Adviser paid MLAM U.K. no fee
pursuant to the Sub-Advisory Agreement. MLAM U.K. has offices at Milton Gate,
1 Moor Lane, London EC2Y 9HA, England.
20
<PAGE>
James K. Renck, First 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 predecessors since 1986. Mr. Renck has been
primarily responsible for the day-to-day management of the Company's investment
portfolio since its inception.
The Company pays certain expenses incurred in its operations, including,
among other things, taxes, expenses for legal and auditing services, costs of
printing proxies, stock certificates, shareholder reports, prospectuses and
statements of additional information. Also, accounting services are provided to
the Company by the Investment Adviser, and the Company reimburses the
Investment Adviser for its costs in connection with such services on a
semi-annual basis. For the fiscal year ended March 31, 1998, the Company
reimbursed the Investment Adviser $83,246 for accounting services. For the same
period, the ratio of total expenses to average net assets was 1.27% for Class A
shares, 2.31% for Class B shares, 2.33% for Class C shares and 1.52% for Class
D shares.
Code of Ethics
The Board of Directors of the Company has adopted a Code of Ethics under
Rule 17j-1 of the Investment Company Act that incorporates the Code of Ethics
of the Investment Adviser (together, the "Codes"). The Codes significantly
restrict the personal investing activities of all employees of the Investment
Adviser and, as described below, impose additional, more onerous, restrictions
on fund investment personnel.
The Codes require that all employees of the Investment Adviser preclear
any personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Investment Adviser include a ban on acquiring any securities
in a "hot" initial public offering and a prohibition from profiting on
short-term trading in securities. In addition, no employee may purchase or sell
any security which at the time is being purchased or sold (as the case may be),
or to the knowledge of the employee is being considered for purchase or sale,
by any fund advised by the Investment Adviser. Furthermore, the Codes provide
for trading "blackout periods" which prohibit trading by investment personnel
of the Company within periods of trading by the Company in the same (or
equivalent) security (15 or 30 days depending upon the transaction).
Transfer Agency Services
The Transfer Agent which is a subsidiary of ML & Co., acts as the
Company's transfer agent pursuant to a Transfer Agency, Dividend Disbursing
Agency and Shareholder Servicing Agency Agreement (the "Transfer Agency
Agreement"). Pursuant to the Transfer Agency Agreement, the Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreement, the Transfer Agent receives an annual fee of up to $11.00 per Class
A or Class D account and up to $14.00 per Class B or Class C account and is
entitled to reimbursement for certain transaction charges and out-of-pocket
expenses incurred by the Transfer Agent under the Transfer Agency Agreement.
Additionally, a $.20 monthly closed account charge will be assessed on all
accounts which close during the calendar year. Application of this fee will
commence the month following the month the account is closed. At the end of the
calendar year, no further fee will be due. For purposes of the Transfer Agency
Agreement, the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing a beneficial
interest of a person in the relevant share class on a record keeping system,
provided the record keeping system is maintained by a subsidiary of ML & Co.
For the fiscal year ended March 31, 1998, the Company paid the Transfer Agent
$1,572,787 pursuant to the Transfer Agency Agreement.
21
<PAGE>
PURCHASE OF SHARES
The Distributor, an affiliate of both the Investment Adviser and Merrill
Lynch, acts as the distributor of the shares of the Company. Shares of the
Company are offered continuously for sale by the Distributor and other eligible
securities dealers (including Merrill Lynch). Shares 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, and for
participants in certain fee-based programs, the minimum initial purchase is
$250 and the minimum subsequent purchase is $50.
The Company offers its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending upon
the class of shares selected by the investors under the Merrill Lynch Select
Pricing(SM) System, as described below. The applicable offering price for
purchase orders is based upon the net asset value of the Company next
determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to the close of business
on the New York Stock Exchange (the "NYSE"), (generally, 4:00 p.m., New York
time), which includes orders received after the close of business on the
previous day, the applicable offering price will be based on the net asset
value determined as of 15 minutes after the close of business on the NYSE on
that day provided the Distributor in turn receives the order from the
securities dealer prior to 30 minutes after the close of business on the NYSE
on that day. If the purchase orders are not received by the Distributor prior
to 30 minutes after the close of business on the NYSE, such orders shall be
deemed received on the next business day. The Company or the Distributor may
suspend the continuous offering of the Company's shares of any class at any
time in response to conditions in the securities markets or otherwise and may
thereafter resume such offering from time to time. Any order may be rejected by
the Distributor or the Company. Neither the Distributor nor the dealers are
permitted to withhold placing orders to benefit themselves by a price change.
Merrill Lynch may charge its customers a processing fee (presently $5.35) to
confirm a sale of shares to such customers. Purchases made directly through the
Transfer Agent are not subject to the processing fee.
The Company issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Shares of Class A and Class D are sold
to investors choosing the initial sales charge alternatives and shares of Class
B and Class C are sold to investors choosing the deferred sales charge
alternatives. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge or to
have the entire initial purchase price invested in the Company with the
investment thereafter being subject to a CDSC and ongoing distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select Pricing(SM) System is
set forth under "Merrill Lynch Select Pricing(SM) System" on page 4.
Each Class A, Class B, Class C and Class D share of the Company represents
identical interests in the investment portfolio of the Company and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The CDSCs, distribution and account maintenance fees that are imposed on Class
B and Class C shares, as well as the account maintenance fees that are imposed
on Class D shares, are imposed directly against those classes and not against
all assets of the Company and, accordingly, such charges do not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option.
22
<PAGE>
Dividends paid by the Company for each class of shares are calculated in the
same manner at the same time and differ only to the extent that account
maintenance and distribution fees and any incremental transfer agency costs
relating to a particular class are borne exclusively by that class. Class B,
Class C and Class D shares each have exclusive voting rights with respect to
the Rule 12b-1 distribution plan adopted with respect to such class pursuant to
which account maintenance and/or distribution fees are paid (except that Class
B shareholders may vote upon any material changes to expenses charged under the
Class D Distribution Plan). See "Distribution Plans" below. Each class has
different exchange privileges. See "Shareholder Services -- Exchange
Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the CDSCs and distribution fees with respect to Class B and Class C shares
in that the sales charges and distribution fees applicable to each class
provide for the financing of the distribution of the shares of the Company. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
Investors are advised that only Class A and Class D shares may be available for
purchase through securities dealers, other than Merrill Lynch, that are
eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
Account
Maintenance Distribution
Class Sales Charge(1) Fee Fee Conversion Feature
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
B CDSC for a period of four years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0%(4) eight years(5)
C 1.0% CDSC for one year(6) 0.25% 0.75% No
D Maximum 5.25% initial sales 0.25% No No
charge(3)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. CDSCs may be imposed if the redemption occurs
within the applicable CDSC time period. The charge will be assessed on an
amount equal to the lesser of the proceeds of the redemption or the cost
of the shares being redeemed.
(2) Offered only to eligible investors. See "Initial Sales Charge Alternatives
-- Class A and Class D Shares -- Eligible Class A Investors."
(3) Reduced for purchases of $25,000 or more, and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Certain Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but
instead may be subject to a 1.0% CDSC if redeemed within one year. Such
CDSC may be waived in connection with certain fee-based programs. A 0.75%
sales charge for 401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion price for dividend reinvestment shares, certain retirement
plans and certain fee-based programs may be modified. Also, Class B shares
of certain other MLAM-advised mutual funds into which exchanges may be
made have a ten year conversion period. If Class B shares of the Company
are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will
be tacked onto the holding period for the shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
23
<PAGE>
Initial Sales Charge Alternatives -- Class A and Class D Shares
Investors choosing the initial sales charge alternatives who are eligible
to purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
Sales Load Discount to
Sales Load as as Percentage* Selected Dealers
Percentage of of the Net as Percentage of
Amount of Purchase Offering Price Amount Invested the Offering Price
- ------------------------------------------- ---------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $25,000 ......................... 5.25% 5.54% 5.00%
$25,000 but less than $50,000 ............. 4.75 4.99 4.50
$50,000 but less than $100,000 ............ 4.00 4.17 3.75
$100,000 but less than $250,000 ........... 3.00 3.09 2.75
$250,000 but less than $1,000,000 ......... 2.00 2.04 1.80
$1,000,000 and over** ..................... 0.00 0.00 0.00
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on certain Class A and Class D
purchases of $1,000,000 or more, and on Class A purchases by certain
retirement plans and participants in connection with certain fee-based
programs. If the sales charge is waived, in connection with a purchase of
$1,000,000 or more, such purchases may be subject to a 1.0% CDSC if the
shares are redeemed within one year after purchase. Such CDSC may be waived
in connection with certain fee-based programs. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or the cost
of the shares being redeemed. A sales charge of 0.75% will be charged on
purchases of $1,000,000 or more of Class A or Class D shares by certain
employer-sponsored retirement or savings plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and
Class D shares of the Company will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act.
The proceeds from the account maintenance fees are used to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing
continuing account maintenance activities. During the fiscal year ended March
31, 1998, the Company sold 14,964,900 Class A shares for aggregate net proceeds
of $71,410,844. The gross sales charges for the sale of Class A shares of the
Company for that year were $25,038, of which $2,414 and $22,624 were received
by the Distributor and Merrill Lynch, respectively. During such period, the
Distributor received CDSCs of $34,938 with respect to redemption within one
year after purchase of Class A shares purchased subject to a front-end sales
charge waiver.
During the fiscal year ended March 31, 1998, the Company sold 4,505,104
Class D shares for aggregate net proceeds of $21,202,799. The gross sales
charges for the sale of Class D shares of the Company for that year were
$77,886, of which $5,656 and $72,230 were received by the Distributor and
Merrill Lynch, respectively. During such period, the Distributor received no
CDSCs with respect to redemptions within one year after purchase of Class D
shares purchased subject to a front-end sales charge waiver.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares of the
Company in a shareholder account, including participants in the Merrill Lynch
BlueprintSM Program, are entitled to purchase additional Class A shares of the
Company in that account. Certain employer sponsored retirement or savings
plans, including eligible 401(k) plans, may purchase Class A shares at net
asset value provided such plans meet the required minimum number of eligible
employees or required amount of assets advised by MLAM
24
<PAGE>
or any of its affiliates. Class A shares are available at net asset value to
corporate warranty insurance reserve fund programs and U.S. branches of foreign
owned banking institutions provided that the program or branch has $3 million or
more initially invested in MLAM-advised mutual funds. Also eligible to purchase
Class A shares at net asset value are participants in certain investment
programs including TMA(SM) Managed Trusts to which Merrill Lynch Trust Company
provides discretionary trustee services, collective investment trusts for which
Merrill Lynch Trust Company serves as trustee and purchases made in connection
with certain fee-based programs. In addition, Class A shares are offered at net
asset value to ML & Co. and its subsidiaries and their directors and employees
and to members of the Boards of MLAM-advised investment companies, including the
Company. Certain persons who acquired shares of certain MLAM-advised closed-end
funds in their initial offerings who wish to reinvest the net proceeds from a
sale of their closed-end fund shares of common stock in shares of the Company
also may purchase Class A shares of the Company if certain conditions set forth
in the Statement of Additional Information are met. In addition, Class A shares
of the Company and certain other MLAM-advised mutual funds are offered at net
asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
and, if certain conditions set forth in the Statement of Additional Information
are met, to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock pursuant to a
tender offer conducted by such funds in shares of the Company and certain other
MLAM-advised mutual funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D sales charges
also may be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under "Eligible Class A Investors." See
"Shareholder Services -- Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A or
Class D shares are offered at net asset value to Employee Access(SM) Accounts
available through authorized employers. Class A shares are offered at net asset
value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. and,
subject to certain conditions, Class A and Class D shares are offered at net
asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest in
shares of the Company the net proceeds from a sale of certain of their shares
of common stock, pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a Merrill Lynch Financial
Consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies. Class
D shares are offered with reduced sales charges and, in certain circumstances,
at net asset value, to participants in the Merrill Lynch Blueprint(SM) Program.
Additional information concerning these reduced initial sales charges is
set forth in the Statement of Additional Information.
Deferred Sales Charge Alternatives -- Class B and Class C Shares
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time
25
<PAGE>
of purchase. As discussed below, Class B shares are subject to a four-year CDSC
which declines each year, while Class C shares are subject only to a one-year
1.0% CDSC. On the other hand, approximately eight years after Class B shares
are issued, such Class B shares, together with shares issued upon dividend
reinvestment with respect to those shares are automatically converted into
Class D shares of the Company and thereafter will be subject to lower
continuing fees. See "Conversion of Class B Shares to Class D Shares" below.
Both Class B and Class C shares are subject to an account maintenance fee of
0.25% of net assets and a distribution fee of 0.75% of net assets as discussed
below under "Distribution Plans." The proceeds from the account maintenance
fees are used to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so
that the Company will receive the full amount of the investor's purchase
payment. Merrill Lynch compensates its Financial Consultants for selling Class
B and Class C shares at the time of purchase from its own funds. See
"Distribution Plans" below.
Proceeds from the CDSC and the distribution fee are paid to the
Distributor and are used in whole or in part by the Distributor to defray the
expenses of dealers (including Merrill Lynch) related to providing
distribution-related services to the Company in connection with the sale of
Class B and Class C shares, such as the payment of compensation to financial
consultants for selling Class B and Class C shares, from the dealers' own
funds. The combination of the CDSC and the ongoing distribution fee facilitates
the ability of the Company to sell the Class B and Class C shares without a
sales charge being deducted at the time of purchase. The proceeds from the
account maintenance fees are used to compensate Merrill Lynch for providing
continuing account maintenance activities. Approximately eight years after
issuance, Class B shares will convert automatically into Class D shares of the
Company, which are subject to an account maintenance fee but no distribution
fee; Class B shares of certain other MLAM-advised mutual funds into which
exchanges may be made convert into Class D shares automatically after
approximately ten years. If Class B shares of the Company are exchanged for
Class B shares of another MLAM-advised mutual fund, the conversion period
applicable to the Class B shares acquired in the exchange will apply, and the
holding period for the shares exchanged will be tacked onto the holding period
for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Limitations
on the Payment of Deferred Sales Charges" below. Class B shareholders of the
Company exercising the exchange privilege described under "Shareholder Services
- -- Exchange Privilege" will continue to be subject to the Company's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the
Class B shares acquired as a result of the exchange.
Contingent Deferred Sales Charges -- Class B Shares. Class B shares that
are redeemed within four years of purchase may be subject to a CDSC at the
rates set forth below charged as a percentage of the dollar amount subject
thereto. The charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed. Accordingly,
no CDSC will be imposed on increases in net asset value above the initial
purchase price. In addition, no CDSC will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
26
<PAGE>
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
Class B CDSC
as a Percentage
Year Since Purchase of Dollar Amount
Payment Made Subject to Charge
- ----------------------------- ------------------
<S> <C>
0-1 ...................... 4.00%
1-2 ...................... 3.00
2-3 ...................... 2.00
3-4 ...................... 1.00
4 and thereafter ......... 0.00
</TABLE>
For the fiscal year ended March 31, 1998, the Distributor received CDSCs
of $972,010 with respect to redemptions of Class B shares, all of which were
paid to Merrill Lynch. Additional CDSCs payable to the Distributor may have
been waived or converted to a contingent obligation in connection with a
shareholder's participation in certain fee-based programs.
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over four years or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the four-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
To provide an example, assume an investor purchases 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of
$10 per share and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged at a rate of
2.0% (the applicable rate in the third year after purchase for shares purchased
after October 21, 1994).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans. The CDSC also is waived for any Class B shares that
are purchased by eligible 401(k) or eligible 401(a) plans that are rolled over
into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in
such account at the time of redemption. The Class B CDSC is also waived for any
Class B shares purchased within qualifying Employee Access(SM) Accounts. The
Class B CDSC also is waived for any Class B shares which are purchased by a
Merrill Lynch rollover IRA that was funded by a rollover from a terminated
401(k) plan managed by the MLAM Private Portfolio Group and held in such
account at the time of redemption. Additional information concerning the waiver
of the Class B CDSC is set forth in the Statement of Additional Information.
The terms of the CDSC may be modified in connection with certain fee-based
programs. See "Shareholder Services -- Fee-Based Programs."
Contingent Deferred Sales Charges -- Class C Shares. Class C shares that
are redeemed within one year after purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject thereto. The charge will
be assessed on an amount equal to the lesser of the proceeds of redemption or
the cost of the
27
<PAGE>
shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from reinvestment of dividends
or capital gains distributions. The CDSC may be waived in connection with
certain fee-based programs. See "Shareholder Services -- Fee-Based Programs."
For the fiscal year ended March 31, 1998, the Distributor received CDSCs of
$9,956 with respect to redemptions of Class C shares, all of which were paid to
Merrill Lynch.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or distributions and then of shares held longest
during the one-year period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of purchase. A
transfer of shares from a shareholder's account to another account will be
assumed to be made in the same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately eight
years (the "Conversion Period"), Class B shares will be converted automatically
into Class D shares of the Company. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of the net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
"Conversion Date") on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of the Company in a single account will result in less than $50 worth
of Class B shares being left in the account, all of the Class B shares of the
Company held in the account on the Conversion Date will be converted to Class D
shares of the Company.
Share certificates for Class B shares of the Company to be converted must
be delivered to the Transfer Agent at least one week prior to the Conversion
Date applicable to those shares. In the event such certificates are not
received by the Transfer Agent at least one week prior to the Conversion Date,
the related Class B shares will convert to Class D shares on the next scheduled
Conversion Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will
convert approximately eight years after initial purchase, and Class B shares of
taxable and tax-exempt fixed income MLAM-advised mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion Period, or vice versa, the
Conversion Period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will be tacked onto
the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised mutual
funds held in that Class B Retirement Plan will be converted into Class D
shares of the appropriate funds. Subsequent
28
<PAGE>
to such conversion, that Class B Retirement Plan will be sold Class D shares of
the appropriate funds at net asset value per share.
The Conversion Period also may be modified for retirement plan investors
which participate in certain fee-based programs. See "Shareholder Services --
Fee-Based Programs."
Distribution Plans
The Company has adopted separate distribution plans for Class B, Class C
and Class D shares pursuant to Rule 12b-1 under the Investment Company Act
(each a "Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Company to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment of
account maintenance fees and distribution fees, and the Class D Distribution
Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each
provide that the Company pays the Distributor an account maintenance fee
relating to the shares of the relevant class, accrued daily and paid monthly,
at the annual rate of 0.25% of the average daily net assets of the Company
attributable to shares of the relevant class in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) in connection with
account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that
the Company also pays the Distributor a distribution fee relating to the shares
of the relevant class, accrued daily and paid monthly, at the annual rate of
0.75% of the average daily net assets of the Company attributable to the shares
of the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Company
including payments to financial consultants for selling Class B and Class C
shares of the Company. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C
shares through dealers without the assessment of an initial sales charge and at
the same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Company in that the deferred sales charges provide for the
financing of the distribution of the Company's Class B and Class C shares.
For the fiscal year ended March 31, 1998, the Company paid the Distributor
$3,750,829 pursuant to the Class B Distribution Plan (based on average daily
net assets subject to such Class B Distribution Plan of approximately $375.1
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. For the fiscal year ended March 31, 1998, the Company paid the
Distributor $196,363 pursuant to the Class C Distribution Plan (based on
average daily net assets subject to such Class C Distribution Plan of
approximately $19.6 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with Class C shares. For the fiscal year ended March 31, 1998,
the Company paid the Distributor $101,081 pursuant to the Class D Distribution
Plan (based on average daily net assets subject to such Class D Distribution
Plan of approximately $40.4 million) all of which was paid to Merrill Lynch for
providing account maintenance activities in connection with Class D shares.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses is
presented to the Directors for their consideration in connection with
29
<PAGE>
their deliberations as to the continuance of the Class B and Class C
Distribution Plans. This information is presented annually as of December 31 of
each year on a "fully allocated accrual" basis and quarterly on a "direct
expense and revenue/cash" basis. On the fully allocated accrual basis, revenues
consist of the account maintenance fees, distribution fees, CDSCs and certain
other related revenues, and expenses consist of financial consultant
compensation, branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the direct expense and
revenue/cash basis, revenues consist of the account maintenance fees,
distribution fees and CDSCs, and the expenses consist of financial consultant
compensation.
As of December 31, 1997, the fully allocated accrual expenses for Class B
shares for the period since April 27, 1992 (commencement of operations)
exceeded fully allocated accrual revenues for such period by approximately
$4,172,000 (1.43% of Class B net assets at that date). As of March 31, 1998,
for Class B shares, direct cash revenues for the period since April 27, 1992
(commencement of operations) exceeded direct cash expenses by $17,046,613
(5.98% of Class B net assets at that date). As of December 31, 1997, the fully
allocated accrual expenses for Class C shares for the period since October 21,
1994 (commencement of operations) exceeded fully allocated accrual revenues for
such period by approximately $443,000 (2.82% of Class C net assets at that
date). As of March 31, 1998, for Class C shares, direct cash revenues for the
period since October 21, 1994 (commencement of operations) exceeded direct cash
expenses by $579,614 (3.76% of Class C net assets at that date).
The Company has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with Class B, Class C and Class D shares, and there is no assurance
that the Directors of the Company will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or
distribution of each class of shares separately. The initial sales charges, the
account maintenance fee, the distribution fee and/or the CDSCs received with
respect to one class will not be used to subsidize the sale of shares of
another class. Payments of the distribution fee on Class B shares will
terminate upon conversion of those Class B shares into Class D shares as set
forth under "Deferred Sales Charge Alternatives -- Class B and Class C Shares
- -- Conversion of Class B Shares to Class D Shares."
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution fee
and the CDSC borne by the Class B and Class C shares but not the account
maintenance fee. The maximum sales charge rule is applied separately to each
class. As applicable to the Company, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the Company to (1)
6.25% of eligible gross sales of Class B shares and Class C shares computed
separately (defined to exclude shares issued pursuant to dividend reinvestments
and exchanges) plus (2) interest on the unpaid balance for the respective
class, computed separately, at the prime rate plus 1% (the unpaid balance being
the maximum amount payable minus amounts received from the payment of the
distribution fees and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Company will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Company rather than to the Distributor;
however,
30
<PAGE>
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.
REDEMPTION OF SHARES
The Company is required to redeem for cash all shares of the Company on
receipt of a written request in proper form. The redemption price is the net
asset value per share next determined after the initial receipt of proper
notice of redemption. Except for any CDSC that may be applicable, there will be
no charge for redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption. The value
of shares at the time of redemption may be more or less than the shareholder's
cost, depending on the market value of the securities held by the Company at
such time.
Redemption
A shareholder wishing to redeem shares may do so, without charge, by
tendering the shares directly to the Transfer Agent, Merrill Lynch Financial
Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to Merrill
Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares deposited
with the Transfer Agent may be accomplished by a written letter requesting
redemption. Proper notice of redemption in the case of shares for which
certificates have been issued may be accomplished by a written letter as noted
above accompanied by certificates for the shares to be redeemed. Redemption
requests should not be sent to the Company. The redemption request 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 it has assured
itself that 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 NYSE (generally, 4:00 p.m., New York time) on the day received and such
request is received by the Company from such dealer not later than 30 minutes
after the close of business on the NYSE on the same day. Dealers have the
responsibility of submitting such repurchase
31
<PAGE>
requests to the Company not later than 30 minutes after the close of business
on the NYSE in order to obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Company (other than any
applicable CDSC). Securities firms that 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 $5.35) to confirm a
repurchase of shares to such customers. Repurchases made 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. However, a shareholder whose order for repurchase is rejected by the
Company may redeem shares as set forth above.
Redemption payments will be made within seven days of the proper tender of
the certificates, if any, and stock power or letter requesting redemption, in
each instance with signatures guaranteed as noted above.
Reinstatement Privilege -- Class A and Class D Shares
Shareholders who have redeemed their Class A or Class D shares have a
privilege to reinstate their accounts by purchasing Class A or Class D shares,
as the case may be, of the Company at net asset value without a sales charge up
to the dollar amount redeemed. The reinstatement privilege may be exercised by
sending a notice of exercise along with a check for the amount to be reinstated
to the Transfer Agent within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor's Merrill Lynch
financial consultant 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.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services and investment plans
described below that are designed to facilitate investment in shares of the
Company. Certain of such services are not available to investors who place
purchase orders for the Company's shares through the Merrill Lynch Blueprint(SM)
Program. Full details as to each of such services, copies of the various plans
described below and instructions as to how to participate in the various
services or plans, or to change options with respect thereto, can be obtained
from the Company, the Distributor or Merrill Lynch. Certain of these services
are available only to U.S. investors.
Investment Account
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestment of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his or her Investment
Account at any time by mailing a check directly to the Transfer Agent.
Shareholders also may maintain their accounts through Merrill Lynch. Upon the
transfer of shares out of a Merrill Lynch brokerage account, an Investment
Account in the transferring shareholder's name will be opened automatically,
without charge, at the Transfer Agent.
32
<PAGE>
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Company, a shareholder
either must redeem the Class A or Class D shares (paying any applicable CDSC)
so that the cash proceeds can be transferred to the account at the new firm or
such shareholder must continue to maintain an Investment Account at the
Transfer Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an
account registered in the name of the brokerage firm for the benefit of the
shareholder at the Transfer Agent. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that
he or she be issued certificates for such shares and then must turn the
certificates over to a new firm for re-registration as described in the
preceding sentence. Shareholders considering transferring a tax-deferred
retirement account such as an IRA from Merrill Lynch to another brokerage firm
or financial institution should be aware that, if the firm to which the
retirement account is to be transferred will not take delivery of shares of the
Company, a shareholder must either redeem the shares (paying any applicable
CDSC) so that the cash proceeds can be transferred to the account at the new
firm, or such shareholder must continue to maintain a retirement account at
Merrill Lynch for those shares.
Systematic Withdrawal Plans
A shareholder may elect to receive systematic withdrawal payments from his
or her Investment Account in the form of payments by check or through automatic
payment by direct deposit to his or her bank account on either a monthly or
quarterly basis. 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. With respect to redemptions of Class B
and Class C shares pursuant to a systematic withdrawal plan, the maximum number
of Class B and Class C shares that can be redeemed from an account annually
shall not exceed 10% of the value of shares of such class in that account at
the time the election to join the systematic withdrawal plan was made. Any CDSC
that otherwise might be due on such redemption of Class B or Class C shares
will be waived. Shares redeemed pursuant to a systematic withdrawal plan will
be redeemed in the same order as Class B or Class C shares are otherwise
redeemed. See "Purchase of Shares -- Deferred Sales Charge Alternatives --
Class B and Class C Shares -- Contingent Deferred Sales Charges -- Class B
Shares" and " -- Contingent Deferred Sales Charges -- Class C Shares." Where
the systematic withdrawal plan is applied to Class B shares, upon conversion of
the last Class B shares in an account to Class D shares, the systematic
withdrawal plan will automatically be applied thereafter to Class D shares. See
"Purchase of Shares -- Deferred Sales Charge Alternatives -- Class B and Class
C Shares -- Conversion of Class B Shares to Class D Shares."
Automatic Investment Plans
Regular additions of Class A, Class B, Class C or Class D shares may be
made to an investor's Investment Account by prearranged charges of $50 or more
to his or her regular bank account. Investors who maintain CMA(R) or CBA(R)
accounts may arrange to have periodic investments made in the Company in their
CMA(R) or CBA(R) accounts or in certain related accounts in amounts of $100 or
more through the CMA(R) or CBA(R) Automated Investment Program.
33
<PAGE>
Automatic Reinvestment of Dividends and Capital Gains 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 business on the NYSE
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 by telephone
(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 (provided
that, in the event that a payment on an account maintained at the Transfer
Agent would amount to $10.00 or less, a shareholder will not receive such
payment in cash and such payment will automatically be reinvested in additional
shares). Cash payments can also be directly deposited to the shareholder's bank
account. No CDSC will be imposed on redemption of shares issued as a result of
the automatic reinvestment of dividends or capital gains distributions. The
Company is not responsible for any failure of delivery to the shareholder's
address of record and no interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Exchange Privilege
U.S. shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission.
Under the Merrill Lynch Select Pricing(SM) System, Class A shareholders may
exchange Class A shares of the Company for Class A shares of a second
MLAM-advised mutual fund if the shareholder holds any Class A shares of the
second fund in his or her account in which the exchange is made at the time of
the exchange or is otherwise eligible to purchase Class A shares of the second
fund. If the Class A shareholder wants to exchange Class A shares for shares of
a second MLAM-advised mutual fund, and the shareholder does not hold Class A
shares of the second fund in his or her account at the time of the exchange and
is not otherwise eligible to acquire Class A shares of the second fund, the
shareholder will receive Class D shares of the second fund as a result of the
exchange. Class D shares also may be exchanged for Class A shares of a second
MLAM-advised mutual fund at any time as long as, at the time of the exchange
the shareholder holds Class A shares of the second fund in the account in which
the exchange is made or is otherwise eligible to purchase Class A shares of the
second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the Class A or Class D shares being exchanged and the sales charge
payable at the time of the exchange on the shares being acquired. Class B,
Class C and Class D shares are exchangeable with shares of the same class of
other MLAM-advised mutual funds.
Shares of the Company that are subject to a CDSC are exchangeable on the
basis of relative net asset value per share without the payment of any CDSC
that might otherwise be due upon redemption of the shares of the Company. For
purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Company is "tacked" to the holding period for the newly acquired
shares of the other fund.
Class A, Class B, Class C and Class D shares also are exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C
34
<PAGE>
or Class D shares. The period of time that Class A, Class B, Class C or Class D
shares are held in a money market fund, however, will not count toward
satisfaction of the holding period requirement for reduction of any CDSC
imposed on such shares, if any, and, with respect to Class B shares, toward
satisfaction of the Conversion Period.
Class B shareholders of the Company exercising the exchange privilege will
continue to be subject to the Company's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the new Class B shares. In addition,
Class B shares of the Company acquired through use of the exchange privilege
will be subject to the Company's CDSC schedule if such schedule is higher than
the CDSC schedule relating to the Class B shares of the MLAM-advised mutual
fund from which the exchange has been made.
Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services -- Exchange Privilege" in
the Statement of Additional Information.
Fee-Based Programs
Certain Merrill Lynch fee-based programs, including pricing alternatives
for securities transactions (each referred to in this paragraph as a
"Program"), may permit the purchase of Class A shares at net asset value. Under
specified circumstances, participants in certain Programs may deposit other
classes of shares which will be exchanged for Class A shares. Initial or
deferred sales charges otherwise due in connection with such exchanges may be
waived or modified, as may the Conversion Period applicable to the deposited
shares. Termination of participation in a Program may result in the redemption
of shares held therein or the automatic exchange thereof to another class at
net asset value, which may be shares of a money market fund. In addition, upon
termination of participation in a Program, shares that have been held for less
than specified periods within such Program may be subject to a fee based upon
the current value of such shares. These Programs also generally prohibit such
shares from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance
fees) in order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program) is
available in such Program's client agreement and from the Transfer Agent at
(800) MER-FUND or (800) 637-3863.
PERFORMANCE DATA
From time to time the Company may include its average annual total return
for various specified time periods in advertisements or information furnished
to present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with
a formula specified by the Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on net
investment income and any capital gains or losses on portfolio investments over
such periods) that would equate the initial amount invested to the redeemable
value of such investment at the end of each period. Average annual total return
will be computed assuming all dividends and distributions are reinvested and
taking into account all applicable recurring and nonrecurring expenses,
including any CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period such as in the case of Class B
and Class C shares and the maximum sales charge in the case of Class A and
35
<PAGE>
Class D shares. Dividends paid by the Company with respect to all shares, to
the extent any dividends are paid, will be calculated in the same manner at the
same time on the same day and will be in the same amount, except that account
maintenance and distribution fees and any incremental transfer agency costs
relating to each class of shares will be borne exclusively by that class. The
Company will include performance data for all classes of shares of the Company
in any advertisement or information including performance data of the Company.
The Company also may quote total return and aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return, and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates of
return calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual annual
or annualized total return data generally will be lower than average annual
total return data since the average annual rates of return reflect compounding;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over longer
periods of time. In advertisements distributed to investors whose purchases are
subject to reduced sales charges in the case of Class A and Class D shares or
waiver of the CDSC in the case of Class B and Class C shares (such as investors
in certain retirement plans), performance data may take into account the
reduced, and not the maximum, sales charge or may not take into account the
CDSC and therefore may reflect greater total return since, due to the reduced
sales charges or waiver of the CDSC, a lower amount of expenses may be
deducted. See "Purchase of Shares". The Company's total return may be expressed
either as a percentage or as a dollar amount in order to illustrate the effect
of such total return on a hypothetical $1,000 investment in the Company at the
beginning of each specified period.
Total return figures are based on the Company's historical performance and
are not intended to indicate future performance. The Company's total return
will vary depending on market conditions, the securities comprising the
Company's portfolio, the Company's operating expenses and the amount of
realized and unrealized net capital gains or losses during the period. The
value of an investment in the Company will fluctuate, and an investor's shares,
when redeemed, may be worth more or less than their original cost.
On occasion, the Company may compare its performance to the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average, or
performance data published by Lipper Analytical Services, 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
indicative of the Company's relative performance for any future period.
ADDITIONAL INFORMATION
Dividends and Distributions
It is the Company's intention to distribute all its net investment income,
if any. Dividends from such net investment income will be paid at least
annually. All net realized long- or short-term capital gains, if any, will be
distributed to the Company's shareholders at least annually. The per share
dividends and distributions on each class of shares will be reduced as a result
of any account maintenance, distribution and transfer agency fees applicable to
that class. See "Additional Information -- Determination of Net Asset Value."
Dividends and distributions will be reinvested automatically in shares of the
Company at net asset value without a sales charge. However, a shareholder whose
account is maintained at the Transfer Agent or whose account is maintained
through Merrill
36
<PAGE>
Lynch may elect in writing to receive any such dividends or distributions, or
both, in cash (provided that, in the event that a payment on an account
maintained at the Transfer Agent would amount to $10.00 or less, a shareholder
will not receive such payment in cash and such payment will automatically be
reinvested in additional shares). Dividends and distributions are taxable to
shareholders as discussed below whether they are reinvested in shares of the
Company or received in cash. From time to time, the Company may declare a
special distribution at or about the end of the calendar year in order to
comply with Federal tax requirements that certain percentages of its ordinary
income and capital gains be distributed during the year.
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 income dividend distributions, and (b) all or a portion of
distributions made before the losses were realized but in the same taxable year
would be recharacterized as a return of capital to shareholders, rather than as
an ordinary income dividend, thereby reducing each shareholder's tax basis in
Company shares for Federal income tax purposes and resulting in a capital gain
for any shareholder who received a distribution greater than the shareholder's
tax basis in Company shares (assuming that the shares were held as a capital
asset). For a detailed discussion of the Federal tax considerations relevant to
foreign currency transactions, see "Additional Information -- Taxes."
Taxes
The Company intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as it
so qualifies, the Company (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains which it distributes to Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). The Company intends to distribute
substantially all of such income.
Dividends paid by the Company from its ordinary income or from an excess
of net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses 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 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). Recent
legislation creates additional categories of capital gains taxable at different
rates. Generally 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, as well as
the amount of capital gain dividends in the different categories of capital
gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Company. 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 to
shareholders who are nonresident aliens or foreign entities will be subject to
37
<PAGE>
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. In addition, recent
legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend only if the shareholder meets certain holding
period requirements. If more than 50% in value of the Company's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Company will be eligible, and intends, to file an election with the
Internal Revenue Service pursuant to which shareholders of the Company will be
required to include their proportionate shares of such withholding taxes in
their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their U.S. income taxes. In the case of foreign taxes passed through by a RIC,
the holding period requirements referred to above must be met by both the
shareholder and the RIC. 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 and other information necessary
to claim the foreign tax credit.
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 income dividend distributions, and all or a portion of 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).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis
in the Class D shares acquired will be the same as such shareholder's basis in
the Class B shares converted, and the holding period of the acquired Class D
shares will include the holding period for the converted Class B shares.
38
<PAGE>
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Company on the exchanged shares reduces any sales charge the
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The 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, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Company.
Determination of Net Asset Value
Net asset value per share for all classes of the Company is determined
once daily as of 15 minutes after the close of business on the NYSE (generally,
4:00 p.m., New York time), on each day during which the NYSE is open for
trading or on such other day that there is sufficient trading in portfolio
securities that the net asset value of the Company's shares may be materially
affected. 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 sum of the market values
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 to the nearest cent. Expenses, including the fees payable to the
Investment Adviser and any account maintenance and/or distribution fees payable
to the Distributor, are accrued daily. The per share net asset value of Class A
shares generally will be higher than the per share net asset value of shares of
the other classes, reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to Class B and Class C shares and the daily expense accruals of the
account maintenance fees applicable with respect to Class D shares; in
addition, the per share net asset value of Class D shares generally will be
higher than the per share net asset value of Class B and Class C shares,
reflecting the daily expense accruals of the distribution and higher transfer
agency fees applicable with respect to Class B and Class C shares. It is
expected, however, that the per share net asset value of the classes will tend
to converge (although not necessarily meet) immediately after the payment of
dividends or distributions which will differ by approximately the amount of the
expense accrual differentials between the classes.
39
<PAGE>
Portfolio securities that 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 for long positions and
at the last available ask price for short positions. 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. Long positions in securities traded in the OTC market are valued at the
last available bid price in the OTC market prior to the time of valuation.
Short positions in securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of valuation.
Securities which are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market. When the
Company writes an option, the amount of the premium received is recorded on the
books of the Company as an asset and an equivalent liability. The amount of the
liability is subsequently valued to reflect the current market value of the
option written, based upon the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last asked
price. Options purchased by the Company are valued at their last sale price in
the case of exchange-traded options or, in the case of options traded in the
OTC market, the last bid price. Other investments, including futures contracts
and related options, are stated at market value. Securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of 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) to the Company in exchange for all of the
stock of the Company (other than seed capital), which Sci/Tech then distributed
pro rata to its stockholders. Thus, the Company's initial portfolio of
technology oriented securities consisted of securities received from Sci/Tech.
Sci/Tech retained its healthcare related investments, changed its name, and now
operates as Merrill Lynch Healthcare Fund, Inc.
The Company was incorporated under Maryland law on August 27, 1991. At the
date of this Prospectus, the Company has an authorized capital of 800,000,000
shares of Common Stock, par value $0.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock. Class A and
Class C each consists of 100,000,000 shares and Class B and Class D each
consists of 300,000,000 shares. Shares of Class A, Class B, Class C and Class D
Common Stock represent interests in the same assets of the Company and are
identical in all respects except that Class B, Class C and Class D shares bear
certain expenses relating to the account maintenance associated with such
shares, and Class B and Class C shares bear certain expenses relating to the
distribution of such shares. Each class has exclusive voting rights with
respect to matters relating to account maintenance and distribution
expenditures, as applicable. See "Purchase of Shares." The Company has received
an order from the Commission permitting the issuance and sale of multiple
classes of Common Stock. The Directors of the Company may classify and
reclassify the shares of the Company into additional classes of Common Stock at
a future date.
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
40
<PAGE>
auditors. Voting rights for Directors are not cumulative. Shares issued are
fully paid and non-assessable and have no preemptive rights. Shares have the
conversion rights described in this Prospectus. Each share of Common Stock is
entitled to participate equally in dividends and distributions declared by the
Company and in the net assets of the Company upon liquidation or dissolution
after satisfaction of outstanding liabilities, except that, as noted above, the
Class B, Class C and Class D shares bear certain additional expenses.
Shareholder Reports
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts, the shareholder should notify in writing:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and/or mutual fund account numbers. If you have any questions
regarding this, please call your Merrill Lynch Financial Consultant or Merrill
Lynch Financial Data Services, Inc. at 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.
Year 2000 Issues
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Company could be
adversely affected if the computer systems used by the Investment Adviser or
other Company service providers do not properly address this problem prior to
January 1, 2000. The Investment Adviser has established a dedicated group to
analyze these issues and to implement any systems modifications necessary to
prepare for the Year 2000. Currently, the Investment Adviser does not
anticipate that the transition to the 21st century will have any material
impact on its ability to continue to service the Company at current levels. In
addition, the Investment Adviser has sought assurances from the Company's other
service providers that they are taking all necessary steps to ensure that their
computer systems will accurately reflect the Year 2000, and the Investment
Adviser will continue to monitor the situation. At this time, however, no
assurance can be given that the Company's other service providers have
anticipated every step necessary to avoid any adverse effect on the Company
attributable to the Year 2000 Problem.
41
<PAGE>
[This page intentionally left blank.]
42
<PAGE>
MERRILL LYNCH TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM (PART 1)
Note: This form may not be used for purchases through the Merrill Lynch
Blueprint(SM) Program. You may request a Merrill Lynch Blueprint(SM)
Program application by calling (800) 637-3766.
==============================================================================
1. Share Purchase Application
I, being of legal age, wish to purchase: (choose one)
[ ] Class A shares [ ] Class B shares [ ] Class C shares [ ] Class D shares
of Merrill Lynch Technology Fund, Inc., and establish an Investment Account as
described in the Prospectus. In the event that I am not eligible to purchase
Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $................... payable to Merrill Lynch
Financial Data Services, Inc. as an initial investment (minimum $1,000).
I understand that this purchase will be executed at the applicable
offering price next to be determined after this Application is received
by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: Please list all funds. (Use a separate sheet of
paper if necessary.)
1.
2.
3.
4.
5.
6.
Name .....................................................................
First Name Initial Last Name
Name of Co-Owner (if any) ...............................................
First Name Initial Last Name
Address................................................................ ..
(Zip Code)
Date................................................................... ..
Occupation............................................................. ..
Signature of Owner
Name and Address of Employer..............................................
Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
==============================================================================
2. Dividend and Capital Gain Distribution Options
Ordinary Income Dividends
Select [ ] Reinvest
One: [ ] Cash
Long-Term Capital Gains
Select [ ] Reinvest
One: [ ] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
If cash, specify how you would like your distributions paid to you: [ ] Check
or [ ] Direct Deposit to bank account
If direct deposit to bank account is selected, please complete below:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Technology Fund, Inc. Authorization Form.
Specify type of account (check one): [ ] checking [ ] savings
Name on your account......................................................
Bank Name.................................................................
Bank Number...............................................................
Account Number ...........................................................
Bank Address..............................................................
I agree that this authorization will remain in effect until I provide written
notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Signature of Depositor....................................................
Signature of Depositor..............................Date..................
(If joint account, both must sign)
Note: If direct deposit to bank account is selected, your blank, unsigned check
marked "VOID" or a deposit slip from your savings account should accompany this
application.
43
<PAGE>
MERRILL LYNCH TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM (PART 1) --
(Continued)
3. Social Security or Taxpayer Identification Number
--------------------------------------------------------
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed under "Additional
Information -- Taxes") either because I have not been notified that I am
subject thereto as a result of a failure to report all interest or dividends,
or the Internal Revenue Service ("IRS") has notified me that I am no longer
subject thereto.
Instruction: You must strike out the language in (2) above if you have been
notified that you are subject to backup withholding due to under-reporting and
if you have not received a notice from the IRS that backup withholding has been
terminated. The undersigned authorizes the furnishing of this certification to
other Merrill Lynch-sponsored mutual funds.
- --------------------------------- -----------------------------
Signature of Owner Signature of Co-Owner (if
any)
4. Letter of Intention -- Class A and Class D shares only (See terms and
conditions in the Statement of Additional Information)
................................, 19............
Dear Sir/Madam: Date of Initial Purchase
Although I am not obligated to do so, I intend to purchase shares of
Merrill Lynch Technology Fund, Inc. or any other investment company with an
initial sales charge or deferred sales charge for which Merrill Lynch Funds
Distributor, Inc. acts as distributor over the next 13 month period which will
equal or exceed:
[ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Fund's prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc. my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Technology Fund, Inc. held as security.
By:.................................... ......................................
Signature of Owner Signature of Co-Owner
(if registered in joint names,
both must sign)
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
(1) Name.............................. (2) Name .............................
Account Number........................ Account Number........................
5. For Dealer Only
Branch Office, Address, Stamp.
- ----
----
- ----
----
This form when completed, should be mailed to:
Merrill Lynch Technology Fund, Inc.
c/o Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, FL 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 or sales made under a Letter of
Intention, Automatic Investment Plan or Systematic Withdrawal Plan. We
guarantee the shareholder's signature.
Dealer Name and Address
By:.......................................................................
Authorized Signature of Dealer
- ------------ ----------------
- ------------ ---------------- .......................
Branch Code F/C No. F/C Last Name
- ------------ ---------------------
- ------------ ---------------------
Dealer's Customer A/C No.
44
<PAGE>
MERRILL LYNCH TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM (PART 2)
Note: This form is required to apply for the Systematic Withdrawal or Automatic
Investment Plans only.
============================================================================
1. Account Registration
Name of Owner.............................................................
Name of Co-Owner (if any).................................................
Address...................................................................
.........................................................................
[ ]
Social Security No.
or Taxpayer Identification Number
Account Number............................................................
(if existing account)
2. Systematic Withdrawal Plan (See terms and conditions in the Statement of
Additional Information)
Minimum Requirements: $10,000 for monthly disbursements, $5,000 for quarterly,
of [ ] Class A, [ ] Class B*, [ ] Class C* or [ ] Class D shares in Merrill
Lynch Technology Fund, Inc., at cost or current offering price. Withdrawals to
be made either (check one) [ ] Monthly on the 24th day of each month, or [ ]
Quarterly on the 24th day of March, June, September and December. If the 24th
falls on a weekend or holiday, the next succeeding business day will be
utilized. Begin systematic withdrawal in ------- or as soon as possible
thereafter. (month)
Specify the amount of the withdrawal you would like paid to you: $------ of
(check one) [ ] Class A, [ ] Class B*, [ ] Class C* or [ ] Class D shares in
the account.
Specify withdrawal method: [ ] check or [ ] direct deposit to bank account
(check one and complete part (a) or (b) below):
Draw checks payable (check one)
(a) I hereby authorize payment by check
[ ] as indicated in Item 1.
[ ] to the order of..................................................
Mail to (check one)
[ ] the address indicated in Item 1.
[ ] Name (Please Print)..............................................
Address...................................................................
...................................................................
Signature of Owner..............................Date .....................
Signature of Co-Owner (if any) ...........................................
(b) I hereby authorize payment by direct deposit to my bank account and (if
necessary) debit entries and adjustments for any credit entries made to my
account. I agree that this authorization will remain in effect until I provide
written notification to Merrill Lynch Financial Data Services, Inc. amending or
terminating this service.
Specify type of account (check one): [ ] checking [ ] savings
Name on your Account......................................................
Bank Name.................................................................
Bank Number...............................................................
Account Number............................................................
Bank Address..............................................................
.........................................Date .....................
Signature of Depositor....................................................
Signature of Depositor....................................................
(if joint account, both must sign)
Note: If direct deposit is elected, your blank, unsigned check marked "VOID" or
a deposit slip from your savings account should accompany this Application.
- --------
* Annual withdrawal cannot exceed 10% of the value of shares of such class held
in the account at the time the election to join the systematic withdrawal
plan is made.
45
<PAGE>
MERRILL LYNCH TECHNOLOGY FUND, INC. -- AUTHORIZATION FORM (PART 2) --
(Continued)
3. Application for Automatic Investment Plan
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account described below
each month to purchase: (choose one)
[ ] Class A shares [ ] Class B shares [ ] Class C shares [ ] Class D shares
of Merrill Lynch Technology Fund, Inc., subject to the terms set forth below.
In the event that I am not eligible to purchase Class A shares, I understand
that Class D shares will be purchased.
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw checks or an ACH debit each month
on my bank account for investment in Merrill Lynch Technology Fund, Inc. as
indicated below:
Amount of each ACH debit $..............................................
Account Number..........................................................
Please date and invest ACH debits on the 20th of each month beginning ------
or as soon as possible thereafter. (month)
I agree that you are drawing these ACH debits voluntarily at my request and that
you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of Company shares including liquidating shares of the
Company and crediting my bank account. I further agree that if a debit is not
honored upon presentation, Merrill Lynch Financial Data Services, Inc. is
authorized to discontinue immediately the Automatic Investment Plan and to
liquidate sufficient shares held in my account to offset the purchase made with
the returned dishonored debit.
Date .............................. ...................................
Signature of Depositor
...................................
Signatureof Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY MERRILL LYNCH FINANCIAL DATA
SERVICES, INC.
To......................................................................Bank
(Investor's Bank)
Bank Address................................................................
City .......................State ...................Zip Code ..............
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Merrill Lynch
Financial Data Services, Inc. I agree that your rights in respect to each such
debit shall be the same as if it were a check drawn on you and signed personally
by me. This authority is to remain in effect until revoked by me in writing.
Until you receive such notice, you shall be fully protected in honoring any such
debit. I further agree that if any such debit be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability.
Date .............................. ...................................
Signature of Depositor
................................... ...................................
Bank Account Number Signatureof Depositor
(If joint account, both must sign)
Note: If Automatic Investment Plan is elected, your blank, unsigned check
marked "VOID" should accompany this application.
46
<PAGE>
Investment Adviser
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
Distributor
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
Custodian
The Chase Manhattan Bank
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
Independent Auditors
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
Counsel
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
<PAGE>
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
Merrill Lynch Select Pricing(SM) System ............ 4
Financial Highlights ............................. 8
Risk Factors and Special Considerations .......... 10
Investment Objective and Policies ................ 12
Hedging Techniques ............................ 13
Other Investment Practices .................... 18
Investment Restrictions ....................... 19
Management of the Company ........................ 19
Board of Directors ............................ 19
Advisory and Management Arrangements .......... 20
Code of Ethics ................................ 21
Transfer Agency Services ...................... 21
Purchase of Shares ............................... 22
Initial Sales Charge Alternatives -- Class A
and Class D Shares ......................... 24
Deferred Sales Charge Alternatives --
Class B and Class C Shares ................. 25
Distribution Plans ............................ 29
Limitations on the Payment of Deferred Sales
Charges .................................... 30
Redemption of Shares ............................. 31
Redemption .................................... 31
Repurchase .................................... 31
Reinstatement Privilege -- Class A and
Class D Shares ............................. 32
Shareholder Services ............................. 32
Investment Account ............................ 32
Systematic Withdrawal Plans ................... 33
Automatic Investment Plans .................... 33
Automatic Reinvestment of Dividends and
Capital Gains Distributions ................ 34
Exchange Privilege ............................ 34
Fee-Based Programs ............................ 35
Performance Data ................................. 35
Additional Information ........................... 36
Dividends and Distributions ................... 36
Taxes ......................................... 37
Determination of Net Asset Value .............. 39
Organization of the Company ................... 40
Shareholder Reports ........................... 41
Shareholder Inquiries ......................... 41
Year 2000 Issues .............................. 41
Authorization Form ............................... 43
</TABLE>
Code #16089-0698
[MERRILL LYNCH LOGO APPEARS HERE]
Merrill Lynch
Technology Fund, Inc.
Prospectus
June 30, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Merrill Lynch Technology Fund, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 - Phone No. (609) 282-2800
----------------
Merrill Lynch Technology Fund, Inc. (the "Company") is a non-diversified,
open-end investment company that seeks long-term capital appreciation through
worldwide investment in equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial portion of their
sales from products and services in technology. While the Company will not
concentrate its investments in any one industry, it is contemplated that
substantial investments will be made in companies involved in such
technology-related areas as communications, computers (including software and
hardware), electronics, and factory and office automation. The Company will
pursue its investment objective by investing in a global portfolio of
securities of companies in various stages of development. It is presently
contemplated that the Company's assets will be invested primarily in the United
States, Japan and Western Europe. However, at times the Company may invest
substantially all of its assets in the United States.
Pursuant to the Merrill Lynch Select Pricing(SM) System, the Company offers
four classes of shares each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select Pricing(SM) System
permits an investor to choose the method of purchasing shares that the investor
believes is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares and other relevant circumstances.
----------------
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
June 30, 1998 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission (the "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 June 30, 1998.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Company is to seek long-term capital
appreciation through worldwide investment in equity securities of companies
that, in the opinion of management, derive or are expected to derive a
substantial portion of their sales from products and services in technology.
Reference is made to "Investment Objective and Policies" in the Prospectus for
a discussion of the investment objective and policies of the Company.
Technology
The Company will invest in companies offering products and services in
such areas as computers (including software and hardware), communications,
consumer electronics, electronic components and instruments, factory
automation, office automation and other companies substantially involved in the
field of technology. The Company also expects to make investments in energy
conservation and development, new materials, specialty chemicals, aerospace and
military technology. While rapid changes in technology present attractive
opportunities for investment in companies in such fields, such companies may
face special risks that their products or services may not prove to be
commercially successful or may be rendered obsolete by further scientific and
technological developments. The value of the Company's investment in a company
whose products are not commercially successful or are rendered obsolete may
decrease substantially. See "Risk Factors and Special Considerations" in the
Prospectus. Investors in the Company will receive the benefit of the
specialized research and analysis of Merrill Lynch Asset Management, L.P. (the
"Investment Adviser").
International Diversification
The securities markets of many countries have at times in the past moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce
risk for the Company's portfolio as a whole. This negative correlation also may
offset unrealized gains the Company has derived from movements in a particular
market. To the extent the various markets move independently, total portfolio
volatility is reduced when the various markets are combined into a single
portfolio. Of course, movements in the various securities markets may be offset
by changes in foreign currency exchange rates. Exchange rates frequently move
independently of securities markets in a particular country. As a result, gains
in a particular securities market may be affected by changes in exchange rates.
Types of Portfolio Companies
The Company will attempt to maximize opportunity and reduce risk by
investing in a portfolio of companies in different stages of development.
Portfolio companies will range from large, well-established companies to
medium-sized companies and smaller, less seasoned companies in an earlier stage
of development.
Investments in larger companies present certain advantages attributable to
their greater financial resources: more extensive research and development,
manufacturing, marketing and service capabilities; more stability; and greater
depth of management and technical personnel. Investments in smaller, less
seasoned companies may present greater opportunities for growth but also
involve greater risks than customarily are associated with more established
companies. The securities of smaller companies may be subject to more 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 ("OTC") 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
2
<PAGE>
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 15% of its total 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 15% of its total assets would be subject to repurchase agreements
maturing in more than seven days.
The Company may invest in the securities of foreign issuers in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. GDRs are receipts issued globally, typically by banking
institutions, and evidence a similar ownership arrangement. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets, and EDRs,
in bearer form, are designed for use in European securities markets. GDRs are
tradeable both in the U.S. and Europe 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;
3
<PAGE>
however, it is extremely difficult to predict portfolio turnover rates with any
degree of accuracy. For the fiscal years ended March 31, 1997 and 1998, the
Company's portfolio turnover rate was 176.51% and 206.40%, respectively. 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. 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 OTC markets.
Each of such portfolio strategies is described in the Prospectus. Although
certain risks are involved in options and futures transactions (as discussed in
the Prospectus and below), the Investment Adviser believes that, because the
Company will only engage in these transactions for hedging purposes, the
options and futures portfolio strategies of the Company will not subject the
Company to the risks frequently associated with the speculative use of options
and futures transactions. While the Company's use of hedging strategies is
intended to reduce the volatility of the net asset value of its shares, the net
asset value of the Company's shares will fluctuate. There can be no assurance
that the Company's hedging transactions will be effective. The following is
further information relating to portfolio strategies involving options and
futures the Company may utilize.
Hedging Investment and Interest Rate Risks. The Company may write (i.e.,
sell) covered call options on the equity securities in which it may invest and
may enter into closing purchase transactions with respect to certain of such
options. Covered call options serve as a partial hedge against the decline in
price of the underlying security. A covered call option is an option where the
Company, in return for a premium, gives another party a right to buy specified
securities owned by the Company on or before a specified future date and at a
specified 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 or she
may be required to sell his or her securities since he or she may be assigned
an exercise notice at any time prior to the termination of his or her
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
4
<PAGE>
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 typically between 2% and 15% of the value of the
futures contract, 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 "marking to the market". At any time prior to the settlement
date of the futures contract, the position may be closed out by taking an
opposite position which will operate to terminate the position in the futures
contract. A final determination of variation margin is then made, additional
cash is required to be paid to or released by the broker, and the purchaser
realizes a loss or gain. In addition, a nominal commission is paid on each
completed sale transaction.
The Company has received an order from the 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
5
<PAGE>
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 effectively.
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
6
<PAGE>
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 such income need not be subject to this restriction.
The cost to the Company of engaging in foreign currency transactions varies
with such factors as the currencies involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currency exchange usually are conducted on a principal basis, no fees or
commissions are involved.
The U.S. Government has from time to time in the past imposed
restrictions, through taxation and otherwise, on foreign investments by U.S.
investors such as the Company. If such restrictions should be reinstituted it
might become necessary for the Company to invest all or substantially all of
its assets in U.S. 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 for the special tax treatment afforded regulated
investment companies under 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
7
<PAGE>
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 a number of fundamental and non-fundamental restrictions
and policies relating to the investment of its assets and its activities. The
fundamental policies set forth below 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).
Under the fundamental investment restrictions, the Company may not:
1. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
2. Make investments for the purpose of exercising control or management.
3. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Company may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
4. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan and except
further that the Company may lend its portfolio securities, provided that
the lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Company's Prospectus
and Statement of Additional Information, as they may be amended from time
to time.
5. Issue senior securities to the extent such issuance would violate
applicable law.
6. Borrow money, except that (i) the Company may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Company may, to the
extent permitted by applicable law, borrow up to an additional 5% of its
total assets for temporary purposes, (iii) the Company may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (iv) the Company may purchase securities
on margin to the extent permitted by applicable law. The Company may not
pledge its assets other than to secure such borrowings or, to the extent
permitted by the Company's investment policies as set forth in its
Prospectus and Statement of Additional Information, as they may be amended
from time to time, in connection with hedging transactions, short sales,
when-issued and forward commitment transactions and similar investment
strategies.
7. Underwrite securities of other issuers except insofar as the Company
technically may be deemed an underwriter under the Securities Act in
selling portfolio securities.
8. Purchase or sell commodities or contracts on commodities, except to
the extent that the Company may do so in accordance with applicable law
and the Company's Prospectus and Statement of Additional
8
<PAGE>
Information, as they may be amended from time to time, and without
registering as a commodity pool operator under the Commodity Exchange Act.
In addition, the Company has adopted non-fundamental restrictions which
may be changed by the Board of Directors. Under the non-fundamental investment
restrictions, the Company may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, the Company will not purchase shares of any registered
open-end investment company or registered unit investment trust, in
reliance on Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of
the Investment Company Act, at any time its shares are owned by another
investment company that is part of the same group of investment companies
as the Company.
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Company currently does not
intend to engage in short sales, except short sales "against the box."
c. Invest in securities which cannot be readily resold because of legal
or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the
Company has otherwise determined to be liquid pursuant to applicable law.
Securities purchased in accordance with Rule 144A under the Securities Act
(a "Rule 144A security") and determined to be liquid by the Company's
Board of Directors are not subject to the limitations set forth in this
investment restriction.
d. Notwithstanding fundamental investment restriction (6) above, borrow
money or pledge its assets, except that the Company (a) may borrow from a
bank as a temporary measure for extraordinary or emergency purposes or to
meet redemptions in amounts not exceeding 33 1/3% (taken at market value)
of its total assets and pledge its assets to secure such borrowings, (b)
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (c) may purchase
securities on margin to the extent permitted by applicable law. However,
at the present time, applicable law prohibits the Company from purchasing
securities on margin. The deposit or payment by the Company of initial or
variation margin in connection with financial futures contracts or options
transactions is not considered to be the purchase of a security on margin.
The purchase of securities while borrowings are outstanding will have the
effect of leveraging the Company. Such leveraging or borrowing increases
the Company's exposure to capital risk, and borrowed funds are subject to
interest costs which will reduce net income. The Company will not purchase
securities while borrowings exceed 5% of its total assets.
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
9
<PAGE>
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 Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Company, 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 Merrill Lynch or any of 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 as required by the Code. Japanese and European
corporations frequently issue additional capital stock by means of
subscription rights offerings to existing shareholders at a price
substantially below the market price of the shares. The failure to
exercise such rights would result in the Company's interest in the issuing
company being diluted. The market for such rights is not well developed,
and accordingly, the Company may not always realize full value on the sale
of rights. Therefore, the exception applies in cases where the limits set
forth in the investment restrictions in the Prospectus would otherwise be
exceeded by exercising rights or have already been exceeded as a result of
fluctuations in the market value of the Company's portfolio securities
with the result that the Company would otherwise be forced either to sell
securities at a time when it might not otherwise have done so or to forego
exercising the rights.
MANAGEMENT OF THE COMPANY
Directors and Officers
Information about the Directors, executive officers and portfolio manager
of the Company, including their ages and their principal occupations for at
least the last five years, is set forth below. Unless otherwise noted, the
address of each executive officer, Director and the portfolio manager is P.O.
Box 9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL (66) -- President and Director(1)(2) -- Chairman of the
Investment Adviser (which term as used herein includes its corporate
predecessors) since 1997; Chairman of Fund Asset Management, L.P. ("FAM")
(which term as used herein includes its corporate predecessors) since 1997;
President of the Investment Adviser and FAM from 1977 to 1997; Chairman of
Princeton Services, Inc. ("Princeton Services") since 1997 and Director thereof
since 1993; President of Princeton Services from 1993 to 1997; Executive Vice
President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990.
DONALD CECIL (71) -- 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.
10
<PAGE>
EDWARD H. MEYER (71) -- 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 (67) -- 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; Senior
Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, University of Pennsylvania from 1989 to
1990; Partner, Small Cities Cable Television since 1986.
RICHARD R. WEST (60) -- Director(2) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, Dean from 1984 to 1993, and currently Dean
Emeritus of New York University Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. (financial printers), Vornado,
Inc. (real estate holding company) and Alexander's Inc. (real estate company).
EDWARD D. ZINBARG (63) -- Director(2) -- 5 Hardwell Road, Short Hills, New
Jersey 07078-2117. Executive Vice President of The Prudential Insurance Company
of America from 1988 to 1994; former Director of Prudential Reinsurance Company
and former Trustee of the Prudential Foundation.
TERRY K. GLENN (57) -- Executive Vice President(1)(2) -- Executive Vice
President of the Investment Adviser and FAM since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of Merrill
Lynch Funds Distributor, Inc. ("MLFD" or the "Distributor") since 1986 and
Director thereof since 1991; President of Princeton Administrators, L.P. since
1988.
NORMAN R. HARVEY (64) -- Senior Vice President(1)(2) -- Senior Vice
President of the Investment Adviser and FAM since 1982.
JAMES K. RENCK (41) -- Senior Vice President and Portfolio Manager(1) --
First Vice President of the Investment Adviser since 1997 and Portfolio Manager
thereof since 1986; Vice President of the Investment Adviser from 1986 to 1997.
DONALD C. BURKE (38) -- Vice President(1)(2) -- First Vice President of
the Investment Adviser since 1997 and Director of Taxation thereof since 1990;
Vice President of the Investment Adviser from 1990 to 1997.
GERALD M. RICHARD (49) -- Treasurer(1)(2) -- Senior Vice President and
Treasurer of the Investment Adviser and FAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of the
Distributor since 1981 and Treasurer thereof since 1984.
PHILIP M. MANDEL (51) -- Secretary(1)(2) -- First Vice President of the
Investment Adviser since 1997; Vice President and Assistant General Counsel of
Merrill Lynch from 1989 to 1997.
- --------
(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 June 1, 1998, the Directors and officers of the Company as a group (12
persons) owned an aggregate of less than 1% of the outstanding shares of the
Company. At such date, Mr. Zeikel, a Director and officer of the Company, and
the other officers of the Company owned less than 1% of the outstanding shares
of common stock of ML & Co.
11
<PAGE>
Compensation of Directors
The Company pays each Director not affiliated with the Investment Adviser
(each, a "non-affiliated Director") a fee of $3,500 per year plus $500 per
meeting attended, together with such Director's actual out-of-pocket expenses
relating to attendance at meetings. The Company also compensates members of its
Audit and Nominating Committee (the "Committee"), which consists of all the
non-affiliated Directors, at a rate of $500 per Committee meeting attended. The
Chairman of the Committee receives an additional fee of $250 per Committee
meeting attended. For the fiscal year ended March 31, 1998, fees and expenses
paid to non-affiliated Directors aggregated $38,000.
The following table sets forth the compensation earned by the
non-affiliated Directors from the Company for the fiscal year ended March 31,
1998 and the aggregate compensation paid to the non-affiliated Directors from
all registered investment companies advised by the Investment Adviser and its
affiliate FAM ("MLAM/FAM Advised Funds") for the calendar year ended December
31, 1997.
<TABLE>
<CAPTION>
Aggregate
Pension or Compensation from
Retirement Company and Other
Benefits Accrued MLAM/FAM-Advised
Compensation as Part of Funds Paid to
Name of Director from Company Company's Expenses Directors(1)
- --------------------------- -------------- -------------------- ------------------
<S> <C> <C> <C>
Donald Cecil .............. $8,500 None $275,850
Edward H. Meyer ........... $6,000 None $222,100
Charles C. Reilly ......... $7,500 None $313,000
Richard R. West ........... $7,500 None $299,000
Edward D. Zinbarg ......... $7,500 None $133,500
</TABLE>
- --------
(1) The Directors serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Cecil (33 registered investment companies consisting of 33 portfolios);
Mr. Meyer (33 registered investment companies consisting of 33
portfolios); Mr. Reilly (50 registered investment companies consisting of
63 portfolios); Mr. West (51 registered investment companies consisting of
73 portfolios) and Mr. Zinbarg (18 registered investment companies
consisting of 18 portfolios).
Management and Advisory 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, or be appropriate
investments for, other funds or other 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.
The Company has entered into an Investment Advisory Agreement with the
Investment Adviser. As discussed in the Prospectus the Company will pay the
Investment Adviser a fee for its services at the annual rate of 1.0%
12
<PAGE>
of the Company's average daily net assets. For the fiscal years ended March 31,
1996, 1997 and 1998, the fees paid by the Company to the Investment Adviser
aggregated $10,196,193, $7,927,513 and $6,780,768, respectively.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office 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. 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 years ended March 31, 1996, 1997 and 1998, the
amount of such reimbursement was $198,451, $107,801 and $83,246, respectively.
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, Class C and Class D shares will be financed by the Company pursuant to
distribution plans in compliance with Rule 12b-1 under the Investment Company
Act. See "Purchase of Shares -- Distribution Plans."
As described in the Prospectus, the Investment Adviser has also entered
into a sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited
("MLAM U.K.") pursuant to which MLAM U.K. provides investment advisory services
to the Investment Adviser with respect to the Company.
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. 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. Similarly,
the following entities may be considered "controlling persons" of MLAM U.K.:
Merrill Lynch Europe PLC (MLAM U.K.'s parent), a subsidiary of Merrill Lynch
International Holdings, Inc., a subsidiary of Merrill Lynch International,
Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain in effect from year to year if
approved annually (a) by the Board of Directors of the Company or by a majority
of the outstanding shares of the Company and (b) by a majority of the Directors
who are not parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the shareholders of the Company.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Company shares.
The Company issues four classes of shares under the Merrill Lynch Select
Pricing(SM) System: shares of Class A and Class D are sold to investors choosing
the initial sales charge alternatives, and shares of Class B and Class C are
sold to investors choosing the deferred sales charge alternatives. Each Class
A, Class B,
13
<PAGE>
Class C and Class D share of the Company represents identical interests in the
investment portfolio of the Company and has the same rights, except that Class
B, Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements. Class B, Class C and
Class D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid (except that Class B shareholders
may vote upon any material changes to expenses charged under the Class D
Distribution Plan). Each class has different exchange privileges. See
"Shareholder Services -- Exchange Privilege."
The Merrill Lynch Select Pricing(SM) System is used by more than 50
registered investment companies advised by the Investment Adviser or its
affiliate, FAM. Funds advised by the Investment Adviser or FAM which utilize
the Merrill Lynch Select Pricing(SM) System are referred to herein as
"MLAM-advised mutual funds".
The Company has entered into separate distribution agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Company (the "Distribution Agreements"). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the
offering of each class of shares of the Company. After the prospectuses,
statements of additional information and periodic reports have been prepared,
set in type and mailed to shareholders, the Distributor pays for the printing
and distribution of copies thereof used in connection with the offering to
dealers and investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreements are subject to
the same renewal requirements and termination provisions as the Investment
Advisory Agreement described above.
Initial Sales Charge Alternatives -- Class A and Class D Shares
The Company sells its Class A and Class D shares through the Distributor
and Merrill Lynch, as dealers. The gross sales charges for the sale of Class A
shares of the Company for the fiscal year ended March 31, 1996 were $90,039, of
which $83,635 was received by Merrill Lynch and $6,404 was received by the
Distributor. The gross sales charges for the sale of Class A shares of the
Company for the fiscal year ended March 31, 1997 were $25,335, of which $22,657
was received by Merrill Lynch and $2,678 was received by the Distributor. The
gross sales charges for the sale of Class A shares for the fiscal year ended
March 31, 1998 were $25,038, of which $2,414 was received by the Distributor
and $22,624 was received by Merrill Lynch. For the fiscal year ended March 31,
1998 the Distributor received CDSCs of $34,938 with respect to redemptions
within one year after purchase of Class A shares purchased subject to a
front-end sales charge waiver. For the fiscal years ended March 31, 1996 and
1997 the Distributor received no CDSCs with respect to redemptions within one
year after purchase of Class A shares purchased subject to a front-end sales
charge waiver. The gross sales charges for the sale of Class D shares of the
Company for the fiscal year ended March 31, 1996 were $380,496, of which
$357,623 was received by Merrill Lynch and $22,873 was received by the
Distributor. The gross sales charges for the sale of Class D shares of the
Company for the fiscal year ended March 31, 1997 were $90,872, of which $85,752
was received by Merrill Lynch and $5,120 was received by the Distributor. The
gross sales charges for the sale of Class D shares for the fiscal year ended
March 31, 1998 were $77,886, of which $5,656 was received by the Distributor
and $72,230 was received by Merrill Lynch. During such periods, the Distributor
received no CDSCs, with respect to redemptions within one year after purchase
of Class D shares purchased subject to a front-end sales charge waiver.
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 or her spouse and their children
under the age of 21 years purchasing shares for his, her or their own account
and single purchases by a trustee or other fiduciary purchasing shares
14
<PAGE>
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 that has not been in existence for at least six months or
that 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 of shares of the Company by employees or by
employers on behalf of employees, by means of a payroll deduction plan or
otherwise. Purchases by such a company or non-qualified employee benefit plan
will qualify for the quantity discounts discussed above only if the Company and
the Distributor are able to realize economies of scale in sales effort and
sales related expense by means of the company, employer or plan making the
Company's Prospectus available to individual investors or employees and
forwarding investments by such persons to the Company and by any such employer
or plan bearing the expense of any payroll deduction plan.
Closed-End Fund Investment Option. Class A shares of the Company and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by MLAM or its
affiliate, FAM, who purchased such closed-end fund shares prior to October 21,
1994 (the date the Merrill Lynch Select Pricing(SM) System commenced
operations), and wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock in Eligible Class A Shares, if the
conditions set forth below are satisfied. Alternatively, closed-end fund
shareholders who purchased such shares on or after October 21, 1994, and wish to
reinvest the net proceeds from a sale of their closed-end fund shares are
offered Class A shares (if eligible to buy Class A shares) or Class D shares of
the Company and other MLAM-advised mutual funds ("Eligible Class D Shares"), if
the following conditions are met. First, the sale of the closed-end fund shares
must be made through Merrill Lynch, and the net proceeds therefrom must be
immediately reinvested in Eligible Class A or Class D Shares. Second, the
closed-end fund shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares must have been
continuously maintained in a Merrill Lynch securities account. Fourth, there
must be a minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered closed-end funds
may reinvest at net asset value the net proceeds from a sale of certain shares
of common stock of such funds in shares of the Company. Upon exercise of this
investment option, shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. will receive Class A shares of the Company and shareholders of Merrill
Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal
Bond Fund, Inc. will receive Class D shares of the Company, except that
shareholders already owning Class A shares of the Company will be eligible to
purchase additional Class A shares pursuant to this option, if such additional
Class A shares will be held in the same account as the existing Class A shares
and the other requirements pertaining to the reinvestment privilege are met. In
order to exercise this investment option, a shareholder of one of the
above-referenced continuously offered closed-end funds (an "eligible fund")
must sell his or her shares of common stock of the eligible fund (the "eligible
shares") back to the eligible fund in connection with a tender offer conducted
by the eligible fund and reinvest the proceeds immediately in the designated
class of shares of the Company. This investment option is available only with
respect to eligible shares as to which no Early Withdrawal Charge or CDSC (each
as defined in the eligible fund's prospectus) is applicable. Purchase orders
from eligible fund shareholders wishing to exercise this investment option will
be
15
<PAGE>
accepted only on the day that the related tender offer terminates and will be
effected at the net asset value of the designated class of the Company on such
day.
Reduced Initial Sales Charges -- Class A and Class D Shares
Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
shares of the Company subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Company and of other MLAM-advised mutual funds. For any such
right of accumulation to be made available, the Distributor must be provided at
the time of purchase, by the purchaser or the purchaser's securities dealer,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation. The right of
accumulation may be amended or terminated at any time. Shares held in the name
of a nominee or custodian under pension, profit-sharing, or other employee
benefit plans may not be combined with other shares to qualify for the right of
accumulation.
Letter of Intention. Reduced sales charges are applicable to a purchase
aggregating $25,000 or more of Class A or Class D shares of the Company or any
other MLAM-advised mutual funds made within a thirteen-month period starting
with the first purchase pursuant to a Letter of Intention in the form provided
in the Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Company's transfer agent. The Letter of
Intention is not available to employee benefit plans for which Merrill Lynch
provides plan participant record-keeping services. The Letter of Intention is
not a binding obligation to purchase any amount of Class A or Class D shares,
but its execution will result in the purchaser paying a lower sales charge at
the appropriate quantity purchase level. A purchase not originally made
pursuant to a Letter of Intention may be included under a subsequent Letter
executed within 90 days of such purchase if the Distributor is informed in
writing of this intent within such 90-day period. The value of Class A and
Class D shares of the Company and of other MLAM-advised mutual funds presently
held, at cost or maximum offering price (whichever is higher), on the date of
the first purchase under the Letter of Intention, may be included as a credit
toward completion of such Letter, but the reduced sales charge applicable to
the amount covered by such Letter will be applied only to new purchases. If the
total amount of shares purchased does not equal the amount stated in the Letter
of Intention (minimum of $25,000), the investor will be notified and must pay,
within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased at the reduced rate and
the sales charge applicable to the shares actually purchased through the
Letter. Class A or Class D shares equal to at least five percent of the
intended amount will be held in escrow during the 13-month period (while
remaining registered in the name of the purchaser) for this purpose. The first
purchase under the Letter of Intention must be at least five percent of the
dollar amount of such Letter. If a purchase during the term of such Letter
would otherwise be subject to a further reduced sales charge based on the right
of accumulation, the purchaser will be entitled on that purchase and subsequent
purchases to the further reduced percentage sales charge that would be
applicable to a single purchase equal to the total dollar value of the shares
then being purchased under such Letter, but there will be no retroactive
reduction of the sales charges on any previous purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser
prior to termination or completion of the Letter of Intention will be deducted
from the total purchases made under such Letter. An exchange from a
MLAM-advised money market fund into the Company that creates a sales charge
will count toward completing a new or existing Letter of Intention from the
Company.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Company are
offered to participants in the Merrill Lynch Blueprint(SM) Program
("Blueprint"). In addition, participants in Blueprint who own Class A shares of
the
16
<PAGE>
Company may purchase additional Class A shares of the Company through
Blueprint. Blueprint is directed to small investors, group IRAs and
participants in certain affinity groups such as credit unions, trade
associations and benefit plans. Investors placing orders to purchase Class A or
Class D shares of the Company through Blueprint will acquire the Class A or
Class D shares at net asset value plus a sales charge calculated in accordance
with the Blueprint sales charge schedule (i.e., up to $300 at 4.25%, $300.01 up
to $5,000 at 3.25% plus $3, and $5,000.01 or more at the standard sales charge
rates disclosed in the Prospectus). In addition, Class A or Class D shares of
the Company are offered at net asset value plus a sales charge of .50% of 1%
for corporate or group IRA programs placing orders to purchase their Class A or
Class D shares through Blueprint. Services, including the exchange privilege,
available to Class A and Class D investors through Blueprint, however, may
differ from those available to other Class A or Class D share investors.
Class A and Class D shares are offered at net asset value to participants
in Blueprint through the Merrill Lynch Directed IRA Rollover Program ("IRA
Rollover Program") available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is available to
custodian rollover assets from employer-sponsored retirement and savings plans
whose trustee and/or plan sponsor has entered into a Merrill Lynch Directed IRA
Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the
Company may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum
initial or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Employee Access(SM) Accounts. Provided applicable threshold requirements
are met, either Class A or Class D shares are offered at net asset value to
Employee AccessSM Accounts available through authorized employers. The initial
minimum for such accounts is $500 except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is $50.
Purchase Privilege of Certain Persons. Directors of the Company, members
of the Boards of other MLAM-advised investment companies, ML & Co. and its
subsidiaries (the term "subsidiaries", when used herein with respect to ML &
Co., includes MLAM, FAM and certain other entities directly or indirectly
wholly-owned and controlled by ML & Co.) and their directors and employees, and
any trust, pension, profit-sharing or other benefit plan for such persons may
purchase Class A shares of the Company at net asset value.
Class D shares of the Company are offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor if the following
conditions are satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Company with proceeds from a redemption of
a mutual fund that was sponsored by the Financial Consultant's previous firm
and was subject to a sales charge either at the time of purchase or on a
deferred basis; and second, the investor also must establish that such
redemption had been made within 60 days prior to the investment in the Company,
and the proceeds from the redemption had been maintained in the interim in cash
or a money market fund.
17
<PAGE>
Class D shares of the Company are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ("notice"), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Company with
proceeds from a redemption of shares of such other mutual fund and such fund
was subject to a sales charge either at the time of purchase or on a deferred
basis; and, second such purchase of Class D shares must be made within 90 days
after such notice.
Class D shares of the Company will be offered at net asset value, without
a sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Company with proceeds from the redemption of
such shares of the other mutual fund and that such shares have been outstanding
for a period of no less than six months; and second, such purchase of Class D
shares must be made within 60 days after the redemption and the proceeds from
the redemption must be maintained in the interim in cash or a money market
fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares may be reduced to the net asset value per Class D share in
connection with the acquisition of the assets of or merger or consolidation
with a public or private investment company. The value of the assets or company
acquired in a tax-free transaction may in appropriate cases be adjusted to
reduce possible adverse tax consequences to the Company that might result from
an acquisition of assets having net unrealized appreciation that is
disproportionately higher at the time of acquisition than the realized or
unrealized appreciation of the Company. The issuance of Class D shares for
consideration other than cash is limited to bona fide reorganizations,
statutory mergers or other acquisitions of portfolio securities that (i) meet
the investment objectives and policies of the Company; (ii) are acquired for
investment and not for resale (subject to the understanding that the
disposition of the Company's portfolio securities shall at all times remain
within its control); and (iii) are liquid securities, the value of which is
readily ascertainable, that are not restricted as to transfer either by law or
liquidity of market (except that the Company may acquire through such
transactions restricted or illiquid securities to the extent the Company does
not exceed the applicable limits on acquisition of such securities set forth
under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
Employer-Sponsored Retirement or Savings Plans and Certain Other Arrangements
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based
on the number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Certain other plans
may purchase Class B shares with a waiver of the CDSC upon redemption, based on
similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any
MLAM-advised mutual fund. Minimum purchase requirements may be waived or varied
for such plans. Additional information regarding purchases by
employer-sponsored retirement or savings plans and certain other arrangements
is available toll-free from Merrill Lynch Business Financial Services at (800)
237-7777.
18
<PAGE>
Distribution Plans
Reference is made to "Purchase of Shares -- Distribution Plans" in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the account
maintenance and/or distribution fees paid by the Company to the Distributor
with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act. Among
other things, each Distribution Plan provides that the Distributor shall
provide and the Directors shall review quarterly reports of the disbursement of
the account maintenance fees and/or distribution fees paid to the Distributor.
In their consideration of each Distribution Plan, the Directors must consider
all factors they deem relevant, including information as to the benefits of the
Distribution Plan to the Company and to its related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Company, as defined in the Investment Company Act
(the "Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that such Distribution Plan will benefit the Company and
its related class of shareholders. Each Distribution Plan can be terminated at
any time, without penalty, by the vote of a majority of the Independent
Directors or by the vote of the holders of a majority of the outstanding
related class of voting securities of the Company. A Distribution Plan cannot
be amended to increase materially the amount to be spent by the Company without
the approval of the related class of shareholders, and all material amendments
are required to be approved by the vote of the Directors, including a majority
of the Independent Directors who have no direct or indirect financial interest
in such Distribution Plan, cast in person at a meeting called for that purpose.
Rule 12b-1 further requires that the Company preserve copies of each
Distribution Plan and any report made pursuant to such plan for a period of not
less than six years from the date of such Distribution Plan or such report, the
first two years in an easily accessible place.
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on
certain asset-based sales charges such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance fee.
The maximum sales charge rule is applied separately to each class. As
applicable to the Company, the maximum sales charge rule limits the aggregate
of distribution fee payments and CDSCs payable by the Company to (1) 6.25% of
eligible gross sales of Class B shares and Class C shares, computed separately
(defined to exclude shares issued pursuant to dividend reinvestments and
exchanges), plus (2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Company will not
make further payments of the distribution fee with respect to Class B shares,
and any CDSCs will be paid to the Company rather than to the Distributor;
however, the Company will continue to make payments of the account maintenance
fee. In certain circumstances the amount payable pursuant to the voluntary
maximum
19
<PAGE>
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,
1998 with respect to the Class B and Class C shares of the Company indicating
the maximum allowable payments that can be made under the NASD maximum sales
charge rule and, with respect to Class B shares, the Distributor's voluntary
maximum.
Data Calculated as of March 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Annual
Distribution
Allowable Allowable Amounts Fee at
Aggregate Interest on Maximum Previously Aggregate Current
Eligible Gross Sales Unpaid Amount Paid to Unpaid Net Asset
Sales(1) Charges Balance(2) Payable Distributor(3) Balance Level(4)
---------------- ----------- ------------- --------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class B Shares, for the
period April 27, 1992
(commencement of
operations) to March 31,
1998:
Under NASD Rule As
Adopted .................. $762,310 $47,644 $11,863 $59,507 $24,038 $35,469 $2,139
Under Distributor's
Voluntary Waiver ......... $762,310 $47,644 $ 3,812 $51,456 $24,038 $27,418 $2,139
Class C Shares, for the
period October 21, 1994
(commencement of
operations) to March 31,
1998:
Under NASD Rule As
Adopted .................. $ 56,889 $ 3,556 $ 860 $ 4,416 $ 727 $ 3,689 $ 116
</TABLE>
- --------
(1) Purchase price of all eligible Class B or Class C shares sold during
periods indicated other than shares acquired through dividend reinvestment
and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1%, as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made with respect to Class B shares prior to
July 7, 1993, under the distribution plan in effect at that time, 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. See "Purchase of Shares -- Distribution Plans" in the Prospectus.
This figure may include CDSCs that were deferred when a shareholder
redeemed shares prior to the expiration of the applicable CDSC period and
invested the proceeds, without the imposition of a sales charge, in Class
A shares in conjunction with the shareholder's participation in the
Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(SM)) program (the "MFA
program"). The CDSC is booked as a contingent obligation that may be
payable if the shareholder terminates participation in the MFA program.
(4) Provided to illustrate the extent to which the current level of
distribution fee payments (not including any CDSC payments) is amortizing
the unpaid balance. No assurance can be given that payments of the
distribution fee will reach either the NASD maximum (with respect to Class
B and Class C shares) or, the voluntary maximum (with respect to Class B
shares).
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 NYSE is restricted, as determined by the Commission, or
the NYSE is closed (other than customary weekend and holiday closings) for any
period during
20
<PAGE>
which an emergency exists, as defined by the Commission, as a result of which
disposal of portfolio securities or determination of the net asset value of the
Company is not reasonably practicable, and for such other periods as the
Commission may by order permit for the protection of shareholders of the
Company.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by the
Company at such time.
Deferred Sales Charges -- Class B and Class C Shares
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares," while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of Class B shares in certain
instances, including in connection with certain post-retirement withdrawals
from an Individual Retirement Account ("IRA") or other retirement plan or
following the death or disability of a Class B shareholder. Redemptions for
which the waiver applies in the case of such withdrawals are: (a) any partial
or complete redemption in connection with a tax-free distribution following
retirement under a tax-deferred retirement plan or attaining age 59 1/2 in the
case of an IRA or other retirement plan, or part of a series of equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) or any redemption resulting from the tax-free return of an excess
contribution to an IRA; or (b) any partial or complete redemption following the
death or disability (as defined in the Code) of a Class B shareholder
(including one who owns the Class B shares as joint tenant with his or her
spouse), provided the redemption is requested within one year of the death or
initial determination of disability. For the fiscal years ended March 31, 1996,
1997 and 1998 the Distributor received CDSCs of $2,839,725, $2,461,601 and
$972,010, respectively, with respect to redemptions of Class B shares, all of
which were paid to Merrill Lynch. Additional CDSCs payable to the Distributor
may have been waived or converted to a contingent obligation in connection with
a shareholder's participation in certain fee-based programs. For the fiscal
years ended March 31, 1996, 1997 and 1998, the Distributor received CDSCs of
$54,329, $21,205 and $9,956, respectively, with respect to redemptions of Class
C shares, all of which were 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 CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may
differ from those available to other investors in Class B shares. Orders for
purchases and redemptions of Class B shares of the Company will be grouped for
execution purposes which, in some circumstances, may involve the execution of
such orders two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for subsequent
purchases through Blueprint. There is no minimum initial or subsequent purchase
requirement for investors who are part of the Blueprint automatic investment
plan. Additional information concerning these Blueprint programs, including any
annual fees or transaction charges, is available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, The Blueprint(SM) Program, P.O. Box 30441, New
Brunswick, New Jersey 08989-0441.
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. In executing such transactions, the
Investment
21
<PAGE>
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 Conduct Rules of the NASD 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 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.
22
<PAGE>
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
that 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 year ended March 31, 1996, the Company paid total brokerage
commissions of $1,031,569, of which $10,605 or 1.03% was paid to Merrill Lynch
for effecting 0.40% of the aggregate dollar amount of transactions on which the
Company paid brokerage commissions. For the fiscal years ended March 31, 1997
and 1998, the Company paid total brokerage commissions of $1,212,425 and
$2,244,796, respectively, 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 15 minutes after the close of business on the NYSE
(generally, 4:00 p.m., New York time), on each day during which the NYSE is
open for trading. The NYSE is not open on New Year's Day, Martin Luther King,
Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation.
Net asset value is computed by dividing the value of the securities held
by the Company plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time. Expenses,
including the fee payable to the Investment Adviser and any account maintenance
and/or distribution fees are accrued daily. The per share net asset value of
the Class B, Class C and Class D shares generally will be lower than the per
share net asset value of the Class A shares reflecting the daily expense
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to the Class B and Class C shares and the daily
expense accruals of the account maintenance fees applicable with respect to the
Class D shares; moreover, the per share net asset value of the Class B and
Class C shares generally will be lower than the per share net asset value of
the Class D shares reflecting the daily expense accruals of the distribution
fees and higher transfer agency fees applicable with respect to the Class B and
Class C shares of the Company. It is expected, however, that the per share net
asset value of the four classes will tend to converge (although not necessarily
meet) immediately after the payment of dividends or distributions, which will
differ by approximately the amount of the expense accrual differentials between
the classes.
Portfolio securities, including ADRs, EDRs or GDRs, that 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 for long positions, and at the last available ask price for short
positions. 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. Long positions in securities
traded in the OTC market are valued at the last available bid price in the OTC
market prior to the time of valuation. Short positions in securities traded in
the OTC market
23
<PAGE>
are valued at the last available ask price in the OTC market prior to the time
of valuation. Portfolio securities which are traded both in the OTC market and
on a stock exchange are valued according to the broadest and most
representative market. When the Company writes an option, the amount of the
premium received is recorded on the books of the Company as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based upon the last
sale price in the case of exchange-traded options or, in the case of options
traded in the OTC market, the last asked price. Options purchased by the
Company are valued at their last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last bid
price. Other investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by
or under the direction of the Board of Directors of the Company. Such valuation
and procedures will be reviewed periodically by the Board of Directors.
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 NYSE. 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 business on the NYSE. 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 business on the
NYSE which will not be reflected in the computation of the Company's net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities will be valued at their fair value as
determined in good faith by the Directors.
SHAREHOLDER SERVICES
The Company offers a number of shareholder services described below which
are designed to facilitate investment in its shares. Certain of such services
are not available to investors who place orders for the Company's shares
through the Merrill Lynch Blueprint(SM) Program. Full details as to each of such
services, copies of the various plans described below and instructions as to
how to participate in the various services or plans, or how to change options
with respect thereto, can be obtained from the Company, the Distributor or
Merrill Lynch.
24
<PAGE>
Investment Account
Each shareholder whose account is maintained at the transfer agent has an
Investment Account and will receive statements, at least quarterly, from the
transfer agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. The statements will also
show any other activity in the account since the preceding statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases, the reinvestment
of ordinary income dividends and long-term capital gain distributions. A
shareholder may make additions to his or her investment account at any time by
mailing a check directly to the Company's transfer agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Company's transfer agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the Class A or Class D shares are to be
transferred will not take delivery of shares of the Company, a shareholder
either must redeem the Class A or Class D shares (paying any applicable CDSC)
so that the cash proceeds can be transferred to the account at the new firm or
such shareholder must continue to maintain an Investment Account at the
transfer agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the transfer
agent may request their new brokerage firm to maintain such shares in an
account registered in the name of the brokerage firm for the benefit of the
shareholder at the transfer agent. If the new brokerage firm is willing to
accommodate the shareholder in this manner, the shareholder must request that
he or she be issued certificates for his or her 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 IRA from Merrill Lynch to another brokerage firm
or financial institution should be aware that, if the firm to which the
retirement account is to be transferred will not take delivery of shares of the
Company, a shareholder must either redeem the shares (paying any applicable
CDSC) so that the cash proceeds can be transferred to the account at the new
firm, or such shareholder must continue to maintain a retirement account at
Merrill Lynch for those shares.
Automatic Investment Plans
A U.S. shareholder may make additions to an Investment Account at any time
by purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price, either through the shareholder's securities
dealer or by mail directly to the transfer agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Company is authorized
through preauthorized checks or automated clearing house debits of $50 or more
to charge the regular bank account of the shareholder on a regular basis to
provide systematic additions to the Investment Account of such shareholder. An
investor whose shares of the Company are held within a CMA(R) or CBA(R) account
may arrange to have periodic investments made in the Company in amounts of $100
or more ($1 for retirement accounts) through the CMA(R) or CBA(R) Automated
Investment Program.
25
<PAGE>
Automatic 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 be automatically reinvested in additional shares of the
Company. Such reinvestment will be at the net asset value of the shares of the
Company as of the close of business on the NYSE on the ex-dividend date of the
dividend or distribution. Shareholders may elect to receive their income
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date. The
Company is not responsible for any failure of delivery to the shareholder's
address of record and no interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Shareholders may, at any time, notify Merrill Lynch in writing, if the
shareholder's account is maintained with Merrill Lynch, or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND), if the shareholder's account
is maintained with the Transfer Agent, 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
A shareholder may elect to make systematic withdrawals from an Investment
Account of Class A, Class B, Class C or Class D shares on either a monthly or
quarterly basis as provided below. Quarterly withdrawals are available for
shareholders who have acquired shares of the Company having a value, based upon
cost or the current offering price, of $5,000 or more, and monthly withdrawals
are available for shareholders with shares having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient 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 the dollar
amount and the class of shares to be redeemed. Redemptions will be made at net
asset value as determined as of 15 minutes after the close of business on the
NYSE (generally 4:00 p.m., New York time) on the 24th day of each month or the
24th day of the last month of each quarter, whichever is applicable. If the
NYSE is not open for business on such date, the shares will be redeemed at the
close of business on the following business day. The check for the withdrawal
payment will be mailed, or the direct deposit 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 shares in the
Investment Account are reinvested automatically in shares of the Company. 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 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 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.
Alternatively, 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 CMA(R) or CBA(R)
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$50. The proceeds of systematic redemptions will be posted to the shareholder's
account three business days after the date the shares
26
<PAGE>
are redeemed. All redemptions are made at net asset value. A shareholder may
elect to have his or her shares redeemed on the first, second, third or fourth
Monday of each month, in the case of monthly redemptions, or of every other
month, in the case of bimonthly redemptions. For quarterly, semiannual or
annual redemptions, the shareholder may select the month in which the shares
are to be redeemed and may designate whether the redemption is to be made on
the first, second, third or fourth Monday of the month. If the Monday selected
is not a business day, the redemption will be processed at net asset value on
the next business day. The CMA(R) or CBA(R) Systematic Redemption Program is
not available if Company shares are being purchased within the account pursuant
to the Automatic Investment Program. For more information on the CMA(R) or
CBA(R) Systematic Redemption Program, eligible shareholders should contact
their Merrill Lynch Financial Consultant. With respect to redemption of Class B
and Class C shares pursuant to a systematic withdrawal plan, the maximum number
of Class B or Class C shares that can be redeemed from an account annually
shall not exceed 10% of the value of shares of such class in that account at
the time the election to join the systematic withdrawal plan was made. Any CDSC
that otherwise might be due on such redemption of Class B or Class C shares
will be waived. Shares redeemed pursuant to a systematic withdrawal plan will
be redeemed in the same order as Class B or Class C shares are otherwise
redeemed. See "Purchase of Shares -- Deferred Sales Charge Alternatives --
Class B and Class C Shares -- Contingent Deferred Sales Charges -- Class B
Shares" and " -- Contingent Deferred Sales Charges -- Class C Shares" in the
Prospectus. Where the systematic withdrawal plan is applied to Class B shares,
upon conversion of the last Class B shares in an account to Class D shares, the
systematic withdrawal plan will automatically be applied thereafter to Class D
shares. See "Purchase of Shares -- Deferred Sales Charge Alternatives -- Class
B and Class C Shares -- Conversion of Class B Shares to Class D Shares" in the
Prospectus; if an investor wishes to change the amount being withdrawn in a
systematic withdrawal plan, the investor should contact his or her Financial
Consultant.
Exchange Privilege
U.S. shareholders of each class of shares of the Company have an exchange
privilege with certain other MLAM-advised mutual funds. Under the Merrill Lynch
Select Pricing(SM) System, Class A shareholders may exchange Class A shares of
the Company for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his or her account
in which the exchange is made at the time of the exchange or is otherwise
eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, but does not hold Class A shares of the second fund
in his or her account at the time of the exchange and is not otherwise eligible
to acquire Class A shares of the second fund, the shareholder will receive
Class D shares of the second fund as a result of the exchange. Class D shares
also may be exchanged for Class A shares of a second MLAM-advised mutual fund
at any time as long as, at the time of the exchange, the shareholder holds
Class A shares of the second fund in the account in which the exchange is made
or is otherwise eligible to purchase Class A shares of the second fund. Class
B, Class C and Class D shares are exchangeable with the shares of the same
class of other MLAM-advised mutual funds. For purposes of computing the CDSC
that may be payable upon a disposition of the shares acquired in the exchange,
the holding period for the previously owned shares of the Company is "tacked"
to the holding period for the newly acquired shares of the other fund as more
fully described below. Class A, Class B, Class C and Class D shares are also
exchangeable for shares of certain MLAM-advised money market funds as follows:
Class A shares may be exchanged for shares of Merrill Lynch Ready Assets Trust,
Merrill Lynch Retirement Reserves Money Fund (available only for exchanges
within certain retirement plans), Merrill Lynch U.S.A. Government Reserves and
Merrill Lynch U.S. Treasury Money Fund; Class B, Class C and Class D shares may
be exchanged for shares of Merrill Lynch Government Fund, Merrill Lynch
Institutional Fund, Merrill Lynch Institutional Tax-Exempt Fund and Merrill
Lynch Treasury Fund. Shares with a net asset
27
<PAGE>
value of at least $100 are required to qualify for the exchange privilege, and
any shares utilized in an exchange must have been held by the shareholder for
15 days. It is contemplated that the exchange privilege may be applicable to
other new mutual funds whose shares may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A
or Class D shares") for Class A or Class D shares of another MLAM-advised
mutual fund ("new Class A or Class D shares") are transacted on the basis of
relative net asset value per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the outstanding Class A or Class D shares and the sales charge payable
at the time of the exchange on the new Class A or Class D shares. With respect
to outstanding Class A or Class D shares as to which previous exchanges have
taken place, the "sales charge previously paid" shall include the aggregate of
the sales charges paid with respect to such Class A or Class D shares in the
initial purchase and any subsequent exchange. Class A or Class D shares issued
pursuant to dividend reinvestment are sold on a no-load basis in each of the
funds offering Class A or Class D shares. For purposes of the exchange
privilege, Class A and Class D shares 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 or Class D shares on which the dividend was
paid. Based on this formula, Class A and Class D shares of the Company
generally may be exchanged into the Class A or Class D shares of the other
funds or into shares of certain money market funds with a reduced or without a
sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, of another
MLAM-advised mutual fund ("new Class B or Class C shares") on the basis of
relative net asset value per Class B or Class C share, without the payment of
any CDSC that might otherwise be due on redemption of the outstanding shares.
Class B shareholders of the Company exercising the exchange privilege will
continue to be subject to the Company's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the new Class B shares acquired
through use of the exchange privilege. In addition, Class B shares of the
Company acquired through use of the exchange privilege will be subject to the
Company's CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares of the fund from which the exchange has been
made. For purposes of computing the sales charge that may be payable on a
disposition of the new Class B or Class C shares, the holding period for the
outstanding Class B or Class C shares is "tacked" to the holding period of the
new Class B or Class C shares. For example, an investor may exchange Class B
shares of the Company for those of Merrill Lynch Special Value Fund, Inc.
("Special Value Fund") after having held the Company Class B shares for two and
a half years. The 2% CDSC that generally would apply to a redemption would not
apply to the exchange. Three years later the investor may decide to redeem the
Class B shares of Special Value Fund and receive cash. There will be no CDSC
due on this redemption, since by "tacking" the two and a half year holding
period of Company Class B shares to the three year holding period for the
Special Value Fund Class B shares, the investor will be deemed to have held the
Special Value Fund Class B shares for more than five years.
Shareholders also may exchange shares of the Company into shares of
certain money market funds advised by the Investment Adviser or its affiliates,
but the period of time that Class B or Class C shares are held in a money
market fund will not count towards satisfaction of the holding period
requirement for purposes of reducing the CDSC or with respect to Class B
shares, towards satisfaction of the conversion period. However, shares of a
money market fund that were acquired as a result of an exchange for Class B or
Class C shares of the Company may, in turn, be exchanged back into Class B or
Class C shares, respectively, of that fund offering such shares, in which event
the holding period for Class B or Class C shares of the newly-acquired fund
will be aggregated with previous holding periods for purposes of reducing the
CDSC. Thus, for example, an investor may exchange
28
<PAGE>
Class B shares of the Company for shares of Merrill Lynch Institutional Fund
("Institutional Fund") after having held the Company Class B shares for two and
a half years and three years later decide to redeem the shares of Institutional
Fund for cash. At the time of this redemption, the 2% CDSC that would have been
due had the Class B shares of the Company been redeemed for cash rather than
exchanged for shares of Institutional Fund will be payable. If instead of such
redemption the shareholder exchanged such shares for Class B shares of a fund
that the shareholder continued to hold for an additional two and a half years,
any subsequent redemption would not incur a CDSC.
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, a shareholder should contact his or
her Merrill Lynch Financial Consultant, who will advise the Company of the
exchange. Shareholders of the Company, and shareholders of the other
MLAM-advised funds, with shares for which certificates have not been issued,
may exercise the exchange privilege by wire through their securities dealers.
The Company reserves the right to require a properly completed Exchange
Application. This exchange privilege may be modified or terminated in
accordance with the rules of the Commission. The Company reserves the right to
limit the number of times an investor may exercise the exchange privilege.
Certain funds may suspend the continuous offering of their shares at any time
and thereafter may resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where the exchange
legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Company intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as it
so qualifies, the Company (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains which it distributes to Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). The Company intends to distribute
substantially all of such income.
Dividends paid by the Company from its ordinary income or from an excess
of net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses 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 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). Recent
legislation creates additional categories of capital gains taxable at different
rates. Generally 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, as well as
the amount of capital gain dividends in the different categories of capital
gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Company. A portion of the Company's ordinary income
dividends may be eligible for the dividends received deduction allowed to
corporations under the Code, if certain requirements are met. For this purpose,
the Company will allocate dividends eligible for the dividends received
deduction among the Class A, Class B, Class C and Class
29
<PAGE>
D shareholders according to a method (which it believes is consistent with the
Commission rule permitting the issuance and sale of multiple classes of stock)
that is based on the gross income allocable to Class A, Class B, Class C and
Class D shareholders during the taxable year, or such other method as the
Internal Revenue Service may prescribe. If the Company pays a dividend in
January which was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend will be treated for tax purposes as being paid by the Company and
received by its shareholders on December 31 of the year in which such dividend
was declared.
Ordinary income dividends paid 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.
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. In addition, recent
legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend only if the shareholder meets certain holding
period requirements. If more than 50% in value of the Company's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Company will be eligible, and intends, to file an election with the
Internal Revenue Service pursuant to which shareholders of the Company will be
required to include their proportionate shares of such withholding taxes in
their U.S. income tax returns as gross income, treat such proportionate shares
as taxes paid by them, and deduct such proportionate shares in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their U.S. income taxes. In the case of foreign taxes passed through by a RIC,
the holding period requirements referred to above must be met by both the
shareholder and the RIC. No deductions for foreign taxes, moreover, 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 and other information necessary
to claim the foreign tax credit. For this purpose, the Company will allocate
foreign taxes and foreign source income among the Class A, Class B, Class C and
Class D shareholders according to a method similar to that described above for
the allocation of dividends eligible for the dividends received deduction.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis
in the Class D shares acquired will be the same as such shareholder's basis in
the Class B shares converted, and the holding period of the acquired Class D
shares will include the holding period for the converted Class B shares.
30
<PAGE>
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Company on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the absence
of the exchange privilege. Instead, such sales charge will be treated as an
amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Company will be
disallowed if other Company shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Company intends to distribute its income
and capital gains in the manner necessary to minimize 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 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.
Application of these rules to Section 1256 contracts held by the Company may
alter the timing and character of distributions to shareholders. 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 sales of securities and 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 sales of securities and closing transactions in options, futures and
forward foreign exchange contracts.
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,
31
<PAGE>
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, however, 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 income dividend
distributions, and all or a portion of distributions made before the losses
were realized but in the same taxable year would be recharacterized as a return
of capital to shareholders, thereby reducing the basis of each shareholder's
Company shares, and resulting in a capital gain for any shareholder who
received a distribution greater than such shareholder's basis in Company shares
(assuming the shares were held as a capital asset). These rules and the
mark-to-market rules described above, however, will not apply to certain
transactions entered into by the Company solely to reduce the risk of 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, judicial 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,
Class B, Class C and Class D shares in accordance with a formula specified by
the Commission.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or losses on
portfolio investments over such periods) that would equate the initial amount
invested to the redeemable value of such investment at the end of each period.
Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including
32
<PAGE>
the maximum sales charge in the case of Class A and Class D shares and the CDSC
that would be applicable to a complete redemption of the investment at the end
of the specified period in the case of Class B and Class C shares.
The Company also may quote annual, average annual and annualized total
return and aggregate total return performance data, both as a percentage and as
a dollar amount based on a hypothetical $1,000 investment for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted,
and (2) the maximum applicable sales charge will not be included with respect
to annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over longer periods of time.
Set forth in the tables below is total return information for the Class A,
Class B, Class C and Class D shares of the Company for the periods indicated.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
-------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable
as a value of a as a value of a
percentage hypothetical percentage hypothetical
based on a $1,000 based on a $1,000
hypothetical investment at hypothetical investment at
$1,000 the end of $1,000 the end of
Period investment the period investment the period
- ------------------------------------------------------ -------------- --------------- -------------- --------------
Average Annual Total Return
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended March 31, 1998 ........................ (1.50)% $ 985.00 (0.06)% $ 999.40
Five Years Ended March 31, 1998 ...................... 10.62% $ 1,656.50 10.68% $ 1,661.10
Inception (April 27, 1992) to March 31, 1998 ......... 15.54 % $ 2,353.60 15.41 % $ 2,338.40
Annual Total Return
(excluding maximum applicable sales charges)
Year Ended March 31,
1998 ................................................. 3.96% $ 1,039.60 3.09% $ 1,030.90
1997 ................................................. 14.60 % $ 1,146.00 13.20 % $ 1,132.00
1996 ................................................. 5.15 % $ 1,051.50 4.21 % $ 1,042.10
1995 ................................................. 2.86 % $ 1,028.60 1.78 % $ 1,017.80
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, 1998 ......... 135.36 % $ 2,353.60 133.84 % $ 2,338.40
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Class C Shares Class D Shares
-------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable
as a value of a as a value of a
percentage hypothetical percentage hypothetical
based on a $1,000 based on a $1,000
hypothetical investment at hypothetical investment at
$1,000 the end of $1,000 the end of
Period investment the period investment the period
- -------------------------------------------------------- -------------- --------------- -------------- --------------
Average Annual Total Return
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended March 31, 1998 .......................... 2.08% $ 1,020.80 ( 1.55)% $ 984.50
Inception (October 21, 1994) to March 31, 1998 ......... 2.22% $ 1,078.60 1.48 % $ 1,051.90
Annual Total Return
(excluding maximum applicable sales charges)
Year Ended March 31,
1998 ................................................... 2.87% $ 1,028.70 3.90% $ 1,039.00
1997 ................................................... 13.19% $ 1,131.90 14.09% $ 1,140.90
1996 ................................................... 4.22% $ 1,042.20 4.94% $ 1,049.40
Inception (October 21, 1994) to March 31, 1995 ......... (11.11)% $ 888.90 (10.76)% $ 892.40
Aggregate Total Return
(including maximum applicable sales charges)
Inception (October 21, 1994) to March 31, 1998 ......... 7.86% $ 1,078.60 5.19% $ 1,051.90
</TABLE>
In order to reflect the reduced sales charges, in the case of Class A or
Class D shares, or the waiver of the CDSC, in the case of Class B or Class C
shares, applicable to certain investors, as described under "Purchase of
Shares" and "Redemption of Shares," respectively, the total return data quoted
by the Company in advertisements directed to such investors may take into
account a reduced, and not the maximum, sales charge or may not take into
account the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or the waiver of sales charges, a lower amount of
expenses may be deducted.
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 to the Company all of its technology oriented
securities and certain other assets (net of liabilities) in exchange for all of
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. At the
date of this Statement of Additional Information, it has an authorized capital
of 800,000,000 shares of Common Stock, par value of $0.10 per share, divided
into four classes, designated Class A, Class B, Class C and Class D Common
Stock. Class A and Class C each consists of 100,000,000 shares and Class B and
Class D each consists of 300,000,000 shares. Shares of Class A, Class B, Class
C and Class D Common Stock represent an interest in the same assets of the
Company and are identical in all respects except that the Class B, Class C and
Class D shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and/or distribution expenditures.
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.
34
<PAGE>
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Company does not intend
to hold meetings of shareholders in any year in which the Investment Company
Act does not require shareholders to act upon any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii)
approval of a distribution agreement; and (iv) ratification of selection of
independent auditors. Generally, under Maryland law, a meeting of shareholders
may be called for any purpose on the written request of the holders of at least
10% of the outstanding shares of the Company. Voting rights for Directors are
not cumulative. Shares issued are fully paid and nonassessable and have no
preemptive rights. Redemption and conversion rights are discussed elsewhere
herein and in the Prospectus. Each share is entitled to participate equally in
dividends and distributions declared by the Company and in the net assets of
the Company upon liquidation or dissolution after satisfaction of outstanding
liabilities. Stock certificates are issued by the transfer agent only on
specific request. Certificates for fractional shares are not issued in any
case. Shareholders may, in accordance with Maryland law, cause a meeting of
shareholders to be held for the purpose of voting on the removal of Directors
at the request of 25% of the outstanding shares of the Company. A Director may
be removed at a special meeting of shareholders by a vote of a majority of the
votes entitled to be cast for the election of Directors.
The Investment Adviser provided the initial capital for the Company by
purchasing 10,000 shares for $100,000. Such shares were acquired for investment
and can only be disposed of by redemption. The 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.
Computation of Offering Price Per Share
An illustration of the computation of the offering price for Class A,
Class B, Class C and Class D shares of the Company based on the current sales
charge and the value of the Company's net assets on March 31, 1998, and its
shares outstanding on that date is set forth below:
<TABLE>
<CAPTION>
Class A Class B
----------------- -----------------
<S> <C> <C>
Net Assets .......................................................... $ 211,443,249 $ 285,193,129
============= =============
Number of Shares Outstanding ........................................ 49,513,970 70,288,173
============= =============
Net Asset Value Per Share (net assets divided by number of shares
outstanding) ....................................................... $ 4.27 $ 4.06
Sales Charge (for Class A and Class D shares: 5.25% of offering price
(5.54% of net asset value))* ....................................... .24 **
------------- --------------
Offering Price ...................................................... $ 4.51 $ 4.06
============= =============
<CAPTION>
Class C Class D
---------------- ----------------
<S> <C> <C>
Net Assets .......................................................... $ 15,423,918 $ 34,711,823
============ ============
Number of Shares Outstanding ........................................ 3,827,577 8,172,613
============ ============
Net Asset Value Per Share (net assets divided by number of shares
outstanding) ....................................................... $ 4.03 $ 4.25
Sales Charge (for Class A and Class D shares: 5.25% of offering price
(5.54% of net asset value))* ....................................... ** .24
------------- ------------
Offering Price ...................................................... $ 4.03 $ 4.49
============ ============
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of Shares
-- Deferred Sales Charge Alternatives -- Class B and Class C Shares" in the
Prospectus and "Redemption of Shares -- Deferred Sales Charges -- Class B
and Class C Shares" herein.
Independent Auditors
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Company. The selection of
independent auditors is subject to approval by the independent Directors of the
Company. The independent auditors are responsible for auditing the annual
financial statements of the Company.
35
<PAGE>
Custodian
The Chase Manhattan Bank, 4 Chase MetroTech Center, 18th Floor, Global
Securities Services, Brooklyn, New York 11245 (the "Custodian"), acts as the
custodian of the Company's assets. Under its contract with the Company, the
Custodian is authorized to establish separate accounts in foreign currencies
and to cause foreign securities owned by the Company to be held in its offices
outside the U.S. and with certain foreign banks and securities depositories.
The Custodian is responsible for safeguarding and controlling the Company's
cash and securities, handling the receipt and delivery of securities and
collecting interest and dividends on the Company's investments.
Transfer Agent
Merrill Lynch Financial Data Services, Inc., 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.
Legal Counsel
Brown & Wood LLP, 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 ML & Co. 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
On June 1, 1998, Merrill Lynch Trust Company owned an aggregate of
approximately 8.4% of the outstanding shares of the Company on behalf of
certain employee retirement or savings plan accounts for which Merrill Lynch
Trust Company acts as trustee. The address of Merrill Lynch Trust Company is
P.O. Box 30532, New Brunswick, New Jersey 08989.
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Technology Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Technology Fund, Inc. as of March
31, 1998, the related statements of operations for the year then ended and
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the five-year period then
ended. These financial statements and the financial highlights are the
responsibility of the 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, 1998 by correspondence with the custodian. 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, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 6, 1998
37
<PAGE>
Merrill Lynch Technology Fund, Inc., March 31, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value Percent of
COUNTRY Industries Held Stocks Cost (Note 1a) Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Singapore Microcomputer Peripherals 6,654,650 +Creative Technology Ltd.++ $ 90,407,914 $148,897,794 27.2%
---------------------------------------------------------------------------------------------------------------------
Total Investments in Singapore 90,407,914 148,897,794 27.2
====================================================================================================================================
United States Application Specific 1,315,000 +C-Cube Microsystems, Inc. 42,748,640 24,409,688 4.5
Integrated Circuits
---------------------------------------------------------------------------------------------------------------------
Communications 280,000 +Ascend Communications, Inc. 9,837,500 10,605,000 1.9
Equipment 209,600 Lucent Technologies Inc. 18,844,925 26,802,600 4.9
------------ ------------ -----
28,682,425 37,407,600 6.8
---------------------------------------------------------------------------------------------------------------------
Communications-- 30,000 +Applied Micro Circuits Corporation 575,625 675,000 0.1
Integrated Circuits 210,000 +Level One Communications, Inc. 5,596,880 4,908,750 0.9
409,200 +PMC-Sierra, Inc. 14,062,576 15,549,600 2.9
207,500 +Vitesse Semiconductor Corporation 9,395,187 9,752,500 1.8
------------ ------------ -----
29,630,268 30,885,850 5.7
---------------------------------------------------------------------------------------------------------------------
Enterprise Software 375,000 Computer Associates International, Inc. 19,991,330 21,656,250 4.0
---------------------------------------------------------------------------------------------------------------------
Internet Services 33,300 +At Home Corporation (Series A) 874,125 1,119,713 0.2
---------------------------------------------------------------------------------------------------------------------
Internetworking 392,000 +Cisco Systems, Inc. 22,467,136 26,803,000 4.9
---------------------------------------------------------------------------------------------------------------------
Semiconductor Capital 150,000 +Ade Corporation 4,633,000 2,531,250 0.5
Equipment
---------------------------------------------------------------------------------------------------------------------
Semiconductors--Analog 357,100 Linear Technology Corporation 21,445,185 24,617,581 4.5
675,000 +Maxim Integrated Products, Inc. 23,776,250 24,553,125 4.5
------------ ------------ -----
45,221,435 49,170,706 9.0
---------------------------------------------------------------------------------------------------------------------
Semiconductors--Logic 50,000 +3Dfx Interactive, Inc. 1,187,500 1,406,250 0.2
610,000 +Altera Corporation 25,315,003 22,989,375 4.2
550,000 +Xilinx, Inc. 23,272,620 20,590,625 3.8
------------ ------------ -----
49,775,123 44,986,250 8.2
---------------------------------------------------------------------------------------------------------------------
Semiconductors--Memory 2,595,000 +Micron Technology, Inc. 82,658,345 75,417,187 13.8
465,000 Texas Instruments, Inc. 21,735,359 25,168,125 4.6
------------ ------------ -----
104,393,704 100,585,312 18.4
--------------------------------------------------------------------------------------------------------------------
Semiconductors-- 2,008,500 +Integrated Device Technology, Inc. 22,738,166 28,244,531 5.1
Microprocessors 240,000 Intel Corporation 19,015,892 18,720,000 3.4
------------ ------------ -----
41,754,058 46,964,531 8.5
---------------------------------------------------------------------------------------------------------------------
Total Investments in the United States 390,171,244 386,520,150 70.7
====================================================================================================================================
Total Investments $480,579,158 535,417,944 97.9
============
Other Assets Less Liabilities 11,354,175 2.1
------------ -----
Net Assets $546,772,119 100.0%
============ =====
====================================================================================================================================
</TABLE>
38
<PAGE>
+ Non-income producing security.
++ Investments in companies 5% or more of whose outstanding securities are
held by the Company (such companies are defined as 'Affiliated Companies'
in Section 2 (a)(3) of the Investment Company Act 1940) are as follows:
- -------------------------------------------------------------------------------
Net Share Net Dividend
Industry Affiliate Activity Cost Income
- -------------------------------------------------------------------------------
Microcomputer Creative
Peripherals Technology Ltd. (2,179,200) $(32,548,752) +++
- -------------------------------------------------------------------------------
+++ Non-income producing security.
See Notes to Financial Statements.
39
<PAGE>
Merrill Lynch Technology Fund, Inc., March 31, 1998
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of March 31, 1998
===============================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$480,579,158)(Note 1a) $535,417,944
Receivables:
Securities sold ............................................. $ 16,733,543
Capital shares sold ......................................... 678,581 17,412,124
------------
Prepaid registration fees and other assets (Note 1f) .......... 17,757
------------
Total assets .................................................. 552,847,825
------------
===============================================================================================================
Liabilities: Payables:
Capital shares redeemed ..................................... 3,547,727
Investment adviser (Note 2) ................................. 500,268
Distributor (Note 2) ........................................ 284,548 4,332,543
------------
Accrued expenses and other liabilities ........................ 1,743,163
------------
Total liabilities ............................................. 6,075,706
------------
===============================================================================================================
Net Assets: Net assets .................................................... $546,772,119
============
===============================================================================================================
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 100,000,000 shares authorized ................................ $ 4,951,397
Class B Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized ................................ 7,028,817
Class C Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized ................................ 382,758
Class D Shares of Common Stock, $0.10 par value,
300,000,000 shares authorized ................................ 817,261
Paid-in capital in excess of par .............................. 655,692,127
Accumulated realized capital losses on investments
and foreign currency transactions--net (Note 5) .............. (157,919,136)
Accumulated distributions in excess of realized capital
gains on investments--net (Note 1g) .......................... (19,019,891)
Unrealized appreciation on investments--net ................... 54,838,786
------------
Net assets .................................................... $546,772,119
============
===============================================================================================================
Net Asset Class A--Based on net assets of $211,443,249 and
Value: 49,513,970 shares outstanding ................................ $ 4.27
============
Class B--Based on net assets of $285,193,129 and
70,288,173 shares outstanding ................................ $ 4.06
============
Class C--Based on net assets of $15,423,918 and
3,827,577 shares outstanding ................................. $ 4.03
============
Class D--Based on net assets of $34,711,823 and
8,172,613 shares outstanding ................................. $ 4.25
============
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended March 31, 1998
===============================================================================================================
<S> <C> <C> <C>
Investment Interest and discount earned ............................ $ 2,891,038
Income Dividends ............................................... 205,703
------------
(Notes 1d & 1e): Total income ............................................ 3,096,741
------------
===============================================================================================================
Expenses: Investment advisory fees (Note 2) ....................... 6,780,768
Account maintenance and distribution fees--Class B (Note 2) 3,750,829
Transfer agent fees--Class B (Note 2) ................... 927,183
Transfer agent fees--Class A (Note 2) ................... 508,214
Account maintenance and distribution fees--Class C (Note 2) 196,363
Account maintenance fees--Class D (Note 2) .............. 101,081
Printing and shareholder reports ........................ 92,858
Registration fees (Note 1f) ............................. 85,447
Transfer agent fees--Class D (Note 2) ................... 84,415
Accounting services (Note 2) ............................ 83,246
Professional fees ....................................... 54,553
Transfer agent fees--Class C (Note 2) ................... 52,975
Custodian fees .......................................... 39,846
Directors' fees and expenses ............................ 38,000
Other ................................................... 12,383
------------
Total expenses .......................................... 12,808,161
------------
Investment loss--net .................................... (9,711,420)
------------
===============================================================================================================
Realized & Realized loss from:
Unrealized Gain Investments--net ...................................... $(157,919,261)
(Loss) on Foreign currency transactions--net .................... (5) (157,919,266)
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions -- Net Investments--net ...................................... 201,840,091
(Notes 1b, 1c, Foreign currency transactions--net .................... 5 201,840,096
1e & 3): ------------- ------------
Net Increase in Net Assets Resulting from Operations .... $ 34,209,410
============
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
41
<PAGE>
Merrill Lynch Technology Fund, Inc., March 31, 1998
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended March 31,
---------------------------------
Increase (Decrease) in Net Assets: 1998 1997
=======================================================================================================================
<S> <C> <C> <C>
Operations: Investment loss--net .................................... $ (9,711,420) $ (10,367,268)
Realized gain (loss) on investments and foreign
currency transactions--net ............................. (157,919,266) 235,762,290
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net ..... 201,840,096 (118,985,280)
------------- -------------
Net increase in net assets resulting from operations .... 34,209,410 106,409,742
------------- -------------
=======================================================================================================================
Distributions to Realized gain on investments--net:
Shareholders Class A ............................................... (44,407,215) (19,050,400)
(Note 1g): Class B ............................................... (72,911,047) (32,293,067)
Class C ............................................... (3,812,765) (1,699,433)
Class D ............................................... (7,217,791) (3,052,919)
In excess of realized gain on investments--net:
Class A ............................................... (6,580,664) --
Class B ............................................... (10,804,619) --
Class C ............................................... (565,010) --
Class D ............................................... (1,069,598) --
------------- -------------
Net decrease in net assets resulting from distributions
to shareholders ........................................ (147,368,709) (56,095,819)
------------- -------------
=======================================================================================================================
Capital Share Net increase (decrease) in net assets derived from
Transactions capital share transactions ............................. 7,796,208 (273,854,666)
(Note 4): ------------- -------------
=======================================================================================================================
Net Assets: Total decrease in net assets ............................ (105,363,091) (223,540,743)
Beginning of year ....................................... 652,135,210 875,675,953
------------- -------------
End of year ............................................. $ 546,772,119 $ 652,135,210
============= =============
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class A*
from information provided in the financial statements. -------------------------------------------------------------
For the Year Ended March 31,
-------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ............. $ 5.07 $ 4.82 $ 4.89 $ 5.17 $ 5.08
Operating --------- --------- --------- --------- ---------
Performance: Investment income (loss)--net .................. (.04) (.03) (.03) .05 (.01)
Realized and unrealized gain on investments
and foreign currency transactions--net ........ .46 .72 .28 .11 1.51
--------- --------- --------- --------- ---------
Total from investment operations ............... .42 .69 .25 .16 1.50
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ....................... -- -- -- (.02) --
In excess of investment income--net .......... -- -- -- (.01) --
Realized gain on investments--net ............ (1.06) (.44) (.17) (.05) (1.41)
42
<PAGE>
In excess of realized gain on investments--net (.16) -- (.15) (.36) --
--------- --------- --------- --------- ---------
Total dividends and distributions .............. (1.22) (.44) (.32) (.44) (1.41)
--------- --------- --------- --------- ---------
Net asset value, end of year ................... $ 4.27 $ 5.07 $ 4.82 $ 4.89 $ 5.17
========= ========= ========= ========= =========
===================================================================================================================================
Total Investment Based on net asset value per share ............. 3.96% 14.60% 5.15% 2.86% 35.68%
Return:** ========= ========= ========= ========= =========
===================================================================================================================================
Ratios to Average Expenses ....................................... 1.27% 1.30% 1.31% 1.33% 1.35%
Net Assets: ========= ========= ========= ========= =========
Investment income (loss)--net .................. (.82%) (.63%) (.62%) .87% (.11%)
========= ========= ========= ========= =========
===================================================================================================================================
Supplemental Net assets, end of year (in thousands) ......... $ 211,443 $ 222,118 $ 246,909 $ 254,188 $ 174,809
Data: ========= ========= ========= ========= =========
Portfolio turnover ............................. 206.40% 176.51% 108.36% 175.57% 350.64%
========= ========= ========= ========= =========
Average commission rate paid++ ................. $ .0538 $ .0604 $ .0366 -- --
========= ========= ========= ========= =========
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
The following per share data and ratios have been derived Class B*
from information provided in the financial statements. ------------------------------------------------------------
For the Year Ended March 31,
------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ............. $ 4.89 $ 4.66 $ 4.78 $ 5.08 $ 5.03
Operating --------- --------- --------- --------- ---------
Performance: Investment loss--net ........................... (.09) (.08) (.09) (.01) (.05)
Realized and unrealized gain on investments
and foreign currency transactions--net ........ .46 .69 .29 .11 1.48
--------- --------- --------- --------- ---------
Total from investment operations ............... .37 .61 .20 .10 1.43
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net ....................... -- -- -- --+ --
In excess of investment income--net .......... -- -- -- --+ --
Realized gain on investments--net ............ (1.05) (.38) (.17) (.05) (1.38)
In excess of realized gain on investments--net (.15) -- (.15) (.35) --
--------- --------- --------- --------- ---------
Total dividends and distributions .............. (1.20) (.38) (.32) (.40) (1.38)
--------- --------- --------- --------- ---------
Net asset value, end of year ................... $ 4.06 $ 4.89 $ 4.66 $ 4.78 $ 5.08
========= ========= ========= ========= =========
==================================================================================================================================
Total Investment Based on net asset value per share ............. 3.09% 13.20% 4.21% 1.78% 34.22%
Return:** ========= ========= ========= ========= =========
==================================================================================================================================
Ratios to Average Expenses ....................................... 2.31% 2.35% 2.34% 2.38% 2.36%
Net Assets: ========= ========= ========= ========= =========
Investment loss--net ........................... (1.85%) (1.66%) (1.65%) (.10%) (1.08%)
========= ========= ========= ========= =========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) ......... $ 285,193 $ 375,630 $ 553,819 $ 614,935 $ 224,330
Data: ========= ========= ========= ========= =========
Portfolio turnover ............................. 206.40% 176.51% 108.36% 175.57% 350.64%
========= ========= ========= ========= =========
Average commission rate paid++ ................. $ .0538 $ .0604 $ .0366 -- --
========= ========= ========= ========= =========
==================================================================================================================================
</TABLE>
* Based on average shares outstanding.
** Total investment returns exclude the effects of sales loads.
+ Amount is less than $.01 per share.
++ For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average Commission Rate Paid"
includes commissions paid in foreign currencies, which have been converted
into US dollars using the prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect the rate shown.
See Notes to Financial Statements.
43
<PAGE>
Merrill Lynch Technology Fund, Inc., March 31, 1998
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
<CAPTION>
The following per share data and ratios Class C** Class D**
have been derived from information provided ----------------------------------------- ----------------------------------------
in the financial statements. For the For the
Period Period
For the Year Oct. 21, For the Year Oct. 21,
Ended March 31, 1994+ to Ended March 31, 1994+ to
----------------------------- March 31, ---------------------------- March 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1998 1997 1996 1995
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period ... $ 4.87 $ 4.64 $ 4.76 $ 5.75 $ 5.05 $ 4.81 $ 4.89 $ 5.88
------- ------- ------- ------- ------- ------- ------- -------
Investment loss--net ................... (.09) (.08) (.09) -- (.05) (.04) (.05) (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ...................... .45 .68 .29 (.62) .46 .71 .29 (.60)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations ....... .36 .60 .20 (.62) .41 .67 .24 (.62)
------- ------- ------- ------- ------- ------- ------- -------
Less dividends and distributions:
Investment income--net ............... -- -- -- (.02) -- -- -- (.02)
In excess of investment income--net .. -- -- -- (.01) -- -- -- (.01)
Realized gain on investments--net .... (1.05) (.37) (.17) (.04) (1.05) (.43) (.17) (.04)
In excess of realized gain on
investments--net ..................... (.15) -- (.15) (.30) (.16) -- (.15) (.30)
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and distributions ...... (1.20) (.37) (.32) (.37) (1.21) (.43) (.32) (.37)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period ......... $ 4.03 $ 4.87 $ 4.64 $ 4.76 $ 4.25 $ 5.05 $ 4.81 $ 4.89
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
Total Investment Return:***
Based on net asset value per share ..... 2.87% 13.19% 4.22% (11.11%)++ 3.90% 14.09% 4.94% (10.76%)++
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
Ratios to Average Net Assets:
Expenses ............................... 2.33% 2.37% 2.36% 2.59%* 1.52% 1.55% 1.56% 1.80%*
======= ======= ======= ======= ======= ======= ======= =======
Investment loss--net ................... (1.87%) (1.68%) (1.69%) (.02%)* (1.07%) (.88%) (.89%) (.81%)*
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
Supplemental Data:
Net assets, end of period (in thousands) $15,424 $19,015 $31,090 $23,259 $34,712 $35,372 $43,858 $32,646
======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover ..................... 206.40% 176.51% 108.36% 175.57% 206.40% 176.51% 108.36% 175.57%
======= ======= ======= ======= ======= ======= ======= =======
Average commission rate paid++ ......... $ .0538 $ .0604 $ .0366 -- $ .0538 $ .0604 $ .0366 --
======= ======= ======= ======= ======= ======= ======= =======
===================================================================================================================================
</TABLE>
* Annualized.
** Based on average shares outstanding.
*** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ For fiscal years beginning on or after September 1, 1995, the Fund is
required to disclose its average commission rate per share for purchases
and sales of equity securities. The "Average Commission Rate Paid"
includes commissions paid in foreign currencies, which have been converted
into US dollars using the prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect the rate shown.
++ Aggregate total investment return.
See Notes to Financial Statements.
44
<PAGE>
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 management
investment company. The Company offers four classes of shares under the Merrill
Lynch Select Pricing(SM) System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical voting,
dividend, liquidation, and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain expenses related to
the account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the 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. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
are valued at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last asked price.
Options purchased are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter market, the last bid price. Short-term securities are valued at
amortized cost, which approximates market value. Other investments, including
futures contracts and related options, are stated at market value. Securities
and assets for which market quotations are not readily available are valued at
their fair value as determined in good faith by or under the direction of the
Company's Board of Directors.
(b) Derivative financial instruments--The Company may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the equity, debt and currency markets. Losses may
arise due to changes in the value of the contract or if the counterparty does
not perform under the contract.
o Financial futures contracts--The Company may purchase or sell financial
futures contracts and options on such futures contracts for the purpose of
hedging the market risk on existing securities or the intended purchase of
securities. Futures contracts are contracts for delayed delivery of securities
at a specific future date and at a specific price or yield. Upon entering into a
contract, the Company deposits and maintains as collateral such initial margin
as required by the exchange on which the transaction is effected. Pursuant to
the contract, the Company agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such receipts
or payments are known as variation margin and are recorded by the Company as
unrealized gains or losses. When the contract is closed, the Company records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Company is authorized to write and purchase covered call options
and purchase put options. When the Company writes an option, an amount equal to
the premium received by the Com pany is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Company enters into a closing
transaction), the Company realizes a gain or loss on the option to the extent of
the premiums received or paid (or
45
<PAGE>
Merrill Lynch Technology Fund, Inc., March 31, 1998
NOTES TO FINANCIAL STATEMENTS (continued)
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
o Forward foreign exchange contracts--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.
o Foreign currency options and futures--The Company may also purchase or sell
listed or over-the-counter foreign currency options, foreign currency futures
and related options on foreign currency futures as a short or long hedge against
possible variations in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities owned by the
Company, sold by the Company but not yet delivered, or committed or anticipated
to be purchased by the Company.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes--It is the 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.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently recorded
when the Company has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(g) Dividends and distributions to shareholders--Dividends and distributions
paid by the Company are recorded on the ex-dividend dates. Distributions in
excess of realized capital gains are due primarily to differing tax treatments
for post-October losses.
(h) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $5 have been reclassified between accumulated net
realized capital losses and accumulated net investment loss, differences of $125
have been reclassified between paid-in capital in excess of par and accumulated
net realized capital losses and differences of $9,711,425 have been reclassified
between paid-in capital in excess of par and accumulated net investment loss.
These reclassifications have no effect on net assets or net asset values per
share.
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"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. The Company has also
entered into a Distribution Agreement and Distribution Plans with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Company's portfolio and provides
the administrative services necessary for the operation of the Company. As
compensation for its services to the Company, MLAM receives monthly compensation
at the annual rate of 1.0% of the average daily net assets of the Company.
46
<PAGE>
Pursuant to the Distribution Plans 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. The fees
are accrued daily and paid monthly at annual rates based upon the average daily
net assets of the shares as follows:
- ----------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- ----------------------------------------------------------------
Class B ...................... 0.25% 0.75%
Class C ...................... 0.25% 0.75%
Class D ...................... 0.25% --
- ----------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Company. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended March 31, 1998, MLFD earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Company's Class
A and Class D Shares as follows:
- ----------------------------------------------------------
MLFD MLPF&S
- ----------------------------------------------------------
Class A ...................... $2,414 $22,624
Class D ...................... $5,656 $72,230
- ----------------------------------------------------------
For the year ended March 31, 1998, MLPF&S received contingent deferred sales
charges of $1,101,032 and $9,956 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $34,938 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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 MLAM, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short- term securities, for the
year ended March 31, 1998 were $1,294,882,244 and $1,453,703,449, respectively.
Net realized losses for the year ended March 31, 1998 and net unrealized gains
as of March 31, 1998 were as follows:
- ----------------------------------------------------------------
Realized Unrealized
Losses Gains
- ----------------------------------------------------------------
Long-term investments ......... $(157,913,815) $54,838,786
Short-term investments ........ (5,446) --
Foreign currency transactions . (5) --
------------- -----------
Total ......................... $(157,919,266) $54,838,786
============= ===========
- ----------------------------------------------------------------
As of March 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $54,260,837, of which $87,934,342 related to appreciated
securities and $33,673,505 related to depreciated securities. The aggregate cost
of investments at March 31, 1998 for Federal income tax purposes was
$481,157,107.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $7,796,208 and $(273,854,666) for the years ended March 31, 1998 and March
31, 1997, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 14,964,900 $ 71,410,844
Shares issued to shareholders
in reinvestment of distributions ......... 8,838,083 45,869,650
----------- -------------
Total issued ............................. 23,802,983 117,280,494
Shares redeemed .......................... (18,121,971) (89,086,567)
----------- -------------
Net increase ............................. 5,681,012 $ 28,193,927
=========== =============
- --------------------------------------------------------------------------------
47
<PAGE>
Merrill Lynch Technology Fund, Inc., March 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 12,264,759 $ 62,702,121
Shares issued to shareholders
in reinvestment of distributions ......... 3,468,111 17,167,147
----------- -------------
Total issued ............................. 15,732,870 79,869,268
Shares redeemed .......................... (23,090,217) (118,937,167)
----------- -------------
Net decrease ............................. (7,357,347) $ (39,067,899)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 19,604,583 $ 91,957,240
Shares issued to shareholders
in reinvestment of distributions ......... 14,953,197 74,317,386
----------- -------------
Total issued ............................. 34,557,780 166,274,626
Shares redeemed .......................... (40,126,849) (188,834,322)
Automatic conversion of shares ........... (898,029) (4,025,429)
----------- -------------
Net decrease ............................. (6,467,098) $ (26,585,125)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 18,468,222 $ 90,190,537
Shares issued to shareholders
in reinvestment of distributions ......... 6,005,201 28,824,967
----------- -------------
Total issued ............................. 24,473,423 119,015,504
Automatic conversion of shares ........... (505,918) (2,524,115)
Shares redeemed .......................... (66,039,743) (326,159,610)
----------- -------------
Net decrease ............................. (42,072,238) $(209,668,221)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 2,933,295 $ 13,806,155
Shares issued to shareholders
in reinvestment of distributions ......... 764,385 3,776,060
----------- -------------
Total issued ............................. 3,697,680 17,582,215
Shares redeemed .......................... (3,776,280) (17,726,568)
----------- -------------
Net decrease ............................. (78,600) $ (144,353)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 1,668,621 $ 8,095,294
Shares issued to shareholders
in reinvestment of distributions ......... 310,392 1,480,569
----------- -------------
Total issued ............................. 1,979,013 9,575,863
Shares redeemed .......................... (4,779,670) (23,555,658)
----------- -------------
Net decrease ............................. (2,800,657) $ (13,979,795)
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended March 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 4,505,104 $ 21,202,799
Automatic conversion of shares ........... 861,473 4,025,429
Shares issued to shareholders
in reinvestment of distributions ......... 1,452,639 7,510,141
----------- -------------
Total issued ............................. 6,819,216 32,738,369
Shares redeemed .......................... (5,645,964) (26,406,610)
----------- -------------
Net increase ............................. 1,173,252 $ 6,331,759
=========== =============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended March 31, 1997 Shares Amount
- --------------------------------------------------------------------------------
Shares sold .............................. 3,867,166 $ 19,608,228
Automatic conversion of shares ........... 491,920 2,524,115
Shares issued to shareholders
in reinvestment of distributions ......... 548,896 2,711,548
----------- -------------
Total issued ............................. 4,907,982 24,843,891
Shares redeemed .......................... (7,026,818) (35,982,642)
----------- -------------
Net decrease ............................. (2,118,836) $ (11,138,751)
=========== =============
- --------------------------------------------------------------------------------
5. Capital Loss Carryforward:
At March 31, 1998, the Fund had a net capital loss carryforward of approximately
$60,435,000, all of which expires in 2006. This amount will be available to
offset like amounts of any future taxable gains.
48
<PAGE>
TABLE OF CONTENTS
<PAGE>
[This page intentionally left blank.]
<PAGE>
[This page intentionally left blank.]
<PAGE>
<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 .......... 7
Investment Restrictions .......................... 8
Management of the Company ........................... 10
Directors and Officers ........................... 10
Compensation of Directors ........................ 12
Management and Advisory Arrangements ............. 12
Purchase of Shares .................................. 13
Initial Sales Charge Alternatives --
Class A and Class D Shares .................... 14
Reduced Initial Sales Charges --
Class A and Class D Shares .................... 16
Employer-Sponsored Retirement or Savings
Plans and Certain Other Arrangements .......... 18
Distribution Plans ............................... 19
Limitation on the Payment of Deferred Sales
Charges ....................................... 19
Redemption of Shares ................................ 20
Deferred Sales Charges --
Class B and Class C Shares .................... 21
Portfolio Transactions and Brokerage ................ 21
Determination of Net Asset Value .................... 23
Shareholder Services ................................ 24
Investment Account ............................... 25
Automatic Investment Plans ....................... 25
Automatic Reinvestment of Dividends and
Capital Gains Distributions ................... 26
Systematic Withdrawal Plans ...................... 26
Exchange Privilege ............................... 27
Dividends, Distributions and Taxes .................. 29
Tax Treatment of Options, Futures and Forward
Exchange Transactions ......................... 31
Special Rules for Certain Foreign Currency
Transactions .................................. 31
Performance Data .................................... 32
General Information ................................. 34
Description of Shares ............................ 34
Computation of Offering Price Per Share .......... 35
Independent Auditors ............................. 35
Custodian ........................................ 36
Transfer Agent ................................... 36
Legal Counsel .................................... 36
Reports to Shareholders .......................... 36
Additional Information ........................... 36
Security Ownership of Certain Beneficial
Owners ........................................ 36
Independent Auditors' Report ........................ 37
Financial Statements ................................ 38
</TABLE>
Code #16090-0698
[MERRILL LYNCH LOGO APPEARS HERE]
MERRILL LYNCH
Merrill Lynch
Technology Fund, Inc.
Statement of
Additional
Information
June 30, 1998
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
Contained in Part A:
Financial Highlights for each of the years in the five-year period ended
March 31, 1998, and the period April 27, 1992 (commencement of
operations) to March 31, 1993.
Contained in Part B:
Schedule of Investments as of March 31, 1998.
Statement of Assets and Liabilities as of March 31, 1998.
Statement of Operations for the year ended March 31, 1998.
Statements of Changes in Net Assets for each of the years in the
two-year period ended March 31, 1998.
Financial Highlights for each of the years in the five-year period ended
March 31, 1998.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ----------- --------------------------------------------------------------------------------------------------------------
<S> <C>
1(a) -- Articles of Incorporation of the Registrant, dated August 23, 1991.(a)
(b) -- Articles of Amendment to the Articles of Incorporation of the Registrant, dated October 17, 1994.(a)
(c) -- Articles Supplementary to the Articles of Incorporation of the Registrant, dated October 17, 1994.(a)
(d) -- Articles Supplementary to the Articles of Incorporation of the Registrant, dated November 16,
1994.(b)
2 -- By-Laws of the Registrant.(a)
3 -- None.
4 -- Copies of instruments defining the rights of shareholders, including the relevant portions of the
Articles of Incorporation, as amended and supplemented, and By-Laws of the Registrant.(c)
5(a) -- Investment Advisory Agreement between the Registrant and Merrill Lynch Asset Management, L.P.(a)
(b) -- Supplement to Investment Advisory Agreement between the Registrant and Merrill Lynch Asset
Management, L.P. dated January 3, 1994.(d)
(c) -- Form of Sub-Advisory Agreement between Merrill Lynch Asset Mangement, L.P. and Merrill Lynch
Asset Management U.K. Limited.(h)
6(a) -- Class A Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor,
Inc.(d)
(b) -- Class B Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor,
Inc.(a)
(c) -- Letter Agreement between the Registrant and Merrill Lynch Funds Distributor, Inc. with respect to the
Merrill Lynch Mutual Fund Advisor Program.(d)
(d) -- Class C Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor,
Inc.(e)
(e) -- Class D Shares Distribution Agreement between the Registrant and Merrill Lynch Funds Distributor,
Inc.(e)
7 -- None.
8 -- Custody Agreement between the Registrant and The Chase Manhattan Bank.(a)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between
the Registrant and Merrill Lynch Financial Data Service, Inc.(a)
(b) -- Form of License Agreement relating to the use of name between the Registrant and Merrill Lynch &
Co., Inc.(a)
10 -- None.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management, L.P.(a)
14 -- None.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------ --------------------------------------------------------------------------------------------------------
<S> <C>
15(a) -- Amended and Restated Class B Distribution Plan and Class B Distribution Plan Sub-Agreement of the
Registrant.(f)
(b) -- Form of Class C Distribution Plan and Class C Distribution Plan Sub-Agreement of the Registrant.(e)
(c) -- Form of Class D Distribution Plan and Class D Distribution Plan Sub-Agreement of the Registrant.(e)
16(a) -- Schedule of computation of each performance quotation provided in the Registration Statement in
response to Item 22 relating to Class A shares.(a)
(b) -- Schedule of computation of each performance quotation provided in the Registration Statement in
response to Item 22 relating to Class B shares.(a)
(c) -- Schedule of computation of each performance quotation provided in the Registration Statement in
response to Item 22 relating to Class C shares.(a)
(d) -- Schedule of computation of each performance quotation provided in the Registration Statement in
response to Item 22 relating to Class D shares.(a)
17(a) -- Financial Data Schedule for Class A shares.
(b) -- Financial Data Schedule for Class B shares.
(c) -- Financial Data Schedule for Class C shares.
(d) -- Financial Data Schedule for Class D shares.
18 -- Merrill Lynch Select Pricing(SM) System Plan Pursuant to Rule 18f-3.(g)
</TABLE>
- ---------
(a) Filed on July 27, 1995, as an Exhibit to Post-Effective Amendment No. 5 to
the Registrant's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (File No. 33-42639) (the "Registration
Statement").
(b) Filed on July 29, 1996, as an Exhibit to Post-Effective Amendment No. 6 to
the Registration Statement.
(c) 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,
as amended and supplemented, filed as Exhibits 1(a), 1(b), 1(c) and 1(d)
to the Registration Statement; and to Article II, Article III (sections 1,
3, 5, 6 and 17), Article VI, Article VII, Article XII, Article XIII and
Article XIV of the Registrant's By-Laws, filed as Exhibit 2 to the
Registration Statement.
(d) Filed on July 27, 1994, as an Exhibit to Post-Effective Amendment No. 3 to
the Registration Statement.
(e) Filed on October 11, 1994, as an Exhibit to Post-Effective Amendment No. 4
to the Registration Statement.
(f) Filed on July 28, 1993, as an Exhibit to Post-Effective Amendment No. 2 to
the Registration Statement.
(g) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of
1933, as amended, filed on January 25, 1996, relating to shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).
(h) Filed on July 21, 1997, as an Exhibit to Post-Effective Amendment No. 7 to
the Registration Statement.
Item 25. Persons Controlled by or Under Common Control with Registrant.
The Registrant is not controlled by or under common control with any other
person.
Item 26. Number of Holders of Securities.
Number of
Holders at
Title of Class May 31, 1998
- --------------------------------------------------------- -------------
Class A Common Stock, par value $0.10 per share ......... 32,293
Class B Common Stock, par value $0.10 per share ......... 39,441
Class C Common Stock, par value $0.10 per share ......... 3,401
Class D Common Stock, par value $0.10 per shae .......... 4,748
* Note: The number of holders shown above includes holders of record plus
beneficial owners, whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch").
Item 27. Indemnification.
Reference is made to Article VI of the Registrant's Articles of
Incorporation, Article VI of the Registrant's By-Laws, Section 2-418 of the
Maryland General Corporation Law and Section 9 of the Distribution Agreements.
C-2
<PAGE>
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or
any stockholder thereof to which such person would otherwise be subject by
reason of willful misfeasance, bad faith or reckless disregard of the duties
involved in the conduct of his office. Absent a court determination that an
officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office, the decision by
the Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Each officer and director of the Registrant claiming indemnification
within the scope of Article VI of the By-Laws shall be entitled to advances
from the Registrant for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to the
full extent permitted under the General Laws of the State of Maryland;
provided, however, that the person seeking indemnification shall provide to the
Registrant a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Registrant has been met and a
written undertaking to repay any such advance, if it should ultimately be
determined that the standard of conduct has not been met, and provided further
that at least one of the following additional conditions is met: (a) the person
seeking indemnification shall provide a security in form and amount acceptable
to the Registrant for his undertaking; (b) the Registrant is insured against
losses arising by reason of the advance; or (c) a majority of a quorum of
non-party independent directors, or independent legal counsel in a written
opinion, shall determine, based on a review of facts readily available to the
Registrant at the time the advance is proposed to be made, that there is reason
to believe that the person seeking indemnification will ultimately be found to
be entitled to indemnification.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability, arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or
purports to protect such person from liability to the Registrant or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
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, Class B, Class C and Class D 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, as amended (the
"1933 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 1933 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 1933 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 1933 Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of the Investment Adviser.
(a) Merrill Lynch Asset Management, L.P. ("MLAM" or the "Manager"), acts
as investment adviser for the following open-end registered investment
companies: Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund
For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch Global Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill
C-3
<PAGE>
Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill
Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series
Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a
division of MLAM); and for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch
Senior Floating Rate Fund, Inc. MLAM also acts as sub-adviser to Merrill Lynch
World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two
investment portfolios of EQ Advisory Trust.
Fund Asset Management, L.P. ("FAM"), an affiliate of the Manager, acts as
the investment adviser for the following open-end registered investment
companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Emerging Tigers
Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., and The
Municipal Fund Accumulation Program, Inc.; and for the following closed-end
registered investment companies: Apex Municipal Fund, Inc., Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund
III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund,
Inc., MuniHoldings California Insured Fund, Inc., MuniHoldings California
Insured Fund II, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida
Insured Fund II, MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings Insured Fund, Inc., MuniHoldings New Jersey Insured Fund, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield
Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield 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
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Funds for Institutions Series and Merrill Lynch Intermediate Government
Bond Fund is One Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665. The address of MLAM, FAM, Princeton Services, Inc. ("Princeton
Services") and Princeton Administrators L.P. is also P.O. Box 9011, Princeton,
New Jersey 08543-9011. The address of Merrill Lynch Funds Distributor, Inc.
("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of
Merrill Lynch and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281-1201. The
address of the Fund's transfer agent, Merrill Lynch Financial Data Services,
Inc. ("MLFDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
April 1, 1996 for his, her 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 listed in the first two paragraphs of this Item 28 and
Messrs. Giordano, Harvey, Kirstein and Monagle are directors, trustees or
officers of one or more of such companies.
C-4
<PAGE>
<TABLE>
<CAPTION>
Other Substantial Business,
Position(s) with the Profession, Vocation
Name Manager or Employment
- ----------------------------- --------------------------- ---------------------------------------------------
<S> <C> <C>
ML & Co. .................... Limited Partner Financial Services Holding Company;
Limited Partner of FAM
Princeton Services .......... General Partner General Partner of FAM
Arthur Zeikel ............... Chairman Chairman of FAM; President of MLAM and FAM
from 1977 to 1997; Chairman and Director of
Princeton Services; President of Princeton
Services from 1993 to 1997; Executive Vice
President of ML & Co.
Jeffrey M. Peek ............. President President of FAM; President and Director of
Princeton Services; Executive Vice President of
ML & Co.
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
MLFDS; President of Princeton Administrators,
L.P.
Linda L. Federici ........... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Vincent R. Giordano ......... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton Services
Elizabeth A. Griffin ........ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Norman R. Harvey ............ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Michael J. Hennewinkel ...... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Philip L. Kirstein .......... Senior Vice President, Senior Vice President, General Counsel and
General Counsel and Secretary of FAM; Senior Vice President, General
Secretary Counsel, Director and Secretary of Princeton
Services; Director of MLFD
Ronald M. Kloss ............. Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Debra W. Landsman-Yaros ..... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Vice
President of MLFD
Stephen M.M. Miller ......... Senior Vice President Executive Vice President of Princeton Adminis-
trators, L.P.; Senior Vice President of Princeton
Services
Joseph T. Monagle, Jr. ...... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Michael L. Quinn ............ Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Managing
Director and First Vice President of Merrill
Lynch, from 1989 to 1995
Richard L. Reller ........... Senior Vice-President Senior Vice President of FAM; Senior Vice
President of Princeton Services; Director of
MLFD
Gerald M. Richard ........... Senior Vice President and Senior Vice President and Treasurer of FAM; Senior
Treasurer Vice President and Treasurer of Princeton
Services; Vice President and Treasurer of MLFD
Gregory D. Upah ............. Senior Vice-President Senior Vice President of FAM; Senior Vice
President of Princeton Services
Ronald L. Welburn ........... Senior Vice President Senior Vice President of FAM; Senior Vice
President of Princeton Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset
Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch
Asset
C-5
<PAGE>
Income Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital
Fund, Inc., Merrill Lynch Consults International Portfolio, Merrill Lynch
Convertible Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Developing Capital Markets, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
Emerging Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental
Growth Fund Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Series Fund,
Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Special
Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc., Merrill Lynch Utility Income Fund, Inc., Merrill Lynch
Variable Series Funds, Inc., Merrill Lynch World Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of these registered investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of MLAM U.K. is Milton Gate, 1
Moor Lane, London EC2Y 9HA, England.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since April 1,
1996, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Richard are
officers of one or more of the registered investment companies listed in the
first two paragraphs of this Item 28:
<TABLE>
<CAPTION>
Other Substantial Business,
Name Position with MLAM U.K. Profession, Vocation or Employment
- ------------------------ ----------------------------- ---------------------------------------------------------
<S> <C> <C>
Arthur Zeikel .......... Director and Chairman Chairman of the Manager and FAM; President of the
Manager and FAM from 1977 to 1997; Chairman and
Director of Princeton Services; President of Princeton
Services from 1993 to 1997; Executive Vice President of
ML&Co.
Alan J. Albert ......... Senior Managing Director Vice President of the Manager
Nicholas C.D. Hall ..... President Director of Merrill Lynch Europe PLC; General Counsel of
Merrill Lynch International Private Banking Group
Gerald M. Richard ...... Senior Vice President Senior Vice President and Treasurer of the Manager and
FAM; Senior Vice President and Treasurer of Princeton
Services; Vice President and Treasurer of MLFD
Carol Ann Langham ...... Company Secretary None
Debra Anne Searle ...... Assistant Company Secretary None
</TABLE>
Item 29. Principal Underwriters.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end registered investment companies referred to in the first two
paragraphs of Item 28 except CBA Money Fund, CMA Government Securities Fund,
CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund,
CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc. and The
Municipal Fund Accumulation Program, Inc., and MLFD also acts as the principal
underwriter for the following closed-end registered investment companies:
Merrill Lynch High Income Municipal Bond Program, Inc., Merrill Lynch Municipal
Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich,
Breen, Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
C-6
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with MLFD with Registrant
- ---------------------------------- ------------------------------ -------------------------
<S> <C> <C>
Terry K. Glenn .............. President and Director Executive Vice President
Richard L. Reller ........... Director None
Thomas J. Verage ............ 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
Michael G. Clark ............ Vice President None
James T. Fatseas ............ Vice President None
Debra W. Landsman-Yaros ..... Vice President None
Michelle T. Lau ............. Vice President None
Gerald M. Richard ........... Vice President and Treasurer Treasurer
Salvatore Venezia ........... Vice President None
William Wasel ............... Vice President None
Robert Harris ............... Secretary None
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder are maintained at the offices of the Registrant, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and its transfer agent, Merrill Lynch
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Item 31. Management Services.
Other than as set forth under the caption "Management of the Company --
Advisory and Management Arrangements" in the Prospectus constituting Part A of
the Registration Statement and under "Management of the Company -- Advisory and
Management Arrangements" in the Statement of Additional Information
constituting Part B of the Registration Statement, the Registrant is not a
party to any management-related service contract.
Item 32. Undertakings.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus was
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to 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 30th day of June
1998.
MERRILL LYNCH TECHNOLOGY FUND, INC.
(Registrant)
By /s/ Gerald M. Richard
------------------------------------
Gerald M. Richard, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date(s) indicated.
<TABLE>
<CAPTION>
Signature Title Date(s)
- ----------------------------------------------- --------------------------------------------- --------
<S> <C> <C>
ARTHUR ZEIKEL* President and Director (Principal Executive
- ------------------------------------- Officer)
(Arthur Zeikel)
GERALD M. RICHARD* Treasurer (Principal Financial and
- ------------------------------------- Accounting Officer)
(Gerald M. Richard)
DONALD CECIL* Director
- -------------------------------------
(Donald Cecil)
EDWARD H. MEYER* Director
- -------------------------------------
(Edward H. Meyer)
CHARLES C. REILLY* Director
- -------------------------------------
(Charles C. Reilly)
RICHARD R. WEST* Director
- -------------------------------------
(Richard R. West)
EDWARD D. ZINBARG* Director
- -------------------------------------
(Edward D. Zinbarg)
*By /s/ GERALD M. RICHARD June 30, 1998
---------------------------------
(Gerald M. Richard, Attorney-in-Fact)
</TABLE>
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------------- ---------------------------------------------------------------------------
<S> <C> <C>
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
17(a) -- Financial Data Schedule for Class A shares.
(b) -- Financial Data Schedule for Class B shares.
(c) -- Financial Data Schedule for Class C shares.
(d) -- Financial Data Schedule for Class D shares.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> MERRILL LYNCH TECHNOLOGY FUND, INC.-CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 480579158
<INVESTMENTS-AT-VALUE> 535417944
<RECEIVABLES> 17412124
<ASSETS-OTHER> 17757
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 552847825
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6075706
<TOTAL-LIABILITIES> 6075706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 668872360
<SHARES-COMMON-STOCK> 49513970
<SHARES-COMMON-PRIOR> 43832958
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (157919136)
<OVERDISTRIBUTION-GAINS> (19019891)
<ACCUM-APPREC-OR-DEPREC> 54838786
<NET-ASSETS> 211443249
<DIVIDEND-INCOME> 205703
<INTEREST-INCOME> 2891038
<OTHER-INCOME> 0
<EXPENSES-NET> (12808161)
<NET-INVESTMENT-INCOME> (9711420)
<REALIZED-GAINS-CURRENT> (157919266)
<APPREC-INCREASE-CURRENT> 201840096
<NET-CHANGE-FROM-OPS> 34209410
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (50987879)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14964900
<NUMBER-OF-SHARES-REDEEMED> (18121971)
<SHARES-REINVESTED> 8838083
<NET-CHANGE-IN-ASSETS> (105363091)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 128348818
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6780768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12808161
<AVERAGE-NET-ASSETS> 242925198
<PER-SHARE-NAV-BEGIN> 5.07
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.27
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> MERRILL LYNCH TECHNOLOGY FUND, INC.-CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 480579158
<INVESTMENTS-AT-VALUE> 535417944
<RECEIVABLES> 17412124
<ASSETS-OTHER> 17757
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 552847825
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6075706
<TOTAL-LIABILITIES> 6075706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 668872360
<SHARES-COMMON-STOCK> 70288173
<SHARES-COMMON-PRIOR> 76755271
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (157919136)
<OVERDISTRIBUTION-GAINS> (19019891)
<ACCUM-APPREC-OR-DEPREC> 54838786
<NET-ASSETS> 285193129
<DIVIDEND-INCOME> 205703
<INTEREST-INCOME> 2891038
<OTHER-INCOME> 0
<EXPENSES-NET> (12808161)
<NET-INVESTMENT-INCOME> (9711420)
<REALIZED-GAINS-CURRENT> (157919266)
<APPREC-INCREASE-CURRENT> 201840096
<NET-CHANGE-FROM-OPS> 34209410
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (83715666)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19604583
<NUMBER-OF-SHARES-REDEEMED> (41024878)
<SHARES-REINVESTED> 14953197
<NET-CHANGE-IN-ASSETS> (105363091)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 128348818
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6780768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12808161
<AVERAGE-NET-ASSETS> 375082951
<PER-SHARE-NAV-BEGIN> 4.89
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.20)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.06
<EXPENSE-RATIO> 2.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> MERRILL LYNCH TECHNOLOGY FUND, INC.-CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 480579158
<INVESTMENTS-AT-VALUE> 535417944
<RECEIVABLES> 17412124
<ASSETS-OTHER> 17757
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 552847825
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6075706
<TOTAL-LIABILITIES> 6075706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 668872360
<SHARES-COMMON-STOCK> 3827577
<SHARES-COMMON-PRIOR> 3906177
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (157919136)
<OVERDISTRIBUTION-GAINS> (19019891)
<ACCUM-APPREC-OR-DEPREC> 54838786
<NET-ASSETS> 15423918
<DIVIDEND-INCOME> 205703
<INTEREST-INCOME> 2891038
<OTHER-INCOME> 0
<EXPENSES-NET> (12808161)
<NET-INVESTMENT-INCOME> (9711420)
<REALIZED-GAINS-CURRENT> (157919266)
<APPREC-INCREASE-CURRENT> 201840096
<NET-CHANGE-FROM-OPS> 34209410
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (4377775)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2933295
<NUMBER-OF-SHARES-REDEEMED> (3776280)
<SHARES-REINVESTED> 764385
<NET-CHANGE-IN-ASSETS> (105363091)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 128348818
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6780768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12808161
<AVERAGE-NET-ASSETS> 19636302
<PER-SHARE-NAV-BEGIN> 4.87
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.20)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.03
<EXPENSE-RATIO> 2.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> MERRILL LYNCH TECHNOLOGY FUND, INC.-CLASS D
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 480579158
<INVESTMENTS-AT-VALUE> 535417944
<RECEIVABLES> 17412124
<ASSETS-OTHER> 17757
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 552847825
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6075706
<TOTAL-LIABILITIES> 6075706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 668872360
<SHARES-COMMON-STOCK> 8172613
<SHARES-COMMON-PRIOR> 6999361
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (157919136)
<OVERDISTRIBUTION-GAINS> (19019891)
<ACCUM-APPREC-OR-DEPREC> 54838786
<NET-ASSETS> 34711823
<DIVIDEND-INCOME> 205703
<INTEREST-INCOME> 2891038
<OTHER-INCOME> 0
<EXPENSES-NET> (12808161)
<NET-INVESTMENT-INCOME> (9711420)
<REALIZED-GAINS-CURRENT> (157919266)
<APPREC-INCREASE-CURRENT> 201840096
<NET-CHANGE-FROM-OPS> 34209410
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (8287389)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5366577
<NUMBER-OF-SHARES-REDEEMED> (5645964)
<SHARES-REINVESTED> 1452639
<NET-CHANGE-IN-ASSETS> (105363091)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 128348818
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6780768
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12808161
<AVERAGE-NET-ASSETS> 40432337
<PER-SHARE-NAV-BEGIN> 5.05
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> .46
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.21)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.25
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Technology Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-42639 of our report dated May 6, 1998 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
June 29, 1998
