<PAGE>
As filed with the Securities and Exchange Commission on May 27, 1994
Securities Act File No. 33--------
Investment Company Act File No. 811--------
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. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. / /
(Check appropriate box or boxes)
-------------------------
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
(Exact name of registrant as specified in charter)
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code (609) 282-2800
Arthur Zeikel
Merrill Lynch Retirement Asset Builder Program, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address: Box 9011, Princeton, New Jersey 08543-9011
(Name and address of agent for service)
-------------------------
Copies to:
Counsel for the Fund: Mark B. Goldfus, Esq.
BROWN & WOOD MERRILL LYNCH ASSET MANAGEMENT, L.P.
One World Trade Center Box 9011
New York, New York 10048 Princeton, New Jersey 08543-9011
Attention: Thomas R. Smith, Jr.
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of
the registration statement.
-------------------------
An indefinite number of shares of Common Stock of the Registrant is
being registered by this Registration Statement pursuant to Rule 24f-2 under
the Investment Company Act of 1940.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER
<PAGE>
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET
N-1A Item No.
Location
PART A
Item 1. Cover Page . . . . . . . . . . Cover Page
Item 2. Synopsis . . . . . . . . . . . Fee Table
Item 3. Condensed Financial Information Not Applicable
. . . . . . . . . . . . . . . .
Item 4. General Description of Investment Objectives
Registrant . . . . . . . . . . and Policies;
Additional
Information
Item 5. Management of the Fund . . . . Fee Table; Management
of the Program;
Portfolio
Transactions and
Brokerage; Inside
Back Cover Page
Item 5A. Management's Discussion of Fund
Performance . . . . . . . . Not Applicable
Item 6. Capital Stock and Other Cover Page;
Securities . . . . . . . . . . Additional
Information
Item 7. Purchase of Securities Being Cover Page; Fee
Offered . . . . . . . . . Table; Purchase of
Shares; Shareholder
Services;
Additional
Information; Inside
Back Cover Page
Item 8. Redemption or Repurchase . . . Fee Table; Purchase
of Shares;
Redemption of
Shares
Item 9. Pending Legal Proceedings . . Not Applicable
PART B
Item 10. Cover Page . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . Back Cover Page
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Investment Objectives
Policies . . . . . . . . . . and Policies
Item 14. Management of the Fund . . . . Management of the
Program
Item 15. Control Persons and Principal
Holders of Securities . . . Management of the
Program
Item 16. Investment Advisory and Other Management of the
Services . . . . . . . . . . Program; Purchase
of Shares; General
Information
Item 17. Brokerage Allocation and Other Portfolio
Practices . . . . . . . Transactions and
Brokerage
Item 18. Capital Stock and Other General Information
Securities . . . . . . . . . .
Item 19. Purchase, Redemption and Purchase of Shares;
Pricing of Securities Being Redemption of
Offered . . . . . . . . . . Shares;
Determination of
Net Asset Value;
Shareholder
Services
Item 20. Tax Status . . . . . . . . . . Dividends,
Distributions and
Taxes
Item 21. Underwriters . . . . . . . . . Purchase of Shares
Item 22. Calculation of Performance Data Performance Data
. . . . . . . . . . . . . . . .
Item 23. Financial Statements . . . . . Statements of Assets
and Liabilities
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PROSPECTUS SUBJECT TO COMPLETION
- ----------
- ----------, 1994 PRELIMINARY PROSPECTUS DATED MAY 27, 1994
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 -- PHONE NO. (609) 282-2800
Merrill Lynch Retirement Asset Builder Program, Inc. (the "Program") is
a professionally managed, open-end investment company. The Program consists
of four separate portfolios: the Fundamental Value Portfolio, the Quality
Bond Portfolio, the U.S. Government Securities Portfolio and the Global
Opportunity Portfolio (each a "Portfolio"). Each Portfolio has its own
separate investment objectives and may employ a variety of instruments and
techniques to enhance income and to hedge against market risk and, in the
case of the Fundamental Value and Global Opportunity Portfolios, currency
risk. Investments on an international basis involve special considerations.
See "Risk Factors and Special Considerations".There can be no assurance that
the investment objectives of any Portfolio will be achieved. Each Portfolio
pursues its investment objectives through the separate investment policies
described below:
Fundamental Value Portfolio is a diversified portfolio seeking capital
appreciation and, secondarily, income by investing in securities, primarily
equities, that the management of the Portfolio believes are undervalued and
therefore represent investment value. The Portfolio seeks special
opportunities in securities that are selling at a discount either from book
value or historical price-earnings ratios, or seem capable of recovering from
temporarily out of favor considerations. Particular emphasis is placed on
securities which provide an above-average dividend return and sell at a
below-average price-earnings ratio. The Portfolio may invest up to 30% of
its total assets in securities of foreign issuers. See "Risk Factors and
Special Considerations".
Quality Bond Portfolio is a diversified portfolio seeking income and,
secondarily, capital appreciation by investing primarily in long-term
corporate bonds that are rated A or better by a nationally recognized rating
agency such as Standard & Poor's Corporation ("S&P"), Moody's Investors
Service, Inc. ("Moody's") or Fitch Investor Services, Inc. ("Fitch"), or that
possess, in the judgment of the Investment Adviser, similar credit
characteristics.
U.S. Government Securities Portfolio is a diversified portfolio seeking
high current return by investing in U.S. Government and Government agency
securities, including Government National Mortgage Association ("GNMA")
mortgage-backed securities and other mortgage-backed government securities.
(Continued on next page)
-------------------------
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 Program
that is relevant to making an investment in the Program. This Prospectus
should be retained for future reference. A statement containing additional
information about the Program, dated ----------, 1994 (the "Statement of
Additional Information"), has been filed with the Securities and Exchange
Commission (the "Commission") and can be obtained, without charge, by calling
or by writing the Program at the above telephone number or address. The
Statement of Additional Information is hereby incorporated by reference into
this Prospectus.
-------------------------
MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
<PAGE>
(Continued from cover page)
Global Opportunity Portfolio is a diversified portfolio seeking high
total investment return through a fully-managed investment policy utilizing
United States and foreign equity, debt and money market securities, the
combination of which will be varied from time to time, both with respect to
types of securities and markets, in response to changing market and economic
trends. Total investment return is the aggregate of capital value changes
and income.
Each Portfolio is a separate series of the Program issuing its own
shares. Shares of each Portfolio are available for purchase solely by
holders of individual retirement plans, individual retirement rollover
accounts and SEP-IRAs (collectively "IRAs") for which Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") acts as custodian.
Merrill Lynch has advised the Program that it will not charge an annual
account fee upon any IRA which participates in the Merrill Lynch Retirement
Asset Builder(Service Mark) Service, receives additional contributions of at
least $250 annually and is invested solely in one or more of the Program's
Portfolios or a money market fund advised by the Investment Adviser or its
affiliates. The minimum initial purchase in any Portfolio 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.
See "Purchase of Shares" and "Redemption of Shares". The holder of each IRA
is responsible for making investment decisions concerning the funds
contributed to his or her IRA.
Each Portfolio offers two classes of shares which may be purchased at a
price equal to the next determined net asset value per share, plus a sales
charge which, at the election of the purchaser, may be imposed (i) at the
time of purchase (the "Class A shares") or (ii) on a deferred basis (the
"Class B shares"). The deferred sales charges to which the Class B shares
are subject shall consist of a contingent deferred sales charge ("CDSC")
which may be imposed on redemptions made within four years of purchase and
ongoing account maintenance and distribution fees. These alternatives permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. Class A shares of each Portfolio
pay an ongoing account maintenance fee at the annual rate of 0.25% of the
Portfolio's average daily net assets attributable to the Class A shares;
Class B shares pay an ongoing account maintenance fee at the annual rate of
0.25% of the Portfolio's average daily net assets attributable to the Class B
shares and an ongoing fee for distribution services at an annual rate of (a)
0.50% of average daily net assets attributable to the Class B shares of the
Quality Bond and U.S. Government Securities Portfolios and (b) 0.75% of
average daily net assets attributable to the Class B shares of the
Fundamental Value and Global Opportunity Portfolios. Investors should
understand that the purpose and function of the CDSC and ongoing distribution
fee with respect to the Class B shares of each Portfolio are the same as
those of the initial sales charge with respect to the Class A shares of that
Portfolio. Investors should also understand that over time the deferred
sales charges and ongoing distribution fee with respect to Class B shares
may exceed the initial sales charge with respect to Class A shares. See
"Alternative Sales Arrangements" on page 6.
Each Class A and Class B share represents an identical interest in the
related Portfolio and has the same rights, except that Class B shares bear
the expenses of the ongoing distribution fee and certain other costs
resulting from the deferred sales charge arrangement, which will cause Class
B shares to have a higher expense ratio and to pay lower dividends than the
Class A shares. Both Class A and Class B shares bear the expense of an
ongoing account maintenance fee at the annual rate of 0.25% of the
Portfolio's average daily net assets attributable to the Class A or Class B
shares, respectively. The two classes also have different exchange
privileges. If pursuant to the exchange privilege shares of any Portfolio
are exchanged for shares of a fund other than a Portfolio of the Program or a
money market fund advised by the Investment Adviser or its affiliates, then
the imposition of the IRA annual account fee may result. For information
about current IRA fees charged by Merrill Lynch, consult the Merrill Lynch
Individual Retirement Account disclosure statement and Merrill Lynch
Individual Retirement Account Custodial Agreement.
To permit the Program to invest the net proceeds from the sale of its
shares in an orderly manner, the Program may, from time to time, suspend the
sale of its shares, except for dividend reinvestments.
2
<PAGE>
<TABLE>
FEE TABLE
<CAPTION>
Fundamental Value
Portfolio
Class A Class B
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchase (as a percentage of
offering price) . . . . . . . . . . . 6.50%(a) None
Sales Charge Imposed on Dividend
Reinvestments . . . . . . . . . . . . None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) . . . . . . . . . (g) Maximum 4.00%(c)
Exchange Fee . . . . . . . . . . . . . None None
ANNUAL PROGRAM OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(d) . . . . . .
12b-1 Fees(e) . . . . . . . . . . . . .
Other Expenses 0.25% 1.00%
Custodial Fees . . . . . . . . . . .
Shareholder Servicing Costs (f) . . .
Other . . . . . . . . . . . . . . . .
Total Other Expenses . . . . . . .
(table continued)
Quality Bond
Portfolio
Class A Class B
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchase (as a percentage of
offering price) . . . . . . . . . . . 4.00%(b) None
Sales Charge Imposed on Dividend
Reinvestments . . . . . . . . . . . . None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) . . . . . . . . . (g) Maximum 4.00%(c)
Exchange Fee . . . . . . . . . . . . . None None
ANNUAL PROGRAM OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(d) . . . . . .
12b-1 Fees(e) . . . . . . . . . . . . .
Other Expenses 0.25% 0.75%
Custodial Fees . . . . . . . . . . .
Shareholder Servicing Costs (f) . . .
Other . . . . . . . . . . . . . . . .
Total Other Expenses . . . . . . .
(table continued)
U.S. Government Securities
Portfolio
Class A Class B
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchase (as a percentage of
offering price) . . . . . . . . . . . 4.00%(b) None
Sales Charge Imposed on Dividend
Reinvestments . . . . . . . . . . . . None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) . . . . . . . . . (g) Maximum 4.00%(c)
Exchange Fee . . . . . . . . . . . . . None None
ANNUAL PROGRAM OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(d) . . . . . .
12b-1 Fees(e) . . . . . . . . . . . . .
Other Expenses 0.25% 0.75%
Custodial Fees . . . . . . . . . . .
Shareholder Servicing Costs (f) . . .
Other . . . . . . . . . . . . . . . .
Total Other Expenses . . . . . . .
(table continued)
Global Opportunity
Portfolio
Class A Class B
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchase (as a percentage of
offering price) . . . . . . . . . . 6.50%(a) None
Sales Charge Imposed on Dividend
Reinvestments . . . . . . . . . . . None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) . . . . . . . . (g) Maximum 4.00%(c)
Exchange Fee . . . . . . . . . . . . None None
ANNUAL PROGRAM OPERATING EXPENSES (AS
A PERCENTAGE OF AVERAGE NET ASSETS):
Investment Advisory Fees(d) . . . . .
12b-1 Fees(e) . . . . . . . . . . . .
Other Expenses 0.25% 1.00%
Custodial Fees . . . . . . . . . .
Shareholder Servicing Costs (f) . .
Other . . . . . . . . . . . . . . .
Total Other Expenses . . . . . .
- -----------------
(a) Reduced for purchases of $10,000 and over, decreasing to 0.75% for
purchases of $1,000,000 or more. See "Purchase of Shares -- Initial Sales
Charge Alternative -- Class A Shares -- page ----.
(b) Reduced for purchases of $25,000 and over, decreasing to 0.50% for
purchases of $1,000,000 or more. See "Purchase of Shares -- Initial Sales
Charge Alternative -- Class A Shares - page ----.
(c) 4.00% during the first year, decreasing 1.00% annually to 0.00% after
the fourth year. See "Purchase of Shares -- Deferred Sales Charge
Alternative -- Class B Shares -- page ---.
(d) See "Management of the Program--Management and Advisory Arrangements"--
page ---.
(e) For Class B shares, 0.25% of the 12b-1 fee consists of an account
maintenance fee. See "Purchase of Shares -- Alternative Sales Arrangements -
- - Distribution Plans" -- page ---.
(f) See "Management of the Program--Transfer Agency Services"--page ---.
(g) Under certain limited conditions, purchases of Class A shares will be
subject to a contingent deferred sales charge, rather than an initial sales
charge, ranging from a high of 1.00% to a low of 0.25% for the Fundamental
Value and Global Opportunity Portfolios and from a high of 0.75% to a
low of 0.20% for the Quality Bond and U.S. Government Securities
Portfolios. See "Purchase of Shares -- Initial Sales Charge
Alternative -- Class A Shares -- Reduced Initial Sales Charges" -- page --.
</TABLE>
EXAMPLE:
<TABLE>
Operating Cumulative
Expense Expenses Paid
Ratio for the Period of:
- --------- ------------------
<S> <C> <C>
1 Year 3 Years
------ -------
</TABLE>
An investor in Class A Shares of each Portfolio would pay the following
expenses on a $1,000 investment assuming
(1) the operating expense ratio indicated, and
(2) a 5% annual return throughout the periods, whether or not shares
are redeemed at the end of the period:
Fundamental Value Portfolio .........................
4
<PAGE>
Quality Bond Portfolio..............................
U.S. Government Securities Portfolio................
Global Opportunity Portfolio........................
An investor in Class B Shares of each Portfolio would pay the following
expenses on a $1,000 investment assuming
(1) the operating expense ratio indicated,
(2) a 5% annual return throughout the periods and
(3) redemption at the end of the period:
Fundamental Value Portfolio.........................
Quality Bond Portfolio..............................
U.S. Government Securities Portfolios...............
Global Opportunity Portfolio........................
An investor in Class B Shares of each Portfolio would pay the following
expenses on the same $1,000 investment assuming no redemption at the
end of the period:
Fundamental Value Portfolio.........................
Quality Bond Portfolio..............................
U.S. Government Securities Portfolio................
Global Opportunity Portfolio........................
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a shareholder of each Portfolio will bear
directly or indirectly. The Example set forth above assumes reinvestment of
all dividends and distributions and utilizes a 5% annual rate of return as
mandated by Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND
ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
ASSUMED FOR PURPOSES OF THE EXAMPLE. Merrill Lynch may charge its customers
a processing fee (presently $4.85) for confirming purchases and redemptions.
See "Purchase of Shares" and "Redemption of Shares".
5
<PAGE>
ALTERNATIVE SALES ARRANGEMENTS
Shares of each Portfolio may be purchased at a price equal to the next
determined net asset value per share, plus a sales charge which, at the
election of the purchaser, may be imposed either (i) at the time of the
purchase (the "initial sales charge alternative"), or (ii) on a deferred
basis (the "deferred sales charge alternative").
Class A Shares. An investor who elects the initial sales charge
alternative acquires Class A shares. Class A shares incur a sales charge
when they are purchased and are subject to an ongoing account maintenance fee
of 0.25% of the Portfolio's average daily net assets attributable to the
Class A shares. Although Class A shares incur a sales charge when they are
purchased, they enjoy the benefit of not being subject to the ongoing
distribution fee to which Class B shares are subject or any sales charge when
they are redeemed. Certain purchases of Class A shares qualify for reduced
initial sales charges. See "Purchase of Shares".
Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B shares. Class B shares do not incur a sales
charge when they are purchased, but they are subject to an ongoing account
maintenance fee of 0.25% of the Portfolio's average daily net assets
attributable to the Class B shares and an ongoing distribution fee of
(a) 0.50% of average daily net assets attributable to the Class B shares
of the Quality Bond and U.S. Government Securities Portfolios or (b) 0.75%
of average daily net assets attributable to the Class B shares of the
Fundamental Value and Global Opportunity Portfolios. Class B shares also are
subject to a contingent deferred sales charge ("CDSC") if they are redeemed
within four years of purchase. Class B shares enjoy the benefit of permitting
all of the investor's dollars to work from the time the investment is made.
The ongoing distribution fee paid by Class B shares will cause such shares
to have a higher expense ratio and to pay lower dividends than the Class A
shares. Payment of the ongoing distribution fee is subject to certain limits
as set forth under "Purchase of Shares -- Deferred Sales Charge Alternative --
Class B Shares".
As an illustration, investors who qualify for significantly reduced
sales charges might elect the initial sales charge alternative because
similar sales charge reductions are not available for purchases under the
deferred sales charge alternative. Shares acquired under the initial sales
charge alternative would not be subject to the ongoing distribution fee or
CDSC to which the Class B shares are subject. However, because initial sales
charges are deducted at the time of purchase, such investors would not have
all their funds invested initially. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for an extended
period of time also might elect the initial sales charge alternative because
over time the accumulated continuing distribution fee on Class B shares may
exceed the initial sales charge on Class A shares. Again, however, such
investors must weigh this consideration against the fact that not all their
funds will be invested initially. Furthermore, the ongoing distribution fee
associated with Class B shares will be offset to the extent any return is
realized on the additional funds initially invested under the deferred
alternative. However, there can be no assurance as to the return, if any,
which will be realized on such additional funds. Certain other investors
might determine it to be more advantageous to have all their funds invested
initially, although remaining subject to ongoing distribution fees and, for
a four-year period of time, a CDSC. Investors should be aware that both
Class A and Class B shares pay an ongoing account maintenance fee at the
annual rate of 0.25% of the Portfolio's average daily net assets attributable
to the Class A or Class B shares, respectively.
The distribution expenses incurred by the Distributor and Merrill Lynch
in connection with the sale of the shares will be paid, in the case of the
Class A shares, from the proceeds of the initial sales charge and, in the
case of the Class B shares, such distribution expenses will be paid from
the proceeds of the ongoing distribution fees and the CDSC incurred upon
redemption within four years of purchase. Sales personnel may receive
different compensation for selling Class A or Class B shares. Investors should
understand that the purpose and function of the CDSC
6
<PAGE>
and ongoing distribution fees with respect to the Class B shares are the
same as those of the initial sales charge with respect to the Class A shares.
Dividends paid by each Portfolio with respect to Class A and Class B
shares, to the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same amount,
except that ongoing distribution fees and any incremental transfer agency
costs relating to Class B shares will be borne exclusively by that class and
the account maintenance fee relating to Class A shares will be borne
exclusively by that class. See "Additional Information -- Determination of
Net Asset Value". Class A and Class B shareholders of each Portfolio each
have an exchange privilege for Class A and Class B shares, respectively, of
certain other mutual funds advised by the Investment Adviser or its
affiliates. See "Shareholder Services -- Exchange Privilege". If pursuant
to the exchange privilege shares of any Portfolio are exchanged for shares
of a fund other than a Portfolio of the Program or a money market fund
advised by the Investment Adviser or its affiliates, then the imposition
of the IRA annual account fee may result. For information about current IRA
fees charged by Merrill Lynch, consult the Merrill Lynch IRA disclosure
statement. Portfolio shares may only be purchased by and held in an IRA for
which Merrill Lynch acts as custodian. The Program's Articles of
Incorporation provide that portfolio shares may not be transferred out of the
IRA either to a Merrill Lynch brokerage account or to an IRA or other
brokerage account maintained at a broker other than Merrill Lynch. Prior to
effecting any such transfer, Portfolio shares would either be redeemed for
cash or exchanged for shares of another mutual fund in accordance with the
exchange privilege.
The alternative sales arrangements permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and
other circumstances. Investors should determine whether under their
particular circumstances it is more advantageous to incur an initial sales
charge, or to have the entire initial purchase price invested in each
Portfolio with the investment thereafter being subject to an ongoing
distribution fee and, for a four-year period of time, a CDSC. To assist
investors in making this determination, the Fee Table on page 4 sets forth
the charges applicable to each class of shares and a discussion of relevant
factors in making such determination is set forth under "Purchase of Shares -
- - Alternative Sales Arrangements" on page 23.
7
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment in Fixed Income Securities. All of the Portfolios are
authorized to invest in fixed income securities. To the extent a portfolio
invests in fixed income securities, the net asset value of its shares will be
affected by changes in the general level of interest rates. Typically, when
interest rates decline, the value of a portfolio of fixed income securities
can be expected to rise. Conversely, when interest rates rise, typically the
value of a portfolio of fixed income securities can be expected to decline.
See "Other Investment Policies and Practices -- Investments in Debt
Securities".
Investments in Foreign Securities. The Fundamental Value Portfolio may
invest up to 30% of its total assets in, and the Global Opportunity Portfolio
may invest without limitation in, the securities of foreign issuers.
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 U.S. governmental laws or restrictions
applicable to such investments. Since the Fundamental Value and Global
Opportunity Portfolios may invest in securities denominated or quoted in
currencies other than the U.S. 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 U.S. investors are
concerned. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fundamental Value and Global
Opportunity Portfolios' assets denominated in those currencies and the
corresponding Portfolio'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 U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
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 U.S. instrument, and foreign entities may
not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. entities are subject. Foreign
financial markets, while growing in volume, generally have substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable domestic
companies. 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 Fundamental Value or Global
Opportunity Portfolio are uninvested and no return is earned thereon. The
inability of either Portfolio to make intended security purchases due to
settlement problems could cause that Portfolio to miss attractive investment
opportunities. Inability to dispose of securities in a Portfolio due to
settlement problems could result either in losses to that Portfolio due to
subsequent declines in value of the portfolio securities or, if the Portfolio
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Costs associated with transactions in foreign
securities generally are higher than costs associated with transactions in
U.S. 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 operating expense ratios of the Fundamental Value and Global
Opportunity Portfolios can be expected to be higher than those of an
investment company investing exclusively in U.S. securities, because the
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expenses of each Portfolio, such as custodial costs, may be higher. See
"Other Investment Policies and Practices of the Portfolios -- Investments in
Foreign Securities".
Dividends and interest received by the Global Opportunity Portfolio and,
to a lesser extent, the Fundamental Value Portfolio, 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. Because of their participation held in an IRA, shareholders will
generally not be able to credit or deduct such taxes in computing their
taxable incomes. See "Taxes".
Investments in Lower Rated Securities. The Global Opportunity Portfolio
has established no rating criteria for the fixed income securities in which
it may invest. Securities rated in the medium to lower rating categories of
nationally recognized rating agencies (commonly referred to as "junk bonds")
are predominately speculative with respect to the capacity to pay interest
and repay principal in accordance with the term of the security and generally
involve a greater volatility of price than securities in higher rating
categories. The Portfolio does not intend to purchase securities that are in
default. See "Other Investment Policies and Practices of the Portfolios --
Investments in Debt Securities".
Derivative Investments. In order to seek to enhance income or to hedge
various portfolio positions, the Portfolios may invest in options and futures
or certain other instruments which may be characterized as derivatives. The
Portfolios may invest in derivatives whose potential investment return is
based on the change in particular measurements of value or rate (an "index").
Such derivatives could include securities whose value will be expected to
increase when a particular index declines and to decrease when a particular
index increases ("inverse securities"). Investments in indexed securities,
including inverse securities, subject the Portfolios to the risks associated
with changes in the particular indexes, which may include reduced or
eliminated interest payments and losses of invested principal. Certain
indexes described, including certain inverse securities, may have the effect
of providing a degree of investment leverage, because they may increase or
decrease in value at a rate that is a multiple of the changes in applicable
indexes. Utilization of options, futures or other derivative transactions
involves the risk of imperfect correlation in movements in the price of
options and futures and movements in the price of the securities, currencies
or interest rates which are the subject of the hedge. There can be no
assurance that a liquid secondary market for options and futures contracts
will exist at any specific time. For a further discussion of the risks
associated with these investments, see "Investment Objectives and Policies --
Portfolio Strategies Involving Options and Futures", " -- Indexed and Inverse
Securities" and Appendix A -- "Options and Futures Transactions".
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INVESTMENT OBJECTIVES AND POLICIES
The Program consists of four separate Portfolios: the Fundamental Value
Portfolio, the Quality Bond Portfolio, the U.S. Government Securities
Portfolio and the Global Opportunity Portfolio, each with its own separate
investment objectives. Each of the Portfolios pursues its investment
objectives through separate investment policies. Set forth below are the
specific investment objectives and policies of each Portfolio, followed by a
description of general investment policies applicable to some or all of the
Portfolios.
FUNDAMENTAL VALUE PORTFOLIO
The Fundamental Value Portfolio seeks capital appreciation and,
secondarily, income by investing in securities, primarily equities. These
objectives are fundamental policies of the Fundamental Value Portfolio and
may not be changed without the approval of a majority of the Portfolio's
outstanding voting securities. The Portfolio seeks special opportunities in
securities that the Investment Adviser believes are undervalued and therefore
represent investment value, including securities that are selling at a
discount, either from book value or historical price-earnings ratios, or seem
capable of recovering from temporarily out of favor considerations.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price-earnings ratio. There can
be no assurance that the objectives of the Fundamental Value Portfolio will
be achieved.
Investment emphasis is on equities, primarily common stock and, to a
lesser extent, securities convertible into common stocks. The Fundamental
Value Portfolio also may invest in preferred stocks and non-convertible debt
securities. The Portfolio may invest up to 30% of its total assets, taken at
market value at the time of acquisition, in the securities of foreign
issuers.
See "Other Investment Policies and Practices of the Portfolios" below
for additional investment policies applicable to the Fundamental Value
Portfolio.
QUALITY BOND PORTFOLIO
The Quality Bond Portfolio seeks a high level of current income through
investment primarily in securities rated in the top three rating categories
(typically "A" or better) of a nationally recognized rating agency such as
Moody's, S&P or Fitch, or in securities that possess, in the judgment of the
Investment Adviser, similar credit characteristics. This objective is a
fundamental policy of the Quality Bond Portfolio and may not be changed
without the approval of a majority of the Portfolio's outstanding voting
securities. The credit risk of the Portfolio should be minimized by the
quality of the bonds in which it will invest, but the long maturities that
typically provide the best yields will subject the Portfolio to possible
substantial price changes resulting from market yield fluctuations.
Portfolio management strategy will attempt to mitigate adverse price changes
and optimize favorable price changes through active trading that shifts the
maturity and/or quality structure of the Portfolio within the overall
investment guidelines. There can be no assurance that the objective of the
Quality Bond Portfolio will be achieved.
The Quality Bond Portfolio may continue to hold securities which, after
being purchased by the Portfolio, are downgraded to a rating below the top
three rating categories of a nationally recognized rating agency as well as
any unrated securities which, in the Investment Adviser's judgment, have
suffered a similar decline in quality.
The securities in the Quality Bond Portfolio will be varied from time to
time depending upon the judgment of management as to prevailing conditions in
the economy and the securities markets and the prospects for interest rate
changes among different categories of fixed income securities. The Portfolio
anticipates that under normal circumstances more than 90% of the assets of
the Portfolio will be invested in fixed income
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securities, including convertible and nonconvertible debt securities and
preferred stock. In addition, as a matter of operating policy, at least 65%
of the assets of the Portfolio will under normal circumstances be invested in
corporate bonds. The remaining assets of the Portfolio may be held in cash
or, as described herein, may be used in connection with hedging transactions
in futures contracts, related options, and options on debt securities, or in
connection with non-hedging transactions in options on debt securities. The
Portfolio does not intend to invest in common stocks, rights or other equity
securities.
See "Other Investment Policies and Practices of the Portfolios" below
for additional investment policies applicable to the Quality Bond Portfolio.
U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio seeks a high current return
through investments in U.S. Government and Government agency securities,
including GNMA mortgage-backed certificates and other mortgage-backed
government securities. This investment objective is a fundamental policy of
the Portfolio which may not be changed without a vote of a majority of the
outstanding shares of the Portfolio. There can be no assurance that the
objective of the U.S. Government Securities Portfolio will be achieved.
The securities in which the U.S. Government Securities Portfolio may
invest are marketable securities issued or guaranteed by the U.S. Government,
by various agencies of the U.S. Government and by various instrumentalities
which have been established or sponsored by the U.S. Government ("U.S.
Government securities"). Certain of these obligations, including U.S.
Treasury bills, notes and bonds and securities of GNMA and the Federal
Housing Administration ("FHA"), are issued or guaranteed by the U.S.
Government and supported by the full faith and credit of the United States.
Other U.S. Government securities are issued or guaranteed by Federal agencies
or government-sponsored enterprises and are not direct obligations of the
United States but involve sponsorship or guarantees by Government agencies or
enterprises. These obligations include securities that are supported by the
right of the issuer to borrow from the Treasury, such as obligations of
Federal Home Loan Banks, and securities that are supported only by the credit
of the instrumentality, such as Federal National Mortgage Association
("FNMA") bonds. Because the U.S. Government is not obligated to provide
support to its instrumentalities, the Portfolio will invest in obligations
issued by these instrumentalities where the Portfolio is satisfied that the
credit risk with respect to the issuers is minimal. In addition, the
Portfolio may invest up to 5% of its assets in obligations issued or
guaranteed by the International Bank for Reconstruction and Development (the
"World Bank").
The Portfolio has authority to invest in all U.S. Government securities.
It is anticipated that under certain circumstances as described below, a
significant portion of its portfolio of U.S. Government securities may
consist of GNMA mortgaged-backed certificates ("GNMA Certificates") and other
U.S. Government securities representing ownership interests in mortgage
pools.
See "Other Investment Policies and Practices of the Portfolios" below
for additional investment policies applicable to the U.S. Government
Securities Portfolio.
GLOBAL OPPORTUNITY PORTFOLIO
The Global Opportunity Portfolio seeks a high total investment return
through a fully-managed investment policy utilizing United States and foreign
equity, debt and money market securities, the combination of which will be
varied from time to time, both with respect to types of securities and
markets, in response to changing market and economic trends. Total
investment return is the aggregate of capital value changes and income. This
objective is a fundamental policy of the Global Opportunity Portfolio and may
not be changed without the approval of a majority of the Portfolio's
outstanding voting securities. There can be no assurance that the objective
of the Global Opportunity Portfolio will be achieved.
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The Global Opportunity Portfolio will invest in a portfolio of U.S. and
foreign equity, debt and money market securities. The composition of the
portfolio among these securities and markets will be varied from time to time
by the Investment Adviser in response to changing market and economic trends.
This fully managed investment approach provides the Portfolio with the
opportunity to benefit from anticipated shifts in the relative performance of
different types of securities and different capital markets. For example, at
times the Portfolio may emphasize investments in equity securities in
anticipation of significant advances in stock markets and at times may
emphasize debt securities in anticipation of significant declines in interest
rates. Similarly, the Portfolio may emphasize foreign markets in its
security selection when such markets are expected to outperform, in U.S.
dollar terms, the U.S. markets. The Portfolio will seek to identify
longer-term structural or cyclical changes in the various economies and
markets of the world which are expected to benefit certain capital markets
and certain securities in those markets to a greater extent than other
investment opportunities.
In determining the allocation of assets among capital markets, the
Investment Adviser will consider, among other factors, the relative
valuation, condition and growth potential of the various economies, including
current and anticipated changes in the rates of economic growth, rates of
inflation, corporate profits, capital reinvestment, resources,
self-sufficiency, balance of payments, governmental deficits or surpluses and
other pertinent financial, social and political factors which may affect such
markets. In allocating among equity, debt and money market securities within
each market, the Investment Adviser also will consider the relative
opportunity for capital appreciation of equity and debt securities, dividend
yields, and the level of interest rates paid on debt securities of various
maturities.
While there are no prescribed limits on the geographical allocation of
the Portfolio's assets, the Investment Adviser anticipates that it will
invest primarily in the securities of corporate and governmental issuers
domiciled or located in the U.S., Canada, Western Europe and the Far East.
In addition, the Investment Adviser anticipates that a portion of the
Portfolio's assets normally will be invested in the U.S. securities markets
and the other major capital markets. Under normal conditions, the
Portfolio's investments will be denominated in at least three currencies or
multinational currency units. However, the Portfolio reserves the right to
invest substantially all of its assets in U.S. markets or U.S.
dollar-denominated obligations when market conditions warrant.
Similarly, there are no prescribed limits on the allocation of the
Portfolio's assets among equity, debt and money market securities.
Therefore, at any given time, the Portfolio's assets may be primarily
invested in either equity, debt or money market securities or in any
combination thereof. However, the Investment Adviser anticipates that the
Portfolio's holdings generally will include both equity and debt securities.
The Global Opportunity Portfolio may invest up to 35% of the Portfolio's
assets in debt securities rated below "investment grade" (i.e., Ba or lower
by Moody's or BB or lower by S&P or Fitch) or which possess, in the judgment
of the Investment Adviser, similar credit characteristics. Investment in
debt securities rated in the medium to lower rating categories of a
nationally recognized rating agency or in unrated securities of comparable
quality involve special risks which are described more fully below under
"Other Investment Policies and Practices of the Portfolios -- Investments in
Debt Securities -- Credit Quality".
See "Other Investment Policies and Practices of the Portfolios" below
for additional investment policies applicable to the Global Opportunity
Portfolio.
OTHER INVESTMENT POLICIES AND PRACTICES OF THE PORTFOLIOS
Set forth below are additional investment policies applicable to some or
all of the Portfolios.
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INVESTMENTS IN EQUITY SECURITIES
The Fundamental Value Portfolio will invest primarily in equity
securities. A significant portion of the Global Opportunity Portfolio also
may be invested in equity securities. In purchasing equity securities for
these Portfolios, the Investment Adviser will seek to identify the securities
of companies and industry sectors which are expected to provide high total
return relative to alternative equity investments. Both Portfolios generally
will seek to invest in securities the Investment Adviser believes to be
undervalued. Undervalued issues include securities selling at a discount
from the price-to-book value ratios and price-earnings ratios computed with
respect to the relevant stock market averages. A Portfolio also may consider
as undervalued securities selling at a discount from their historic
price-to-book value or price-earnings ratios, even though these ratios may be
above the ratios for the stock market averages. Securities offering dividend
yields higher than the yields for the relevant stock market averages or
higher than such securities' historic yield may also be considered to be
undervalued. The Portfolios may also invest in the securities of small and
emerging growth companies when such companies are expected to provide a
higher total return than other equity investments. Such companies are
characterized by rapid historical growth rates, above-average returns on
equity or special investment value in terms of their products or services,
research capabilities or other unique attributes. The Investment Adviser
will seek to identify small and emerging growth companies that possess
superior management, marketing ability, research and product development
skills and sound balance sheets.
Investment in the securities of small and emerging growth companies
involves greater risk than investment in larger, more established companies.
Such risks include the fact that securities of small or emerging growth
companies may be subject to more abrupt or erratic market movements than
larger, more established companies or the market average in general. Also,
these companies may have limited product lines, markets or financial
resources, or they may be dependent on a limited management group.
There may be periods when market and economic conditions exist that
favor certain types of tangible assets as compared to other types of
investments.
INVESTMENTS IN DEBT SECURITIES
The Quality Bond and U.S. Government Securities Portfolios will invest
primarily in debt securities. A significant portion of the Global
Opportunity Portfolio also may be invested in debt securities. The average
maturity of a Portfolio's holdings of debt securities will vary based on the
Investment Adviser's assessment of pertinent economic market conditions. As
with all debt securities, changes in market yields will affect the value of
such securities. Prices generally increase when interest rates decline and
decrease when interest rates rise. Prices of longer term securities
generally fluctuate more in response to interest rate changes than do shorter
term securities.
The debt securities in which these Portfolios may invest include
securities issued or guaranteed by the U.S. Government and its agencies or
instrumentalities and debt obligations issued by U.S. corporations. Such
securities may include mortgage-backed securities issued or guaranteed by
U.S. governmental entities or by private issuers. In addition, the
Fundamental Value and Global Opportunity Portfolios may invest in debt
securities issued by foreign corporations or issued or guaranteed by foreign
governments (including foreign states, provinces and municipalities), by
agencies and instrumentalities thereof or by international organizations
designed or supported by multiple governmental entities (which are not
obligations of the U.S. Government or foreign governments) to promote
economic reconstruction or development ("supranational entities") such as the
World Bank.
GNMA Certificates and Other Mortgage-Backed Government Securities. GNMA
Certificates are mortgage-backed securities of the modified pass-through
type, which means that both interest and principal
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payments (including prepayments) are passed through monthly to the holder of
the Certificate. The National Housing Act provides that the full faith and
credit of the United States is pledged to the timely payment of principal and
interest by GNMA of amounts due on these GNMA Certificates. Each Certificate
evidences an interest in a specific pool of mortgage loans insured by the FHA
or the Farmers Home Administration or guaranteed by the Veterans
Administration ("VA"). GNMA is a wholly-owned corporate instrumentality of
the United States within the Department of Housing and Urban Development.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments which have maximum maturities of 30 years.
The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as a result of
prepayments or refinancing of such mortgages. Such prepayments are passed
through to the registered holder with the regular monthly payments of
principal and interest. In addition, GNMA offers a pass-through security
backed by adjustable-rate mortgages. As prepayment rates vary widely, it is
not possible to predict accurately the average life of a particular pool.
The actual yield of each GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying the certificate.
In addition to GNMA Certificates, the U.S. Government and Global
Opportunity Portfolios may invest in mortgage-backed securities issued by
FNMA and by the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA, a
federally-chartered and privately-owned corporation, issues pass-through
securities and certificates representing an interest in a pool of FNMA pass-
through securities which are guaranteed as to payment of principal and
interest by FNMA. FHLMC, a corporate instrumentality of the United States,
issues participation certificates which represent an interest in mortgages
from FHLMC's portfolio and securities representing an interest in a pool of
FHLMC participation certificates. FHLMC guarantees the timely payment of
interest and the ultimate collection of principal. As is the case with GNMA
Certificates, the actual maturity of and realized yield on particular FNMA
and FHLMC mortgage-backed securities will vary based on the prepayment
experience of the underlying pool of mortgages. Securities guaranteed by
FNMA and FHLMC are not backed by the full faith and credit of the United
States.
Mortgage-backed U.S. Government securities typically provide a higher
potential for current income than other types of U.S. Government securities;
however, U.S Treasury bills, notes and bonds typically provide a higher
potential for capital appreciation than mortgage-backed securities.
Payments of principal of and interest on mortgage-backed securities are
made more frequently than are payments on conventional debt securities. In
addition, holders of mortgage-backed securities may receive unscheduled
payments of principal at any time representing prepayments on the underlying
mortgage loans or financial assets. Such prepayments may usually be made by
the related obligor without penalty. Prepayment rates are affected by
changes in prevailing interest rates and numerous other economic, geographic,
social and other factors. Changes in the rate of prepayments will generally
affect the yield to maturity of the security. Moreover, when the holder of
the security attempts to reinvest prepayments or even the scheduled payments
of principal and interest, it may receive a rate of interest which is higher
or lower than the rate on the mortgage-backed securities originally held. To
the extent that mortgage-backed securities are purchased at a premium,
mortgage foreclosures and principal prepayments may result in a loss to the
extent of the premium paid. If such securities are bought at a discount,
both scheduled payments of principal and unscheduled prepayments will
increase current and total returns of the Portfolio.
Stripped Mortgage-Backed Securities. The U.S. Government Securities and
Global Opportunity Portfolios may invest in stripped mortgage-backed
securities ("SMBSs") issued by agencies or instrumentalities of the United
States. SMBSs are derivative multiclass mortgage-backed securities. SMBS
arrangements commonly involve two classes of securities that receive
different proportions of the interest and principal distributions on a pool
of mortgage assets. A common variety of SMBS is where one class (the
principal-only or "PO" class) receives some of the interest and most of the
principal from the underlying assets, while the
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other class (the interest-only or "IO" class) receives most of the interest
and the remainder of the principal. In the most extreme case, the IO class
receives all of the interest, while the PO class receives all of the
principal. While a Portfolio may purchase securities of a PO class, it is
more likely to purchase the securities of an IO class. The yield to maturity
of an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying assets, and a rapid rate of
principal payments in excess of that considered in pricing the securities
will have a material adverse effect on an IO security's yield to maturity.
If the underlying mortgage assets experience greater than anticipated
payments of principal, a Portfolio may fail to recoup fully its initial
investment in IOs. In addition, there are certain types of IOs which
represent the interest portion of a particular class as opposed to the
interest portion of the entire pool. The sensitivity of this type of IO to
interest rate fluctuations may be increased because of the characteristics of
the principal portion to which they relate. As a result of the above
factors, the Portfolios generally will purchase IOs only as a component of
so-called "synthetic" securities. This means that purchases of IOs will be
matched with certain purchases of other securities such as inverse floating
rate CMOs or fixed rate securities; as interest rates fall, presenting a
greater risk of unanticipated prepayments of principal, the negative effect
on the Portfolio because of its holdings of IOs should be diminished somewhat
because of the increased yield on the inverse floating rate CMOs or the
increased appreciation on the fixed rate securities. IOs and POs of SMBSs
are considered by the staff of the Commission to be illiquid securities and,
consequently, as long as the staff maintains this position, the Portfolio will
not invest in IOs or POs in an amount which, taken together with the
Portfolio's other investments in illiquid securities, exceeds 15% of the
Portfolio's net assets.
Foreign Debt Securities. The obligations of foreign governmental
entities have various kinds of government support and include obligations
issued or guaranteed by foreign governmental entities with taxing power.
These obligations may or may not be supported by the full faith and credit of
a foreign government. The Global Opportunity Portfolio will invest in
foreign government securities of issuers considered stable by the Investment
Adviser. The Investment Adviser does not believe that the credit risk
inherent in the obligations of stable foreign governments is significantly
greater than that of U.S. Government securities.
Portfolio Maturity. Neither the U.S. Government Securities Portfolio
nor the portion of the Global Opportunity Portfolio invested in debt
securities is limited as to the maturities of its portfolio investments. The
Investment Adviser may adjust the average maturity of a Portfolio's
investments from time to time, depending on its assessment of the relative
yields available on securities of different maturities and its assessment of
future interest rate patterns. Thus, at various times the average maturity
of the Portfolio may be relatively short (from under one year to five years,
for example) and at other times may be relatively long (over 10 years, for
example).
Credit Quality. The Quality Bond Portfolio will invest primarily in
securities rated in the top three (typically "A" or better) rating categories
of a nationally recognized rating agency such as Moody's, S&P or Fitch, or in
securities that possess, in the judgment of the Investment Adviser, similar
credit characteristics.
The Investment Adviser considers the ratings assigned by nationally
recognized rating agencies as one of several factors in its independent
credit analysis of issuers. If a debt security in the Quality Bond Portfolio
is downgraded below A the Investment Adviser will consider factors such as
price, credit risk, market conditions and interest rates and will sell such
security only if, in the Investment Adviser's judgment, it is advantageous to
do so.
The Global Opportunity Portfolio is authorized to invest without
limitation in fixed income securities rated below Ba by Moody's or BB by S&P
or Fitch or in unrated securities which, in the Investment Adviser's
judgment, possess similar credit characteristics ("high yield bonds"). The
Program's Board of Directors has adopted a policy that the Global Opportunity
Portfolio will not invest more than 35% of its assets in obligations rated by
a nationally recognized rating agency below investment grade, or in
obligations deemed by the Investment Adviser to possess similar credit
characteristics. Investment in high yield bonds (which are
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sometimes referred to as "junk" bonds) involves substantial risk.
Investments in high yield bonds will be made only when, in the judgment of
the Investment Adviser, such securities provide attractive total return
potential, relative to the risk of such securities, as compared to higher
quality debt securities. Securities rated BB or lower by S&P or Fitch or Ba
or lower by Moody's are considered by those rating agencies to have varying
degrees of speculative characteristics. Consequently, although high yield
bonds can be expected to provide higher yields, such securities may be
subject to greater market price fluctuations and risk of loss of principal
than lower yielding, higher rated fixed income securities. The Global
Opportunity Portfolio will not invest in debt securities in the lowest rating
categories (CC or lower for S&P or Fitch or Ca or lower for Moody's) unless
the Investment Adviser believes that the financial condition of the issuer or
the protection afforded the particular securities is stronger than would
otherwise be indicated by such low ratings. See Appendix B -- "Ratings of
Corporate Debt Securities" in the Statement of Additional Information for
additional information regarding high yield bonds.
High yield bonds may be issued by less creditworthy companies or by
larger, highly leveraged companies and are frequently issued in corporate
restructurings such as mergers and leveraged buyouts. Such securities are
particularly vulnerable to adverse changes in the issuer's industry and in
general economic conditions. High yield bonds frequently are junior
obligations of their issuers, so that in the event of the issuer's
bankruptcy, claims of the holders of high yield bonds will be satisfied only
after satisfaction of the claims of senior security holders. While the high
yield bonds in which the Portfolio may invest normally do not include
securities which, at the time of investment, are in default or the issuers of
which are in bankruptcy, there can be no assurance that such events will not
occur after the Portfolio purchases a particular security, in which case the
Portfolio may experience losses and incur costs.
High yield bonds tend to be more volatile than higher rated fixed income
securities so that adverse economic events may have a greater impact on the
prices of high yield bonds than on higher rated fixed income securities.
Like higher rated fixed income securities, high yield bonds are generally
purchased and sold through dealers who make a market in such securities for
their own accounts. However, there are fewer dealers in the high yield bond
market which may be less liquid than the market for higher rated fixed income
securities even under normal economic conditions. Also, there may be
significant disparities in the prices quoted for high yield bonds by various
dealers. Adverse economic conditions or investor perceptions (whether or not
based on economic fundamentals) may impair the liquidity of this market and
may cause the prices the Portfolio receives for its high yield bonds to be
reduced, or the Portfolio may experience difficulty in liquidating a portion
of its portfolio. Under such conditions, judgment may play a greater role in
valuing certain of the Portfolio's securities than in the case of securities
trading in a more liquid market.
INVESTMENTS IN SECURITIES DENOMINATED IN FOREIGN CURRENCIES
Both the Fundamental Value and Global Opportunity Portfolios may invest
in securities denominated in currencies other than the U.S. dollar. In
selecting securities denominated in foreign currencies, the Investment
Adviser will consider, among other factors, the effect of movement in
currency exchange rates on the U.S. dollar value of such securities. An
increase in the value of a currency will increase the total return to the
Portfolio of securities denominated in such currency. Conversely, a decline
in the value of the currency will reduce the total return. The Investment
Adviser may seek to hedge all or a portion of a Portfolio's foreign
securities through the use of forward foreign currency contracts, currency
options, futures contracts and options thereon or derivative securities. See
"Portfolio Strategies Involving Options and Futures" and "Indexed and Inverse
Securities" below and Appendix A -- "Options and Futures Transactions".
INVESTMENTS IN MONEY MARKET SECURITIES
The Global Opportunity Portfolio may invest a significant portion of its
assets in short-term, high quality debt instruments. In addition, for
temporary or defensive purposes or in anticipation of redemptions, each of
the Portfolios is authorized to invest up to 100% of its assets in such money
market instruments,
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including obligations of or guaranteed by the U.S. Government or its
instrumentalities or agencies, certificates of deposit, bankers' acceptances
and other bank obligations, commercial paper rated in the highest category by
a nationally recognized rating agency or other fixed income securities deemed
by the Investment Adviser to be consistent with the objectives of the
Portfolio, or the Portfolio may hold its assets in cash. The obligations of
commercial banks may be issued by U.S. banks, foreign branches of U.S. banks
("Eurodollar" obligations) or U.S. branches of foreign banks ("Yankeedollar"
obligations).
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS
AND DELAYED DELIVERY TRANSACTIONS
Each Portfolio may purchase securities on a when-issued or forward
commitment basis and may purchase or sell securities for delayed delivery.
These transactions occur when securities are purchased or sold by a Portfolio
with payment and delivery taking place in the future to secure what is
considered an advantageous yield and price to the Portfolio at the time of
entering into the transaction. Although none of the Portfolios has
established limits on the percentage of its assets that may be committed in
connection with such transactions, each Portfolio will maintain with the
Program's custodian a segregated account of cash, cash equivalents, U.S.
Government securities or other high grade liquid debt or equity securities
denominated in U.S. dollars or non-U.S. currencies in an aggregate amount
equal to the amount of the Portfolio's commitment in connection with such
purchase transactions.
STANDBY COMMITMENT AGREEMENTS
Each Portfolio may from time to time enter into standby commitment
agreements. Such agreements commit a Portfolio, for a stated period of time,
to purchase a stated amount of a fixed income security which may be issued
and sold to the Portfolio at the option of the issuer. The price and coupon
of the security is fixed at the time of the commitment. At the time of
entering into the agreement, the Portfolio is paid a commitment fee,
regardless of whether or not the security is ultimately issued, which
typically is approximately 0.5% of the aggregate purchase price of the
security which the Portfolio has committed to purchase. A Portfolio will
enter into such agreements only for the purpose of investing in the security
underlying the commitment at a yield and price which is considered
advantageous to the Portfolio. None of the Portfolios will enter into a
standby commitment with a remaining term in excess of 45 days, and each
Portfolio will limit its investment in such commitments so that the aggregate
purchase price of the securities subject to such commitments, together with
the value of portfolio securities subject to legal restrictions on resale,
will not exceed 15% of its assets taken at the time of acquisition of such
commitment or security. The Portfolio will at all times maintain a
segregated account with its custodian of cash, cash equivalents, U.S.
Government securities or other high grade liquid debt or equity securities
denominated in U.S. dollars or non-U.S. currencies in an aggregate amount
equal to the purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued and, if issued, the value of the security on the
delivery date may be more or less than its purchase price. Since the
issuance of the security underlying the commitment is at the option of the
issuer, a Portfolio may bear the risk of a decline in the value of such
security and may not benefit from an appreciation in the value of the
security during the commitment period.
The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
reasonably can be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the related Portfolio's net
asset value. The cost basis of the security will be adjusted by the amount
of the commitment fee. In the event the security is not issued, the
commitment fee will be recorded as income on the expiration date of the
standby commitment.
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<PAGE>
REPURCHASE AGREEMENTS AND PURCHASE AND SALE CONTRACTS
Each Portfolio may invest in securities pursuant to repurchase
agreements or purchase and sale contracts. Repurchase agreements and
purchase and sale contracts may be entered into only with financial
institutions which have capital of at least $50 million or whose obligations
are guaranteed by an entity having capital of at least $50 million. Under
such agreements, the other party agrees, upon entering into the contract with
a Portfolio, to repurchase the security at a mutually agreed upon time and
price in a specified currency, thereby determining the yield during the term
of the agreement. This results in a fixed rate of return insulated from
market fluctuations during such period, although such return may be affected
by currency fluctuations. In the case of repurchase agreements, the prices
at which the trades are conducted do not reflect accrued interest on the
underlying obligation; whereas, in the case of purchase and sale contracts,
the prices take into account accrued interest. Such agreements usually cover
short periods, such as under one week. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the seller secured
by the securities transferred to the purchaser. In the case of a repurchase
agreement, as a purchaser, a Portfolio 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; the
Portfolio does not have the right to seek additional collateral in the case
of purchase and sale contracts. 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 Portfolio but only constitute collateral for
the seller's obligation to pay the repurchase price. Therefore, a Portfolio
may suffer time delays and incur costs or possible losses in connection with
disposition of the collateral.
A purchase and sale contract differs from a repurchase agreement in that
the contract arrangements stipulate that the securities are owned by the
Portfolio. In the event of a default under such a repurchase agreement or
under a purchase and sale contract, instead of the contractual fixed rate,
the rate of return to the Portfolio would be dependent upon intervening
fluctuations of the market values of such securities and the accrued interest
on the securities. In such event, the Portfolio 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. A
Portfolio may not invest more than 15% of its net assets in repurchase
agreements or purchase and sale contracts maturing in more than seven days.
INDEXED AND INVERSE SECURITIES
The Portfolios may invest in securities whose potential investment
return is based on the change in particular measurements of value or rate (an
"index"). As an illustration, the Portfolios may invest in a security that
pays interest and returns principal based on the change in an index of
interest rates or of the value of a precious or industrial metal. Interest
and principal payable on a security may also be based on relative changes
among particular indexes. In addition, the Portfolios may invest in
securities whose potential investment return is inversely based on the change
in particular indexes. For example, the Portfolios may invest in securities
that pay a higher rate of interest and principal when a particular index
decreases and pay a lower rate of interest and principal when the value of
the index increases. To the extent that the Portfolios invest in such types
of securities, it will be subject to the risks associated with changes in the
particular indexes, which may include reduced or eliminated interest payments
and losses of invested principal. Indexed and inverse securities are
currently issued by a number of U.S. governmental agencies such as FHLMC
and FNMA, as well as a number of other financial institutions. To the
extent the Portfolios invest in such instruments, under current market
conditions, they most likely will purchase indexed and inverse securities
issued by the above-mentioned U.S. governmental agencies.
Certain indexed securities, including certain inverse securities, may
have the effect of providing a degree of investment leverage, because they
may increase or decrease in value at a rate that is a multiple of the changes
in applicable indices. As a result, the market value of such securities will
generally be more volatile than the market values of fixed-rate securities.
The Portfolios believe that indexed securities, including inverse
18
<PAGE>
securities, represent flexible portfolio management instruments that may
allow the Portfolios to seek potential investment rewards, hedge other
portfolio positions, or vary the degree of portfolio leverage relatively
efficiently under different market conditions.
LENDING OF PORTFOLIO SECURITIES
Each Portfolio may from time to time lend securities from its portfolio
with a value not exceeding 331/3% of its total assets, to banks, brokers and
other financial institutions and receive collateral in cash or securities
issued or guaranteed by the U.S. Government. Such collateral will be
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. This limitation is a fundamental
policy of each Portfolio, and it may not be changed without the approval of
the holders of a majority of the Portfolio's outstanding voting securities,
as defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act"). During the period of such a loan, the Portfolio 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,
a Portfolio 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.
PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES
Each Portfolio may engage in various portfolio strategies to seek to
increase its return through the use of listed or over-the-counter ("OTC")
options on its portfolio securities and to hedge its portfolio against
adverse movements in the markets in which it invests. Each Portfolio is
authorized to write (i.e., sell) covered put and call options on its
portfolio securities or securities in which it anticipates investing and
purchase put and call options on securities. In addition, the Fundamental
Value and Global Opportunity Portfolios may engage in transactions in stock
index options, stock index futures and related options on such futures and
may deal in forward foreign exchange transactions and foreign currency
options and futures and related options on such futures. The Quality Bond,
U.S. Government Securities and Global Opportunity Portfolios may engage in
transactions in interest rate futures and related options on such futures.
Each of these portfolio strategies is described in more detail in "Appendix -
- - Options and Futures Transactions" attached to this Prospectus and in the
Statement of Additional Information. Although certain risks are involved in
options and futures transactions (as discussed in the Appendix), the
Investment Adviser believes that, because the Portfolios will (i) write only
covered options on portfolio securities or securities in which they
anticipate investing and (ii) engage in other options and futures
transactions only for hedging purposes, the options and portfolio strategies
of the Portfolios will not subject any Portfolio to the risks frequently
associated with the speculative use of options and futures transactions.
While each Portfolio's use of hedging strategies is intended to reduce the
volatility of the net asset value of shares of that Portfolio, each
Portfolio's net asset value will fluctuate. There can be no assurance that
any Portfolio's hedging transactions will be effective. Furthermore, each
Portfolio will only engage in hedging activities from time to time and may
not necessarily be engaging in hedging activities when movements in the
equity or debt markets, interest rates or currency exchange rates occur.
ILLIQUID SECURITIES
Each Portfolio may invest up to 15% of its assets in illiquid
securities, although it will limit such investments to 10% of its assets
to the extent required by state law. Pursuant to that restriction, the
Portfolios may not invest in securities that cannot readily be resold because
of legal or contractual restrictions or which cannot otherwise be marketed,
redeemed, put to the issuer or a third party, or which do not mature within
seven days, or which the Board of Directors of the Program has not determined
to be liquid pursuant to applicable law, if at the time of acquisition more
than 15% (or 10%) of that Portfolio's assets, taken at market value,
would be invested in such securities. Securities subject to this restriction
include repurchase agreements maturing in more than seven days and securities
the disposition of which is subject to other legal
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<PAGE>
restrictions, such as restrictions imposed by the Securities Act of 1933, as
amended (the "Securities Act"), on the resale of securities acquired in
certain private placements. If registration of these securities under the
Securities Act is required, such registration may not be readily
accomplished, and if such securities may be resold without registration, such
resale may be permissible only in limited quantities. In either event, a
Portfolio may not be able to sell these restricted securities at a time
which, in the judgment of the Investment Adviser, would be most opportune.
Although not a fundamental policy, each Portfolio will include OTC
options and securities underlying such options (to the extent provided under
"Restrictions on OTC Options" in the Appendix hereto) in calculating the
amount of its total assets subject to the limitation on restricted securities.
No Portfolio will change or modify this policy prior to the change or
modification by the Securities and Exchange Commission ("SEC") staff of its
positions regarding OTC options.
Notwithstanding the above limitation, each Portfolio may purchase
securities that are not registered under the Securities Act but that can be
offered and sold to "qualified institutional buyers" under Rule 144A under
the Securities Act, provided that the Program's Board of Directors, or the
Investment Adviser pursuant to guidelines adopted by the Board, continuously
determines, based on 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 liquidity 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 monitor carefully each Portfolio'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 a Portfolio to the extent
that qualified institutional buyers become for a time uninterested in
purchasing these securities.
INVESTMENT RESTRICTIONS
Each Portfolio's investment activities are subject to further
restrictions that are described in the Statement of Additional Information.
Investment restrictions and policies which are fundamental policies may not
be changed without the approval of the holders of a majority of a Portfolio's
outstanding voting securities (which for this purpose and under the
Investment Company Act means the lesser of (a) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are represented
or (b) more than 50% of the outstanding shares). Among each Portfolio's
fundamental policies, a Portfolio may not invest more than 25% of its
assets, taken at market value at the time of each investment, in the
securities of issuers of any particular industry (excluding the U.S.
Government and its agencies or instrumentalities). Other fundamental
policies include policies which (i) limit investments in securities of other
investment companies and (ii) restrict the issuance of senior securities and
limit bank borrowings, except that a Portfolio may borrow amounts of up to
10% of its assets for extraordinary purposes or to meet redemptions. No
Portfolio will purchase securities while borrowings exceed 5% of its
assets. None of the Portfolios has a present intention to borrow money in
amounts exceeding 5% of its assets.
MANAGEMENT OF THE PROGRAM
BOARD OF DIRECTORS
The Board of Directors of the Program consists of ---- individuals, ----
- - of whom are not "interested persons" of the Program as defined in the
Investment Company Act. The Directors of the Program are responsible for the
overall supervision of the operations of the Program and perform the various
duties imposed on the directors of investment companies by the Investment
Company Act.
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<PAGE>
The Directors of the Program are:
(TO BE PROVIDED BY AMENDMENT.)
- ---------------
*Interested person, as defined in the Investment Company Act, of the Program.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Program's investment adviser is Merrill Lynch Asset Management, L.P.
(the "Investment Adviser"). The Investment Adviser acts as the investment
adviser to the Program and provides each Portfolio with management and
investment advisory services. The Investment Adviser is owned and controlled
by Merrill Lynch & Co., Inc., a financial services holding company and the
parent of Merrill Lynch. The Investment Adviser or its affiliates act as
investment adviser(s) to more than 90 other registered investment companies
and provides investment advisory services to individuals and institutions. As
of 1994, the Investment Adviser and its affiliates had a total of
approximately $ billion in investment company and other portfolio assets
under management.
The investment advisory agreement with the Investment Adviser relating
to each Portfolio (each an "Investment Advisory Agreement") provides that,
subject to the direction of the Board of Directors of the Program, the
Investment Adviser is responsible for the actual management of that Portfolio
and for the review of that Portfolio's holdings in light of its own research
analysis and analyses from other relevant sources. The responsibility for
making decisions to buy, sell or hold a particular security rests with the
Investment Adviser, subject to review by the Board of Directors. The
Investment Adviser supplies the portfolio managers for each Portfolio, who
consider analyses from various sources, make the necessary investment
decisions and place transactions accordingly. The Investment Adviser also is
obligated to perform certain administrative and management services for the
Program and is required to provide all the office space, facilities,
equipment and personnel necessary to perform its duties under each Investment
Advisory Agreement. The Investment Adviser has access to the total
securities research, economic research and computer applications facilities
of Merrill Lynch and makes extensive use of these facilities.
Each Portfolio pays the Investment Adviser a monthly fee based on the
average daily value of that Portfolio's net assets at the following annual
rates:
<TABLE>
<CAPTION>
U.S. Government Global
Fundamental Value Quality Bond Securities Opportunity
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> <C> <C>
---% ---% ---% ---%
</TABLE>
Each Investment Advisory Agreement obligates a Portfolio to pay
certain expenses incurred in its operations including, among other things,
the investment advisory fee, and a portion, allocated on the basis of the
asset size of the respective Portfolios, of the legal and audit 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.
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<PAGE>
Accounting services are provided for the Portfolios by the Investment Adviser
and the Portfolios reimburse the Investment Adviser for its costs in
connection with such services.
(Biographies of people responsible for the day-to-day management of each
Portfolio to be provided by amendment.)
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a wholly-
owned subsidiary of Merrill Lynch & Co., Inc., acts as the Program'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, each Portfolio pays the Transfer Agent a fee of $--- per
shareholder account and nominal miscellaneous fees (e.g. account closing
fees) and reimburses the Transfer
----
Agent for out-of-pocket expenses incurred under the Transfer Agency
Agreement.
PURCHASE OF SHARES
The Program will offer shares solely to holders of IRAs for which
Merrill Lynch acts as custodian, including individual retirement rollover
accounts and SEP-IRAs. The minimum initial purchase in any Portfolio is
$100, and the minimum subsequent purchase in any Portfolio is $1.
The Distributor, a subsidiary of the Investment Adviser, acts as the
distributor of the shares of the Program. The applicable offering price for
purchase orders is based on the net asset value of the Portfolio next
determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to 4:15 P.M., New York
time, which includes orders received after the determination of net asset
value on the previous day, the applicable offering price will be based on the
net asset value determined as of 4:15 P.M., New York time, on the day the
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 by the Distributor prior to 4:30 P.M., New
York time, such orders shall be deemed received on the next business day.
Any order may be rejected by the Distributor or the Program. The Program or
the Distributor may suspend the continuous offering of any Portfolio's shares
at any time in response to conditions in the securities markets or otherwise
and may thereafter resume such offering from time to time. Neither the
Distributor nor the dealers are permitted to withhold placing orders to
benefit themselves by a price change. Merrill Lynch may charge its customers
a processing fee (presently $4.85) to confirm a sale of shares to such
customers.
Shareholders considering transferring a tax-deferred account such as an
IRA from Merrill Lynch to another brokerage firm or financial institution
should be aware that shares of the Portfolios may only be held in a Merrill
Lynch custodied IRA. Prior to any such transfer, a shareholder must either
redeem the shares so that the cash proceeds can be transferred to the account
at the new firm or exchange the shares for shares of another mutual fund
advised by the Investment Adviser or its affiliate pursuant to the exchange
privilege. It is possible, however, that the firm to which the IRA is to be
transferred will not take delivery of shares of such fund, in which case the
shareholder would have to redeem these shares so that the cash proceeds can
be transferred or continue to maintain an IRA account at Merrill Lynch for
those shares.
Cash balances of participants who elect to have such funds automatically
invested in shares of a Portfolio will be invested as follows. Cash balances
arising from the sale of securities held in the IRA account which do not
settle on the day of the transaction (such as most common and preferred stock
transactions) become available to the Program and will be invested in shares
of a Portfolio on the business day following the
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<PAGE>
day that proceeds with respect thereto are received in the IRA account.
Proceeds giving rise to cash balances from the sale of securities held in the
IRA account settling on a same day basis and from principal repayments on
debt securities held in the account become available to the Program and will
be invested in shares of a Portfolio on the next business day following
receipt. Cash balances arising from dividends or interest payments on
securities held in the IRA account or from a contribution to the IRA account
are invested in shares of the Portfolios on the business day following the
date the payment is received in the IRA account.
Merrill Lynch has advised the Program that it will not charge an annual
account fee upon any IRA which is then invested solely in one or more of the
Program's Portfolios or in a money market fund advised by the Investment
Adviser or its affiliates. If, however, a shareholder of any of the
Portfolios exchanges any of his or her shares of a Portfolio for shares of
another fund advised by the Investment Adviser or its affiliate, Merrill
Lynch will reinstate the IRA annual account fee. For information about
current IRA fees charged by Merrill Lynch, consult the Merrill Lynch
Individual Retirement Account disclosure statement and the Merrill Lynch
Individual Retirement Account Custodial Agreement.
ALTERNATIVE SALES ARRANGEMENTS
Each Portfolio issues two classes of shares: Class A shares are sold to
investors choosing the initial sales charge alternative and Class B shares
are sold to investors choosing the deferred sales charge alternative. The
two classes of shares each represent an interest in the same investment
portfolio, have the same rights and are identical in all respects, except
that Class B shares bear the expenses of the ongoing distribution fee and
certain other costs resulting from deferred sales charge arrangements and any
expenses (including incremental transfer agency costs) resulting from such
sales arrangement. Both Class A and Class B shares are subject to an ongoing
account maintenance fee. Each class has exclusive voting rights with respect
to the distribution plan pursuant to which the account maintenance fee, in
the case of the Class A shares, and the account maintenance and distribution
fees, in the case of the Class B shares, are paid. The two classes also have
different exchange privileges. See "Shareholder Services -- Exchange
Privilege". If pursuant to the exchange privilege, shares of any Portfolio
are exchanged for shares of a fund other than a Portfolio of the Program or a
money market fund advised by the Investment Adviser or its affiliates then
the imposition of the IRA annual account fee may result. For information
about current IRA fees charged by Merrill Lynch, consult the Merrill Lynch
Individual Retirement Account disclosure statement and the Merrill Lynch
Individual Retirement Account Custodial Agreement. The net income attributable
to Class B shares and the dividends payable on Class B shares will be reduced
by the amount by which the sum of the account maintenance and distribution
fees and incremental expenses associated with such account maintenance and
distribution fees exceeds the account maintenance fee attributable to the
Class A shares; likewise, the net asset value of the Class B shares will be
reduced by such amount to the extent the Portfolio has undistributed net
income. Sales personnel may receive different compensation for selling Class
A or Class B shares.
The alternative sales arrangements of the Program permit investors to
choose the method of purchasing shares that is most beneficial given the
amount of their purchase, the length of time the investor expects to hold
Portfolio shares and other relevant circumstances. Investors should
determine whether under their particular circumstances it is more
advantageous to incur an initial sales charge and an ongoing account
maintenance fee, as discussed below, or to have the entire initial purchase
price invested in a Portfolio with the investment thereafter being subject to
ongoing account maintenance and distribution fees, and for a four-year period
of time, a CDSC.
As an illustration, investors who qualify for significantly reduced
sales charges, as described below, might elect the initial sales charge
alternative because similar sales charge reductions are not available for
purchases under the deferred sales charge alternative. Moreover, shares
acquired under the initial sales charge alternative would not be subject to
an ongoing distribution fee or CDSC, as described below. However, because
initial sales charges are deducted at the time of purchase, such investors
would not have all their funds invested initially.
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<PAGE>
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time also might elect the
initial sales charge alternative because over time the accumulated continuing
distribution fee related to the Class B shares may exceed the initial sales
charge related to the Class A shares. Again, however, such investors must
weigh this consideration against the fact that not all their funds will be
invested initially. Furthermore, the ongoing distribution fee will be offset
to the extent any return is realized on the additional funds initially
invested under the deferred alternative. Another factor that may be
applicable under certain circumstances is that the payment of the ongoing
Class B distribution fee and CDSC is subject to certain limits as set forth
below under "Limitations on the Payment of Deferred Sales Charges".
Certain other investors might determine it to be more advantageous to
have all their funds invested initially, although remaining subject to
continuing account maintenance and distribution fees and, for a four-year
period of time, a CDSC as described below. For example, an investor in the
U.S. Government Securities Portfolio subject to the 4.0% initial sales charge
will have to hold his or her investment for more than eight years for the
ongoing 0.25% account maintenance fee and 0.50% ongoing distribution fee with
respect to the Class B shares to exceed the initial sales charge plus the
ongoing 0.25% account maintenance fee of Class A shares. This example does
not take into account the time value of money which further reduces the impact
on the investment of the ongoing 0.50% distribution fee on Class B shares,
fluctuations in net asset value or the effect of the return on the investment
over this period of time or the effect of any limits that may be imposed upon
the payment of the ongoing distribution fee and CDSC.
The Directors of the Program have determined that currently no conflict
of interest exists between the Class A and Class B shares. On an ongoing
basis, the Directors of the Program, pursuant to their fiduciary duties under
the Investment Company Act, and state laws, will seek to assure that no such
conflict arises.
Distribution Plans. Pursuant to separate distribution plans adopted by
the Program on behalf of each Portfolio pursuant to Rule 12b-1 under the
Investment Company Act (the "Distribution Plans"), each Portfolio pays the
Distributor (a) an ongoing account maintenance fee relating to Class A shares,
accrued daily and paid monthly, at the annual rate of 0.25% of the average
daily net assets of that Portfolio attributable to the Class A shares in
order to compensate the Distributor and Merrill Lynch (pursuant to a sub-
agreement) in connection with account maintenance activities (the "Class A
Distribution Plan"), and (b) ongoing account maintenance and distribution
fees relating to Class B shares, accrued daily and paid monthly, (i) at the
annual rates of 0.25% and 0.50%, respectively, of the average daily net
assets attributable to the Class B shares of the Quality Bond and U.S.
Government Securities Portfolios or (ii) at the annual rates of 0.25% and
0.75%, respectively, of the average daily net assets attributable to the
Class B shares of the Fundamental Value and Global Opportunity Portfolios.
The ongoing account maintenance and distribution fees associated with the
Class B shares compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing account maintenance services to Class B
shareholders and with the ongoing distribution fee compensating the
Distributor and Merrill Lynch for providing shareholder and distribution
services, and bearing certain distribution-related expenses of each Portfolio,
including payments to financial consultants for selling Class B shares of each
Portfolio (the "Class B Distribution Plan"). See "Additional Information --
Organization of the Program". The Distribution Plan related to Class B
shares is designed to permit an investor to purchase Class B shares through
Merrill Lynch without the assessment of a front-end sales charge and at the
same time permit Merrill Lynch to compensate its financial consultants in
connection with the sale of the Class B shares. In this regard, the purpose
and function of the ongoing distribution fee and the CDSC with respect to the
Class B shares of a Portfolio are the same as those of the initial sales
charge with respect to the Class A shares of a Portfolio in that the deferred
sales charges and ongoing distribution fee provide for the financing of the
distribution of the Portfolio's Class B shares.
The payments under the Class B Distribution Plan are based on a
percentage of average daily net assets attributable to the Class B shares
regardless of the amount of expenses incurred and, accordingly, distribution-
related revenues may be more or less than distribution-related expenses.
Information with respect to the distribution-related revenues and expenses of
each Portfolio is presented to the Directors for their consideration
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<PAGE>
in connection with their deliberations as to the continuance of the Class B
Distribution Plans. This information is presented annually as of December 31
of each year on a "fully allocated accrual" basis and quarterly on a "direct
expense and revenue/cost" basis. On the fully allocated accrual basis,
revenues consist of the ongoing account maintenance and distribution fees,
CDSCs and certain other related revenues, and expenses consist of financial
consultant compensation, branch office and regional operation center selling
and transaction processing expenses, advertising, sales promotion and
marketing expenses, corporate overhead and interest expense. On the direct
expense and revenue/cash basis, revenues consist of the ongoing account
maintenance and distribution fees and CDSCs and the expenses consist of
financial consultant compensation.
The Program has no obligation with respect to account maintenance and/or
distribution-related expenses incurred by the Distributor and Merrill Lynch
in connection with the Class A and Class B shares, and there is no assurance
that the Directors of the Program will approve the continuance of any
Distribution Plan from year to year. However, the Distributor intends to
seek annual continuance 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 ongoing account
maintenance and distribution fees and CDSCs in the case of Class B shares
will not be used to subsidize the sale of Class A shares. Similarly, the
initial sales charge and ongoing account maintenance fee in the case of
Class A shares will not be used to subsidize the sale of Class B shares.
Payment of the ongoing distribution fee on Class B shares is subject to
certain limits as set forth under "Limitations on the Payment of Deferred
Sales Charges".
INITIAL SALES CHARGE ALTERNATIVE-CLASS A SHARES
Fundamental Value and Global Opportunity Portfolios. The public
offering price of Class A shares of the Fundamental Value and Global
Opportunity Portfolios for purchasers choosing the initial sales charge
alternative is the next determined net asset value plus varying sales charges
(i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
Sales Discount to
Charge Sales Charge Selected
as as Dealers as
Percentage Percentage* of Percentage of
of Offering the Net Amount the Offering
Amount of Purchase Price Invested Price
------------------ ----- -------- -----
<S> <C> <C> <C>
Less than $10,000 6.50% 6.95% 6.25%
$10,000 but less than $25,000 6.00 6.38 5.75
$25,000 but less than $50,000 5.00 5.26 4.75
$50,000 but less than $100,000 4.00 4.17 3.75
$100,000 but less than $250,000 3.00 3.09 2.75
$250,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 and over 0.75 0.76 0.65
- --------------------------
*Rounded to the nearest one-hundredth percent.
</TABLE>
Quality Bond and U.S. Government Securities Portfolios. The public
offering price of Class A shares of the Quality Bond and U.S. Government
Securities Portfolios for purchasers choosing the initial sales charge
alternative is the next determined net asset value plus varying sales
charges, as set forth below.
25
<PAGE>
<TABLE>
<CAPTION>
Sales Charge
as Discount to
Sales Charge Percentage* Selected
as of Dealers as
Percentage the Net Percentage of
of Offering Amount the Offering
Amount of Purchase Price Invested Price
------------------ ----- -------- -----
<S> <C> <C> <C>
Less than $25,000 4.00% 4.17% 3.75%
$25,000 but less than $50,000 3.75 3.90 3.50
$50,000 but less than $100,000 3.25 3.36 3.00
$100,000 but less than $250,000 2.50 2.56 2.25
$250,000 but less than $1,000,000 1.50 1.52 1.25
$1,000,000 and over 0.50 0.50 0.40
- --------------------------
*Rounded to the nearest one-hundredth percent.
</TABLE>
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A
shares of the Portfolios will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act of
1933, as amended.
Reduced Initial Sales Charges. Sales charges are reduced under a Right
of Accumulation and a Letter of Intention. Class A shares of each Portfolio
are offered at net asset value to Directors of the Program, to directors or
trustees of certain other investment companies advised by the Investment
Adviser or its affiliate, 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, to directors of Merrill
Lynch & Co., Inc. ("ML&Co.") and to employees of ML&Co. and its subsidiaries.
Class A shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies. No initial sales
charges are imposed on Class A shares as a result of the automatic
reinvestment of dividends or capital gains distributions. Class A shares of
the Portfolios are also offered at net asset value to shareholders of certain
closed-end funds advised by the Investment Adviser or its affiliate who wish
to reinvest the net proceeds from a sale of their closed-end fund shares of
common stock in shares of the Portfolios, provided certain conditions are
met. Additional information concerning these reduced initial sales charges
is set forth in the Statement of Additional Information.
Initial sales charges on purchases of Class A shares of a Portfolio will
be waived for shareholders purchasing $1 million or more in a single
transaction. Purchases described in this paragraph will be subject to a CDSC
if the shares are redeemed within one year after purchase at the following
rates:
<TABLE>
<CAPTION>
Contingent Deferred Sales
Charge as a Percentage of
Amount of Purchase Dollar Amount of Purchase
------------------ -------------------------
Fundamental Value Quality Bond and
and U.S. Government
Global Opportunity Securities
Portfolios Portfolios
---------- ----------------
-----
<S> <C> <C>
$1 million up to $2.5 million . . . . 1.00% 0.75%
Over $2.5 million up to $3.5 million 0.60% 0.40%
Over $3.5 million up to $5 million . 0.40% 0.25%
Over $5 million . . . . . . . . . . . 0.25% 0.20%
</TABLE>
26
<PAGE>
Additional information regarding reduced initial sales charges is set
forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVE-CLASS B SHARES
Investors choosing the deferred sales charge alternative purchase Class
B shares at net asset value per share without the imposition of a sales
charge at the time of purchase. The Class B shares are being sold without an
initial sales charge so that the Portfolio will receive the full amount of
the investor's purchase payment. Merrill Lynch compensates its financial
consultants for selling Class B shares at the time of purchase from its own
funds. The proceeds of the CDSC and the ongoing distribution fee discussed
below are used to defray Merrill Lynch's expenses, including compensating its
financial consultants. The proceeds from the ongoing account maintenance fee
are used to compensate Merrill Lynch for providing continuing account
maintenance activities.
Proceeds from the CDSC are paid to the Distributor and are used in whole
or in part by the Distributor to defray the expenses of Merrill Lynch related
to providing distribution-related services to a Portfolio in connection with
the sale of the Class B shares, such as the payment of compensation to
financial consultants for selling Class B shares, from its own funds.
Payments by the Portfolio to the Distributor of the ongoing distribution fee
under the Distribution Plan relating to Class B shares also may be used in
whole or in part by the Distributor for this purpose. The combination of the
CDSC and the ongoing distribution fee facilitates the ability of the Portfolio
to sell the Class B shares without a sales charge being deducted at the time
of purchase. Class B shareholders of a Portfolio exercising the exchange
privilege described under "Shareholder Services --Exchange Privilege" will
continue to be subject to the Portfolio'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.
CDSC. Class B shares which are redeemed within four years of purchase
may be subject to a CDSC at the rates set forth below charged as a percentage
of the dollar amount subject thereto. The charge will be assessed on an
amount equal to the lesser of the current market value or the cost of the
shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition,
no charge will be assessed on shares derived from reinvestment of dividends
or capital gains distributions.
The following table sets forth rates of the CDSC:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge as a
Percentage of
Dollar Amount
Year Since Purchase Payment Made Subject to Charge
-------------------------------- -----------------
<S> <C>
0-1 . . . . . . . . . . . . . . . . . 4.0%
1-2 . . . . . . . . . . . . . . . . . 3.0%
2-3 . . . . . . . . . . . . . . . . . 2.0%
3-4 . . . . . . . . . . . . . . . . . 1.0%
4 and thereafter . . . . . . . . . . None
</TABLE>
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares
held longest during the four-year period. The charge will not be applied to
27
<PAGE>
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 purchased 100 shares at $10
per share (at a cost of $1,000) and in the third year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired
10 additional shares through dividend reinvestment. If at such time the
investor makes his first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to the charge because of dividend reinvestment.
With respect to the remaining 40 shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net asset value of
$2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 2.0% (the applicable rate in the third year after
purchase).
The CDSC is waived on redemptions of shares in connection with certain
post-retirement withdrawals from an IRA account or following the death or
disability (as defined in the Internal Revenue Code) of a shareholder.
Additional information concerning the waiver of the CDSC is set forth in the
Statement of Additional Information.
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 Portfolios'
distribution fees and the CDSC but not the account maintenance fees. As
applicable to the Portfolios, the maximum sales charge rule limits the
aggregate of ongoing distribution fee payments and CDSCs payable by each
Portfolio to (1) 6.25% of eligible gross sales of Class B shares (defined to
exclude shares issued pursuant to dividend reinvestments and exchanges) plus
(2) interest on the unpaid balance at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received from the
payment of the ongoing distribution fee and the CDSC). The Distributor has
agreed voluntarily to waive interest charges on the unpaid balance in excess
of 0.50% of eligible gross sales. Consequently, the maximum amount payable
to the Distributor (referred to as the "voluntary maximum") is 6.75% of
eligible gross sales. The Distributor retains the right to stop waiving the
interest charges at any time. To the extent payments would exceed the
voluntary maximum, the Portfolio in question will make no further payments of
the distribution fee, and any CDSC will be paid to the Portfolio rather than
to the Distributor; however, the Portfolio 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.
REDEMPTION OF SHARES
Distributions from an IRA to a participant prior to the time the
participant reaches age 591/2 may subject the participant to income and
excise taxes. See "Taxes". There are no adverse tax consequences resulting
from redemptions of shares of the Portfolios where the redemption proceeds
remain in the IRA account and are otherwise invested. Shareholders should
consult their tax advisers concerning tax consequences resulting from
redemptions of shares of the Portfolios. Shareholders should be aware,
however, that redemption of shares of a Portfolio and reinvestment of the
proceeds in shares of another fund advised by the Investment Adviser may
subject the investor's IRA to an annual IRA account fee. For information
about the current IRA fees charged by Merrill Lynch, consult the Merrill
Lynch Individual Retirement Account disclosure statement and the Merrill Lynch
Individual Retirement Account Custodial Agreement.
The Program is required to redeem for cash all full and fractional
shares of each Portfolio of the Program. The redemption price is the net
asset value per share next determined after the initial receipt by Merrill
Lynch of proper notice of redemption, as described below. If such notice is
received by Merrill Lynch prior to the determination of net asset value at
4:15 p.m., New York time, on any day, the redemption will be
28
<PAGE>
effective on that day and payment generally will be made on the next business
day. If the notice is received after 4:15 p.m., New York time, the
redemption will be effective on the next business day and payment will be
made on the second business day after receipt of the notice. Shareholders
liquidating their holdings will receive upon redemption all dividends
reinvested through the date of redemption. Accrued but unpaid dividends will
be paid on the payable date next following the date of redemption.
Any shareholder may redeem shares of the Portfolios by submitting a
written notice of redemption to Merrill Lynch. Participants in the Program
should contact their Merrill Lynch financial consultant to effect such
redemptions. Redemption requests should not be sent to the Program or to the
Transfer Agent. The notice must bear the signature of the person in whose
name the IRA is maintained, signed exactly as his or her name appears on the
IRA adoption agreement.
SHAREHOLDER SERVICES
The Program offers a number of shareholder services and investment plans
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 services or plans, or how to change
options with respect thereto, can be obtained from the Program by calling the
telephone number on the cover page hereof or from the Distributor or Merrill
Lynch.
Exchange Privilege. Class A and Class B shareholders of each Portfolio
have an exchange privilege with each other Portfolio of the Program, with a
money market fund advised by the Investment Adviser or its affiliates and
with certain other mutual funds advised by the Investment Adviser or its
affiliates. 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 SEC. If
pursuant to the exchange privilege, shares of any Portfolio are exchanged for
shares of a fund other than a Portfolio of the Program or of a money market
fund advised by the Investment Adviser or its affiliates, then the imposition
of the IRA annual account fee may result. For information about the current
IRA fees charged by Merrill Lynch, consult the Merrill Lynch Individual
Retirement Account disclosure statement and the Merrill Lynch Individual
Retirement Account Custodial Agreement.
Class A shareholders of a Portfolio may exchange their shares
("outstanding Class A shares") for Class A shares of another Portfolio, or
certain other funds advised by the Investment Adviser or its affiliates ("new
Class A shares") on the basis of relative net asset value per Class A share,
plus an amount equal to the difference, if any, between the sales charge
previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares.
Class B shareholders of each Portfolio may exchange their shares
("outstanding Class B shares") for Class B shares of another Portfolio, or
certain other funds advised by the Investment Adviser or its affiliates ("new
Class B shares") 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
outstanding Class B shares. Class B shareholders of a Portfolio exercising
the exchange privilege will be subject to the higher of the Program's CDSC
schedule or the CDSC schedule relating to the new Class B shares. In
addition, Class B shares of a Portfolio acquired through use of the exchange
privilege will be subject to the higher of the acquired Program's CDSC
schedule or the CDSC schedule relating to the Class B shares of the fund from
which the exchange has been made. For purposes of computing the CDSC that
may be payable upon the disposition of Class B shares, the holding period for
outstanding Class B shares is "tacked" to the holding period of the new Class
B shares.
Class A and Class B shareholders also may exchange their shares for
shares of a money market fund advised by the Investment Adviser or its
affiliates, but in the case of an exchange from Class B shares, the
29
<PAGE>
period of time that shares are held in a money market fund will not count
toward satisfaction of the holding period requirement for purposes of
reducing the CDSC.
MERRILL LYNCH HAS ADVISED THE PROGRAM THAT IT WILL NOT CHARGE AN ANNUAL
ACCOUNT FEE UPON ANY IRA WHICH IS THEN INVESTED SOLELY IN ONE OR MORE OF THE
PROGRAM'S PORTFOLIOS OR A MONEY MARKET FUND ADVISED BY THE INVESTMENT ADVISER
OR ITS AFFILIATES. IN THIS REGARD, EXCHANGE OF PORTFOLIO SHARES FOR SHARES
OF A FUND OTHER THAN A PORTFOLIO OF THE PROGRAM OR A MONEY MARKET FUND
ADVISED BY THE INVESTMENT ADVISER OR ITS AFFILIATES MAY RESULT IN THE
IMPOSITION OF AN ANNUAL INDIVIDUAL RETIREMENT ACCOUNT FEE. FOR
INFORMATION ABOUT THE CURRENT IRA FEES CHARGED BY MERRILL LYNCH, CONSULT THE
MERRILL LYNCH INDIVIDUAL RETIREMENT ACCOUNT DISCLOSURE STATEMENT AND THE
MERRILL LYNCH INDIVIDUAL RETIREMENT ACCOUNT CUSTODIAL AGREEMENT.
For further information, see "Shareholder Services--Exchange Privilege"
in the Statement of Additional Information.
Automatic Reinvestment of Dividends and Capital Gains Distributions.
All dividends and capital gains distributions of a Portfolio are reinvested
automatically in full and fractional shares of that Portfolio, at the net
asset value per share of the respective Portfolio next determined on the ex-
dividend date of such dividend or distribution in the case of the Fundamental
Value and Global Opportunity Portfolios and at the close of business on the
monthly payment date for such dividends and distributions in the case of the
Quality Bond and U.S. Government Securities Portfolios. A shareholder may,
at any time, by written notification to Merrill Lynch, elect to have
subsequent dividends or both dividends and capital gains distributions held
in the IRA as a cash balance rather than reinvested.
Systematic Redemption and Automatic Investment Plans. At age 591/2, a
Class A shareholder may elect to receive systematic redemption payments from
his or her account in the form of payments by check or through automatic
payment by direct deposit to his or her bank account on either a monthly or
quarterly basis. A Class A shareholder may elect to have shares redeemed on
a monthly, bimonthly, quarterly, semiannual or annual basis through the
Systematic Redemption Program, subject to certain conditions. Regular
additions of shares may be made to an investor's account by prearranged
charges of $50 or more to his regular bank account. See "Taxes" for
consequences of withdrawals from IRA accounts prior to attaining age 591/2.
In addition, Merrill Lynch offers an automated funding service which permits
regular current year IRA contributions of up to $2,000 per year to be made to
IRAs and an automated investment program which may be used for automated
subsequent purchases of shares of the Program.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Directors of the
Program, the Investment Adviser is primarily responsible for the Program's
portfolio decisions and the execution of the Program's portfolio
transactions. With respect to such transactions, the Investment Adviser
seeks to obtain the best results for each Portfolio, taking into account such
factors as price (including the applicable fee, brokerage commission or
dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved, the firm's risk in positioning a block of
securities and the provision of supplemental investment research by the firm.
While the Investment Adviser generally seeks reasonably competitive fees,
commissions or spreads, the Portfolios will not necessarily be paying the
lowest fee, commission or spread available.
The fixed income securities and certain equity securities in which the
Portfolios will invest are traded in the over-the-counter markets, and where
possible the Portfolios intend to deal directly with the dealers who make
markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Under the Investment
Company Act, except as permitted by exemptive order, persons affiliated with
the Program are prohibited from dealing with any Portfolio as principal in
the purchase and sale of securities. Since transactions in the over-the-
counter market usually involve transactions with dealers acting
30
<PAGE>
as principal for their own account, the Portfolios will not deal with
affiliated persons, including Merrill Lynch and its affiliates, in connection
with such transactions. In addition, the Portfolios may not purchase
securities during the existence of any underwriting syndicate for such
securities of which Merrill Lynch is a member except pursuant to procedures
approved by the Board of Directors of the Program which comply with rules
adopted by the Commission. Affiliated persons of the Program may serve as
its broker in over-the-counter transactions conducted on an agency basis.
No Portfolio has any obligation to deal with any broker or dealer in the
execution of its portfolio transactions. Subject to obtaining the best price
and execution, securities firms, including Merrill Lynch, which provide
supplemental investment research to the Investment Adviser may receive orders
for transactions by the Portfolios. Information so received is in addition
to and not in lieu of the services required to be performed by the Investment
Adviser under the Investment Advisory Agreement, and the expenses of the
Investment Adviser will not necessarily be reduced as a result of the receipt
of such supplemental information. Supplemental investment research received
by the Investment Adviser also may be used in connection with other
investment advisory accounts of the Investment Adviser and its affiliates.
Each Portfolio will pay brokerage fees to Merrill Lynch in connection with
portfolio transactions executed on its behalf by Merrill Lynch.
The Program anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States
generally will be conducted primarily on the principal stock exchanges of
such countries. Brokerage commissions and other transaction costs on foreign
stock exchange transactions are generally higher than in the United States
although the Portfolios will endeavor to achieve the best net results in
effecting such transactions. There is generally less governmental
supervision and regulation of foreign stock exchanges and brokers than in the
United States.
PERFORMANCE DATA
From time to time the Program may include each Portfolio's average
annual total return and, in the case of the Quality Bond and U.S. Government
Securities Portfolios, yield for various specified time periods in
advertisements or information furnished to present or prospective shareholders.
Average annual total return and yield are computed separately for each
Portfolio in accordance with formulas specified by the SEC.
Average annual total return quotations for each Portfolio for the
specified periods will be computed by finding the average annual compounded
rates of return (based on net investment income and any capital gains or
losses on portfolio investments over such periods) that would equate the
initial amount invested to the redeemable value of such investment at the end
of each period. Average annual total return will be computed assuming all
dividends and distributions are reinvested and taking into account all
applicable recurring and nonrecurring expenses, including the maximum sales
charge in the case of Class A shares and the 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 shares. Dividends paid by a Portfolio with respect to
Class A and Class B shares, to the extent any dividends are paid, will be
calculated in the same manner at the same time on the same day and will be in
the same amount, except that ongoing account maintenance and distribution
fees and any incremental transfer agency costs relating to Class B shares
will be borne exclusively by Class B shares, and the ongoing account
maintenance fee relating to Class A shares will be borne exclusively by Class
A shares. The Portfolios will include performance data for both Class A and
Class B shares of the Portfolio in any advertisement or information including
performance data of the Portfolio.
The Program also may quote each Portfolio's 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
31
<PAGE>
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 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.
Each Portfolio's total return may be expressed either as a percentage or as a
dollar amount in order to illustrate the effect of such total return on a
hypothetical $1,000 investment in the Program at the beginning of each
specified period.
Yield quotations will be computed based on a 30-day period by dividing
(a) the net income based on the yield of each security earned during the
period by (b) the average daily number of shares outstanding in the Portfolio
during the period that were entitled to receive dividends multiplied by the
maximum offering price/net asset value per share of that Portfolio on the
last day of the period.
Total return figures and yield figures are based on each Portfolio's
historical performance and are not intended to indicate future performance.
Each Portfolio's total return will vary depending on market conditions, the
securities comprising such Portfolio's holdings, the Portfolio's operating
expenses and the amount of realized and unrealized net capital gains or
losses during the period. The value of an investment in any Portfolio will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost.
On occasion, a Portfolio 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., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine and Fortune
Magazine. As with other performance data, performance comparisons should not
be considered representative of the Portfolio's relative performance for any
future period.
TAXES
FEDERAL
RICs. The following is a general summary of the treatment of
----
regulated investment companies ("RICs") and their shareholders under the
Code. The Program intends to elect and to qualify each Portfolio for the
special tax treatment afforded RICs under the Code. If it so qualifies, each
Portfolio (but not its shareholders) will not be subject to Federal income
tax on the part of its net ordinary income and net realized capital gains
which it distributes to Class A and Class B shareholders. If in any taxable
year a Portfolio does not qualify as a RIC, all of its taxable income will be
taxed to the Program at corporate rates. The Program intends to cause each
Portfolio to distribute substantially all of such income.
Dividends paid by a Portfolio from its ordinary income and distributions
of a Portfolio's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are ordinarily taxable to
shareholders as ordinary income. Distributions made from a Portfolio's net
realized long-term capital gains (including long-term gains from certain
transactions in futures or options) ("capital gain dividends") are ordinarily
taxable to shareholders as long-term capital gains, regardless of the length
of time the shareholder has owned Portfolio shares. Distributions in excess
of a Portfolio'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 of a RIC are ordinarily taxable to
shareholders even though they are reinvested in additional shares of the
Portfolio.
32
<PAGE>
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 Program or who, to the Program'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.
IRAs. Investment in the Portfolios is limited to participants in
----
IRAs for which Merrill Lynch acts as passive custodian. Accordingly, the
general description of the tax treatment of RICs as set forth above is
qualified with respect to the special tax treatment afforded IRAs under the
Code. Under the Code, neither ordinary income dividends nor capital gain
dividends represent current income to shareholders if such shares are held in
an IRA. Rather, distributions from an IRA will be taxable as ordinary income
at the rate applicable to the participant at the time of the distribution.
Such distributions would include (i) any pre-tax contributions to the IRA
(including pre-tax contributions that have been rolled over from another IRA
or qualified retirement plan), and (ii) dividends (whether or not such
dividends are classified as ordinary income or capital gain dividends). In
addition to ordinary income tax, participants may be subject to the
imposition of excise taxes on any distributed amount, including: (i) a 10
percent excise tax on any amount withdrawn from an IRA prior to the
participant's attainment of age 59 1/2; and (ii) a 15 percent excise tax on
the amount of any "excess distributions" (generally, amounts in excess of
$150,000) made from the IRA and any other IRA or qualified retirement plan
annually.
Under certain limited circumstances (for example, if an individual for
whose benefit an IRA is established engages in any transaction prohibited
under Section 4975 of the Code with respect to such account), the IRA could
cease to be treated as an IRA as of the first day of such taxable year that
such transaction occurred. If an IRA through which a shareholder holds
Portfolio shares becomes ineligible for the special treatment afforded IRAs
under the Code, such shareholder will be treated as having received a
distribution on such first day of the taxable year from the IRA in an amount
equal to the fair market value of all assets in the account. Thus, the
shareholder would be taxed currently on (i) the amount of any pre-tax
contributions and previously untaxed dividends held within the account, and
(ii) all ordinary income and capital gain dividends paid by Portfolio
subsequent to such event, whether such dividends are received in cash or
reinvested in additional shares. These ordinary income and capital gain
dividends also might be subject to state and local taxes. In the event of
IRA disqualification, shareholders also could be subject to the excise taxes
described above. Additionally, IRA disqualification may subject a
nonresident alien shareholder to a 30% United States withholding tax on
ordinary income dividends paid by a Portfolio unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty
law.
Dividends and interest received by the Global Opportunity Portfolio and,
to a lesser extent, the Fundamental Value Portfolio 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. Because of their participation in an IRA, shareholders will not be
able to credit or deduct such taxes in computing their taxable incomes.
However, in the event of IRA disqualification, as discussed above,
shareholders of the Global Opportunity Portfolio might be entitled to a
credit or deduction with respect to their proportionate shares of foreign
taxes paid by the Portfolio, subject to certain conditions and limitations in
the Code, if the Portfolio is eligible and makes an election with the
Internal Revenue Service. It is unlikely, however, that the Fundamental
Value Portfolio will be able to make this election.
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.
33
<PAGE>
STATE
Ordinary income and capital gain dividends on RIC shares held in a
disqualified IRA or outside of an IRA also may 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. Generally, however,
states exempt from state income taxation dividends on shares held within an
IRA, and commence taxation on such amounts when actually distributed from an
IRA. Such amounts are generally treated as ordinary income.
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 a Portfolio of the Program.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Program's intention to distribute substantially all of the net
investment income, if any, of each Portfolio. The net investment income of
the Quality Bond and U.S. Government Securities Portfolios is declared as
dividends daily immediately prior to the determination of the net asset value
of each Portfolio on that day. The net investment income of the Quality Bond
and U.S. Government Securities Portfolios for dividend purposes consists of
interest and dividends earned on portfolio securities, less expenses, in each
case computed since the most recent determination of net asset value.
Dividends from net investment income of the Fundamental Value and Global
Opportunity Portfolios will be declared at least annually. All net long-term
and short-term capital gains, if any, including gains from option and futures
contract transactions, will be distributed by each Portfolio at least
annually. Dividends and distributions on all Portfolios will be reinvested
in additional full and fractional shares of the Portfolio at net asset value
unless the shareholder elects to receive such dividends as cash in his or her
IRA account. Expenses of each Portfolio including the investment advisory
fees, distribution and account maintenance fees with respect to Class B
shares, and account maintenance fees with respect to Class A shares, are
accrued daily. Shares will accrue dividends as long as they are issued and
outstanding. Shares are issued and outstanding as of the settlement date of
a purchase order to the settlement date of a redemption order.
Premiums from expired call options written by a Portfolio and net gains
from closing purchase transactions are treated as short-term capital gains
for Federal income tax purposes. Dividends and distributions paid by a
Portfolio may be reinvested automatically in shares of the same Portfolio, at
net asset value without sales charge. Shareholders may elect in writing to
receive any such dividends or distributions, or both, as cash in their IRA
accounts. Dividends and distributions are, for tax purposes, treated by
shareholders as described above whether they are reinvested in shares of a
Portfolio or held in their IRA accounts as a cash balance.
Certain gains or losses attributable to foreign currency related gains
or losses from certain of the Global Opportunity Portfolio's investments, and
to a lesser extent, Fundamental Value Portfolio, may increase or decrease the
amount of such Portfolio's income available for distribution. If such losses
exceed other income during a taxable year, (a) the related Portfolio would
not be able to make any ordinary dividend distributions, and (b)
distributions made before the losses were realized would be recharacterized
as returns of capital to shareholders, rather than as ordinary dividends,
reducing each shareholder's tax basis in the Portfolio shares for Federal
income tax purposes. If in any fiscal year either Portfolio has net income
from certain foreign currency transactions, such income will be distributed
annually.
34
<PAGE>
The per share dividends and distributions on Class B shares will be
lower than the per share dividends and distributions on Class A shares as a
result of the effect of the distribution and higher transfer agency fees
applicable with respect to the Class B shares. See "Additional Information--
Determination of Net Asset Value".
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Portfolio is determined once
daily as of 4:15 p.m., New York time, on each day during which the New York
Stock Exchange is open for trading and, under certain circumstances, on other
days. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the afternoon of
valuation. The net asset value per share of a Portfolio is computed by
dividing the sum of the value of the securities held by such Portfolio 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, rounded to the nearest cent.
Expenses, including the investment advisory fees payable to the Investment
Adviser, are accrued daily.
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 mean between closing bid and
asked prices. Portfolio securities which are traded on European stock
exchanges are valued at the closing bid price on such exchange on the day the
securities are being valued or, if closing prices are unavailable, at the
last traded bid price available prior to the time the Portfolio's net asset
value is determined. On certain European exchanges there may be no separate
reporting of bid and asked quotations, and in such instances the Portfolio
will use the closing price on such exchange, or the last reported price if a
closing price is unavailable. Securities traded in the over-the-counter
market are valued at the last quoted bid prices as at the close of trading on
the New York Stock Exchange on each day by brokers that make markets in the
securities. 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. 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
Program.
The net asset value per share of the Class A and Class B shares of each
Portfolio are expected to be equivalent. Under certain circumstances,
however, the per share net asset value of the Class B shares of a Portfolio
may be lower than the per share net asset value of the Class A shares of that
Portfolio as a result of the ongoing distribution and higher transfer agency
fees applicable with respect to the Class B shares. Even under those
circumstances, the per share net asset value of the two classes eventually
will tend to converge immediately after the payment of dividends, which will
differ by approximately the amount of the expense accrual differential
between the classes.
Option Accounting Principles. When a Portfolio sells an option, an
amount equal to the premium received by the Portfolio is included in that
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of such liability subsequently will be marked-to-market to reflect the
current market value of the option written. If current market value exceeds
the premium received there is an unrealized loss; conversely, if the premium
exceeds current market value there is an unrealized gain. The current market
value of a traded option is the last sale price or, in the absence of a sale,
the last offering price. If an option expires on its stipulated expiration
date or if a Portfolio enters into a closing purchase transaction, the
affected Portfolio will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option will be extinguished. If an option is
exercised, the Program will realize a gain or loss from the sale of the
underlying security and the proceeds of sales are increased by the premium
originally received.
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<PAGE>
ORGANIZATION OF THE PROGRAM
The Program was incorporated under Maryland law on May 12, 1994. The
Program is an open-end management investment company comprised of separate
series ("Series"), each of which is a separate portfolio offering shares to
selected groups of purchasers. Each Series is to be managed independently.
At the date of this Prospectus, the Program has authorized capital of
100,000,000 shares of Common Stock, par value $0.10 per share, divided as
follows:
<TABLE>
<CAPTION>
Portfolio Shares of Class A Common Shares of Class B Common
--------- Stock Stock
----------------------- -----------------------
<S> <C> <C>
Fundamental Value 12,500,000 12,500,000
Quality Bond 12,500,000 12,500,000
U.S. Government 12,500,000 12,500,000
Securities
Global Opportunity 12,500,000 12,500,000
</TABLE>
The Program has received an order (the "Order") from the SEC permitting
the issuance and sale of multiple classes of shares, and the Directors of the
Program may classify and reclassify the shares of the Program into additional
Series or classes of common stock at a future date without shareholder
approval.
Both Class A and Class B shares of a Portfolio represent an interest
in the same assets of the Portfolio and have identical voting, dividend,
liquidation and other rights and the same terms and conditions except that
expenses related to the account maintenance fee of the Class A shares are
borne exclusively by that class and Class A shares have exclusive voting
rights with respect to matters relating to the Class A account maintenance
fee, and expenses relating to the account maintenance and distribution fees
of the Class B shares are borne exclusively by that class and Class B shares
have exclusive voting rights with respect to matters relating to the Class B
account maintenance and distribution fees. See "Purchase of Shares."
Shareholders are entitled to one vote for each full share and to
fractional votes for fractional shares held in the election of Directors
(to the extent hereinafter provided) and on other matters submitted to the
vote of shareholders. All shares of the Program have equal voting rights,
except that only shares of the respective Series are entitled to vote on
matters concerning only that Series and, as noted above, Class A and Class B
shares of a Series will have exclusive voting rights with respect to their
respective account maintenance and distribution arrangements. There normally
will be no meeting of shareholders for the purpose of electing Directors
unless and until such time as less than a majority of the Directors holding
office have been elected by shareholders, at which time the Directors then in
office will call a shareholders' meeting for the election of Directors.
Shareholders may, in accordance with the Articles of Incorporation of the
Program, cause a meeting of shareholders to be held for the purpose of voting
on the removal of Directors. Also, the Program will be required to call a
special meeting of shareholders of a Series in accordance with the requirements
of the 1940 Act to seek approval of new management and advisory arrangements,
of a material increase in distribution fees or of a change in the fundamental
policies, objectives or restrictions of a Series. Except as set forth above,
the Directors shall continue to hold office and appoint successor Directors.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared by the respective Series and in net
assets of such Series upon liquidation or dissolution remaining after
satisfaction of outstanding liabilities except that, as noted above, expenses
related to the account maintenance and distribution arrangements of the
Class A and Class B shares each Series will be borne solely by each
respective class. The obligations and liabilities of a particular Series
are restricted to the assets of that Series and do not extend to the assets of
the Program generally. Shares of each Series represent an interest only in
that Series and not in any other Series of the Program. The shares of each
Series, when issued, will be fully-paid and non-assessable by the Program.
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.
P.O. Box 45290
Jacksonville, FL 32232-5290
The written notification should include the shareholder's name, address,
tax identification number and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and/or mutual fund account numbers. If you have any questions
regarding this please call your Merrill Lynch financial consultant or
Financial Data Services, Inc. at 800-637-3863.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Program at the address or
telephone number set forth on the cover page of this Prospectus.
36
<PAGE>
APPENDIX A: OPTIONS AND FUTURES TRANSACTIONS
As described under "Other Investment Policies and Practices of the
Portfolios--Portfolio Strategies Involving Options and Futures", each
Portfolio is authorized to engage in various portfolio management strategies
involving options, futures and options on futures. These strategies are
described in detail below:
Writing Covered Options. Each Portfolio 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 a Portfolio in return
for a premium gives another party a right to buy specified securities owned
by the Portfolio 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, a
Portfolio 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 Portfolio's ability to sell the underlying security
will be limited while the option is in effect unless the Portfolio effects a
closing purchase transaction. A closing purchase transaction cancels out the
Portfolio'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.
Each Portfolio also may write put options which give the holder of the
option the right to sell the underlying security to the Portfolio at the
stated exercise price. A Portfolio will receive a premium for writing a put
option, which increases the Portfolio's return. The Portfolios write only
covered put options, which means that so long as the Portfolio is obligated
as the writer of the option it will, through its custodian, have deposited
and maintained cash, cash equivalents, U.S. Government securities or other
high grade liquid debt or equity securities denominated in U.S. dollars or
non-U.S. currencies with a securities depository with a value equal to or
greater than the exercise price of the underlying securities. By writing a
put, the Portfolio 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. A Portfolio may engage
in closing transactions in order to terminate put options that it has
written.
Purchasing Options. Each Portfolio is authorized to purchase put
options to hedge against a decline in the market value of its securities. By
buying a put option, a Portfolio has a right to sell the underlying security
at the exercise price, thus limiting the Portfolio's risk of loss through a
decline in the market value of the security until the put option expires.
The amount of any appreciation in the value of the underlying security will
be partially offset by the amount of the premium paid for the put option and
any related transaction costs. Prior to its expiration, a put option may be
sold in a closing sale transaction, and profit or loss from the sale will
depend on whether the amount received is more or less than the premium paid
for the put option plus the related transaction costs. A closing sale
transaction cancels out the Portfolio'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, a
Portfolio 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. A Portfolio 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 Portfolio
would exceed 5% of the market value of the Portfolio's total assets.
Stock Index Options. The Fundamental Value and Global Opportunity
Portfolios are authorized to engage in transactions in stock index options.
These Portfolios may purchase or write put and call options on stock indexes
to hedge against the risks of market-wide stock price movements in the
securities in which either Portfolio invests. Options on indexes 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. A Portfolio may invest in stock index
A-1
<PAGE>
options based on a broad market index, e.g., the S&P 500 Index, or on a
----
narrow index representing an industry or market segment, e.g., the AMEX
----
Oil & Gas Index.
Stock Index Futures and Interest Rate Futures Contracts. The
Fundamental Value and Global Opportunity Portfolios may purchase and sell
stock index futures contracts, and the Quality Bond, Global Opportunity and
U.S. Government Portfolios may purchase and sell interest rate futures
contracts, as a hedge against adverse changes in the market value of
portfolio securities, as described below. Stock index futures contracts and
interest rate futures contracts are herein together referred to as "futures
contracts".
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 financial instrument for a set price on a future date.
The terms of a futures contract require either actual delivery of the
financial instrument underlying the contract or, in the case of a stock index
futures contract, a 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 Fundamental Value and Global Opportunity Portfolios may
effect transactions in stock index futures contracts in connection with the
equity securities in which they invest; the Quality Bond, Global Opportunity
and U.S. Government Securities Portfolios may invest in interest rate futures
contracts in connection with the debt securities in which they invest.
Transactions by a Portfolio in futures contracts are subject to limitations
as described below under "Restrictions on the Use of Futures Transactions".
The Portfolios may sell futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of such
Portfolio's securities that might otherwise result. When a Portfolio is not
fully invested in the securities markets and anticipates a significant
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
Portfolio intends to purchase. As such purchases are made, an equivalent
amount of futures contracts will be terminated by offsetting sales. The
Program does not consider purchases of futures contracts by the Portfolios to
be a speculative practice under these circumstances. It is anticipated that,
in a substantial majority of these transactions, each Portfolio 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., a Portfolio experiences a significant amount of
redemptions), a
----
long futures position may be terminated without the corresponding purchase of
securities.
Each Portfolio also has authority to purchase and write call and put
options on futures contracts (and, in the case of the Fundamental Value and
Global Opportunity Portfolios, stock indexes) 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 a Portfolio enters into futures
transactions. A Portfolio may purchase put options or write call options on
futures contracts or stock indexes rather than selling the underlying futures
contract in anticipation of a decrease in the market value of its securities.
Similarly, a Portfolio may purchase call options, or write put options on
futures contracts or stock indexes, as a substitute for the purchase of such
futures contract to hedge against the increased cost resulting from an
increase in the market value of securities which the Portfolio intends to
purchase.
Each Portfolio may engage in options and futures transactions on U.S.
(and, in the case of the Fundamental Value and Global Opportunity Portfolios,
foreign) exchanges and in the over-the-counter markets ("OTC options"). In
general, exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by
----
an exchange or clearing corporation) with standardized strike prices and
expiration dates. OTC options are two-party contracts with prices and terms
negotiated by the buyer and seller. See "Restrictions on OTC Options" below
for information as to restrictions on the use of OTC options.
Foreign Currency Hedging. The Fundamental Value and Global Opportunity
Portfolios are authorized to deal in forward foreign exchange among
currencies of the different countries in which they will invest and
A-2
<PAGE>
multinational currency units as a hedge against possible variations in the
foreign exchange rates among these currencies. Foreign currency hedging 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 Fundamental Value and Global Opportunity
Portfolios' 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 Portfolio accruing in
connection with the purchase and sale of its portfolio securities, the sale
and redemption of shares of the Portfolio or the payment of dividends and
distributions by the Portfolio. Position hedging is the sale of forward
foreign currency with respect to portfolio security positions denominated or
quoted in such foreign currency. No Portfolio will speculate in forward
foreign exchange.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise.
Moreover, it may not be possible for a Portfolio to hedge against a
devaluation that is so generally anticipated that the Portfolio is not able
to contract to sell the currency at a price above the devaluation level it
anticipates.
The Fundamental Value and Global Opportunity Portfolios also are
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 Portfolio, sold by the Portfolio but not
yet delivered, or committed or anticipated to be purchased by the Portfolio.
As an illustration, a Portfolio may use such techniques to hedge the stated
value in U.S. dollars of an investment in a yen denominated security. In
such circumstances, for example, the Portfolio may purchase a foreign
currency put option enabling it to sell a specified amount of yen for dollars
at a specified price by a future date. To the extent the hedge is
successful, a loss in the value of the yen relative to the dollar will tend
to be offset by an increase in the value of the put option. To offset, in
whole or in part, the cost of acquiring such a put option, the Portfolio may
also sell a call option which, if exercised, requires it to sell a specified
amount of yen for dollars at a specified price by a future date (a technique
called a "straddle"). By selling such call option in this illustration, the
Portfolio gives up the opportunity to profit without limit from increases in
the relative value of the yen to the dollar. The Investment Adviser believes
that "straddles" of the type which may be utilized by the Fundamental Value
and Global Opportunity Portfolios constitute hedging transactions and are
consistent with the policies described above.
Certain differences exist between these foreign currency hedging
instruments. Foreign currency options provide the holder thereof the right
to buy or sell a currency at a fixed price on a future date. A futures
contract on a foreign currency is an agreement between two parties to buy and
sell a specified amount of a currency for a set price on a future date.
Futures contracts and options on futures contracts are traded on boards of
trade or futures exchanges. Neither the Fundamental Value nor the Global
Opportunity Portfolio will speculate in foreign currency options, futures or
related options. Accordingly, neither Portfolio will 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 Portfolio but not
yet delivered, the proceeds thereof in its denominated currency. The
Fundamental Value and Global Opportunity Portfolios each are limited
regarding potential net liabilities from foreign currency options, futures or
related options to no more than 20% of such Portfolio's total assets.
Restrictions on the Use of Futures Transactions. Regulations of the
Commodity Futures Trading Commission (the "CFTC") applicable to the
Portfolios provide that the futures trading activities described herein will
not result in any Portfolio being deemed a "commodity pool" as defined under
such regulations if each Portfolio adheres to certain restrictions. In
particular, a Portfolio may purchase and sell futures contracts and
A-3
<PAGE>
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 Portfolio's holdings, after taking into account unrealized
profits and unrealized losses on any such contracts and options. Margin
deposits may consist of cash or securities acceptable to the broker and the
relevant contract market.
When a Portfolio 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 in the name of the Portfolio with the
Program's custodian so that the amount so segregated, plus the amount of
initial and variation margin held in the account of its broker, equals the
market value of the futures contract, thereby ensuring that the use of such
futures contract is unleveraged.
Restrictions on OTC Options. The Portfolios may engage in OTC options,
including OTC stock index options, OTC foreign currency options and options
on foreign currency futures, only with such banks or dealers which have
capital of at least $50 million or whose obligations are guaranteed by an
entity having capital of at least $50 million.
The staff of the SEC has taken the position that purchased OTC options
and the assets used as cover for written OTC options are illiquid securities.
Therefore, each Portfolio has adopted an investment policy pursuant to which
it will not purchase or sell OTC options (including OTC options on futures
contracts) if, as a result of such transaction, the sum of the market value
of OTC options currently outstanding which are held by the Portfolio, the
market value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Portfolio and margin deposits on
the Portfolio's existing OTC options on futures contracts exceed 10% of the
total assets of the Portfolio, taken at market value, together with all other
assets of the Portfolio which are illiquid or are not otherwise readily
marketable. However, if the OTC option is sold by the Portfolio to a primary
U.S. Government securities dealer recognized by the Federal Reserve Bank of
New York and if the Portfolio has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Portfolio 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 each Portfolio and
may be amended by the Directors of the Program without the approval of the
Portfolio's shareholders. However, no Portfolio will change or modify this
policy prior to the change or modification by the SEC staff of its position.
Options on GNMA Certificates. The following information relates to
unique characteristics of options on GNMA Certificates. Since the remaining
principal balance of GNMA Certificates declines each month as a result of
mortgage payments, the U.S. Government Portfolio, as a writer of a GNMA call
holding GNMA Certificates as "cover" to satisfy its delivery obligation in
the event of exercise, may find that the GNMA Certificates it holds no longer
have a sufficient remaining principal balance for this purpose. Should this
occur, the Portfolio will purchase additional GNMA Certificates from the same
pool (if obtainable) or other GNMA Certificates in the cash market in order
to maintain its "cover".
A GNMA Certificate held by the Portfolio to cover an option position in
any but the nearest expiration month may cease to represent cover for the
option in the event of a decline in the GNMA coupon rate at which new pools
are originated under the FHA/VA loan ceiling in effect at any given time. If
this should occur, the Fund will no longer be covered, and the Fund will
either enter into a closing purchase transaction or replace such Certificate
with a certificate which represents cover. When the Portfolio closes its
position or replaces such Certificate, it may realize an unanticipated loss
and incur transaction costs.
A-4
<PAGE>
Risk Factors in Options and Futures Transactions. Utilization of
options and futures transactions to hedge a Portfolio involves the risk of
imperfect correlation in movements in the price of options and futures and
movements in the price of the securities or currencies which are the subject
of the hedge. If the price of the options or futures moves more or less than
the price of the hedged securities or currencies, the Portfolio will
experience a gain or loss which will not be completely offset by movements in
the price of the subject of the hedge. The successful use of options and
futures also depends on the Investment Adviser's ability to correctly predict
price movements in the market involved in a particular options or futures
transaction. To compensate for imperfect correlations, the Portfolio may
purchase or sell stock index options or futures contracts in a greater dollar
amount than the hedged securities if the volatility of the hedged securities
is historically greater than the volatility of the stock index options or
futures contracts. Conversely, the Portfolio may purchase or sell fewer
stock index options or futures contracts if the volatility of the price of
the hedged securities is historically less than that of the stock index
options or futures contracts. The risk of imperfect correlation generally
tends to diminish as the maturity date of the stock index option or futures
contract approaches.
The Portfolios intend to enter into options and futures transactions, on
an exchange or in the over-the-counter market, only if there appears to be a
liquid secondary market for such options or futures or, in the case of
over-the-counter transactions, the Investment Adviser believes the Portfolio
can receive on each business day at least two independent bids or offers.
However, there can be no assurance that a liquid secondary market will exist
at any specific time. Thus, it may not be possible to close an options or
futures position. The inability to close options and futures positions also
could have an adverse impact on the Portfolio's ability to hedge effectively
its portfolio. There is also the risk of loss by the Portfolio of margin
deposits or collateral in the event of bankruptcy of a broker with whom the
Portfolio has an open position in an option, a futures contract or related
option.
The exchanges on which the Portfolios intend to conduct options
transactions have generally established limitations governing the maximum
number of call or put options on the same underlying security or currency
(whether or not covered) which may be written by a single investor, whether
acting alone or in concert with others (regardless of whether such options
are written on the same or different exchanges or are held or written on one
or more accounts or through one or more brokers). "Trading limits" are
imposed on the maximum number of contracts which any person may trade on a
particular trading day. The Investment Adviser does not believe that these
trading and position limits will have any adverse impact on the portfolio
strategies for hedging the Portfolios' holdings.
A-5
<PAGE>
INVESTMENT ADVISER
Merrill Lynch Asset Management, L.P.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
Box 9011
Princeton, New Jersey 08543-9011
CUSTODIAN
( To be added.)
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Operations Department
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
( To be added.)
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO OFFERING IN ANY STATE IN WHICH
GIVE ANY INFORMATION OR TO MAKE SUCH OFFERING MAY NOT LAWFULLY BE
ANY REPRESENTATIONS, OTHER THAN MADE.
THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE --------------------
OFFER CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, TABLE OF CONTENTS
SUCH OTHER INFORMATION OR PAGE
REPRESENTATIONS MUST NOT BE RELIED ----
UPON AS HAVING BEEN AUTHORIZED BY
THE PROGRAM, THE INVESTMENT Fee Table . . . . . . . . . . . 4
ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
(ART) Shares of Common Stock
----------, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This Prospectus should be
retained for future reference.
Alternative Sales Arrangements 6
Risk Factors and Special
Considerations . . . . . . . . 8
Investment Objectives and
Policies . . . . . . . . . . 10
Fundamental Value Portfolio . 10
Quality Bond Portfolio . . . 10
U.S. Government Securities
Portfolio . . . . . . . . . 11
Global Opportunity Portfolio 11
Other Investment Policies and
Practices of the Portfolios 12
Management of the Program . . . 20
Board of Directors . . . . . 20
Management and Advisory
Arrangements . . . . . . . 21
Transfer Agency Services . . 22
Purchase of Shares . . . . . . 22
Redemption of Shares . . . . . 29
Shareholder Services . . . . . 29
Portfolio Transactions and
Brokerage . . . . . . . . . . 31
Performance Data . . . . . . . 31
Taxes . . . . . . . . . . . . . 33
Additional Information . . . . 34
Dividends and Distributions . 34
Determination of Net Asset
Value . . . . . . . . . . . . 35
Organization of the Program . 36
Shareholder Reports . . . . . 37
Shareholder Inquiries . . . . 37
Appendix -- Options and Futures
Transactions . . . . . . . A-1
---------------------------------
MERRILL LYNCH
RETIREMENT ASSET BUILDER PROGRAM,
INC.
Code #---------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED MAY 27, 1994
STATEMENT OF ADDITIONAL INFORMATION
- -----------------------------------
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
BOX 9011, PRINCETON, NEW JERSEY 08543-9011 -- PHONE NO. (609) 282-2800
Merrill Lynch Retirement Asset Builder Program, Inc. (the "Program") is
a professionally managed, open-end investment company. The Program consists
of four separate portfolios: the Fundamental Value Portfolio, the Quality
Bond Portfolio, the U.S. Government Securities Portfolio and the Global
Opportunity Portfolio (each a "Portfolio"). Each Portfolio has its own
separate investment objectives and may employ a variety of instruments and
techniques to enhance income and to hedge against market risk and, in the
case of the Fundamental Value and Global Opportunity Portfolios, currency
risk.
The Fundamental Value Portfolio is a diversified portfolio seeking
capital appreciation and, secondarily, income by investing in securities,
primarily equities, that the management of the Portfolio believes are
undervalued and therefore represent investment value.
The Quality Bond Portfolio is a diversified portfolio seeking income
and, secondarily, capital appreciation by investing primarily in long-term
corporate bonds that are rated A or better by a nationally recognized rating
agency such as Standard & Poor's Corporation ("S&P"), Moody's Investor
Service, Inc. ("Moody's") and Fitch Investor Services, Inc. ("Fitch"), or
that possess, in the judgment of the Investment Adviser, similar credit
characteristics.
The U.S. Government Securities Portfolio is a diversified portfolio
seeking high current return by investing in U.S. Government and government
agency securities, including Government National Mortgage Association
("GNMA") mortgage-backed securities and other mortgage-backed government
securities.
The Global Opportunity Portfolio is a diversified portfolio seeking high
total investment return through a fully-managed investment policy utilizing
United States and foreign equity, debt and money market securities, the
combination of which will be varied from time to time, both with respect to
types of securities and markets, in response to changing market and economic
trends.
------------------------
Each portfolio is a separate series of the Program issuing its own
shares. Shares of each Portfolio are available for purchase solely by
holders of the individual retirement plans, individual retirement rollover
accounts and simplified employee pension plans (collectively "IRAs") for which
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") acts as
custodian. For a description of the IRAs, see Appendix A to this Statement of
Additional Information.
Each Portfolio offers two classes of shares which may be purchased at a
price equal to the next determined net asset value per share, plus a sales
charge which, at the election of the purchaser, may be imposed (i) at the
time of purchase (the "Class A shares") or (ii) on a deferred basis (the
"Class B shares"). These alternatives permit an investor to choose the
method of purchasing shares that is most beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares and
other circumstances. Investors should understand that the purpose and
function of the contingent deferred sales charge ("CDSC") and the ongoing
distribution fee with respect to the Class B shares of each Portfolio are the
same as those of the initial sales charge with respect to the Class A shares
of that Portfolio. Each Class A and Class B share represents an identical
interest in the related Portfolio and
<PAGE>
has the same rights, except that Class B shares bear the expenses of the
ongoing distribution fee and certain other costs resulting from the deferred
sales charge arrangement. Both Class A and Class B shares bear the expenses
of an ongoing account maintenance fee at the annual rate of 0.25% of the
Portfolio's average daily net assets attributable to the Class A or Class B
shares, respectively. The two classes also have different exchange
privileges.
-----------------------
This Statement of Additional Information of the Program is not a
prospectus and should be read in conjunction with the prospectus of the
Program, dated ------- --, 1994 (the "Prospectus"), which has been filed with
the Securities and Exchange Commission and can be obtained, without charge,
by calling or by writing the Program at the above telephone number or
address. This Statement of Additional Information has been incorporated by
reference into the Prospectus.
-----------------------
MERRILL LYNCH ASSET MANAGEMENT--INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.--DISTRIBUTOR
-----------------------
The date of this Statement of Additional Information is _______ __, 1994.
2
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Program consists of four separate Portfolios: the Fundamental Value
Portfolio, the Quality Bond Portfolio, the U.S. Government Securities
Portfolio and the Global Opportunity Portfolio, each with its own separate
investment objectives. Each of the Portfolios pursues its investment
objectives through separate investment policies. Reference is made to
"Investment Objectives and Policies" in the Prospectus for a discussion of
the investment objectives and policies of each Portfolio.
FUNDAMENTAL VALUE PORTFOLIO
The Fundamental Value Portfolio seeks capital appreciation and,
secondarily, income by investing in securities, primarily equities, that the
Investment Adviser believes are undervalued and therefore represent
investment value.
Portfolio Turnover. The rate of portfolio turnover is not a limiting
factor and, given the Portfolio's investment policies, it is anticipated that
there may be periods when high portfolio turnover will exist. The use of
covered call options at times when the underlying securities are appreciating
in value may result in higher portfolio turnover. The Portfolio pays
brokerage commissions in connection with writing call options and effecting
closing purchase transactions, as well as in connection with purchases and
sales of portfolio securities. Although the Portfolio anticipates that its
annual portfolio turnover rates should not exceed 100%, the turnover rate may
vary greatly from year to year or during periods within a year. A high rate
of portfolio turnover results in correspondingly greater brokerage commission
expenses. The portfolio turnover rate for each of the Portfolios is
calculated by dividing the lesser of the Portfolio's annual sales or
purchases of portfolio securities (exclusive of purchases or sales of all
securities with maturities at the time of acquisition of one year or less) by
the monthly average value of the securities in the portfolio during the year.
QUALITY BOND PORTFOLIO
The Quality Bond Portfolio seeks a high level of current income through
investment primarily in securities rated in the top three rating categories
of a nationally recognized rating agency such as Moody's, S&P or Fitch or in
securities that possess, in the judgment of the Investment Adviser, similar
credit characteristics. The Quality Bond Portfolio seeks to achieve its
objectives by investing in a diversified portfolio of fixed-income
securities, including corporate bonds and notes, convertible and
nonconvertible debt securities and preferred stock and government
obligations.
Portfolio Turnover. The rate of portfolio turnover is not a limiting
factor when management deems it appropriate to purchase or sell securities.
The Portfolio expects that its annual turnover rate should not generally
exceed 100%; however, during periods when interest rates fluctuate
significantly, as they have during the past few years, the portfolio turnover
rate may be substantially higher. In any particular year, however, market
conditions could result in portfolio activity at a greater or lesser rate
than anticipated.
U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio seeks a high current return
through investments in U.S. Government and Government agency securities
("U.S. Government securities"), including GNMA mortgage-backed certificates,
and other mortgage-backed government securities.
3
<PAGE>
While the Portfolio has authority to invest in all U.S. Government
securities, it is anticipated that under certain market conditions, a
significant portion of its portfolio of U.S. Government securities may
consist of GNMA mortgage-backed certificates ("GNMA Certificates") and other
U.S. Government securities representing ownership interests in mortgage
pools. The Fund is authorized to acquire all types of U.S. Government
securities representing ownership interests in mortgage pools which are
presently issued or which may be issued in the future. In this regard, GNMA
recently began offering a pass-through security backed by adjustable-rate
mortgages. These securities bear interest at a rate which is adjusted either
quarterly or annually. The prepayment experience of the mortgages underlying
these securities may vary from that for fixed-rate mortgages. These
securities are eligible for purchase by the Portfolio.
Portfolio Turnover. The Investment Adviser will effect portfolio
transactions without regard to any holding period if, in its judgment, such
transactions are advisable in light of a change in general market, economic
or financial conditions. While the Portfolio anticipates that its annual
turnover rate should not exceed 400% under normal conditions, it is
impossible to predict portfolio turnover rates. A high portfolio turnover
rate involves correspondingly greater transaction costs in the form of dealer
spreads and brokerage commissions, which are borne directly by the Portfolio.
GLOBAL OPPORTUNITY PORTFOLIO
The Portfolio's investment objective is to seek a high total investment
return through a fully-managed investment policy utilizing United States and
foreign equity, debt and money market securities, the combination of which
will be varied from time to time both with respect to types of securities and
markets, in response to changing market and economic trends.
The U.S. Government has from time to time in the past imposed
restrictions, through taxation and otherwise, on foreign investments by U.S.
investors such as the Portfolio. If such restrictions should be
reinstituted, it might become necessary for the Portfolio to invest all or
substantially all of its assets in U.S. securities. In such event, the
Portfolio would review its investment objective and investment policies to
determine whether changes are appropriate. Any changes in the investment
objective or fundamental policies set forth under "Investment Restrictions"
below would require the approval of the holders of a majority of the
Portfolio's outstanding voting securities.
The Portfolio's ability and decisions to purchase or sell portfolio
securities may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of the
Portfolio are redeemable on a daily basis on each day the Portfolio
determines its net asset value in U.S. dollars, the Portfolio intends to
manage its portfolio so as to give reasonable assurance that it will be able
to obtain U.S. dollars to the extent necessary to meet anticipated
redemptions. See "Redemption of Shares". Under present conditions, the
Portfolio does not believe that these considerations will have any
significant effect on its portfolio strategy, although there can be no
assurance in this regard.
Portfolio Turnover. While it is the policy of the Portfolio generally
not to engage in trading for short-term gains, the Investment Adviser will
effect portfolio transactions without regard to holding period if, in its
judgment, such transactions are advisable in light of a change in
circumstances of a particular company or within a particular industry or due
to general market, economic or financial conditions. Accordingly, while the
Portfolio anticipates that its annual turnover rate should not exceed 200%
under normal conditions, it is impossible to predict portfolio
4
<PAGE>
turnover rates.
All of the Portfolios are subject to the Federal income tax requirement
that less than 30% of the Portfolio's gross income be derived from gains
from the sale or other disposition of securities held for less than three
months.
OTHER INVESTMENT POLICIES AND PRACTICES OF THE PORTFOLIOS
WRITING OF COVERED CALL OPTIONS. Each Portfolio may from time to time
write (i.e., sell) covered call options on its portfolio securities and enter
into closing purchase transactions with respect to certain of such options.
A call option is considered covered where the writer of the option owns the
underlying securities. By writing a covered call option, the Portfolio, in
return for the premium income realized from the sale of the option may give
up the opportunity to profit from a price increase in the underlying security
above the option exercise price. In addition, the Portfolio will not be able
to sell the underlying security until the option expires, is exercised or the
Program effects a closing purchase transaction as described below. A closing
purchase transaction cancels out the Program'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. If the option expires unexercised,
the Program realizes a gain in the amount of the premium received for the
option which may be offset by a decline in the market price of the underlying
security during the option period. The use of covered call options is not a
primary investment technique of any of the Portfolios and such options
normally will be written on underlying securities as to which management does
not anticipate significant short-term capital appreciation. In its use of
options, the Program's investment adviser has access to personnel of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") with extensive
experience in options research and strategy. No Portfolio may write covered
options on underlying securities exceeding 15% of that Portfolio's total
assets.
All options referred to herein and in the Program's Prospectus are
options issued by The Options Clearing Corporation (the "Clearing
Corporation") which are currently traded on the Chicago Board Options
Exchange, American Stock Exchange, Philadelphia Stock Exchange, Pacific Stock
Exchange or New York Stock Exchange. An option gives the purchaser of the
option the right to buy, and obligates the writer (seller) to sell the
underlying security at the exercise price during the option period. The
option period normally ranges from three to nine months from the date the
option is written. For writing an option, the Program receives a premium,
which is the price of such option on the exchange on which it is traded. The
exercise price of the option may be below, equal to, or above the current
market value of the underlying security at the time the option is written.
The writer may terminate its obligation prior to the expiration date of
the option by executing a closing purchase transaction which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously
written. Such a purchase does not result in the ownership of an option. A
closing purchase transaction ordinarily will be effected to realize a profit
on an outstanding call option, to prevent an underlying security from being
called, to permit the sale of the underlying security or to permit the
writing of a new call option containing different terms on such underlying
security. The cost of such a liquidation purchase plus transaction costs may
be greater than the premium received upon the original option, in which event
the Portfolio will have incurred a loss in the transaction. An option may be
closed out only on an exchange which provides a secondary market for an
option of the same series and there is no assurance that a liquid secondary
market on an exchange will exist for any particular option. A covered option
writer unable to effect a closing purchase transaction will not be able to
sell the underlying security until the option expires or the underlying
security is delivered upon exercise, with the result that the writer will be
subject to the risk of market decline in the underlying security during such
period. A Portfolio will write an option on a particular security only if
management believes that a liquid secondary market will exist on an exchange
for options of the same series which will permit the Portfolio to make a
closing purchase transaction in order to close out its position.
5
<PAGE>
Due to the relatively short time that exchanges have been dealing with
options, options involve risks of possible unforeseen events which can be
disruptive to the option markets or could result in the institution of
certain procedures, including restriction of certain types of orders.
INVESTMENT RESTRICTIONS. In addition to the investment restrictions set
forth in the Prospectus, each of the Portfolios 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 Portfolio's outstanding voting
securities (which for this purpose and under the Investment Company Act means
the lesser of (a) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (b) more than 50% of
the outstanding shares). The Portfolios may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase securities of other investment companies, except to
the extent such purchases are permitted by applicable law.
3. Purchase or sell real estate or real estate mortgage loans;
provided that the Portfolios may invest in securities secured by real
estate or interests therein or issued by companies which invest in real
estate or interests therein.
4. Make short sales of securities or maintain a short position
except to the extent permitted by applicable law.
5. Make loans to other persons except that the acquisition of
bonds, debentures, or other corporate debt securities and investment in
Government obligations, short-term commercial paper, certificates of
deposit and bankers' acceptances, repurchase agreements and similar
instruments shall not be deemed to be the making of a loan and except
further that the Portfolios may lend their portfolio securities as set
forth in restriction (6) below.
6. Lend their portfolio securities, except that such loans may be
made in accordance with applicable law and the guidelines set forth in
the Program's Prospectus and Statement of Additional Information.
7. Issue senior securities to the extent such issuance would
violate applicable law.
8. Borrow money or pledge its assets, except that each Portfolio
(a) may borrow from a bank as a temporary measure for extraordinary or
emergency purposes or to meet redemptions in amounts not exceeding 10%
(taken at market value) of that Portfolio's total assets and pledge its
assets to secure such borrowings, (b) may obtain such short-term credit
as may be necessary for the clearance of purchases and sales of
portfolio securities and (c) may purchase on margin to the extent
permitted by applicable law. No Portfolio will purchase securities
while borrowings exceed 5% (taken at market value) of its assets.
9. Invest in securities which cannot be readily resold because of
legal or contractual restrictions or which cannot otherwise be marketed,
redeemed, put to the issuer or a third party, or which do not mature
within seven days, or which the Board of Directors of the Program has
not determined to be liquid pursuant to applicable law, if at the time
of acquisition more than 15% of that Portfolio's assets, taken at
market value, would be invested in such securities.
6
<PAGE>
10. Underwrite securities of other issuers except insofar as the
Program technically may be deemed an underwriter under the Securities
Act of 1933 in selling portfolio securities.
11. Purchase or sell interests in oil, gas or other mineral
exploration or development programs, except that the Portfolios may
invest in securities issued by companies that engage in oil, gas or
other mineral exploration or development activities.
12. Purchase or sell commodities or commodity contracts, except to
the extent the Portfolios may do so in accordance with applicable law
and the Program's Prospectus and Statement of Additional Information,
and without registering as a commodity pool operator under the
Commodity Exchange Act.
Additional investment restrictions adopted by the Portfolios, which may
be changed by the Program's Board of Directors, provide that the Portfolios
may not:
a. 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 that Portfolio's net assets; included within such
limitation, but not to exceed 2% of that Portfolio'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 a Portfolio in units or attached to
securities may be deemed to be without value.
b. Invest in securities of companies having a record, together
with predecessors, of less than three years of continuous operation, if
more than 5% of that Portfolio'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.
c. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Program, the Investment Adviser
or any subsidiary thereof each owning 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.
d. Invest in real estate limited partnership interests or in oil,
gas or mineral leases.
e. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Program's
Prospectus and this Statement of Additional Information, as amended from
time to time.
Portfolio securities of the Portfolios generally may not be purchased
from, sold or loaned to the Investment Adviser or its affiliates or any of
their directors, officers or employees, acting as principal, unless pursuant
to a rule or exemptive order under the Investment Company Act of 1940, as
amended (the "Investment Company Act").
Notwithstanding the provisions of Investment Restriction (4) above, the
Portfolios do not currently intend to engage in short sales.
Because of the affiliation of the Investment Adviser with the Program,
the Portfolios are prohibited from engaging in certain transactions involving
the Investment Adviser's affiliate, 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 Portfolios
are prohibited from engaging in
7
<PAGE>
portfolio transactions with Merrill Lynch or its affiliates acting as
principal and from purchasing securities in public offerings which are not
registered under the Securities Act of 1933 in which such firms or any of
their affiliates participate as an underwriter or dealer.
LENDING OF PORTFOLIO SECURITIES. Subject to investment restriction (6)
above, the Portfolios may from time to time lend securities to brokers,
dealers and 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. Such cash collateral will be invested
in short-term securities, which will increase the current income of that
Portfolio. Such loans will be terminable at any time. The Portfolio 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. The Portfolio may pay reasonable
fees to persons unaffiliated with the Portfolio for services in arranging
such loans.
INVESTMENT IN FOREIGN ISSUERS. Subject to investment restriction (9)
above, the Fundamental Value, Quality Bond and Global Opportunity Portfolios
may invest in securities of foreign issuers. Foreign companies may not be
subject to uniform accounting and auditing and financial reporting standards
or to practices and requirements comparable to those applicable to domestic
issuers. Securities of foreign issuers may be less liquid and more volatile
than securities of United States issuers. Investment in foreign securities
also involves certain risks, including fluctuations in foreign exchange
rates, political and economic developments and the possible imposition of
exchange controls.
MANAGEMENT OF THE PROGRAM
DIRECTORS AND OFFICERS
The Directors and executive officers of the Program and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is Box
9011, Princeton, New Jersey 08543-9011.
(To Be Provided By Amendment.)
- -----------------------
(1) Interested person, as defined in the Investment Company Act, of the
Program.
(2) Such Director or officer is a director or officer of certain other
investment companies for which the Investment Adviser or its affiliates
act as investment adviser(s).
At ___________, 1994, the Directors and officers of the Program as a
group (__ persons) owned an aggregate of less than 1/4 of 1% of the
outstanding shares of the Program. At that date, Mr. Zeikel, a Director of
the Program, and the officers of the Program owned less than 1/4 of 1% of the
outstanding Common Stock of Merrill Lynch & Co., Inc.
Pursuant to the terms of the Program's investment advisory agreement
with the Investment Adviser relating to each Portfolio (each an "Investment
Advisory Agreement"), the Investment Adviser pays all compensation of
officers and employees of the Program as well as the fees of all Directors of
the Program who are affiliated persons of Merrill Lynch & Co., Inc. or its
subsidiaries. Each unaffiliated Director is paid a fee by the Program plus
actual
8
<PAGE>
out-of-pocket expenses for each meeting of the Board of Directors which he
attends. The Program also compensates each member of the Audit Committee,
which consists of the unaffiliated Directors.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Program -- Management and
Advisory Arrangements" in the Prospectus for certain information concerning
the management and advisory arrangements of the Program.
The Investment Advisory Agreements provide that, subject to the
direction of the Board of Directors of the Program, the Investment Adviser is
responsible for the actual management of that Portfolio and for the review of
that Portfolio's holdings in light of its own research analysis and analyses
from other relevant sources. The responsibility for making decisions to buy,
sell or hold a particular security rests with the Investment Adviser, subject
to review by the Board of Directors. The Investment Adviser supplies the
portfolio managers for each Portfolio, who consider analyses from various
sources, make the necessary investment decisions and place transactions
accordingly. The Investment Adviser also is obligated to perform certain
administrative and management services for the Portfolios and is required to
provide all the office space, facilities, equipment and personnel necessary
to perform its duties under the Investment Advisory Agreement. The
Investment Adviser has access to the total securities research, economic
research and computer applications facilities of Merrill Lynch and makes
extensive use of these facilities.
Securities held by the Portfolios also may be held by or be appropriate
investments for other funds for which the Investment Adviser or its
affiliates act as adviser or by investment advisory clients of the
Investment Adviser. Because of different investment 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 for the Program or other funds for which the Investment Adviser or
its affiliates act as investment adviser or for their advisory clients arise
for consideration at or about the same time, transactions in such securities
will be made, insofar as feasible, for the respective funds and clients in a
manner deemed equitable to all. To the extent that transactions on behalf of
more than one client of the Investment Adviser or its affiliates during the
same period may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
As a compensation for its services to the Portfolios, the Investment
Adviser will receive from each Portfolio a monthly fee based on the average
daily value of that Portfolio's net assets at the following annual rates:
<TABLE>
<CAPTION>
Fundamental Quality U.S. Government Global
Value Bond Securities Opportunity
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C>
____% ____% ____% ____%
</TABLE>
The State of California imposes limitations on the expenses of the
Program. At the date of this Statement of Additional Information, the
limitations require that the Investment Adviser reimburse the Program in an
amount necessary to prevent the aggregate ordinary operating expenses of the
Program (excluding interest, taxes, brokerage fees and commissions and
extraordinary charges such as litigation costs) from exceeding in any fiscal
year 2.5% of the Program's first $30 million of average daily net assets,
2.0% of the next $70 million of average daily net assets and 1.5% of the
remaining average daily net assets. No fee payment will be made to the
Investment Adviser during any fiscal year which will cause such expenses to
exceed the pro rata expense limitation at the time of such payment.
Each Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and
furnish office space for officers and employees of the Portfolios
9
<PAGE>
connected with investment and economic research, trading and investment
management of the Portfolios, as well as the fees of all Directors of the
Program who are affiliated persons of Merrill Lynch & Co., Inc. or any of its
subsidiaries. Each Portfolio pays all other expenses incurred in the
operation of that Portfolio, including, among other things, taxes, expenses
for legal and auditing services, costs of printing proxies, stock
certificates, shareholder reports, prospectuses and statements of additional
information (except to the extent paid by the Distributor), charges of the
custodian and the transfer agent, expenses of redemption of shares,
Securities and Exchange Commission fees, expenses of registering the shares
under Federal and state securities laws, fees and expenses of unaffiliated
Directors, accounting and pricing costs (including the daily calculations of
net asset value), insurance, interest, brokerage costs, litigation and other
extraordinary or non-recurring expenses, and other expenses properly payable
by the Portfolios. Accounting services are provided for the Portfolios by
the Investment Adviser and the Portfolios reimburse the Investment Adviser
for its costs in connection with such services. As required by the
Distribution Agreements, the Distributor will pay certain of the expenses of
the Portfolios incurred in connection with the offering of shares of each
Portfolio, including the expenses of printing the prospectuses and statements
of additional information used in connection with the continuous offering of
shares by the Portfolios.
DURATION AND TERMINATION. Unless earlier terminated as described below,
each of the Investment Advisory Agreements will remain in effect from year to
year if approved annually (a) by the Board of Directors of that Portfolio or
by a majority of the outstanding shares of that Portfolio and (b) by a
majority of the Directors who are not parties to such contract or interested
persons (as defined in the Investment Company Act) of any such party. Such
contract is not assignable and may be terminated without penalty on 60 days'
written notice at the option of either party or by the vote of the
shareholders of the Portfolios.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" and "Redemption of Shares" in
the Prospectus for certain information as to the purchase of shares of the
Portfolios.
The Program will offer shares solely to holders of IRAs for which
Merrill Lynch acts as custodian. The minimum initial purchase in any
Portfolio is $100 and the minimum subsequent purchase in any Portfolio is $1.
The Distributor, a subsidiary of the Investment Adviser, acts as the
distributor of the shares of the Program. The applicable offering price for
purchase orders is based on the net asset value of the Portfolio next
determined after receipt of the purchase orders by the Distributor. As to
purchase orders received by securities dealers prior to 4:15 P.M., New York
time, which includes orders received after the determination of net asset
value on the previous day, the applicable offering price will be based on the
net asset value determined as of 4:15 P.M., New York time, on the day the
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 by the Distributor prior to 4:30 P.M., New
York time, such orders shall be deemed received on the next business day.
Any order may be rejected by the Distributor or the Program. The Program or
the Distributor may suspend the continuous offering of any Portfolio's shares
at any time in response to conditions in the securities markets or otherwise
and may thereafter resume such offering from time to time. Neither the
Distributor nor the dealers are permitted to withhold placing orders to
benefit themselves by a price change. Merrill Lynch may charge its customers
a processing fee (presently $4.85) to confirm a sale of shares to such
customers.
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ALTERNATIVE SALES ARRANGEMENTS
Each of the Portfolios issues two classes of shares: Class A shares are
sold to investors choosing the initial sales charge alternative and Class B
shares are sold to investors choosing the deferred sales charge alternative.
the two classes of shares each represent interests in the same investment
portfolio, have the same rights and are identical in all respects, except
that Class B shares bear the expenses of the ongoing distribution fee and
certain other costs resulting from the deferred sales arrangements and any
expenses (including incremental transfer agency costs) resulting from such
sales arrangements. Both Class A and Class B shares are subject to an ongoing
account maintenance fee. Each class has exclusive voting rights with respect
to the Rule 12b-1 distribution plan pursuant to which the ongoing account
maintenance and distribution fees, in the case of the Class B shares, and the
ongoing account maintenance fee, in the case of the Class A shares, are paid.
The two classes also have different exchange privileges. See "Shareholder
Services-Exchange Privilege". If pursuant to the exchange privilege, shares
of any Portfolio are exchanged for shares of a fund other than a Portfolio of
the Program or a money market fund advised by the Investment Adviser or its
affiliates, then the imposition of the IRA annual account fee may result.
For information about the current IRA fees charged by Merrill Lynch, consult
the Merrill Lynch Individual Retirement Account disclosure statement and the
Merrill Lynch Individual Retirement Account Custodial Agreement. Portfolio
shares may only be purchased by and held in an IRA for which Merrill Lynch
acts as custodian. Portfolio shares may not be transferred out of the IRA
either to a Merrill Lynch brokerage account or to an IRA or other brokerage
account maintained at a broker other than Merrill Lynch. Prior to effecting
any such transfer, Portfolio shares would either be redeemed for cash or
exchanged for shares of another mutual fund in accordance with the exchange
privilege.
Each of the Portfolios has entered into a separate distribution
agreement with the Distributor in connection with the continuous offering of
that Portfolio's Class A and Class B shares (the "Distribution Agreements").
The Distribution Agreements obligate the Distributor to pay certain expenses
in connection with the offering of the Class A and Class B shares of the
Portfolios. After the prospectuses, statements of additional information and
periodic reports have been prepared, set in type and mailed to shareholders,
the Distributor pays for the printing and distribution of copies thereof used
in connection with the offering to dealers and investors. The Distributor
also pays for other supplementary sales literature and advertising costs.
The Distribution Agreements are subject to the same renewal requirements and
termination provisions as the Investment Advisory Agreements described above.
Distribution Plans. Reference is made to "Purchase of Shares-
Distribution Plans" in the Prospectus for certain information with respect to
the Distribution Plans of the Portfolios.
The payment of the ongoing account maintenance fee with respect to
Class A shares, and the ongoing account maintenance and distribution fees
with respect to Class B shares, is subject to the provisions of Rule 12b-1
under the Investment Company Act. See "General Information--Description
of Shares". 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 and/or distribution fees paid to
the Distributor. In their consideration of the Distribution Plans, the
Directors must consider all factors they deem relevant, including information
as to the benefits of the Distribution Plans to the Program and its
shareholders. Each Distribution Plan further provides that, so long as the
Distribution Plan remains in effect, the selection and nomination of
Directors who are not "interested persons" of the Program, 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 each Distribution
Plan will benefit the respective Portfolio and its shareholders. Any
Distribution Plan may be terminated at any time, without penalty, by the
vote of a majority of the Independent Directors or by the vote of the holders
of a majority of the outstanding Class A or Class B voting securities of that
Portfolio voting separately by class.
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No Distribution Plan can be amended to increase materially the amount to be
spent by the Program without approval by the related class of shareholders,
and all material amendments are required to be approved by the vote of
Directors, including a majority of the Independent Directors who have no
direct or indirect financial interest in the Distribution Plan, cast in
person at a meeting called for that purpose. Rule 12b-1 further requires
that the Program preserve copies of each of the Distribution Plans and any
reports made pursuant to such plans for a period of not less than six years
from the date of such Distribution Plans or such reports, the first two years
in an easily accessible place.
INITIAL SALES CHARGE ALTERNATIVE-CLASS A SHARES
The term "purchase" as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A shares of
any Portfolio, refers to a single purchase by an individual, or to concurrent
purchases, which in the aggregate are at least equal to the prescribed
amounts, by an individual, his spouse and their children under the age of 21
years purchasing shares for his or their own account and single purchases by
a trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account 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 any Portfolio or 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.
REDUCED INITIAL SALES CHARGES-CLASS A SHARES
Right of Accumulation. The reduced sales charges are applicable through
a right of accumulation under which eligible investors are permitted to
purchase Class A shares of any Portfolio at the offering price applicable to
the total of (a) the dollar amount then being purchased plus (b) an amount
equal to the then current net asset value or cost, whichever is higher, of
the purchaser's combined holdings of the Class A and Class B shares of the
Portfolios and of any other investment company with an initial sales charge
or a deferred sales charge for which the Distributor acts as the distributor.
For any such right of accumulation to be made available, the Distributor must
be provided at the time of purchase, by the purchaser or the purchaser's
securities dealer, with sufficient information to permit confirmation of
qualification. Acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time.
Letter of Intention. Reduced sales charges are applicable to purchases
aggregating (a) $10,000 or more of shares of the Fundamental Value and Global
Opportunity Portfolios or (b) $25,000 or more of shares of the Quality Bond
and U.S. Government Securities Portfolios; or in each case of any other
investment company with a sales charge for which the Distributor acts as the
distributor made within a thirteen-month period starting with the first
purchase pursuant to a Letter of Intention. The Letter of Intention is not a
binding obligation to purchase any amount of 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 shares of the Program, and of
other investment companies with an initial sales charge or a deferred sales
charge for which the Distributor acts as the distributor, presently held, at
cost or maximum offering price (whichever is higher), on the date of the
first purchase under the Letter of Intention, may be included as a credit
toward the completion of such Letter. If the total amount of shares
purchased does not equal
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the amount stated in the Letter of Intention (minimum of $10,000 in the case
of the Fundamental Value and Global Opportunity Portfolios and $25,000 in the
case of the Quality Bond and U.S. Government Security Portfolios), 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 shares purchased
at the reduced rate and the sales charge applicable to the shares actually
purchased through the Letter. Shares equal to five percent of the intended
amount will be held in escrow during the thirteen-month period (while
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 that further reduced percentage sales charge, 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 Treasury 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 Program.
Purchase Privileges of Certain Persons. Directors of the Program,
directors and trustees of certain other Merrill Lynch-sponsored investment
companies, directors of ML&Co., employees of ML&Co. and its subsidiaries, and
any trust, pension, profit-sharing or other benefit plan for such persons,
may purchase shares of any Portfolio at net asset value. Class A shares of
the Portfolios 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 purchase Class A shares of a Portfolio
or Portfolios with proceeds from a redemption of shares of a mutual fund that
was sponsored by the financial consultant's previous firm and imposed a sales
charge either at the time of purchase or on a deferred basis. Second, such
redemption must have been made within 60 days prior to the investment in the
Program, and the proceeds from the redemption must have been maintained in
the interim in cash or a money market fund. 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.
Class A shares of the Portfolios are offered at net asset value to
shareholders of certain closed-end funds advised by the Investment Adviser or
its affiliates who wish to reinvest the net proceeds from a sale of their
closed-end fund shares of common stock by placing them in an IRA for which
Merrill Lynch acts or will act as custodian and purchasing shares of the
Program in that IRA. In order to exercise this investment option, closed-end
fund shareholders must (i) sell their closed-end fund shares through Merrill
Lynch and reinvest the proceeds immediately in the Program, (ii) have
acquired the shares in the closed-end fund's initial public offering or
through reinvestment of dividends earned on shares purchased in such
offering, (iii) have maintained their closed-end fund shares continuously in
a Merrill Lynch account, and (v) purchase a minimum of $100 worth of Program
shares.
Acquisition of Certain Investment Companies. The public offering price
of Class A shares of any Portfolio may be reduced to the net asset value per
Class A share in connection with the acquisition of the assets of or merger
or consolidation with a public or private investment company. The value of
the assets or company acquired in a tax-free transaction may be adjusted in
appropriate cases to reduce possible adverse tax consequences to the Program
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 Program.
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Reductions in or exemptions from the imposition of a sales charge are
due to the nature of the investors and/or the reduced sales efforts that will
be needed in obtaining such investments.
As described in Appendix A, there are three types of self-directed plans
which are eligible to invest in the Portfolios: the individual retirement
account, the individual retirement rollover account ("IRRA") and the
Simplified Employee Pension Plan ("SEP-IRA") (collectively, "IRAs").
Although the amount which may be contributed to an IRA account in any one
year is subject to certain limitations, assets already in an IRA account may
be invested in the Portfolios without regard to such limitations.
Shareholders considering transferring a tax-deferred account such as an
IRA from Merrill Lynch to another brokerage firm or financial institution
should be aware that Program shares may only be held in a Merrill Lynch
custodied IRA. Prior to any such transfer, a shareholder must either redeem
the shares so that the cash proceeds can be transferred to the account at the
new firm or exchange the shares for shares of another mutual fund advised by
the Investment Adviser or its affiliates pursuant to the exchange privilege.
It is possible, however, that the firm to which the retirement account is to
be transferred will not take delivery of shares of such fund, and then the
shareholder would have to redeem these shares so that the cash proceeds can
be transferred or continue to maintain an IRA account at Merrill Lynch for
those shares.
Cash balances of participants who elect to have such funds automatically
invested in shares of a Portfolio will be invested as follows. Cash Balances
arising from the sale of securities held in the IRA account which do not
settle on the day of the transaction (such as most common and preferred stock
transactions) become available to the Program and will be invested in shares
of a Portfolio on the business day following the day that proceeds with
respect thereto are received in the IRA account. Proceeds giving rise to
cash balances from the sale of securities held in the IRA account settling on
a same day basis and from principal repayments on debt securities held in the
account become available to the Program and will be invested in shares of a
Portfolio on the next business day following receipt. Cash balances arising
from dividends or interest payments on securities held in the IRA account or
from a contribution to the IRA account are invested in shares of the
Portfolios on the business day following the date the payment is received in
the IRA account.
Merrill Lynch has advised the Program that it will not charge an annual
account fee upon any IRA which is then invested solely in one or more of the
Program's Portfolios or in a money market fund advised by the Investment
Adviser or its affiliates. If, however, a shareholder of any of the
Portfolios exchanges any of his or her shares of a Portfolio for shares of
another fund advised by the Investment Adviser or its affiliates, other than
shares of a Portfolio or a money market fund advised by the Investment
Adviser or its affiliates, then Merrill Lynch will reinstate the IRA annual
account fee. For information about the current IRA fees charged by Merrill
Lynch, consult the Merrill Lynch Individual Retirement Account disclosure
statement and the Merrill Lynch Individual Retirement Account Custodial
Agreement.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for
certain information as to the redemption and repurchase of shares of the
Portfolios.
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 Securities and
Exchange 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
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as a result of which disposal of portfolio securities or determination of the
net asset value of any Portfolio 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 Portfolios.
Distributions from an IRA account to a participant prior to the time the
participant reaches age 591/2 may subject the participant to income and
excise taxes. See "Taxes". There are, however, no adverse tax consequences
resulting from redemptions of shares of the Portfolios where the redemption
proceeds remain in the IRA account and are otherwise invested.
The Program is required to redeem for cash all full and fractional
shares of each Portfolio of the Program. The redemption price is the net
asset value per share next determined after the initial receipt of proper
notice of redemption as described below. If such notice is received by
Merrill Lynch prior to the determination of net asset value at 4:15 p.m., New
York time, on any day, the redemption will be effective on that day and
payment generally will be made on the next business day. If the notice is
received after 4:15 p.m., New York time, the redemption will be effective on
the next business day and payment will be made on the second business day
after receipt of the notice. Shareholders liquidating their holdings will
receive upon redemption all dividends reinvested through the date of
redemption. Accrued but unpaid dividends will be paid on the payable date
next following the date of redemption.
Any shareholder may redeem shares of the Portfolios by submitting a
written notice of redemption to Merrill Lynch. Participants in the Program
should contact their Merrill Lynch financial consultant to effect such
redemptions. Redemption requests should not be sent to the Program or to its
Transfer Agent. The notice must bear the signature of the person in whose
name the IRA is maintained, signed exactly as his or her name appears on the
IRA adoption agreement.
CONTINGENT DEFERRED SALES CHARGE-CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares-Deferred Sales
Charge Alternative-Class B Shares", while Class B shares redeemed within four
years of purchase may be subject to a CDSC under most circumstances, the
charge is waived on redemptions of Class B shares in connection with certain
post-retirement withdrawals from an IRA account or following the death or
disability of a Class B shareholder. Redemptions for which the waiver
applies are any partial or complete redemption following the death or
disability (as defined in the Code) of a Class B shareholder (including one
who owns the Class B shares as joint tenant with his or her spouse), provided
the redemption is requested within one year of the death or initial
determination of disability.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Reference is made to "Portfolio Transactions and Brokerage" in the
Prospectus. Subject to policies established by the Board of Directors of the
Program, the Investment Adviser is primarily responsible for the portfolio
decisions of each of the Portfolios and the placing of the portfolio
transactions for each of the Portfolios. With respect to such transactions,
the Investment Adviser seeks to obtain the best net results for each
Portfolio, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty
of execution and operational facilities of the firm involved and the firm's
risk in positioning a block of securities. While the Investment Adviser
generally seeks reasonably competitive commission rates, the Portfolios will
not necessarily be paying the lowest commission or spread available.
Transactions with respect to the securities of small and emerging growth
companies in which the Fundamental Value Portfolio may invest may involve
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specialized services on the part of the broker or dealer and thereby entail
higher commissions or spreads than would be the case with transactions
involving more widely traded securities of more established companies. The
Portfolios have no obligation to deal with any broker in the execution of
transactions for its portfolio securities. In addition, consistent with the
Rules of Fair Practice of the National Association of Securities Dealers,
Inc. and policies established by the Directors of the Program, the Investment
Adviser may consider sales of shares of the Portfolios as a factor in the
selection of brokers or dealers to execute portfolio transactions for the
Portfolios.
The Program has been informed by Merrill Lynch that it will in no way,
at any time, attempt to influence or control the placing by the Investment
Adviser or by the Program of orders for brokerage transactions. Brokers and
dealers, including Merrill Lynch, who provide supplemental investment
research (such as securities and economic research and market forecasts) to
the Investment Adviser may receive orders for transactions by the Portfolios.
If, in the judgment of the Investment Adviser, a Portfolio will be benefited
by such supplemental research services, the Investment Adviser is authorized
to pay commissions to brokers furnishing such services which are in excess of
commissions which another broker may charge for the same transaction.
Information so received is in addition to and not in lieu of the services
required to be performed by the Investment Adviser under the Investment
Advisory Agreement with the Program, and the expenses of the Investment
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information. Supplemental investment research received by the
Investment Adviser may also be used in connection with other investment
advisory accounts of the Investment Adviser and its affiliates.
The Portfolios also may invest in securities traded in the over-the-
counter market. Transactions in the over-the-counter market generally are
principal transactions with dealers and the costs of such transactions
involve dealer spreads. With respect to the over-the-counter transactions,
the Portfolios, where possible, will deal directly with the dealers who make
a market in the securities involved except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually
act as principals for their own account. On occasion, securities may be
purchased directly from the issuer. Bonds and money market securities are
generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. The cost of portfolio securities transactions
of the Quality Bond and the U.S. Government Securities Portfolios will
consist primarily of dealer or underwriter spreads.
Under the Investment Company Act, persons affiliated with the Program
are prohibited from dealing with the Portfolios as a principal in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Securities and Exchange Commission (the
"Commission"). Since transactions in the over-the-counter market usually
involve transactions with dealers acting as principal for their own account,
affiliated persons of the Program, including Merrill Lynch, may not serve as
the Program's dealer in connection with such transactions. See "Investment
Objectives and Policies -- Investment Restrictions". However, affiliated
persons of the Program may serve as its broker in the over-the-counter
transactions conducted on an agency basis.
The ability and decisions of the Global Opportunity and Fundamental
Value Portfolios to purchase or sell portfolio securities may be affected by
laws or regulations relating to the convertibility and repatriation of
assets. Because the shares of the Portfolios are redeemable on a daily basis
in U.S. dollars, the Global Opportunity and Fundamental Value Portfolios
intend to manage their portfolios so as to give reasonable assurance that
they will be able to obtain U.S. dollars to the extent necessary to meet
anticipated redemptions. Under present conditions, it is not believed that
these considerations will have any significant effect on portfolio
strategies.
The Global Opportunity and Fundamental Value Portfolios anticipate that
brokerage transactions involving securities of companies domiciled in
countries other than the U.S. will be conducted primarily on the principal
stock exchanges of such countries. Brokerage commissions and other
transaction costs on foreign stock exchange
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transactions are generally higher than in the U.S., although the Global
Opportunity and Fundamental Value Portfolios will endeavor to achieve the
best net results in effecting the transactions. There is generally less
governmental supervision and regulation of foreign stock exchanges and
brokers than in the U.S.
The Board of Directors of the Program has considered the possibilities
of seeking to recapture for the benefit of the Program brokerage commissions,
dealer spreads and other expenses of possible portfolio transactions, such as
underwriting commissions and tender offer solicitation fees, by conducting
such portfolio transactions through affiliated entities, including Merrill
Lynch. For example, brokerage commissions received by Merrill Lynch could be
offset against the advisory fee payable by the Program to the Investment
Adviser. After considering all factors deemed relevant, the Board made a
determination not to seek such recapture. The Board will reconsider this
matter from time to time. The Investment Adviser has arranged for the
Program's custodian to receive any tender offer solicitation fees on behalf
of the Program payable with respect to portfolio securities of the Program.
The Global Opportunity and Fundamental Value Portfolios may invest in
the securities of foreign issuers in the form of American Depositary Receipts
(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.
Section 11(a) of the Securities Exchange Act of 1934 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
Portfolios in any of the portfolio transactions executed on any such
securities exchange of which it is a member, appropriate consents have been
obtained from the Program, and annual statements as to aggregate compensation
will be provided to the Portfolios. The Commission has the authority to
issue regulations to broaden the prohibition contained in Section 11(a) to
extend to transactions executed otherwise than on a national securities
exchange. While there is no indication that it will do so, the Commission
could under this authority issue regulations at any time which would prohibit
affiliates from executing portfolio transactions for the Portfolios on
foreign securities exchanges.
PORTFOLIO TURNOVER
Each Portfolio intends to comply with the various requirements of the
Internal Revenue Code so as to qualify as a "regulated investment company"
thereunder. See "Dividends, Distributions and Taxes." Among such
requirements is a limitation to less than 30% on the amount of gross income
which the Portfolios may derive from gain on the sale or other disposition of
securities held for less than three months. Accordingly, the Portfolios'
ability to effect certain portfolio transactions may be limited.
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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 each Portfolio is determined
once daily Monday through Friday as of 4:15 P.M., New York time, on each day
during which the New York Stock Exchange is open for trading. The New York
Stock Exchange is not open on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. Any assets or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the prevailing market
rates as quoted by one or more banks or dealers on the afternoon of
valuation. Each Portfolio also will determine its net asset value on any day
in which there is sufficient trading in its portfolio securities that the net
asset value might be affected materially, but only if on any such day the
Portfolio is required to sell or redeem shares. The net asset value per
share of a Portfolio is computed by dividing the sum of the value of the
securities held by the Portfolio 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, rounded to the nearest cent. Expenses, including the investment
advisory fees and distribution fees, are accrued daily.
Portfolio securities which are traded on U.S. 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 mean between closing bid and asked
prices. Portfolio securities which are traded on European stock exchanges
are valued at the closing bid price on such exchange on the day the
securities are being valued or, if closing prices are unavailable, at the
last traded bid price available prior to the time the Portfolio's net asset
value is determined. On certain European exchanges there may be no separate
reporting of bid and asked quotations, and in such instances the Portfolio
will use the closing price on such exchange, or the last reported price if a
closing price is unavailable. Securities traded in the over-the-counter
market are valued at the last quoted bid prices at the close of trading on
the New York Stock Exchange on each day by brokers that make markets in the
securities. 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 and it is expected that for debt securities
this ordinarily will be the over-the-counter market. Options on debt
securities, which are traded on exchanges, are valued at the last asked price
for options written and the last bid price for options purchased. 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 Program.
OPTION ACCOUNTING PRINCIPLES. When a Portfolio sells an option, an
amount equal to the premium received by the Portfolio is included in the
Program's Statement of Assets and Liabilities as a deferred credit. The
amount of such liability will be subsequently marked-to-market to reflect the
current market value of the option written. If current market value exceeds
the premium received there is an unrealized loss; conversely, if the premium
exceeds current market value there is an unrealized gain. The current market
value of a traded option is the last sale price or, in the absence of a sale,
the last offering price. If an option expires on its stipulated expiration
date or if a Portfolio enters into a closing purchase transaction, the
affected Portfolio will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option will be extinguished. If an option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of sale are increased by the premium
originally received.
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SHAREHOLDER SERVICES
Merrill Lynch offers a number of shareholder services and investment
plans designed to facilitate investment in the Program's 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 services or
plans, or how to change options with respect thereto, can be obtained from
the Program by calling the telephone number on the cover page hereof or from
the Distributor or Merrill Lynch.
INVESTMENT ACCOUNT
A shareholder must maintain his or her account through a Merrill Lynch-
custodied IRA and will receive information regarding activity in his or her
Merrill Lynch IRA as part of the Merrill Lynch retirement account statement.
Shareholders also will receive separate confirmations for each purchase or
sale transaction other than reinvestments of dividends and capital gains
distributions. Shareholders considering transferring a tax-deferred
retirement account such as an IRA from Merrill Lynch to another brokerage
firm or financial institution should be aware that Program shares may only be
held in a Merrill Lynch custodied IRA. Prior to any such transfer, a
shareholder must either redeem the shares so that the cash proceeds can be
transferred to the account at the new firm or exchange the shares for shares
of another mutual fund advised by the Investment Adviser or its affiliates
pursuant to the exchange privilege. It is possible, however, that the firm
to which the retirement account is to be transferred will not take delivery
of shares of such fund, and then the shareholder would have to redeem these
shares so that the cash proceeds can be transferred or such shareholder must
continue to maintain a retirement account at Merrill Lynch for those shares.
In addition, shareholders considering transferring the holdings in their
Merrill Lynch custodied IRA to a Merrill Lynch brokerage account should be
aware that because Program shares may only be held in a Merrill Lynch-
custodied IRA, the shares will also in this instance have to be redeemed
prior to such transfer or exchanged for another mutual fund advised by the
Investment Adviser or its affiliates.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions of a Portfolio are
reinvested automatically in full and fractional shares of that Portfolio, at
the net asset value per share, of the respective Portfolio next determined on
the ex-dividend date of such dividend or distribution. A shareholder may, at
any time, by written notification to Merrill Lynch, elect to have subsequent
dividends or both dividends and capital gains distributions paid in cash and
held in such shareholder's IRA account rather than reinvested.
SYSTEMATIC REDEMPTION AND AUTOMATIC INVESTMENT PLANS
At age 59 1/2, a Class A shareholder may elect to receive systematic
redemption payments from his or her Investment Account in the form of
payments by check or through automatic payment by direct deposit to his or
her bank account on either a monthly or quarterly basis. Regular additions
of shares may be made to an investor's Investment Account by prearranged
charges of $50 or more to his or her regular bank account. See "Taxes" for
consequences of withdrawals from IRA accounts prior to age 59 1/2. In
addition, Merrill Lynch offers an automated funding service which permits
regular current year IRA contributions of up to $2,000 per year to be made to
IRAs and an automated investment program which may be used for automated
subsequent purchases of shares of the Program.
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EXCHANGE PRIVILEGE
Class A and Class B shareholders of each Portfolio may exchange their
Class A or Class B shares of any Portfolio for shares of the same class of
the funds listed in this section. In addition, Class A and Class B
shareholders of any Portfolio may exchange their shares for shares of a money
market fund advised by the Investment Adviser or its affiliates on the basis
described below. Shares with a net asset value of at least $100 are required
to qualify for the exchange privilege, and any shares utilized in an exchange
must have been held by the shareholder for at least 15 days. Certain funds
into which exchanges may be made may impose a redemption fee (not in excess
of 2.00% of the amount redeemed) on shares purchased through the exchange
privilege when such shares are subsequently redeemed, including redemption
through subsequent exchanges. Such redemption fee would be in addition to
any CDSC otherwise applicable to a redemption of Class B shares. It is
contemplated that the exchange privilege may be applicable to other new
mutual funds whose shares may be distributed by the Distributor.
Under the exchange privilege, each of the funds with Class A shares
outstanding offers to exchange its Class A shares ("new Class A shares") for
Class A shares ("outstanding Class A shares") of any of the other funds, on
the basis of relative net asset value per Class A share, plus an amount equal
to the difference, if any, between the sales charge previously paid on the
outstanding Class A shares and the sales charge payable at the time of the
exchange on the new Class A shares. With respect to outstanding Class A
shares as to which previous exchanges have taken place, the "sales charge
previously paid" shall include the aggregate of the sales charge paid with
respect to such Class A shares in the initial purchase and any subsequent
exchange. Class A shares issued pursuant to dividend reinvestment are sold
on a no-load basis in each of the funds offering Class A shares. For
purposes of the exchange privilege, Class A shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales charge equal to
the sales charge previously paid on the Class A shares on which the dividend
was paid. Based on this formula, Class A shares of a Portfolio generally may
be exchanged into the Class A shares of the other funds or into shares of a
money market fund advised by the Investment Adviser or its affiliates with a
reduced or without a sales charge.
In addition, each of the funds with Class B shares outstanding offers to
exchange its Class B shares ("new Class B shares") for Class B shares
("outstanding Class B shares") of any of the other funds on the basis of
relative net asset value per Class B share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Portfolios exercising the exchange privilege will
continue to be subject to the Program'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
Portfolios acquired through use of the exchange privilege will be subject to
the Program'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 shares, the holding period for the outstanding
Class B shares is "tacked" to the holding period of the new Class B shares.
For example, an investor may exchange Class B shares of a Portfolio for those
of Merrill Lynch Global Resources Trust (formerly Merrill Lynch Natural
Resources Trust) after having held the Portfolio's Class B shares for two and
a half years. The 1% 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 Merrill Lynch Global Resources Trust and
receive cash. There will be no CDSC due on this redemption, since by
"tacking" the two and a half year holding period of the Portfolio's Class B
shares to the three year holding period for the Merrill Lynch Global
Resources Trust Class B shares, the investor will be deemed to have held the
new Class B shares for more than five years.
20
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Shareholders also may exchange Class A shares and Class B shares of the
Portfolios into shares of a money market fund advised by the Investment
Adviser or its affiliates, but the period of time that the Class B shares are
held in a money market fund will not count towards satisfaction of the
holding period requirement for purposes of reducing the CDSC. However,
shares of a money market fund which were acquired as a result of an exchange
for Class B shares of a Portfolio may, in turn, be exchanged back into Class
B shares of any fund offering such shares, in which event the holding period
for Class B shares of the fund will be aggregated with previous holding
periods for purposes of reducing the CDSC. Thus, for example, an investor
may exchange Class B shares of a Portfolio for shares of Merrill Lynch
Institutional Fund after having held the Class B shares for two and a half
years and three years later decide to redeem the shares of Merrill Lynch
Institutional Fund for cash. At the time of this redemption, the 1% CDSC
that would have been due had the Class B shares of the Portfolio been
redeemed for cash rather than exchanged for shares of Merrill Lynch
Institutional Fund will be payable. If, instead of such redemption the
shareholder exchanged such shares for Class B shares of a fund which the
shareholder continue to hold for an additional two and a half years, any
subsequent redemption will not incur a CDSC.
Set forth below is a description of the investment objectives of the
other funds into which exchanges can be made:
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC. . High current income consistent with a policy of
limiting the degree of fluctuation in net
asset value by investing primarily in a
portfolio of adjustable rate securities,
consisting principally of mortgage-backed and
asset-backed securities.
MERRILL LYNCH AMERICAS INCOME
FUND, INC. . . . . . . A high level of current income, consistent with
prudent investment risk, by investing
primarily in debt securities denominated in a
currency of a country located in the Western
Hemisphere (i.e., North and South America and
the surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL
BOND FUND . . . . . . A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
as high a level of income exempt from
Federal and Arizona income taxes as is
consistent with prudent investment
management through investment in a portfolio
primarily of intermediate-term investment
grade Arizona Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL
BOND FUND . . . . . . . A portfolio of Merrill Lynch Multi-State
Municipal; Series Trust, a series fund,
whose objective is to provide investors with
as high a level of income exempt from
Federal and Arizona income taxes as is
consistent with prudent investment
management.
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<PAGE>
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND
RETIREMENT . . . . . . High a level of total investment return as
is consistent with reasonable risk by
investing in common stock and other types of
securities, including fixed income 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
MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide investors with as
high a level of income exempt from Federal
and California income taxes as is consistent
with prudent investment management.
MERRILL LYNCH CALIFORNIA INSURED
MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch California
Municipal Series Trust, a series fund, whose
objective is to provide shareholders with as
high a level of income exempt from Federal
and California income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of
insured California Municipal Bonds.
MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL
BOND FUND . . . . . . . A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is to provide
shareholders with as high a level of income
exempt from Federal and California income
taxes as is consistent with prudent
investment management through investment in a
portfolio primarily of intermediate-term
investment grade California Municipal Bonds.
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.
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MERRILL LYNCH COLORADO
MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch Multi-State
Municipal Series, a series fund, whose
objective is as high a level of income exempt
from Federal and Colorado income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH 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 investment in
(shares of which are deemed securities, principally equities, of issuers
Class A shares for purposes in countries having smaller capital markets.
of the exchange privilege)
MERRILL LYNCH DRAGON FUND,
INC. . . . . . . . . . Capital appreciation primarily through
investment in equity and debt securities of
issuers domiciled in developing countries
located in Asia and the Pacific Basin, other
than Japan, Australia and New Zealand.
MERRILL LYNCH EUROFUND . Capital appreciation primarily through
investment in equity securities of
corporations domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES
TRUST . . . . . . . . . High current return through investments in U.S.
Government and Government agency securities,
including GNMA mortgage-backed certificates
and other mortgage-backed Government
securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL
BOND FUND . . . . . . . A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal income
taxes as is consistent with prudent
investment management while serving to offer
shareholders the opportunity to own
securities exempt from Florida intangible
personal property taxes through investment in
a portfolio primarily of intermediate-term
investment grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND . . . . . . . A portfolio of Merrill Lynch Multi-State
Municipal
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Series Trust, a series fund, whose objective
is as high a level of income exempt from
Federal income taxes as is consistent with
prudent investment management while seeking
to offer shareholders the opportunity to own
securities exempt from Florida intangible
personal property taxes.
MERRILL LYNCH FUND FOR
TOMORROW, INC. . . . . Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially
positioned to benefit from demographic and
cultural changes as they affect consumer
markets.
MERRILL LYNCH FUNDAMENTAL GROWTH
FUND, INC. . . . . . . Long-term growth through investment in a
diversified portfolio of equity securities
placing particular emphasis on companies that
have exhibited above-average growth rate in
earnings.
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 multi-
national currency units.
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC. . . . . . . High total return from investment primarily in
an internationally diversified portfolio of
convertible debt securities, convertible
preferred stock and "synthetic" convertible
securities consisting of a combination of
debt securities or preferred stock and
warrants or options.
MERRILL LYNCH GLOBAL HOLDINGS
(residents of Arizona must
meet investor suitability
standards) . . . . . . The highest total investment return consistent
with prudent risk through worldwide
investment in an internationally diversified
portfolio of securities.
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MERRILL LYNCH GLOBAL RESOURCES
TRUST . . . . . . . . . Long-term growth and protection of capital from
investment in securities of foreign and
domestic companies that possess substantial
natural resource assets.
MERRILL LYNCH GLOBAL UTILITY
FUND, INC. . . . . . . Capital appreciation and current income through
investment of at least 65% of its total
assets in equity and debt securities issued
by domestic and foreign companies which are
primarily engaged in the ownership or
operation of facilities used to generate,
transmit or distribute electricity, tele-
communications, gas or water.
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 GROWTH FUND FOR
INVESTMENT AND
RETIREMENT . . . . . . Growth of capital and, secondarily, income from
investment in a diversified portfolio of
equity securities placing principal emphasis
on those securities which management of the
fund believes to be undervalued.
MERRILL LYNCH HEALTHCARE FUND, INC.
(residents of Wisconsin must
meet investor suitability
standards) . . . . . . Capital appreciation through worldwide
investment in equity securities of companies
that derive or are expected to derive a
substantial portion of their sales from
products and services in healthcare.
MERRILL LYNCH INSTITUTIONAL
FUND . . . . . . . . . A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund, whose
objective is to provide maximum current
income consistent with liquidity and the
maintenance of a high-quality portfolio of
money market securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND . . . . Current income exempt from Federal income
taxes,
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preservation of capital and liquidity
available from investing in a diversified
portfolio of short-term, high quality
municipal bonds.
MERRILL LYNCH INTERNATIONAL
EQUITY FUND . . . . . . Capital appreciation and, secondarily, income
by investing in a diversified portfolio of
equity securities of issuers located in
countries other than the United States.
MERRILL LYNCH LATIN AMERICA
FUND, INC. . . . . . . Capital appreciation by investing primarily in
Latin American equity and debt securities.
MERRILL LYNCH MARYLAND
MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and Maryland income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL
BOND FUND . . . . . . . A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal and
Massachusetts income taxes as is consistent
with prudent investment management through
investment in a portfolio primarily of inter-
mediate-term investment grade Massachusetts
Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and Massachusetts income taxes
as is consistent with prudent investment
management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND
FUND . . . . . . . . . A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is a high 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.
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MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND . . . . . . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and Michigan income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH MINNESOTA MUNICIPAL
BOND FUND . . . . . . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and Minnesota income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH MUNICIPAL BOND
FUND, INC. . . . . . . . Tax-exempt income from three separate
diversified portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND . Currently the only portfolio of Merrill Lynch
Municipal Series Trust, a series fund, whose
objective is to provide as high a level as
possible of income exempt from Federal income
taxes by investing in investment grade
obligations with a dollar weighted average
maturity of five to twelve years.
MERRILL LYNCH NEW JERSEY LIMITED
MATURITY MUNICIPAL BOND
FUND . . . . . . . . . A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal and New
Jersey income taxes as is consistent with
prudent investment management through a
portfolio primarily of intermediate-term
investment grade New Jersey Municipal Bonds.
MERRILL LYNCH NEW JERSEY
MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and New Jersey income taxes as
is consistent with prudent investment
management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND
FUND . . . . . . . . . A portfolio of Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, a
series fund, whose objective is as high a
level of income exempt from Federal, New York
State and New York City income taxes as is
consistent with prudent investment
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management through investment in a portfolio
primarily of intermediate-term grade New York
Municipal Bonds.
MERRILL LYNCH NEW YORK MUNICIPAL
BOND FUND . . . . . . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal, New York State and New York
City income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and North Carolina income taxes
as is consistent with prudent investment
management.
MERRILL LYNCH OHIO MUNICIPAL BOND
FUND . . . . . . . . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and Ohio income taxes as is
consistent with prudent investment
management.
MERRILL LYNCH OREGON MUNICIPAL
BOND FUND . . . . . . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and Oregon income tax as is
consistent with prudent investment
management.
MERRILL LYNCH PACIFIC FUND,
INC. . . . . . . . . . Capital appreciation by investing in equity
securities of corporations domiciled in Far
Eastern and Western Pacific countries,
including Japan, Australia, Hong Kong 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.
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MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND . . A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund, whose
objective is as high a level of income exempt
from Federal and Pennsylvania income taxes as
is consistent with prudent 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 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
with Class A shares of the
Portfolios) . . . . . . 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 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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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 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 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.
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.
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.
30
<PAGE>
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 Program of the
exchange. Shareholders of the Portfolios, 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 Program reserves the right to require a properly completed
Exchange Application. This exchange privilege may be modified or terminated
in accordance with the rules of the Commission. The Program reserves the
right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares
to the general public at any time and may thereafter resume such offering
from time to time. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Reference is made to "Additional Information -- Dividends and
Distributions" in the Prospectus.
FEDERAL TAX
RICS. The following is a general summary of the treatment of regulated
investment companies ("RICs") and their shareholders under the Code. The
Program intends to elect and to qualify each Portfolio for the special tax
treatment afforded RICs under the Code. If it so qualifies, each Portfolio
(but not its shareholders) will be subject to Federal income tax with respect
to the net ordinary income and net realized capital gains which it
distributes to Class A and Class B shareholders. The Program intends to
cause each Portfolio to distribute substantially all of such income.
Each Portfolio of the Program is treated as a separate corporation for
Federal income tax purposes. Each Portfolio therefore is considered to be a
separate entity in determining its treatment under the rules for RICs
described in the Prospectus. Losses in one Portfolio do not offset gains in
another Portfolio, and the requirements (other than certain organizational
requirements) for qualifying for RIC status will be determined at the
Portfolio level rather than the Program level.
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 Program intends to
cause each Portfolio 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 each Portfolio's taxable income and capital gains
will be distributed to avoid entirely the imposition of the tax. In such
event, the Portfolios will be liable for the tax only on the amount by which
they do not meet the foregoing distribution requirements.
Dividends paid by a Portfolio from its ordinary income and distributions
of a Portfolio's net realized short-term capital gains (together referred to
hereafter as "ordinary income dividends") are ordinarily taxable to
shareholders as ordinary income. Distributions made from a Portfolio's net
realized long-term capital gains (including long-term gains from certain
transactions in futures or options) ("capital gain dividends") are ordinarily
taxable to shareholders as long-term capital gains, regardless of the length
of time the shareholder has owned Portfolio shares. Distributions in excess
of a Portfolio's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such
31
<PAGE>
adjusted tax basis is reduced to zero, will ordinarily constitute capital
gains to such holder (assuming the shares are held as a capital asset).
Dividends of a RIC are ordinarily taxable to shareholders even though they
are reinvested in additional shares of the Portfolio.
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 Program or who, to the Program'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.
IRAS. Investment in the Portfolios is limited to participants in IRAs
for which Merrill Lynch acts as passive custodian. Accordingly, the general
description of the tax treatment of RICs as set forth above is qualified with
respect to the special tax treatment afforded IRAs under the Code. Under the
Code, neither ordinary income dividends nor capital gain dividends represent
current income to shareholders if such shares are held in an IRA. Rather,
distributions from an IRA will be taxable as ordinary income at the rate
applicable to the participant at the time of the distribution. Such
distributions would include (i) any pre-tax contributions to the IRA
(including pre-tax contributions that have been rolled over from another IRA
or qualified retirement plan), and (ii) dividends (whether or not such
dividends are classified as ordinary income or capital gain dividends). In
addition to ordinary income tax, participants may be subject to the
imposition of excise taxes on any distributed amount, including: (i) a 10
percent excise tax on any amount withdrawn from an IRA prior to the
participant's attainment of age 59 1/2; and (ii) a 15 percent excise tax on
the amount of any "excess distributions" (generally, amounts in excess of
$150,000) made from the IRA and any other IRA or qualified retirement plan
annually.
Under certain limited circumstances (for example, if an individual for
whose benefit an IRA is established engages in any transaction prohibited
under Section 4975 of the Code with respect to such account), the IRA could
cease to be treated as an IRA as of the first day of such taxable year that
such transaction occurred. If an IRA through which a shareholder holds
Portfolio shares becomes ineligible for the special treatment afforded IRAs
under the Code, such shareholder will be treated as having received a
distribution on such first day of the taxable year from the IRA in an amount
equal to the fair market value of all assets in the account. Thus, the
shareholder would be taxed currently on (i) the amount of any pre-tax
contributions and previously untaxed dividends held within the account, and
(ii) all ordinary income and capital gain dividends paid by the Portfolios
subsequent to such event, whether such dividends are received in cash or
reinvested in additional shares. These ordinary income and capital gain
dividends also might be subject to state and local taxes. In the event of
IRA disqualification, shareholders also could be subject to the excise taxes
described above. Additionally, IRA disqualification may subject a
nonresident alien shareholder to a 30% United States withholding tax on
ordinary income dividends paid by a Portfolio unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty
law.
Dividends and interest received by the Global Opportunity Portfolio and,
to a lesser extent, the Fundamental Value Portfolio, 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. Because of their participation in an IRA, shareholders will not be
able to credit or deduct such taxes in computing their taxable incomes.
However, in the event of IRA disqualification, as discussed above,
shareholders of the Global Opportunity Portfolio might be entitled to a
credit or deduction with respect to their proportionate shares of foreign
taxes paid by the Portfolio, subject to certain conditions and limitations in
the Code, if the Portfolio is eligible and makes an election with the
Internal Revenue Service. It is unlikely, however, that the Fundamental
Value Portfolio will be able to make this election.
32
<PAGE>
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.
STATE TAX
Ordinary income and capital gain dividends on RIC shares held in a
disqualified IRA or outside of an IRA 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. Generally, however,
states exempt from state income taxation dividends on shares held within an
IRA, and commence taxation on amounts actually distributed from an IRA. Such
amounts are generally treated as ordinary income.
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 Program.
PERFORMANCE DATA
From time to time the Program may include each Portfolio's average total
return and other total return data, as well as yield for the Quality Bond and
U.S. Government Securities Portfolios, in advertisements or information
furnished to present or prospective shareholders. Total return and yield
figures will be based on each Portfolio's historical performance and are not
intended to indicate future performance. Average annual total return and
yield are determined separately for each Portfolio in accordance with
formulae specified by the Commission.
Average annual total return quotations for each Portfolio for the
specified periods will be 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 will be computed assuming all dividends and distributions are
reinvested and taking into account all applicable recurring and nonrecurring
expenses.
The Program also may quote each Portfolio's total return and aggregate
total return performance data for various specified time periods. Such data
will be computed 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 rates of return reflect
compounding of return; aggregate total return data generally will be higher
than average annual total return since the aggregate rates of return reflect
compounding over a longer period of time. The Program's total return may be
expressed either as a percentage or as a dollar amount in order to illustrate
the effect of such total return on a hypothetical $1,000 investment in a
Portfolio at the beginning of each specified period.
Yield quotations for each Portfolio will be computed based on a 30-day
period by dividing (a) the net income based on the yield of each security
earned during the period by (b) the average daily number of shares
outstanding in
33
<PAGE>
each Portfolio during the period that were entitled to receive dividends
multiplied by the maximum offering price/net asset value per share of that
Portfolio on the last day of the period.
Total return figures and yield figures are based on each Portfolio's
historical performance and are not intended to indicate future performance.
Each Portfolio's total return will vary depending on market conditions, the
securities comprising such Portfolio's holdings, the Portfolio's operating
expenses and the amount of realized and unrealized net capital gains or
losses during the period. The value of an investment in any Portfolio will
fluctuate and an investor's shares, when redeemed, may be worth more or less
than their original cost.
On occasion, a Portfolio 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., Money Magazine, U.S. News & World Report,
Business Week, CDA Investment Technology, Inc., Forbes Magazine and Fortune
Magazine. As with other performance data, performance comparisons should not
be considered representative of the Portfolio's relative performance for any
future period.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Program was incorporated under Maryland law on May 12, 1994. It has
an authorized capital of 100,000,000 shares of Common Stock, par value $0.10
per share. The shares are divided as follows: Fundamental Value Portfolio
Series Common Stock which consists of 12,500,000 Class A shares and
12,500,000 Class B shares, Quality Bond Portfolio Series Common Stock which
consists of 12,500,000 Class A shares and 12,500,000 Class B shares, U.S.
Government Securities Portfolio Series Common Stock which consists of
12,500,000 Class A shares and 12,500,000 Class B shares and Global
Opportunity Portfolio Series Common Stock which consists of 12,500,000 Class
A shares and 12,500,000 Class B shares. The Board of Directors of the
Program may classify and reclassify the shares of a Portfolio 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 Program does not
intend to hold meetings of shareholders in any year in which the Investment
Company Act does not require shareholders to act on any of the following
matters: (i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of a distribution agreement; and (iv) ratification
of selection of independent auditors. Generally, under Maryland law, a
meeting of shareholders may be called for any purpose on the written request
of the holders of at least 10% of the outstanding shares of the Program.
Voting rights for Directors are not cumulative. Shares issued are fully paid
and non-assessable and have no preemptive or conversion rights. Redemption
rights are discussed elsewhere herein and in the Prospectus. Each share is
entitled to participate equally in dividends and distributions declared by
the Program and in the net assets of the Program on liquidation or
dissolution after satisfaction of outstanding liabilities. Stock
certificates are issued by the Transfer Agent only on specific request.
Certificates for fractional shares are not issued in any case.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the initial offering price for
Portfolio shares, based on the projected value of each Portfolio's estimated
net assets and projected number of shares outstanding on the date its shares
are first offered for sale to public investors is as follows:
34
<PAGE>
<TABLE>
<CAPTION> Fundamental Quality
Value Bond
Portfolio Portfolio
<S> <C> <C> <C> <C>
Class A Class B Class A Class B
Net Assets . . . . . . . . . . . . . . . . . . . . . . $====== $====== $====== $======
Number of Shares Outstanding . . . . . . . . . . . . . ====== ====== ====== ======
Net Asset Value Per Share (net assets
divided by number of shares outstanding) . . . . . . . $ $ $ $
Sales Charge/1/ . . . . . . . . . . . . . . . . . . . . $------ $------- $------ $------
Offering Price . . . . . . . . . . . . . . . . . . . . $====== $====== $====== $======
(table continued)
U.S. Government
Securities Global Opportunity
Portfolio Portfolio
<S> <C> <C> <C> <C>
Class A Class B Class A Class B
Net Assets . . . . . . . . . . . . . . . . . . . . . $====== $====== $====== $======
Number of Shares Outstanding . . . . . . . . . . . . ====== ====== ====== ======
Net Asset Value Per Share (net assets
divided by number of shares outstanding) . . . . . . $ $ $ $
Sales Charge/1/ . . . . . . . . . . . . . . . . . . . $------ $------ $------ $------
Offering Price . . . . . . . . . . . . . . . . . . . $====== $====== $====== $======
</TABLE>
- --------------------
/1/ For Class A shares of each Portfolio as follows: Fundamental Value
and Global Opportunity Portfolios, 6.50%; Quality Bond and U.S.
Government Securities Portfolios, 4.00%.
35
<PAGE>
INDEPENDENT AUDITORS
(To be added), has been selected as the independent auditors of the
Program. The selection of independent auditors is subject to ratification by
the shareholders of the Program. The independent auditors are responsible
for auditing the annual financial statements of the Program.
CUSTODIAN
(To be added), acts as Custodian of the Program's assets. The Custodian
is responsible for safeguarding and controlling the Program's cash and
securities, handling the receipt and delivery of securities and collecting
interest and dividends on the Program's investments.
TRANSFER AGENT
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484, acts as the Program's transfer agent. The Transfer Agent
is responsible for the issuance, transfer and redemption of shares and the
opening, maintenance and servicing of shareholder accounts. See "Management
of the Program -- Transfer Agency Services" in the Prospectus.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Program.
REPORTS TO SHAREHOLDERS
The fiscal year of the Program ends on ____________________ of each
year. The Program will send to its shareholders at least semiannually
reports showing the Program'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 Program has filed with the Commission,
Washington, D.C., under the Securities Act of 1933 and the Investment Company
Act to which reference is hereby made.
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Fundamental Value Portfolio of
Merrill Lynch Retirement Asset Builder Program, Inc.:
We have audited the accompanying statement of assets and liabilities
of the Fundamental Value Portfolio (the "Portfolio") of Merrill Lynch
Retirement Asset Builder Program, Inc. as of _____________, 1994. This
financial statement is the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit 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 statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
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 audit provides a
reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Portfolio as
of _____________, 1994, in conformity with generally accepted accounting
principles.
____________, 1994
37
<PAGE>
FUNDAMENTAL VALUE PORTFOLIO OF
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
STATEMENT OF ASSETS AND LIABILITIES
___________, 1994
Assets:
Cash in bank. . . . . . . . . . . . . . . . . . . . . . . . . . .$
Prepaid registration fees (Note 3). . . . . . . . . . . . . . . .
Deferred organization expenses (Note 4) . . . . . . . . . . . . . _____
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities-accrued expenses. . . . . . . . . . . . . . . . . . . . . . . _____
Net Assets (equivalent to $10.00 per share on
10,000 shares of common stock (par value $0.10)
outstanding with 25,000,000 shares
authorized) (Note 1). . . . . . . . . . . . . . . . . . . . . . .$
_____
_____
_______________________
(1) Fundamental Value Portfolio (the "Portfolio") is one of the four
portfolios of Merrill Lynch Retirement Asset Builder Program, Inc.
(the "Program") which was organized as a Maryland corporation on
May 12, 1994. The Program is registered under the Investment Company
Act of 1940 as an open-end investment company.
(2) The Portfolio has entered into an Investment Advisory Agreement (the
"Investment Advisory Agreement") with Merrill Lynch Asset Management
(the "Investment Adviser"), and distribution agreements (the
"Distribution Agreements") with Merrill Lynch Funds Distributor, Inc.
(the "Distributor"). (See "Management and Advisory Arrangements" in
the Statement of Additional Information.) Certain officers and/or
directors of the Program are officers and/or directors of the
Investment Adviser and/or the Distributor.
(3) Prepaid registration fees are charged to income as the related shares
are issued.
(4) Deferred organization expenses will be amortized over a period from the
date the Portfolio commences operations not exceeding five years. In
the event that the Investment Adviser (or any subsequent holder)
redeems any of its original shares prior to the end of the five-year
period, the proceeds of the redemption payable in respect of such
shares shall be reduced by the pro rata share (based on the
proportionate share of the original shares redeemed to the total
number of original shares outstanding at the time of redemption)
of the unamortized deferred organization expenses as of the date of
such redemption. In the event that the Portfolio is liquidated prior
to the end of the five-year period, the Investment Adviser (or any
subsequent holder) shall bear the unamortized deferred organization
expenses.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Quality Bond Portfolio of
Merrill Lynch Retirement Asset Builder Program, Inc.:
We have audited the accompanying statement of assets and liabilities
of the Quality Bond Portfolio (the "Portfolio") of Merrill Lynch Retirement
Asset Builder Program, Inc. as of _____________, 1994. This financial
statement is the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit 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 statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
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 audit provides a
reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Portfolio as
of _____________, 1994, in conformity with generally accepted accounting
principles.
____________, 1994
39
<PAGE>
QUALITY BOND PORTFOLIO OF
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
STATEMENT OF ASSETS AND LIABILITIES
___________, 1994
Assets:
Cash in bank. . . . . . . . . . . . . . . . . . . . . . . . . . .$
Prepaid registration fees (Note 3). . . . . . . . . . . . . . . .
Deferred organization expenses (Note 4) . . . . . . . . . . . . . _____
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities-accrued expenses. . . . . . . . . . . . . . . . . . . . . . . _____
Net Assets (equivalent to $10.00 per share on
10,000 shares of common stock (par value $0.10)
outstanding with 25,000,000 shares
authorized) (Note 1). . . . . . . . . . . . . . . . . . . . . . .$
_____
_____
_______________________
(1) Quality Bond Portfolio (the "Portfolio") is one of the four portfolios
of Merrill Lynch Retirement Asset Builder Program, Inc. (the "Program")
which was organized as a Maryland corporation on May 12, 1994. The
Program is registered under the Investment Company Act of 1940 as an
open-end investment company.
(2) The Portfolio has entered into an Investment Advisory Agreement (the
"Investment Advisory Agreement") with Merrill Lynch Asset Management
(the "Investment Adviser"), and distribution agreements (the
"Distribution Agreements") with Merrill Lynch Funds Distributor, Inc.
(the "Distributor"). (See "Management and Advisory Arrangements" in
the Statement of Additional Information.) Certain officers and/or
directors of the Program are officers and/or directors of the
Investment Adviser and/or the Distributor.
(3) Prepaid registration fees are charged to income as the related shares
are issued.
(4) Deferred organization expenses will be amortized over a period from
the date the Portfolio commences operations not exceeding five years.
In the event that the Investment Adviser (or any subsequent holder)
redeems any of its original shares prior to the end of the five-year
period, the proceeds of the redemption payable in respect of such
shares shall be reduced by the pro rata share (based on the
proportionate share of the original shares redeemed to the total
number of original shares outstanding at the time of redemption)
of the unamortized deferred organization expenses as of the date of
such redemption. In the event that the Portfolio is liquidated prior
to the end of the five-year period, the Investment Adviser (or any
subsequent holder) shall bear the unamortized deferred organization
expenses.
40
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
U.S. Government Securities Portfolio of
Merrill Lynch Retirement Asset Builder Program, Inc.:
We have audited the accompanying statement of assets and liabilities
of the U.S. Government Securities Portfolio (the "Portfolio") of Merrill
Lynch Retirement Asset Builder Program, Inc. as of _____________, 1994. This
financial statement is the responsibility of the Portfolio's management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit 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 statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
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 audit provides a
reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Portfolio as
of _____________, 1994, in conformity with generally accepted accounting
principles.
____________, 1994
41
<PAGE>
U.S. GOVERNMENT SECURITIES PORTFOLIO OF
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
STATEMENT OF ASSETS AND LIABILITIES
___________, 1994
Assets:
Cash in bank. . . . . . . . . . . . . . . . . . . . . . . . . . .$
Prepaid registration fees (Note 3). . . . . . . . . . . . . . . .
Deferred organization expenses (Note 4) . . . . . . . . . . . . . _____
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities-accrued expenses. . . . . . . . . . . . . . . . . . . . . . . _____
Net Assets (equivalent to $10.00 per share on
10,000 shares of common stock (par value $0.10)
outstanding with 25,000,000 shares
authorized) (Note 1). . . . . . . . . . . . . . . . . . . . . . .$
_____
_____
_______________________
(1) U.S. Government Securities Portfolio (the "Portfolio") is one of the
four portfolios of Merrill Lynch Retirement Asset Builder Program, Inc.
(the "Program") which was organized as a Maryland corporation on
May 12, 1994. The Program is registered under the Investment Company
Act of 1940 as an open-end investment company.
(2) The Portfolio has entered into an Investment Advisory Agreement (the
"Investment Advisory Agreement") with Merrill Lynch Asset Management
(the "Investment Adviser"), and distribution agreements (the
"Distribution Agreements") with Merrill Lynch Funds Distributor, Inc.
(the "Distributor"). (See "Management and Advisory Arrangements" in
the Statement of Additional Information.) Certain officers and/or
directors of the Program are officers and/or directors of the
Investment Adviser and/or the Distributor.
(3) Prepaid registration fees are charged to income as the related shares
are issued.
(4) Deferred organization expenses will be amortized over a period from
the date the Portfolio commences operations not exceeding five years.
In the event that the Investment Adviser (or any subsequent holder)
redeems any of its original shares prior to the end of the five-year
period, the proceeds of the redemption payable in respect of such
shares shall be reduced by the pro rata share (based on the
proportionate share of the original shares redeemed to the total
number of original shares outstanding at the time of redemption)
of the unamortized deferred organization expenses as of the date of
such redemption. In the event that the Portfolio is liquidated prior
to the end of the five-year period, the Investment Adviser (or any
subsequent holder) shall bear the unamortized deferred organization
expenses.
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Global Opportunity Portfolio of
Merrill Lynch Retirement Asset Builder Program, Inc.:
We have audited the accompanying statement of assets and liabilities of
the Global Opportunity Portfolio (the "Portfolio") of Merrill Lynch
Retirement Asset Builder Program, Inc. as of _____________, 1994. This
financial statement is the responsibility of the Portfolio's management.
Our responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit 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 statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.
In our opinion, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of the Portfolio as
of _____________, 1994, in conformity with generally accepted accounting
principles.
____________, 1994
43
<PAGE>
GLOBAL OPPORTUNITY PORTFOLIO OF
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
STATEMENT OF ASSETS AND LIABILITIES
___________, 1994
Assets:
Cash in bank. . . . . . . . . . . . . . . . . . . . . . . . . . .$
Prepaid registration fees (Note 3). . . . . . . . . . . . . . . .
Deferred organization expenses (Note 4) . . . . . . . . . . . . . _____
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
Liabilities-accrued expenses. . . . . . . . . . . . . . . . . . . . . . . _____
Net Assets (equivalent to $10.00 per share on
10,000 shares of common stock (par value $0.10)
outstanding with 25,000,000 shares
authorized) (Note 1). . . . . . . . . . . . . . . . . . . . . . .$
_____
_____
_______________________
(1) Global Opportunity Portfolio (the "Portfolio") is one of the four
portfolios of Merrill Lynch Retirement Asset Builder Program, Inc.
(the "Program") which was organized as a Maryland corporation on
May 12, 1994. The Program is registered under the Investment Company
Act of 1940 as an open-end investment company.
(2) The Portfolio has entered into an Investment Advisory Agreement (the
"Investment Advisory Agreement") with Merrill Lynch Asset Management
(the "Investment Adviser"), and distribution agreements (the
"Distribution Agreements") with Merrill Lynch Funds Distributor, Inc.
(the "Distributor"). (See "Management and Advisory Arrangements" in
the Statement of Additional Information.) Certain officers and/or
directors of the Program are officers and/or directors of the
Investment Adviser and/or the Distributor.
(3) Prepaid registration fees are charged to income as the related shares
are issued.
(4) Deferred organization expenses will be amortized over a period from
the date the Portfolio commences operations not exceeding five years.
In the event that the Investment Adviser (or any subsequent holder)
redeems any of its original shares prior to the end of the five-year
period, the proceeds of the redemption payable in respect of such
shares shall be reduced by the pro rata share (based on the
proportionate share of the original shares redeemed to the total
number of original shares outstanding at the time of redemption) of
the unamortized deferred organization expenses as of the date of such
redemption. In the event that the Portfolio is liquidated prior to
the end of the five-year period, the Investment Adviser (or any
subsequent holder) shall bear the unamortized deferred organization
expenses.
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Appendix A
DESCRIPTION OF THE SELF-DIRECTED PLANS
This Appendix describes in summary form the various types of self-
directed retirement plans for which Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") acts as custodian (the "Self-Directed Plans").
This description does not purport to be complete, and it should be read in
conjunction with the materials concerning the Self-Directed Plans, including
copies of the Plans and the forms necessary to establish a plan, which are
available from Merrill Lynch. Investors should read such materials carefully
before establishing a Self-Directed Plan and should consult with their
attorney or tax adviser to determine if any of the Self-Directed Plans are
suited to their needs and circumstances. The laws applicable to the Self-
Directed Plans, including the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and the Internal Revenue Code of 1986, as amended
(the "Code") are complex and include a variety of transitional rules which
may be applicable to some investors. These laws should be reviewed by
investors' attorneys to determine their applicability. Investors are further
advised that the discussion of taxation contained in this Appendix relates
solely to federal tax laws but generally does not address the numerous
transitional rules and that the tax treatment of the Self-Directed Plans
under applicable state law may vary.
Shares of the Merrill Lynch Retirement Asset Builder Program, Inc. are
available for purchase solely by participants in an IRA (individual retirement
account), an IRRA (individual retirement rollover account) or SEP (simplified
employee pension plan) and, accordingly, the description set forth below will
describe only such arrangements.
ESTABLISHMENT OF A SELF-DIRECTED PLAN ACCOUNT
Self-Directed Plan accounts may be established by qualified individuals
and businesses through Merrill Lynch.
Generally, Self-Directed Plans afford participants the opportunity to
take a tax deduction, up to the maximum amount permitted under the Code for
the particular Self-Directed Plan, for amounts contributed to the Plan. Each
Self-Directed Plan is "self-directed"; that is, each participant is
responsible for making investment decisions concerning the funds contributed
to his Self-Directed Plan.
Merrill Lynch charges an annual custodial fee for each account
established pursuant to the Self-Directed Plans. These fees, which are
contained in the Self-Directed Plan documents, vary according to the type of
account. Brokerage fees will be assessed separately for each transaction to
which they apply.
PERMISSIBLE SELF-DIRECTED PLAN INVESTMENTS
The type of investments that may be made depends on the type of Self-
Directed Plan established.
Participants and employers that maintain IRAs, IRRAs or SEPs may invest
in securities through Merrill Lynch or its affiliates, including stocks
traded "over-the-counter" or on a recognized exchange, government or
corporate debt obligations, certain mutual funds, certain limited partnership
interests in real estate, and bank money instruments. Participants and
employers may also invest in annuity contracts issued by a life insurance
company (including Merrill
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Lynch Life Insurance Company and Merrill Lynch Life Insurance Company of New
York). Those participants and employers desiring a diversified portfolio but
not wishing to actively manage the portfolio may elect to invest all or a
portion of their account in certain mutual funds advised by Merrill Lynch
Asset Management (the "Manager") or its affiliate. Participants and
employers may vary their investment portfolio as often as they wish.
Cash balances arise in a Self-Directed Plan account from contributions
to the Plan, the sale of securities held in the account and the receipt of
dividends, interest and principal repayments on securities held in the
account. Cash balances for which no other investment directions are given
will, in accordance with the option previously selected by the participant or
employer, be invested in full shares of the Portfolios or in certain money
market funds advised by the Manager or its affiliate, or maintained
uninvested in the Self-Directed Plan account. If such amounts are not
invested, no return will be earned. All cash balances will be invested or
maintained in accordance with the option selected by the participant or
employer, pending instructions as to further investment.
There can be no assurance, that the yield on an investment in the
Portfolios or a money market fund will be or will remain greater than that
available on any interest-bearing account. In addition, a money market fund
is not a bank, and shares of a money market fund are not equivalent to a bank
account. As with any investment in securities, the value of an investment in
the Portfolios will fluctuate. Amounts deposited in an interest-bearing bank
account will be insured as to principal in an amount of up to $100,000 per
account by the Federal Deposit Insurance Corporation. Cash balances
maintained in a Self-Directed Plan account will be insured, up to $100,000,
by the Securities Investor Protection Corporation.
CONTRIBUTIONS AND DISTRIBUTIONS
The amount which may be contributed to a Self-Directed Plan in any one
year is subject to certain limitations under the Code; however, assets
already in a Self-Directed Plan account may be invested without regard to
such limitations on contributions. With the exception of pretax
contributions made by participants in their IRAs or employer contributions to
a SEP, a Self-Directed Plan participant may deduct from his annual gross
income, up to the maximum permitted under the Code, amounts contributed to
his Self-Directed Plan. These amounts, plus any additional income earned on
such contributions, will ordinarily not be taxed until distributed to the
participant.
Generally, under the Code, distributions may be made at any time but, as
discussed below, distributions made prior to the date on which the
participant reaches age 59 1/2 may be subject to a penalty and may be subject
to mandatory federal income tax withholding at a 20 percent rate (as
described below). Distributions will be taxed as ordinary income at the rate
applicable to the participant in the year in which distributed.
Excess Contributions. Under Section 4973 of the Code, contributions to
an IRA, IRRA or SEP in excess of those allowed by law are subject to a six
percent excise tax if not withdrawn, together with additional income
attributable to such excess contributions, prior to the date the participant
files his income tax return for the year in which the excess contribution was
made. If an excess amount is contributed in one year and is not eliminated
in later years, the excess amount will be subject to a cumulative six percent
excise tax each year until it is eliminated. Elimination of the excess may
be accomplished either by reducing the contribution (and deduction) for a
succeeding year, or by withdrawal of the excess amount plus the income
attributable to it. Such income will be considered a premature distribution
subject to the ten percent penalty tax on premature distributions under
Section 72(f) of the Code discussed below, and will additionally be taxable
as ordinary income at the applicable rate for the year in which it is
distributed.
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Timing of Retirement Benefits. Generally, a participant, upon reaching
age 59 1/2, may make such distributions from his Self-Directed Plan account
as he chooses without tax penalties. Generally, the Code requires that
amounts in all Self-Directed Plans must commence being distributed to a
participant on or before April 1 of the calendar year following the calendar
year in which he reaches age 70 1/2, even if the employee has not retired.
Such distributions may be made in a lump sum or installments over the
life of the participant, or the joint lives of the participant and a
designated beneficiary, or over a period not to exceed the life expectancy
(determined, generally, by IRS life expectancy tables) of the participant or
the joint life expectancy of the participant and designated beneficiary. If
the employee dies before his entire interest has been distributed, the
remaining portion of his interest must be distributed at least as rapidly as
the method of distribution in effect prior to his death. Special rules apply
under the Code to spousal beneficiaries.
If the minimum payout required from a Self-Directed Plan for a
particular year is not made, a 50% excise tax will be imposed on the amount
representing the difference between the minimum payout required from the
Self-Directed Plan and the amount actually distributed under Section 4974 of
the Code.
Treatment of Lump Sum Distributions and Annuities. The recipient of a
"lump sum distribution" (generally a distribution or payment within one
taxable year to the recipient of the balance to the credit of the employee on
account of the employee's death, attainment of age 59 1/2, disability or
separation from service (except in the case of a self-employed individual))
from a qualified retirement plan may compute his tax liability using the
five-year income averaging tax computation, subject to certain requirements.
However, no lump sum income averaging methods apply to distributions from
IRAs, IRRAs or SEPs.
Excise Tax on Large Distributions. To limit the total tax-deferred
benefits any individual can receive annually, Section 4980A of the Code
imposes a 15 percent excise tax on certain "excess distributions" from
qualified retirement plans. All distributions from "qualified retirement
plans" including IRAs, IRRAs or SEPs made within one year are aggregated for
this purpose. Total benefits paid in a year exceeding the greater of
$112,500, indexed for inflation ($148,500 for 1994), or $150,000 (unindexed)
are subject to the tax to the extent of the excess. For lump sum
distributions eligible to be taxed under the five-year averaging provisions,
the penalty will be applied separately with respect to the lump sum
distribution and other retirement distributions. The penalty will be applied
on the portion of the lump sum distribution which exceeds five times the
otherwise applicable limit for the year.
Unless an election is made by a spouse, distributions made to
beneficiaries after the death of an individual are disregarded for purposes
of applying this tax; instead, an additional estate tax may be payable. The
penalty tax on excess distributions is reduced by an excise tax on early
withdrawals.
Benefits accrued before August 1, 1986 may have been grandfathered and
may not be subject to the excise tax.
Premature Distributions. 1. Excise Tax: Distributions from an IRA,
IRRA or SEP prior to the time the participant reaches age 59 1/2 generally
are subject to penalty unless the participant has died or has become disabled
(within the meaning of Code Section 72(m)(7)). The penalty for early
distributions is an excise tax equivalent to ten percent of the amount so
distributed, in addition to the applicable ordinary income tax payable on
such amount for the year in which it is distributed. The tax will be waived
for any distribution that is part of a scheduled series of substantially
level payments under an annuity for the life or life expectancy of the
taxpayer or the joint lives of the taxpayer and his designated beneficiary.
Distributions can also be made, without penalty, to cover deductible medical
expenses, for certain payments in a divorce settlement, or to an employee who
is age 55 or older, has separated from
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service, and has satisfied the requirements of the employer's plan for early
retirement (if the plan permits such payments). In certain cases, the
penalty will not be waived if the distribution is from an IRA or retirement
annuity. The penalty is also not waived for distributions from a qualified
retirement plan, if the employee is a more than five percent owner or has
been a more than five-percent owner at any time during the five plan years
preceding the plan year ending in the tax year in which the amount is
received. A five percent owner is a person who, in the case of a corporate
employer, actually or constructively owns more than five percent of the
outstanding stock of the employer or stock possessing more than five percent
of the total combined voting power of all stock of the employer, or who, in
the case of a non-corporate employer, owns more than five percent of the
capital or profits interest in the employer. A rollover will avoid
imposition of the excise tax. However, for distributions prior to 1993, the
Code restricts the rollover of partial distributions to distributions
received on account of an employee's separation from service, death or
disability.
2. Mandatory Income Tax Withholding. Generally, any portion of an
"eligible rollover distribution" made from a qualified retirement plan after
December 31, 1992 qualifies for tax-free rollover into an eligible retirement
plan under Section 402(c) of the Code. Under Section 402(c), as amended, all
distributions from a qualified retirement plan (including in-service
distributions) are eligible rollover distributions, except for certain
periodic payments, required amounts distributed to a participant who is over
age 70 1/2 as described above, and amounts otherwise not includible in gross
income. Rollovers may be made by the participant in one of two ways: first,
by direct transfers from the qualified retirement plan to an IRA (including
an individual retirement annuity other than endowment contract), a qualified
defined contribution plan or an annuity under Section 403(a) of the Code (a
"direct rollover") or, in the case of the RSA plan to another 403(b) plan, a
tax sheltered annuity; or second, by rolling over an eligible rollover
distribution within 60 days of receipt to any of the arrangements described
above. In the event a direct rollover is not chosen by the participant, a
mandatory 20 percent of the distribution is withheld to satisfy any federal
tax liability that may be assessed. The mandatory 20 percent withholding tax
is not assessed against any distributions that may not be rolled over
(including, but not limited to, distributions to beneficiaries other than a
surviving spouse, or a present or former spouse under a qualified domestic
relations order).
Participants should consult with their attorneys or tax advisers in
order to determine the application of the new rollover and mandatory
withholding requirements to their own circumstances.
The foregoing rules are of general applicability to the Self-Directed
Plans. The following section discusses specific considerations applicable to
the different types of Self-Directed Plans.
TYPES OF SELF-DIRECTED PLANS
Individual Retirement Accounts. As a result of changes made by the Tax
Reform Act of 1986, the allowable deductions for contributions to IRAs are
restricted for certain taxpayers who are (or their spouses are) active
participants in employer-sponsored retirement plans and whose adjusted gross
income exceeds certain levels. An individual will be considered an active
participant in a defined contribution plan if any employer contribution or
forfeiture is added to his account for the year. In the case of a defined
benefit plan, an individual will be considered an active participant if he is
not excluded under the eligibility rules for the year. The determination of
whether an individual is an active participant is made without regard to
whether the individual's rights under a plan are vested. If an unmarried
taxpayer, or either spouse in the case of married taxpayers, is an "active
participant" in an employer-sponsored retirement plan, deductible
contributions are permitted subject to a pro rata phase-out rule where
adjusted gross income (before the IRA deduction) is over $40,000 on a joint
return or $25,000 for an unmarried individual. The allowable deduction is
completely eliminated for such taxpayers when adjusted gross income (before
the IRA deduction) reaches $50,000 on a joint return or $35,000 for an
unmarried person. For this purpose, an employer-
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sponsored retirement plan means a pension, profit-sharing or stock bonus plan
qualified under Code section 401(a) (including a Keogh plan or 401(k) plan),
an annuity plan qualified under Section 403(a), a SEP, a tax-sheltered Code
section 403(b) annuity and retirement plans covering federal, state or local
government employees. A minimum deductible contribution of $200 is provided
for any taxpayer whose adjusted gross income is not above the phase-out range
even if the phase-out rules would provide for a lower deduction.
Subject to the above limitations, any individual with compensation may
establish an IRA. Generally, the maximum yearly tax deduction that may be
taken for an IRA contribution is the lesser of $2,000 or 100% of the
individual's compensation. If a husband and wife are both employed, they may
take a deduction of up to $4,000 on a joint return. If only one spouse is
employed, a separate IRA, called a "spousal IRA", may be established for the
benefit of the non-working spouse or a spouse that elects to be treated as
having no compensation for the year. The deduction for a spousal IRA may
only be taken if a joint return is filed, and the maximum contribution and
aggregate deduction for the two IRAs for any year is $2,250. Allocations may
be made between the two accounts in any manner so long as no more than $2,000
is contributed to either of the accounts. No deduction for IRA contributions
may be made for or after the tax year in which a participant reaches age 70
1/2. In addition, no deduction will be allowed for amounts paid to an
"inherited IRA" (i.e., an IRA acquired on account of the death of another
individual other than by the surviving spouse of the original owner).
Active participants in employer-sponsored plans who are not eligible to
make deductible contributions to IRAs (or whose deductions are limited) may
make nondeductible contributions to a separate account. The nondeductible
contribution is subject to the same dollar limitations (the lesser of $2,000
or 100% of compensation) as deductible contributions described above. Income
in the separate account will accumulate tax-free until distributed; however,
only the account earnings will be included in taxable income upon
distribution.
The Self-Directed IRA program allows for the establishment of IRRAs,
which are "rollover IRAs". Prior to 1993, a rollover IRA could have only
been established with a distribution received from a qualified employer-
sponsored pension plan that was of an amount equal to at least 50% of the
balance to the credit of the employee in the plan; after December 31, 1992,
this 50% requirement no longer applies. This distribution would ordinarily
be subject to income tax; however, tax may be deferred to the extent that all
or part of the rollover amount, less any voluntary contributions made to the
employer-sponsored plans, is put into an IRA within 60 days of receiving the
distribution. With respect to a distribution of less than the entire balance
to the credit of the employee in the plan prior to 1993 (a "partial
rollover"), the distribution was eligible for rollover treatment only if the
distribution was made on account of the employee's death, separation from
service or disability and was not one of a series of periodic payments and
the employee elected, in a manner to be prescribed by regulations, to have
rollover treatment apply to such distribution. However, as described above,
effective for rollovers made after December 31, 1992, the limitations
described with respect to partial rollovers have been eliminated, and new
mandatory federal income tax withholding requirements have been imposed for
any rollover that is not a direct rollover. The amounts in a rollover IRA
are taxed only upon distribution, as with other IRAs. However, tax-free
rollover treatment will be denied for amounts received from an "inherited
IRA".
Simplified Employee Pension Plans. A SEP is essentially a collection of
IRA accounts established by employers for their employees, and any employer,
whether it is a sole proprietorship, a partnership or a corporation, may set
up a SEP. To qualify as a SEP, certain requirements must be met; in
particular, the plan must cover all current employees age 21 years or older
who have worked for the business in three of the last five calendar years and
have received at least $300 in compensation from the employer. Up to $30,000
or 15% of the employee's compensation up to $150,000 (effective for plan
years beginning after December 31, 1993), subject to inflation adjustments
may be paid by the employer to the employee's SEP. The same percentage of
compensation (determined
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under a written formula) must be contributed on behalf of each employee.
Such contributions are deductible by the employer and excluded from the
employee's income. The tax-free elective deferral of an employee's income
for a taxable year cannot exceed $7,000, as adjusted for inflation
(currently, $9,240 in 1994). This cap limits all tax-free elective deferrals
by an employee under all cash and deferred arrangements, SEPs and tax
sheltered annuities.
Because the SEP is also an IRA, the employee may, if otherwise eligible
under the rules applicable to IRAs discussed above, make up to a $2,000
contribution to the SEP or make rollover contributions (see "Individual
Retirement Accounts" above). Amounts contributed to a participant's SEP
account vest immediately. If the participant should cease to be employed by
the business maintaining the SEP, the participant retains full rights to and
investment power over the account. In such case, the account should be
changed to a regular IRA so that the participant may make additional
permissible contributions.
Tax-deductible employer contributions may continue to be made to a SEP
participant's account even after he has reached age 70 1/2.
Each of the foregoing Self-Directed Plans is designed to meet differing
needs and has varying financial and tax consequences. An investor should
thoroughly review all of the materials available from Merrill Lynch
concerning the Self-Directed Plans and consult with his attorney or tax
adviser in determining whether any of these Plans is suited to his needs and
circumstances.
Top-Heavy Plan Requirements. The Code imposes special rules with
respect to qualified plans that are considered to be "top-heavy" plans
(individual retirement plans are not subject to the Code's rules relating to
"top-heavy" plans). A defined contribution plan (for purposes of these
rules, a SEP is deemed to be a defined contribution plan) is considered to be
"top-heavy" where the account balances of "key employees" exceed 60% of the
account balances of all employees. "Key employees" include all employees
who, at any time during the plan year or the four preceding plan years (1)
are officers having annual compensation of more than $45,000, as adjusted for
inflation, (2) are one of the ten employees with annual compensation of more
than $30,000 that actually or constructively own the largest interests in the
employer, (3) are "five-percent owners", or (4) own more than a one percent
interest in the employer and have annual compensation in excess of $150,000.
The account balance of an individual that has not received compensation as an
employee during the five preceding plan years is not taken into account.
When a plan favoring key employees is determined to be "top-heavy", its
continued qualification under the Code depends on its compliance with certain
requirements, which (1) limit the amount of a participant's compensation that
may be taken into account, (2) provide stringent vesting schedules, (3)
provide minimum contributions or benefits for non-key employees, and (4)
reduce the aggregate limit on benefits and contributions for certain key
employees who participate in both a defined benefit plan and a defined
contribution plan.
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APPENDIX B
RATINGS OF CORPORATE DEBT SECURITIES
(INCLUDING MORTGAGE-BACKED AND ASSET-BACKED SECURITIES)
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S") CORPORATE
DEBT RATINGS
A Standard & Poor's corporate or municipal rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other reasons.
The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default-capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation; (2) nature of and provisions of
the obligation; and (3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement
under the laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-
rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could
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lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BBB- rating.
B Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B-
rating.
CC The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C The rating C typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is being
paid.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period. The D rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative
standing within the major rating categories.
c The letter c indicates that the holder's option to tender the security
for purchase may be canceled under certain prestated conditions
enumerated in the tender option documents.
L The letter L indicates that the rating pertains to the principal amount
of those bonds to the extent that the underlying deposit collateral is
federally insured and interest is adequately collateralized. In the
case of certificates of deposit, the letter L indicates that the
deposit, combined with other deposits being held in the same right and
capacity, will be honored for principal and accrued pre-default interest
up to the federal insurance limits within 30 days after closing of the
insured institution or, in the event that the deposit is assumed by a
successor insured institution, upon maturity.
p The letter p indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project being financed
by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes
no comment on the likelihood of, or the risk of default upon failure of,
such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
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* Continuance of the rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
N.R. Not rated.
Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not
take into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories ("AAA", "AA", "A", "BBB", commonly known as "Investment
Grade" ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments impose
certain rating or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies and fiduciaries
generally.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the
relevant market. Ratings are graded into several categories, ranging from A-
1 for the highest quality obligations to D for the lowest. These categories
are as follows:
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated B are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace
period.
A commercial paper rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to Standard & Poor's by the issuer or obtained by
Standard & Poor's from other sources it considers reliable. Standard &
Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
B-3
<PAGE>
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
B-4
<PAGE>
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months.
Moody's makes no representations as to whether such commercial paper is by
any other definition "commercial paper" or is exempt from registration under
the Securities Act of 1933, as amended.
Moody's Commercial Paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated issuer or
issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the
relative repayment ability of rated issuers.
Issuers rated PRIME-1 (or supporting institutions) have a superior
ability for repayment of short-term promissory obligations. PRIME-1
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is
maintained.
Issuers rated PRIME-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
If an issuer represents to Moody's that its Commercial Paper obligations
are supported by the credit of another entity or entities, in assigning
ratings to such issuers, Moody's evaluates the financial strength of the
affiliated corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the total rating
assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement.
B-5
<PAGE>
DESCRIPTION OF FITCH INVESTOR SERVICE, INC.'S ("FITCH") INVESTMENT GRADE BOND
RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The
ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any
guarantor, as well as the economic and political environment that might
affect the issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect
small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt
nature or taxability of payments made in respect of any security. Fitch
ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch believes to be reliable.
Fitch does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA-Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated
in the AAA and AA categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated F-
1+.
A-Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus(+) or Minus (-): Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the AAA category.
Credit Trend Indicator: Credit trend indicators show whether credit
fundamentals are improving, stable, declining, or uncertain, as follows:
Improving (UP ARROW)
B-6
<PAGE>
Stable (LEFT ARROW TOGETHER WITH RIGHT ARROW)
Declining (DOWN ARROW)
Uncertain (UP ARROW TOGETHER WITH DOWN ARROW)
Credit trend indicators are not predictions that any rating change will
occur, and have a longer-term time frame than issues placed on FitchAlert.
NR INDICATES THAT FITCH DOES NOT RATE THE SPECIFIC ISSUE
Conditional: A conditional rating is premised on the successful
completion of a project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is
called or refinanced and, at Fitch's discretion, when an issuer fails to
furnish proper and timely information.
FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely
direction of such change. These are designated at "Positive" indicating a
potential upgrade. "Negative" for potential downgrade, or "Evolving" where
ratings may be raised or lowered. FitchAlert is relatively short-term, and
should be resolved within 12 months.
DESCRIPTION OF FITCH'S INVESTMENT GRADE SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned F-1+ and F-1
ratings.
B-7
<PAGE>
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
F-4 Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol "LOC" indicates that the rating is based on a letter of
credit issued by a commercial bank.
B-8
<PAGE>
TABLE OF CONTENTS
Page
----
Investment Objectives and Policies . 3
Fundamental Value Portfolio . . . . 3
Quality Bond Portfolio . . . . . . 3
U.S. Government Securities
Portfolio . . . . . . . . . . . . 3
Global Opportunity Portfolio . . . 4
Other Investment Policies and
Practices of the Portfolio . . . . 5
Management of the Program . . . . . . 8
Directors and Officers . . . . . . 8
Management and Advisory
Arrangements . . . . . . . . . . . 9
Purchase of Shares . . . . . . . . 10
Alternative Sales Arrangements . 11
Initial Sales Charge Alternative
Class A Shares . . . . . . . . . 12
Reduced Initial Sales Charges
Class A Shares . . . . . . . . . 12
Redemption of Shares . . . . . . . 14
Contingent Deferred Sales Charge-
Class B Shares . . . . . . . . . 15
Portfolio Transactions and Brokerage 15
Portfolio Turnover . . . . . . . 17
Determination of Net Asset Value . 18
Shareholder Services . . . . . . . 19
Investment Account . . . . . . . 19
Automatic Reinvestment of Dividends
and Capital Gains Distributions 19
Systematic Redemption and Automatic
Investment Plans . . . . . . . . 19
Exchange Privilege . . . . . . . 20
Dividends, Distributions and Taxes 31
Dividends and Distributions . . . 31
Federal Tax . . . . . . . . . . . 31
State Tax . . . . . . . . . . . . 33
Performance Data . . . . . . . . . 33
General Information . . . . . . . . 34
Description of Shares . . . . . . 34
Computation of Offering Price
per Share . . . . . . . . . . . 34
Independent Auditors . . . . . . 36
Custodian . . . . . . . . . . . . 36
Transfer Agent . . . . . . . . . 36
Legal Counsel . . . . . . . . . . 36
Reports to Shareholders . . . . . 36
Additional Information . . . . . 36
Statements of Assets and
Liabilities . . . . . . . . . . 37
Appendix A - Description of the
Self-Directed Plans . . . . . . A-1
Appendix B - Ratings of Corporate
Debt Securities . . . . . . . . B-1
Statement of
Additional Information
(ART)
-------------------------------
MERRILL LYNCH
RETIREMENT ASSET
BUILDER PROGRAM, INC.
Shares of Common Stock
------ --, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
Code #_____
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(A) FINANCIAL STATEMENTS
Contained in Part B:
Statements of Assets and Liabilities as of , 1994.
Fundamental Value Portfolio
Quality Bond Portfolio
U.S. Government Securities Portfolio
Global Opportunity Portfolio
(B) EXHIBITS
EXHIBIT
NUMBER
- -------
1 -- Articles of Incorporation of Registrant.
2 -- By-Laws of Registrant.
3 -- None.
4(a) -- Portions of the Articles of Incorporation and By-Laws of Registrant
defining the rights of holders of shares of common stock of
Registrant (a)
(b) -- Form of specimen certificate for shares of Class A common stock of
Registrant./*/
(c) -- Form of specimen certificate for shares of Class B common stock of
Registrant./*/
5 -- Form of 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) -- Letter Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. with respect to the Merrill Lynch Mutual Fund
Adviser Program./*/
7 -- None.
8 -- Form of Custody Agreement between Registrant and
________________________/*/
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data
Services, Inc./*/
(b) -- Agreement between Merrill Lynch & Co., Inc. and Registrant relating
to Registrant's use of Merrill Lynch name./*/
10 -- Opinion letter of Brown & Wood, counsel for Registrant./*/
11 -- Consent of ____________________, independent auditors for
Registrant./*/
12 -- None.
13 -- Certificate of Merrill Lynch Asset Management./*/
14 -- Prototype Individual Retirement Account Plan available from Merrill
Lynch, Pierce, Fenner & Smith Incorporated./*/
15(a) -- Form of Class A Distribution Plan of Registrant./*/
(b) -- Form of Class B Distribution Plan of Registrant./*/
16 -- None.
_______________
(a) -- Reference is made to Article IV, Article V (Sections 2, 3, 4,
5 and 6), Article VI, Article VII and Article IX of the
Registrant's Articles of Incorporation, filed as Exhibit 1 to
the Registration Statement, and to Article II, Article III
(Sections 1, 3, 5, 6 and 17), Article VI, Article VII,
Article XII, Article XIII and Article XIV of the Registrant's
By-Laws, filed as Exhibit 2 to the Registration Statement.
* -- To be filed by amendment.
ITEM 25. Persons Controlled by or under Common Control with Registrant.
Registrant is not controlled by or under common control with any other
person.
C-1
<PAGE>
ITEM 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
Number of Title of Class
Record Holders at , 1994
- -------------- -----------------
<S> <C>
Class A Shares of Common Stock,
par value $0.10 per share:
Fundamental Value
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 0
Quality Bond
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 0
U.S. Government Securities
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 0
Global Opportunity
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 0
Class B Shares of Common Stock,
par value $0.10 per share:
Fundamental Value
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 0
Quality Bond
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 0
U.S. Government Securities
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 0
Global Opportunity
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . 0
</TABLE>
ITEM 27. Indemnification.
Reference is made to Article V 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 the amount of the advance if it should ultimately
be determined that the standard of conduct has not been met; and (iii) at
least one of the following additional conditions is met (a) such promise must
be secured in a form and amount acceptable to the Registrant, (b) Registrant
is insured against losses by reason of the advance or (c) 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 there is reason to believe that the
recipient of the advance will ultimately be found entitled to
indemnification.
C-2
<PAGE>
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 person or
the principal underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. Business and Other Connections of Manager.
Merrill Lynch Asset Management, L.P. (the "Investment Adviser") acts as
investment adviser for the following registered investment companies:
Convertible Holdings, Inc., Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Balanced Fund
for Investment and Retirement, Merrill Lynch Capital Fund, Inc., Merrill
Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Merrill Lynch
Global Resources Trust, 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., Merrill Lynch Variable
Series Funds, Inc. and Merrill Lynch Variable Series Funds, Inc. Fund Asset
Management, L.P. ("FAM"), an affiliate of the Investment Adviser, acts as the
investment adviser for the following investment companies: Apex Municipal
Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA Money Fund,
CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury
Fund, The Corporate Fund Accumulation Program, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc.,
Financial Institutions Series Trust, Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund, Inc.,
Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond
Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch California Municipal Series Trust, Merrill
Lynch Multi-State Municipal Series Trust, Merrill Lynch Multi-State Limited
Maturity Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income
Fund, Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund,
Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New
York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield
Arizona Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured
Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured
Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured
Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured
Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York Insured
Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality 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 Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Institutional Intermediate
Fund is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646.
The address of the Manager, FAM, Princeton Services, Inc. ("Princeton
Services"), Merrill Lynch Funds Distributor, Inc. ("MLFD") and Princeton
Administrators, L.P. is also Box 9011, Princeton, New
C-3
<PAGE>
Jersey 08543-9011. The address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is
World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281. The address of Financial Data Services, Inc. ("FDS") is 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged since
April 30, 1992, for his or its own account or in the capacity of director,
officer, partner or trustee. In addition, Mr Zeikel is President, Mr.
Richard is Treasurer and Mr. Glenn is Executive Vice President of
substantially all of the investment companies described in the preceding
paragraph, and Messrs. Geiger, Durnin, Giordano, Harvey, Kirstein and Monagle
are directors, trustees or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL
POSITION(S) WITH BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION
____ ___________ OR EMPLOYMENT
_____________
<S> <C> <C>
ML & Co. . . . . . . . . . . . . Limited Partner Financial Services
Holding Company
Merrill Lynch Investment
Management, Inc. . . . . . . . . Limited Partner Investment Advisory
Services;
Limited Partner of
FAM
Princeton Services . . . . . . . General Partner General Partner of FAM
Arthur Zeikel . . . . . . . . . . President President of FAM;
President and
Director of Princeton
Services;
Director of MLFD;
Executive Vice
President of ML &
Co.; Executive
Vice President of
Merrill Lynch
Terry K. Glenn . . . . . . . . . Executive Vice Executive Vice
President President of FAM;
Executive Vice
President and
Director of Princeton
Services;
President and
Director of MLFD;
Director of FDS;
President of
Princeton
Administrators,L.P.
Bernard J. Durnin . . . . . . . . Senior Vice Senior Vice President
President of FAM;
Senior Vice President
of
Princeton Services
Vincent R. Giordano . . . . . . . Senior Vice Senior Vice President
President of FAM;
Senior Vice President
of
Princeton Services
Elizabeth Griffin . . . . . . . . Senior Vice Senior Vice President
President of FAM;
Norman R. Harvey . . . . . . . . Senior Vice Senior Vice President
President of FAM;
Senior Vice President
of
Princeton Services
N. John Hewitt . . . . . . . . . Senior Vice Senior Vice President
President of FAM;
Senior Vice President
of
Princeton Services
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
NAME POSITION(S) WITH PROFESSION, VOCATION
____ THE MANAGER OR EMPLOYMENT
___________ _____________
<S> <C> <C>
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 MLFD
Ronald M. Kloss . . . Senior Vice President Senior Vice President and
and Controller Controller of FAM;
Senior Vice President
and Controller of
Princeton Services
Stephen M.M. Miller . Senior Vice President Executive Vice President
of Princeton
Administrators, L.P.;
Joseph T. Monagle, Jr.
Senior Vice President Senior Vice President of
FAM;
Senior Vice President of
Princeton Services
Gerald M. Richard . . Senior Vice President Senior Vice President and
and Treasurer Treasurer of FAM; Senior
Vice President and
Treasurer of
Princeton Services; Vice
President and Treasurer
of MLFD
Richard L. Rufener . Senior Vice President Vice President of MLFD;
Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Ronald L. Welburn . . Senior Vice President Senior Vice President of
FAM; Senior Vice
President of Princeton
Services
Anthony Wiseman . . . Senior Vice President Senior Vice President of
FAM:
Senior Vice President of
Princeton Services;
</TABLE>
ITEM 29. Principal Underwriters.
(a) MLFD acts as the principal underwriter for the Registrant and for
each of the investment companies referred to in the first paragraph of Item
28 except Apex Municipal Fund, Inc., CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate
High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income Opportunities
Fund 1999, Inc., Income Opportunities Fund 2000, Inc., MuniAssets Fund, Inc.,
MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund,
Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Fund,
MuniYield Arizona Fund, 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.,
<PAGE>
C-5
MuniYield Quality Fund II, Inc., Senior High Income Portfolio II, Inc.,
Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc.,
Taurus MuniNew York Holdings, Inc. and Worldwide DollarVest Fund, Inc.
(b) Set forth below is information concerning each director and officer
of MLFD. The principal business address of each such person is Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Messrs. Crook,
Aldrich, Breen, Graczyk, Fatseas, and Wasel is One Financial Center, Boston,
Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICE(S) POSITION(S) AND
NAME WITH MLFD OFFICE(S)
____ _________ WITH REGISTRANT
_______________
<S> <C> <C>
Terry K. Glenn . . . . . . . President and Director None
Arthur Zeikel . . . . . . . . Director None
Philip L. Kirstein . . . . . Director President and
Director
William E. Aldrich . . . . . Senior Vice President None
Robert W. Crook . . . . . . . Senior Vice President None
Michael J. Brady . . . . . . Vice President None
William M. Breen . . . . . . Vice President None
Sharon Creveling . . . . . . Vice President and None
Assistant Treasurer
Mark A. DeSario . . . . . . . Vice President None
James T. Fatseas . . . . . . Vice President None
Stanley Graczyk . . . . . . . Vice President None
Michelle T. Lau . . . . . . . Vice President None
Debra W. Landsman-Yaros . . . Vice President None
Gerald M. Richard . . . . . . Vice President and TreasurerNone
Richard L. Rufener . . . . . Vice President None
Salvatore Venezia . . . . . . Vice President None
William Wasel . . . . . . . . Assistant Vice President None
Robert Harris . . . . . . . . Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules thereunder are maintained at the offices of the Registrant, 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
C-6
<PAGE>
Arrangements" in the Statement of Additional Information constituting Part B
of the Registration Statement, the Registrant is not a party to any
management-related service contract.
ITEM 32. Undertakings.
(a) Registrant undertakes to file a post effective amendment using
financial statements, which need not be certified, within four to six months
from the effective date of this registration.
(b) 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.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 26th day of May, 1994.
MERRILL LYNCH RETIREMENT ASSET
BUILDER PROGRAM, INC.
(REGISTRANT)
By:/s/ Philip L. Kirstein
------------------------------
(Philip L. Kirstein, 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 date(s) indicated.
SIGNATURES TITLE DATE(S)
/s/ Philip L. Kirstein
- ----------------------- President and Director May 26, 1994
(Philip L. Kirstein) (Principal Executive Officer)
/s/ Jerry Weiss
- ---------------------- Treasurer and Director May 26, 1994
(Jerry Weiss) (Principal Financial
and Accounting Officer)
/s/ Mark B. Goldfus
- ---------------------- Secretary and Director May 26, 1994
(Mark B. Goldfus)
C-8
<PAGE>
ARTICLES OF INCORPORATION
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
THE UNDERSIGNED, CHRISTIAN J. VESPER, whose post office address is Brown
& Wood, One World Trade Center, New York, New York 10048-0557, being at
least eighteen years of age, does hereby act as an incorporator, under and by
virtue of the General Laws of the State of Maryland authorizing the formation
of corporations and with the intention of forming a corporation.
ARTICLE I
NAME
----
The name of the corporation is MERRILL LYNCH RETIREMENT ASSET BUILDER
PROGRAM, INC. (the "Corporation").
ARTICLE II
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed, the powers,
rights and privileges that the Corporation shall be authorized to exercise
and enjoy, and the business or objects to be transacted, carried on and
promoted by it are as follows:
(1) To conduct and carry on the business of an investment company of
the management type.
(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.
1
<PAGE>
(3) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or
kind of consideration now or hereafter permitted by the General Laws of the
State of Maryland and by these Articles of Incorporation, as its Board of
Directors may determine; provided, however, that the value of the
consideration per share to be received by the Corporation upon the sale or
other disposition of any shares of its capital stock shall not be less than
the net asset value per share of such capital stock outstanding at the time
of such event.
(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its issued or unissued capital
stock of any class or series, as its board of Directors may determine, in any
manner and to the extent now or hereafter permitted by the General Laws of
the State of Maryland and by these Articles of Incorporation.
(5) To do any and all such further acts or things and to exercise any
and all such further powers or rights as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment,
carrying out or attainment of all or any of the foregoing purposes or
objects.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred
2
<PAGE>
upon, corporations by the General Laws of the State of Maryland now or
hereafter in force, and the enumeration of the foregoing purposes, powers,
rights and privileges, shall not be deemed to exclude any powers, rights or
privileges so granted or conferred.
ARTICLE III
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a
corporation of this State, and the post office address of the resident agent
is 32 South Street, Baltimore, Maryland 21202.
ARTICLE IV
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Million (100,000,000) shares, of
the par value of Ten Cents ($.10) per share, and of the aggregate par value
of Ten Million Dollars ($10,000,000). The capital stock initially is divided
into four series, each of which consists of two classes of common stock, as
follows:
3
<PAGE>
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
------------ ------------
<S> <C> <C>
Fundamental 12,500,000 shares 12,500,000 shares
Value Portfolio
Quality Bond 12,500,000 shares 12,500,000 shares
Portfolio
U.S. Government 12,500,000 shares 12,500,000 shares
Securities Portfolio
Global Opportunity 12,500,000 shares 12,500,000 shares
Portfolio
</TABLE>
(2) The Board of Directors may classify and reclassify any unissued
shares of capital stock, of any class or series, into one or more additional
or other classes or series as may be established from time to time by setting
or changing in any one or more respects the designations, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares
of stock and pursuant to such classification or reclassification to increase
or decrease the number of authorized shares of any existing class or series.
(3) The Board of Directors may classify and reclassify any issued
shares of capital stock, of any class or series, into one or more additional
or other classes or series as may be established from time to time by setting
or changing in any one or more respects the designations, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares
of stock and pursuant to such classification or
4
<PAGE>
reclassification to increase or decrease the number of authorized shares of
any existing class or series; provided, however, that any such classification
or reclassification shall not substantially adversely affect the rights of
holders of such issued shares.
(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, the holders of each class or series of capital stock
shall be entitled to dividends and distributions in such amounts and at such
times as may be determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series of capital
stock may vary among such classes and series. Dividends on a class or series
may be declared or paid only out of the net assets of that class or series.
Expenses related to the distribution of, and other identified expenses that
should properly be allocated to, the shares of a particular class or series
of capital stock may be charged to and borne solely by such class or series
and the bearing of expenses solely by a class or series of capital stock may
be appropriately reflected (in a manner determined by the Board of Directors)
and cause differences in the net asset value attributable to, and the
dividend, redemption and liquidation rights of, the shares of each class or
series of capital stock.
(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II,
5
<PAGE>
Section (4) hereof and including any Articles Supplementary creating any
class or series of capital stock, on each matter submitted to a vote of
stockholders, each holder of a share of capital stock of the Corporation
shall be entitled to one vote for each share standing in such holder's name
on the books of the Corporation, irrespective of the class or series thereof,
and all shares of all classes and series shall vote together as a single
class; provided, however, that (a) as to any matter with respect to which a
separate vote of any class or series is required by the Investment Company
Act of 1940, as amended, and in effect from time to time, or any rules,
regulations or orders issued thereunder, or by the Maryland General
Corporation Law, such requirement as to a separate vote by that class or
series shall apply in lieu of a general vote of all classes and series as
described above, (b) in the event that the separate vote requirements
referred to in (a) above apply with respect to one or more classes or series,
then, subject to paragraph (c) below, the shares of all other classes and
series not entitled to a separate class vote shall vote as a single class,
and (c) as to any matter which does not affect the interest of a particular
class or series, such class or series shall not be entitled to any vote and
only the holders of shares of the affected classes and series, if any, shall
be entitled to vote.
(6) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all
classes or series of capital stock of the
6
<PAGE>
Corporation (or of any class or series entitled to vote thereon as a separate
class or series) to take or authorize any action, the Corporation is hereby
authorized (subject to the requirements of the Investment Company Act of
1940, as amended, and in effect from time to time, and any rules, regulations
and orders issued thereunder) to take such action upon the concurrence of a
majority of the votes entitled to be cast by holders of capital stock of the
Corporation (or a majority of the votes entitled to be cast by holders of a
class or series entitled to vote thereon as a separate class or series).
(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders
of each class or series of capital stock of the Corporation shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining net assets
of the Corporation applicable to that class or series.
(8) Any fractional shares shall carry proportionately all the rights of
a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and
the right to receive dividends.
(9) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be
7
<PAGE>
cast shall constitute a quorum at any meeting of stockholders, except with
respect to any matter which requires approval by a separate vote of one or
more classes of stock, in which case the presence in person or by proxy of
the holders of shares entitled to cast one-third of the votes entitled to be
cast by each class entitled to vote as a separate class shall constitute a
quorum.
(10) All persons who shall acquire stock in the Corporation, of any
class or series, shall acquire the same subject to the provisions of the
charter and By-Laws of the Corporation. As used in the charter of the
Corporation, the terms "charter" and "Articles of Incorporation" shall mean
and include the Articles of Incorporation of the Corporation as amended,
supplemented and restated from time to time by Articles of Amendment,
Articles Supplementary, Articles of Restatement or otherwise.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
-------------------------------------
(1) The number of directors of the Corporation shall be three, which
number may be increased pursuant to the By-Laws of the Corporation but shall
never be less than three. The names of the directors who shall act until
their successors are duly elected and qualify are:
Philip L. Kirstein
Jerry Weiss
Mark B. Goldfus
8
<PAGE>
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, of any
class or series, whether now or hereafter authorized, for such consideration
as the Board of Directors may deem advisable, subject to such limitations as
may be set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the General Laws of the State of Maryland.
(3) No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or
sell (whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation,
of any class or series, acquired by it after the issue thereof, or otherwise)
other than such right, if any, as the Board of Directors, in its discretion,
may determine.
(4) Each director and each officer of the Corporation shall be
indemnified by the Corporation to the full extent permitted by the General
Laws of the State of Maryland, subject to the requirements of the Investment
Company Act of 1940, as amended. No amendment of these Articles of
Incorporation or repeal of any provision hereof shall limit or eliminate the
benefits provided to directors and officers under this provision in
connection with any act or omission that occurred prior to such amendment or
repeal.
9
<PAGE>
(5) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940,
as amended, no director or officer of the Corporation shall be personally
liable to the Corporation or its security holders for money damages. No
amendment of these Articles of Incorporation or repeal of any provision
hereof shall limit or eliminate the benefits provided to directors and
officers under this provision in connection with any act or omission that
occurred prior to such amendment or repeal.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from
time to time any of the By-Laws of the Corporation except any particular By-
Law which is specified as not subject to alteration or repeal by the Board of
Directors, subject to the requirements of the Investment Company Act of 1940,
as amended.
(7) The Board of Directors of the Corporation from time to time may
change the Corporation's name, without the vote or consent of the
stockholders of the Corporation, in any manner and to the extent now or
hereafter permitted by the General Laws of the State of Maryland and by these
Articles of Incorporation.
10
<PAGE>
ARTICLE VI
REDEMPTION
----------
Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares
of capital stock of the Corporation standing in the name of such holder on
the books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the
redemption price of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in accordance with
the provisions hereof, subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption of shares of capital stock of
the Corporation or postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption price of shares
of capital stock of the Corporation shall be the net asset value thereof as
determined by the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such redemption fee or
other charge, if any, as may be fixed by resolution of the Board of Directors
of the Corporation. Payment of the redemption price shall be made in cash by
the Corporation at such time and in such manner as may be determined from
time to time by the Board of Directors of the Corporation.
11
<PAGE>
ARTICLE VII
DETERMINATION BINDING
---------------------
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to
the direction of the Board of Directors, as to the amount of assets,
obligations or liabilities of the Corporation, as to the amount of net income
of the Corporation from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as to the time of
or purpose for creating reserves or as to the use, alteration or cancellation
of any reserves or charges (whether or not any obligation or liability for
which such reserves or charges shall have been created, shall have been paid
or discharged or shall be then or thereafter required to be paid or
discharged), as to the price of any security owned by the Corporation or as
to any other matters relating to the issuance, sale, redemption or other
acquisition or disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good faith by the Board
of Directors as to whether any transaction constitutes a purchase of
securities on "margin," a sale of securities "short," or an underwriting or
the sale of, or a participation in any underwriting or selling group in
connection with the public distribution of, any securities, shall be final
and conclusive, and shall be binding upon the Corporation and all holders of
its
12
<PAGE>
capital stock, past, present and future, and shares of the capital stock of
the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of these Articles of Incorporation shall be
effective to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act of 1940, as
amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any
director or officer of the Corporation against any liability to the
Corporation or its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
ARTICLE VIII
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
ARTICLE IX
AMENDMENT
---------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, in any manner now or
hereafter prescribed by statute, including any amendment which alters the
contract
13
<PAGE>
rights, as expressly set forth in the charter, of any outstanding stock and
substantially adversely affects the stockholder's rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned incorporator of MERRILL LYNCH
RETIREMENT ASSET BUILDER PROGRAM, INC. hereby executes the foregoing Articles
of Incorporation and acknowledges the same to be his act.
Dated this 11th day of May, 1994
/s/ Christian J. Vesper
--------------------------
Christian J. Vesper
14
<PAGE>
<PAGE>
BY-LAWS
OF
MERRILL LYNCH RETIREMENT ASSET BUILDER PROGRAM, INC.
ARTICLE I
Offices
-------
Section 1. Principal Office. The principal office of Merrill Lynch
----------------
Retirement Asset Builder Program, Inc. (the "Corporation") shall be in the
City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office
--------------------------
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 3. Other Offices. The Corporation may have such other offices
-------------
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
------------------------
Section 1. Annual Meeting. The Corporation shall not be required to
--------------
hold an annual meeting of its stockholders in any year in which the election
of directors is not required to be acted upon under the Investment Company
Act of 1940. In the event that the Corporation shall be required to hold an
annual meeting of stockholders to elect directors by the Investment
1
<PAGE>
Company Act of 1940, as amended, such meeting shall be held no later than 120
days after the occurrence of the event requiring the meeting. Any
stockholders' meeting held in accordance with this Section shall for all
purposes constitute the annual meeting of stockholders for the year in which
the meeting is held.
Section 2. Special Meetings. Special meetings of the stockholders,
----------------
unless otherwise provided by law, may be called for any purpose or purposes
by a majority of the Board of Directors, the President, or on the written
request of the holders of at least 10% of the outstanding shares of capital
stock of the Corporation entitled to vote at such meeting if they comply with
Section 2-502(b) or (c) of the Maryland General Corporation Law.
Section 3. Place of Meetings. Meetings of the stockholders shall be
-----------------
held at such place within the United States as the Board of Directors may
from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
------------------------------------
date and time of the holding of each stockholders' meeting and, if the
meeting is a special meeting, the purpose or purposes of the special meeting,
shall be given personally or by mail, not less than ten nor more than ninety
days before the date of such meeting, to each stockholder entitled to vote at
such meeting and to each other stockholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the stockholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid.
2
<PAGE>
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who
shall, either before or after the meeting, submit a signed waiver of notice
which is filed with the records of the meeting. When a meeting is adjourned
to another time and place, unless the Board of Directors, after the
adjournment, shall fix a new record date for an adjourned meeting, or the
adjournment is for more than one hundred and twenty days after the original
record date, notice of such adjourned meeting need not be given if the time
and place to which the meeting shall be adjourned were announced at the
meeting at which the adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders, the holders
------
of shares of stock of the Corporation entitled to cast a majority of the
votes entitled to be cast, present in person or by proxy, shall constitute a
quorum for the transaction of any business, except with respect to any matter
which requires approval by a separate vote of one or more classes of stock,
in which case the presence in person or by proxy of the holders of shares
entitled to cast a majority of the votes entitled to be cast by each class
entitled to vote as a separate class shall constitute a quorum. In the
absence of a quorum no business may be transacted, except that the holders of
a majority of the shares of stock present in person or by proxy and entitled
to vote may adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these By-Laws, until the
holders of the requisite amount of
3
<PAGE>
shares of stock shall be so present. At any such adjourned meeting at which
a quorum may be present any business may be transacted which might have been
transacted at the meeting as originally called. The absence from any
meeting, in person or by proxy, of holders of the number of shares of stock
of the Corporation in excess of a majority thereof which may be required by
the laws of the State of Maryland, the Investment Company Act of 1940, as
amended, or other applicable statute, the Articles of Incorporation, or these
By-Laws, for action upon any given matter shall not prevent action at such
meeting upon any other matter or matters which may properly come before the
meeting, if there shall be present thereat, in person or by proxy, holders
of the number of shares of stock of the Corporation required for action in
respect of such other matter or matters.
Section 6. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, shall
act as chairman of the meeting. The Secretary, or in his absence or
inability to act, any person appointed by the chairman of the meeting, shall
act as secretary of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings
-----------------
of the stockholders shall be as determined by the chairman of the meeting.
4
<PAGE>
Section 8. Voting. Except as otherwise provided by statute or the
------
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name
on the record of stockholders of the Corporation as of the record date
determined pursuant to Section 9 of this Article or if such record date shall
not have been so fixed, then at the later of (i) the close of business on the
day on which notice of the meeting is mailed or (ii) the thirtieth day before
the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided
in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where such proxy states that
it is irrevocable and where an irrevocable proxy is permitted by law. Except
as otherwise provided by statute, the Articles of Incorporation or these
By-Laws, any corporate action to be taken by vote of the stockholders (other
than the election of directors, which shall be by plurality vote) may be
authorized by a majority of the total votes cast at a meeting of stockholders
by the holders of shares present in person or represented by proxy and
entitled to vote on such action.
5
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If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute
or these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his proxy, if there
be such proxy, and shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
---------------------
record date for the purpose of determining stockholders entitled to vote at
any meeting of the stockholders. The record date, which may not be prior to
the close of business on the day the record date is fixed, shall be not more
than ninety nor less than ten days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time,
and not others, shall be entitled to vote at such meeting and any adjournment
thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
----------
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any
of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any Stockholder entitled to vote thereto shall, appoint
inspectors. Each inspector, before entering upon the discharge of his
duties, may be required to take and sign an oath to execute faithfully the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors may be
6
<PAGE>
empowered to determine the number of shares outstanding and the voting powers
of each, the number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the
chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as inspector of
an election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
------------------------------------------
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may
be taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote
thereat.
7
<PAGE>
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. Except as otherwise provided in the
--------------
Articles of Incorporation, the business and affairs of the Corporation shall
be managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the stockholders by law or by the
Articles of Incorporation or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
-------------------
from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that the number
of directors shall in no event be less than three nor more than fifteen. Any
vacancy created by an increase in Directors may be filled in accordance with
Section 6 of this Article III. No reduction in the number of directors shall
have the effect of removing any director from office prior to the expiration
of his term unless such director is specifically removed pursuant to Section
5 of this Article III at the time of such decrease. Directors need not be
stockholders.
Section 3. Election and Term of Directors. Directors shall be elected
------------------------------
annually at a meeting of stockholders held for that purpose; provided,
however, that if no meeting of the stockholders of the Corporation is
required to be held in a particular year pursuant to Section 1 of Article II
of these By-Laws, directors shall be elected at the next meeting held.
8
<PAGE>
The term of office of each director shall be from the time of his election
and qualification until the election of directors next succeeding his
election and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned or until
December 31 of the year in which he shall have reached seventy-two years of
age, or until he shall have been removed as hereinafter provided in these
By-Laws, or as otherwise provided by statute or the Articles of
Incorporation.
Section 4. Resignation. A director of the Corporation may resign at
-----------
any time by giving written notice of his resignation to the Board or the
Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately
upon its receipt; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may
--------------------
be removed by the stockholders by a vote of a majority of the votes entitled
to be cast for the election of directors.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
---------
death, resignation, removal, an increase in the number of directors or any
other cause, may be filled by a vote of the majority of the Board of
Directors then in office even though such majority is less than a quorum,
provided that no vacancies shall be filled by action of the remaining
directors,
9
<PAGE>
if after the filling of said vacancy or vacancies, less than two-thirds of
the directors then holding office shall have been elected by the stockholders
of the Corporation. In the event that at any time there is a vacancy in any
office of a director which vacancy may not be filled by the remaining
directors, a special meeting of the stockholders shall be held as promptly
as possible and in any event within sixty days, for the purpose of filling
said vacancy or vacancies.
Section 7. Place of Meetings. Meetings of the Board may be held at
-----------------
such place as the Board may from time to time determine or as shall be
specified in the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board may be held
----------------
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be
----------------
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or
------------------
of any committee thereof may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Subject
to the provisions of the Investment Company Act of 1940, as amended,
participation in a meeting by these means constitutes presence in person at
the meeting.
10
<PAGE>
Section 11. Notice of Special Meetings. Notice of each special meeting
--------------------------
of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of
each such meeting shall be delivered to each director, either personally or
by telephone or any standard form of telecommunication, at least twenty-four
hours before the time at which such meeting is to be held, or by first-class
mail, postage prepaid, addressed to him at his residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 12. Waiver of Notice of Meetings. Notice of any special
----------------------------
meeting need not be given to any director who shall, either before or after
the meeting, sign a written waiver of notice which is filed with the records
of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of
-----------------
the members of the entire Board shall be present in person at any meeting of
the Board in order to constitute a quorum for the transaction of business at
such meeting, and except as otherwise expressly required by statute, the
Articles of Incorporation, these By-Laws, the Investment Company Act of 1940,
as amended, or other applicable statute, the act of a majority of the
directors present at any meeting at which a quorum is present shall be the
act of the Board. In the absence
11
<PAGE>
of a quorum at any meeting of the Board, a majority of the directors present
thereat may adjourn such meeting to another time and place until a quorum
shall be present thereat. Notice of the time and place of any such adjourned
meeting shall be given to the directors who were not present at the time of
the adjournment and, unless such time and place were announced at the meeting
at which the adjournment was taken, to the other directors. At any adjourned
meeting at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a
------------
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat.
The Secretary (or, in his absence or inability to act, any person appointed
by the Chairman) shall act as secretary of the meeting and keep the minutes
thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
-------------------------------------------------
to the provisions of the Investment Company Act of 1940, as amended, any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
12
<PAGE>
writing, and the writings or writing are filed with the minutes of the
proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation for
------------
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the
Board.
Section 17. Investment Policies. It shall be the duty of the Board of
-------------------
Directors to direct that the purchase, sale, retention and disposal of
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect
to securities investments and otherwise of the Corporation, as recited in the
current Prospectus and Statement of Additional Information of the
Corporation, as filed from time to time with the Securities and Exchange
Commission and as required by the Investment Company Act of 1940, as amended.
The Board however, may delegate the duty of management of the assets and the
administration of its day to day operations to an individual or corporate
management company and/or investment adviser pursuant to a written contract
or contracts which have obtained the requisite approvals, including the
requisite approvals of renewals thereof, of the Board of Directors and/or
the stockholders of the Corporation in accordance with the provisions of the
Investment Company Act of 1940, as amended.
13
<PAGE>
ARTICLE IV
Committees
----------
Section 1. Executive Committee. The Board may, by resolution adopted
-------------------
by a majority of the entire board, designate an Executive Committee
consisting of two or more of the directors of the corporation, which
committee shall have and may exercise all the powers and authority of the
Board with respect to all matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or the Articles of
Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required
to be taken by the Board of Directors by the Investment Company Act of 1940,
as amended;
(e) the amendment or repeal of these By-Laws or the adoption of new By-
Laws;
(f) the amendment or repeal of any resolution of the Board
which by its terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and
14
<PAGE>
(h) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may
-----------------------------
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the
Board of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members
-------
of any committee shall be present in person at any meeting of such committee
in order to constitute a quorum for the transaction of business at such
meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such
chairman or any two members of any committee may fix the time and place of
its meetings unless the Board shall otherwise provide. In the absence or
disqualification of any member of any committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent
15
<PAGE>
or disqualified member. The Board shall have the power at any time to change
the membership of any committee, to fill all vacancies, to designate
alternate members to replace any absent or disqualified member, or to
dissolve any such committee. Nothing herein shall be deemed to prevent the
Board from appointing one or more committees consisting in whole or in part
of persons who are not directors of the Corporation; provided, however, that
no such committee shall have or may exercise any authority or power of the
Board in the management of the business or affairs of the Corporation.
ARTICLE V
Officers, Agents and Employees
------------------------------
Section 1. Number of Qualifications. The officers of the Corporation
------------------------
shall be a President, a Secretary and a Treasurer, each of whom shall be
elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more
offices may be held by the same person, except the offices of President and
Vice President, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Such officers shall be elected by the
Board of Directors each year at a meeting of the Board of Directors, each to
hold office for the ensuing year and until his successor shall have been duly
elected and shall have qualified, or until his death, or until he
16
<PAGE>
shall have resigned, or have been removed, as hereinafter provided in these
By-Laws. The Board may from time to time elect, or delegate to the President
the power to appoint, such officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant Secre-
taries) and such agents, as may be necessary or desirable for the business of
the Corporation. Such officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board or by the
appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
------------
any time by giving written notice of resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall
take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent
-------------------------------------
or employee of the Corporation may be removed by the Board of Directors with
or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's
contract rights, if any, but the appointment of any person as an officer,
agent or employee of the Corporation shall not of itself create contract
rights.
17
<PAGE>
Section 4. Vacancies. A vacancy in any office, whether arising from
---------
death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment to
such office.
Section 5. Compensation. The compensation of the officers of the
------------
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
---------
officer of the Corporation. In the absence of the Chairman of the Board (or
if there be none), he shall preside at all meetings of the stockholders and
of the Board Directors. He shall have, subject to the control of the Board
of Directors, general charge of the business and affairs of the Corporation.
He may employ and discharge employees and agents of the Corporation, except
such as shall be appointed by the Board, and he may delegate these powers.
Section 8. Vice President. Each Vice President shall have such powers
--------------
and perform such duties as the Board of Directors or the President may from
time to time prescribe.
18
<PAGE>
Section 9. Treasurer. The Treasurer shall
---------
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has
placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act
of 1934, as amended) pursuant to a written agreement designating such bank or
trust company or member of a national securities exchange as custodian of the
property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
by the Board or the President.
Section 10. Secretary. The Secretary shall
---------
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the
Board and the stockholders;
19
<PAGE>
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all
other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any
--------------------
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or
any of them, of such officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
---------------
Each officer and director of the Corporation shall be indemnified by the
Corporation to the full extent permitted under the Maryland General
Corporation Law, except that such indemnity
20
<PAGE>
shall not protect any such person against any liability to the Corporation or
any stockholder thereof to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office. Absent a
court determination that an officer or director seeking indemnification was
not liable on the merits or guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, the decision by the Corporation to indemnify such person must be
based upon the reasonable determination by special legal counsel in a written
opinion or the vote of a majority of a quorum of the directors who are
neither "interested persons," as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to the proceeding
("non-party independent directors"), after review of the facts, that such
officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in
connection with proceedings to which he is a party in the manner and to the
full extent permitted under the Maryland General Corporation Law without a
preliminary determination as to his or her ultimate entitlement to
indemnification (except as set forth below);
21
<PAGE>
provided, however, that the person seeking indemnification shall provide to
the Corporation a written affirmation of his good faith belief that the
standard of conduct necessary for indemnification by the Corporation has been
met and a written undertaking to repay any such advance, if it should
ultimately be determined that the standard of conduct has not been met, and
provided further that at least one of the following additional conditions is
met: (a) the person seeking indemnification shall provide a security in form
and amount acceptable to the Corporation for his undertaking; (b) the
Corporation is insured against losses arising by reason of the advance; (c) a
majority of a quorum of non-party independent directors, or independent legal
counsel in a written opinion, shall determine, based on a review of facts
readily available to the Corporation at the time the advance is proposed to
be made, that there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the
General Laws of the State of Maryland, from liability arising from his
activities as officer or director of the Corporation. The Corporation,
however, may not purchase insurance on behalf of any officer or director of
the Corporation that protects or purports to protect such person from
liability to the Corporation or to its stockholders to which such officer or
director would otherwise be subject by reason of willful
22
<PAGE>
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.
The Corporation may indemnify, make advances or purchase insurance to
the extent provided in this Article VI on behalf of an employee or agent who
is not an officer or director of the Corporation.
ARTICLE VII
Capital Stock
-------------
Section 1. Stock Certificates. Each holder of stock of the Corporation
------------------
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates
for fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the Chairman, President or a Vice President and by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile sig-
nature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate shall be issued,
it may be issued by the Corporation with the
23
<PAGE>
same effect as if such officer, transfer agent or registrar were still in
office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall
-------------------------------------------
be kept at the principal executive office of the Corporation correct and
complete books and records of account of all the business and transactions of
the Corporation. There shall be made available upon request of any
stockholder, in accordance with Maryland law, a record containing the number
of shares of stock issued during a specified period not to exceed twelve
months and the consideration received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
-------------------
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or certificates,
if issued, for such shares properly endorsed or accompanied by a duly
executed stock transfer power and the payment of all taxes thereon. Except
as otherwise provided by law, the Corporation shall be entitled to recognize
the exclusive right of a person in whose name any share or shares stand on
the record of stockholders as the owner of such share or shares for all
purposes, including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, and the Corporation shall not
be bound to recognize any equitable or
24
<PAGE>
legal claim to or interest in any such share or shares on the part of any
other person.
Section 4. Regulations. The Board may make such additional rules and
-----------
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer
clerks and one or more registrars and may require all certificates for shares
of stock to bear the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of
-----------------------------------------
any certificates representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his
legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board
in its absolute discretion shall determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss
or destruction of any such certificate, or issuance of a new certificate.
Anything herein to the contrary
25
<PAGE>
notwithstanding, the Board, in its absolute discretion, may refuse to issue
any such new certificate, except pursuant to legal proceedings under the laws
of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions.
-------------------------------------------------------
The Board may fix, in advance, a date not more than ninety days preceding the
date fixed for the payment of any dividend or the making of any distribution
or the allotment of rights to subscribe for securities of the Corporation, or
for the delivery of evidences of rights or evidences of interests arising out
of any change, conversion or exchange of common stock or other securities, as
the record date for the determination of the stockholders entitled to receive
any such dividend, distribution, allotment, rights or interests, and in such
case only the stockholders of record at the time so fixed shall be entitled
to receive such dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of
--------------------------------------
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.
ARTICLE VIII
Seal
----
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by
26
<PAGE>
the Board of Directors, the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Maryland." Said seal may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
ARTICLE IX
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the ___ day of _____________.
ARTICLE X
Depositories and Custodians
---------------------------
Section 1. Depositories. The funds of the Corporation shall be
------------
deposited with such banks or other depositories as the Board of Directors of
the Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
----------
deposited in the safe keeping of such banks or other companies as the Board
of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safe keeping
of the securities and investments of the Corporation shall contain provisions
complying with the Investment Company Act of 1940, as amended, and the
general rules and regulations thereunder.
27
<PAGE>
ARTICLE XI
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
--------------------------
acceptances, bills of exchange and other orders or obligations for the
payment of money shall be signed by such officer or officers or person or
persons as the Board of Directors by resolution shall from time to time
designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds
------------------------------
or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of
subject to any limits imposed by these By-Laws and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation
or sold, transferred or otherwise disposed of, may be transferred from the
name of the Corporation by the signature of the President or a Vice President
or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountants
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The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and, if required by
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the provisions of the Investment Company Act of 1940, as amended, ratified by
the stockholders.
ARTICLE XIII
Annual Statement
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The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed
to each stockholder of the Corporation of record on such date with respect to
each report as may be determined by the Board, at his address as the same
appears on the books of the Corporation. Such annual statement shall also be
available at the annual meeting of stockholders, if any, and, within 20 days
after the meeting (or, in the absence of an annual meeting, within 120 days
after the end of the fiscal year), be placed on file at the Corporation's
principal office. Each such report shall show the assets and liabilities of
the Corporation as of the close of the annual or quarterly period covered by
the report and the securities in which the funds of the Corporation were then
invested. Such report shall also show the Corporation's income and expenses
for the period from the end of the Corporation's preceding fiscal year to the
close of the annual or quarterly period covered by the report and any other
information required by the Investment Company Act of 1940, as amended, and
shall set forth such other
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matters as the Board or such firm of independent public accountants shall
determine.
ARTICLE XIV
Amendments
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These By-Laws or any of them may be amended, altered or repealed by the
Board of Directors. The stockholders shall have no power to make, amend,
alter or repeal By-Laws.
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