<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1994
SECURITIES ACT FILE NO. 33-47875
INVESTMENT COMPANY ACT FILE NO. 811-6669
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 3 /x/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 4 /x/
(Check appropriate box or boxes)
------------------------
MERRILL LYNCH
FUNDAMENTAL GROWTH FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY
(ADDRESS OF PRINCIPAL EXECUTIVE 08536
OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH FUNDAMENTAL GROWTH 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>
PHILIP L. KIRSTEIN, ESQ. COUNSEL FOR THE FUND:
MERRILL LYNCH ASSET MANAGEMENT BROWN & WOOD
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
ATTENTION: THOMAS R. SMITH, JR.
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX)
/ / immediately upon filing pursuant to paragraph (b)
/x/ on October 21, 1994 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii), or
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
------------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULES FOR THE
REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON SEPTEMBER , 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH FUNDAMENTAL GROWTH 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...................... Not Applicable
Item 3. Condensed Financial
Information................. Financial Highlights
Item 4. General Description of
Registrant.................. Investment Objective and
Policies; Additional
Information
Item 5. Management of the Fund........ Fee Table; Management of the
Fund; Inside Back Cover Page
Item 5A. Management's Discussion of
Fund Performance............ Not Applicable
Item 6. Capital Stock and Other
Securities.................. Cover Page; Purchase of
Shares; Additional Information
Item 7. Purchase of Securities Being
Offered..................... Cover Page; Fee Table;
Purchase of Shares; Merrill
Lynch Select
Pricing(Service Mark)
System; ; Shareholder
Services; Additional
Information; Inside Back
Cover Page
Item 8. Redemption or Repurchase...... Merrill Lynch Select
Pricing(Service Mark)
System; ; Purchase of Shares;
Redemption of Shares
Item 9. Pending Legal Proceedings..... Not Applicable
<CAPTION>
PART B
<S> <C> <C>
Item 10. Cover Page.................... Cover Page
Item 11. Table of Contents............. Back Cover Page
Item 12. General Information and
History..................... Not Applicable
Item 13. Investment Objectives and
Policies.................... Investment Objective and
Policies
Item 14. Management of the Fund........ Management of the Fund
Item 15. Control Persons and Principal
Holders of Securities....... Management of the Fund
Item 16. Investment Advisory and Other
Services.................... Management of the Fund;
Purchase of Shares; General
Information
Item 17. Brokerage Allocation and Other
Practices................... Portfolio Transactions and
Brokerage
Item 18. Capital Stock and Other
Securities.................. General
Information--Description of
Shares
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered..................... Purchase of Shares; Redemption
of Shares; Determination of
Net Asset Value; Shareholder
Services
Item 20. Tax Status.................... Additional
Information--Dividends and
Distributions; Additional
Information--Taxes
Item 21. Underwriters.................. Purchase of Shares
Item 22. Calculation of Performance
Data........................ Performance Data
Item 23. Financial Statements.......... Statement of Assets and
Liabilities
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
OCTOBER 21, 1994
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Fundamental Growth Fund, Inc. (the 'Fund') is a mutual fund
seeking to provide shareholders with long-term growth of capital. The Fund will
seek to achieve its investment objective by investing in a diversified portfolio
of equity securities placing particular emphasis on companies that have
exhibited above-average growth rates in earnings. There can be no assurance that
the Fund's investment objective will be realized.
------------------------
Pursuant to the Merrill Lynch Select Pricing(Service Mark) System, the Fund
offers four classes of shares, each with a different combination of sales
charges, ongoing fees and other features. The Merrill Lynch Select Pricing
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. As a result of the implementation of the Merrill Lynch Select
Pricing System, Class A
shares of the Fund outstanding prior to October 21, 1994, have been redesignated
Class D Shares and Class B shares of the Fund outstanding prior to October 21,
1994 have been designated Class C shares. The Class A and Class B shares offered
by this Prospectus differ from the Class A and Class B shares, respectively,
offered prior to October 21, 1994, in many respects, including sales charges,
exchange privilege and the classes of persons to whom such shares are offered.
See 'Merrill Lynch Select Pricing(Service Mark) System' on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the 'Distributor'), P.O. Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], and other securities dealers which 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. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the Fund's
transfer agent are not subject to the processing fee. See 'Purchase of Shares'
and 'Redemption of Shares'.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of information about the Fund that is
relevant to making an investment in the Fund. This Prospectus should be retained
for future reference. A statement containing additional information about the
Fund, dated October 21, 1994 (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 Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
------------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(A) CLASS B(B) CLASS C(C) CLASS D(D)
---------- ------------------------------ ---------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Purchases (as
a percentage of offering
price).................. 5.25% (e) None None 5.25% (e)
Sales Charge Imposed on
Dividend Reinvestments.. None None None None
Deferred Sales Charge (as
a percentage of original
purchase price or
redemption proceeds,
whichever is lower)..... None (f) 4.0% during the first year, 1.0% for None (f)
decreasing 1.0% annually one year
thereafter to 0.0% after the
fourth year
Exchange Fee.............. None None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE
OF AVERAGE NET ASSETS) (G)
Management Fees(h)........ 0.65% 0.65% 0.65% 0.65%
Rule 12b-1 Fees(i):
Account Maintenance
Fees.................. None 0.25% 0.25% 0.25%
Distribution Fees....... None 0.75% 0.75% None
(Class B shares convert to
Class D shares automatically
after approximately eight
years and cease being subject
to distribution fees)
Other Expenses:
Custodial Fees.......... 0.03% 0.03% 0.03% 0.03%
Shareholder Servicing
Costs(j).............. 0.13% 0.15% 0.15% 0.13%
Other................... 0.52% 0.52% 0.52% 0.52%
---------- ------- ---------- ----------
Total Other Expenses...... 0.68% 0.70% 0.70% 0.68%
---------- ------- ---------- ----------
Total Fund Operating
Expenses................ 1.33% 2.35% 2.35% 1.58%
---------- ------- ---------- ----------
---------- ------- ---------- ----------
</TABLE>
- ------------------
(a) Class A shares are sold to a limited group of investors including
certain retirement plans and investment programs. The Class A
shares offered by this Prospectus differ from the Class A shares
offered prior to October 21, 1994. See 'Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D
Shares'--page 17.
(b) Class B shares convert to Class D shares automatically
approximately eight years after initial purchase. The Class B
shares offered by this Prospectus differ from the Class B shares
offered prior to October 21, 1994. See 'Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C
Shares'--page 19.
(c) Class B shares of the Fund outstanding prior to October 21, 1994,
have been redesignated Class C shares.
(d) Class A shares of the Fund outstanding prior to October 21, 1994,
have been redesignated Class D shares.
(e) Reduced for purchases of $25,000 and over. Class A or Class D
purchases of $1,000,000 or more may not be subject to an initial
sales charge. See 'Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares'--page 17.
(f) Class A and Class D shares are not subject to a contingent
deferred sales charge ('CDSC'), except that purchases of
$1,000,000 or more which may not be subject to an initial sales
charge will instead be subject to a CDSC of 1.0% of amounts
redeemed within the first year after purchase.
(g) Information for Class C and Class D shares is stated for the
fiscal year ended August 31, 1994. Information under 'Other
Expenses' for Class A and Class B shares is estimated for the
fiscal year ending August 31, 1995.
(h) See 'Management of the Fund--Management and Advisory
Arrangements'--page 14.
(i) See 'Purchase of Shares--Distribution Plans' page 22.
(j) See 'Management of the Fund--Transfer Agency Services'--page 15.
2
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE
PERIOD OF:
----------------------------------
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment including the
maximum $52.50 initial sales charge (Class
A and Class D shares only) and assuming (1)
the Total Fund Operating Expenses for each
class set forth above; (2) a 5% annual
return throughout the periods and (3)
redemption at the end of the period:
Class A................................. $ 65 $ 92 $ 122 $ 204
Class B................................. $ 64 $ 93 $ 126 $ 250*
Class C................................. $ 34 $ 73 $ 126 $ 269
Class D................................. $ 68 $ 100 $ 134 $ 230
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 $ 92 $ 122 $ 204
Class B................................. $ 24 $ 73 $ 126 $ 250*
Class C................................. $ 24 $ 73 $ 126 $ 269
Class D................................. $ 68 $ 100 $ 134 $ 230
</TABLE>
- ------------------
* Assumes conversion to Class D shares approximately eight years after
purchase.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The expenses set forth under 'Other Expenses' are based on estimated
amounts through the end of the Fund's first fiscal year on an annualized basis.
The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission ('Commission') regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF
RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C shareholders who
hold their shares for an extended period of time may pay more in Rule 12b-1
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted under the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. ('NASD'). Merrill Lynch may charge its customers a
processing fee (presently $4.85) for confirming purchases and repurchases.
Purchases and redemptions through the Fund's Transfer Agent are not subject to
the processing fee. See 'Purchase of Shares' and 'Redemption of Shares'.
MERRILL LYNCH SELECT PRICING(Service Mark) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(Service Mark) 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 System is used by more than 50
mutual funds advised by MLAM or its affiliate, Fund Asset Management, L.P.
("FAM"). Funds advised by MLAM or FAM are referred to herein as
'MLAM-advised mutual funds'.
3
<PAGE>
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
the Class D shares, will be imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges will not affect
the net asset value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Fund for each class of shares
will be calculated in the same manner at the same time and will differ only to
the extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Each class has different exchange privileges. See 'Shareholder
Services--Exchange Privilege'.
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the deferred sales charges with respect to the Class B and Class C
shares in that the sales charges applicable to each class provide for the
financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing 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 System that the investor believes is most
beneficial under his particular circumstances. More detailed information as to
each class of shares is set forth under 'Purchase of Shares'.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2),(3)
B CDSC for a period of 4 years, 0.25% 0.75% B shares convert
at a rate of 4.0% during the to D shares
first automatically
year, decreasing 1.0% annually after
to 0.0% approximately
eight years(4)
C 1.0% CDSC for one year 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. Contingent deferred sales charges ('CDSCs') are imposed
if the redemption occurs within the applicable CDSC time period. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.
(continued on next page)
4
<PAGE>
(2) Offered only to eligible investors. See 'Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors'.
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year. See 'Class
A' and 'Class D' below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for
the shares acquired.
Class A: Class A shares incur an initial sales charge when they are purchased
and bear no ongoing distribution or account maintenance fees. Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Eligible investors include certain retirement plans and participants
in certain investment programs. In addition, Class A shares will be
offered to directors and employees of Merrill Lynch & Co., Inc. and
its subsidiaries (the term 'subsidiaries', when used herein with
respect to Merrill Lynch & Co., Inc., includes the Manager, FAM and
certain other entities directly or indirectly wholly-owned and
controlled by Merrill Lynch & Co., Inc.) and to members of the Boards
of MLAM-advised mutual funds. The maximum initial sales charge is
5.25%, which is reduced for purchases of $25,000 and over. Purchases
of $1,000,000 or more may not be subject to an initial sales charge
but if the initial sales charge is waived, such purchases will be
subject to a CDSC of 1.0% if the shares are redeemed within one year
after purchase. Sales charges also are reduced under a right of
accumulation which takes into account the investor's holdings of all
classes of all MLAM-advised mutual funds. See 'Purchase of
Shares--Initial Sales Charge Alternatives--Class A and Class D
Shares'.
Class B: Class B shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%,
an ongoing distribution fee of 0.75% of the Fund's average net assets
attributable to the Class B shares and a CDSC if they are redeemed
within four years of purchase. Approximately eight years after
issuance, Class B shares will convert automatically into Class D
shares of the Fund, which are subject to an account maintenance fee
but no distribution fee; Class B shares of certain other MLAM-advised
mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares
of the Fund are exchanged for Class B shares of another MLAM-advised
mutual fund, the conversion period applicable to the Class B shares
acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the shares
acquired. Automatic conversion of Class B shares into Class D shares
will occur at least once a month on the basis of the relative net
asset values of the shares of the two classes on the conversion date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of the shares for Federal income tax purposes. Shares
purchased through reinvestment of dividends on Class B shares also
will convert automatically to Class D shares. The conversion period
for dividend reinvestment shares and for certain retirement plans is
modified as described under 'Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares
to Class D Shares'.
5
<PAGE>
Class C: Class C shares do not incur a sales charge when they are purchased,
but they are subject to an ongoing account maintenance fee of 0.25%
and an ongoing distribution fee of 0.75% of the Fund's average net
assets attributable to Class C shares. Class C shares are also subject
to a CDSC if they are redeemed within one year of purchase. Although
Class C shares are subject to a 1.0% CDSC for only one year (as
compared to four years for Class B), Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares
will be subject to distribution fees that will be imposed on Class C
shares for an indefinite period subject to annual approval by the
Fund's Board of Directors and regulatory limitations.
Class D: Class D shares incur an initial sales charge when they are purchased
and are subject to an ongoing account maintenance fee of 0.25% of the
Fund's average net assets attributable to Class D shares. Class D
shares are not subject to an ongoing distribution fee or any CDSC when
they are redeemed. Purchases of $1,000,000 or more may not be subject
to an initial sales charge but if the initial sales charge is waived,
such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. The schedule of initial sales
charges and reductions for Class D shares is the same as the schedule
for Class A shares. Class D shares also will be issued upon conversion
of Class B shares as described above under 'Class B'. See 'Purchase of
Shares-- Initial Sales Charge Alternatives--Class A and Class D
Shares'.
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing System that the investor believes is most beneficial under his
particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because of the account maintenance fee imposed
on Class D shares. Investors qualifying for significantly reduced initial sales
charges may find the initial sales charge alternative particularly attractive
because similar sales charge reductions are not available with respect to the
deferred sales charges imposed in connection with purchases of Class B or Class
C shares. Investors not qualifying for reduced initial sales charges who expect
to maintain their investment for an extended period of time also may elect to
purchase Class A or Class D shares, because over time the accumulated ongoing
account maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the account
maintenance fee. Class A, Class B, Class C and Class D share holdings will count
toward a right of accumulation which may qualify the investor for reduced
initial sales charges on new initial sales charge purchases. In addition, the
ongoing Class B and Class C account maintenance and distribution fees will cause
Class B and Class C shares to have higher expense ratios, pay lower dividends
and have lower total returns than the initial sales charge shares. The ongoing
Class D account maintenance fees will cause Class D shares to have a higher
expense ratio, pay lower dividends and have a lower total return than Class A
shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. The deferred sales charge alternatives may be particularly appealing to
investors who do not qualify for a reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account maintenance fees and
distribution fees; however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return is realized on the
additional funds initially invested in Class B or Class C shares. In addition,
Class B shares will be converted into Class D shares of the Fund after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
6
<PAGE>
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 forgo the Class B conversion feature, making their investment
subject to account maintenance and distribution fees for an indefinite period of
time. In addition, while both Class B and Class C distribution fees are subject
to the limitations on asset-based sales charges imposed by the NASD, the Class B
distribution fees are further limited under a voluntary waiver of asset-based
sales charges. See 'Purchase of Shares--Limitations on the Payment of Deferred
Sales Charges'.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Ernst & Young LLP, independent auditors. Financial statements for the fiscal
year ended August 31, 1994, and the independent auditors' report thereon are
included in the Statement of Additional Information. Class A shares of the Fund
outstanding as of October 21, 1994, were redesignated Class D shares on such
date, and the Fund has commenced offering shares of a new Class A having
different characteristics. Also Class B shares of the Fund outstanding as of
October 21, 1994, were redesignated Class C shares on such date, and the Fund
has commenced offering shares of a new Class B having different characteristics.
Financial information is not presented for the new Class A or for the new Class
B shares since no shares of those classes are publicly issued before the date of
this Prospectus. Further information about the performance of the Fund is
contained in the Fund's most recent annual report to shareholders which may be
obtained, without charge, by calling or by writing the Fund at the telephone
number or address on the front cover of this Prospectus.
<TABLE>
<CAPTION>
CLASS A(1) CLASS B(2)
--------------------------------- ---------------------------------
FOR THE FOR THE
YEAR ENDED FOR THE PERIOD YEAR ENDED FOR THE PERIOD
AUGUST 31, DECEMBER 24, 1992+ AUGUST 31, DECEMBER 24, 1992+
1994 TO AUGUST 31, 1993* 1994 TO AUGUST 31, 1993*
---------- ------------------- ---------- -------------------
<S> <C> <C> <C> <C>
The following per share data and ratios have been
derived from information provided in the
financial statements.
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 9.91 $10.00 $ 9.86 $ 10.00
------- ------ -------- -------
Investment income (loss)--net................... .03 -- (.05) (.05)
Realized and unrealized gain (loss) on
investments--net............................. .15 (.09) .15 (.09)
------- ------ -------- -------
Total from investment operations................ .18 (.09) .10 (.14)
------- ------ -------- -------
Net asset value, end of period.................. $ 10.09 $ 9.91 $ 9.96 $ 9.86
------- ------ -------- -------
------- ------ -------- -------
TOTAL INVESTMENT RETURN:***
Based on net asset value per share.............. 1.82% (0.90%)++ 1.01% (1.40%)++
------- ------ -------- -------
------- ------ -------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses, excluding account maintenance and
distribution fees............................ 1.33% 1.78%** 1.35% 1.79%**
------- ------ -------- -------
------- ------ -------- -------
Expenses........................................ 1.58% 2.03%** 2.35% 2.79%**
------- ------ -------- -------
------- ------ -------- -------
Investment income (loss)--net................... .31% (.04)%** (.52)% (.83)%**
------- ------ -------- -------
------- ------ -------- -------
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)........ $ 8,623 $6,930 $ 47,263 $45,736
------- ------ -------- -------
------- ------ -------- -------
Portfolio turnover.............................. 112.68% 64.09% 112.68% 64.09%
------- ------ -------- -------
------- ------ -------- -------
</TABLE>
- ------------------
(1) As of October 21, 1994, the Class A shares for which information is
presented here were redesignated Class D shares.
(2) As of October 21, 1994, the Class B shares for which information is
presented here were redesignated Class C shares.
* Based on average number of shares outstanding during the period.
** Annualized.
*** Total investment returns exclude the effects of sales loads.
+ Commencement of Operations.
++ Aggregate total investment returns.
8
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term growth of
capital. The Fund will seek to achieve its investment objective by investing in
a diversified portfolio of equity securities placing particular emphasis on
companies that have exhibited above-average growth rates in earnings. There can
be no assurance that the investment objective of the Fund will be realized. The
investment objective of the Fund set forth in the first sentence of this
paragraph is a fundamental policy of the Fund which may not be changed without a
vote of a majority of its outstanding shares as defined below.
The Fund will give particular emphasis to companies which possess
above-average growth rates in earnings, resulting from a variety of factors
including, but not limited to, above-average growth rates in sales, profit
margin improvement, proprietary or niche products or services, leading market
shares, and underlying strong industry growth. Management of the Fund believes
that companies which possess above-average earnings growth frequently provide
the prospect of above-average stock market returns, although such companies tend
to have higher relative stock market valuations. Emphasis also will be given to
companies having medium to large stock market capitalizations ($500 million or
more).
Investment emphasis is on equities, primarily common stock and, to a lesser
extent, securities convertible into common stock and rights to subscribe for
common stock, and the Fund will maintain at least 65% of its total assets
invested in equity securities except during defensive periods. The Fund reserves
the right as a defensive measure and to provide for redemptions to hold other
types of securities, including non-convertible preferred stocks and debt
securities rated investment grade by a nationally recognized statistical rating
organization, Government and money market securities, including repurchase
agreements, or cash, in such proportions as, in the opinion of management,
prevailing market or economic conditions warrant.
The Fund may invest up to 10% of its total assets in equity securities of
foreign issuers with the foregoing characteristics. (Purchases of American
Depositary Receipts ('ADRs'), however, will not be subject to this restriction.)
Investments in securities of foreign entities and securities denominated in
foreign currencies entail risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or United States governmental laws or restrictions. In addition, foreign
entities may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of United States entities. In
addition, certain foreign investments may be subject to foreign withholding
taxes. Foreign financial markets, while growing in volume, have, for the most
part, substantially less volume than United States markets, and securities of
many foreign companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The foreign markets also have
different clearance and settlement procedures, sometimes resulting in delays in
settlement which could have an adverse effect on the Fund, including on its
performance. Costs associated with transactions in foreign securities are
generally higher than with transactions in United States securities.
The Fund may invest in the securities of foreign issuers in the form of
ADRs, European Depositary Receipts ('EDRs') or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by 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.
9
<PAGE>
Generally, ADRs, which are issued in registered form, are designed for use in
the United States securities markets, and EDRs, which are issued in bearer form,
are designed for use in European securities markets.
OTHER INVESTMENT POLICIES AND PRACTICES
Portfolio Strategies Involving Options and Futures. The Fund does not
presently intend to engage to any significant degree in options or futures
transactions. However, the Fund is authorized to engage in various portfolio
strategies to hedge its portfolio against adverse movements in the equity
markets, interest rates and exchange rates between currencies.
The Fund has authority to write (i.e., sell) covered put and call options
on its portfolio securities, purchase put and call options on securities and
engage in transactions in stock index options, stock index futures and financial
futures, and related options on such futures. The Fund may also deal in forward
foreign exchange transactions and foreign currency options and futures, and
related options on such futures. Each of these portfolio strategies is described
in more detail in the Appendix attached to this Prospectus. Although certain
risks are involved in options and futures transactions (as discussed in 'Risk
Factors in Options and Futures Transactions' in the Appendix to this
Prospectus), Merrill Lynch Asset Management, L.P. (the 'Manager' or 'MLAM')
believes that, because the Fund will engage in options and futures transactions
only for hedging purposes, the options and futures portfolio strategies of the
Fund will not subject the Fund to the risks frequently associated with the
speculative use of options and futures transactions. While the Fund's use of
hedging strategies is intended to reduce the volatility of the net asset value
of Fund shares, the Fund's net asset value will fluctuate.
THERE CAN BE NO ASSURANCE THAT THE FUND'S HEDGING TRANSACTIONS WILL BE
EFFECTIVE. FURTHERMORE, THE FUND WILL ONLY ENGAGE IN HEDGING ACTIVITIES FROM
TIME TO TIME AND MAY NOT NECESSARILY BE ENGAGING IN HEDGING ACTIVITIES WHEN
MOVEMENTS IN THE EQUITY MARKETS, INTEREST RATES OR CURRENCY EXCHANGE RATES
OCCUR. Reference is made to the Appendix to this Prospectus and to the Statement
of Additional Information for further information concerning these strategies.
Portfolio Transactions. In executing portfolio transactions, the Fund
seeks to obtain the best net results, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, operational facilities of the firm involved and the
firm's risk in positioning a block of securities. While the Fund generally seeks
reasonably competitive commission rates, the Fund does not necessarily pay the
lowest commission or spread available. The Fund contemplates that, consistent
with its policy of obtaining the best net results, it will place orders for
transactions with a number of brokers and dealers, including Merrill Lynch, an
affiliate of the Manager. Subject to obtaining the best price and execution,
brokers who provide supplemental investment research to the Fund may receive
orders for transactions by the Fund. Information so received will be in addition
to, and not in lieu of, services required to be performed by the Manager and the
expenses of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information. See 'Management of the
Fund--Management and Advisory Arrangements'. In addition, consistent with the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
('NASD'), the Manager may consider sales of shares of the Fund as a factor in
the selection of brokers or dealers to execute portfolio transactions for the
Fund. It is expected that the majority of the shares of the Fund will be sold by
Merrill Lynch.
Portfolio Turnover. While the Fund generally does not expect to engage in
trading for short-term gains, it will effect portfolio transactions without
regard to holding period if, in its management's judgment, such
10
<PAGE>
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. Accordingly, while the Fund anticipates that its annual
portfolio turnover rate should not exceed 150% under normal conditions, it is
impossible to predict portfolio turnover rates. Higher portfolio turnover
involves tax consequences for investors and correspondingly greater transaction
costs in the form of the dealer spreads and brokerage commissions, which are
borne directly by the Fund. The portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of all securities whose maturities
at the time of acquisition were one year or less) by the monthly average value
of the securities in the portfolio during the year.
Illiquid Securities. The Fund may invest up to 15% of its net assets in
illiquid securities, although it will limit such investments to 10% of its net
assets to the extent required by state law. Pursuant to that restriction, the
Fund may not invest in securities which cannot be readily resold because of
legal or contractual restrictions or which are not otherwise readily marketable,
including repurchase agreements maturing in more than seven days, if, regarding
all such securities, more than 15% (or 10%) of its net assets, taken at market
value, would be invested in such securities. Although not a fundamental policy,
the Fund will include over-the-counter ('OTC') options and the securities
underlying such options (to the extent provided under 'Portfolio Strategies
Involving Options and Futures--Restrictions on OTC Options' in the Appendix
herein) in calculating the amount of its total assets subject to the limitation
on illiquid securities. The Fund will not change or modify this policy prior to
the change or modification by the Commission staff of its positions regarding
OTC options.
However, the Fund may purchase, without regard to the above limitation,
securities that are not registered under the Securities Act of 1933 (the
'Securities Act') but that can be offered and sold to 'qualified institutional
buyers' under Rule 144A under the Securities Act, provided that the Fund's Board
of Directors, or the Manager pursuant to guidelines adopted by the Board,
continuously determines, based on the trading markets for the specific Rule 144A
security, that it is liquid. The Board of Directors, however, will retain
oversight and is ultimately responsible for the determinations. Since it is not
possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Board of Directors
will carefully monitor the Fund's investments in these securities, focusing on
such factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these securities.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the other party
agrees, upon entering into the contract with the Fund, to repurchase the
security at a mutually agreed upon time and price, thereby determining the yield
during the term of the agreement. This results in a fixed rate insulated from
market fluctuations during such period although it may be affected by currency
fluctuations. The prices at which the trades are conducted do not reflect
accrued interest on the underlying obligation. Such agreements usually cover
short periods, such as under one week. Repurchase agreements may be construed to
be collateralized loans by the purchaser to the seller secured by the securities
transferred to the purchaser. As a purchaser, the Fund will require the seller
to provide additional collateral if the market value of the securities falls
below the repurchase price at any time during the term of the repurchase
agreement. In the event of default by the seller under a repurchase agreement
construed to be collateralized loans, the underlying securities are not owned by
the Fund but only constitute collateral for the seller's obligation to pay the
repurchase price. Therefore, the
11
<PAGE>
Fund may suffer time delays and incur costs or possible losses in connection
with disposition of the collateral. Repurchase agreements maturing in more than
seven days are deemed illiquid by the Commission and are therefore subject to
the Fund's investment restriction limiting investments in securities that are
not readily marketable to 15% of the Fund's net assets.
Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio with a value not exceeding 33 1/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the United States
Government which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. This limitation is a
fundamental policy, and it may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the Investment Company Act. During the period of this loan, the Fund receives
the income on the loaned securities and either receives the income on the
collateral or other compensation (i.e. negotiated loan premium or fee) for
entering into the loan and thereby increases its yield. In the event that the
borrower defaults on its obligation to return borrowed securities, because of
insolvency or otherwise, the Fund could experience delays and costs in gaining
access to the collateral and could suffer a loss to the extent that the value of
the collateral falls below the market value of the borrowed securities.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell securities on a delayed delivery basis or a when-issued basis
at fixed purchase terms. These transactions arise when securities are purchased
or sold by the Fund with payment and delivery taking place in the future. The
purchase will be recorded on the date the Fund enters into the commitment and
the value of the obligation will thereafter be reflected in the calculation of
the Fund's net asset value. The value of the obligation on the delivery date may
be more or less than its purchase price. A separate account of the Fund will be
established with its custodian consisting of cash, cash equivalents or high
grade, liquid debt securities having a market value at all times at least equal
to the amount of the forward commitment.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act.
Among the more significant restrictions, the Fund may not:
- Invest in the securities of any one issuer if, with respect to 75%
of its total assets, immediately after and as a result of such investment
the value of the holdings of the Fund in the securities of such issuer
exceeds 5% of the Fund's total assets, taken at market value, except that
such restriction shall not apply to securities backed by the United States
Government or any of its agencies or instrumentalities.
- Invest in the securities of any single issuer if, immediately after
and as a result of such investment, with respect to 75% of the Fund's total
assets, the Fund owns more than 10% of the outstanding voting securities of
such issuer.
Among other restrictions, the Fund may not borrow amounts in excess of 20%
of its total assets taken at market value (including the amount borrowed), and
then only from banks as a temporary measure for extraordinary or emergency
purposes. The Fund will not purchase securities while borrowings are outstanding
except to honor prior commitments and to exercise subscription rights. Other
fundamental policies include policies which limit the Fund's authority to
mortgage, pledge, hypothecate or in any manner transfer as security
12
<PAGE>
for indebtedness any securities owned or held by the Fund except in connection
with certain specified transactions so as not to exceed 10% of its total assets.
The Board of Directors of the Fund, at a meeting held on August 3, 1994,
approved certain changes to the fundamental and non-fundamental investment
restrictions of the Fund. These changes were proposed in connection with the
creation of a set of standard fundamental and non-fundamental investment
restrictions that would be adopted, subject to shareholder approval, by all of
the non-money market mutual funds advised by MLAM or FAM. The proposed uniform
investment restrictions are designed to provide each of these funds, including
the Fund, with as much investment flexibility as possible under the Investment
Company Act and applicable state securities regulations, help promote
operational efficiencies and facilitate monitoring of compliance. The investment
objective and policies of the Fund will be unaffected by the adoption of the
proposed investment restrictions.
The full text of the proposed investment restrictions is set forth under
'Investment Objective and Policies-- Proposed Uniform Investment Restrictions'
in the Statement of Additional Information. Shareholders of the Fund are
currently considering whether to approve the proposed revised investment
restrictions. If such shareholder approval is obtained, the Fund's current
investment restrictions will be replaced by the proposed restrictions, and the
Fund's Prospectus and Statement of Additional Information will be supplemented
to reflect such change.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of
whom are not 'interested persons' of the Fund as defined in the Investment
Company Act. The Board of Directors of the Fund is responsible for the overall
supervision of the operations of the Fund and performs the various duties
imposed on the directors of investment companies by the Investment Company Act.
The Directors of the Fund are:
ARTHUR ZEIKEL*--President and Chief Investment Officer of the Manager
and Fund Asset Management, L.P. ('FAM'); President and Director of
Princeton Services, Inc.; ('Princeton Services') Executive Vice President
of Merrill Lynch & Co., Inc. ('ML&Co.'); Executive Vice President of
Merrill Lynch; and Director of Merrill Lynch Funds Distributor, Inc. (the
'Distributor').
JOE GRILLS--Member of the Committee of Investment of Employee Benefit
Assets of the Financial Executives Institute ('CIEBA'). Member of CIEBA's
Executive Committee; Member of the Investment Advisory Committee of the
State of New York Common Retirement Fund; Director, Duke Management Company
and Winthrop Financial Associates (real estate management).
WALTER MINTZ--Special Limited Partner of Cumberland Associates
(investment partnership).
MELVIN R. SEIDEN--President of Silbanc Properties, Ltd. (real estate,
investments and consulting).
STEPHEN B. SWENSRUD--Principal of Fernwood Associates (financial
consultants); Director, Hitchiner Manufacturing Company.
13
<PAGE>
HARRY WOOLF--Member of the editorial board of Interdisciplinary
Science Reviews; Director, Alex. Brown Mutual Funds, Advanced Technology
Laboratories, Family Health International and SpaceLabs Medical (medical
equipment manufacturing and marketing).
- ------------------
* Interested person, as defined in the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Manager provides the Fund with management and investment advisory
services. The Manager is owned and controlled by ML&Co., a financial services
holding company and the parent of Merrill Lynch. The Manager, or an affiliate of
the Manager, FAM, acts as the investment adviser for more than 100 other
registered investment companies. The Manager or FAM also offers portfolio
management and portfolio analysis services to individuals and institutions. As
of August 31, 1994, the Manager and FAM had a total of approximately $165.7
billion in investment company and other portfolio assets under management,
including accounts of certain affiliates of the Manager.
The agreement with the Manager (the 'Management Agreement') provides that,
subject to the direction of the Board of Directors of the Fund, the Manager is
responsible for the actual management of the Fund's portfolio and constantly
reviews the Fund'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 Manager, subject to review by the
Board of Directors.
The Manager provides the portfolio manager for the Fund, who considers
analyses from various sources (including brokerage firms with which the Fund
does business), makes the necessary decisions, and places transactions
accordingly. The Manager is also obligated to perform certain administrative and
management services for the Fund and is obligated to provide all of the office
space, facilities, equipment and personnel necessary to perform its duties under
the Management Agreement.
The Fund pays the Manager a monthly fee at the annual rate of 0.65% of the
average daily net assets of the Fund. For the fiscal year ended August 31, 1994,
the management fee paid by the Fund to the Manager aggregated $347,874 (based on
average net assets of approximately $53.5 million). For the period December 24,
1992 (commencement of operations) to August 31, 1993, the Manager earned a fee
of $220,631 (based on average net assets of $49.4 million).
The Management Agreement obligates the Fund to pay certain expenses
incurred in its operations including, among other things, the management fee,
legal and audit fees, registration fees, unaffiliated Directors' fees and
expenses, custodian and transfer agency fees, accounting costs, the costs of
issuing and redeeming shares, and certain of the costs of printing proxies,
shareholder reports, prospectuses and statements of additional information.
Accounting services are provided to the Fund by the Manager, and the Fund
reimburses the Manager for its costs in connection with such services on a
semi-annual basis. For the period December 24, 1992 (commencement of operations)
to August 31, 1993, the Fund paid the Manager $37,463 for such accounting
services. For the same period for the former Class A shares (now redesignated
Class D shares), the ratio of total expenses excluding account maintenance fees
to average net
14
<PAGE>
assets was 1.78% (annualized) and the ratio of total expenses including account
maintenance fees to average net assets was 2.03% (annualized); for the former
Class B shares (now redesignated Class C shares), the ratio of total expenses
excluding distribution fees to average net assets was 1.79% (annualized), and
the ratio of total expenses including distribution fees to average net assets
was 2.79% (annualized). For the fiscal year ended August 31, 1994, the Fund
reimbursed the Manager $21,149 for accounting services. For the same period for
the former Class A shares (now redesignated Class D shares), the ratio of total
expenses excluding account maintenance fees to average net assets was 1.33%
(annualized), and the ratio of total expenses including account maintenance fees
to average net assets was 1.58% (annualized); for the former Class B shares (now
redesignated Class C shares), the ratio of total expenses excluding account
maintenance and/or distribution fees to average net assets was 1.35%
(annualized), and the ratio of total expenses including account maintenance
and/or distribution fees to average net assets was 2.35% (annualized); none of
the new Class A or Class B shares had been issued during these periods.
Lawrence R. Fuller is primarily responsible for the day-to-day management
of the Fund's portfolio. Mr. Fuller is a Vice President of the Fund and has been
a Vice President of the Manager or its predecessors since 1992. From 1984 to
1992, Mr. Fuller served as a Senior Vice President and Director of Benefit
Capital Management.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the 'Transfer Agent'), which is a
wholly-owned subsidiary of ML & Co. acts as the Fund's transfer agent pursuant
to a transfer agency, dividend disbursing agency and shareholder servicing
agency agreement (the 'Transfer Agency Agreement'). Pursuant to the Transfer
Agency Agreement, the Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives
an annual fee of $11.00 per Class A or Class D shareholder account, $14.00 per
Class B or Class C shareholder account and nominal miscellaneous fees (e.g.,
account closing fees) and is entitled to reimbursement for out-of-pocket
expenses incurred by it under the Transfer Agency Agreement. For the period
December 24, 1992 (commencement of operations) to August 31, 1993, the total fee
paid by the Fund to the Transfer Agent pursuant to the Transfer Agency Agreement
was $48,567. For the fiscal year ended August 31, 1994, the Fund paid the
Transfer Agent $77,279 pursuant to the Transfer Agency Agreement. At August 31,
1994, the Fund had 1,081 of the former Class A shareholder accounts (now
redesignated Class D shareholder accounts), 7,006 of the former Class B
shareholder accounts (now redesignated Class C shareholder accounts), no Class C
shareholder accounts and no Class D shareholder accounts. At this level of
accounts, the annual fee payable to the Transfer Agent would aggregate
approximately $109,975 plus miscellaneous and out-of-pocket expenses.
PURCHASE OF SHARES
The Distributor, an affiliate of both the Manager and of Merrill Lynch,
acts as the distributor of the shares of the Fund. Shares of the Fund are
offered continuously for sale by the Distributor and other eligible securities
dealers (including Merrill Lynch). Shares of the Fund are offered continuously
for sale by the Distributor and other eligible securities dealers (including
Merrill Lynch). Shares of the Fund may be purchased from securities dealers or
by mailing a purchase order directly to the Transfer Agent. The minimum initial
purchase is $1,000 except that the minimum initial purchase for retirement plans
is $100. The minimum subsequent purchase is $50.00 ($1 for retirement plans).
The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis depending
15
<PAGE>
upon the class of shares selected by the investor under the Merrill Lynch Select
Pricing System, as described below. The applicable offering price for purchase
orders is based upon the net asset value of the Fund next determined after
receipt of the purchase orders by the Distributor. As to purchase orders
received by securities dealers prior to 4:15 p.m., New York time, which includes
orders received after the determination of net asset value on the previous day,
the applicable offering price will be based on the net asset value as of 4:15
p.m., New York time, on the day the orders are placed with the Distributor,
provided the orders are received by the Distributor prior to 4:30 p.m., New York
time, on that day. If the purchase orders are not received prior to 4:30 p.m.,
New York time, such orders shall be deemed received on the next business day.
The Fund or the Distributor may suspend the continuous offering of the Fund's
shares of any class at any time in response to conditions in the securities
markets or otherwise and may thereafter resume such offering from time to time.
Any order may be rejected by the Distributor or the Fund. Neither the
Distributor nor the dealers are permitted to withhold placing orders to benefit
themselves by a price change. Merrill Lynch may charge its customers a
processing fee (presently $4.85) to confirm a sale of shares to such customers.
Purchases directly through the Transfer Agent are not subject to the processing
fee.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing 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 Fund with the investment thereafter being subject
to a contingent deferred sales charge and ongoing distribution fees. A
discussion of the factors that investors should consider in determining the
method of purchasing shares under the Merrill Lynch Select Pricing System is set
forth under 'Merrill Lynch Select Pricing System' on page .
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The
deferred sales charges and account maintenance fees that are imposed on Class B
and Class C shares, as well as the account maintenance fees that are imposed on
Class D shares, will be imposed directly against those classes and not against
all assets of the Fund and, accordingly, such charges will not affect the net
asset value of any other class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that account maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are borne exclusively by
that class. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect to
such class pursuant to which account maintenance and/or distribution fees are
paid. See 'Distribution Plans' below. Each class has different exchange
privileges. See 'Shareholder Services--Exchange Privilege'.
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the deferred sales charges with respect to Class B and Class C shares in that
the sales charges applicable to each class provide for the financing of the
distribution of the shares of the Fund. The distribution-related revenues paid
with respect to a class will not be used to finance the distribution
16
<PAGE>
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares. Investors are advised that
only Class A and Class D shares may be available for purchase through securities
dealers, other than Merrill Lynch, which are eligible to sell shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURE
<C> <S> <C> <C> <C>
A Maximum 5.25% No No No
initial sales
charge(2)(3)
B CDSC for a period of 0.25% 0.75% B shares convert to
4 years, at a rate D shares automatically
of 4.0% during the first after approximately
year, eight years(4)
decreasing 1.0% annually
to 0.0%
C 1.0% CDSC for one year 0.25% 0.75% No
D Maximum 5.25% initial 0.25% No No
sales charge(3)
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the proceeds of redemption or the cost of the shares being
redeemed.
(2) Offered only to eligible investors. See 'Initial Sales Charge
Alternatives--Class A and Class D Shares--Eligible Class A Investors.'
(3) Reduced for purchases of $25,000 or more. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten year
conversion period. If Class B shares of the Fund are exchanged for Class B
shares of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the holding
period for the shares exchanged will be tacked onto the holding period for
the shares acquired.
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 rather than Class D shares
because there is an account maintenance fee imposed on Class D shares.
17
<PAGE>
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below:
<TABLE>
<CAPTION>
DISCOUNT
TO
SELECTED
SALES LOAD DEALERS
AS AS
PERCENTAGE SALES LOAD AS PERCENTAGE
OF PERCENTAGE* OF THE
OFFERING OF THE NET OFFERING
AMOUNT OF PURCHASE PRICE AMOUNT INVESTED PRICE
- ------------------ ---------- ------------------- ----------
<S> <C> <C> <C>
Less than $25,000........ 5.25% 5.54% 5.00%
$25,000 but less than
$50,000................ 4.75 4.99 4.50
$50,000 but less than
$100,000............... 4.00 4.17 3.75
$100,000 but less than
$250,000............... 3.00 3.09 2.75
$250,000 but less than
$1,000,000............. 2.00 2.04 1.80
$1,000,000 and over**.... 0.00 0.00 0.00
</TABLE>
- ------------------
* Rounded to the nearest one-hundredth percent.
** Class A and Class D purchases of $1,000,000 or more made on or after October
21, 1994 will be subject to a CDSC of 1.0% if the shares are redeemed within
one year after purchase. Class A purchases made prior to October 21, 1994 may
be subject to a CDSC if the shares are redeemed within one year of purchase
at the following annual rates: 1.00% on purchases of $1,000,000 to
$2,500,000; 0.60% on purchases of $2,500,001 to $3,500,000; 0.40% on
purchases of $3,500,001 to $5,000,000; and 0.25% on purchases of more than
$5,000,000 in lieu of paying an initial sales charge. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or
the cost of the shares being redeemed. A sales charge of 0.75% will be
charged on purchases of $1,000,000 or more of Class A or Class D shares by
certain 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act of 1933.
As noted above, as a result of the implementation of the Select Pricing
System, Class A shares of the Fund outstanding prior to October 21, 1994, have
been redesignated Class D shares. The Class A shares offered by this Prospectus
differ from the Class A shares offered prior to October 21, 1994, in many
respects, including sales charges, exchange privilege and the classes of persons
to whom such shares are offered. During the fiscal period December 24, 1992
(commencement of operations) to August 31, 1993, the Fund sold 867,186 of its
former Class A shares (now redesignated Class D shares) for aggregate net
proceeds to the Fund of $8,576,762. The gross sales charges for the sale of its
former Class A shares for that period were $289,611, of which $3,757 and
$285,854 were received by the Distributor and Merrill Lynch, respectively.
During the fiscal year ended August 31, 1994, the Fund sold 556,921 of its
former Class A shares for aggregate net proceeds to the Fund of $5,502,292. The
gross sales charges for the sale of its former Class A shares for that period
were $69,333, of which $4,130 and $65,203 were received by the Distributor and
Merrill Lynch, respectively. For the fiscal year ended August 31, 1994, the
Distributor received no CDSCs with respect to redemption within one year after
purchase of former Class A shares purchased subject to front-end charge waivers.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. 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
18
<PAGE>
or any of its affiliates. Class A shares are available at net asset value to
corporate warranty insurance reserve fund programs provided that the program has
$3 million or more initially invested in MLAM-advised mutual funds. Also
eligible to purchase Class A shares at net asset value are participants in
certain investment programs including TMA(Service Mark) Managed Trusts to which
Merrill Lynch Trust Company provides discretionary trustee services and certain
purchases made in connection with the Merrill Lynch Mutual Fund Adviser program.
In addition, Class A shares will be offered at net asset value to Merrill Lynch
& Co., Inc. and its subsidiaries and their directors and employees and to
members of the Boards of MLAM-advised investment companies, including the Fund.
Certain persons who acquired shares of certain MLAM-advised closed-end funds who
wish to reinvest the net proceeds from a sale of their closed-end fund shares of
common stock in shares of the Fund also may purchase Class A shares of the Fund
if certain conditions set forth in the Statement of Additional Information are
met. For example, Class A shares of the Fund and certain other MLAM-advised
mutual funds are offered at net asset value to shareholders of Merrill Lynch
Senior Floating Rate Fund, Inc. who wish to reinvest the net proceeds from a
sale of certain of their shares of common stock of Merrill Lynch Senior Floating
Rate Fund, Inc. in shares of such funds.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and D sales charges also may
be reduced under a Right of Accumulation and a Letter of Intention.
Class A shares are offered at net asset value to certain eligible Class A
investors as set forth above under 'Eligible Class A Investors.'
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a 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.
Additional information concerning these reduced initial sales charges,
including information regarding investments by Employee Sponsored Retirement or
Savings Plans, is set forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net asset
value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight years after Class B shares are issued, such Class B
shares, together with shares issued upon dividend reinvestment with respect to
those shares, are automatically converted into Class D shares of the Fund and
thereafter will be subject to lower continuing fees. See 'Conversion of Class B
Shares to Class D Shares' below. Both Class B and Class C shares are subject to
an account maintenance fee of 0.25% of net assets and a distribution fee of
0.75% of net assets as discussed below under 'Distribution Plans.'
19
<PAGE>
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its financial consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See 'Distribution
Plans' below.
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to financial consultants for selling
Class B and Class C shares, from its own funds. The combination of the CDSC and
the ongoing distribution fee facilitates the ability of the Fund to sell the
Class B and Class C shares without a sales charge being deducted at the time of
purchase. Approximately eight years after issuance, Class B shares will convert
automatically into Class D shares of the Fund, which are subject to an account
maintenance fee but no distribution fee; Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made convert into Class D
shares automatically after approximately ten years. If Class B shares of the
Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the
conversion period applicable to the Class B shares acquired in the exchange will
apply, and the holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See 'Limitations on
the Payment of Deferred Sales Charges' below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. Class B shareholders of the Fund
exercising the exchange privilege described under 'Shareholder
Services--Exchange Privilege' will continue to be subject to the Fund's CDSC
schedule if such schedule is higher than the CDSC schedule relating to the Class
B shares acquired as a result of the exchange.
Contingent Deferred Sales Charge--Class B Shares. Class B shares which are
redeemed within four years of purchase may be subject to a CDSC at rates set
forth below charged as a percentage of the dollar amount subject thereto. The
CDSC 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.
As noted above, as a result of the implementation of the Select Pricing
System, Class B shares of the Fund outstanding prior to October 21, 1994, have
been redesignated Class C shares. The Class B shares offered by this Prospectus
differ from the Class B shares offered prior to October 21, 1994 in many
respects, including the CDSC rate schedule. For the period December 24, 1992
(commencement of operations) to August 31, 1993, the Distributor received CDSC's
of $27,165 with respect to redemptions of former Class B shares, all of which
was paid by Merrill Lynch. For the year ended August 31, 1994, the Distributor
received CDSCs of $23,762 with respect to redemptions of former Class B shares,
all of which was paid to Merrill Lynch.
20
<PAGE>
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B
CDSC
AS A
PERCENTAGE
OF DOLLAR
AMOUNT
YEAR SINCE PURCHASE SUBJECT TO
PAYMENT MADE CHARGE
- -------------------------------------------------- ----------
<S> <C>
0-1........................... 4.00%
1-2........................... 3.00
2-3........................... 2.00
3-4........................... 1.00
4 and thereafter.............. 0.00
</TABLE>
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 CDSC 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 will be assumed to be made in the same
order as a redemption.
To provide an example, assume an investor purchases 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares through dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to the CDSC because of dividend reinvestment. With respect
to the remaining 40 shares, the CDSC is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement Account
('IRA') or other retirement plan or following the death or disability (as
defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans. The CDSC also is waived for any Class B shares which
are purchased by eligible 401(k) or eligible 401(a) plans which are rolled over
into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in
such account at the time of redemption. The Class B CDSC also is waived for any
Class B shares which are purchased by a Merrill Lynch rollover IRA that was
funded by a rollover from a terminated 401(k) plan managed by the MLAM Private
Portfolio Group and held in such account at the time of redemption. Additional
information concerning the waiver of the Class B CDSC is set forth in the
Statement of Additional Information.
Contingent Deferred Sales Charge--Class C Shares. Class C shares which are
redeemed within one year after purchase may be subject to a 1.0% CDSC charged as
a percentage of the dollar amount subject thereto. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from reinvestment of dividends
or capital gains distributions.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible
rate being charged. Therefore, it will be assumed that the
21
<PAGE>
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 Fund. Class D shares are subject to an ongoing
account maintenance fee of 0.25% of net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion of Class
B shares into Class D shares will occur at least once each month (on the
'Conversion Date') on the basis of the relative net asset values of the shares
of the two classes on the Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are delivered.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised mutual funds will convert approximately
ten years after initial purchase. If, during the Conversion Period, a
shareholder exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange will apply, and
the holding period for the shares exchanged will be tacked onto the holding
period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans which qualified for a waiver of the CDSC
normally imposed on purchases of Class B shares ('Class B Retirement Plans').
When the first share of any MLAM-advised mutual fund purchased by a Class B
Retirement Plan has been held for ten years (i.e., ten years from the date the
relationship between MLAM-advised mutual funds and the Class B Retirement Plan
was established), all Class B shares of all MLAM-advised mutual funds held in
that Class B Retirement Plan will be converted into Class D shares of the
appropriate Funds. Subsequent to such conversion, that Class B Retirement Plan
will be sold Class D shares of the appropriate funds at net asset value.
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
'Distribution Plan') with respect to the account maintenance and/or distribution
fees paid by the Fund to the Distributor with respect to such classes. The Class
B and Class C
22
<PAGE>
Distribution Plans provide for the payment of account maintenance fees and
distribution fees, and the Class D Distribution Plan provides for the payment of
account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) in connection with account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services, and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the deferred sales charges provide for the financing
of the distribution of the Fund's Class B and Class C shares.
For the fiscal period December 24, 1992 (commencement of operations) to
August 31, 1993, the Fund paid the Distributor $294,109 pursuant to the former
Class B Plan (now redesignated the Class C Plan) (based on average net assets
subject to the former Class B Plan (now redesignated the Class C Plan) of
approximately $42.8 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with the former Class B (now redesignated Class C) shares. For the
fiscal year ended August 31, 1994, the Fund paid the Distributor account
maintenance fees of $114,794 and distribution fees of $344,380 pursuant to the
former Class B Plan (now redesignated the Class C Plan) (based on average net
assets subject to the former Class B Plan (now redesignated the Class C Plan) of
approximately $45.9 million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related activities and services
in connection with the former Class B shares. For the fiscal period December 24,
1992 (commencement of operations) to August 31, 1993, the Fund paid the
Distributor $11,331 pursuant to the Distribution Plan relating to the former
Class A shares (now redesignated Class D shares) (based on average net assets
subject to such Distribution Plan of approximately $6.6 million), all of which
was paid to Merrill Lynch for providing account maintenance services in
connection with the former Class A shares. For the fiscal year ended August 31,
1994, the Fund paid the Distributor $19,004 pursuant to the Distribution Plan
relating to the former Class A shares (now redesignated Class D shares) (based
on average net assets subject to such Distribution Plan of approximately $7.6
million), all of which was paid to Merrill Lynch for providing account
maintenance services in connection with the former Class A shares. The Fund did
not begin to offer the new Class B shares publicly until the date of this
Prospectus. Accordingly, no payments have been made pursuant to the new Class B
Distribution Plan prior to the date of this Prospectus.
The payments under the Distribution Plans are based upon a percentage of
average daily net assets attributable to the shares regardless of the amount of
expenses incurred, and accordingly, distribution-related revenues from the
Distribution Plans may be more or less than distribution-related expenses.
Information with
23
<PAGE>
respect to the Distributor on-related revenues and expenses is presented to the
Directors for their consideration in connection with their deliberations as to
the continuance of the Class B and Class C Distribution Plans. This information
is presented annually as of August 31 of each year on a 'fully allocated
accrual' basis and quarterly on a 'direct expense and revenue/cash' basis. On
the fully allocated accrual basis, revenues consist of the account maintenance
fees, distribution fees, the 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 August 31, 1994, direct cash
revenues for the period since commencement of the offering of the former Class B
shares (now redesignated Class C shares) exceeded direct cash expenses by
$380,227 (.80% of Class B net assets at that date). As of December 31, 1993 (the
last date for which fully allocated numbers are available), the fully allocated
accrual expenses incurred by the Distributor and Merrill Lynch with respect to
Class B shares (now redesignated Class C shares) for the period since the
commencement of operations exceeded fully allocated accrual revenues for such
period by approximately $495,000 (1.0% of Class B net assets at that date).
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ('NASD') imposes a limitation on certain
asset-based sales charges such as the Fund's distribution fee and the CDSC borne
by the Class B and Class C shares but not the account maintenance fee. The
maximum sales charge rule is applied separately to each class. As applicable to
the Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the 'voluntary maximum') in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances payments in excess of the amount payable
under the NASD formula will not be made.
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and there is no
assurance that the Directors of the Fund will approve the continuance of the
Distribution Plans from year to year. However, the Distributor intends to seek
annual continuation of the Distribution Plans. In their review of the
Distribution Plans, the Directors will be asked to take into consideration
expenses incurred in connection with the account maintenance and/or distribution
of each class of shares separately. The initial sales charges, the account
maintenance fee, the distribution fee and/or the CDSCs received with respect to
one class.
24
<PAGE>
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption, except for any contingent deferred sales charge which may be
applicable. Shareholders liquidating their holdings will receive upon redemption
all dividends reinvested through the date of redemption. The value of shares at
the time of redemption may be more or less than the shareholder's cost,
depending on the market value of the securities held by the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Fund's Transfer Agent, Financial Data Services, Inc., Attn:
TAMFO, P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to Financial Data Services,
Inc., Transfer Agency Mutual Fund Operations, 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484. Proper notice of redemption in the case of
shares deposited with the Transfer Agent may be accomplished by a written letter
requesting redemption. Proper notice of redemption in the case of shares for
which certificates have been issued may be accomplished by a written letter as
noted above accompanied by certificates for the shares to be redeemed.
Redemption requests should not be sent to the Fund. A redemption request
requires the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as his (their) name(s) appear(s) on the Transfer
Agent's register or on the certificate, as the case may be. The signature(s) on
the redemption request must be guaranteed by an 'eligible guarantor institution'
as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended (the 'Exchange Act'), the existence and validity of which may
be verified by the Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain instances, the Transfer
Agent may require additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator, or
certificates of corporate authority. For shareholders redeeming directly with
the Transfer Agent, payment will be mailed within seven days of receipt of a
proper notice of redemption.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment (e.g., cash, Federal funds or certified check
drawn on a United States bank). The Fund may delay or cause to be delayed the
mailing of a redemption check until such time as it has assured itself that good
payment has been collected for the purchase of such shares, which normally will
not exceed 10 days.
REPURCHASE
The Fund also will repurchase shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request for
repurchase is received by the dealer prior to 4:00 p.m. on the day received and
is received by the Fund from such dealer not later than 4:30 p.m., New York
time, on the same day.
Dealers have the responsibility of submitting such repurchase requests to
the Fund not later than 4:30 p.m., New York time, in order to obtain that day's
closing price. These repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund other than any applicable
contingent deferred sales charge in the case of Class B shares, as described
above; however, securities dealers may impose a
25
<PAGE>
transaction charge on the shareholder for transmitting the notice of repurchase
to the Fund. Merrill Lynch may charge its customers a processing fee (presently
$4.85) to confirm a repurchase of shares. Redemptions directly through the
Fund's Transfer Agent are not subject to the processing fee. The Fund reserves
the right to reject any order for repurchase, which right of rejection might
affect adversely shareholders seeking redemption through the repurchase
procedure. However, a shareholder whose order for repurchase is rejected by the
Fund may redeem shares as set forth above.
For a shareholder redeeming through his listed securities dealer other than
Merrill Lynch, payment for fractional shares will be made by the Transfer Agent
directly to the shareholder and payment for full shares will be made by the
securities dealer. A shareholder redeeming through Merrill Lynch will receive
payment for both full and fractional shares through Merrill Lynch. 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
one-time privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for the amount to
be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next determined
after the notice of reinstatement is received and cannot exceed the amount of
the redemption proceeds. The reinstatement privilege is a one-time privilege and
may be exercised by the Class A or Class D shareholder only the first time such
shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in its shares. Full
details as to each of such services, copies of the various plans described below
and instructions as to how to participate in the various plans and services, or
to change options with respect thereto, can be obtained from the Fund by calling
the telephone number on the cover page or from 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. Shareholders may make additions to their Investment Account any
time by mailing a check directly to the Transfer Agent. Shareholders may also
maintain their accounts through Merrill Lynch. Upon the transfer of shares out
of a Merrill Lynch brokerage account, an Investment Account in the transferring
shareholder's name will be opened, automatically, without charge at the Transfer
Agent. Shareholders considering transferring their Class A 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
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<PAGE>
to be transferred will not take delivery of shares of the Fund, a shareholder
either must redeem the Class A or Class D shares (paying any applicable CDSC) so
that the cash proceeds can be transferred to the account at the new firm or such
shareholder must continue to maintain an Investment Account at the Transfer
Agent for those Class A or Class D shares. Shareholders interested in
transferring their Class B or Class C shares from Merrill Lynch and who do not
wish to have an Investment Account maintained for such shares at the Transfer
Agent may request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the shareholder
at the Transfer Agent. If the new brokerage firm is willing to accommodate the
shareholder in this manner, the shareholder must request that he be issued
certificates for his shares, and then must turn the certificates over to the new
firm for re-registration as described in the preceding sentence. Shareholders
considering transferring a tax-deferred retirement account such as an IRA from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the retirement account is to be transferred will not
take delivery of shares of the Fund, a shareholder must either redeem the shares
(paying any applicable contingent deferred sales charge) so that the cash
proceeds can be transferred to the account at the new firm, or such shareholder
must continue to maintain a retirement account at Merrill Lynch for those
shares.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds. There is currently no limitation
on the number of times a shareholder may exercise the exchange privilege. The
exchange privilege may be modified or terminated in accordance with the rules of
the Securities and Exchange Commission.
Under the Merrill Lynch Select Pricing System, Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-advised
mutual fund if the shareholder holds any Class A shares of the second fund in
his account in which the exchange is made at the time of the exchange or is
otherwise eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-advised
mutual fund, and the shareholder does not hold Class A shares of the second fund
in his account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive Class D
shares of the second fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second MLAM-advised mutual fund at any time
as long as, at the time of the exchange, the shareholder holds Class A shares of
the second fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously paid
on the Class A or Class D shares being exchanged and the sales charge payable at
the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares will be exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC will be exchangeable on the
basis of relative net asset value per share without the payment of any CDSC that
might otherwise be due upon redemption of the shares of the
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<PAGE>
Fund. For purposes of computing the CDSC that may be payable upon a disposition
of the shares acquired in the exchange, the holding period for the previously
owned shares of the Fund is 'tacked' to the holding period of the newly acquired
shares of the other Fund.
Class A, Class B, Class C and Class D shares also will be exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares are
held in a money market fund, however, will not count toward satisfaction of the
holding period requirement for reduction of any CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of the Conversion
Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the new Class B shares. In addition, Class B
shares of the Fund acquired through use of the exchange privilege will be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the MLAM-advised mutual fund from
which the exchange has been made.
Exercise of the exchange privilege is treated as a sale for Federal income
tax purposes. For further information, see 'Shareholder Services--Exchange
Privilege' in the Statement of Additional Information.
The Fund's exchange privilege is modified with respect to purchases of
Class A and Class D shares under the Merrill Lynch Mutual Fund Adviser ('MFA')
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D shares
of a MLAM-advised mutual fund for Class A or Class D shares of the Fund will be
made solely on the basis of the relative net asset values of the shares being
exchanged. Therefore, there will not be a charge for any difference between the
sales charge previously paid on the shares of the other MLAM-advised mutual fund
and the sales charge payable on the shares of the Fund being acquired in the
exchange under the MFA program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund, without sales charge, at the net
asset value per share next determined on the ex-dividend date of such dividend
or distribution. A shareholder whose account is maintained through the Transfer
Agent may at any time, by written notification or telephone call
(1-800-MER-FUND) to the Transfer Agent, elect to have subsequent dividends or
capital gains distributions, or both, paid in cash, rather than reinvested, in
which event payment will be mailed or directly deposited on or about the payment
date. Cash payments can also be directly deposited to the shareholder's bank
account. A shareholder whose account is maintained through Merrill Lynch may, at
any time, by written notification to Merrill Lynch, elect to have both dividends
and capital gains distributions paid in cash, rather than reinvested. No CDSC
will be imposed on redemption of shares issued as a result of the automatic
reinvestment of dividends or capital gains distributions.
SYSTEMATIC WITHDRAWAL PLANS
A Class A or Class D shareholder may elect to receive systematic withdrawal
payments from his Investment Account in the form of payments by check or through
automatic payment by direct deposit to his bank account on either a monthly or
quarterly basis. A Class A or Class D shareholder whose shares are held within a
CMA(Registered),
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<PAGE>
CBA(Registered) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the Systematic
Redemption Program, subject to certain conditions.
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C or Class D shares may be
made to an investor's Investment Account by pre-arranged charges of $50 or more
to his regular bank account. Investors who maintain CMA(Registered) accounts may
arrange to have periodic investments made in the Fund in their CMA(Registered)
account or in certain related accounts in amounts of $100 or more through the
CMA(Registered) Automated Investment Program.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified 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 the maximum sales charge in the case of Class A and Class D shares and
the contingent deferred sales charge that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B and Class C shares. Dividends paid by the Fund with respect all shares,
to the extent any dividends are paid, will be calculated in the same manner at
the same time on the same day and will be in the same amount, except that
account maintenance fees, distribution charges and any incremental transfer
agency costs relating to each class of shares will be borne exclusively by that
class. The Fund will include performance data for all classes of shares of the
Fund in any advertisement or information including performance data of the Fund.
The Fund also may quote total return and aggregate total return performance
data for various specified time periods. Such data will be calculated
substantially as described above, except that (1) the rates of return calculated
will not be average annual rates, but rather actual annual, annualized or
aggregate rates of return and (2) the maximum applicable sales charges will not
be included with respect to annual or annualized rates of return calculations.
Aside from the impact on the performance data calculations of including or
excluding the maximum applicable sales charges, actual, annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; aggregate total
return data generally will be higher than average annual total return data since
the aggregate rates of return reflect compounding over a longer period of time.
In advertisements distributed to investors whose purchases are subject to
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), the performance data may take into account the reduced, and
not the maximum, sales charges or may not take into account the contingent
deferred sales charge and therefore may reflect greater total return since, due
to the reduced sales charges or waiver of the contingent deferred sales charge,
a lower amount of expenses may be deducted. See 'Purchase of Shares'. The Fund's
total
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<PAGE>
return may be expressed either as a percentage or as a dollar amount in order to
illustrate the effect of such total return on a hypothetical $1,000 investment
in the Fund at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, may be worth more
or less than their original cost.
On occasion, the Fund may compare its performance to that of 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., and CDA Investment Technology, Inc. or to data contained in
publications such as Money Magazine, U.S. News & World Report, Business Week,
Forbes Magazine and Fortune Magazine. As with other performance data,
performance comparisons should not be considered representative of the Fund's
relative performance for any future period. The Fund may also compare historical
performance of U.S. equity securities to the performance over the same period of
time of other financial instruments issued by domestic issuers in its
advertising literature. In addition, from time to time the Fund may include the
Fund's risk-adjusted performance ratings assigned by Morningstar Publications,
Inc. in advertising or supplemental sales literature.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of its net
investment income, if any. Dividends from such net investment income are paid at
least annually. All net realized long-or short-term capital gains, if any, are
distributed to the Fund's shareholders at least annually. See 'Additional
Information--Determination of Net Asset Value.' Dividends and distributions may
be reinvested automatically in shares of the Fund, at net asset value without a
sales charge. Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. See 'Shareholder Services--Automatic
Reinvestment of Dividends and Capital Gains Distributions' for information as to
how to elect either dividend reinvestment or cash payments. Dividends and
distributions are taxable to shareholders as described below whether they are
reinvested in shares of the Fund or received in cash. From time to time, the
Fund may declare a special distribution at or about the end of the calendar year
in order to comply with a Federal income tax requirement that certain
percentages of its ordinary income and capital gains be distributed during the
calendar year.
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 'Determination of Net Asset Value' below.
Certain gains or losses attributable to foreign currency related gains or
losses from certain of the Fund's investments may increase or decrease the
amount of the Fund's income available for distribution to shareholders. If such
losses exceed other income during a taxable year, (a) the Fund would not be able
to make any ordinary dividend distributions, and (b) distributions made before
the losses were realized would be recharacterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
tax basis in Fund shares for Federal income tax purposes. For a more detailed
discussion of the Federal tax considerations relevant to foreign currency
transactions, see 'Taxes' below.
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<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily as of 4:15 p.m., New York time, on each day during which the New York
Stock Exchange is open for trading. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
on the day of valuation. The net asset value is computed by dividing the market
value of the securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the management fees payable to the
Manager and any account maintenance and/or distribution fees payable to the
Distributor, are accrued daily. The per share net asset value of Class A shares
generally will be higher than the per share net asset value of shares of the
other classes, reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to the
Class B and Class C shares and the daily expense accruals of the account
maintenance fees applicable with respect to the Class D shares; moreover, the
per share net asset value of Class D shares generally will be higher than the
per share net asset value of Class B and Class C shares, reflecting the daily
expense accruals of the distribution and higher transfer agency fees applicable
with respect to Class B and Class C shares. It is expected, however, that the
per share net asset value of the classes will tend to converge 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 which are traded on stock exchanges are valued at the
last sale price 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 OTC market are valued at the last available bid prices obtained
from one or more dealers 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.
Other investments, including futures contracts and related options, are stated
at market value. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ('RICs') under the Internal Revenue Code
of 1986, as amended (the 'Code'). If it so qualifies, the Fund (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D shareholders (together, the 'shareholders'). The
Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as 'ordinary income dividends') are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
('capital gain dividends') are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).
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<PAGE>
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income or capital gain dividends. A
portion of the Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the Code, if certain
requirements are met. If the Fund pays a dividend in January which was declared
in the previous October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be treated for tax
purposes as being paid by the Fund and received by its shareholders on December
31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
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 Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain 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 Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each shareholder's Fund
shares and resulting in a capital gain for any shareholder who received a
distribution greater than the shareholder's tax basis in Fund shares (assuming
the shares were held as a capital asset).
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge such
shareholder would have owed upon
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<PAGE>
purchase of the new shares in the absence of the exchange privilege. Instead,
such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on United States Government obligations. State
law varies as to whether dividend income attributable to United States
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
Fund.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on April 30, 1992. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Shares of Class A,
Class B, Class C and Class D Common Stock represent an interest in the same
assets of the Fund and are identical in all respects except that Class B, Class
C and Class D shares bear certain expenses related to the account maintenance
fee relating to such shares and Class B and Class C shares bear certain expenses
related to the distribution of such shares. Each class has exclusive voting
rights with respect to matters relating to account maintenance and distribution
expenditures, as applicable. See 'Purchase of Shares'. The Fund has received an
order from the Commission permitting the issuance and sale of multiple classes
of common stock. The Directors of the Fund may classify and reclassify the
shares of the Fund into additional classes of common stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matters submitted to a shareholder vote. The Fund does not intend to
hold an annual meeting of shareholders in any year in which the Investment
Company Act does not require shareholders to elect Directors. Also, the by-laws
of the Fund require that a special meeting of shareholders be held upon the
written request of at least 10% of the outstanding shares of the Fund entitled
to vote at such meeting, if they comply with applicable Maryland law. 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 Fund and in
the net assets of the Fund upon liquidation or dissolution
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<PAGE>
after satisfaction of outstanding liabilities, except that, as noted above,
expenses related to the distribution of the Class B, Class C, and Class D shares
bear certain additional expenses.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
SHAREHOLDER REPORTS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
Financial Data Services, Inc.
Attn: TAMFO
P.O. Box 45289
Jacksonville, FL 32232-5289
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Financial Data Services,
Inc. at 800-637-3863.
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<PAGE>
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.--AUTHORIZATION FORM (PART 1)
- --------------------------------------------------------------------------------
Note: This form may not be used for purchases through the Merrill Lynch
Blueprint(Service Mark) Program. You may request a Merrill Lynch
Blueprint(Service Mark) Program application by calling toll free (800)
637-3766.
- --------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Fundamental Growth Fund, Inc. and establish an Investment
Account as described in the Prospectus. In the event that I am not eligible to
purchase Class A shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Financial Data Services,
Inc., as an initial investment (minimum $1,000). I understand that this
purchase will be executed at the applicable offering price next to be
determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of paper
if necessary.)
1...................................... 4......................................
2...................................... 5......................................
3...................................... 6......................................
Name ..........................................................................
First Name Initial Last Name
Name of Co-Owner (if any) .....................................................
First Name Initial Last Name
Address .....................
.............................. Name and Address of Employer ...................
(Zip Code)
Occupation .................. .................................................
............................. .................................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owner, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- --------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Long-Term Capital Gains
Dividends
Select / / Reinvest Select / / Reinvest
One: / / Cash One: / / Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: / / Check or
/ / Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by direct
deposit to my bank account and, if necessary, debit entries and adjustments for
any credit entries made to my account in accordance with the terms I have
selected on the Merrill Lynch Fundamental Growth Fund, Inc. Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE) / / checking / / savings
Name on your Account ..........................................................
Bank Name .....................................................................
Bank Number ........................... Account Number ......................
Bank Address ..................................................................
I agree that this authorization will remain in effect until I provide written
notification to Financial Data Services, Inc. amending or terminating this
service.
Signature of Depositor ........................................................
Signature of Depositor ............................. Date ....................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED 'VOID' OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS
APPLICATION.
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<PAGE>
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3. SOCIAL SECURITY NUMBER OR TAXPAYER INDENTIFICATION NUMBER
/ / / / / / / / / / / /
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is my
correct Social Security Number or Taxpayer Identification Number and (2) that I
am not subject to backup withholding (as discussed in the Prospectus under
'Additional Information--Taxes') either because I have not been notified that I
am subject thereto as a result of a failure to report all interest or dividends,
or the Internal Revenue Service ('IRS') has notified me that I am no longer
subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDERREPORTING AND IF
YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN
TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO
OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
....................................... ......................................
Signature of Owner Signature of Co-Owner (if any)
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND D SHARES ONLY (SEE TERMS AND CONDITIONS IN
THE STATEMENT OF ADDITIONAL INFORMATION)
Dear Sir/Madam:
.............................. , 19 ......
Date of initial purchase
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Fundamental Growth 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 Merrill Lynch Fundamental Growth
Fund, Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Fundamental Growth Fund, Inc. held as security.
....................................... ......................................
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.
[INDICIA]
This form when completed should be mailed to:
Merrill Lynch Fundamental Growth Fund, Inc.
c/o Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
P.O. Box 45289
Jacksonville, Florida 32232-5289
We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as our agent in
connection with transactions under this authorization form and agree to notify
the Distributor of any purchases made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the Shareholder's signature.
...............................................................................
Dealer Name and Address
By .............................................................................
Authorized Signature of Dealer
/ / / / / / / / / .........................
Branch-Code F/C No. F/C Last Name
/ / / / / / / / /
Dealer's Customer Account No.
36
<PAGE>
- --------------------------------------------------------------------------------
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.--AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
Note: This form is required to apply for the Systematic Withdrawal or Automatic
Investment Plans only.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Name of Owner ................................. / / / / / / / / / / / /
Social Security No. or
Name of Co-Owner (if any) ..................... Taxpayer Identification No.
Address .......................................
................................................ Account Number ................
(if existing account)
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch Fundamental
Growth Fund, Inc. at cost or current offering price. Withdrawals to be made
either (check one) / / Monthly on the 24th day of each month, or / / Quarterly
on the 24th day of March, June, September and December. If the 24th falls on a
weekend or holiday, the next succeeding business day will be utilized. Begin
systematic withdrawal on ............. (month), or as soon as possible
thereafter.
SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE):
/ / $ ......... or / / ......... % of the current value of / / Class A or
/ / Class D shares in the account.
SPECIFY WITHDRAWAL METHOD: / / check or / / direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a) I hereby authorize payment by check
/ / as indicated in Item 1.
/ / to the order of ........................................................
Mail to (check one)
/ / the address indicated in Item 1.
/ / Name (please print) ......................................................
Address .......................................................................
...........................................................................
Signature of Owner ................................ Date .....................
Signature of Co-Owner (if any) .................................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO MY BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING
THIS SERVICE.
Specify type of account (check one): / / checking / / savings
Name on your account ..........................................................
Bank Name ......................................................................
Bank Number ........................... Account Number ......................
Bank Address ..................................................................
...............................................................................
Signature of Depositor ................................ Date .................
Signature of Depositor ........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED 'VOID' OR
A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
37
<PAGE>
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Financial Data Services, Inc. draw an automated
clearing house ('ACH') debit on my checking account as described below each
month to purchase: (choose one)
/ / Class A shares / / Class B shares / / Class C shares / / Class D shares
of Merrill Lynch Fundamental Growth Fund, Inc., subject to the terms set forth
below. In the event that I am not eligible to purchase Class A shares, I
understand that Class D shares will be purchased.
FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Fundamental Growth Fund, Inc. as indicated below:
Amount of each check or ACH debit $ ...........................................
Account Number ................................................................
Please date and invest ACH debits on the 20th of each month beginning
............................................. or as soon thereafter as possible.
(month)
I agree that you are preparing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my bank
account or purchases of fund shares including liquidating shares of the Fund and
credit my bank account. I further agree that if a debit is not honored upon
presentation, Financial Data Services, Inc. is authorized to discontinue
immediately the Automatic Investment Plan and to liquidate sufficient shares
held in my account to offset the purchase made with the dishonored debit.
.................... ..........................................................
Date Signature of Depositor
..........................................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO
HONOR ACH DEBITS
DRAWN BY 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 Financial Data
Services, Inc., I agree that your rights in respect to each such debit shall be
the same as if it were a check drawn on you and signed personally by me. This
authority is to remain in effect until revoked by me in writing. Until you
receive such notice, you shall be fully protected in honoring any such debit. I
further agree that if any such debit be dishonored, whether with or without
cause and whether intentionally or inadvertently, you shall be under no
liability.
.................... ..........................................................
Date Signature of Depositor
.................... ..........................................................
Bank Account Number Signature of Depositor
(If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
'VOID' SHOULD ACCOMPANY THIS APPLICATION.
38
<PAGE>
APPENDIX
The Fund is authorized to engage in various portfolio hedging strategies.
These strategies are described in more detail below:
Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A covered
call option is an option where the Fund in return for a premium gives another
party a right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. The principal reason for
writing call options is to attempt to realize, through the receipt of premiums,
a greater return than would be realized on the securities alone. By writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option exercise price. In addition, the Fund's ability to sell the underlying
security will be limited while the option is in effect unless the Fund effects a
closing purchase transaction. A closing purchase transaction cancels out the
Fund's position as the writer of an option by means of an offsetting purchase of
an identical option prior to the expiration of the option it has written.
Covered call options serve as a partial hedge against the price of the
underlying security declining.
The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options, which means that so
long as the Fund is obligated as the writer of the option it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S. Government
securities or other high grade liquid debt securities denominated in U.S.
dollars or non-U.S. currencies with a securities depository with a value equal
to or greater than the exercise price of the underlying securities. By writing a
put, the Fund will be obligated to purchase the underlying security at a price
that may be higher than the market value of that security at the time of
exercise for as long as the option is outstanding. The Fund may engage in
closing transactions in order to terminate put options that it has written. The
Fund will not write put options if the aggregate value of the obligations
underlying the put shall exceed 50% of the Fund's net assets.
The exchanges on which the Fund intends to conduct options transactions
generally have established limitations governing the maximum number of call or
put options on the same underlying security or currency (whether or not covered)
that 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 that any person may trade on a particular trading day. The Manager
does not believe that these trading and position limits will have any adverse
impact on the portfolio strategies for hedging the Fund's portfolio. The Fund
will not write covered put options or covered call options on any stock index if
the cash, cash equivalents, liquid debt securities, or other assets used as
cover for such options have an aggregate value of greater than 50% of the Fund's
net assets.
Purchasing Options. The Fund is authorized to purchase put options to
hedge against a decline in the market value of its securities. By buying a put
option the Fund has a right to sell the underlying security at the exercise
price, thus limiting the Fund's risk of loss through a decline in the market
value of the security until the put option expires. The amount of any
appreciation in the value of the underlying security will be partially offset by
the amount of the premium paid for the put option and any related transaction
costs. Prior to its expiration, a
A-1
<PAGE>
put option may be sold in a closing sale transaction and profit or loss from the
sale will depend on whether the amount received is more or less than the premium
paid for the put option plus the related transaction costs. A closing sale
transaction cancels out the Fund's position as the purchaser of an option by
means of any offsetting sale of an identical option proper to the expiration of
the option it has purchased.
In certain circumstances, the Fund may purchase call options on securities
held in its portfolio on which it has written call options or on securities
which it intends to purchase. The Fund will not purchase options on securities
(including stock index options discussed below) if as a result of such purchase,
the aggregate cost of all outstanding options on securities held by the Fund
would exceed 5% of the market value of the Fund's total assets.
Stock Index Options and Futures and Financial Futures. The Fund is
authorized to engage in transactions in stock index options and futures and
financial futures, and related options on such futures. The Fund may purchase or
write put and call options on stock indices to hedge against the risks of
market-wide stock price movement in the securities in which the Fund invests.
Options on indices are similar to options on securities except that on exercise
or assignment, the parties to the contract pay or receive an amount of cash
equal to the difference between the closing value of the index and the exercise
price of the option times a specified multiple. The Fund may invest in stock
index options based on a broad market index, or based on a narrow index
representing an industry or market segment.
The Fund may also purchase and sell stock index futures contracts and
financial futures contracts ('futures contracts') as a hedge against adverse
changes in the market value of its portfolio securities as described below. A
futures contract is an agreement between two parties which obligates the
purchaser of the futures contract to buy and the seller of a futures contract to
sell a security for a set price on a future date. Unlike most other futures
contracts, a stock index futures contract does not require actual delivery of
securities, but results in cash settlement based upon the difference in value of
the index between the time the contract was entered into and the time of its
settlement. The Fund may effect transactions in stock index futures contracts in
securities and financial futures contracts in United States Government and
agency securities and corporate debt securities. Transactions by the Fund in
stock index futures and financial futures are subject to limitations as
described below under 'Restrictions on the Use of Futures Transactions'.
The Fund may sell futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. When the Fund is not fully
invested in the securities markets and anticipates a significant market advance,
it may purchase futures in order to gain rapid market exposure that may in part
or entirely offset increases in the cost of securities that the Fund intends to
purchase. As such purchases are made, an equivalent amount of futures contracts
will be terminated by offsetting sales. The Manager does not consider purchases
of futures contracts to be a speculative practice under these circumstances. It
is anticipated that, in a substantial majority of these transactions, the Fund
will purchase such securities upon termination of the long futures position,
whether the long position is the purchase of a futures contract or the purchase
of a call option or the writing of a put option on a future, but under unusual
circumstances (e.g., the Fund experiences a significant amount of redemptions),
a long futures position may be terminated without the corresponding purchase of
securities.
The Fund may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market values of debt securities which may be held by the Fund as a
temporary defensive measure will fall, thus reducing the net asset value of the
Fund. However, as interest rates
A-2
<PAGE>
rise, the value of the Fund's short position in the futures contract will also
tend to increase, thus offsetting all or a portion of the depreciation in the
market value of the Fund's investments which are being hedged. While the Fund
will incur commission expenses in selling and closing out futures positions,
these commissions are generally less than the transaction expenses which the
Fund would have incurred had the Fund sold portfolio securities in order to
reduce its exposure to increases in interest rates. The Fund also may purchase
financial futures contracts in anticipation of a decline in interest rates when
it is not fully invested in a particular market in which it intends to make
investments to gain market exposure that may in part or entirely offset an
increase in the cost of securities it intends to purchase. It is anticipated
that, in a substantial majority of these transactions, the Fund will purchase
securities upon termination of the futures contract.
The Fund also has authority to purchase and write call and put options on
futures contracts and stock indices in connection with its hedging activities.
Generally, these strategies are utilized under the same market and market sector
conditions (i.e., conditions relating to specific types of investments) in which
the Fund enters into futures transactions. The Fund may purchase put options or
write call options on futures contracts and stock indices rather than selling
the underlying futures contract in anticipation of a decrease in the market
value of its securities. Similarly, the Fund may purchase call options, or write
put options on futures contracts and stock indices, as a substitute for the
purchase of such futures to hedge against the increased cost resulting from an
increase in the market value of securities which the Fund intends to purchase.
The Fund may engage in options and futures transactions on U.S. and foreign
exchanges and in options in OTC options. Exchange-traded contracts are
third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) which, in general, have
standardized strike prices and expiration dates. OTC options transactions are
two-party contracts with price and terms negotiated by the buyer and seller. See
'Restrictions on OTC Options' below for information as to restrictions on the
use of OTC options.
Foreign Currency Hedging. The Fund has authority to deal in forward
foreign exchange among currencies of the different countries in which it will
invest and multinational currency units as a hedge against possible variations
in the foreign exchange rates among these currencies. This is accomplished
through contractual agreements to purchase or sell a specified currency at a
specified future date (up to one year) and price set at the time of the
contract. The Fund's dealings in forward foreign exchange will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency with
respect to specific receivables or payables of the Fund accruing in connection
with the purchase and sale of its portfolio securities, the sale and redemption
of shares of the Fund or the payment of dividends and distributions by the Fund.
Position hedging is the sale of forward foreign currency with respect to
portfolio security positions denominated or quoted in such foreign currency. The
Fund will not speculate in forward foreign exchange. The Fund is also authorized
to 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. Such transactions may be
effected with respect to hedges on non-U.S. dollar denominated securities owned
by the Fund, sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the rights to
buy or sell a currency at a fixed price on a future date. A futures contract on
a foreign currency is an agreement between two parties to buy and sell a
specified amount of a currency for a set price on a future date. Futures
contracts and options on futures contracts are traded on boards of trade of
A-3
<PAGE>
futures exchanges. The Fund will not speculate in foreign currency options,
futures or related options. Accordingly, the Fund will not hedge a currency
substantially in excess of the market value of securities which it has committed
or anticipates to purchase which are denominated in such currency, and in the
case of securities which have been sold by the Fund but not yet delivered, the
proceeds thereof in its denominated currency. The Fund may not incur potential
net liabilities of more than 20% of its total assets from foreign currency
options, futures or related options.
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 prices of the securities, interest rates or currencies which
are the subject of the hedge. If the price of the options or futures moves more
or less than the price of the subject of the hedge, the Fund will experience a
gain or loss which will not be completely offset by movements in the price of
the subject of the hedge. The successful use of options, futures and currency
transactions also depends on the Manager's ability to predict correctly price
movements in the market involved in a particular options or futures transaction.
The Fund intends to enter into options and futures transactions, on an
exchange or in the OTC market, only if there appears to be a liquid secondary
market for such options or futures or, in the case of OTC transactions, the
Manager believes the Fund can receive on each business day at least two
independent bids or offers. There can be no assurance, however, that a liquid
secondary market will exist at any specific time. Thus, it may not be possible
to close an options or futures position. The inability to close options and
futures positions also could have an adverse impact on the Fund's ability to
hedge effectively its portfolio. There is also the risk of loss by the Fund of
margin deposits or collateral in the event of the bankruptcy of a broker with
whom the Fund has an open position in an option, a futures contract or related
option.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission ('CFTC') applicable to the Fund provide
that the futures trading activities described herein will not result in the Fund
being deemed a 'commodity pool' under such regulations if the Fund adheres to
certain restrictions. In particular, the Fund 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 Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts and options.
When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will be
deposited in a segregated account with the Fund's Custodian so that the amount
so segregated, plus the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract, thereby
insuring that the use of such futures is unleveraged.
Restrictions on OTC Options. The Fund will engage in OTC options,
including 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 United States Government securities or with affiliates of
such banks or dealers that have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
The Fund will acquire only these OTC options for which the Manager believes the
Fund can receive on each business day at least two independent bids or offers
(one of which will be from an entity other than a party to the option).
The staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy pursuant to
A-4
<PAGE>
which it will not purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such transaction, the sum of the market value of
OTC options currently outstanding which are held by the Fund, the market value
of the underlying securities covered by OTC call options currently outstanding
which were sold by the Fund and margin deposits on the Fund's existing OTC
options on futures contracts exceed 15% of the net assets of the Fund, taken at
market value, together with all other assets of the Fund which are illiquid or
are not otherwise readily marketable. However, if the OTC option is sold by the
Fund to a primary U.S. Government securities dealer recognized by the Federal
Reserve Bank of New York and the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is 'in-the-money'
(i.e., current market value of the underlying security minus the option's strike
price). The repurchase price with the primary dealers is typically a formula
price which is generally based on a multiple of the premium received for the
option, plus the amount by which the option is 'in-the-money'. This policy as to
OTC options is not a fundamental policy of the Fund and may be amended by the
Directors of the Fund without the approval of the Fund's shareholders. However,
the Fund will not change or modify this policy prior to the change or
modification by the Commission staff of its position.
A-5
<PAGE>
MANAGER
Merrill Lynch Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
Chase MetroTech Center
Brooklyn, New York 11245
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
Attn: TAMFO
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUND, THE MANAGER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table......................................... 2
Merrill Lynch Select Pricing(Service Mark)
System.......................................... 3
Financial Highlights.............................. 8
Investment Objective and Policies................. 9
Other Investment Policies and Practices......... 10
Investment Restrictions......................... 12
Management of the Fund............................ 13
Board of Directors.............................. 13
Management and Advisory Arrangements............ 14
Transfer Agency Services........................ 15
Purchase of Shares................................ 15
Initial Sales Charge Alternatives--
Class A and Class D Shares................... 17
Deferred Sales Charge Alternatives--
Class B and Class C Shares................... 19
Distribution Plans.............................. 22
Limitations on the Payment of
Deferred Sales Charges....................... 24
Redemption of Shares.............................. 25
Redemption...................................... 25
Repurchase...................................... 25
Reinstatement Privilege--Class A
and Class D Shares........................... 26
Shareholder Services.............................. 26
Exchange Privilege.............................. 27
Automatic Reinvestment of Dividends and Capital
Gains Distributions.......................... 28
Systematic Withdrawal Plans..................... 28
Automated Investment Plans...................... 29
Performance Data.................................. 29
Additional Information............................ 30
Dividends and Distributions..................... 30
Determination of Net Asset Value................ 31
Taxes........................................... 31
Organization of the Fund........................ 33
Shareholder Inquiries........................... 34
Shareholder Reports............................. 34
Authorization Form................................ 35
Appendix.......................................... A-1
</TABLE>
Code # 16463-1094
Prospectus
[INSERT ART HERE]
- ------------------------------------------------------
MERRILL LYNCH
FUNDAMENTAL GROWTH
FUND, INC.
October 21, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
----------------------
Merrill Lynch Fundamental Growth Fund, Inc. (the 'Fund') is a mutual fund
seeking to provide shareholders with long term growth of capital. The Fund will
seek to achieve its investment objective by investing in a diversified portfolio
of equity securities placing particular emphasis on companies that have
exhibited above-average growth rates in earnings.
Pursuant to the Merrill Lynch Select Pricing(Service Mark) System, the Fund
offers four classes of shares each with a different combination of sales
charges, ongoing fees and other features. The Merrill Lynch Select Pricing
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 Fund is not a prospectus and
should be read in conjunction with the prospectus of the Fund, dated October 21,
1994 (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 Fund at the above telephone number or address. This Statement of
Additional Information has been incorporated by reference into the Prospectus.
----------------------
MERRILL LYNCH ASSET MANAGEMENT--MANAGER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
----------------------
The date of this Statement of Additional Information is October 21, 1994
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term growth of
capital. The Fund will seek to achieve its investment objective by investing in
a diversified portfolio of equity securities placing particular emphasis on
companies that have exhibited above-average growth rates in earnings. There can
be no assurance that the investment objective of the Fund will be realized. The
investment objective of the Fund set forth in the first sentence of this
paragraph is a fundamental policy of the Fund which may not be changed without a
vote of a majority of its outstanding shares as defined below.
The Fund will give particular emphasis to companies that have exhibited
above-average growth rates in earnings, resulting from a variety of factors
including--but not limited to--above-average growth rates in sales, profit
margin improvement, proprietary or niche products or services, leading market
shares, and underlying strong industry growth. Management of the Fund believes
that companies which possess above-average earnings growth frequently provide
the prospect of above-average stock market returns, although such companies tend
to have higher relative stock market valuations. Emphasis also will be given to
companies having medium to large stock market capitalizations ($500 million or
more).
The Fund may invest up to 10% of its total assets in equity securities of
foreign issuers with the foregoing characteristics. (Purchases of American
Depositary Receipts ('ADRs'), however, are not subject to this restriction.)
Investments in securities of foreign entities and securities denominated in
foreign currencies involve risks not typically involved in domestic investment,
including fluctuations in foreign exchange rates, future foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign or United States governmental laws or restrictions applicable to such
investments. Since the Fund may invest in securities denominated or quoted in
currencies other than the United States dollar, changes in foreign currency
exchange rates may affect the value of investments in the portfolio and the
unrealized appreciation or depreciation of investments insofar as the United
States investors are concerned. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of the Fund's
assets denominated in that currency and the Fund's yield on such assets. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets. These forces are, in turn, affected by the
international balance of payments and other economic and financial conditions,
government intervention, speculation and other factors. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position.
With respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could affect investment in those countries.
There may be less publicly available information about a foreign financial
instrument than about a United States instrument, and foreign entities may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of United States entities. In addition, certain
foreign investments may be subject to foreign withholding taxes. Foreign
financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The ability of the Fund to make
intended security purchases due to
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settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines in
value of the portfolio security or, if the Fund has entered into a contract to
sell the security, could result in possible liability to the purchaser. Costs
associated with transactions in foreign securities are generally higher than
with transactions in United States securities. There is generally less
government supervision and regulation of exchanges, financial institutions and
issuers in foreign countries than there is in the United States.
The Fund may invest in the securities of foreign issuers in the form of
ADRs, European Depositary Receipts ('EDRs') or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, which are issued in registered form, are
designed for use in the United States securities markets, and EDRs, which are
issued in bearer form, are designed for use in European securities markets. The
Fund may invest in 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.
Investment emphasis is on equities, primarily common stock and, to a lesser
extent, securities convertible into common stock and rights to subscribe for
common stock. The Fund will maintain at least 65% of its total assets invested
in equity securities except during defensive periods. The Fund reserves the
right as a defensive measure and to provide for redemptions to hold other types
of securities, including non-convertible preferred stocks and debt securities,
Government and money market securities, including repurchase agreements, or
cash, in such proportions as, in the opinion of management, prevailing market or
economic conditions warrant.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
Reference is made to the discussion under the caption 'Investment Objective
and Policies--Portfolio Strategies Involving Options and Futures' in the
Prospectus (including the Appendix thereto) for information with respect to
various portfolio strategies involving options and futures. The Fund may seek to
hedge its portfolio against adverse movements in the equity markets, interest
rates and exchange rates between currencies. The Fund has authority to write
(i.e., sell) covered put and call options on its portfolio securities, purchase
put and call options on securities and engage in transactions in stock index
options, stock index futures and stock futures and financial futures, and
related options on such futures. The Fund may also deal in forward foreign
exchange transactions, foreign currency options and futures and related options
on such futures. Each of such portfolio strategies is described in the
Prospectus. Although certain risks are involved in options and futures
transactions (as discussed in the Prospectus and below), Merrill Lynch Asset
Management, L.P. (the 'Manager' or 'MLAM'), believes that, because the Fund will
engage in options and futures transactions only for hedging purposes, the
options and futures portfolio strategies of the Fund will not subject the Fund
to the risks frequently associated with the speculative use of options and
futures transactions. While the Fund's use of hedging strategies is intended to
reduce the volatility of the net asset value of Fund shares, the Fund's net
asset value will fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund will only engage in
hedging activities from time to time and may not necessarily be engaging in
hedging activities where movements on the equity markets, interest rates or
currency exchange rates occur. The following is further information relating to
portfolio strategies involving options and futures the Fund may utilize.
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Writing Covered Options. The Fund is authorized to write (i.e., sell)
covered call options on the securities in which it may invest and to enter into
closing purchase transactions with respect to certain of such options. A covered
call option is an option where the Fund, in return for a premium, gives another
party a right to buy specified securities owned by the Fund at a specified
future date and price set at the time of the contract. The principal reason for
writing call options is to attempt to realize, through the receipt of premiums,
a greater return than would be realized on the securities alone. By writing
covered call options, the Fund gives up the opportunity, while the option is in
effect, to profit from any price increase in the underlying security above the
option price. In addition, the Fund's ability to sell the underlying security
will be limited while the option is in effect unless the Fund effects a closing
purchase transaction. A closing purchase transaction cancels out the Fund's
position as the writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has written. Covered
call options serve as a particular hedge against the price of the underlying
security declining.
The writer of a covered call option has no control over when he may be
required to sell his securities since he may be assigned an exercise notice at
any time prior to the termination of his obligation as a writer. If an option
expires unexercised, the writer realizes a gain in the amount of the premium.
Such a gain, of course, may be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised, the
writer realizes a gain or loss from the sale of the underlying security.
The Fund also may write put options which give the holder of the option the
right to sell the underlying security to the Fund at the stated exercise price.
The Fund will receive a premium for writing a put option which increases the
Fund's return. The Fund writes only covered put options which means that so long
as the Fund is obligated as the writer of the option it will, through its
custodian, have deposited and maintained cash, cash equivalents, U.S. Government
securities or other high grade liquid debt securities denominated in U.S.
dollars or non-U.S. currencies with a securities depository with a value equal
to or greater than the exercise price of the underlying securities. By writing a
put, the Fund will be obligated to purchase the underlying security at a price
that may be higher than the market value of that security at the time of the
exercise for as long as the option is outstanding. The Fund may engage in
closing transactions in order to terminate put options that it has written. The
Fund will not write put options if the aggregate value of the obligations
underlying the put options shall exceed 50% of the Fund's net assets.
Options referred to herein and in the Fund's Prospectus may be options
traded on foreign securities exchanges. An options position may be closed only
on an exchange which provides a secondary market for an option of the same
series. If a secondary market does not exist, it might not be possible to effect
closing transactions in particular options, with the result, in the case of a
covered call option, that the Fund will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise. Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation (the 'Clearing Corporation') may not, at all
times, be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although
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outstanding options on that exchange that had been issued by the Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
The Fund may also enter into over-the-counter options transactions ('OTC
options'), which are two party contracts with prices and terms negotiated
between the buyer and seller. The staff of the Commission has taken the position
that OTC options and the assets used as cover for written OTC options are
illiquid securities.
Purchasing Options. The Fund may purchase put options to hedge against a
decline in the market value of its equity holdings. By buying a put, the Fund
has a right to sell the underlying security at the exercise price, thus limiting
the Fund's risk of loss through a decline in the market value of the security
until the put option expires. The amount of any appreciation in the value of the
underlying security will be offset partially by the amount of the premium paid
for the put option and any related transaction costs. Prior to its expiration, a
put option may be sold in a closing sale transaction; profit or loss from the
sale will depend on whether the amount received is more or less than the premium
paid for the put option plus the related transaction cost. A closing sale
transaction cancels out the Fund's position as the purchaser of an option by
means of an offsetting sale of an identical option prior to the expiration of
the option it has purchased. In certain circumstances, the Fund may purchase
call options on securities held in its portfolio on which it has written call
options or on securities which it intends to purchase. The Fund may purchase
either exchange-traded options or OTC options. The Fund will not purchase
options on securities (including stock index options discussed below) if as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Stock Index Options and Futures and Financial Futures. As described in the
Prospectus, the Fund is authorized to engage in transactions in stock index
options and futures and financial futures, and related options on such futures.
Set forth below is further information concerning futures transactions.
A futures contract is an agreement between two parties to buy and sell a
security, or, in the case of an index-based futures contract, to make and accept
a cash settlement for a set price on a future date. A majority of transactions
in futures contracts, however, do not result in the actual delivery of the
underlying instrument or cash settlement, but are settled through liquidation,
i.e., by entering into an offsetting transaction.
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker and the relevant contract
market, which varies, but is generally about 5% of the contract amount, must be
deposited with the broker. This amount is known as 'initial margin' and
represents a 'good faith' deposit assuring the performance of both the purchaser
and seller under the futures contract. Subsequent payments to and from the
broker, called 'variation margin', are required to be made on a daily basis as
the price of the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable, a process known as
'mark to the market'. At any time prior to the settlement date of the futures
contract, the position may be closed out by taking an opposite position which
will operate to terminate the position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the broker, and the purchaser realizes a loss or gain.
In addition, a nominal commission is paid on each completed sale transaction.
An order has been obtained from the Commission exempting the Fund from the
provisions of Section 17(f) and Section 18(f) of the Investment Company Act of
1940 (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
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an investment company and may be deemed to prohibit certain arrangements between
the Fund and commodities brokers with respect to initial and variation margin.
Section 18(f) of the Investment Company Act prohibits an open-end investment
company such as the Fund from issuing a 'senior security' other than a borrowing
from a bank. The staff of the Commission has in the past indicated that a
futures contract may be a 'senior security' under the Investment Company Act.
Foreign Currency Hedging. Generally, the foreign exchange transactions of
the Fund will be conducted on a spot (i.e., cash basis), at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. The
Fund has authority to deal in forward foreign exchange among currencies of the
different countries in which it may invest as a hedge against possible
variations in the foreign exchange rate among these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Fund's dealings in forward foreign exchange will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward foreign currency with respect to
specific receivables or payables of the Fund accruing in connection with the
purchase and sale of its portfolio securities, the sale and redemption of shares
of the Fund or the payment of dividends and distributions by the Fund. Position
hedging is the sale of forward foreign currency with respect to portfolio
security positions denominated or quoted in such foreign currency. The Fund will
not speculate in forward foreign exchange. The Fund may not position hedge with
respect to the currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the securities held
in its portfolio denominated or quoted in that particular foreign currency. The
Fund will enter into such transactions only to the extent, if any, deemed
appropriate by the Manager. The Fund will not enter into a forward contract with
a term of more than one year.
The Fund is also authorized to purchase or sell listed or over-the-counter
('OTC') foreign currency options, foreign currency futures and related options
on foreign currency futures as a short or long hedge against possible variations
in foreign exchange rates. Such transactions may be effected with respect to
hedges on non-U.S. dollar denominated securities owned by the Fund, sold by the
Fund but not yet delivered, or committed or anticipated to be purchased by the
Fund. As an illustration, the Fund may use such techniques to hedge the stated
value in U.S. dollars of an investment in a pound sterling denominated security.
In such circumstances, for example, the Fund may purchase a foreign currency put
option enabling it to sell a specified amount of pounds for dollars at a
specified price by a future date. To the extent the hedge is successful, a loss
in the value of the pound relative to the dollar will tend to be offset by an
increase in the value of the put option. To offset in whole or part the cost of
acquiring such a put option, the Fund may also sell a call option which, if
exercised, requires it to sell a specified amount of pounds for dollars at a
specified price by a future date (a technique called a 'straddle'). By selling
such call option in this illustration, the Fund gives up the opportunity to
profit without limit from increases in the relative value of the pound to the
dollar. The Manager believes that 'straddles' of the type which may be utilized
by the Fund constitute hedging transactions and are consistent with the policies
described above.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in foreign currency transactions varies with such factors as the
currencies involved, the length of the contract period and the market conditions
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then prevailing. Since transactions in foreign currency exchange usually are
conducted on a principal basis, no fees or commissions are involved.
Risk Factors in Options, Futures and Currency Transactions. Utilization of
futures transactions involves the risk of imperfect correlation in movements in
the prices of options and futures and movements in the prices of the securities
and currencies which are the subject of the hedge. If the prices of the options
and futures move more or less than the prices of the hedged securities or
currencies, the Fund will experience a gain or loss which will not be completely
offset by movements in the prices of the securities and currencies which are the
subject of the hedge. The successful use of options, futures and currency
transactions also depends on the Manager'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 or futures
position can only be terminated by entering into a closing purchase or sale
transaction. This requires a secondary market on an exchange for call or put
options of the same series. The Fund will enter into options or futures
transactions on an exchange only if there appears to be a liquid secondary
market for such options or futures. However, there can be no assurance that a
liquid secondary market will exist for any particular call or put option or
futures contract at any specific time. Thus, it may not be possible to close an
option or futures position. The Fund will acquire only OTC options for which
management believes the Fund can receive on each business day at least two
independent bids or offers. In the case of a futures position or an option on a
futures position written by the Fund in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the security underlying futures contracts it holds.
The inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio. There is also
the risk of loss by the Fund of margin deposits in the event of bankruptcy of a
broker with whom the Fund has an open position in a futures contract or related
option. The risk of loss from investing in futures transactions is theoretically
unlimited.
The exchanges on which the Fund intends to conduct options transactions
generally have established limitations governing the maximum number of call or
put options on the same underlying security or currency (whether or not covered)
which may be written by a single investor, whether acting alone or in concert
with others (regardless of whether such options are written on the same or
different exchanges or are held or written on one or more accounts or through
one or more brokers). 'Trading limits' are imposed on the maximum number of
contracts which any person may trade on a particular trading day. An exchange
may order the liquidation of positions found to be in violation of these limits
and it may impose other sanctions or restrictions. The Manager does not believe
that these trading and positions limits will have any adverse impact on the
portfolio strategies for hedging the Fund's portfolio.
OTHER INVESTMENT POLICIES AND PRACTICES
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the bank or primary
dealer or an affiliate thereof agrees, on entering into the contract, to
repurchase the security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This results in a fixed
rate of return insulated from market fluctuations during such period. Such
agreements usually cover short periods,
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such as under a week. The Fund will require the seller to provide additional
collateral if the market value of the securities falls below the repurchase
price at any time during the term of the repurchase agreement. In the event of a
default by the seller, the Fund ordinarily will retain ownership of the
securities underlying the repurchase agreement, and instead of a contractually
fixed rate of return, the rate of return to the Fund shall be dependent upon
intervening fluctuations of the market value of such securities and the accrued
interest on the securities. In such event, the Fund would have rights against
the seller for breach of contract with respect to any losses arising from market
fluctuations following the failure of the seller to perform. In certain
circumstances, repurchase agreements may be construed to be collateralized loans
by the purchaser to the seller secured by the securities transferred to the
purchaser. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur costs
or possible losses in connection with the disposition of the collateral. From
time to time the Fund also may invest in securities pursuant to purchase and
sale contracts. While purchase and sale contracts are similar to repurchase
agreements, purchase and sale contracts are structured so as to be in substance
more like a purchase and sale of the underlying security than is the case with
repurchase agreements.
Lending of Portfolio Securities. Subject to investment restriction (8)
below, the Fund may lend securities from its portfolio to approved borrowers and
receive collateral in cash or securities issued or guaranteed by the United
States Government which are maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The purpose of
such loans is to permit the borrower to use such securities for delivery to
purchasers when such borrower has sold short. If cash collateral is received by
the Fund, it is invested in short-term money market securities, and a portion of
the yield received in respect of such investment is retained by the Fund.
Alternatively, if securities are delivered to the Fund as collateral, the Fund
and the borrower negotiate a rate for the loaned premium to be received by the
Fund for lending its portfolio securities. In either event, the total yield on
the Fund's portfolio is increased by loans of its portfolio securities. The Fund
will have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights to
dividends, interest or other distributions. Such loans are terminable at any
time. The Fund may pay reasonable finder's, administrative and custodial fees in
connection with such loans.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell securities on a delayed delivery basis or a when-issued basis
at fixed purchase terms. These transactions arise when securities are purchased
or sold by the Fund with payment and delivery taking place in the future. The
purchase will be recorded on the date the Fund enters into the commitment and
the value of the obligation will thereafter be reflected in the calculation of
the Fund's net asset value. The value of the obligation on the delivery date may
be more or less than its purchase price. A separate account of the Fund will be
established with its custodian consisting of cash, cash equivalents or high
grade, liquid debt securities having a market value at all times at least equal
to the amount of the forward commitment.
Illiquid Securities. The Fund may invest up to 15% of its net assets in
illiquid securities, although it will limit such investments to 10% of its net
assets to the extent required by state law. However, the Fund may purchase,
without regard to that limitation, securities that are not registered under the
Securities Act of 1933 (the 'Securities Act') but that can be offered and sold
to 'qualified institutional buyers' under Rule 144A under the Securities Act,
provided that the Fund's Board of Directors, or the Manager pursuant to
guidelines adopted by the Board, continuously determines, based on the trading
markets for the specific Rule 144A security, that it is liquid. The Board of
Directors, however, will retain oversight and is ultimately responsible for the
determinations. Since
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it is not possible to predict with assurance exactly how this market for
restricted securities sold and offered under Rule 144A will develop, the Board
of Directors will carefully monitor the Fund's investments in these securities,
focusing on such factors, among others, as valuation, liquidity and availability
of information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these securities.
CURRENT INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions and policies relating to
the investment of its assets and its activities, which are fundamental policies
and may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities (which for this purpose and under the
Investment Company Act means the lesser of (i) 67% of the shares represented at
a meeting at which more than 50% of the outstanding shares are represented or
(ii) more than 50% of the outstanding shares). The Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of
its total assets (taken at market value at the time of each investment) in
the securities of any one issuer or acquire more than 10% of the voting
securities of any one issuer, except that such restriction shall not apply
to securities backed by the United States Government or any of its agencies
or instrumentalities.
(2) Make investments for the purpose of exercising control or
management. Investments by the Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making
of investments for the purpose of exercising control of management.
(3) Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies where no underwriter or dealer's commission or profit, other than
customary broker's commission, is involved and only if immediately
thereafter not more than (i) 3% of the total outstanding voting stock of
such company is owned by the Fund, (ii) 5% of the Fund's total assets,
taken at market value, would be invested in any one such company, or 10% of
the Fund's total assets, taken at market value, would be invested in such
securities.
(4) Purchase or sell real estate (including real estate limited
partnerships); provided that the Fund may invest in securities secured by
real estate or interests therein or issued by companies which invest in
real estate or interests therein.
(5) Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. (The deposit or payment by the Fund of
initial or variation margin in connection with futures or related options
transactions, if applicable, is not considered the purchase of a security
on margin.)
(6) Make short sales of securities or maintain a short position.
(7) Make loans to other persons (except as provided in (8) below);
provided that for purposes of this restriction an investment in repurchase
agreements shall not be deemed to be the making of a loan.
(8) Lend its portfolio securities in excess of 33 1/3% of its total
assets, taken at market value; provided that such loans shall be made in
accordance with the guidelines set forth in the Prospectus.
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(9) Issue senior securities, borrow money or pledge its assets in
excess of 20% of its total assets taken at value (including the amount
borrowed) and then only from a bank as a temporary measure for
extraordinary or emergency purposes. Usually only 'leveraged' investment
companies may borrow in excess of 5% of their assets; however, the Fund
will not borrow to increase income but only to meet redemption requests
which may otherwise require untimely dispositions of fund securities. The
Fund will not purchase securities while borrowings are outstanding except
to honor prior commitments and to exercise subscription rights. Interest
paid on such borrowings will reduce net income. (See restriction (10) below
regarding the exclusion from this restriction of arrangements with respect
to options, futures contracts and options on futures contracts.)
(10) Mortgage, pledge, hypothecate or in any manner transfer as
security for indebtedness any securities owned or held by the Fund except
as may be necessary in connection with borrowings mentioned in (9) above,
and then such mortgaging, pledging or hypothecating may not exceed 10% of
its total assets, taken at market value. (For the purpose of this
restriction and restriction (9) above, collateral arrangements with respect
to the writing of options, futures contracts, options on futures contracts,
and collateral arrangements with respect to initial and variation margin
are not deemed to be a pledge of assets, and neither such arrangements nor
the purchase and sale of options, futures or related options are deemed to
be the issuance of a senior security.)
(11) Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which are not otherwise readily
marketable, including repurchase agreements maturing in more than seven
days, if, regarding all such securities, more than 15% of its net assets,
taken at market value, would be invested in such securities.
(12) Act as an underwriter of securities, except to the extent that
the Fund may technically be deemed an underwriter when investing in
repurchase agreements or insofar as the Fund may be deemed an underwriter
under the Securities Act in selling portfolio securities.
(13) Purchase or sell interests in oil, gas or other mineral
exploration or development programs except that the Fund may invest in
securities issued by companies that engage in oil, gas or other mineral
exploration development activities.
(14) 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).
Additional investment restrictions adopted by the Fund, which are not
fundamental policies and, therefore, may be changed by the Board of Directors,
provide that the Fund may not:
(i) Invest in warrants if at the time of acquisition its investments
in warrants, valued at the lower of cost or market value, would exceed 5%
of the Fund's net assets; included within such limitation, but not to
exceed 2% of the Fund's net assets, are warrants which are not listed on
the New York or American Stock Exchange. For purposes of this restriction,
warrants acquired by the Fund in units or attached to securities may be
deemed to be without value.
(ii) Purchase or sell commodities or commodity contracts, except that
the Fund may deal in forward foreign exchange between currencies of the
different countries in which it may invest and purchase and sell stock
index and currency options, stock index futures, financial futures and
currency futures contracts and related options on such futures.
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(iii) Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of its total assets would be invested in such securities.
(iv) Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, to the extent described in the Fund's Prospectus and
in this Statement of Additional Information, as amended from time to time.
(v) Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the Manager or any
subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer own in the aggregate more than 5% of the
securities of such issuer.
(vi) Purchase or sell OTC options and securities underlying such
options if, as a result of such a transaction, such options, together with
all other illiquid securities or securities which are not readily
marketable, exceed 15% of the net assets of the Fund, taken at market
value.
(vii) Invest greater than 10% of the Fund's total assets, taken at
market value at the time of acquisition, in the securities of foreign
issuers except that purchases made through American Depositary Receipts
will not be subject to this restriction.
The Fund will not change or modify the policy described in clause (vi)
above prior to the change or modification by the Commission staff of its
position regarding OTC options.
Portfolio securities of the Fund generally may not be purchased from, sold
or loaned to the Manager or its affiliates or any of their directors, officers
or employees, acting as principal.
Because of the affiliation of the Manager with the Fund, the Fund is
prohibited from engaging in certain transactions involving Merrill Lynch,
Pierce, Fenner & Smith Incorporated ('Merrill Lynch'), or its affiliates, except
for brokerage transactions permitted under the Investment Company Act involving
only usual and customary commissions or transactions pursuant to an exemptive
order under the Investment Company Act. See 'Portfolio Transactions and
Brokerage'. Without such an exemptive order, the Fund is prohibited from
engaging in portfolio transactions with Merrill Lynch or its affiliates acting
as principal and from purchasing securities in public offerings which are not
registered under the Securities Act or are not municipal securities as defined
in the Securities Exchange Act of 1934 (the 'Exchange Act'), in which such firm
or any of its affiliates participate as an underwriter or dealer.
Proposed Uniform Investment Restrictions. As discussed in the Prospectus
under 'Investment Objective and Policies--Other Investment Policies and
Practices--Investment Restrictions', the Board of Directors of the Fund has
approved the replacement of the Fund's existing investment restrictions with the
fundamental and non-fundamental investment restrictions set forth below. These
uniform investment restrictions have been proposed for adoption by all of the
non-money market mutual funds advised by the Manager or its affiliate, Fund
Asset Management, L.P. ('FAM'). The investment objective and policies of the
Fund will be unaffected by the adoption of the proposed investment restrictions.
Shareholders of the Fund are currently considering whether to approve the
proposed revised investment restrictions. If such shareholder approval is
obtained, the Fund's current investment restrictions will be replaced by the
proposed restrictions, and the Fund's Prospectus and Statement of Additional
Information will be supplemented to reflect such change.
Under the proposed fundamental investment restrictions, the Fund may not:
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<PAGE>
1. Make any investment inconsistent with the Fund's classification as
a diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or
management.
4. Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the 'Securities Act') in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Notwithstanding fundamental investment restriction (7) above, the Fund
currently does not intend to borrow amounts in excess of 33 1/3% of its total
assets, taken at market value, and then only from banks as a temporary measure
for extraordinary or emergency purposes such as the redemption of Fund shares.
In addition, the Fund will not purchase securities while borrowings are
outstanding.
Under the proposed non-fundamental investment restrictions, the Fund may
not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
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<PAGE>
b. Make short sales of securities or maintain a short position,
except to the extent permitted by applicable law. The Fund currently
does not intend to engage in short sales, except short sales 'against
the box'.
c. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in such
securities. This restriction shall not apply to securities which mature
within seven days or securities which the Board of Directors of the Fund
have otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of
its total assets in securities which are subject to this investment
restriction (c). Securities purchased in accordance with Rule 144A under
the Securities Act (a 'Rule 144A security') and determined to be liquid
by the Fund's Board of Directors are not subject to the limitations set
forth in this investment restriction (c). Notwithstanding the fact that
the Board may determine that a Rule 144A security is liquid and not
subject to limitations set forth in this investment restriction (c), the
State of Ohio does not recognize Rule 144A securities as securities that
are free or restrictions as to resale. To the extent required by Ohio
law, the Fund will not invest more than 50% of its total assets in
securities of issuers that are restricted as to disposition, including
Rule 144A securities.
d. Invest in warrants if, at the time of acquisition, its
investments in warrants, valued at the lower of cost or market value,
would exceed 5% of the Fund's net assets; included within such
limitation, but not to exceed 2% of the Fund's net assets, are warrants
which are not listed on the New York Stock Exchange or American Stock
Exchange or a major foreign exchange. For purposes of this restriction,
warrants acquired by the Fund in units or attached to securities may be
deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Investment Adviser, the directors of such general partner
or the officers and directors of any subsidiary thereof each owning
beneficially more than one-half of one percent of the securities of such
issuer own in the aggregate more than 5% of the securities of such
issuer.
g. Invest in real estate limited partnership interests or interests
in oil, gas or other mineral leases, or exploration or development
programs, except that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or
development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be
amended from time to time.
i. Notwithstanding fundamental investment restriction (7) above,
borrow money or pledge its assets in excess of 20% of its total assets
taken at value (including the amount borrowed) and then only from a
bank as a temporary measure for extraordinary or emergency purposes.
Usually only 'leveraged' investment companies may borrow in excess of
5% of their assets; however, the Fund will not borrow to increase
income but only to meet redemption requests which may otherwise require
untimely dispositions of fund securities. The Fund will not purchase
securities while borrowings are outstanding except to honor prior
commitments and to exercise subscription rights.
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<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is P.O. Box
9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL--President(1)(2)--President of the Manager (which term as
used herein includes its corporate predecessors) since 1977 and Chief Investment
Officer since 1976; President and Chief Investment Officer of Fund Asset
Management, L.P. ('FAM') (which term as used herein includes its corporate
predecessor) since 1977; President and Director of Princeton Services, Inc.
('Princeton Services'); Executive Vice President of Merrill Lynch & Co., Inc.
('ML&Co.') since 1990; Executive Vice President of Merrill Lynch since 1990 and
Senior Vice President from 1985 to 1990; and Director of Merrill Lynch Funds
Distributor, Inc. (the 'Distributor').
JOE GRILLS--Director(2)--183 Soundview Lane, New Canaan, Connecticut 06840.
Member of the Committee of Investment of Employee Benefit Assets of the
Financial Executives Institute ('CIEBA') since 1986; member of CIEBA's Executive
Committee since 1988 and its Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Incorporated ('IBM') and Chief Investment
Officer of IBM Retirement Funds from 1986 until 1993; Member of the Investment
Advisory Committee of the State of New York Common Retirement Fund; Director,
Duke Management Company and Winthrop Financial Associates (real estate
management).
WALTER MINTZ--Director(2)--1114 Avenue of the Americas, New York, New York
10036. Special Limited Partner of Cumberland Associates (investment partnership)
since 1982.
MELVIN R. SEIDEN--Director(2)--780 Third Avenue, Suite 2502, New York, New
York 10017. President of Silbanc Properties, Ltd. (real estate, investment and
consulting) since 1987; Chairman and President of Seiden & de Cuevas, Inc.
(private investment firm) from 1964 to 1987.
STEPHEN B. SWENSRUD--Director(2)--24 Federal Street, Boston, Massachusetts
02110. Principal of Fernwood Associates (financial consultants); Director,
Hitchiner Manufacturing Company.
HARRY WOOLF--Director(2)--The Institute for Advanced Study, Olden Lane,
Princeton, New Jersey 08540. Member of the editorial board of Interdisciplinary
Science Reviews; Director, Alex. Brown Mutual Funds; Advanced Technology
Laboratories, Family Health International and SpaceLabs Medical (medical
equipment manufacturing and marketing).
TERRY K. GLENN--Executive Vice President(1)(2)--Executive Vice President of
the Manager and FAM since 1983; Executive Vice President and Director of
Princeton Services since 1993; President of the Distributor since 1986 and
Director thereof since 1991.
NORMAN R. HARVEY--Senior Vice President(1)(2)--Senior Vice President of the
Manager and FAM since 1982; Senior Vice President of Princeton Services since
1993.
LAWRENCE R. FULLER--Vice President(1)--Vice President of the Manager since
1992; Senior Vice President and Director of Benefit Capital Management from 1984
to 1992.
GERALD M. RICHARD--Treasurer(1)(2)--Senior Vice President and Treasurer of
the Manager and FAM since 1984; Vice President of the Distributor since 1981 and
Treasurer since 1984.
DONALD C. BURKE--Vice President(1)(2)--Vice President and Director of
Taxation of the Manager since 1990; employee of Deloitte & Touche LLP from 1982
to 1990.
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<PAGE>
MICHAEL J. HENNEWINKEL--Secretary(1)(2)--Vice President of the Manager
since 1985; attorney associated with the Manager since 1982.
- ------------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director or officer of one or more investment
companies for which the Manager, or its affiliate FAM, acts as investment
adviser or manager.
As of September 30, 1994 the officers and Directors of the Fund as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of
common stock of ML&Co. and owned an aggregate of less than 1% of the outstanding
shares of the Fund.
Until calendar year 1994, the Fund paid each Director not affiliated with
the Manager a fee of $5,000 per year plus $500 per meeting attended, together
with such Director's actual out-of-pocket expenses relating to attendance at
meetings. The Fund also compensated members of its Audit Committee, which
consists of all of the non-affiliated Directors, at a rate of $250 per meeting
attended. The Chairman of the Audit Committee received an additional fee of
$1,000 per year. As of calendar year 1994, the Fund has paid each unaffiliated
Director a fee of $2,600, plus a fee of $250 for each board meeting attended and
out-of-pocket expenses relating to attendance at meetings, and each Audit
Committee member an annual fee of $800 plus $150 for each Committee meeting
attended. Fees and expenses paid to the unaffiliated Directors aggregated
$36,246 for the fiscal year ended August 31, 1994.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to 'Management of the Fund--Management and Advisory
Arrangements' in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Manager or its affiliates act as an adviser. Because of different objectives or
other factors, a particular security may be bought for one or more clients when
one or more clients are selling the same security. If purchases or sales of
securities by the Manager for the Fund or other funds for which it acts as
investment adviser or for its 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
Manager or its affiliates during the same period may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.
The Fund has entered into a management agreement (the 'Management
Agreement') with the Manager. As discussed in the Prospectus, the Manager
receives for its services to the Fund monthly compensation at the annual rate of
0.65% of the average daily net assets of the Fund. For the period December 24,
1992 (commencement of operations) to August 31, 1993 and the fiscal year ended
August 31, 1994, the total advisory fees paid by the Fund to the Manager
aggregated $220,631 and $347,874, respectively. For those periods, the Manager
made no reimbursement of expenses to the Fund in respect of the applicable
expense limitation provisions.
The State of California imposes limitations on the expenses of the Fund. At
the date of this Statement of Additional Information, these annual expense
limitations require that the Manager reimburse the Fund in any amount necessary
to prevent the aggregate ordinary operating expenses (excluding taxes, brokerage
fees and commissions, distribution fees and extraordinary charges such as
litigation costs) from exceeding in any fiscal year 2.5% of the Fund's first $30
million of average net assets, 2.0% of the next $70 million of average net
assets and 1.5% of the remaining average net assets. Such reimbursement, if any,
will be subtracted from the monthly
15
<PAGE>
management fee. The Manager's obligation to reimburse the Fund is limited to the
amount of the investment advisory fee. No fee payment will be made to the
Manager during any fiscal year which will cause such expenses to exceed the
expense limitations at the time of such payment. The Manager has not been
required to reimburse the Fund pursuant to such operating expense limitations
since the inception of the Fund.
The Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office space for
officers and employees of the Fund connected with investment and economic
research, trading and investment management of the Fund, as well as the fees of
all Directors of the Fund who are affiliated persons of ML&Co. The Fund 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, shareholder reports and prospectuses and statements of additional
information (except to the extent paid by the Distributor), charges of the
custodian, any sub-custodian and transfer agent, expenses of redemption of
shares, Commission fees, expenses of registering the shares under Federal, state
or foreign laws, fees and expenses of unaffiliated Directors, accounting and
pricing costs (including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and other expenses properly payable by the Fund. Accounting services
are provided to the Fund by the Manager and the Fund reimburses the Manager for
its costs in connection with such services on a semiannual basis. For the Fund's
fiscal period December 24, 1992 (commencement of operations) to August 31, 1993,
and the fiscal year ended August 31, 1994, to December 31, 1994, the amount of
such reimbursement was $37,463 and $21,149, respectively. The Distributor will
pay certain promotional expenses of the Fund incurred in connection with the
offering of its shares. Certain expenses will be financed by the Fund pursuant
to distribution plans in compliance with Rule 12b-1 under the Investment Company
Act. See 'Purchase of Shares--Distribution Plans'.
ML&Co., Merrill Lynch Investment Management, Inc. and Princeton Services
are 'controlling persons' of the Manager as defined under the Investment Company
Act because of their ownership of its rating securities or their power to
exercise a controlling influence over its management or policies.
Duration and Termination. Unless earlier terminated as described herein,
the Management Agreement will remain in effect from year to year if approved
annually (a) by the Board of Directors or by a majority of the outstanding
shares of the Fund and (b) by a majority of the Directors who are not parties to
such contract or interested persons (as defined in the Investment Company Act)
of any such party. Such contracts are not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by the vote of the shareholders of the Fund.
PURCHASE OF SHARES
Reference is made to 'Purchase of Shares' in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing System: shares of Class A and Class D are sold to investors choosing the
initial sales charge alternatives, and shares of Class B and Class C are sold to
investors choosing the deferred sales charge alternatives. Each Class A, Class
B, Class C and Class D share of the Fund represents identical interests in the
investment portfolio of the Fund, and has the same rights except that Class B,
Class C and Class D shares bear the expenses of the ongoing account maintenance
fees and Class B and Class C shares bear the expenses of the ongoing
distribution fees and the additional incremental transfer agency costs resulting
from the deferred sales charge arrangements. Class B, Class C and Class D shares
each have exclusive voting rights with respect to the Rule 12b-1 distribution
plan adopted with respect to such
16
<PAGE>
class pursuant to which account maintenance and/or distribution fees are paid.
Each class has different exchange privileges. See 'Shareholder
Services--Exchange Privilege'.
The Merrill Lynch Select Pricing System is used by more than 50 mutual
funds advised by the Manager or its affiliate, FAM. Funds advised by the Manager
or FAM are referred to herein as 'MLAM-advised mutual funds'.
The Fund has entered into separate distribution agreements with the
Distributor in connection with the continuous offerings of each class of shares
of the Fund (the 'Distribution Agreements'). The Distribution Agreements
obligate the Distributor to pay certain expenses in connection with the offering
of each class of shares of the Fund. After the prospectuses, statements of
additional information and periodic reports have been prepared, set in type and
mailed to shareholders, the Distributor pays for the printing and distribution
of copies thereof used in connection with the offering to dealers and investors.
The Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Management Agreement described
above.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
As a result of the implementation of the Merrill Lynch Select Pricing
System, Class A shares of the Fund, outstanding prior to October 21, 1994, have
been redesignated Class D shares, and Class B shares of the Fund, outstanding
prior to October 21, 1994, have been redesignated Class D shares. The Class A
and Class B shares currently being offered differ from the Class A shares and
Class B shares offered prior to October 21, 1994 in many respects, including
sales charges, exchange privilege and the classes of persons to whom such shares
are offered. During the fiscal period December 24, 1992 (commencement of
operations) to August 31, 1993, the Fund sold 867,186 of its former Class A
shares (now redesignated Class D shares) for aggregate net proceeds to the Fund
of $8,576,762. The gross sales charges for the sale of its former Class A shares
for that period were $289,611 of which $3,757 and $285,854 were received by the
Distributor and Merrill Lynch, respectively. During the fiscal year ended August
31, 1994, the fund sold 556,921 of its former Class A shares for aggregate net
proceeds to the Fund of $5,502,292. The gross sales charges for the sale of its
former Class A shares for that period were $69,333, of which $4,130 and $65,203
were received by the Distributor and Merrill Lynch, respectively.
The term 'purchase', as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and Class D
shares of the Fund refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the 'Code')) although more than
one beneficiary is involved. The term 'purchase' also includes purchases by any
'company', as that term is defined in the Investment Company Act, but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of shares of
the Fund or shares of other registered investment companies at a discount. The
term 'purchase' shall not include purchases by any group of individuals whose
sole organization nexus is that the participants therein are credit cardholders
of a company, policyholders of an insurance company, customers of either a bank
or broker-dealer or clients of an investment adviser. The term 'purchase' also
includes purchases by employee benefit plans not qualified under Section 401 of
the Code, including purchases by employees or by employers on behalf of
employees, by means
17
<PAGE>
of a payroll deduction plan or otherwise, of shares of the Fund. Purchases by
such a company or non-qualified employee benefit plan will qualify for the
quantity discounts discussed above only if the Fund 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 Fund's Prospectus available to
individual investors or employees and forwarding investments by such persons to
the Fund and by any such employer or plan bearing the expense of any payroll
deduction plan.
Closed-End-Fund Option. Class A shares of the Fund and certain other
MLAM-advised mutual funds ('Eligible Class A shares') are offered at net asset
value to shareholders of certain closed-end funds advised by the Manager or FAM
who purchased such closed-end fund shares prior to October 21, 1994 wish to
reinvest the net proceeds of a sale of their closed-end fund shares of common
stock in Eligible Class A shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased such shares
on or after October 21, 1994 and who wish to reinvest the net proceeds from a
sale of their closed-end fund shares are offered Class A shares (if eligible to
buy Class A shares) or Class D shares of the Fund and other MLAM-advised mutual
funds ('Eligible Class D Shares'), if the following conditions are met. First,
the sale of closed-end fund shares must be made through Merrill Lynch, and the
net proceeds therefrom must be immediately reinvested in Eligible Class A or
Class D shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing dividends from
shares of common stock acquired in such offering. Third, the closed-end fund
shares must have been continuously maintained in a Merrill Lynch securities
account. Fourth, there must be a minimum purchase of $250 to be eligible for the
investment option. Class A shares of the Fund are offered at net asset value to
shareholders of Merrill Lynch Senior Floating Rate Fund (formerly known as
Merrill Lynch Prime Fund, Inc.) ('Senior Floating Rate Fund') who wish to
reinvest the net proceeds from a sale of certain of their shares of common stock
of Senior Floating Rate Fund in shares of the Fund. In order to exercise this
investment option, Senior Floating Rate Fund shareholders must sell their Senior
Floating Rate Fund shares to the Senior Floating Rate Fund in connection with a
tender offer conducted by the Senior Floating Rate Fund and reinvest the
proceeds immediately in the Fund. This investment option is available only with
respect to the proceeds of Senior Floating Rate Fund shares as to which no Early
Withdrawal Charge (as defined in the Senior Floating Rate Fund prospectus) is
applicable. Purchase orders from Senior Floating Rate Fund shareholders wishing
to exercise this investment option will be accepted only on the day that the
related Senior Floating Rate Fund tender offer terminates and will be effected
at the net asset value of the Fund at such day.
REDUCED INITIAL SALES CHARGES
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 Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of any other MLAM-advised mutual fund. 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.
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<PAGE>
Letter of Intention. The reduced sales charges are applicable to a
purchase aggregating $25,000 or more in Class A or Class D shares of the Fund or
any other MLAM-advised mutual funds made within a 13-month period starting with
the first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. The Letter of Intention is available only to investors whose
accounts are maintained at the Fund's Transfer Agent. The Letter of Intention is
not available to employee benefit plans for which Merrill Lynch provides plan
participant record-keeping services. The Letter of Intention is not a binding
obligation to purchase any amount of Class A or Class D shares, 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 or Class D shares of the
Fund and of other MLAM-advised mutual funds presently held at cost or maximum
offering price (whichever is higher), on the date of the first purchase under
the Letter of Intention, may be included as a credit toward the completion of
such Letter, but the reduced sales charge applicable to the amount covered by
such Letter will be applied only to new purchases. If the total amount of shares
purchased does not equal the amount stated in the Letter of Intention (minimum
of $25,000), the investor will be notified and must pay, within 20 days of the
expiration of such Letter, the difference between the sales charge on the Class
A or Class D shares purchased at the reduced rate and the sales charge
applicable to the shares actually purchased through the Letter. Class A or Class
D shares equal to five percent of the intended amount will be held in escrow
during the 13-month period (while remaining registered in the name of the
purchaser) for this purpose. The first purchase under the Letter of Intention
must be at least five percent of the dollar amount of such Letter. If a purchase
during the term of such Letter would otherwise be subject to a further reduced
sales charge based on the right of accumulation, the purchaser will be entitled
on that purchase and subsequent purchases to the reduced percentage sales charge
which would be applicable to a single purchase equal to the total dollar value
of the shares then being purchased under such Letter, but there will be no
retroactive reduction of the sales charges on any previous purchase. The value
of any shares redeemed or otherwise disposed of by the purchaser prior to
termination or completion of the Letter of Intention will be deducted from the
total purchases made under such Letter. An exchange from Merrill Lynch Ready
Assets Trust, Merrill Lynch Retirement Reserves Money Fund, Merrill Lynch U.S.
Treasury Money Fund or Merrill Lynch U.S.A. Government Reserves into the Fund
that creates a sales charge will count toward completing a new or existing
Letter of Intention from the Company.
Employer Sponsored Retirement and Savings Plans. Class A and Class D
shares are offered at net asset value to employer sponsored retirement or
savings plans, such as tax qualifed retirement plans within the meaning of
Section 401(a) of the Internal Revenue Code of 1986, as amended (the 'Code'),
deferred compensation plans within the meaning of Sections 403(b) and 457 of the
Code, other deferred compensation arrangements, Voluntary Employee Benefits
Association ('VEBA') plans, and non-qualified After Tax Savings and Investment
programs, maintained on the Merrill Lynch Group Employee Services system, herein
referred to as 'Employer Sponsored Retirement or Savings Plans', provided the
plan has accumulated $20 million or more in MLAM-advised mutual funds (in the
case of Class A shares) or $5 million or more in MLAM-advised mutual funds (in
the case of Class D shares). Class D shares may be offered at net asset value to
new Employer Sponsored Retirement or Savings Plans, provided the plan has $3
million or more initially invested in MLAM-advised mutual funds. Assets of
Employer Sponsored Retirement or Savings Plans sponsored by the same sponsor or
an affiliated sponsor may be aggregated. Class A shares and Class D shares also
are offered at net asset value to Employer Sponsored Retirement or Savings Plans
that have at least 1,000 employees eligible to participate in the plan (in the
case of Class A shares) or between 500 and 999 employees eligible to participate
in
19
<PAGE>
the plan (in the case of Class D shares). Employees eligible to participate in
Employer Sponsored Retirement or Savings Plans of the same sponsoring employer
or its affiliates may be aggregated. Tax qualified retirement plans within the
meaning of Section 401(a) of the Code meeting any of the foregoing requirements
and which are provided specialized services (e.g., plans whose participants may
direct on a daily basis their plan allocations among a wide range of investments
including individual corporate equities and other securities in addition to
mutual fund shares) by the Merrill Lynch Blueprint(Service Mark) Program, are
offered Class A shares at a price equal to net asset value per share plus a
reduced sales charge of 0.50%. Any Employer Sponsored Retirement or Savings Plan
which does not meet the above described qualifications to purchase Class A
shares at net asset value has the option of (i) purchasing Class A shares at the
initial sales charge schedule and possible CDSC schedule disclosed in the
Prospectus if it is otherwise eligible to purchase Class A shares, (ii)
purchasing Class D shares at the initial sales charge and possible CDSC schedule
disclosed in the Prospectus, (iii) if the Employer Sponsored Retirement or
Savings Plan meets the specified requirements, purchasing Class B shares with a
waiver of the CDSC upon redemption, or if the Employer Sponsored Retirement or
Savings Plan does not qualify to purchase Class B shares with a waiver of the
CDSC upon redemption, purchasing Class C shares at the CDSC schedule disclosed
in the Prospectus. The minimum initial and subsequent purchase requirements are
waived in connection with all the above referenced Employer Sponsored Retirement
or Savings Plans.
Purchase Privilege of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, directors and employees
of Merrill Lynch & Co., Inc. and its subsidiaries (the term 'subsidiaries', when
used herein with respect to Merrill Lynch & Co., Inc., includes MLAM, FAM and
certain other entities directly or indirectly wholly-owned and controlled by
Merrill Lynch & Co., Inc.), and any trust, pension, profit-sharing or other
benefit plan for such persons may purchase Class A shares of the Fund at net
asset value.
Class D shares of the Fund will be 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 Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to a sales charge either at the time of purchase or on a deferred
basis. Second, the investor also must establish that such redemption had been
made within 60 days prior to the investment in the Fund, and the proceeds from
the redemption had been maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net asset value, without
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where Merrill Lynch has either received or given notice that such
arrangement will be terminated ('notice'), if the following conditions are
satisfied: first, the investor must purchase Class D shares of the Fund with
proceeds from a redemption of shares of such other mutual fund and such fund was
subject to a sales charge either at the time of purchase or on a deferred basis;
second, such purchase of Class D shares must be made within 90 days after
notice.
Class D shares of the Fund 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 Fund with proceeds from the redemption of such
shares of other mutual funds and that such shares have been outstanding for a
period of no less than six months.
20
<PAGE>
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.
TMA(Service Mark) Managed Trusts. Class A shares are offered to
TMA(Service Mark) Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services at net asset value.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares of the Fund may be reduced to the net asset value per Class D
share in connection with the acquisition of the assets of or merger or
consolidation with a personal holding company or a public or private investment
company. The value of the assets or company acquired in a tax-free transaction
may be adjusted in appropriate cases to reduce possible adverse tax consequences
to the Fund which might result from an acquisition of assets having net
unrealized appreciation which is disproportionately higher at the time of
acquisition than the realized or unrealized appreciation of the Fund. The
issuance of Class D shares for consideration other than cash is limited to bona
fide reorganizations, statutory mergers or other acquisitions of portfolio
securities which (i) meet the investment objectives and policies of the Fund;
(ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall at
all times remain within its control); and (iii) are liquid securities, the value
of which is readily ascertainable, which are not restricted as to transfer
either by law or liquidity of market (except that the Fund may acquire through
such transactions restricted or illiquid securities to the extent the Fund does
not exceed the applicable limits on acquisition of such securities set forth
under 'Investment Objective and Policies' herein).
Reductions in or exemptions from the imposition of a sales load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
DISTRIBUTION PLANS
Reference is made to 'Purchase of Shares--Distribution Plans' in the
Prospectus for certain information with respect to the separate distribution
plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a 'Distribution Plan') with respect to the account
maintenance and/or distribution fees paid by the Fund 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 Fund and its related class of shareholder. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
'interested persons' of the Fund, as defined in the Investment Company Act (the
'Independent Directors'), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is
reasonable likelihood that such Distribution Plan will benefit the Fund and its
related class of shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the Independent Directors or
by the vote of the holders of a majority of the outstanding related class of
voting securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholder, and all material amendments are required to be
approved by the vote of the Directors, including a majority of the Independent
Directors who have no direct or indirect financial interest in such Distribution
Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further
requires that the Fund
21
<PAGE>
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 Rules of Fair Practice of the National
Association of Securities Dealers, Inc. ('NASD') imposes a limitation on certain
asset-based sales charges such as the distribution fee and the CDSC borne by the
Class B and Class C shares but not the account maintenance fee. The maximum
sales charge rule is applied separately to each class. As applicable to the
Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, computed separately, at
the prime rate plus 1% (the unpaid balance being the maximum amount payable
minus amounts received from the payment of the distribution fee and the CDSC).
In connection with the Class B shares, the Distributor has voluntarily agreed to
waive interest charges on the unpaid balance in excess of 0.50% of eligible
gross sales. Consequently, the maximum amount payable to the Distributor
(referred to as the 'voluntary maximum') in connection with the Class B shares
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee with respect to Class B shares, and any CDSCs will be paid to
the Fund rather than to the Distributor; however, the Fund will continue to make
payments of the account maintenance fee. In certain circumstances the amount
payable pursuant to the voluntary maximum may exceed the amount payable under
the NASD formula. In such circumstances payment in excess of the amount payable
under the NASD formula will not be made.
The following table sets forth comparative information as of July 31, 1994,
with respect to the former Class B shares (now redesignated Class C shares) of
the Fund indicating the maximum allowable payments that can be made under the
NASD maximum sales charge rule and the Distributor's voluntary maximum for the
fiscal period December 24, 1992 (commencement of operations) to July 31, 1994.
Since the new Class B shares of the Fund had not been publicly issued prior to
the date of this Statement of Additional Information, information concerning the
new Class B shares is not yet provided below.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JULY 31, 1994
(IN THOUSANDS)
ANNUAL
ALLOWABLE AMOUNT DISTRIBUTION
ELIGIBLE AGGREGATE INTEREST ON MAXIMUM PREVIOUSLY AGGREGATE FEES AT CURRENT
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>
Under NASD Rule as
Adopted................ $ 59,054 $ 3,691 $ 332 $4,023 $582 $ 3,440 $ 353
Under Distributor's
Voluntary Waiver....... $ 59,054 $ 3,691 $ 295 $3,986 $582 $ 3,404 $ 353
</TABLE>
- ------------------
(1) Purchase price of all eligible Class B shares sold since December 24, 1992
(commencement of operations) other than shares acquired through dividend
reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the 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. See
'Purchase of Shares--Distribution Plans' in the Prospectus.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any contingent deferred sales charge payments)
is amortizing the unpaid balance. No assurance can be given that payments of
the distribution fee will reach either the voluntary maximum or the NASD
maximum.
22
<PAGE>
REDEMPTION OF SHARES
Reference is made to 'Redemption of Shares' in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended only for any period during which trading on the New
York Stock Exchange is restricted as determined by the Commission or such
Exchange is closed (other than customary weekend and holiday closings) for any
period during which an emergency exists, as defined by the Securities and
Exchange Commission, as a result of which disposal of portfolio securities or
determination of the net asset value of the Fund is not reasonably practicable,
and for such other periods as the Securities and Exchange Commission may by
order permit for the protection of shareholders of the Fund.
DEFERRED SALES CHARGE--CLASS B SHARES
As discussed in the Prospectus under 'Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares', while the new Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of the new Class B shares in
connection with certain post-retirement withdrawals from an IRA or other
retirement plans or on redemptions of Class B shares following the death or
disability of the new Class B shareholder. Redemptions for which the waiver
applies are: (a) any partial or complete redemption in connection with a
distribution following retirement under a tax-deferred retirement plan or
attaining age 59 1/2 in the case of an IRA or other retirement plan, or part of
a series of equal periodic payments (not less frequently than annually) made for
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 the new
Class B shareholder (including one who owns the new 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 period
December 24, 1992 (commencement of operations) to August 31, 1993 and the fiscal
year ended August 31, 1994, the Distributor received CDSCs of $27,165 and
$23,762, respectively, all of which was paid to Merrill Lynch.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has the
option of purchasing Class A or Class D shares at the sales charge schedule
disclosed in the Prospectus, or if the Retirement Plan meets the following
requirements, then it may purchase Class B shares with a waiver of the CDSC upon
redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B
shares. 'Eligible 401(k) Plan' is defined as a retirement plan qualified under
Section 401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for redemptions from a
401(a) plan qualified under the Code, provided, however, that each such plan has
the same or an affiliated sponsoring employer as an Eligible 401(k) Plan
purchasing Class B shares of MLAM-advised mutual funds ('Eligible 401(a) Plan').
Other tax qualified retirement plans within the meaning of Section 401(a) and
403(b) of the Code which are provided specialized services (e.g., plans whose
participants may direct on a daily basis their plan allocations among a menu of
investments) by independent administration firms contracted through Merrill
Lynch also may purchase Class B shares with a waiver of the CDSC. The CDSC is
waived for any Class B shares which are purchased by an Eligible 401(k) Plan or
Eligible 401(a) Plan and are rolled over into a Merrill Lynch or Merrill Lynch
Trust Company custodied IRA and held in such account at the time of redemption.
The Class B CDSCs is also waived for any Class B shares which are purchased by a
Merrill Lynch rollover IRA, that was funded by a rollover from a terminated
401(k) plan
23
<PAGE>
managed by the MLAM Private Portfolio Group and held in such account at the time
of redemption. The minimum initial and subsequent purchase requirements are
waived in connection with all the above referenced Retirement Plans.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to 'Investment Objective and Policies--Other Investment
Policies and Practices-- Portfolio Transactions' in the Prospectus.
Subject to policies established by the Board of Directors of the Fund, the
Manager is responsible for making the Fund's portfolio decisions, placing the
Fund's brokerage business, evaluating the reasonableness of brokerage
commissions and negotiating the amount of any commissions paid subject to a
policy established by the Fund's Directors and officers. The Fund has no
obligation to deal with any broker or group of brokers in the execution of
transactions in portfolio securities. Orders for transactions in portfolio
securities are placed for the Fund with a number of brokers and dealers,
including Merrill Lynch. In placing orders, it is the policy of the Fund to
obtain the most favorable net results, taking into account various factors,
including price, commissions, if any, size of the transaction and difficulty of
execution. Where practicable, the Manager surveys a number of brokers and
dealers in connection with proposed portfolio transactions and selects the
broker or dealer which offers the Fund best price and execution or other
services which are of benefit to the Fund. Securities firms also may receive
brokerage commissions on transactions including covered call options written by
the Fund and the sale of underlying securities upon the exercise of such
options. In addition, consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and policies established by the Fund's
Board of Directors, the Manager may consider sales of shares of the Fund as a
factor in the selection of brokers or dealers to execute portfolio transactions
for the Fund.
For the fiscal year ended August 31, 1994, the Fund paid total brokerage
commissions of $127,842, of which $11,240, or 8.8%, was paid to Merrill Lynch
for effecting 10.7% of the aggregate amount of transactions on which the Fund
paid brokerage commissions. For the period December 24, 1992 (commencement of
operations) to August 31, 1993, the Fund paid total brokerage commissions of
$89,810, of which $4,620, or 5.14% was paid to Merrill Lynch for effecting 4.06%
of the aggregate dollar amount of transactions in which the Fund paid brokerage
commissions.
The Fund does not use any particular broker or dealer, and brokers who
provide supplemental investment research to the Manager may receive orders for
transactions by the Fund. Such supplemental research services ordinarily consist
of assessments and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition to and not in
lieu of the services required to be performed by the Manager under the
Management Agreement. If in the judgment of the Manager the Fund will be
benefitted by supplemental research services, the Manager is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. The expenses of the Manager will not necessarily be reduced as a
result of the receipt of such supplemental information, and the Manager may use
such information in servicing its other accounts.
The Fund invests in certain securities traded in the over-the-counter
market and, where possible, deals directly with the dealers who make a market in
the securities involved, except in those circumstances in which better prices
and execution are available elsewhere. Under the Investment Company Act, persons
affiliated with the Fund are prohibited from dealing with the Fund as principal
in the purchase and sale of securities. Since
24
<PAGE>
transactions in the over-the-counter market usually involve transactions with
dealers acting as principal for their own accounts, affiliated persons of the
Fund, including Merrill Lynch, will not serve as the Fund's dealer in such
transactions. However, affiliated persons of the Fund may serve as its broker in
over-the-counter transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated broker is
reasonable and fair compared to the fee or commission received by such
nonaffiliated brokers in connection with comparable transactions.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the national securities exchanges from executing exchange
transactions for their affiliates and institutional accounts which they manage
unless the member (i) has obtained prior express authorization from the account
to effect such transactions, (ii) at least annually furnishes the account with
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 Fund 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 Fund and annual
statements as to aggregate compensation will be provided to the Fund.
The Directors have considered the possibilities of seeking to recapture for
the benefit of the Fund brokerage commissions and other expenses of possible
portfolio transactions by conducting portfolio transactions through affiliated
entities. For example, brokerage commissions received by affiliated brokers
could be offset against the advisory fee paid by the Fund. After considering all
factors deemed relevant, the Directors made a determination not to seek such
recapture. The Directors will reconsider this matter from time to time.
While the Fund generally does not expect to engage in trading for
short-term gains, it will effect portfolio transactions without regard to
holding period if, in its management's judgment, such transactions are advisable
in light of a change in circumstances of a particular company or within a
particular industry or in general market, economic or financial conditions.
Accordingly, while the Fund anticipates that its annual turnover rate should not
exceed 150% under normal conditions, it is impossible to predict portfolio
turnover rates. Higher portfolio turnover involves correspondingly greater
transaction costs in the form of dealer spreads and brokerage commissions, which
are borne directly by the Fund. The portfolio turnover rate is calculated by
dividing the lesser of the Fund's annual sales or purchases of portfolio
securities (exclusive of purchases or sales of all securities whose maturities
at the time of acquisition were one year or less) by the monthly average value
of the securities in the portfolio during the year.
DETERMINATION OF NET ASSET VALUE
Reference is made to 'Additional Information--Determination of Net Asset
Value' in the Prospectus concerning the determination of net asset value. The
net asset value of the shares of the Fund is determined once daily Monday
through Friday as of 4:15 p.m. on each day the New York Stock Exchange is open
for trading. The New York Stock Exchange is not open on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The net asset value is computed by dividing
the sum of the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time. Expenses, including the management fees 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
25
<PAGE>
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 Fund. It is
expected, however, that the per share net asset value of the four classes will
tend to converge immediately after the payment of dividends or distributions,
which will differ by approximately the amount of the expense accrual
differential between the classes.
Portfolio securities which are traded on stock exchanges are valued at the
last sale price on the principal market on which such securities are traded, as
of the close of business on the day the securities are being valued or, lacking
any sales, at the last available bid price. Securities traded in the
over-the-counter market are valued at the last available bid prices obtained
from one or more dealers in the over-the-counter market prior to the time of
valuation. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. When the Fund writes an option, the amount of the premium
received is recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to reflect the
current market value of the option written, based upon the last asked price in
the case of exchange-traded options or, in the case of options traded in the
over-the-counter market, the average of the last asked price as obtained from
one or more dealers. Options purchased by the Fund are valued at their last bid
price in the case of exchange-traded options or, in the case of options traded
in the over-the-counter market, the average of the last bid price as obtained
from two or more dealers unless a quotation from only one dealer is available,
in which case only that dealer's price will be used. Other investments,
including futures contracts and related options, are stated at market value.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Directors of the Fund. Such valuation and procedures will be
reviewed periodically by the Board of Directors.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below which are
designed to facilitate investment in shares of the Fund. Certain of such
services are not available to investors who place orders for the Fund's shares
through the Merrill Lynch Blueprint(Service Mark) Program. Full details as to
each of such services can be obtained from the Fund, the Distributor or Merrill
Lynch.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained with Financial Data Services,
Inc. (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.
Share certificates are issued only for full shares and only upon the
specific request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an Investment
26
<PAGE>
Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares from
Merrill Lynch to another brokerage firm or financial institution should be aware
that, if the firm to which the Class A or Class D shares are to be transferred
will not take delivery of shares of the Fund, a shareholder either must redeem
the Class A or Class D shares (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.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor as
described in the Prospectus) or Class B, Class C or Class D shares at the
applicable public offering price either through the shareholder's securities
dealer, or by mail directly to the transfer agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through a service
known as the Automatic Investment Plan whereby the Fund is authorized through
pre-authorized checks or automated clearing house debits of $50 or more to
charge the regular bank account of the shareholder on a regular basis to provide
systematic additions to the Investment Account of such shareholder. An investor
whose shares of the Fund are held within a CMA(Registered) account may arrange
to have periodic investments made in the Fund in amounts of $100 or more ($1 for
retirement accounts) through the CMA(Registered) Automated Investment Program.
The CMA(Registered) Automated Investment Program is not available to
shareholders whose shares are held in a brokerage account with Merrill Lynch
other than a CMA(Registered) account.
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 reinvested automatically in full and fractional shares of
the Fund. Such reinvestment will be at the net asset value per share (i.e.,
without a sales charge) next determined on the ex-dividend date for such
dividends and distributions. Shareholders may elect in writing to receive either
their income dividends or capital gains distributions, or both, in cash, in
which event payment will be mailed or direct deposited on or about the payment
date. Cash payments can also be directly deposited to the shareholder's bank
account.
Shareholders may, at any time, notify the Transfer Agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have the dividends and/or
capital gains distributions reinvested in shares of the Fund or vice versa and,
commencing ten days after the receipt by the Transfer Agent of such notice, such
instructions will be effected.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and in certain of the other mutual funds sponsored by Merrill Lynch as well
as in other securities. Merrill Lynch charges an annual custodial fee for each
account.
27
<PAGE>
Information with respect to these plans is available on request from Merrill
Lynch. The minimum initial purchase to establish any such plan is $100 and the
minimum subsequent purchase is $1.
Capital gains and income received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plans. Investors
considering participations in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan.
SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Fund having a value, based on cost or the
current offering price, of $5,000 or more and monthly withdrawals for
shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D
shares are redeemed from those on deposit in the shareholder's account to
provide the withdrawal payment specified by the shareholder. The shareholder may
specify either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value as determined at the
normal close of business on the New York Stock Exchange (currently 4:15 p.m.,
New York City time) on the 24th day of each month or the 24th day of the last
month of each quarter, whichever is applicable. If the Exchange is not open for
business on such date, the Class A or Class D shares will be redeemed at the
close of business on the 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 Class A or Class D
shares in the Investment Account are reinvested automatically in the Fund Class
A or Class D shares respectively. A shareholder's Systematic Withdrawal Plan may
be terminated at any time, without charge or penalty, by the shareholder, the
Fund, the Transfer Agent or the Distributor. Withdrawal payments should not be
considered as dividends, yield or income. Each withdrawal is a taxable event. If
periodic withdrawals continuously exceed reinvested dividends, the shareholder's
original investment may be reduced correspondingly. Purchases of additional
Class A or Class D shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and tax liabilities.
The Fund will not knowingly accept purchase orders for Class A or Class D shares
of the Fund from investors who maintain a Systematic Withdrawal Plan unless such
purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic withdrawals.
A Class A or Class D shareholder whose shares are held within a
CMA(Registered), CBA(Registered) or Retirement Account may elect to have shares
redeemed on a monthly, bimonthly, quarterly, semiannual or annual basis through
the Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$25. The proceeds of systematic redemptions will be posted to the shareholder's
account five business days after the date the shares are redeemed. Monthly
systematic redemptions will be made at net asset value on the first Monday of
each month, bimonthly systematic redemptions will be made at net asset value on
the first Monday of every other month, and quarterly, semiannual or annual
redemptions are made at net asset value on the first Monday of months selected
at the shareholder's option. If the first Monday of the month is a holiday, the
redemption will be processed at net asset value on the next business day. The
Systematic Redemption Program is not available if Fund shares are
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being purchased within the account pursuant to the Automatic Investment Program.
For more information on the Systematic Redemption Program, eligible shareholders
should contact their Financial Consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in the
Fund and in certain of the other mutual funds sponsored by Merrill Lynch as well
as in other securities. Merrill Lynch charges an initial establishment fee and
an annual custodial fee for each account. Information with respect to these
plans is available upon request from Merrill Lynch. The minimum initial purchase
to establish any such plan is $100, and the minimum subsequent purchase is $1.
Capital gains and income received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. Under the Merrill
Lynch Select Pricing System, Class A shareholders may exchange Class A shares of
the Fund for Class A shares of a second MLAM-advised mutual fund if the
shareholder holds any Class A shares of the second fund in his account in which
the exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second MLAM-advised mutual fund but does
not hold Class A shares of the second fund in his account at the time of the
exchange and is not otherwise eligible to acquire Class A shares of the second
fund, the shareholder will receive Class D shares of the second fund as a result
of the exchange. Class D shares also may be exchanged for Class A shares of a
second MLAM-advised mutual fund at any time as long as, at the time of the
exchange, the shareholder holds Class A shares of the second fund in the account
in which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class B, Class C and Class D shares will be
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Fund is 'tacked' to the holding period of the newly acquired
shares of the other Fund as more fully described below. Class A, Class B, Class
C and Class D shares also will be exchangeable for shares of certain
MLAM-advised money market funds specifically designated below as available for
exchange by holders of Class A, Class B, Class C or Class D shares. Shares with
a net asset value of at least $100 are required to qualify for the exchange
privilege, and any shares utilized in an exchange must have been held by the
shareholder for 15 days. It is contemplated that the exchange privilege may be
applicable to other new mutual funds whose shares may be distributed by the
Distributor.
Exchanges of Class A or Class D shares outstanding ('outstanding Class A or
Class D shares') for Class A or Class D shares of another MLAM-advised mutual
fund ('new Class A or Class D shares') are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
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outstanding Class A or Class D shares as to which previous exchanges have taken
place, the 'sales charge previously paid' shall include the aggregate of the
sales charge paid with respect to such Class A or Class D shares in the initial
purchase and any subsequent exchange. Class A or Class D shares issued pursuant
to dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange privilege,
Class A and Class D shares 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 Fund generally may be
exchanged into the Class A or Class D shares of the other funds or into shares
of the Class A and Class D money market funds with a reduced or without a sales
charge.
In addition, each of the funds with Class B and Class C shares outstanding
('outstanding Class B or Class C shares') offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively ('new Class B or
Class C shares'), of another MLAM-advised mutual fund on the basis of relative
net asset value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Fund exercising the exchange privilege will continue to be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the new Class B shares acquired through use of the exchange
privilege. In addition, Class B shares of the Fund acquired through use of the
exchange privilege will be subject to the Fund's CDSC schedule if such schedule
is higher than the CDSC schedule relating to the Class B shares of the fund from
which the exchange has been made. For purposes of computing the sales charge
that may be payable on a disposition of the new Class B or Class C shares, the
holding period for the outstanding Class B 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 Fund for those of Merrill Lynch Special Value
Fund, Inc. ('Special Value Fund') after having held the Fund Class B shares for
two and a half years. The 2% sales charge that generally would apply to a
redemption would not apply to the exchange. Three years later the investor may
decide to redeem the Class B shares of Special Value Fund and receive cash.
There will be no CDSC due on this redemption, since by 'tacking' the two and a
half year holding period of Fund Class B shares to the three year holding period
for the Special Value Fund Class B shares, the investor will be deemed to have
held the new Class B shares for more than five years.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Manager or its affiliates, but the period of time
that Class B or Class C shares are held in a money market fund will not count
towards satisfaction of the holding period requirement for purposes of reducing
the CDSC or, with respect to Class B shares, towards satisfaction of the
conversion period. However, shares of a money market fund which were acquired as
a result of an exchange for Class B or Class C shares of the Fund may, in turn,
be exchanged back into Class B or Class C shares, respectively, of any fund
offering such shares, in which event the holding period for Class B or Class C
shares of the fund will be aggregated with previous holding periods for purposes
of reducing the CDSC. Thus, for example, an investor may exchange Class B shares
of the Fund for shares of Merrill Lynch Institutional Fund ('Institutional
Fund') after having held the Fund Class B shares for two and a half years and
three years later decide to redeem the shares of Institutional Fund for cash. At
the time of this redemption, the 2% CDSC that would have been due had the Class
B shares of the Fund been redeemed for cash rather than exchanged for shares of
Institutional Fund will be payable. If, instead of such redemption, the
shareholder exchanged such shares for Class B shares of a fund which the
shareholder continued to hold for an additional one and a half years, any
subsequent redemption will not incur a CDSC.
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Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
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Funds Issuing Class A, Class B, Class C and Class D Shares:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC............. High current income consistent with a
policy of limiting the degree of
fluctuation in net asset value by
investing primarily in a portfolio of
adjustable rate securities, consisting
principally of mortgage-backed and
asset-backed securities.
MERRILL LYNCH AMERICAS INCOME FUND,
INC.............................. A high level of current income,
consistent with prudent investment risk,
by investing primarily in debt
securities denominated in a currency
of a country located in the Western
Hemisphere (i.e., North and South
America and the surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income
exempt from Federal and Arizona income
taxes as is consistent with prudent
investment management through
investment in a portfolio primarily of
intermediate-term investment grade
Arizona Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and Arizona income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH ARKANSAS MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and Arkansas income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH ASSET GROWTH FUND,
INC.............................. High total investment return, consistent
with prudent risk, from investment in
United States and foreign equity, debt
and money market securities the
combination of which will be varied
both with respect to types of
securities and markets in response to
changing market and economic trends.
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MERRILL LYNCH ASSET INCOME FUND,
INC.............................. A high level of current income through
investment primarily in United States
fixed income securities.
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT........ As high a level of total investment
return as is consistent with reasonable
risk investing in common stock and
other types of securities, including
fixed income securities and
convertible securities.
MERRILL LYNCH BASIC VALUE FUND,
INC.............................. Capital appreciation and, secondarily,
income through investment in securities,
primarily equities, that are
undervalued and therefore represent
basic investment value.
MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and California income taxes as is
consistent with prudent investment
management through investment in a
portfolio consisting primarily of
insured California Municipal Bonds.
MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income
exempt from Federal and California
income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade
California Municipal Bonds.
MERRILL LYNCH CALIFORNIA MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and California income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH CAPITAL FUND, INC.... The highest total investment return
consistent with prudent risk through a
fully managed investment policy
utilizing equity, debt and convertible
securities.
MERRILL LYNCH COLORADO MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to
</TABLE>
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<TABLE>
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provide as high a level of income
exempt from Federal and Colorado
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH CONNECTICUT MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and Connecticut income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH CORPORATE BOND FUND,
INC.............................. Current income from three separate
diversified portfolios of fixed income
securities.
MERRILL LYNCH DEVELOPING CAPITAL
MARKETS FUND, INC................ Long-term appreciation through
investments in securities, principally
equities, of issuers in countries
having smaller capital markets.
MERRILL LYNCH DRAGON FUND, INC..... Capital appreciation primarily through
investment in equity and debt securities
of issuers domiciled in developing
countries located in Asia and the
Pacific Basin.
MERRILL LYNCH EUROFUND............. Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES
TRUST............................ High current return through investments
in U.S. Government and Government agency
securities, including GNMA
mortgage-backed certificates and other
mortgage-backed Government securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income
exempt from Federal income taxes as is
consistent with prudent investment
management while serving to offer
shareholders the opportunity to own
securities exempt from Florida
intangible personal property taxes
through investment in a portfolio
primarily of intermediate-term
investment grade Florida Municipal
Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from
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<TABLE>
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Federal income taxes as is consistent
with prudent investment management,
while seeking to offer shareholders
the opportunity to own securities
exempt from Florida intangible
personal property taxes.
MERRILL LYNCH FUND FOR TOMORROW,
INC.............................. Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially
positioned to benefit from demographic
and cultural changes as they affect
consumer markets.
MERRILL LYNCH GLOBAL ALLOCATION
FUND, INC........................ High total return, consistent with
prudent risk, through a fully managed
investment policy utilizing United
States and foreign equity, debt and
money market securities, the
combination of which will be varied
from time to time both with respect to
the types of securities and markets in
response to changing market and
economic trends.
MERRILL LYNCH GLOBAL BOND FUND FOR
INVESTMENT AND RETIREMENT........ High total investment return from
investment in a global portfolio of debt
instruments denominated in various
currencies and multinational currency
units.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC........................ High total return from investment
primarily in an internationally
diversified portfolio of convertible
debt securities, convertible preferred
stock and 'synthetic' convertible
securities consisting of a combination
of debt securities or preferred stock
and warrants or options.
MERRILL LYNCH GLOBAL HOLDINGS, INC.
(residents of Arizona must meet
investor suitability
standards)....................... The highest total investment return
consistent with prudent risk through
worldwide investment in an
internationally diversified portfolio
of securities.
MERRILL LYNCH GLOBAL RESOURCES
TRUST............................ Long-term growth and protection of
capital from investment in securities of
foreign and domestic companies that
possess substantial natural resource
assets.
MERRILL LYNCH GLOBAL SMALLCAP FUND,
INC.............................. Long-term growth of capital by investing
primarily in equity securities of
companies with relatively small market
capitalizations located in various
foreign countries and in the United
States.
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<TABLE>
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MERRILL LYNCH GLOBAL UTILITY FUND,
INC.............................. Capital appreciation and current income
through investment of at least 65% of
its total assets in equity and debt
securities issued by domestic and
foreign companies which are primarily
engaged in ownership or operation of
facilities used to generate, transmit
or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT........ Growth of capital and, secondarily,
income from investment in a diversified
portfolio of equity securities placing
a principal emphasis on those
securities which management of the
Fund believes to be undervalued.
MERRILL LYNCH HEALTHCARE FUND, INC.
(residents of Wisconsin must meet
investor suitability standards).. Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected
to derive a substantial portion of
their sales from products and services
in healthcare.
MERRILL LYNCH INTERNATIONAL EQUITY
FUND............................. Capital appreciation and, secondarily,
income by investing in a diversified
portfolio of equity securities of
issuers located in countries other
than the United States.
MERRILL LYNCH LATIN AMERICA FUND,
INC.............................. Capital appreciation by investing
primarily in Latin American equity and
debt securities.
MERRILL LYNCH MARYLAND MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and Maryland income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH MASSACHUSETTS LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income
exempt from Federal and Massachusetts
income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade
Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to
</TABLE>
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provide as high a level of income
exempt from Federal and Massachusetts
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income
exempt from Federal and Michigan
income taxes as is consistent with
prudent investment management through
investment in a portfolio primarily of
intermediate-term investment grade
Michigan Municipal Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and Michigan income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH MINNESOTA MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and Minnesota personal income taxes as
is consistent with prudent investment
management.
MERRILL LYNCH MUNICIPAL BOND FUND,
INC.............................. Tax-exempt income from three separate
diversified portfolios of municipal
bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND........... Currently the only portfolio of Merrill
Lynch Municipal Series Trust, a series
fund, whose objective is to provide as
high a level as possible of income
exempt from Federal income taxes by
investing in investment grade
obligations with a dollar weighted
average maturity of five to twelve
years.
MERRILL LYNCH NEW JERSEY LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income
exempt from Federal and New Jersey
income taxes as is consistent with
prudent investment management through
a portfolio primarily of
intermediate-term investment grade New
Jersey Municipal Bonds.
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MERRILL LYNCH NEW JERSEY MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and New Jersey income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH NEW MEXICO MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and New Mexico income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income
exempt from Federal, New York State
and New York City income taxes as is
consistent with prudent investment
management through investment in a
portfolio primarily of
intermediate-term investment grade New
York Municipal Bonds.
MERRILL LYNCH NEW YORK MUNICIPAL
BOND FUND........................ A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal,
New York State and New York City
income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and North Carolina income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH OHIO MUNICIPAL BOND
FUND............................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and Ohio income taxes as is consistent
with prudent investment management.
MERRILL LYNCH OREGON MUNICIPAL BOND
FUND............................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and Oregon income taxes as is
consistent with prudent investment
management.
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<TABLE>
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MERRILL LYNCH PACIFIC FUND, INC.... Capital appreciation by investing in
equity securities of corporations
domiciled in Far Eastern and Western
Pacific countries, including Japan,
Australia, Hong Kong and Singapore.
MERRILL LYNCH PENNSYLVANIA LIMITED
MATURITY MUNICIPAL BOND FUND..... A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust,
a series fund, whose objective is to
provide as high a level of income
exempt from Federal and Pennsylvania
income taxes as is consistent with
prudent investment management through
investment in a portfolio of
intermediate-term investment grade
Pennsylvania Municipal Bonds.
MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND.............. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
and Pennsylvania income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH PHOENIX FUND, INC.... Long-term growth of capital by investing
in equity and fixed income securities,
including tax-exempt securities, of
issuers in weak financial condition or
experiencing poor operating results
believed to be undervalued relative to
the current or prospective condition
of such issuer.
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC................. As high a level of current income as is
consistent with prudent investment
management from a global portfolio of
high quality debt securities
denominated in various currencies and
multi-national currency units and
having remaining maturities not
exceeding three years.
MERRILL LYNCH SPECIAL VALUE FUND,
INC.............................. Long-term growth of capital from
investments in securities, primarily
equities of relatively small companies
believed to have special investment
value and emerging growth companies
regardless of size.
MERRILL LYNCH STRATEGIC DIVIDEND
FUND............................. Long-term total return from investment
in dividend paying common stocks which
yield more than Standard & Poor's 500
Composite Stock Price Index.
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<TABLE>
<S> <C>
MERRILL LYNCH TECHNOLOGY FUND,
INC.............................. Capital appreciation through worldwide
investment in equity securities of
companies that derive or are expected
to derive a substantial portion of
their sales from products and services
in technology.
MERRILL LYNCH TEXAS MUNICIPAL BOND
FUND............................. A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide as high
a level of income exempt from Federal
income taxes as is consistent with
prudent investment management by
investing primarily in a portfolio of
long-term, investment grade
obligations issued by the State of
Texas, its political subdivisions,
agencies and instrumentalities.
MERRILL LYNCH UTILITY INCOME FUND,
INC.............................. High current income through investment
in equity and debt securities issued by
companies which are primarily engaged
in the ownership or operation of
facilities used to generate, transmit
or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME FUND,
INC.............................. High current income by investing in a
global portfolio of fixed income
securities denominated in various
currencies, including multinational
currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS TRUST... Preservation of capital, liquidity and
the highest possible current income
consistent with the foregoing
objectives from the short-term money
market securities in which the Trust
invests.
MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND (available only for
exchanges within certain
retirement plans)................ Currently the only portfolio of Merrill
Lynch Retirement Series Trust, a series
fund, whose objectives are current
income, preservation of capital and
liquidity available from investing in
a diversified portfolio of short-term
money market securities.
MERRILL LYNCH U.S.A. GOVERNMENT
RESERVES......................... Preservation of capital, current income
and liquidity available from investing
in direct obligations of the U.S.
Government and repurchase agreements
relating to such securities.
MERRILL LYNCH U.S. TREASURY MONEY
FUND............................. Preservation of capital, liquidity and
current income through investment
exclusively in a diversified portfolio
of short-term marketable securities
which are direct obligations of the
U.S. Treasury.
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<TABLE>
<S> <C>
Class B, Class C and Class D Share
Money Market Funds:
MERRILL LYNCH GOVERNMENT FUND...... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and
security of principal from investment
in securities issued or guaranteed by
the U.S. Government, its agencies and
instrumentalities and in repurchase
agreements secured by such
obligations.
MERRILL LYNCH INSTITUTIONAL FUND... A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide maximum
current income consistent with
liquidity and the maintenance of a
high-quality portfolio of money market
securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND.................. A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income exempt from Federal income
taxes, preservation of capital and
liquidity available from investing in
a diversified portfolio of short-term,
high quality municipal bonds.
MERRILL LYNCH TREASURY FUND........ A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide current
income consistent with liquidity and
security of principal from investment
in direct obligations of the U.S.
Treasury and up to 10% of its total
assets in repurchase agreements
secured by such obligations.
</TABLE>
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other funds described above
with shares for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The Fund reserves
the right to require a properly completed Exchange Application. This exchange
privilege may be modified or terminated at any time in accordance with the rules
of the Commission. The Fund reserves the right to limit the number of times an
investor may exercise the exchange privilege. Certain funds may suspend the
continuous offering of their shares at any time and may thereafter resume such
offering from time to time. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made.
40
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of its net
investment income, if any. Dividends from such net investment income are paid at
least annually. All net realized long-or short-term capital gains, if any, are
distributed to the Fund's shareholders at least annually. Premiums from expired
options written by the Fund and net gains from closing purchase transactions are
treated as short-term capital gains for Federal income tax purposes. See
'Shareholder Services--Automatic Reinvestment of Dividends and Distributions' in
the Prospectus for information concerning the manner in which dividends and
distributions may be reinvested automatically in shares of the Fund. Dividends
and distributions are taxable to shareholders as described below whether they
are invested in shares of the Fund or received in cash. The per share dividends
and distributions on Class B and Class C shares will be lower than the per share
dividends and distributions on Class A and Class D shares as a result of the
account maintenance, distribution and higher transfer agency fees applicable
with respect to the Class B and Class C shares; similarly, the per share
dividends and distributions on Class D shares will be lower than the per share
dividends and distributions on Class A shares as a result of the account
maintenance fees applicable with respect to the Class D shares. See
'Determination of Net Asset Value'.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ('RICs') under the Internal Revenue Code
of 1986, as amended (the 'Code'). If it so qualifies, the Fund (but not its
shareholders) will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains which it distributes to Class A,
Class B, Class C and Class D shareholders (together, the 'shareholders'). The
Fund intends to distribute substantially all of such income.
Dividends paid by the Fund from its ordinary income and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as 'ordinary income dividends') are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
(including long-term gains from certain transactions in futures and options)
('capital gain dividends') are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
Any loss upon the sale or exchange of Fund shares held for six months or less,
however, will be treated as long-term capital loss to the extent of any capital
gain dividends received by the shareholder. Distributions in excess of the
Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are held as a
capital asset).
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income or capital gain dividends. A
portion of the Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the Code, if certain
requirements are met. For this purpose, the Fund will allocate dividends
eligible for the dividends received deduction among the Class A, Class B, Class
C and Class D shareholders according to a method (which it believes is
consistent with the Securities and Exchange Commission exemptive order
permitting the issuance and sale of multiple classes of stock) that is based on
the gross income allocable to Class A, Class B, Class C and
41
<PAGE>
Class D shareholders during the taxable year, or such other method as the
Internal Revenue Service may prescribe. If the Fund pays a dividend in January
which was declared in the previous October, November or December to shareholders
of record on a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund to shareholders who are
nonresident aliens or foreign entities will be subject to a 30% United States
withholding tax under existing provisions of the Code applicable to foreign
individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
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 Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
No gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class D shares. A shareholder's basis in
the Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B shares.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund 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 Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its income and
capital gains in the manner necessary to avoid imposition of the 4% excise tax,
there can be no assurance that sufficient amounts of the Fund's taxable income
42
<PAGE>
and capital gains will be distributed to avoid entirely the imposition of the
tax. In such event, the Fund will be liable for the tax only on the amount by
which it does not meet the foregoing distribution requirements.
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions. The Fund 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 Fund
elects to have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long-term and 40% short-term capital gain or loss. The mark-to-market rules
outlined above, however, will not apply to certain transactions entered into by
the Fund 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 Fund
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 Fund's transactions in options and futures contracts. Under
Section 1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain closing transactions in options and futures
contracts.
One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income may be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the Fund
may be restricted in effecting closing transactions within three months after
entering into an options or futures contract.
Special Rules for Certain Foreign Currency Transactions. In general, gains
from 'foreign currencies' and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies will be qualifying income for purposes of
determining whether the Fund qualifies as a RIC. It is currently unclear,
however, who will be treated as the issuer of a foreign currency instrument or
how foreign currency options, foreign currency futures and forward foreign
exchange contracts will be valued for purposes of the RIC diversification
requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the United States
dollar). In general, foreign currency gains or losses from certain 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
Fund 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 Section 988 is elected by the Fund. In general, however,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if Code Section 988 losses exceed
other
43
<PAGE>
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and any distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares. These rules and the mark-to-market
rules described above, however, will not apply to certain transactions entered
into by the Fund 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 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 United States Government obligations. State
law varies as to whether dividend income attributable to United States
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
Fund.
44
<PAGE>
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total returns are 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 the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period in the case of Class B and Class C
shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that, (i) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(ii) the maximum applicable sales charges will not be included. Actual annual or
annualized total return data generally will be lower than average annual total
return data since the average rates of return reflect compounding of return;
aggregate total return data generally will be higher than average annual total
return data since the aggregate rates of return reflect compounding over a
longer period of time.
Set forth below is total return information for the Class C and Class D
shares of the Fund for the periods indicated. As a result of the implementation
of the Select Pricing System, Class A shares of the Fund outstanding prior to
October 21, 1994, have been redesignated Class D shares, and historical
performance data pertaining to such shares is provided below under the caption
'Class D Shares'. Additionally, Class B shares outstanding prior to October 21,
1994, have been redesignated Class C shares, and historical performance data
pertaining to such shares is provided under the caption 'Class C Shares.' Since
the new Class A and the new Class B shares have not been issued prior to the
date of this Statement of Additional Information, performance information
concerning the new Class A and the new Class B shares is not yet provided.
45
<PAGE>
<TABLE>
<CAPTION>
CLASS D SHARES CLASS C SHARES
----------------------------- ----------------------------------
REDEEMABLE REDEEMABLE
EXPRESSED AS VALUE OF A EXPRESSED AS A VALUE OF A
A PERCENTAGE HYPOTHETICAL PERCENTAGE BASED HYPOTHETICAL
BASED ON A $1,000 ON A $1,000
HYPOTHETICAL INVESTMENT AT HYPOTHETICAL INVESTMENT AT
$1,000 THE END OF $1,000 THE END OF THE
INVESTMENT THE PERIOD INVESTMENT PERIOD
------------ ------------- ---------------- ---------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C>
One Year Ended
August 31, 1994............. -3.53 % $ 964.70 -2.99 % $ 970.10
Inception (December 24, 1992)
to August 31, 1994.......... -2.63 % $ 956.00 -2.02 % $ 966.10
<CAPTION>
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Year Ended August 31, 1994.... 1.82 % $ 1,018.20 1.01 % $ 1,010.10
Inception (December 24, 1992)
to
August 31, 1993............. -0.90 % $ 991.00 -1.40 % $ 986.00
<CAPTION>
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
Inception (December 24, 1992)
to
August 31, 1994............. -4.40 % $ 956.00 -3.39 % $ 966.10
</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
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of CDSCs a lower amount of expenses may be deducted.
46
<PAGE>
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on April 30, 1992. It has an
authorized capital of 400,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 100,000,000 shares. Class A, Class B,
Class C and Class D Common Stock represent an interest in the same assets of the
Fund and are identical in all respects except that the Class B, Class C and
Class D shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and/or distribution expenditures.
The Fund has received an order from the Commission permitting the issuance and
sale of multiple classes of Common Stock. The Board of Directors of the Fund may
classify and reclassify the shares of the Fund into additional classes of Common
Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not intend to
hold annual meetings of shareholders in any year in which the Investment Company
Act does not require shareholders to elect Directors. Also, the by-laws of the
Fund require that a special meeting of stockholders be held upon the written
request of at least 10% of the outstanding shares of the Fund entitled to vote
at such meeting, if they comply with applicable Maryland law. Voting rights for
Directors are not cumulative. Shares issued are fully paid and non-assessable
and have no preemptive rights. Redemption and conversion rights are discussed
elsewhere herein and in the Prospectus. Each share is entitled to participate
equally in dividends and distributions declared by the Fund and in the net
assets of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities, except that expenses related to the distribution of the
shares within a class will be borne solely by such class. Stock certificates are
issued by the Transfer Agent only on specific request. Certificates for
fractional shares are not issued in any case.
The Manager provided the initial capital for the Fund by purchasing 5,000
Class A (now redesignated Class D) shares of Common Stock and 5,000 Class B (now
redesignated Class C) shares of Common Stock for an aggregate of $100,000. Such
shares were acquired for investment and can only be disposed of by redemption.
The organizational expenses of the Fund (estimated at approximately $104,725)
will be paid by the Fund and amortized over a period not exceeding five years.
The proceeds realized by the Manager (or any subsequent holder) upon redemption
of any of such shares will be reduced by the proportionate amount of the
unamortized organizational expenses which the number of shares redeemed bears to
the number of shares initially purchased.
47
<PAGE>
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class D (formerly Class A) shares of the Fund, based
on the value of the Fund's net assets on August 31, 1994 and its shares
outstanding on that date is set forth below. Information is not provided for new
Class A shares since no new Class A shares of the Fund were publicly offered
prior to the date of this Statement of Additional Information. The offering
price for new Class B and Class C shares of the Fund is the net asset value of
new Class B and Class C shares, respectively.
<TABLE>
<CAPTION>
CLASS D
----------
<S> <C>
Net Assets....................................................... $8,622,893
----------
----------
Number of Shares Outstanding..................................... 854,827
----------
----------
Net Asset Value Per Share (net assets divided by number
of shares outstanding)......................................... $ 10.09
Sales Charge (5.25% of offering price (5.54% of net asset value
per share))*................................................... 0.56
----------
Offering Price................................................... $ 10.65
----------
----------
</TABLE>
- ------------------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New York 10019, has been
selected as the independent auditors of the Fund. The selection of independent
auditors is subject to ratification by the Fund's shareholders. The independent
auditors are responsible for auditing the annual financial statements of the
Fund.
CUSTODIAN
The Chase Manhattan Bank, N.A., Global Securities Services, Chase MetroTech
Center, Brooklyn, New York 11245, acts as the Custodian of the Fund's assets.
Under its contract with the Fund, the Custodian is authorized to establish
separate accounts in foreign currencies and to cause foreign securities owned by
the Fund to be held in its offices outside the United States and with certain
foreign banks and securities depositories. The Custodian is responsible for
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on the
Fund's investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Fund's transfer agent (the 'Transfer Agent').
The Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
'Management of the Fund--Transfer Agency Services' in the Prospectus.
48
<PAGE>
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORT TO SHAREHOLDERS
The fiscal year of the Fund ends on August 31 of each year. The Fund sends
to its shareholders at least semi-annually reports showing the Fund's portfolio
and other information. An annual report, containing financial statements audited
by independent auditors, is sent to shareholders each year. After the end of
each year, shareholders will receive Federal income tax information regarding
dividends and capital gains distributions.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the 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.
Under a separate agreement, Merrill Lynch has granted the Fund the right to
use the 'Merrill Lynch' name and has reserved the right to withdraw its consent
to the use of such name by the Fund at any time or to grant the use of such name
to any other company, and the Fund has granted Merrill Lynch, under certain
conditions, the use of any other name it might assume in the future, with
respect to any corporation organized by Merrill Lynch.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's common stock on September 30, 1994.
49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.:
We have audited the accompanying statement of assets and liabilities of Merrill
Lynch Fundamental Growth Fund, Inc., including the schedule of investments, as
of August 31, 1994, the related statements of operations for the year then ended
and the statement of changes in net assets and financial highlights for the year
then ended and for the period from December 24, 1992 (commencement of
operations) to August 31, 1993. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and 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 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 August
31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Fundamental Growth Fund, Inc. at August 31, 1994, and the results
of its operations for the year then ended, and the changes in its net assets and
financial highlights for the year then ended and for the period from December
24, 1992 to August 31, 1993 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
September 23, 1994
50
<PAGE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1994
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Bonds Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Advertising 20,000 Interpublic Group of Companies, Inc. $ 697,450 $ 690,000 1.2%
Automotive & Truck 75,000 Consorcio G Grupo Dina, S.A. de C.V. (ADR) (a) 1,203,575 1,068,750 1.9
2,000 Daimler-Benz AG (ADR) (a) 96,537 106,000 0.2
20,000 Ek Chor China Motorcycle Co. Ltd. 734,300 482,500 0.9
----------- ----------- ------
2,034,412 1,657,250 3.0
Banking & Financial 20,000 State Street Boston Corp. 761,250 797,500 1.4
Beverages 25,000 The Coca-Cola Co. 1,080,300 1,150,000 2.1
2,000 Coca-Cola FEMSA, S.A. de C.V. (ADR)(a) 58,807 69,750 0.1
15,000 Panamerican Beverages, Inc. (Class A) 490,176 493,125 0.9
20,000 PepsiCo, Inc. 728,900 662,500 1.2
----------- ----------- ------
2,358,183 2,375,375 4.3
Broadcast--Cable 40,000 ++Tele-Communications Inc. (Class A) 995,000 900,000 1.6
25,000 Time Warner Inc. 1,008,556 953,125 1.7
----------- ----------- ------
2,003,556 1,853,125 3.3
Broadcast--Media 15,000 Grupo Televisa, S.A. de C.V., 'L' (GDS) (b)(c) 782,653 879,375 1.6
25,000 ++Infinity Broadcasting Corp. 750,433 787,500 1.4
30,000 Turner Broadcasting System, Inc. 787,265 543,750 1.0
----------- ----------- ------
2,320,351 2,210,625 4.0
Business Services 5,000 The Olsten Corp. 143,483 180,000 0.3
$500,000 The Olsten Corp., Convertible Bond, 4.875%
due 5/15/2003 500,000 575,000 1.0
----------- ----------- ------
643,483 755,000 1.3
Chemical Producers 20,000 Duracell International Inc. 841,970 920,000 1.7
10,000 Great Lakes Chemical Corp. 732,730 602,500 1.1
----------- ----------- ------
1,574,700 1,522,500 2.8
Communications 5,000 Cabletron Systems, Inc. 612,028 529,375 1.0
50,000 cisco Systems, Inc. 1,071,979 1,237,500 2.2
----------- ----------- ------
1,684,007 1,766,875 3.2
Consumer Products & 30,000 ++CUC International, Inc. 781,014 1,027,500 1.8
Services
Cosmetics 10,000 The Gillette Co. 694,975 723,750 1.3
15,000 International Flavors & Fragrances Inc. 603,292 658,125 1.2
----------- ----------- ------
1,298,267 1,381,875 2.5
Electronics 30,000 Intel Corp. 1,830,400 1,965,000 3.5
Entertainment 40,000 ++Electronic Arts Inc. 1,237,292 710,000 1.3
Finance 5,000 Countrywide Credit Industries, Inc. 88,117 74,375 0.1
Financial Services 40,000 MGIC Investment Corp. 1,337,450 1,230,000 2.2
30,000 The Travelers Corp. 1,292,652 1,110,000 2.0
----------- ----------- ------
2,630,102 2,340,000 4.2
</TABLE>
51
<PAGE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1994
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Held/ Value Percent of
Industries Face Amount Stocks & Bonds Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Food 5,000 General Mills, Inc. $ 340,300 $ 270,000 0.5%
5,000 Kellogg Co. 302,175 283,125 0.5
15,000 Wrigley (Wm.) Jr. Co. (Class B) 628,098 613,125 1.1
----------- ----------- ------
1,270,573 1,166,250 2.1
Food Merchandising 35,000 Albertson's, Inc. 944,433 1,010,625 1.8
Health Care-- 30,000 Teva Pharmaceutical Industries Ltd. (ADR)(a) 802,769 862,500 1.6
Pharmaceuticals
Health Services 50,000 ++Novacare Inc. 771,887 781,250 1.4
Home Furnishings 50,000 Shaw Industries, Inc. 857,375 868,750 1.6
Hotel 20,000 Marriott International, Inc. 597,884 590,000 1.1
Household Products 5,000 Colgate-Palmolive Co. 274,675 286,250 0.5
5,000 Procter & Gamble Co. 292,300 304,375 0.6
----------- ----------- ------
566,975 590,625 1.1
Information 20,000 First Financial Management Corp. 1,197,306 1,215,000 2.2
Processing 25,000 General Motors Corp. (Class E) 896,850 909,375 1.6
----------- ----------- ------
2,094,156 2,124,375 3.8
Insurance 10,000 American International Group, Inc. 923,854 940,000 1.7
5,000 General Reinsurance Corp. 615,525 558,125 1.0
150,000 Reliance Group Holdings, Inc. 1,096,250 918,750 1.7
----------- ----------- ------
2,635,629 2,416,875 4.4
Leisure 30,000 PolyGram N.V. (ADR) (a) 1,140,508 1,350,000 2.4
Medical--Technology 20,000 ++Haemonetics Corp. 549,480 375,000 0.7
Oil Services 10,000 Schlumberger Ltd. 649,350 570,000 1.0
Pharmaceuticals 20,000 Pfizer Inc. 1,323,288 1,365,000 2.4
Pollution Control 20,000 WMX Technologies Inc. 623,700 600,000 1.1
Publishing 10,000 ++Scholastic Corp. 455,625 450,000 0.8
Restaurant 30,000 McDonald's Corp. 823,375 847,500 1.5
Retail Specialty 30,000 Fingerhut Companies, Inc. 847,727 858,750 1.5
15,000 The Pep Boys--Manny, Moe & Jack 484,983 523,125 0.9
$350,000 The Pep Boys--Manny, Moe & Jack,
Convertible Bond, 4% due 9/01/1999 350,000 365,750 0.7
30,000 Staples Inc. 816,004 915,000 1.6
----------- ----------- ------
2,498,714 2,662,625 4.7
Retail Stores 50,000 Cifra, S.A. de C.V., 'C' (b) 98,537 134,712 0.2
25,000 Dollar General Corporation 571,100 631,250 1.1
----------- ----------- ------
669,637 765,962 1.3
</TABLE>
52
<PAGE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1994
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Value Percent of
Industries Shares Held Stocks & Bonds Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Semiconductors 1,000 Texas Instruments Inc. $ 76,185 $ 77,875 0.1%
Software--Computer 25,000 Computer Associates International, Inc. 1,002,321 1,003,125 1.8
50,000 ++Informix Corp. 1,068,856 1,181,250 2.1
1,000 Oracle Systems Corporation 28,875 42,625 0.1
----------- ----------- ------
2,100,052 2,227,000 4.0
Telecommunications 30,000 Bell Atlantic Corp. 1,866,779 1,642,500 2.9
50,000 MCI Communications Corp. 1,330,893 1,212,500 2.2
40,000 ++QUALCOMM Inc. 1,100,000 900,000 1.6
30,000 Vodafone Group PLC (ADR) (a) 894,312 960,000 1.7
----------- ----------- ------
5,191,984 4,715,000 8.4
Toys 30,000 Mattel, Inc. 761,826 862,500 1.6
Travel & Lodging 15,000 Carnival Corporation (Class A) 704,866 665,625 1.2
Total Stocks & Bonds 50,052,855 49,072,337 88.0
<CAPTION>
Face Amount Short-Term Securities
<S> <C> <C> <C> <C> <C>
US Government $ 2,000,000 Federal Home Loan Bank, 4.64% due 9/29/1994 1,992,782 1,992,782 3.5
& Agency 6,000,000 Federal National Mortgage Association,
Obligations* 4.48% due 9/19/1994 5,986,560 5,986,560 10.7
----------- ----------- ------
7,979,342 7,979,342 14.2
Commercial 2,131,000 General Electric Capital Corp., 4.75%
Paper* due 9/01/1994 2,131,000 2,131,000 3.8
1,000,000 Student Loan Marketing Association,
4.60% due 9/23/1994 997,189 997,189 1.7
----------- ----------- ------
3,128,189 3,128,189 5.5
Total Short-Term Securities 11,107,531 11,107,531 19.7
Total Investments $61,160,386 60,179,868 107.7
===========
Liabilities in Excess of Other Assets (4,293,715) (7.7)
----------- ------
Net Assets $55,886,153 100.0%
=========== ======
<FN>
*Commercial Paper and certain US Government & Agency Obligations are
traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
(a)American Depositary Receipt (ADR).
(b)Foreign Stock--Mexico.
(c)Global Depositary Share (GDS).
++Non-income producing securities.
</TABLE>
See Notes to Financial Statements.
53
<PAGE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1994
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of August 31, 1994
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$61,160,386) (Note 1a) $60,179,868
Receivables:
Capital shares sold $ 313,452
Dividends 23,440
Interest 8,181 345,073
-----------
Deferred organization expenses (Note 1g) 66,001
Prepaid registration fees and other assets (Note 1g) 72,859
-----------
Total assets 60,663,801
-----------
Liabilities: Payables:
Securities purchased 2,488,603
Capital shares redeemed 295,746
Distributor (Note 2) 44,565
Investment adviser (Note 2) 32,894 2,861,808
-----------
Accrued expenses and other liabilities 1,915,840
-----------
Total liabilities 4,777,648
-----------
Net Assets: Net assets $55,886,153
===========
Net Assets Class A Shares of capital stock, $0.10 par value,
Consist of: 100,000,000 shares authorized $ 85,483
Class B Shares of capital stock, $0.10 par value,
100,000,000 shares authorized 474,608
Paid-in capital in excess of par 54,631,837
Undistributed realized capital gains--net 1,674,743
Unrealized depreciation on investments--net (980,518)
-----------
Net assets $55,886,153
===========
Net Asset Value: Class A--Based on net assets of $8,622,893 and 854,827
shares of capital stock outstanding $ 10.09
===========
Class B--Based on net assets of $47,263,260 and 4,746,084
shares of capital stock outstanding $ 9.96
===========
</TABLE>
See Notes to Financial Statements.
54
<PAGE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1994
FINANCIAL INFORMATION (continued)
Statement of Operations for the Year Ended August 31, 1994
<TABLE>
<S> <C> <C>
Investment Interest and discount earned $ 515,106
Income Dividends (net of $6,362 foreign withholding tax) 470,085
(Note 1e & 1f): -----------
Total income 985,191
-----------
Expenses: Distribution fees--Class B (Note 2) 459,174
Investment advisory fees (Note 2) 347,874
Professional fees 75,779
Transfer agent fees--Class B (Note 2) 67,238
Printing and shareholder reports 60,251
Registration fees (Note 1g) 55,301
Directors' fees and expenses 36,246
Accounting services (Note 2) 21,149
Amortization of organization expenses (Note 1g) 20,308
Account maintenance fees--Class A (Note 2) 19,004
Custodian fees 14,691
Transfer agent fees--Class A (Note 2) 10,041
Other 13,059
-----------
Total expenses 1,200,115
-----------
Investment loss--net (214,924)
-----------
Realized & Realized gain on investments--net 2,028,567
Unrealized Gain Change in unrealized depreciation on investments--net (964,529)
(Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 849,114
(Notes 1f & 3): ===========
</TABLE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the Period
Year Ended Dec. 24, 1992++
August 31, to August 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <C> <C> <C>
Operations: Investment loss--net $ (214,924) $ (246,722)
Realized gain (loss) on investments--net 2,028,567 (138,526)
Unrealized depreciation on investments--net (964,529) (15,989)
----------- -----------
Net increase (decrease) in net assets resulting from
operations 849,114 (401,237)
----------- -----------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 2,371,410 52,966,866
(Note 4): ----------- -----------
Net Assets: Total increase in net assets 3,220,524 52,565,629
Beginning of period 52,665,629 100,000
----------- -----------
End of period $55,886,153 $52,665,629
=========== ===========
<FN>
++Commencement of Operations.
</TABLE>
See Notes to Financial Statements.
55
<PAGE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1994
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Dec. 24, Year Dec. 24,
from information provided in the financial statements. Ended 1992++ to Ended 1992++ to
August 31, August 31, August 31, August 31,
Increase (Decrease) in Net Asset Value: 1994 1993++++ 1994++++ 1993++++
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 9.91 $ 10.00 $ 9.86 $ 10.00
Operating --------- --------- --------- ---------
Performance: Investment income (loss)--net .03 -- (.05) (.05)
Realized and unrealized gain (loss) on investments--net .15 (.09) .15 (.09)
--------- --------- --------- ---------
Total from investment operations .18 (.09) .10 (.14)
--------- --------- --------- ---------
Net asset value, end of period $ 10.09 $ 9.91 $ 9.96 $ 9.86
========= ========= ========= =========
Total Investment Based on net asset value per share 1.82% (0.90%)+++ 1.01% (1.40%)+++
Return:** ========= ========= ========= =========
Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees 1.33% 1.78%* 1.35% 1.79%*
========= ========= ========= =========
Expenses 1.58% 2.03%* 2.35% 2.79%*
========= ========= ========= =========
Investment income (loss)--net .31% (.04%)* (.52%) (.83%)*
========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 8,623 $ 6,930 $ 47,263 $ 45,736
Data: ========= ========= ========= =========
Portfolio turnover 112.68% 64.09% 112.68% 64.09%
========= ========= ========= =========
<FN>
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
*Annualized.
**Total investment returns exclude the effects of sales loads.
</TABLE>
See Notes to Financial Statements.
56
<PAGE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1994
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Fundamental Growth Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Fund offers
both Class A and Class B Shares. Class A Shares are sold with a
front-end sales charge. Class B Shares may be subject to a
contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class A Shares bear the
expense of the ongoing account maintenance fee and have exclusive
voting rights with respect to such maintenance fee expenditures, and
Class B Shares bear certain expenses related to the distribution of
such shares and have exclusive voting rights with respect to matters
relating to such distribution expenditures. On September 27, 1994,
shareholders approved the implementation of the Merrill Lynch Select
Pricing(Service Mark) System, which will offer two new classes of shares, Class
C and Class D. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the
principal market on which such securities are traded, as of the
close of business on the day the securities are being valued or,
lacking any sales, at the last available bid price. 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
Directors as the primary market. Securities traded in the over-the-
counter market are valued at the last available bid prices obtained
from one or more dealers in the over-the-counter market prior to the
time of valuation. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued according
to the broadest and most representative market. Short-term
securities are valued at amortized cost, which approximates market
value. Options purchased by the Fund are valued at their last bid
price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter market, the average of the
last bid price as obtained from two or more dealers unless a
quotation from only one dealer is available, in which case only that
dealer's price will be used. Options written by the Fund are valued
at the last asked price in the case of exchange-traded options, or
in the case of options traded in the over-the-counter market, the
average of the last asked price as obtained from one or more
dealers. 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 Fund's Directors.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities or payables expressed in
foreign currencies into US dollars. Realized and unrealized gains or
losses from investments include the effects of foreign exchange
rates on investments.
The Fund is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or
portfolio positions. Such contracts are not entered on the Fund's
records. However, the effect on operations is recorded from the date
the Fund enters into such contracts. Premium or discount is
amortized over the life of the contracts.
(c) Options--When the Fund sells an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written. When a security is sold through an exercise of an option,
the related premium paid (or received) is added to (or deducted
from) the basis of the security sold. When an option expires (or the
Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option to the extent of the premiums paid or received
(or gain or loss to the extent the cost of the closing transaction
is less than or greater than the premium paid or received).
Written and purchased options are non-income producing investments.
(d) Financial futures contracts--The Fund may purchase or sell
interest rate futures contracts. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as
required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to
the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as variation
margin and are recorded by the Fund as unrealized gains or losses.
When the contract is
57
<PAGE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1994
closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value
at the time it was closed.
(e) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital
gains at various rates.
(f) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
(g) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(h) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend date.
(i) Reclassifications--Accumulated investment loss--net, in the
amount of $461,646, has been reclassified to undistributed realized
capital gains--net and paid-in capital in excess of par, as
appropriate.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). Effective January 1,
1994, the investment advisory business of MLAM was reorganized from
a corporation to a limited partnership. Both prior to and after the
reorganization, ultimate control of MLAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of MLAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co. and Merrill
Lynch Investment Management, Inc. ("MLIM"), which is also an
indirect wholly-owned subsidiary of ML & Co. The Fund has also
entered into a Distribution Agreement and a Distribution Plan with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distributor"), a
wholly-owned subsidiary of MLIM.
For such services, the Fund pays a monthly fee at the annual rate of
0.65% of the average daily value of the Fund's net assets. The
Investment Advisory Agreement obligates MLAM to reimburse the Fund
to the extent the Fund's expenses (excluding interest, taxes,
distribution fees, brokerage fees and commissions, and extraordinary
items) exceed 2.5% of the Fund's first $30 million of average daily
net assets, 2.0% of the Fund's next $70 million of average daily net
assets, and 1.5% of the remaining daily net assets. No fee payment
will be made to MLAM during any fiscal year which will cause
expenses to exceed the most restrictive expense limitation at the
time of such payment.
Pursuant to a distribution plan (the "Distribution Plan") adopted by
the Fund in accordance with Rule 12b-1 under the Investment Company
Act of 1940, the Fund pays the Distributor an ongoing account
maintenance fee at an annual rate of 0.25% of the average daily net
assets of the Class A Shares and distribution and account
maintenance fees, which are accrued daily and paid monthly at the
annual rates of 0.75% and 0.25%, respectively, of the average daily
net assets of the Class B Shares of the Fund. Pursuant to a sub-
agreement with the Distributor, Merrill Lynch, Pierce, Fenner, and
Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides
account maintenance and distribution services to the Fund. The
ongoing account maintenance fee compensates the Distributor and
MLPF&S for providing account maintenance services to Class B
shareholders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and distribution
services and bearing certain distribution-related expenses of the
Fund. For the year ended August 31, 1994, MLFD earned $19,004 and
$459,174 for Class A and Class B Shares, respectively, under the
Distribution Plans, all of which was paid to MLPF&S pursuant to the
agreement.
For the year ended August 31, 1994, MLFD earned underwriting
discounts of $4,130, and MLPF&S earned dealer concessions of $65,203
on sales of the Fund's Class A Shares of capital stock.
58
<PAGE>
Merrill Lynch Fundamental Growth Fund, Inc. August 31, 1994
NOTES TO FINANCIAL STATEMENTS (concluded)
MLPF&S received contingent deferred sales charges of $23,762
relating to transactions in Class B Shares of capital stock and
$11,240 in commissions on the execution of portfolio security
transactions for the Fund during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, MLPF&S, FDS, PSI, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended August 31, 1994 were $47,385,980 and $49,544,286,
respectively.
Net realized and unrealized gains (losses) as of August 31, 1994
were as follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $2,030,235 $ (980,518)
Short-term investments (1,668) --
---------- -----------
Total $2,028,567 $ (980,518)
========== ===========
As of August 31, 1994, net unrealized depreciation for Federal
income tax purposes aggregated $980,518, of which $2,130,097 related
to appreciated securities and $3,110,615 related to depreciated
securities. The aggregate cost of investments at August 31, 1994 for
Federal income tax purposes was $61,160,386.
4. Shares of Capital Stock:
Net increase in net assets derived from capital stock transactions
was $2,371,410 and $52,966,866 for the years ended August 31, 1994
and August 31, 1993, respectively.
Transactions in shares of capital stock for Class A and Class B
Shares were as follows:
Class A Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 556,921 $ 5,502,292
Shares redeemed (401,467) (3,995,468)
---------- -----------
Net increase 155,454 $ 1,506,824
========== ===========
Class A Shares for the Period Dollar
Dec. 24, 1992++ to August 31, 1993 Shares Amount
Shares sold 867,186 $ 8,576,762
Shares redeemed (172,813) (1,650,457)
---------- -----------
Net increase 694,373 $ 6,926,305
========== ===========
++Prior to December 24, 1992 (commencement of operations), the Fund
issued 5,000 shares to MLAM for $50,000.
Class B Shares for the Year Dollar
Ended August 31, 1994 Shares Amount
Shares sold 2,123,924 $20,737,115
Shares redeemed (2,017,787) (19,872,529)
---------- -----------
Net increase 106,137 $ 864,586
========== ===========
Class B Shares for the Period Dollar
Dec. 24, 1992++ to August 31,1993 Shares Amount
Shares sold 5,434,015 $53,568,283
Shares redeemed (799,068) (7,527,722)
---------- -----------
Net increase 4,634,947 $46,040,561
========== ===========
++Prior to December 24, 1992 (commencement of operations), the Fund
issued 5,000 shares to MLAM for $50,000.
59
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies....................................... 2
Portfolio Strategies Involving Options and Futures.................... 3
Other Investment Policies and Practices............................... 7
Current Investment Restrictions....................................... 9
Management of the Fund.................................................. 14
Directors and Officers................................................ 14
Management and Advisory Arrangements.................................. 15
Purchase of Shares...................................................... 16
Initial Sales Alternatives--Class A and Class D Shares................ 17
Reduced Initial Sales Charges......................................... 18
Distribution Plans...................................................... 21
Limitations on the Payment of Deferred Sales Charges.................. 22
Redemption of Shares.................................................... 23
Deferred Sales Charges--
Class B Shares...................................................... 23
Portfolio Transactions and Brokerage.................................... 24
Determination of Net Asset Value........................................ 25
Shareholder Services.................................................... 26
Investment Account.................................................... 26
Automatic Investment Plans............................................ 27
Automatic Reinvestment of Dividends and Capital Gains Distributions... 27
Retirement Plans...................................................... 27
Systematic Withdrawal Plans--
Class A and Class D Shares.......................................... 28
Retirement Plans...................................................... 29
Exchange Privilege.................................................... 29
Dividends, Distributions and Taxes...................................... 41
Dividends and Distributions........................................... 41
Taxes................................................................. 41
Performance Data........................................................ 45
General Information..................................................... 47
Description of Shares................................................. 47
Computation of Offering Price Per Share............................... 48
Independent Auditors.................................................. 48
Custodian............................................................. 48
Transfer Agent........................................................ 48
Legal Counsel......................................................... 49
Report to Shareholders................................................ 49
Additional Information................................................ 49
Security Ownership of Certain Beneficial Owners....................... 49
Report of Independent Auditors.......................................... 50
Financial Statements.................................................... 51
</TABLE>
Code #16464-1094
Statement of
Additional Information
[INSERT ART HERE]
- ------------------------------------------------------
MERRILL LYNCH
FUNDAMENTAL GROWTH
FUND, INC.
October 21, 1994
Distributor:
Merrill Lynch Funds
Distributor, Inc.
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents fair
and accurate narrative descriptions of graphic and image material omitted from
this EDGAR Submission File due to ASCII-incompatibility and cross-references
this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Contained in Part A:
Financial Highlights for the year ended August 31, 1994 and for the
period December 24, 1992 (commencement of operations) to August
31, 1993.
Contained in Part B:
Report of Independent Auditors dated September 28, 1994.
Schedule of Investments, as of August 31, 1994.
Statement of Assets and Liabilities, as of August 31, 1994.
Statement of Operations for the year ended August 31, 1994.
Statements of Changes in Net Assets for the year ended August 31,
1994 and for the period December 24, 1992 (commencement of
operations) to August 31, 1993.
Financial Highlights for the year ended August 31, 1994 and for the
period December 24, 1992 (commencement of operations) to August
31, 1993.
Notes to Financial Statements.
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------
<S> <C>
1 (a) -- Articles of Incorporation of Registrant.(a)
(b) -- Articles of Amendment of Registrant.
2 -- By-Laws of Registrant(a).
3 -- None.
4 (a) -- Specimen certificate for Class A shares of common stock of
Registrant.(a)
(b) -- Specimen certificate for Class B shares of common stock of
Registrant.(a)
5 (a) -- Management Agreement between Registrant and Merrill Lynch Asset
Management.(b)
(b) -- Supplement to Management Agreement between Registrant and
Merrill Lynch Asset Management.
6 (a) -- Form of Class A Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.
(b) -- Form of Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc.
(c) -- Form of Class C Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Selected
Dealers Agreement).
(d) -- Form of Class D Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Selected
Dealers Agreement).
7 -- None.
8 -- Custody Agreement between Registrant and Chase Manhattan Bank,
N.A.(b)
9 (a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc.(b)
(b) -- Agreement between Merrill Lynch & Co., Inc. and Registrant
relating to Registrant's use of Merrill Lynch name.(b)
10 -- None.
11 -- Consent of Ernst & Young LLP, independent auditors for
Registrant.
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management.(b)
14 -- None.
15 (a) -- Form of Class B Distribution Plan and Class B Distribution Plan
Sub-Agreement of Registrant.
(b) -- Form of Class C Distribution Plan and Class C Distribution Plan
Sub-Agreement of Registrant.
(c) -- Form of Class D Distribution Plan and Class D Distribution Plan
Sub-Agreement of Registrant.
16 (a) -- Schedule for computation of each performance quotation for
Class A shares provided in the Registration Statement in
response to Item 22.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------
<S> <C>
(b) -- Schedule for computation of each performance quotation for
Class B shares provided in the Registration Statement in
response to Item 22.
17 (a) -- Financial Data Schedule for Class A Shares.
(b) -- Financial Data Schedule for Class B Shares.
</TABLE>
- ------------------
(a) Filed on May 13, 1992, as an Exhibit to the Registrant's registration
statement on Form N-1A.
(b) Filed on October 1, 1992 as an Exhibit to Pre-Effective Amendment No. 1 to
the Registrant's registration statement on Form N-1A.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1994
- ------------------------------------------------------------ ------------------
<S> <C>
Class A Shares of Common Stock, par value $0.10 per share... 47
Class B Shares of Common Stock, par value $0.10 per share... 119
Class C Shares of Common Stock, par value $0.10 per share... 0
Class D Shares of Common Stock, par value $0.10 per share... 0
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Class A and Class B Distribution
Agreements.
Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940 may be concerned, Article VI of the
Registrant's By-Laws provides that such payments will be made only on the
following conditions: (i) the advances must be limited to amounts used, or to be
used, for the preparation or presentation of a defense to the action, including
costs connected with the preparation of a settlement; (ii) advances may be made
only on receipt of a written promise by, or on behalf of, the recipient to repay
that amount of the advance which exceeds the amount to which it is ultimately
determined that he is entitled to receive from the Registrant by reason of
indemnification; and (iii)(a) such promise must be secured by a surety bond,
other suitable insurance or an equivalent form of security which assures that
any repayments may be obtained by the Registrant without delay or litigation,
which bond, insurance or other form of security must be provided by the
recipient of the advance and (b) a majority of a quorum of the Registrant's
disinterested non-party Directors, or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts, that
the recipient of the advance ultimately will be found entitled to
indemnification.
In Section 9 of the Class A and Class B Distribution Agreements relating to
the securities being offered hereby, the Registrant agrees to indemnify the
Distributor and each person, if any, who controls the Distributor within the
meaning of the Securities Act of 1933 (the 'Act'), against certain types of
civil liabilities arising in connection with the Registration Statement or
Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Act may be
permitted to Directors, officers and controlling persons of the Registrant and
the principal underwriter pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
C-2
<PAGE>
person or the principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER.
Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset
Management ('MLAM' or the 'Manager') acts as investment adviser for the
following companies: Convertible Holdings, Inc., Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Balanced Fund for Investment and Retirement, Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch EuroFund, Merrill Lynch Fund for Tomorrow, Inc., Merrill
Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global Small Cup Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill
Lynch Growth Fund for Investment and Retirement, Merrill Lynch Healthcare Fund,
Inc., Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Institutional Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Retirement Series Trust, Merrill Lynch Senior Floating Rate Fund, Inc.,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable
Series Funds, Inc. Fund Asset Management, L.P.('FAM'), an affiliate of the
Manager,acts as the investment advisor for the following investment companies:
Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA
Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, The Corporate Fund Accumulation Program, Inc., Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund,
Inc., Financial Institutions Series Trust, Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund, Inc.,
Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond
Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State 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., MuniAssets Fund, Inc.,
MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest
Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
New York Insured, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona
Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc.,
MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured
Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured
Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High
Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus
MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and Worldwide
DollarVest Fund, Inc. The address of each of these investment companies is P.O.
Box 9011, Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Institutional Intermediate Fund and Merrill Lynch Funds for Institutions
Series is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646.
The address of the Manager and FAM is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
('Merrill Lynch') and Merrill Lynch & Co., Inc. ('ML & Co.') is World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. The address of
Financial Data Services 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
C-3
<PAGE>
since September 1, 1992, for his own account or in the capacity of director,
officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Glenn is
Executive Vice President and Mr. Richard is Treasurer of all or substantially
all of the investment companies described in the preceding paragraph and Messrs.
Durnin, Giordano, Harvey, Hewitt, Kirstein, Monagle and Ms. Griffin are
directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
BUSINESS,
POSITION WITH PROFESSION, VOCATION OR
NAME MANAGER EMPLOYMENT
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
ML&Co.................... Limited Partner Financial Services
Holding Company
Merrill Lynch Investment Limited Partner Investment Advisory
Management Inc......... Services; Limited
Partner of FAM
Princeton Services, Inc. General Partner General Partner of FAM
('Princeton
Services').............
Arthur Zeikel............ President and Chief President and Chief
Investment Officer Investment Officer of
FAM; President and
Director of Princeton
Services; Director of
Merrill Lynch Funds
Distributor, Inc. (the
'Distributor');
Executive Vice
President of ML & Co.;
Executive Vice
President of Merrill
Lynch
Terry K. Glenn........... Executive Vice President Executive Vice President
of FAM; Executive Vice
President and Director
of Princeton Services;
President and Director
of the Distributor;
Director of Financial
Data Services, Inc.
('FDS'); President of
Princeton
Administrators
Philip L. Kirstein....... Senior Vice President, Senior Vice President,
General Counsel and General Counsel and
Secretary Secretary of FAM;
Senior Vice President,
General Counsel,
Director and Secretary
of Princeton Services;
Director of the
Distributor
Bernard J. Durnin........ Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Vincent R. Giordano...... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Elizabeth Griffin........ Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Norman R. Harvey......... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
N. John Hewitt........... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Ronald M. Kloss.......... Senior Vice President and Senior Vice President and
Controller Controller of FAM; Senior
Vice President and
Controller of Princeton
Services
Stephen M.M. Miller...... Senior Vice President Executive Vice President
of Princeton
Administrators; Senior
Vice President of
Princeton Services
Joseph T. Monagle, Jr.... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
BUSINESS,
POSITION WITH PROFESSION, VOCATION OR
NAME MANAGER EMPLOYMENT
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
Gerald M. Richard........ Senior Vice President and Senior Vice President and
Treasurer Treasurer of FAM; Senior
Vice President and
Treasurer of Princeton
Services; Vice
President and Treasurer
of the Distributor
Richard L. Rufener....... Senior Vice President Senior Vice President of
FAM; Vice President of
the Distributor; Senior
Vice President of
Princeton Services
Ronald L. Welburn........ Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Anthony Wiseman.......... Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The Distributor acts as the principal underwriter for the Registrant
and for each of the open-end investment companies referred to in the first
paragraph of Item 28 except Apex Municipal Fund, Inc., CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The
Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond Income Fund,
Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc.,
MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund,
Inc., MuniVest Pennsylvania Fund, MuniYield Arizona Fund, MuniYield Arizona Fund
II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund,
Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured
Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured
Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High
Income Portfolio II, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus
MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund, Inc.
(b) Set forth below is information concerning each director and officer of
the Distributor. The principal business address of each such person is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Messrs.
Crook, Aldrich, Breen, Graczyk, Fatseas, and Wasel is One Financial Center,
Boston, Massachusetts 02111-2665.
<TABLE>
<CAPTION>
(2) (3)
POSITIONS AND OFFICES POSITIONS AND OFFICES
(1) NAME WITH DISTRIBUTOR WITH REGISTRANT
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn........... President and Director Executive Vice President
Arthur Zeikel............ Director President and Trustee
Philip L. Kirstein....... Director None
William E. Aldrich....... Senior Vice President None
Robert W. Crook.......... Senior Vice President None
Kevin P. Boman........... Vice President None
Michael Brady............ Vice President None
William M. Breen......... Vice President None
Sharon Creveling......... Vice President and None
Assistant Treasurer
Mark A. DeSario.......... Vice President None
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
(2) (3)
POSITIONS AND OFFICES POSITIONS AND OFFICES
(1) NAME WITH DISTRIBUTOR WITH REGISTRANT
- ------------------------- ------------------------- -------------------------
<S> <C> <C>
James T. Fatseas......... Vice President None
Stanley Graczyk.......... Vice President None
Michelle T. Lau.......... Vice President None
Gerald M. Richard........ Vice President and Treasurer
Treasurer
Richard L. Rufener....... Vice President None
Salvatore Venezia........ Vice President None
William Wasel............ Vice President None
Robert Harris............ Secretary 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 and the rules thereunder
will be maintained at the offices of the Registrant, 800 Scudders Mill Road,
Plainsboro, New Jersey 08536 and its transfer agent, Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption 'Management of the
Fund--Management and Advisory Arrangements' in the Prospectus constituting Part
A of the Registration Statement and under 'Management of the Fund--Management
and Advisory Arrangements' in the Statement of Additional Information
constituting Part B of the Registration Statement, Registrant is not a party to
any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
(d) The Fund, if requested to do so by the holders of at least 10% of the
Fund's outstanding shares, will call a meeting of shareholders for the purpose
of voting upon the question of removal of a director or directors and will
assist communications with other shareholders as required by Section 16(c) of
the Investment Company Act of 1940.
C-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT HAS DULY CAUSED
THIS 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 11TH DAY OF OCTOBER, 1994.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
(Registrant)
By /s/__ARTHUR ZEIKEL
(ARTHUR ZEIKEL, PRESIDENT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- ------------------------- -------------------------
<C> <S> <C>
/s/ ARTHUR ZEIKEL President and Director October 11, 1994
- ------------------------- (Principal Executive
(ARTHUR ZEIKEL) Officer)
/s/ GERALD M. RICHARD Treasurer (Principal October 11, 1994
- ------------------------- Financial and
(GERALD M. RICHARD) Accounting Officer)
Director
- -------------------------
(JOE GRILLS)
WALTER MINTZ* Director
- -------------------------
(WALTER MINTZ)
MELVIN R. SEIDEN* Director
- -------------------------
(MELVIN R. SEIDEN)
STEPHEN B. SWENSRUD* Director
- -------------------------
(STEPHEN B. SWENSRUD)
HARRY WOOLF* Director
- -------------------------
(HARRY WOOLF)
*By /s/ARTHUR ZEIKEL October 11, 1994
- -------------------------
(ARTHUR ZEIKEL,
ATTORNEY-IN-FACT)
</TABLE>
C-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER
- -------- ------
<C> <S> <C>
5 (b) -- Supplement to Investment Advisory Agreement
between Registrant and Merrill Lynch Asset
Management, L.P.
6 (a) -- Form of Class A Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor,
Inc. (including Form of Selected Dealers
Agreement)
6 (b) -- Form of Class B Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor,
Inc. (including Form of Selected Dealers
Agreement)
6 (c) -- Form of Class C Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor,
Inc. (including Form of Selected Dealers
Agreement)
6 (d) -- Form of Class D Distribution Agreement between
Registrant and Merrill Lynch Funds Distributor,
Inc. (including Form of Selected Dealers
Agreement)
11 -- Consent of Ernst & Young LLP, independent auditors
for Registrant
15 (a) -- Form of Class B Distribution Plan and Class B
Distribution Plan Sub-Agreement.
15 (b) -- Form of Class C Distribution Plan and Class C
Distribution Plan Sub-Agreement
15 (c) -- Form of Class D Distribution Plan and Class C
Distribution Plan Sub-Agreement
17 (a) -- Financial Data Schedule for Class A Shares
17 (b) -- Financial Data Schedule for Class B Shares
</TABLE>
EXHIBIT 5(B)
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
MERRILL LYNCH ASSET MANAGEMENT
As of January 1, 1994 Merrill Lynch Investment Management, Inc.
d/b/a Merrill Lynch Asset Management was reorganized as a limited
partnership, formally known as Merrill Lynch Asset Management,
L.P. and continuing to do business under the name Merrill Lynch
Asset Management ("MLAM"). The general partner of MLAM is
Princeton Services, Inc. and the limited partners are Merrill
Lynch Investment Management, Inc. and Merrill Lynch & Co., Inc.
Pursuant to Rule 202(a)(1)-1 under the Investment Advisers Act of
1940 and Rule 2a-6 under the Investment Company Act of 1940 such
reorganization did not constitute an assignment of this
investment advisory agreement since it did not involve a change
of control or management of the investment adviser. Pursuant to
the requirements of Section 205 of the Investment Advisers Act of
1940, however, Merrill Lynch Asset Management hereby supplements
this investment advisory agreement by undertaking to advise you
of any change in the membership of the partnership within a
reasonable time after any such change occurs.
By /s/ Arthur Zeikel
-----------------
Dated: January 3, 1994
EXHIBIT 6(A)
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between
Merrill Lynch Fundamental Growth Fund, Inc., a Maryland
corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR,
INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as an
open-end investment company, and it is affirmatively in the
interest of the Fund to offer its shares for sale continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either
directly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Class A shares of common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and distri-
butor of the Fund to sell Class A shares of common stock in the
Fund (sometimes herein referred to as "Class A shares") to
eligible investors (as defined below) and hereby agrees during
the term of this Agreement to sell Class A shares of the Fund to
the Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as prin-
cipal underwriter and distributor, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and dis-
tributors of Class A shares with respect to areas other than the
United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive right granted to the Distributor to pur-
chase Class A shares from the Fund shall not apply to Class A
shares issued in connection with the merger or consolidation of
any other investment company or personal holding company with the
Fund or the acquisition by purchase or otherwise of all (or sub-
stantially all) the assets or the outstanding Class A shares of
any such company by the Fund.
(c) Such exclusive right also shall not apply to Class A
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive right also shall not apply to Class A
shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or to any
other Class A shares as shall be agreed between the Fund and the
Distributor from time to time.
Section 3. Purchase of Class A shares from the Fund.
(a) The Distributor shall have the right to buy from the
Fund the Class A shares needed, but not more than the Class A
shares needed (except for clerical errors in transmission) to
fill unconditional orders for Class A shares of the Fund placed
with the Distributor by eligible investors or securities dealers.
Investors eligible to purchase Class A shares shall be those
persons so identified in the currently effective prospectus and
statement of additional information of the Fund (the "prospectus"
and "statement of additional information", respectively) under
the Securities Act of 1933, as amended (the "Securities Act"),
relating to such Class A shares ("eligible investors"). The
price which the Distributor shall pay for the Class A shares so
purchased from the Fund shall be the net asset value, determined
as set forth in Section 3(d) hereof, used in determining the
public offering price on which such orders were based.
(b) The Class A shares are to be resold by the Distributor
to eligible investors at the public offering price, as set forth
in Section 3(c) hereof, or to securities dealers having
agreements with the Distributor upon the terms and conditions set
forth in Section 7 hereof.
(c) The public offering price(s) of the Class A shares,
i.e., the price per share at which the Distributor or selected
dealers may sell Class A shares to eligible investors, shall be
the public offering price as set forth in the prospectus and
statement of additional information relating to such Class A
shares, but not to exceed the net asset value at which the
Distributor is to purchase the Class A shares, plus a sales
charge not to exceed 5.25% of the public offering price (5.54% of
the net amount invested), subject to reductions for volume
purchases. Class A shares may be sold to certain Directors,
officers and employees of the Fund, directors and employees of
Merrill Lynch & Co., Inc. and its subsidiaries, and to certain
other persons described in the prospectus and statement of
additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the
prospectus and statement of additional information. If the
public offering price does not equal an even cent, the public
offering price may be adjusted to the nearest cent. All payments
to the Fund hereunder shall be made in the manner set forth in
Section 3(f).
(d) The net asset value of Class A shares shall be deter-
mined by the Fund or any agent of the Fund in accordance with the
method set forth in the prospectus and statement of additional
information of the Fund and guidelines established by the
Directors.
(e) The Fund shall have the right to suspend the sale of
its Class A shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class A
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it
impracticable or inadvisable to sell the Class A shares.
(f) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class A shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class A shares from
eligible investors. The Fund (or its agent) will confirm orders
upon their receipt, will make appropriate book entries and, upon
receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class A shares
pursuant to the instructions of the Distributor. Payment shall
be made to the Fund in New York Clearing House funds. The
Distributor agrees to cause such payment and such instructions to
be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class A shares by
the Fund.
(a) Any of the outstanding Class A shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class A shares so tendered in accordance with its
obligations as set forth in Article VI of its Articles of
Incorporation, as amended from time to time, and in accordance
with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to
redeem or repurchase the Class A shares shall be equal to the net
asset value calculated in accordance with the provisions of
Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in
the prospectus and statement of additional information of the
Fund. All payments by the Fund hereunder shall be made in the
manner set forth below. The redemption or repurchase by the Fund
of any of the Class A shares purchased by or through the Distri-
butor will not affect the sales charge secured by the Distributor
or any selected dealer in the course of the original sale, except
that if any Class A shares are tendered for redemption or repur-
chase within seven business days after the date of the confirma-
tion of the original purchase, the right to the sales charge
shall be forfeited by the Distributor and the selected dealer
which sold such Class A shares.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor in New York Clearing House funds on or before the
seventh business day subsequent to its having received the notice
of redemption in proper form. The proceeds of any redemption of
shares shall be paid by the Fund as follows: (i) any applicable
CDSC shall be paid to the Distributor, and (ii) the balance shall
be paid to or for the account of the shareholder, in each case in
accordance with the applicable provisions of the prospectus and
statement of additional information.
(b) Redemption of Class A shares or payment may be
suspended at times when the New York Stock Exchange is closed,
when trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Dis-
tributor may reasonably request for use in connection with the
distribution of Class A shares of the Fund, and this shall in-
clude, upon request by the Distributor, one certified copy of all
financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of the prospectus and statement of addi-
tional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
any necessary approval of the Class A shareholders, all necessary
action to fix the number of authorized Class A shares and such
steps as may be necessary to register the same under the Securi-
ties Act, to the end that there will be available for sale such
number of Class A shares as the Distributor may reasonably be
expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
A shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class A shares of the Fund but shall not be
obligated to sell any specific number of Class A shares. The
services of the Distributor to the Fund hereunder are not to be
deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other in-
vestment companies so long as the performance of its obligations
hereunder is not impaired thereby.
(b) In selling the Class A shares of the Fund, the Distri-
butor shall use its best efforts in all respects duly to conform
with the requirements of all Federal and state laws relating to
the sale of such securities. Neither the Distributor nor any
selected dealer, as defined in Section 7 hereof, nor any other
person is authorized by the Fund to give any information or to
make any representations, other than those contained in the
registration statement or related prospectus and statement of
additional information and any sales literature specifically
approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to eligible investors and selected dealers, the collection
of amounts payable by eligible investors and selected dealers on
such sales, and the cancellation of unsettled transactions, as
may be necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into
selected dealers agreements with securities dealers of its choice
("selected dealers") for the sale of Class A shares and fix
therein the portion of the sales charge which may be allocated to
the selected dealers; provided that the Fund shall approve the
forms of agreements with dealers and the dealer compensation set
forth therein. Class A shares sold to selected dealers shall be
for resale by such dealers only at the public offering price(s)
set forth in the prospectus and statement of additional
information. The form of agreement with selected dealers to be
used during the continuous offering of the Class A shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class A shares only to such selected dealers as are mem-
bers in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required regis-
tration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to Class A shareholders (including but not limited to
the expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class A
shares to selected dealers or eligible investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class A shares for sale to
eligible investors and any expenses of advertising incurred by
the Distributor in connection with such offering.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class A shares for sale pursuant to this Agreement
and, if necessary or advisable in connection therewith, of quali-
fying the Fund as a broker or dealer in such states of the United
States or other jurisdictions as shall be selected by the Fund
and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by
reason of any person acquiring any Class A shares, which may be
based upon the Securities Act, or on any other statute or at com-
mon law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time
to time amended and supplemented, or an annual or interim report
to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was
made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the
indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or
any such controlling persons thereof against any liability to the
Fund or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the per-
formance of their duties or by reason of the reckless disregard
of their obligations and duties under this Agreement; or (ii) is
the Fund to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be,
shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor
or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which
it may have to the person against whom such action is brought
otherwise than on account of its indemnity agreement contained in
this paragraph. The Fund will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but in case the Fund does
not elect to assume the defense of any such suit, it will reim-
burse the Distributor or such controlling person or persons, de-
fendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or
Directors in connection with the issuance or sale of any of the
Class A shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense described in the foregoing indemnity contained
in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim reports to Class A shareholders. In case any
action shall be brought against the Fund or any person so
indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties
given to the Fund, and the Fund and each person so indemnified
shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program.
In connection with the Merrill Lynch Mutual Fund Adviser Program,
the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, are authorized to offer and sell shares of
the Fund, as agent for the Fund, to paraticipants in such
program. The terms of this Agreement shall apply to such sales,
including terms as to the offering price of shares, the proceeds
to be paid to the Fund, the duties of the Distributor, the
payment of expenses and indemnification obligations of the Fund
and the Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until October __, 1995 and
thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose
of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the Dis-
tributor, on sixty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors or by the vote of a majority
of outstanding voting securities of the Fund and (ii) by the vote
of a majority of those Directors of the Fund who are not parties
to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such
approval.
Section 13. Governing Law. The provisions of this
Agreement shall be construed and interpreted in accordance with
the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
Section 14. This Agreement supersedes the prior
Distribution Agreement entered into by the parties hereto with
respect to the Class A shares of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
By
-----------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-----------------------------------------
Title:
EXHIBIT A
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch Fundamental Growth Fund,
Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the distributor for the sale of Class A shares of common
stock, par value $0.10 per share (herein referred to as "Class A
shares"), of the Fund and as such has the right to distribute
Class A shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of
1940, as amended, and its Class A shares are registered under the
Securities Act of 1933, as amended. You have received a copy of
the Class A shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made
herein to certain provisions of such Distribution Agreement. The
terms "Prospectus" and "Statement of Additional Information" used
herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and
Exchange Commission which is part of the most recent effective
registration statement pursuant to the Securities Act of 1933, as
amended. We offer to sell to you, as a member of the Selected
Dealers Group, Class A shares of the Fund for resale to investors
identified in the Prospectus and Statement of Additional
Information as eligible to purchase Class A shares ("eligible
investors") upon the following terms and conditions:
1. In all sales of these Class A shares to eligible
investors, you shall act as dealer for your own account and in no
transaction shall you have any authority to act as agent for the
Fund, for us or for any other member of the Selected Dealers
Group, except in connection with the Merrill Lynch Mutual Fund
Adviser program and such other special programs as we from time
to time agree, in which case you shall have authority to offer
and sell shares, as agent for the Fund, to participants in such
program.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 5 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in
the current Prospectus and Statement of Additional Information of
the Fund.
3. The sales charges for sales to eligible investors,
computed as percentages of the public offering price and the
amount invested, and the related discount to Selected Dealers are
as follows:
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ ------------------ -------------- --------------
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% 4.19% 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%
___________________
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees
as set forth in the current Prospectus and Statement of Additional
Information of the Fund. Such purchases may be subject to a contingent
deferred sales charge as set forth in the current Prospectus and
Statement of Additional Information.
The term "purchase" refers to a single purchase by an individual, or
to concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under
the age of 21 years purchasing Class A shares for his or their own
account and to single purchases by a trustee or other fiduciary
purchasing Class A shares for a single trust estate or single fiduciary
account although more than one beneficiary is involved. The term
"purchase" also includes purchases by any "company" as that term is
defined in the Investment Company Act of 1940, as amended, but does not
include purchases by any such company which has not been in existence for
at least six months or which has no purpose other than the purchase of
Class A shares of the Fund or Class A shares of other registered
investment companies at a discount; provided, however, that it shall not
include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a
company, policyholders of an insurance company, customers of either a
bank or broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to pur-
chase Class A shares of the Fund at the offering price applicable to the
total of (a) the public offering price of the shares then being purchased
plus (b) an amount equal to the then current net asset value or cost,
whichever is higher, of the purchaser's combined holdings of Class A,
Class B, Class C and Class D shares of the Fund and of any other
investment company with an initial sales charge for which the Distributor
acts as the distributor. For any such right of accumulation to be made
available, the Distributor must be provided at the time of purchase, by
the purchaser or you, with sufficient information to permit confirmation
of qualification, and acceptance of the purchase order is subject to such
confirmation.
The reduced sales charges are applicable to purchases aggregating
$10,000 or more of Class A shares or of Class D shares of any other
investment company with an initial sales charge for which the Distributor
acts as the distributor made through you within a thirteen-month period
starting with the first purchase pursuant to a Letter of Intention in the
form provided in the Prospectus. A purchase not originally made pursuant
to a Letter of Intention may be included under a subsequent letter
executed within 90 days of such purchase if the Distributor is informed
in writing of this intent within such 90-day period. If the intended
amount of shares is not purchased within the thirteen-month period, an
appropriate price adjustment will be made pursuant to the terms of the
Letter of Intention.
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales
charges. Further information as to the reduced sales charges pursuant to
the right of accumulation or a Letter of Intention is set forth in the
Prospectus and Statement of Additional Information.
4. You shall not place orders for any of the Class A shares unless
you have already received purchase orders for such Class A shares at the
applicable public offering prices and subject to the terms hereof and of
the Distribution Agreement. You agree that you will not offer or sell
any of the Class A shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws and that
in connection with sales and offers to sell Class A shares you will
furnish to each person to whom any such sale or offer is made a copy of
the Prospectus and, if requested, the Statement of Additional Information
(as then amended or supplemented) and will not furnish to any person any
information relating to the Class A shares of the Fund which is
inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper
or posted in any public place without our consent and the consent of the
Fund.
5. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class A shares of the Fund to be resold
by us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution
Agreement and subject to the compensation provisions of Section 3 hereof
and (ii) to tender Class A shares directly to the Fund or its agent for
redemption subject to the applicable terms and conditions set forth in
Section 4 of the Distribution Agreement.
6. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding:
e.g., by a change in the "net asset value" from that used in determining
the offering price to your customers.
7. If any Class A shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the
Fund or are tendered for redemption within seven business days after the
date of the confirmation of the original purchase by you, it is agreed
that you shall forfeit your right to, and refund to us, any discount
received by you on such Class A shares.
8. No person is authorized to make any representations concerning
Class A shares of the Fund except those contained in the current
Prospectus and Statement of Additional Information of the Fund and in
such printed information subsequently issued by us or the Fund as
information supplemental to such Prospectus and Statement of Additional
Information. In purchasing Class A shares through us you shall rely
solely on the representations contained in the Prospectus and Statement
of Additional Information and supplemental information above mentioned.
Any printed information which we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no
liability or responsibility to you in these respects unless expressly
assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the
Statement of Additional Information at or prior to the time of offering
or sale and you agree thereafter to deliver to such purchasers copies of
the annual and interim reports and proxy solicitation materials of the
Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of
Additional Information, annual or interim reports and proxy solicitation
materials of the Fund will be supplied to you in reasonable quantities
upon request.
10. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class A shares entirely or to
certain persons or entities in a class or classes specified by us. Each
party hereto has the right to cancel this agreement upon notice to the
other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good
faith and for obligations expressly assumed by us herein. Nothing
contained in this paragraph is intended to operate as, and the provisions
of this paragraph shall not in any way whatsoever constitute, a waiver by
you of compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and Exchange
Commission issued thereunder.
12. You represent that you are a member of the National Association
of Securities Dealers, Inc. and, with respect to any sales in the United
States, we both hereby agree to abide by the Rules of Fair Practice of
such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class A shares have been qualified for sale under,
or are exempt from the requirements of, the respective securities laws of
such states, but we assume no responsibility or obligation as to your
right to sell Class A shares in any jurisdiction. We will file with the
Department of State in New York a Further State Notice with respect to
the Class A shares, if necessary.
14. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at
the address specified by you below.
15. Your first order placed pursuant to this Agreement for the
purchase of Class A shares of the Fund will represent your acceptance of
this Agreement.
16. This Agreement supersedes any prior Selected Dealers Agreement
entered into by the parties hereto with respect to the Class A shares of
the Fund.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: ________________________________________
By: _______________________________________________
Address: __________________________________________
Date: _____________________________________________
EXHIBIT 6(B)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ______ day of October 1994, between
Merrill Lynch Fundamental Growth Fund, Inc. a Maryland
corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR,
INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as an
open-end investment company, and it is affirmatively in the in-
terest of the Fund to offer its shares for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either direct-
ly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Fund's Class B shares in order to promote the growth of
the Fund and facilitate the distribution of its Class B shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and
distributor of the Fund to sell Class B shares of common stock in
the Fund (sometimes herein referred to as "Class B shares") to
the public and hereby agrees during the term of this Agreement to
sell shares of the Fund to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as prin-
cipal underwriter and distributor of the Class B shares, except
that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of Class B shares with respect to areas other than
the United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell Class B shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive right granted to the Distributor to
purchase Class B shares from the Fund shall not apply to Class B
shares of the Fund issued in connection with the merger or conso-
lidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding Class
B shares of any such company by the Fund.
(c) Such exclusive right also shall not apply to Class B
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive right also shall not apply to Class B
shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or to any
other Class B shares as shall be agreed between the Fund and the
Distributor from time to time.
Section 3. Purchase of Class B Shares from the Fund.
(a) The Distributor shall have the right to buy from the
Fund the Class B shares needed, but not more than the Class B
shares needed (except for clerical errors in transmission) to
fill unconditional orders for Class B shares of the Fund placed
with the Distributor by eligible investors or securities dealers.
Investors eligible to purchase Class B shares shall be those
persons so identified in the currently effective prospectus and
statement of additional information of the Fund (the "prospectus"
and "statement of additional information", respectively) under
the Securities Act of 1933, as amended (the "Securities Act"),
relating to such Class B shares. The price which the Distributor
shall pay for the Class B shares so purchased from the Fund shall
be the net asset value, determined as set forth in Section 3(c)
hereof.
(b) The Class B shares are to be resold by the Distributor
to investors at net asset value, as set forth in Section 3(c)
hereof, or to securities dealers having agreements with the Dis-
tributor upon the terms and conditions set forth in Section 7
hereof.
(c) The net asset value of Class B shares of the Fund shall
be determined by the Fund or any agent of the Fund in accordance
with the method set forth in the prospectus and statement of
additional information and guidelines established by the Board of
Directors.
(d) The Fund shall have the right to suspend the sale of
its Class B shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class B
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it imprac-
ticable or inadvisable to sell the Class B shares.
(e) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class B shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class B shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or
certificates for such Class B shares pursuant to the instructions
of the Distributor. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption of Class B Shares by
the Fund.
(a) Any of the outstanding Class B shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class B shares so tendered in accordance with its
obligations as set forth in Article VI of its Articles of
Incorporation, as amended from time to time, and in accordance
with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be
paid to redeem or repurchase the Class B shares shall be equal to
the net asset value calculated in accordance with the provisions
of Section 3(c) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in
the prospectus and statement of additional information of the
Fund. All payments by the Fund hereunder shall be made in the
manner set forth below.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor on or before the seventh business day subsequent
to its having received the notice of redemption in proper form.
The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the
account of the shareholder, in each case in accordance with the
applicable provisions of the prospectus and statement of
additional information.
(b) Redemption of Class B shares or payment may be sus-
pended at times when the New York Stock Exchange is closed, when
trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class B shares of the Fund, and this shall in-
clude, upon request by the Distributor, one certified copy of all
financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of its prospectus and statement of addi-
tional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
any necessary approval of the shareholders, all necessary action
to fix the number of authorized shares and such steps as may be
necessary to register the same under the Securities Act to the
end that there will be available for sale such number of Class B
shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
B shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class B shares of the Fund but shall not be
obligated to sell any specific number of shares. The services of
the Distributor to the Fund hereunder are not to be deemed exclu-
sive and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment com-
panies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class B shares of the Fund, the Distri-
butor shall use its best efforts in all respects duly to conform
with the requirements of all Federal and state laws relating to
the sale of such securities. Neither the Distributor nor any se-
lected dealer, as defined in Section 7 hereof, nor any other
person is authorized by the Fund to give any information or to
make any representations, other than those contained in the
registration statement or related prospectus and statement of
additional information and any sales literature specifically
approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be neces-
sary to comply with the requirements of the National Association
of Securities Dealers, Inc. (the "NASD"), as such requirements
may from time to time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of Class B shares; provided,
that the Fund shall approve the forms of agreements with dealers.
Class B shares sold to selected dealers shall be for resale by
such dealers only at net asset value determined as set forth in
Section 3(c) hereof. The form of agreement with selected dealers
to be used during the continuous offering of the shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class B shares only to such selected dealers that are
members in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required
registration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to Class B shareholders (including but not limited to
the expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class B
shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class B shares for sale to
the public and any expenses of advertising incurred by the Dis-
tributor in connection with such offering. It is understood and
agreed that so long as the Fund's Class B Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act
remains in effect, any expenses incurred by the Distributor here-
under may be paid from amounts recovered by it from the Fund
under such Plan.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class B shares for sale pursuant to this Agreement
and, if necessary or advisable in connection therewith, of quali-
fying the Fund as a broker or dealer in such states of the United
States or other jurisdictions as shall be selected by the Fund
and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by
reason of any person acquiring any Class B shares, which may be
based upon the Securities Act, or on any other statute or at
common law, on the ground that the registration statement or
related prospectus and statement of additional information, as
from time to time amended and supplemented, or an annual or
interim report to Class B shareholders of the Fund, includes an
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make
the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, in-
formation furnished to the Fund in connection therewith by or on
behalf of the Distributor; provided, however, that in no case (i)
is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor
or any such controlling persons thereof against any liability to
the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of the reckless
disregard of their obligations and duties under this Agreement;
or (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless
the Distributor or such controlling persons, as the case may be,
shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor
or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which
it may have to the person against whom such action is brought
otherwise than on account of its indemnity agreement contained in
this paragraph. The Fund will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses, as
incurred, of any additional counsel retained by them, but in case
the Fund does not elect to assume the defense of any such suit,
it will reimburse the Distributor or such controlling person or
persons, defendant or defendants in the suit, for the reasonable
fees and expenses, as incurred, of any counsel retained by them.
The Fund shall promptly notify the Distributor of the commence-
ment of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of
any of the Class B shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense, as incurred, described in the foregoing indem-
nity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by
or on behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim reports to shareholders. In case any action
shall be brought against the Fund or any person so indemnified,
in respect of which indemnity may be sought against the Distri-
butor, the Distributor shall have the rights and duties given to
the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions
of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program.
In connection with the Merrill Lynch Mutual Fund Adviser Program,
the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, are authorized to offer and sell shares of
the Fund, as agent for the Fund, to paraticipants in such
program. The terms of this Agreement shall apply to such sales,
including terms as to the offering price of shares, the proceeds
to be paid to the Fund, the duties of the Distributor, the
payment of expenses and indemnification obligations of the Fund
and the Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until October __, 1995 and
thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose
of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the
Distributor, on sixty days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors or by the vote of a majority
of outstanding voting securities of the Fund and (ii) by the vote
of a majority of those Directors of the Fund who are not parties
to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such
approval.
Section 13. Governing Law. The provisions of this Agree-
ment shall be construed and interpreted in accordance with the
laws of the State of New York as at the time in effect and the
applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
Section 14. This Agreement supersedes the prior
Distribution Agreement entered into by the parties hereto with
respect to the Class B shares of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
By
-----------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
Title:
EXHIBIT A
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
Class B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch Fundamental Growth Fund,
Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the distributor for the sale of Class B shares of common
stock, par value $0.10 per share (herein referred to as the
"Class B shares"), of the Fund and as such has the right to
distribute Class B shares of the Fund for resale. The Fund is an
open-end investment company registered under the Investment
Company Act of 1940, as amended, and its Class B shares being
offered to the public are registered under the Securities Act of
1933, as amended. You have received a copy of the Class B Shares
Distribution Agreement (the "Distribution Agreement") between
ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospec-
tus" and "Statement of Additional Information" as used herein
refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement
pursuant to the Securities Act of 1933, as amended. We offer to
sell to you, as a member of the Selected Dealers Group, Class B
shares of the Fund upon the following terms and conditions:
1. In all sales of these Class B shares to the public,
you shall act as dealer for your own account and in no
transaction shall you have any authority to act as agent for
the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch
Mutual Fund Adviser program and such other special programs as
we from time to time agree, in which case you shall have
authority to offer and sell shares, as agent for the Fund, to
participants in such program.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 4 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum ini-
tial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the
Fund.
3. You shall not place orders for any of the Class B shares
unless you have already received purchase orders for such Class B
shares at the applicable public offering prices and subject to
the terms hereof and of the Distribution Agreement. You agree
that you will not offer or sell any of the Class B shares except
under circumstances that will result in compliance with the
applicable Federal and state securities laws and that in
connection with sales and offers to sell Class B shares you will
furnish to each person to whom any such sale or offer is made a
copy of the Prospectus and, if requested, the Statement of Addi-
tional Information (as then amended or supplemented) and will not
furnish to any person any information relating to the Class B
shares of the Fund which is inconsistent in any respect with the
information contained in the Prospectus and Statement of Addi-
tional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for Class B shares of the
Fund to be resold by us to you subject to the applicable terms
and conditions governing the placement of orders by us set forth
in Section 3 of the Distribution Agreement and (ii) to tender
Class B shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Sec-
tion 4 of the Distribution Agreement.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such with-
holding: e.g., by a change in the "net asset value" from that
used in determining the offering price to your customers.
6. No person is authorized to make any representations
concerning Class B shares of the Fund except those contained in
the current Prospectus and Statement of Additional Information of
the Fund and in such printed information subsequently issued by
us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class B
shares through us you shall rely solely on the representations
contained in the Prospectus and Statement of Additional Informa-
tion and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospec-
tus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not
the responsibility of the Fund, and you agree that the Fund shall
have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional Information at or prior to
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional Information,
annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon re-
quest.
8. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of Class B shares
entirely or to certain persons or entities in a class or classes
specified by us. Each party hereto has the right to cancel this
Agreement upon notice to the other party.
9. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering. We shall be under no liability to you
except for lack of good faith and for obligations expressly
assumed by us herein. Nothing contained in this paragraph is
intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any
sales in the United States, we both hereby agree to abide by the
Rules of Fair Practice of such Association.
11. Upon application to us, we will inform you as to the
states in which we believe the Class B shares have been qualified
for sale under, or are exempt from the requirements of, the
respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the
Class B shares, if necessary.
12. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or tele-
graphed to you at the address specified by you below.
13. Your first order placed pursuant to this Agreement for
the purchase of Class B shares of the Fund will represent your
acceptance of this Agreement.
14. This Agreement supersedes any prior Selected Dealers
Agreement entered into by the parties hereto with respect to the
Class B shares of the Fund.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
------------------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
--------------------------------------------
By:
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Address:
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-------------------------------------------------------
Date:
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EXHIBIT 6(C)
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ______ day of October 1994, between
Merrill Lynch Fundamental Growth Fund, Inc., a Maryland
corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR,
INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as an
open-end investment company, and it is affirmatively in the in-
terest of the Fund to offer its shares for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either direct-
ly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Fund's Class C shares in order to promote the growth of
the Fund and facilitate the distribution of its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and
distributor of the Fund to sell Class C shares of common stock in
the Fund (sometimes herein referred to as "Class C shares") to
the public and hereby agrees during the term of this Agreement to
sell shares of the Fund to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as prin-
cipal underwriter and distributor of the Class C shares, except
that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of Class C shares with respect to areas other than
the United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell Class C shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive right granted to the Distributor to
purchase Class C shares from the Fund shall not apply to Class C
shares of the Fund issued in connection with the merger or conso-
lidation of any other investment company or personal holding
company with the Fund or the acquisition by purchase or otherwise
of all (or substantially all) the assets or the outstanding Class
C shares of any such company by the Fund.
(c) Such exclusive right also shall not apply to Class C
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive right also shall not apply to Class C
shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or to any
other Class C shares as shall be agreed between the Fund and the
Distributor from time to time.
Section 3. Purchase of Class C Shares from the Fund.
(a) It is contemplated that the Fund will commence an
offering of its Class C shares, and thereafter the Distributor
shall have the right to buy from the Fund the Class C shares
needed, but not more than the Class C shares needed (except for
clerical errors in transmission) to fill unconditional orders for
Class C shares of the Fund placed with the Distributor by
eligible investors or securities dealers. Investors eligible to
purchase Class C shares shall be those persons so identified in
the currently effective prospectus and statement of additional
information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act
of 1933, as amended (the "Securities Act"), relating to such
Class C shares. The price which the Distributor shall pay for the
Class C shares so purchased from the Fund shall be the net asset
value, determined as set forth in Section 3(c) hereof.
(b) The Class C shares are to be resold by the Distributor
to investors at net asset value, as set forth in Section 3(c)
hereof, or to securities dealers having agreements with the Dis-
tributor upon the terms and conditions set forth in Section 7
hereof.
(c) The net asset value of Class C shares of the Fund shall
be determined by the Fund or any agent of the Fund in accordance
with the method set forth in the prospectus and statement of
additional information and guidelines established by the Board of
Directors.
(d) The Fund shall have the right to suspend the sale of
its Class C shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class C
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it imprac-
ticable or inadvisable to sell the Class C shares.
(e) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class C shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class C shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or
certificates for such Class C shares pursuant to the instructions
of the Distributor. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by
the Fund.
(a) Any of the outstanding Class C shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class C shares so tendered in accordance with its
obligations as set forth in Article VI of its Articles of
Incorporation, as amended from time to time, and in accordance
with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be
paid to redeem or repurchase the Class C shares shall be equal to
the net asset value calculated in accordance with the provisions
of Section 3(c) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in
the prospectus and statement of additional information of the
Fund. All payments by the Fund hereunder shall be made in the
manner set forth below.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor on or before the seventh business day subsequent
to its having received the notice of redemption in proper form.
The proceeds of any redemption of shares shall be paid by the
Fund as follows: (i) any applicable CDSC shall be paid to the
Distributor, and (ii) the balance shall be paid to or for the
account of the shareholder, in each case in accordance with the
applicable provisions of the prospectus and statement of
additional information.
(b) Redemption of Class C shares or payment may be sus-
pended at times when the New York Stock Exchange is closed, when
trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of Class C shares of the Fund, and this shall in-
clude, upon request by the Distributor, one certified copy of all
financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of its prospectus and statement of addi-
tional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
any necessary approval of the shareholders, all necessary action
to fix the number of authorized shares and such steps as may be
necessary to register the same under the Securities Act to the
end that there will be available for sale such number of Class C
shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
C shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class C shares of the Fund but shall not be
obligated to sell any specific number of shares. The services of
the Distributor to the Fund hereunder are not to be deemed exclu-
sive and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment com-
panies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class C shares of the Fund, the Distri-
butor shall use its best efforts in all respects duly to conform
with the requirements of all Federal and state laws relating to
the sale of such securities. Neither the Distributor nor any se-
lected dealer, as defined in Section 7 hereof, nor any other
person is authorized by the Fund to give any information or to
make any representations, other than those contained in the
registration statement or related prospectus and statement of
additional information and any sales literature specifically
approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be neces-
sary to comply with the requirements of the National Association
of Securities Dealers, Inc. (the "NASD"), as such requirements
may from time to time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of Class C shares; provided,
that the Fund shall approve the forms of agreements with dealers.
Class C shares sold to selected dealers shall be for resale by
such dealers only at net asset value determined as set forth in
Section 3(c) hereof. The form of agreement with selected dealers
to be used during the continuous offering of the shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class C shares only to such selected dealers that are
members in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required
registration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to Class C shareholders (including but not limited to
the expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class C
shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class C shares for sale to
the public and any expenses of advertising incurred by the Dis-
tributor in connection with such offering. It is understood and
agreed that so long as the Fund's Class C Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act
remains in effect, any expenses incurred by the Distributor here-
under may be paid from amounts recovered by it from the Fund
under such Plan.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class C shares for sale pursuant to this Agreement
and, if necessary or advisable in connection therewith, of quali-
fying the Fund as a broker or dealer in such states of the United
States or other jurisdictions as shall be selected by the Fund
and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by
reason of any person acquiring any Class C shares, which may be
based upon the Securities Act, or on any other statute or at
common law, on the ground that the registration statement or
related prospectus and statement of additional information, as
from time to time amended and supplemented, or an annual or
interim report to Class C shareholders of the Fund, includes an
untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make
the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, in-
formation furnished to the Fund in connection therewith by or on
behalf of the Distributor; provided, however, that in no case (i)
is the indemnity of the Fund in favor of the Distributor and any
such controlling persons to be deemed to protect such Distributor
or any such controlling persons thereof against any liability to
the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of the reckless
disregard of their obligations and duties under this Agreement;
or (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless
the Distributor or such controlling persons, as the case may be,
shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor
or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which
it may have to the person against whom such action is brought
otherwise than on account of its indemnity agreement contained in
this paragraph. The Fund will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses, as
incurred, of any additional counsel retained by them, but in case
the Fund does not elect to assume the defense of any such suit,
it will reimburse the Distributor or such controlling person or
persons, defendant or defendants in the suit, for the reasonable
fees and expenses, as incurred, of any counsel retained by them.
The Fund shall promptly notify the Distributor of the commence-
ment of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of
any of the Class C shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense, as incurred, described in the foregoing ind-
emnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in
conformity with, information furnished to the Fund in writing by
or on behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim reports to shareholders. In case any action
shall be brought against the Fund or any person so indemnified,
in respect of which indemnity may be sought against the Distri-
butor, the Distributor shall have the rights and duties given to
the Fund, and the Fund and each person so indemnified shall have
the rights and duties given to the Distributor by the provisions
of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program.
In connection with the Merrill Lynch Mutual Fund Adviser Program,
the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, are authorized to offer and sell shares of
the Fund, as agent for the Fund, to paraticipants in such
program. The terms of this Agreement shall apply to such sales,
including terms as to the offering price of shares, the proceeds
to be paid to the Fund, the duties of the Distributor, the
payment of expenses and indemnification obligations of the Fund
and the Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until October __, 1995 and
thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose
of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the
Distributor, on sixty days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors or by the vote of a majority
of outstanding voting securities of the Fund and (ii) by the vote
of a majority of those Directors of the Fund who are not parties
to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such
approval.
Section 13. Governing Law. The provisions of this Agree-
ment shall be construed and interpreted in accordance with the
laws of the State of New York as at the time in effect and the
applicable provisions of the Investment Company Act. To the
extent that the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
By
---------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
---------------------------------
Title:
EXHIBIT A
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch Fundamental Growth Fund,
Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the distributor for the sale of Class C shares of common
stock, par value $0.10 per share (herein referred to as the
"Class C shares"), of the Fund and as such has the right to
distribute Class C shares of the Fund for resale. The Fund is an
open-end investment company registered under the Investment
Company Act of 1940, as amended, and its Class C shares being
offered to the public are registered under the Securities Act of
1933, as amended. You have received a copy of the Class C Shares
Distribution Agreement (the "Distribution Agreement") between
ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospec-
tus" and "Statement of Additional Information" as used herein
refer to the prospectus and statement of additional information,
respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement
pursuant to the Securities Act of 1933, as amended. We offer to
sell to you, as a member of the Selected Dealers Group, Class C
shares of the Fund upon the following terms and conditions:
1. In all sales of these Class C shares to the public, you shall
act as dealer for your own account and in no transaction shall
you have any authority to act as agent for the Fund, for us or
for any other member of the Selected Dealers Group, except in
connection with the Merrill Lynch Mutual Fund Adviser program and
such other special programs as we from time to time agree, in
which case you shall have authority to offer and sell shares, as
agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 4 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum ini-
tial and subsequent purchase requirements are as set forth in the
current Prospectus and Statement of Additional Information of the
Fund.
3. You shall not place orders for any of the Class C shares
unless you have already received purchase orders for such Class C
shares at the applicable public offering prices and subject to
the terms hereof and of the Distribution Agreement. You agree
that you will not offer or sell any of the Class C shares except
under circumstances that will result in compliance with the
applicable Federal and state securities laws and that in
connection with sales and offers to sell Class C shares you will
furnish to each person to whom any such sale or offer is made a
copy of the Prospectus and, if requested, the Statement of Addi-
tional Information (as then amended or supplemented) and will not
furnish to any person any information relating to the Class C
shares of the Fund which is inconsistent in any respect with the
information contained in the Prospectus and Statement of Addi-
tional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any
public place without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to
place orders directly with the Fund for Class C shares of the
Fund to be resold by us to you subject to the applicable terms
and conditions governing the placement of orders by us set forth
in Section 3 of the Distribution Agreement and (ii) to tender
Class C shares directly to the Fund or its agent for redemption
subject to the applicable terms and conditions set forth in Sec-
tion 4 of the Distribution Agreement.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such with-
holding: e.g., by a change in the "net asset value" from that
used in determining the offering price to your customers.
6. No person is authorized to make any representations
concerning Class C shares of the Fund except those contained in
the current Prospectus and Statement of Additional Information of
the Fund and in such printed information subsequently issued by
us or the Fund as information supplemental to such Prospectus and
Statement of Additional Information. In purchasing Class C
shares through us you shall rely solely on the representations
contained in the Prospectus and Statement of Additional Informa-
tion and supplemental information above mentioned. Any printed
information which we furnish you other than the Fund's Prospec-
tus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not
the responsibility of the Fund, and you agree that the Fund shall
have no liability or responsibility to you in these respects
unless expressly assumed in connection therewith.
7. You agree to deliver to each of the purchasers making
purchases from you a copy of the then current Prospectus and, if
requested, the Statement of Additional Information at or prior to
the time of offering or sale and you agree thereafter to deliver
to such purchasers copies of the annual and interim reports and
proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional
copies of the Prospectus and Statement of Additional Information,
annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon re-
quest.
8. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of Class C shares
entirely or to certain persons or entities in a class or classes
specified by us. Each party hereto has the right to cancel this
Agreement upon notice to the other party.
9. We shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the
continuous offering. We shall be under no liability to you
except for lack of good faith and for obligations expressly
assumed by us herein. Nothing contained in this paragraph is
intended to operate as, and the provisions of this paragraph
shall not in any way whatsoever constitute, a waiver by you of
compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
10. You represent that you are a member of the National
Association of Securities Dealers, Inc. and, with respect to any
sales in the United States, we both hereby agree to abide by the
Rules of Fair Practice of such Association.
11. Upon application to us, we will inform you as to the
states in which we believe the Class C shares have been qualified
for sale under, or are exempt from the requirements of, the
respective securities laws of such states, but we assume no
responsibility or obligation as to your right to sell Class C
shares in any jurisdiction. We will file with the Department of
State in New York a Further State Notice with respect to the
Class C shares, if necessary.
12. All communications to us should be sent to the address
below. Any notice to you shall be duly given if mailed or tele-
graphed to you at the address specified by you below.
13. Your first order placed pursuant to this Agreement for
the purchase of Class C shares of the Fund will represent your
acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
--------------------------------------
(Authorized Signature)
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: ________________________________________
By: _______________________________________________
Address: __________________________________________
Date: _____________________________________________
EXHIBIT 6(D)
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of October 1994 between
Merrill Lynch Fundamental Growth Fund, Inc., a Maryland
corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR,
INC., a Delaware corporation (the "Distributor").
W I T N E S S E T H :
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as an
open-end investment company, and it is affirmatively in the
interest of the Fund to offer its shares for sale continuously;
and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either
directly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Class D shares of common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby
appoints the Distributor as the principal underwriter and distri-
butor of the Fund to sell Class D shares of common stock in the
Fund (sometimes herein referred to as "Class D shares") to the
public and hereby agrees during the term of this Agreement to
sell Class D shares of the Fund to the Distributor upon the terms
and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as prin-
cipal underwriter and distributor, except that:
(a) The Fund may, upon written notice to the Distributor,
from time to time designate other principal underwriters and dis-
tributors of Class D shares with respect to areas other than the
United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell Class D shares in the areas so designated shall
terminate, but this Agreement shall remain otherwise in full
effect until terminated in accordance with the other provisions
hereof.
(b) The exclusive right granted to the Distributor to pur-
chase Class D shares from the Fund shall not apply to Class D
shares issued in connection with the merger or consolidation of
any other investment company or personal holding company with the
Fund or the acquisition by purchase or otherwise of all (or sub-
stantially all) the assets or the outstanding Class D shares of
any such company by the Fund.
(c) Such exclusive right also shall not apply to Class D
shares issued by the Fund pursuant to reinvestment of dividends
or capital gains distributions.
(d) Such exclusive right also shall not apply to Class D
shares issued by the Fund pursuant to any conversion, exchange or
reinstatement privilege afforded redeeming shareholders or to any
other Class D shares as shall be agreed between the Fund and the
Distributor from time to time.
Section 3. Purchase of Class D Shares from the Fund.
(a) It is contemplated that the Fund will commence an
offering of its Class D shares, and thereafter the Distributor
shall have the right to buy from the Fund the Class D shares
needed, but not more than the Class D shares needed (except for
clerical errors in transmission) to fill unconditional orders for
Class D shares of the Fund placed with the Distributor by
eligible investors or securities dealers. Investors eligible to
purchase Class D shares shall be those persons so identified in
the currently effective prospectus and statement of additional
information of the Fund (the "prospectus" and "statement of
additional information", respectively) under the Securities Act
of 1933, as amended (the "Securities Act"), relating to such
Class D shares. The price which the Distributor shall pay for the
Class D shares so purchased from the Fund shall be the net asset
value, determined as set forth in Section 3(d) hereof, used in
determining the public offering price on which such orders were
based.
(b) The Class D shares are to be resold by the Distributor
to investors at the public offering price, as set forth in Sec-
tion 3(c) hereof, or to securities dealers having agreements
with the Distributor upon the terms and conditions set forth in
Section 7 hereof.
(c) The public offering price(s) of the Class D shares,
i.e., the price per share at which the Distributor or selected
dealers may sell Class D shares to the public, shall be the
public offering price as set forth in the prospectus and
statement of additional information relating to such Class D
shares, but not to exceed the net asset value at which the
Distributor is to purchase the Class D shares, plus a sales
charge not to exceed 5.25% of the public offering price (5.54% of
the net amount invested), subject to reductions for volume
purchases. Class D shares may be sold to certain Directors,
officers and employees of the Fund, directors and employees of
Merrill Lynch & Co., Inc. and its subsidiaries, and to certain
other persons described in the prospectus and statement of
additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the
prospectus and statement of additional information. If the
public offering price does not equal an even cent, the public
offering price may be adjusted to the nearest cent. All payments
to the Fund hereunder shall be made in the manner set forth in
Section 3(f).
(d) The net asset value of Class D shares shall be deter-
mined by the Fund or any agent of the Fund in accordance with the
method set forth in the prospectus and statement of additional
information of the Fund and guidelines established by the Directors.
(e) The Fund shall have the right to suspend the sale of
its Class D shares at times when redemption is suspended pursuant
to the conditions set forth in Section 4(b) hereof. The Fund
shall also have the right to suspend the sale of its Class D
shares if trading on the New York Stock Exchange shall have been
suspended, if a banking moratorium shall have been declared by
Federal or New York authorities, or if there shall have been some
other event, which, in the judgment of the Fund, makes it
impracticable or inadvisable to sell the Class D shares.
(f) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for Class D shares received by the Distributor. Any order
may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept
or confirm orders for the purchase of Class D shares. The Fund
(or its agent) will confirm orders upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its
agent) of payment therefor, will deliver deposit receipts or
certificates for such Class D shares pursuant to the instructions
of the Distributor. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the
Fund (or its agent).
Section 4. Repurchase or Redemption of Class D Shares by
the Fund.
(a) Any of the outstanding Class D shares may be tendered
for redemption at any time, and the Fund agrees to repurchase or
redeem the Class D shares so tendered in accordance with its
obligations as set forth in Article VI of its Articles of
Incorporation, as amended from time to time, and in accordance
with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to
redeem or repurchase the Class D shares shall be equal to the net
asset value calculated in accordance with the provisions of
Section 3(d) hereof, less any contingent deferred sales charge
("CDSC"), redemption fee or other charge(s), if any, set forth in
the prospectus and statement of additional information of the
Fund. All payments by the Fund hereunder shall be made in the
manner set forth below. The redemption or repurchase by the Fund
of any of the Class D shares purchased by or through the Distri-
butor will not affect the sales charge secured by the Distributor
or any selected dealer in the course of the original sale, except
that if any Class D shares are tendered for redemption or repur-
chase within seven business days after the date of the confirma-
tion of the original purchase, the right to the sales charge
shall be forfeited by the Distributor and the selected dealer
which sold such Class D shares.
The Fund shall pay the total amount of the redemption price
as defined in the above paragraph pursuant to the instructions of
the Distributor in New York Clearing House funds on or before the
seventh business day subsequent to its having received the notice
of redemption in proper form. The proceeds of any redemption of
shares shall be paid by the Fund as follows: (i) any applicable
CDSC shall be paid to the Distributor, and (ii) the balance shall
be paid to or for the account of the shareholder, in each case in
accordance with the applicable provisions of the prospectus and
statement of additional information.
(b) Redemption of Class D shares or payment may be
suspended at times when the New York Stock Exchange is closed,
when trading on said Exchange is suspended, when trading on said
Exchange is restricted, when an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for
the Fund fairly to determine the value of its net assets, or
during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Dis-
tributor may reasonably request for use in connection with the
distribution of Class D shares of the Fund, and this shall in-
clude, upon request by the Distributor, one certified copy of all
financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor
such number of copies of the prospectus and statement of addi-
tional information as the Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to
any necessary approval of the Class D shareholders, all necessary
action to fix the number of authorized Class D shares and such
steps as may be necessary to register the same under the Securi-
ties Act, to the end that there will be available for sale such
number of Class D shares as the Distributor may reasonably be
expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its Class
D shares for sale under the securities laws of such states as the
Distributor and the Fund may approve. Any such qualification may
be withheld, terminated or withdrawn by the Fund at any time in
its discretion. As provided in Section 8(c) hereof, the expense
of qualification and maintenance of qualification shall be borne
by the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort
to effect sales of Class D shares of the Fund but shall not be
obligated to sell any specific number of Class D shares. The
services of the Distributor to the Fund hereunder are not to be
deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other in-
vestment companies so long as the performance of its obligations
hereunder is not impaired thereby.
(b) In selling the Class D shares of the Fund, the Distri-
butor shall use its best efforts in all respects duly to conform
with the requirements of all Federal and state laws relating to
the sale of such securities. Neither the Distributor nor any
selected dealer, as defined in Section 7 hereof, nor any other
person is authorized by the Fund to give any information or to
make any representations, other than those contained in the
registration statement or related prospectus and statement of
additional information and any sales literature specifically
approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National
Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
(a) The Distributor shall have the right to enter into
selected dealers agreements with securities dealers of its choice
("selected dealers") for the sale of Class D shares and fix
therein the portion of the sales charge which may be allocated to
the selected dealers; provided that the Fund shall approve the
forms of agreements with dealers and the dealer compensation set
forth therein. Class D shares sold to selected dealers shall be
for resale by such dealers only at the public offering price(s)
set forth in the prospectus and statement of additional
information. The form of agreement with selected dealers to be
used during the continuous offering of the Class D shares is
attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer
and sell Class D shares only to such selected dealers as are mem-
bers in good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in
connection with the preparation and filing of any required regis-
tration statements and/or prospectuses and statements of
additional information under the Investment Company Act, the
Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy
materials to Class D shareholders (including but not limited to
the expense of setting in type any such registration statements,
prospectuses, statements of additional information, annual or
interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses, statements of
additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof
which are to be used in connection with the offering of Class D
shares to selected dealers or investors pursuant to this
Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in
connection with the offering of the Class D shares for sale to
the public and any expenses of advertising incurred by the
Distributor in connection with such offering. It is understood
and agreed that so long as the Fund's Class D Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act
remains in effect, any expenses incurred by the Distributor
hereunder in connection with account maintenance activities may
be paid from amounts recovered by it from the Fund under such
plan.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the Class D shares for sale pursuant to this Agreement
and, if necessary or advisable in connection therewith, of quali-
fying the Fund as a broker or dealer in such states of the United
States or other jurisdictions as shall be selected by the Fund
and the Distributor pursuant to Section 5(c) hereof and the cost
and expenses payable to each such state for continuing
qualification therein until the Fund decides to discontinue such
qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by
reason of any person acquiring any Class D shares, which may be
based upon the Securities Act, or on any other statute or at com-
mon law, on the ground that the registration statement or related
prospectus and statement of additional information, as from time
to time amended and supplemented, or an annual or interim report
to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was
made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of
the Distributor; provided, however, that in no case (i) is the
indemnity of the Fund in favor of the Distributor and any such
controlling persons to be deemed to protect such Distributor or
any such controlling persons thereof against any liability to the
Fund or its security holders to which the Distributor or any such
controlling persons would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the per-
formance of their duties or by reason of the reckless disregard
of their obligations and duties under this Agreement; or (ii) is
the Fund to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be,
shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information
of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor
or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund
of any such claim shall not relieve it from any liability which
it may have to the person against whom such action is brought
otherwise than on account of its indemnity agreement contained in
this paragraph. The Fund will be entitled to participate at its
own expense in the defense or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or
defendants in the suit. In the event the Fund elects to assume
the defense of any such suit and retain such counsel, the
Distributor or such controlling person or persons, defendant or
defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but in case the Fund does
not elect to assume the defense of any such suit, it will reim-
burse the Distributor or such controlling person or persons, de-
fendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or
Directors in connection with the issuance or sale of any of the
Class D shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense described in the foregoing indemnity contained
in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the
registration statement or related prospectus and statement of
additional information, as from time to time amended, or the
annual or interim reports to Class D shareholders. In case any
action shall be brought against the Fund or any person so
indemnified, in respect of which indemnity may be sought against
the Distributor, the Distributor shall have the rights and duties
given to the Fund, and the Fund and each person so indemnified
shall have the rights and duties given to the Distributor by the
provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Adviser Program.
In connection with the Merrill Lynch Mutual Fund Adviser Program,
the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner
& Smith Incorporated, are authorized to offer and sell shares of
the Fund, as agent for the Fund, to paraticipants in such
program. The terms of this Agreement shall apply to such sales,
including terms as to the offering price of shares, the proceeds
to be paid to the Fund, the duties of the Distributor, the
payment of expenses and indemnification obligations of the Fund
and the Distributor.
Section 11. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until October __, 1995 and
thereafter, but only for so long as such continuance is
specifically approved at least annually by (i) the Directors or
by the vote of a majority of the outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors
who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose
of voting on such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the Dis-
tributor, on sixty days' written notice to the other party. This
Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities", "assignment", "affiliated person" and "interested
person", when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 12. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors or by the vote of a majority
of outstanding voting securities of the Fund and (ii) by the vote
of a majority of those Directors of the Fund who are not parties
to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such
approval.
Section 13. Governing Law. The provisions of this Agreement
shall be construed and interpreted in accordance with the laws of the
State of New York as at the time in effect and the applicable
provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions
herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
By
-----------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-----------------------------------
Title:
EXHIBIT A
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor")
has an agreement with Merrill Lynch Fundamental Growth Fund,
Inc., a Maryland corporation (the "Fund"), pursuant to which it
acts as the distributor for the sale of Class D shares of common
stock, par value $0.10 per share (herein referred to as "Class D
shares"), of the Fund and as such has the right to distribute
Class D shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of
1940, as amended, and its Class D shares being offered to the
public are registered under the Securities Act of 1933, as
amended. You have received a copy of the Class D Shares
Distribution Agreement (the "Distribution Agreement") between
ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms
"Prospectus" and "Statement of Additional Information" used
herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and
Exchange Commission which is part of the most recent effective
registration statement pursuant to the Securities Act of 1933, as
amended. We offer to sell to you, as a member of the Selected
Dealers Group, Class D shares of the Fund upon the following
terms and conditions:
1. In all sales of these Class D shares to the public, you
shall act as dealer for your own account and in no transaction
shall you have any authority to act as agent for the Fund, for us
or for any other member of the Selected Dealers Group, except in
connection with the Merrill Lynch Mutual Fund Adviser program and
such other special programs as we from time to time agree, in
which case you shall have authority to offer and sell shares, as
agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order, as
set forth in the current Prospectus and Statement of Additional
Information of the Fund. The procedure relating to the handling
of orders shall be subject to Section 5 hereof and instructions
which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor
or the Fund in the sole discretion of either. The minimum
initial and subsequent purchase requirements are as set forth in
the current Prospectus and Statement of Additional Information of
the Fund.
3. The sales charges for sales to the public, computed as
percentages of the public offering price and the amount invested,
and the related discount to Selected Dealers are as follows:
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
- ------------------ ------------------ -------------- --------------
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%
___________________
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees
as set forth in the current Prospectus and Statement of Additional
Information of the Fund. Such purchases may be subject to a contingent
deferred sales charge as set forth in the current Prospectus and
Statement of Additional Information.
The term "purchase" refers to a single purchase by an individual, or
to concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under
the age of 21 years purchasing Class D shares for his or their own
account and to single purchases by a trustee or other fiduciary
purchasing Class D shares for a single trust estate or single fiduciary
account although more than one beneficiary is involved. The term
"purchase" also includes purchases by any "company" as that term is
defined in the Investment Company Act of 1940, as amended, but does not
include purchases by any such company which has not been in existence for
at least six months or which has no purpose other than the purchase of
Class D shares of the Fund or Class D shares of other registered
investment companies at a discount; provided, however, that it shall not
include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a
company, policyholders of an insurance company, customers of either a
bank or broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which eligible investors are permitted to purchase
Class D shares of the Fund at the offering price applicable to the total
of (a) the public offering price of the shares then being purchased plus
(b) an amount equal to the then current net asset value or cost,
whichever is higher, of the purchaser's combined holdings of Class A,
Class B, Class C and Class D shares of the Fund and of any other
investment company with an initial sales charge for which the Distributor
acts as the distributor. For any such right of accumulation to be made
available, the Distributor must be provided at the time of purchase, by
the purchaser or you, with sufficient information to permit confirmation
of qualification, and acceptance of the purchase order is subject to such
confirmation.
The reduced sales charges are applicable to purchases aggregating
$10,000 or more of Class A shares or of Class D shares of any other
investment company with an initial sales charge for which the Distributor
acts as the distributor made through you within a thirteen-month period
starting with the first purchase pursuant to a Letter of Intention in the
form provided in the Prospectus. A purchase not originally made pursuant
to a Letter of Intention may be included under a subsequent letter
executed within 90 days of such purchase if the Distributor is informed
in writing of this intent within such 90-day period. If the intended
amount of shares is not purchased within the thirteen-month period, an
appropriate price adjustment will be made pursuant to the terms of the
Letter of Intention.
You agree to advise us promptly at our request as to amounts of any
sales made by you to the public qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right
of accumulation or a Letter of Intention is set forth in the Prospectus
and Statement of Additional Information.
4. You shall not place orders for any of the Class D shares unless
you have already received purchase orders for such Class D shares at the
applicable public offering prices and subject to the terms hereof and of
the Distribution Agreement. You agree that you will not offer or sell
any of the Class D shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws and that
in connection with sales and offers to sell Class D shares you will
furnish to each person to whom any such sale or offer is made a copy of
the Prospectus and, if requested, the Statement of Additional Information
(as then amended or supplemented) and will not furnish to any person any
information relating to the Class D shares of the Fund which is
inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper
or posted in any public place without our consent and the consent of the
Fund.
5. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class D shares of the Fund to be resold
by us to you subject to the applicable terms and conditions governing the
placement of orders by us set forth in Section 3 of the Distribution
Agreement and subject to the compensation provisions of Section 3 hereof
and (ii) to tender Class D shares directly to the Fund or its agent for
redemption subject to the applicable terms and conditions set forth in
Section 4 of the Distribution Agreement.
6. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding:
e.g., by a change in the "net asset value" from that used in determining
the offering price to your customers.
7. If any Class D shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the
Fund or are tendered for redemption within seven business days after the
date of the confirmation of the original purchase by you, it is agreed
that you shall forfeit your right to, and refund to us, any discount
received by you on such Class D shares.
8. No person is authorized to make any representations concerning
Class D shares of the Fund except those contained in the current
Prospectus and Statement of Additional Information of the Fund and in
such printed information subsequently issued by us or the Fund as
information supplemental to such Prospectus and Statement of Additional
Information. In purchasing Class D shares through us you shall rely
solely on the representations contained in the Prospectus and Statement
of Additional Information and supplemental information above mentioned.
Any printed information which we furnish you other than the Fund's
Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no
liability or responsibility to you in these respects unless expressly
assumed in connection therewith.
9. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the
Statement of Additional Information at or prior to the time of offering
or sale and you agree thereafter to deliver to such purchasers copies of
the annual and interim reports and proxy solicitation materials of the
Fund. You further agree to endeavor to obtain proxies from such
purchasers. Additional copies of the Prospectus and Statement of
Additional Information, annual or interim reports and proxy solicitation
materials of the Fund will be supplied to you in reasonable quantities
upon request.
10. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class D shares entirely or to
certain persons or entities in a class or classes specified by us. Each
party hereto has the right to cancel this agreement upon notice to the
other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous
offering. We shall be under no liability to you except for lack of good
faith and for obligations expressly assumed by us herein. Nothing
contained in this paragraph is intended to operate as, and the provisions
of this paragraph shall not in any way whatsoever constitute, a waiver by
you of compliance with any provision of the Securities Act of 1933, as
amended, or of the rules and regulations of the Securities and Exchange
Commission issued thereunder.
12. You represent that you are a member of the National Association
of Securities Dealers, Inc. and, with respect to any sales in the United
States, we both hereby agree to abide by the Rules of Fair Practice of
such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class D shares have been qualified for sale under,
or are exempt from the requirements of, the respective securities laws of
such states, but we assume no responsibility or obligation as to your
right to sell Class D shares in any jurisdiction. We will file with the
Department of State in New York a Further State Notice with respect to
the Class D shares, if necessary.
14. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at
the address specified by you below.
15. Your first order placed pursuant to this Agreement for the
purchase of Class D shares of the Fund will represent your acceptance of
this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-------------------------------------
(Authorized Signature)
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
--------------------------------------------
By:
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Address:
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Date:
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EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"General Information -- Independent Auditors" and to the use of
our report dated September 23, 1994, in this Registration
Statement on Form N-1A under the Securities Act of 1933 (File No.
33-47875) and under the Investment Company Act of 1940 (File No.
811-6669) of Merrill Lynch Fundamental Growth Fund, Inc.
ERNST & YOUNG LLP
New York, New York
October 7, 1994
EXHIBIT 15(A)
Merrill Lynch Fundamental Growth Fund, Inc.
CLASS B SHARES
DISTRIBUTION PLAN
OF
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the __rd day of October, 1994,
by and between Merrill Lynch Fundamental Growth Fund, Inc., a
Maryland corporation (the "Fund"), and Merrill Lynch Funds
Distributor, Inc., a Delaware corporation ("MLFD").
W I T E S S E T H:
WHEREAS, the Fund intends to engage in business as an
open-end investment company registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act");
and
WHEREAS, MLFD is a securities firm engaged in the business
of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund has entered into a Distribution Agreement
with MLFD, pursuant to which MLFD acts as the exclusive
distributor and representative of the Fund in the offer and sale
of Class B shares of common stock (the "Class B shares"), of the
Fund to the public; and
WHEREAS, the Fund desires to adopt this Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act, pursuant
to which the Fund will pay a distribution fee to MLFD in
connection with the distribution of Class B shares; and
WHEREAS, the Directors of the Fund have determined that
there is a reasonable likelihood that adoption of this
Distribution Plan will benefit the Fund and its Class B
shareholders;
NOW, THEREFORE, the Fund hereby adopts, and the Distributor
hereby agrees to the terms of, this Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Investment
Company Act on the following terms and conditions:
1. The Fund shall pay MLFD a distribution fee under the
Plan at the end of each month at the annual rate of 1.0% of
average daily net asset value of the Class B shares of the Fund
to compensate MLFD and securities firms with which MLFD enters
into related agreements ("Sub-Agreements") pursuant to Paragraph
2 hereof for providing sales and promotional activities and
services. Such activities and services will relate to the sale,
promotion and marketing of the Class B shares of the Fund and
payments related to the furnishing of services to Class B
shareholders by sales and marketing personnel. Such expenditures
may consist of sales commissions to financial consultants for
selling Class B shares of the Fund, compensation, sales
incentives and payments to sales and marketing personnel, and the
payment of expenses incurred in its sales and promotional
activities including advertising expenditures related to the
Class B shares of the Fund, the costs of preparing and
distributing promotional materials and the costs of providing
services to Class B shareholders including assistance in
connection with inquiries related to Class B shareholder
accounts. Only distribution expenditures properly attributable
to the sale of Class B shares will be used to justify any fee
paid pursuant to this Plan.
2. The Fund hereby authorizes MLFD to enter into Sub-
Agreements with certain securities firms ("Securities Firms"),
including Merrill Lynch, Pierce, Fenner & Smith Incorporated, to
provide compensation to such Securities Firms for activities and
services of the type referred to in Paragraph 1. MLFD may
reallocate all or a portion of its distribution fee to such
Securities Firms as compensation for the above-mentioned
activities and services. Such Sub-Agreement shall provide that
the Securities Firms shall provide MLFD with such information as
is reasonably necessary to permit MLFD to comply with the
reporting requirements set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of
Directors, and the Directors shall review, at least quarterly, a
written report complying with the requirements of Rule 12b-l
regarding the disbursement of the distribution fee during such
period.
4. This Plan shall not take effect until it has been
approved by a vote of at least a majority, as defined in the
Investment Company Act, of the outstanding Class B voting
securities of the Fund.
5. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of a
majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the
Fund, as defined in the Investment Company Act, and have no
direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting or meetings called for
the purpose of voting on this Plan and such related agreements.
6. This Plan shall continue in effect for so long as such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Paragraph 5.
7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding Class B voting securities of the Fund.
8. This Plan may not be amended to increase materially the
rate of distribution payments provided for in Paragraph 1 hereof
unless such amendment is approved in the manner provided for
initial approval in Paragraphs 4 and 5 hereof, and no material
amendment to the Plan shall be made unless approved in the manner
provided for approval and annual renewal of Paragraph 5 hereof.
9. While this Plan is in effect, the selection and
nomination of Directors who are not interested persons, as
defined in the Investment Company Act, of the Fund shall be
committed to the discretion of the Directors who are not
interested persons.
10. The Fund shall preserve copies of this Plan and any
related agreements and all reports made pursuant to Paragraph 3
hereof, for a period of not less than six years from the date of
this Plan, or the agreements or such report, as the case may be,
the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
By____________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By___________________________________
CLASS B SHARES
DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the __ day of October, 1994, by and
between Merrill Lynch Funds Distributor, Inc., a Delaware
corporation (the "Distributor"), and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a Delaware corporation ("Securities
Firm").
W I T N E S S E T H:
WHEREAS, the Distributor has entered into an agreement with
Merrill Lynch Fundamental Growth Fund, Inc., a Maryland
corporation (the "Fund"), pursuant to which it acts as the
exclusive distributor for the sale of Class B shares of common
stock (the "Class B shares") of the Fund; and
WHEREAS, the Distributor and the Fund have entered into a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Act") pursuant to which the
Distributor receives a distribution fee from the Fund at the
annual rate of 1.0% of average daily net asset value of the Class
B shares of the Fund for providing sales and promotional
activities and services related to the distribution of Class B
shares of the Fund; and
WHEREAS, the Distributor desires the Securities Firm to
perform certain sales and promotional activities and services for
the Fund's Class B shareholders, and the Securities Firm is
willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. The Securities Firm shall provide sales and promotional
activities and services with respect to the sale of the Class B
shares of the Fund, and incur distribution expenditures, of the
types referred to in Paragraph 1 of the Plan.
2. As compensation for its services performed under this
Sub-Agreement, the Distributor shall pay the Securities Firm a
fee at the end of each calendar month in an amount agreed upon by
the parties hereto.
3. The Securities Firm shall provide the Distributor, at
least quarterly, such information as reasonably requested by the
Distributor to enable the Distributor to comply with the report-
ing requirements of Rule 12b-1 regarding the disbursement of the
fee during such period referred to in Paragraph 3 of the Plan.
4. This Sub-Agreement shall not take effect until it has
been approved by votes of a majority of both (a) the Directors of
the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund, as defined in the Act, and have
no direct or indirect financial interest in the operation of this
Plan or any agreements related to it, cast in person at a meeting
or meetings called for the purpose of voting on this Agreement.
5. This Sub-Agreement shall continue in effect for as long
as such continuance is specifically approved at least annually in
the manner provided for approval of the Plan in Paragraph 5.
6. This Sub-Agreement shall automatically terminate in the
event of its assignment or in the event of the termination of the
Plan or any amendment to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By____________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By____________________________________
EXHIBIT 15(B)
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of October 1994,
by and between Merrill Lynch Fundamental Growth Fund, Inc., a
Maryland corporation (the "Fund"), and Merrill Lynch Funds
Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end
investment company registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business
of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class C Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act
as the exclusive distributor and representative of the Fund in
the offer and sale of Class C shares of common stock, par value
$0.10 per share (the "Class C shares"), of the Fund to the
public; and
WHEREAS, the Fund desires to adopt this Class C Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to MLFD with respect to
the Fund's Class C shares; and
WHEREAS, the Directors of the Fund have determined that
there is a reasonable likelihood that adoption of the Plan will
benefit the Fund and its shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby
agrees to the terms of, the Plan in accordance with Rule 12b-1
under the Investment Company Act on the following terms and
conditions:
1. The Fund shall pay MLFD an account maintenance fee under
the Plan at the end of each month at the annual rate of 0.25% of
average daily net assets of the Fund relating to Class C shares
to compensate MLFD and securities firms with which MLFD enters
into related agreements pursuant to Paragraph 3 hereof ("Sub-
Agreements") for providing account maintenance activities with
respect to Class C shareholders of the Fund. Expenditures under
the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class C shares of the
Fund and payment of expenses incurred in connection with such
account maintenance activities including the costs of making
services available to shareholders including assistance in
connection with inquiries related to shareholder accounts.
2. The Fund shall pay MLFD a distribution fee under the
Plan at the end of each month at the annual rate of 0.75% of
average daily net assets of the Fund relating to Class C shares
to compensate MLFD and securities firms with which MLFD enters
into related Sub-Agreements for providing sales and promotional
activities and services. Such activities and services will
relate to the sale, promotion and marketing of the Class C shares
of the Fund. Such expenditures may consist of sales commissions
to financial consultants for selling Class C shares of the Fund,
compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Fund and the costs of preparing and
distributing promotional materials. The distribution fee may
also be used to pay the financing costs of carrying the
unreimbursed expenditures described in this Paragraph 2. Payment
of the distribution fee described in this Paragraph 2 shall be
subject to any limitations set forth in any applicable regulation
of the National Association of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into
Sub-Agreements with certain securities firms ("Securities
Firms"), including Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs
1 and 2 hereof. MLFD may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such Sub-Agreement shall provide that the Securities
Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting require-
ments set forth in Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of
Directors, and the Directors shall review, at least quarterly, a
written report complying with the requirements of Rule 12b-1
regarding the disbursement of the account maintenance fee and the
distribution fee during such period.
5. This Plan shall not take effect until it has been
approved by a vote of at least a majority, as defined in the
Investment Company Act, of the outstanding Class C voting securi-
ties of the Fund.
6. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of a
majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the
Fund, as defined in the Investment Company Act, and have no
direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting or meetings called for
the purpose of voting on the Plan and such related agreements.
7. The Plan shall continue in effect for so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in Paragraph 6.
8. The Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding Class C voting securities of the Fund.
9. The Plan may not be amended to increase materially the
rate of payments provided for herein unless such amendment is
approved by at least a majority, as defined in the Investment
Company Act, of the outstanding Class C voting securities of the
Fund, and by the Directors of the Fund in the manner provided for
in Paragraph 6 hereof, and no material amendment to the Plan
shall be made unless approved in the manner provided for approval
and annual renewal in Paragraph 6 hereof.
10. While the Plan is in effect, the selection and nomina-
tion of Directors who are not interested persons, as defined in
the Investment Company Act, of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
11. The Fund shall preserve copies of the Plan and any
related agreements and all reports made pursuant to Paragraph 4
hereof, for a period of not less than six years from the date of
the Plan, or the agreements or such report, as the case may be,
the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of October 1994, by and
between Merrill Lynch Funds Distributor, Inc., a Delaware corpo-
ration ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation ("Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill
Lynch Fundamental Growth Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the exclusive distributor
for the sale of Class C shares of common stock, par value $0.10
per share (the "Class C shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class C
Shares Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Act"),
pursuant to which MLFD receives an account maintenance fee from
the Fund at the annual rate of 0.25% of average daily net assets
of the Fund relating to Class C shares for account maintenance
activities related to Class C shares of the Fund and a
distribution fee from the Fund at the annual rate of 0.75% of
average daily net assets of the Fund relating to Class C shares
for providing sales and promotional activities and services
related to the distribution of Class C shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain
account maintenance activities and sales and promotional
activities and services for the Fund's Class C shareholders and
the Securities Firm is willing to perform such activities and
services;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance
activities and services with respect to the Class C shares of the
Fund and incur expenditures in connection with such activities
and services of the types referred to in Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional
activities and services with respect to the sale of the Class C
shares of the Fund, and incur distribution expenditures, of the
types referred to in Paragraph 2 of the Plan.
3. As compensation for its activities and services
performed under this Agreement, MLFD shall pay the Securities
Firm an account maintenance fee and a distribution fee at the end
of each calendar month in an amount agreed upon by the parties
hereto.
4. The Securities Firm shall provide MLFD, at least
quarterly, such information as reasonably requested by MLFD to
enable MLFD to comply with the reporting requirements of Rule
12b-1 regarding the disbursement of the account maintenance fee
and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been
approved by votes of a majority of both (a) the Directors of the
Fund and (b) those Directors of the Fund who are not "interested
persons" of the Fund, as defined in the Act, and have no direct
or indirect financial interest in the operation of the Plan, this
Agreement or any agreements related to the Plan or this Agreement
(the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Agreement.
6. This Agreement shall continue in effect for as long as
such continuance is specifically approved at least annually in
the manner provided for approval of the Plan in Paragraph 6.
7. This Agreement shall automatically terminate in the
event of its assignment or in the event of the termination of the
Plan or any amendment to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
Title:
EXHIBIT 15(C)
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the day of October 1994,
by and between Merrill Lynch Fundamental Growth Fund, Inc., a
Maryland corporation (the "Fund"), and Merrill Lynch Funds
Distributor, Inc., a Delaware corporation ("MLFD").
W I T N E S S E T H :
WHEREAS, the Fund is engaged in business as an open-end
investment company registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business
of selling shares of investment companies either directly to
purchasers or through other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class D Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act
as the exclusive distributor and representative of the Fund in
the offer and sale of Class D shares of common stock, par value
$0.10 per share (the "Class D shares"), of the Fund to the
public; and
WHEREAS, the Fund desires to adopt this Class D Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account main-
tenance fee to MLFD with respect to the Fund's Class D shares;
and
WHEREAS, the Directors of the Fund have determined that
there is a reasonable likelihood that adoption of the Plan will
benefit the Fund and its shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby
agrees to the terms of, the Plan in accordance with Rule 12b-1
under the Investment Company Act on the following terms and
conditions:
1. The Fund shall pay MLFD an account maintenance fee under
the Plan at the end of each month at the annual rate of 0.25% of
average daily net assets of the Fund relating to Class D shares
to compensate MLFD and securities firms with which MLFD enters
into related agreements ("Sub-Agreements") pursuant to Paragraph
2 hereof for providing account maintenance activities with
respect to Class D shareholders of the Fund. Expenditures under
the Plan may consist of payments to financial consultants for
maintaining accounts in connection with Class D shares of the
Fund and payment of expenses incurred in connection with such
account maintenance activities including the costs of making
services available to shareholders including assistance in
connection with inquiries related to shareholder accounts.
2. The Fund hereby authorizes MLFD to enter into
Sub-Agreements with certain securities firms ("Securities
Firms"), including Merrill Lynch, Pierce, Fenner & Smith
Incorporated, to provide compensation to such Securities Firms
for activities of the type referred to in Paragraph 1. MLFD may
reallocate all or a portion of its account maintenance fee to
such Securities Firms as compensation for the above-mentioned
activities. Such Sub-Agreement shall provide that the Securities
Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting
requirements set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of
Directors, and the Directors shall review, at least quarterly, a
written report complying with the requirements of Rule 12b-1
regarding the disbursement of the account maintenance fee during
such period.
4. This Plan shall not take effect until it has been
approved by a vote of at least a majority, as defined in the
Investment Company Act, of the outstanding Class D voting securi-
ties of the Fund.
5. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of a
majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the
Fund, as defined in the Investment Company Act, and have no
direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1
Directors"), cast in person at a meeting or meetings called for
the purpose of voting on the Plan and such related agreements.
6. The Plan shall continue in effect for so long as such
continuance is specifically approved at least annually in the
manner provided for approval of the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of
the outstanding Class D voting securities of the Fund.
8. The Plan may not be amended to increase materially the
rate of payments provided for in Paragraph 1 hereof unless such
amendment is approved by at least a majority, as defined in the
Investment Company Act, of the outstanding Class D voting
securities of the Fund, and by the Directors of the Fund in the
manner provided for in Paragraph 5 hereof, and no material
amendment to the Plan shall be made unless approved in the
manner provided for approval and annual renewal in Paragraph 5
hereof.
9. While the Plan is in effect, the selection and nomina-
tion of Directors who are not interested persons, as defined in
the Investment Company Act, of the Fund shall be committed to the
discretion of the Directors who are not interested persons.
10. The Fund shall preserve copies of the Plan and any
related agreements and all reports made pursuant to Paragraph 3
hereof, for a period of not less than six years from the date of
the Plan, or the agreements or such report, as the case may be,
the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
By_____________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
Title:
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the day of October 1994, by and
between Merrill Lynch Funds Distributor, Inc. a Delaware corpo-
ration ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, a Delaware corporation ("Securities Firm").
W I T N E S S E T H :
WHEREAS, MLFD has entered into an agreement with Merrill
Lynch Fundamental Growth Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the exclusive distributor
for the sale of Class D shares of common stock, par value $0.10
per share (the "Class D shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class D
Shares Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Act"),
pursuant to which MLFD receives an account maintenance fee from
the Fund at the annual rate of 0.25% of average daily net assets
of the Fund relating to Class D shares for providing account
maintenance activities and services with respect to Class D
shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain
account maintenance activities and services, including assistance
in connection with inquiries related to shareholder accounts, for
the Fund's Class D shareholders and the Securities Firm is
willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance
activities and services with respect to the Class D shares of the
Fund and incur expenditures in connection with such activities
and services, of the types referred to in Paragraph 1 of the
Plan.
2. As compensation for its services performed under this
Agreement, MLFD shall pay the Securities Firm a fee at the end of
each calendar month in an amount agreed upon by the parties
hereto.
3. The Securities Firm shall provide MLFD, at least
quarterly, such information as reasonably requested by MLFD to
enable MLFD to comply with the reporting requirements of Rule
12b-1 regarding the disbursement of the fee during such period
referred to in Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been
approved by votes of a majority of both (a) the Directors of the
Fund and (b) those Directors of the Fund who are not "interested
persons" of the Fund, as defined in the Act, and have no direct
or indirect financial interest in the operation of the Plan, this
Agreement or any agreements related to the Plan or this Agreement
(the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as
such continuance is specifically approved at least annually in
the manner provided for approval of the Plan in Paragraph 5.
6. This Agreement shall automatically terminate in the
event of its assignment or in the event of the termination of the
Plan or any amendment to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By_____________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By_____________________________________
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 6
<NAME> MERRILL LYNCH FUNDAMENTAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-START> SEP-01-1993
<PERIOD-END> AUG-31-1994
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> MERRILL LYNCH FUNDAMENTAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-START> SEP-01-1993
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 61160386
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