SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MERRILL LYNCH CORPORATE BOND FUND, INC.
MERRILL LYNCH FUND FOR TOMORROW, INC.
MERRILL LYNCH GLOBAL UTILITY FUND, INC.
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
MERRILL LYNCH MUNICIPAL SERIES TRUST
MERRILL LYNCH STRATEGIC DIVIDEND FUND
MERRILL LYNCH UTILITY INCOME FUND, INC.
P.O. Box 9011
Princeton, New Jersey 08543-9011
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(Name of Registrant as Specified in its Charter)
SAME AS ABOVE
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(t)(1),
or 14a-6(J)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid,
(2) Form, Schedule or Registration Statement No. ;
(3) Filing Party:
(4) Date Filed: August 5, 1994.
Notes:
PRELIMINARY COPY
MERRILL LYNCH CORPORATE BOND
FUND, INC. (3 SERIES)
MERRILL LYNCH FUND FOR TOMORROW, INC.
MERRILL LYNCH GLOBAL UTILITY FUND, INC.
MERRILL LYNCH MUNICIPAL
BOND FUND, INC. (3 SERIES)
MERRILL LYNCH MUNICIPAL
SERIES TRUST (1 SERIES)
MERRILL LYNCH STRATEGIC DIVIDEND FUND
MERRILL LYNCH UTILITY INCOME FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
DEAR SHAREHOLDER:
The enclosed proxy statement requests that you consider and approve (i) the
election of the Board of Directors or Trustees, (ii) the selection of the
independent auditors, (iii) certain changes to the fundamental investment
restrictions for each of the above-referenced mutual funds (each a 'Fund'), of
which you own shares, and (iv) an amendment to the Fund's Articles of
Incorporation or Declaration of Trust in connection with the implementation by
the Funds of the Merrill Lynch Select PricingSM System (the 'Select Pricing
System').
As you are aware, many of the mutual funds advised by Merrill Lynch Asset
Management, L.P. ('MLAM') or its affiliate, Fund Asset Management, L.P. ('FAM'),
and distributed by Merrill Lynch Funds Distributor, Inc. ('MLFD'), offer 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 'Dual Distribution
System'). In order to provide additional distribution alternatives tailored more
specifically to an investor's needs, the Funds, as well as all of the other
mutual funds advised by MLAM or FAM that are currently operating under the Dual
Distribution System, intend to implement the Select Pricing System, a new
distribution system under which each Fund will offer four classes of shares,
each with a different combination of sales charges, ongoing fees and other
features. The implementation of the Select Pricing System will not adversely
affect the net asset value of a current shareholder's investment in the Fund nor
will the two new classes of shares have an adverse effect on the shares that are
currently issued and outstanding.
An amendment to the Articles of Incorporation or Declaration of Trust of
each of the Funds is being proposed in connection with the implementation of the
Select Pricing System. This amendment, as well as the election of the Boards of
Directors and Trustees, the selection of independent auditors and the proposed
investment restriction changes require the separate approval of the outstanding
shareholders of each of the Funds. In addition, in the case of a series fund or
trust, the charter amendment and the investment restriction changes require the
separate approval of each series. When we have solicited proxies in the past,
you have received a proxy statement directed solely to shareholders of your
Fund. Because all of the mutual funds currently operating under the Dual
Distribution System intend to begin operating under the Select Pricing System,
and since much of the information required to be included in the proxy materials
for each Fund is substantially identical, we believe it is more efficient to
prepare a single 'omnibus' proxy statement for use by the shareholders of all
Funds having a common Board of Directors or Trustees. Specific information
pertaining to your Fund or Funds is attached hereto as Exhibits A and C. If you
own more than one Fund, the term 'Fund' refers to each Fund in which you own
shares.
EACH SHAREHOLDER WILL VOTE ONLY ON PROPOSALS THAT APPLY TO THAT
SHAREHOLDER'S FUND. SHARES OF AN INDIVIDUAL SERIES OF A SERIES FUND OR TRUST
WILL BE DEEMED TO BE SHARES OF A SEPARATE FUND FOR VOTING PURPOSES IN THE CASE
OF PROPOSALS 3 AND 4. THE ENCLOSED PROXY CARD(S) SOLICITS YOUR VOTE ON EACH
PROPOSAL AS A SHAREHOLDER OF EACH OF THE FUNDS THAT YOU OWN. YOU WILL BE SENT A
SEPARATE PROXY STATEMENT AND PROXY CARD FOR EACH ACCOUNT IN WHICH YOU HOLD
SHARES OF THE FUNDS COVERED BY THIS PROXY STATEMENT; IN ADDITION, IF YOU OWN
SHARES OF OTHER MLAM-ADVISED FUNDS, YOU WILL BE SENT FOR EACH ACCOUNT IN WHICH
YOU OWN SHARES AN ADDITIONAL COMBINED PROXY STATEMENT AND PROXY CARD FOR EACH
GROUP OF FUNDS WITH A COMMON BOARD. EACH VOTE IS IMPORTANT; PLEASE REVIEW EACH
PROXY STATEMENT CAREFULLY AND CAST YOUR VOTE ON EACH PROXY CARD YOU RECEIVE.
MANAGEMENT AND THE BOARD RECOMMEND THAT YOU VOTE 'FOR' EACH PROPOSAL. If you
have any questions, please call 1-609-282-2800.
Sincerely,
ARTHUR ZEIKEL
President
PRELIMINARY COPY
MERRILL LYNCH CORPORATE
BOND FUND, INC. (3 SERIES)
MERRILL LYNCH FUND FOR TOMORROW, INC.
MERRILL LYNCH GLOBAL UTILITY FUND, INC.
MERRILL LYNCH MUNICIPAL
BOND FUND, INC. (3 SERIES)
MERRILL LYNCH MUNICIPAL
SERIES TRUST (1 SERIES)
MERRILL LYNCH STRATEGIC DIVIDEND FUND
MERRILL LYNCH UTILITY INCOME FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
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NOTICE OF MEETINGS OF SHAREHOLDERS
SEPTEMBER 26, 1994
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TO THE SHAREHOLDERS:
Notice is hereby given that Meetings of Shareholders (the 'Meetings') of
the above-listed mutual funds (each a 'Fund', which term includes the individual
series of the above-listed series funds and trust) advised by Merrill Lynch
Asset Management, L.P. ('MLAM') and Fund Asset Management, L.P. ('FAM') will be
held at the offices of MLAM, 800 Scudders Mill Road, Plainsboro, New Jersey, on
September 26, 1994 at the time specified in Exhibit A hereto. The Meetings will
be held for the following purposes:
(1) To elect members of the Boards of Directors or Trustees to serve
for an indefinite term until their successors are duly elected and
qualified;
(2) To consider and act upon a proposal to ratify the selection of the
independent auditors of each Fund for its current fiscal year;
(3) To consider and act upon a proposal to amend the fundamental
investment restrictions of each Fund;
(4) To consider and act upon a proposal to amend the Articles of
Incorporation or Declaration of Trust of each Fund in connection
with the implementation of the Merrill Lynch Select PricingSM
System (the 'Select Pricing System'), a multiclass distribution
system for the offer and sale of shares of the Fund (this proposal
must be approved by the shareholders of both classes of the Fund
voting as a single class and also by
the Class B shareholders of the Fund voting as a separate class);
and
(5) To transact such other business as may properly come before the
Meetings or any adjournment thereof.
The Board has fixed the close of business on August 5, 1994 as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meetings or any adjournment thereof.
A complete list of the shareholders of each Fund entitled to vote at each
Meeting will be available and open to the examination of any shareholder of that
Fund for any purpose germane to the Fund's Meeting during ordinary business
hours from and after September 6, 1994 at the office of the Fund, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536. You are cordially invited to attend
your Fund's Meeting. Shareholders who do not expect to attend the Meeting in
person are requested to complete, date and sign the enclosed form of proxy, as
well as any other proxies you may receive from the Funds in connection with
these Meetings, and return them promptly. If you own shares of a series fund or
trust, you will vote the shares of each series as a separate Fund. Each proxy
you receive from the Funds in connection with these meetings is being solicited
on behalf of the Board.
By Order of the Board
SUSAN B. BAKER
MARK B. GOLDFUS
ROBERT HARRIS
MICHAEL J. HENNEWINKEL
THOMAS D. JONES, III
PATRICK D. SWEENEY
Secretaries of the Funds
Plainsboro, New Jersey
Dated: August 10, 1994
PRELIMINARY COPY
COMBINED PROXY STATEMENT
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MERRILL LYNCH CORPORATE
BOND FUND, INC. (3 SERIES)
MERRILL LYNCH FUND FOR TOMORROW, INC.
MERRILL LYNCH GLOBAL UTILITY FUND, INC.
MERRILL LYNCH MUNICIPAL
BOND FUND, INC. (3 SERIES)
MERRILL LYNCH MUNICIPAL
SERIES TRUST (1 SERIES)
MERRILL LYNCH STRATEGIC DIVIDEND FUND
MERRILL LYNCH UTILITY INCOME FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
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MEETINGS OF SHAREHOLDERS
SEPTEMBER 26, 1994
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Boards of the above-listed funds (each a 'Fund', which
term includes the individual series of the above-listed series funds and trust,
and collectively, the 'Funds'), to be voted at the Meeting of Shareholders of
each Fund (the 'Meeting'), to be held at the offices of Merrill Lynch Asset
Management, L.P. ('MLAM'), 800 Scudders Mill Road, Plainsboro, New Jersey, on
September 26, 1994 at the time specified in Exhibit A hereto. The approximate
mailing date of this Proxy Statement is August 16, 1994.
Each Fund is organized either as a Maryland corporation or a Massachusetts
business trust. In each jurisdiction, nomenclature varies. For ease and clarity
of presentation, throughout the proxy statement shares of common stock or
beneficial interest of a Fund are referred to as 'shares', holders of shares are
referred to as 'shareholders', the Board of Directors or Trustees of each of the
Funds is referred to as the 'Board', the directors or trustees of each Fund are
referred to as 'Board members', the investment adviser of each Fund is referred
to as the 'Investment Adviser' or 'MLAM' and each Fund's Articles of
Incorporation or Declaration of Trust is referred to as its 'charter'. Unless
otherwise indicated, MLAM and Fund
Asset Management, L.P. ('FAM') are together referred to as 'MLAM' and Merrill
Lynch Funds Distributor, Inc. is referred to as 'MLFD'.
All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Unless instructions to the contrary are marked, proxies
will be voted 'FOR' the election of the Board, 'FOR' the ratification of the
selection of independent auditors to serve for the Fund's current fiscal year,
'FOR' the proposal to amend the fundamental investment restrictions of the Fund
and 'FOR' the charter amendment in connection with the implementation of the
Merrill Lynch Select PricingSM System (the 'Select Pricing System'). Any proxy
may be revoked at any time prior to the exercise thereof by giving written
notice to the Secretary of the Fund.
The Board has fixed the close of business on August 5, 1994 (the 'Record
Date') for the determination of shareholders entitled to notice of and to vote
at the Meetings and at any adjournment thereof. Shareholders on the Record Date
will be entitled to one vote for each share held and in fractional votes for
fractional shares held, with no shares having cumulative voting rights.
Shareholders of each Fund will vote as a single class, and will vote separately
on each proposal on which shareholders of that Fund are entitled to vote. As
noted, with respect to Proposal 4, Class B shareholders of each Fund voting
together as a separate class also will be required to approve the charter
amendment. With respect to Proposals 3 and 4, if you own shares of a series fund
or trust, you will vote the shares of each series as a separate Fund.
As of the Record Date, your Fund had outstanding the number of shares
indicated in Exhibit A. To the knowledge of the Fund, no person owned
beneficially more than five percent of the outstanding shares of the Fund at
such date.
The Board knows of no business other than that mentioned in Proposals 1
through 4 of the Notice of Meeting which will be presented for consideration at
the Meeting. If any other matter is properly presented, it is the intention of
the persons named in the enclosed proxy, as well as any other proxy sent by the
Funds in connection with the Meetings, to vote in accordance with their best
judgment.
Proposal 1
ELECTION OF BOARD MEMBERS
At the Meeting, each Board member will be elected to serve for an
indefinite term until his or her successor is elected and qualified, until his
or
2
her death, until he or she resigns or is otherwise removed under the charter or
until December 31 of the year in which he or she reaches age 72. It is the
intention of the persons named in the enclosed proxy to nominate and vote in
favor of the election of the persons listed below.
The Board knows of no reason why any of these nominees will be unable to
serve, but in the event of any such unavailability, the proxies received will be
voted for such substitute nominee or nominees as the Board may recommend.
Certain information concerning the nominees is set forth below. Additional
information concerning the nominees and other information relevant to the
election of Board members is set forth in Exhibit A.
PRINCIPAL OCCUPATIONS DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
- ----------------------------------- ---- -----------------------------------
Ronald W. Forbes(1)(2) ............ 53 Professor of Finance, School of
1400 Washington Avenue Business, State University of New
Albany, New York 12222 York at Albany, since 1989, and
Associate Professor prior
thereto; Member, Task Force on
Municipal Securities Markets,
Twentieth Century Fund.
Cynthia A. Montgomery(1)(2) ....... 41 Professor, Harvard Business School
Harvard Business School since 1989; Associate Professor,
Soldiers Field Road J.L. Kellogg Graduate School of
Boston, Massachusetts 02163 Management, Northwestern
University, 1985-1989; Assistant
Professor, Graduate School of
Business Administration, the
University of Michigan,
1979-1985; Director, UNUM
Corporation.
Charles C. Reilly(1)(2) ........... 63 Self-employed financial consultant
9 Hampton Harbor Road since 1990; President and Chief
Hampton Bays Investment Officer of Verus
New York 11946 Capital, Inc. from 1979 to 1990;
Senior Vice President of Arnhold
and S. Bleichroeder, Inc. from
1973 to 1990; Adjunct Professor,
Columbia University Graduate
School of Business since 1990;
Adjunct Professor, Wharton
School, University of
Pennsylvania, 1990; Director,
Harvard Business School Alumni
Association; Director, Small
Cities CableVision.
(footnotes at end of table)
3
PRINCIPAL OCCUPATIONS DURING
PAST FIVE YEARS AND PUBLIC
NAME AND ADDRESS OF NOMINEE AGE DIRECTORSHIPS(1)
- ----------------------------------- ---- -----------------------------------
Kevin A. Ryan(1)(2) ............... 61 Founder, current Director and
127 Commonwealth Avenue Professor at the Boston
Chestnut Hill, Massachusetts University Center for the
02167 Advancement of Ethics and
Character; Professor of Education
at Boston University from 1982
until 1994; Formerly taught on
the faculties of the University
of Chicago, Stanford University
and The Ohio State University.
Richard R. West(1)(2) ............. 56 Professor of Finance, and Dean from
482 Tepi Drive 1984 to 1993, New York University
Southbury, Connecticut 06488 Leonard N. Stern School of
Business Administration;
Professor of Finance at the Amos
Tuck School of Business
Administration from 1976 to 1984
and Dean from 1976 to 1983;
Director of Vornado, Inc. (real
estate investment trust),
Alexander's Inc. (real estate
company), Bowne & Co., Inc.
(financial printer), Smith Corona
(manufacturer of typewriters and
word processors) and RE Capital
Corp. (reinsurance holding
company).
Arthur Zeikel(1)(3) ............... 62 President of MLAM and its
P.O. Box 9011 predecessor since 1977 and Chief
Princeton, New Jersey 08543-9011 Investment Officer since 1976;
President and Chief Investment
Officer of FAM and its
predecessor since 1977; President
and Director of Princeton
Services, Inc. ('Princeton
Services') since 1993; Executive
Vice President of Merrill Lynch &
Co., Inc. ('ML & Co.') since
1990; Executive Vice President of
Merrill Lynch, Pierce, Fenner &
Smith Incorporated ('Merrill
Lynch') since 1990; Senior Vice
President of Merrill Lynch from
1985 to 1990; Director of MLFD.
- ------------------
(1) Each of the nominees is a director, trustee or member of an advisory board
of certain other investment companies for which FAM or MLAM acts as
investment adviser. See 'Merrill Lynch Investment Company Board Memberships'
below.
(2) Member of the Audit and Nominating Committee of the Board except that Ms.
Montgomery is not presently a member of the Board (or any committee thereof)
of any of the Funds other than Merrill Lynch Utility Income Fund, Inc.
(3) Interested person, as defined in the Investment Company Act of 1940, as
amended (the 'Investment Company Act'), of the Funds.
4
Committees and Board Meetings. The Board has a standing Audit and
Nominating Committee (the 'Committee'), which consists of the Board members who
are not 'interested persons' of the Fund within the meaning of the Investment
Company Act. The principal purpose of the Committee is to review the scope of
the annual audit conducted by the Fund's independent auditors and the evaluation
by such auditors of the accounting procedures followed by the Fund. The
Committee will also select and nominate the Board members who are not
'interested persons' of the Fund within the meaning of the Investment Company
Act. The Committee generally will not consider nominees recommended by
shareholders of the Fund. The non-interested Board members have retained
independent legal counsel to assist them in connection with these duties.
During the Fund's last fiscal year, each of the nominees served as a Board
member of each of the Funds covered by this proxy statement, except Ms.
Montgomery, who served as a Board member only of Merrill Lynch Utility Income
Fund, Inc. Each of the Board members attended at least 75% of the aggregate of
(i) the total number of meetings of the Board held during the last fiscal year
and (ii) if a member, the total number of meetings of the Committee held during
the last fiscal year.
Compensation of Board Members. The Investment Adviser pays all compensation
of all officers of the Fund and all Board members who are affiliated with ML &
Co. or its subsidiaries. The Fund pays each Board member not affiliated with the
Investment Adviser an annual fee plus a fee for each meeting attended, and the
Fund also pays each member of its Committee an annual fee, together with such
Board member's out-of-pocket expenses relating to attendance at such meetings.
Information with respect to fees and expenses paid to the Board members for each
Fund's most recently completed fiscal year is set forth in Exhibit A.
Merrill Lynch Investment Company Board Memberships. MLAM and FAM act as the
investment adviser for more than 100 registered investment companies. Mr. Zeikel
is a trustee or director of each of these companies except for Merrill Lynch
Series Fund, Inc., Merrill Lynch Institutional Intermediate Fund and Merrill
Lynch Funds for Institutions Series. Each of the nominees is a trustee of CMA
Government Securities Fund, CMA Money Fund, CMA Tax-Exempt Fund, CMA Multi-State
Municipal Series Trust, CMA Treasury Fund and CBA Money Fund. Each of the
nominees is a director of The Corporate Fund Accumulation Program, Inc., The
Municipal Fund Accumulation Program, Inc., Merrill Lynch Senior Floating Rate
Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings,
Inc., Merrill Lynch High Income Municipal Bond Fund, Inc., Senior High Income
Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income
Fund, Inc., MuniVest Fund, Inc. and MuniVest Fund II, Inc. In
5
addition, Messrs. Reilly and West are also directors or trustees of Emerging
Tigers Fund, Inc., Merrill Lynch Americas Income Fund, Merrill Lynch Developing
Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
Global Holdings, Merrill Lynch Short-Term Global Income Fund, Inc., Merrill
Lynch Global SmallCap Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Latin
America Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Healthcare
Fund, Inc., Merrill Lynch International Equity Fund, Merrill Lynch Pacific Fund,
Inc., Merrill Lynch Technology Fund, Inc. and Worldwide DollarVest Fund, Inc.
Mr. Zeikel is also a director of certain funds which are neither registered
under the Investment Company Act nor offered in the United States.
Officers of the Fund. Information regarding the officers of the Fund is set
forth in Exhibit A.
Stock Ownership. Information regarding stock ownership by the nominees is
set forth in Exhibit A.
At the Record Date, the Board members and officers of the Fund as a group
owned an aggregate of less than 1% of the shares of the Fund outstanding at such
date. At such date, Mr. Zeikel, an officer of the Fund and a member of the
Board, and the other officers of the Fund owned an aggregate of less than 1% of
the outstanding shares of common stock of ML & Co.
Proposal 2
SELECTION OF INDEPENDENT AUDITORS
The Board, including a majority of the Board members who are not interested
persons of the Fund, has selected independent auditors to examine the financial
statements of the Fund for the current fiscal year. The Fund knows of no direct
or indirect financial interest of such auditors in the Fund. Such appointment is
subject to ratification or rejection by the shareholders of the Fund. Unless a
contrary specification is made, the accompanying proxy will be voted in favor of
ratifying the selection of such auditors.
Deloitte & Touche ('D&T') acts as independent auditors for all of the
Funds. D&T also acts as independent auditors for ML & Co. and all of its
subsidiaries and for most other investment companies for which MLAM or FAM acts
as investment adviser. The fees received by D&T from these other entities are
substantially greater, in the aggregate, than the total fees received
6
by it from the Fund. The Board considered the fact that D&T has been retained as
the independent auditors for ML & Co. and the other entities described above in
its evaluation of the independence of D&T with respect to each Fund.
Representatives of the Fund's independent auditors are expected to be
present at the Meeting and will have the opportunity to make a statement if they
so desire and to respond to questions from shareholders.
Proposal 3
PROPOSAL TO AMEND THE FUNDAMENTAL
INVESTMENT RESTRICTIONS OF THE FUND
Each Fund advised by MLAM or FAM (collectively, the 'MLAM Funds') has
adopted investment restrictions that govern generally the operations of the
Fund. Investment restrictions that are deemed fundamental may not be changed
without a vote of the outstanding shares of the Fund, while non-fundamental
investment restrictions may be changed by the Fund's Board if it deems it in the
best interest of the Fund and its shareholders to do so. In addition to
investment restrictions, each of the Funds operates pursuant to investment
objectives and policies, described in the Fund's Prospectus and Statement of
Additional Information, that govern the investment activities of the Fund and
further limit its ability to invest in certain types of securities or engage in
certain types of transactions. These investment objectives and policies will be
unaffected by the adoption of the proposed investment restrictions. Generally
the investment objective of a Fund is a fundamental policy of the Fund that may
be changed only by shareholder vote. The investment policies of a Fund are
non-fundamental and may not be changed unless and until (i) the Board of the
Fund explicitly authorizes, by resolution, a change in the investment policy and
(ii) the Prospectus of the Fund is amended to reflect the change in policy and,
if appropriate, to include additional disclosure.
Investment restrictions may differ among Funds depending on prevailing
regulations and the nature of the securities markets at the time the particular
Fund commenced operations. As a result, similar Funds in the MLAM complex have
different investment restrictions, which may disadvantage one Fund over another
in the current marketplace and make administration and compliance monitoring
unnecessarily difficult.
7
To address this problem, MLAM has analyzed the various fundamental and
non-fundamental investment restrictions of the Funds covered by this proxy
statement, as well as the investment restrictions of all of the other
MLAM-advised non-money market mutual funds, in light of each Fund's investment
objectives and policies, and has created a set of standard fundamental and
non-fundamental investment restrictions. The proposed uniform restrictions are
designed to provide each Fund with as much investment flexibility as possible
under the Investment Company Act and applicable state securities regulations
('state blue sky regulations'), help promote operational efficiencies and
facilitate monitoring of compliance. Several recently created funds in the
MLAM complex operate under investment restrictions substantially similar to
the proposed restrictions.
The proposed changes to the investment restrictions are not expected to
affect materially the current operations of the Funds. Although adoption of
new or revised investment restrictions is not likely to have any effect on the
current investment techniques employed by a Fund, it will contribute to the
overall goal of uniformity and standardization, as well as provide the Fund
with a greater ability to make future changes in investment restrictions
through Board action. In this regard, the Boards propose that each Fund adopt,
as described below, the uniform, updated investment restrictions.
The proposed restrictions restate many of the fundamental and non-
fundamental restrictions currently in effect for each Fund. In some instances,
certain fundamental or non-fundamental restrictions have been modified or
eliminated in accordance with developments in Federal or state blue sky
regulations or in the securities markets since the inception of the Fund. In
other instances, certain restrictions previously deemed fundamental have been
redesignated non-fundamental. Fundamental investment restrictions may not be
changed without a vote of the shareholders of the Fund, and the costs of
shareholder meetings for these purposes generally are borne by the Fund and
its shareholders. By making certain restrictions non-fundamental, the Board
may amend a restriction as it deems appropriate and in the best interest of
the Fund and its shareholders, without incurring the costs of seeking a
shareholder vote.
Each Fund's current investment restrictions are set forth in Exhibit C.
Set forth below is each proposed restriction, followed by a commentary
describing the proposed restriction and detailing the significance, if any, of
the proposed changes for the MLAM Funds.
Proposed Fundamental Investment Restrictions. Under the proposed
fundamental investment restrictions, a Fund may not:
8
1. MAKE ANY INVESTMENT INCONSISTENT WITH THE FUND'S CLASSIFICATION AS A
DIVERSIFIED COMPANY UNDER THE INVESTMENT COMPANY ACT.
Commentary: Current applicable law regarding diversification of
assets requires that with respect to 75% of its total assets, a Fund
may not invest more than 5% of its total assets (taken at market
value at the time of each investment) in the securities of any one
issuer or acquire more than 10% of the voting securities of any one
issuer. The U.S. Government, its agencies and instrumentalities are
not included within the definition of 'issuer' for purposes of these
limitations. Certain MLAM Funds apply this diversification
restriction to 100% of total assets.
At one time, state blue sky regulations applied the diversification
restriction to 100% of a mutual fund's assets, thereby prohibiting an
investment company from investing more than 5% of total assets in a
single issuer or from holding more than 10% of the voting securities
of a single issuer. These state blue sky limitations, however, have
been eliminated.
If the uniform restrictions are approved, each Fund currently
classified as 'diversified' would be subject, as a matter of
investment policy, to the diversification restriction described above
only with respect to 75% of its total assets. As to the remaining 25%
of total assets, there would be no fundamental investment limitation
on the amount of (i) total assets the Fund could invest in a single
issuer or (ii) voting securities of a single issuer that could be
held by the Fund. A Fund could, for example, invest up to 25% of its
assets in a single issuer without limitation as to the percentage
ownership of that issuer's outstanding securities. The primary
purpose of the proposal is to give the MLAM Funds that presently have
a diversification restriction with respect to 100% of their assets
the same investment flexibility as MLAM Funds that have a
diversification restriction with respect to 75% of their assets, as
well as to enable the Funds to comply with any future changes in
applicable law regarding diversification requirements without
incurring the costs of soliciting a shareholder vote.
2. INVEST MORE THAN 25% OF ITS ASSETS, TAKEN AT MARKET VALUE, IN THE
SECURITIES OF ISSUERS IN ANY PARTICULAR INDUSTRY (EXCLUDING THE U.S.
GOVERNMENT AND ITS AGENCIES AND INSTRUMENTALITIES).1
Commentary: The proposed restriction, which addresses concentration
in a particular industry, is in substance identical to the applicable
- ------------------
1 A MLAM Fund that concentrates in a particular industry (i.e., more
than 25%) will continue to use its present concentration restriction.
A typical restriction in this regard reads as follows:
(footnote continued on next page)
9
restriction in effect for each MLAM Fund. Certain MLAM Funds currently
do not exclude explicitly the U.S. Government, its agencies and
instrumentalities from the definition of 'industry'. However, such
entities have not been considered to constitute 'industries' for
purposes of concentration, and therefore explicit reference to such
entities in the proposed restriction does not change a MLAM Fund's
concentration policy. In addition, for purposes of this restriction,
states, municipalities and their political subdivisions are not
considered to be part of any industry.
3. MAKE INVESTMENTS FOR THE PURPOSE OF EXERCISING CONTROL OR MANAGEMENT.
Commentary: The proposed restriction is in substance identical to the
applicable restriction in effect for each MLAM Fund. Certain MLAM
Funds currently include the restriction in their non-fundamental,
rather than their fundamental, investment restrictions. Certain MLAM
Funds that invest on an international basis go on to state in this
restriction that investment by the Funds in wholly-owned investment
entities created under the laws of certain countries will not be
deemed the making of investments for the purpose of exercising
control or management. This language, which is considered by the MLAM
Funds to be explanatory in nature, will continue to be set forth in
the investment restrictions.
4. PURCHASE OR SELL REAL ESTATE, EXCEPT THAT A FUND MAY INVEST IN
SECURITIES DIRECTLY OR INDIRECTLY SECURED BY REAL ESTATE OR INTERESTS THEREIN
OR ISSUED BY COMPANIES WHICH INVEST IN REAL ESTATE OR INTERESTS THEREIN.
Commentary: The proposed restriction is substantially similar to the
applicable restriction in effect for each MLAM Fund, except that
certain MLAM Funds also prohibit investment in real estate limited
partnerships in the fundamental restriction. Prohibition on
investments in real estate limited partnerships is required under
current applicable law, however such law does not require this
restriction to be fundamental. Accordingly, under the proposed
uniform restrictions, investment in real estate limited partnerships
is prohibited in non-
- ------------------
The Fund will not invest more than 25% of its assets, taken at
market value, in the securities of issuers in any particular
industry (excluding the U.S. Government, its agencies and
instrumentalities), except that, under normal circumstances,
the Fund will invest more than 25% of its total assets in the
securities of issuers in the [name of industry].
None of the Funds covered by this proxy statement, except Merrill
Lynch Global Utility Fund, Inc. and Merrill Lynch Utility Income
Fund, Inc., concentrate in a particular industry.
10
fundamental investment restriction (g) to provide the flexibility to the
Board to modify the restriction in response to future changes in
applicable law without incurring the expense of a shareholder vote.
In addition, the applicable restrictions currently in effect for
certain MLAM Funds do not contain any exception to the general
prohibition on investments in real estate. The proposed restriction
clarifies that these MLAM Funds have the flexibility, consistent with
other MLAM Funds, to invest in securities secured by real estate or
issued by companies investing in real estate, such as real estate
investment trusts.
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, BANKERS
ACCEPTANCES AND REPURCHASE AGREEMENTS SHALL NOT BE DEEMED TO BE THE MAKING OF
A LOAN, AND EXCEPT FURTHER THAT THE FUND MAY LEND ITS PORTFOLIO SECURITIES,
PROVIDED THAT THE LENDING OF PORTFOLIO SECURITIES MAY BE MADE ONLY IN
ACCORDANCE WITH APPLICABLE LAW AND THE GUIDELINES SET FORTH IN THE FUND'S
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, AS THEY MAY BE AMENDED
FROM TIME TO TIME.
Commentary: The proposed restriction, with respect to the making of
loans, is in substance similar to the applicable restrictions in
effect for each MLAM Fund. Certain MLAM Funds address loans to other
persons and securities lending in two separate restrictions. A Fund
may, as an investment policy, restrict investment in the instruments
specifically permitted in the exception beyond the limitations set
forth in the proposed restriction.
Each MLAM Fund is permitted to engage in securities lending but the
MLAM Funds have a variety of different investment restrictions in
this regard. For example, certain MLAM Funds have a fundamental
investment restriction limiting securities lending to less than 20%
of total assets. In addition to investment restrictions, certain MLAM
Funds have imposed limitations on securities lending as an investment
policy.
Applicable law generally permits the lending of a Fund's portfolio
securities in an amount up to 33 1/3% of the Fund's total assets,
provided that such loans are made in accordance with prescribed
guidelines which typically are set forth in the Statement of
Additional Information of the Fund. Each Fund will continue to be
subject to the lending limitations set forth as an investment policy
in its Prospectus and Statement of Additional Information following
approval of the proposed uniform investment restrictions, unless and
until the Board determines that an amendment to such investment
policy is in the best interest of the Fund and its shareholders and
the Prospectus of the Fund is amended.
11
6. ISSUE SENIOR SECURITIES TO THE EXTENT SUCH ISSUANCE WOULD VIOLATE
APPLICABLE LAW.
Commentary: Certain MLAM Funds currently limit the extent to which
the Fund may issue senior securities, while other MLAM Funds have no
restriction on the issuance of senior securities. The proposed
restriction substitutes instead a limitation on the issuance of
senior securities based upon applicable law.
Applicable law currently prohibits the issuance of senior securities,
defined as any bond, debenture, note or similar obligation or
instrument evidencing indebtedness, and any stock of any class having
priority as to any other class as to distribution of assets or
payment of dividends, but not including (i) bank borrowings provided
that immediately thereafter the Fund has 300% asset coverage for all
borrowings, or (ii) any note or other evidence of indebtedness
representing a loan made to the Fund for temporary purposes (i.e., to
be repaid in 60 days without extension or renewal) in an amount not
exceeding 5% of the Fund's total assets when the loan is made.
Certain other investment techniques, which involve leverage or
establish a prior claim to the Fund's assets, may be considered
senior securities, absent appropriate segregation of assets or
exemptive relief. These techniques include standby commitment
agreements, contracts for the purchase of securities on a delayed
delivery basis (i.e., firm commitment agreements), reverse repurchase
agreements, engaging in financial futures and options thereon,
forward foreign currency contracts, put and call options, the
purchase of securities on a when-issued basis and short sales. The
manner and extent to which a Fund can issue senior securities is
governed by applicable law, must be set forth in the Fund's
Prospectus and Statement of Additional Information and may be changed
only upon resolution of the Board.
Investments in interest rate swaps, to the extent permitted, are not
treated as senior securities.
7. BORROW MONEY, EXCEPT THAT (I) THE FUND MAY BORROW FROM BANKS (AS
DEFINED IN THE INVESTMENT COMPANY ACT) IN AMOUNTS UP TO 33 1/3% OF ITS TOTAL
ASSETS (INCLUDING THE AMOUNT BORROWED), (II) THE FUND MAY BORROW UP TO AN
ADDITIONAL 5% OF ITS TOTAL ASSETS FOR TEMPORARY PURPOSES, (III) THE FUND MAY
OBTAIN SUCH SHORT-TERM CREDIT AS MAY BE NECESSARY FOR THE CLEARANCE OF
PURCHASES AND SALES OF PORTFOLIO SECURITIES AND (IV) THE FUND MAY PURCHASE
SECURITIES ON MARGIN TO THE EXTENT PERMITTED BY APPLICABLE LAW. THE FUND MAY
NOT PLEDGE ITS ASSETS OTHER THAN TO SECURE SUCH BORROWINGS OR, TO THE EXTENT
PERMITTED BY THE FUND'S INVESTMENT POLICIES AS SET FORTH IN ITS PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION, AS THEY MAY BE AMENDED FROM TIME TO TIME,
IN CONNECTION
12
WITH HEDGING TRANSACTIONS, SHORT SALES, WHEN-ISSUED AND FORWARD COMMITMENT
TRANSACTIONS AND SIMILAR INVESTMENT STRATEGIES.
Commentary: Each MLAM Fund has an express limitation on borrowings, a
number of which are more restrictive than the limitations set forth
in the proposed restriction. For example, a number of MLAM Funds
limit borrowings to 5% of total assets. To the extent the Fund's
investment policies, as stated in the Fund's Prospectus and Statement
of Additional Information, include a limitation on borrowing, or on
the pledging of assets to secure borrowings, that is more restrictive
than the restrictions in proposed restriction (7), the Fund will
continue to be limited by such investment policy on a non-fundamental
basis. Moreover, if a Fund intends to borrow from a bank or to offer
debt securities privately as part of its investment policies, it will
so state in its Prospectus. If the Fund limits borrowing to 5% of
total assets, a statement to that effect in the Prospectus will
suffice. On the other hand, if the Fund intends as an investment
policy to engage in a higher level of borrowing for investment
purposes, additional disclosure with respect to the purposes of such
borrowing and the consequences of leverage will be included in the
Fund's Prospectus and Statement of Additional Information.
With regard to purchases on margin, under current applicable law, a
Fund may not establish or use a margin account with a broker for the
purpose of effecting securities transactions on margin, except that a
Fund may obtain such short term credit as necessary for the clearance
of transactions. However, a Fund may pay initial or variation margin
in connection with futures and related options transactions, as set
forth in investment restriction (9) below, without regard to this
prohibition.
8. UNDERWRITE SECURITIES OF OTHER ISSUERS EXCEPT INSOFAR AS THE FUND
TECHNICALLY MAY BE DEEMED AN UNDERWRITER UNDER THE SECURITIES ACT OF 1933 IN
SELLING PORTFOLIO SECURITIES.
Commentary: The proposed restriction is in substance identical to the
applicable restriction in effect for each Fund.
9. PURCHASE OR SELL COMMODITIES OR CONTRACTS ON COMMODITIES, EXCEPT TO
THE EXTENT THE FUND MAY DO SO IN ACCORDANCE WITH APPLICABLE LAW AND THE FUND'S
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, AS THEY MAY BE AMENDED
FROM TIME TO TIME, AND WITHOUT REGISTERING AS A COMMODITY POOL OPERATOR UNDER
THE COMMODITY EXCHANGE ACT.
Commentary: Certain MLAM Funds prohibit investment in commodities;
others have no restriction on investment in commodities. Under the
Investment Company Act, a Fund must state its policy relating to the
purchase and sale of commodities. In general, the MLAM Funds
currently do not anticipate investment directly in tangible
13
commodities and would be greatly restricted from making such direct
investments by the provisions of the Federal tax laws; however, the
Funds may invest in financial instruments linked to commodities as
described below. Adoption of the proposed uniform restrictions will
enable a Fund to invest in commodities only in accordance with
applicable law and with the Fund's investment policies as stated in
the Fund's Prospectus and Statement of Additional Information.
The MLAM Funds have obtained an exemptive order from the Securities
and Exchange Commission (the 'SEC') which, among other things,
permits investment in the commodities markets to the extent such
investment is limited to financial futures and options thereon for
hedging purposes only. The terms of the exemptive order are slightly
more restrictive than currently applicable law.
Regulations of the Commodity Futures Trading Commission applicable to
the Funds provide that futures trading activities, as described in a
Fund's Prospectus and Statement of Additional Information, will not
result in the Fund being deemed a 'commodity pool operator' as
defined under such regulations if the Fund adheres to certain
restrictions. In particular, a MLAM Fund that may, as a matter of
investment policy, purchase and sell futures contracts and options
thereon may do so (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 do not
exceed 5% of the liquidation value of such Fund's portfolio, after
taking into account unrealized profits and unrealized losses on any
such contracts and options. In addition, certain of the MLAM Funds
may invest in securities whose potential investment returns are based
on the change in value of specific commodities.
------------------------
If approved by the shareholders, the above-listed restrictions will
replace the fundamental investment restrictions for each Fund and,
accordingly, will become the only fundamental investment restrictions under
which each Fund will operate. If approved, the above restrictions may not be
changed without the approval of the holders of a majority of the Fund's
outstanding shares (which for this purpose and under the Investment Company
Act means the lesser of (i) 67% of the shares represented at a meeting at
which more than 50% of the outstanding shares are represented or (ii) more
than 50% of the outstanding shares).
Proposed Non-Fundamental Investment Restrictions. The Boards have adopted
the following non-fundamental investment restrictions, subject to approval of
the fundamental investment restrictions described above. Certain of the
proposed non-fundamental restrictions are in substance similar or identical to
current fundamental investment restrictions. Redesignating a
14
restriction as non-fundamental allows the Board the flexibility to modify the
restriction in response to changes in the securities markets or applicable law
if the Board deems it in the best interest of the Fund and its shareholders to
do so. Although future modification of a non-fundamental investment
restriction would not require a shareholder vote, modification of these
restrictions would require both (i) authorization by resolution by the Board
and (ii) amendment of the Fund's Prospectus.
Under the proposed non-fundamental investment restrictions, each Fund may
not:
A. PURCHASE SECURITIES OF OTHER INVESTMENT COMPANIES, EXCEPT TO THE
EXTENT SUCH PURCHASES ARE PERMITTED BY APPLICABLE LAW.
Commentary: A number of MLAM Funds currently state this restriction
as a fundamental, rather than a non-fundamental, restriction. In
addition, a number of the restrictions currently in effect set forth
specifically the applicable law. Applicable law currently allows a
Fund to purchase the securities of other investment companies if
immediately thereafter not more than (i) 3% of the total outstanding
voting stock of such company is owned by the Fund, (ii) 5% of the
Fund's total assets, taken at market value, would be invested in any
one such company, (iii) 10% of the Fund's total assets, taken at
market value, would be invested in such securities, and (iv) the
Fund, together with other investment companies having the same
investment adviser and companies controlled by such companies, owns
not more than 10% of the total outstanding stock of any one
closed-end investment company.
Certain state blue sky regulations have excepted from the prohibition
on purchases of securities of other investment companies purchases
made in connection with a plan of merger, consolidation,
reorganization, or acquisition, or purchases made in the open market
of securities of closed-end investment companies where no underwriter
or dealer's commission or profit, other than the customary broker's
commission, is involved. This restriction is no longer required and
has therefore been deleted from the proposed restriction.
B. MAKE SHORT SALES OF SECURITIES OR MAINTAIN A SHORT POSITION EXCEPT TO
THE EXTENT PERMITTED BY APPLICABLE LAW.
Commentary: In a short sale, an investor sells a borrowed security
and has a corresponding obligation to 'cover' by delivering at a
later date the identical security. In a short sale 'against the box',
an investor sells the securities short while either owning the same
securities in the same amount or having the right to obtain
securities to cover through, for example, the investor's ownership of
warrants, options, or convertible securities. Certain MLAM Funds
currently prohibit short
15
sales under any circumstances; others are specifically authorized to
engage in short sales 'against the box'.
Under current applicable law, short sales are considered to involve
the creation of senior securities. A Fund that includes short sales
in its investment policies must secure its obligation to replace the
borrowed security by depositing collateral in a segregated account in
compliance with SEC guidelines which are described in the Fund's
Prospectus. In addition, under the current blue sky laws of a certain
state, Funds that sell short are limited so that the dollar amount of
short sales at any one time may not exceed 25% of the net equity of
the Fund and the value of securities of any one issuer in which the
Fund is short may not exceed the lesser of 2.0% of the value of the
Fund's net assets or 2.0% of the securities of any class of any
issuer.
Short sales 'against the box' are not considered speculative sales
and do not create senior securities. Funds that are not specifically
authorized to engage in short sales 'against the box' have not
considered short sales 'against the box' to be short sales for
purposes of their investment restrictions.
The majority of the MLAM Funds, as a matter of investment policy, do
not enter into short sales of any kind. If the proposed investment
restrictions are adopted, the MLAM Funds that currently are
authorized to make short sales will continue to have that ability
within the confines of applicable law; the MLAM Funds that are not
currently authorized to make short sales will not make short sales
unless and until such policy is amended by resolution of the Board
and the Fund's Prospectus is amended.
C. INVEST IN SECURITIES WHICH CANNOT BE READILY RESOLD BECAUSE OF LEGAL
OR CONTRACTUAL RESTRICTIONS OR WHICH CANNOT OTHERWISE BE MARKETED, REDEEMED OR
PUT TO THE ISSUER OR A THIRD PARTY, IF AT THE TIME OF ACQUISITION MORE THAN
15% OF ITS TOTAL ASSETS WOULD BE INVESTED IN SUCH SECURITIES. THIS RESTRICTION
SHALL NOT APPLY TO SECURITIES WHICH MATURE WITHIN SEVEN DAYS OR SECURITIES
WHICH THE BOARD OF [DIRECTORS OR TRUSTEES] OF THE FUND HAS OTHERWISE
DETERMINED TO BE LIQUID PURSUANT TO APPLICABLE LAW.
Commentary: Certain MLAM Funds limit investment in restricted and
illiquid securities to 5% or 10% of Fund assets. Under the Investment
Company Act, open-end investment companies are required to determine
net asset value and offer redemption on a daily basis with payment to
follow within seven days. In order to ensure that adequate cash is
available at all times to cover redemptions, a Fund is required to
limit its investments in securities deemed illiquid to 15% of the
Fund's net assets.
16
Under current applicable law, an illiquid asset is any asset which
may not be sold or disposed of in the ordinary course of business
within seven days at approximately the value at which a Fund has
valued the investment. The types of securities that will be
considered illiquid will vary over time based on changing market
conditions and regulatory interpretations.
In accordance with the most restrictive state blue sky regulations
currently in effect, a Fund whose shares are registered or qualified
for sale in such state may invest no more than 10% of its total
assets in illiquid securities. It is possible that such state
interpretation will be relaxed in the future to enable a Fund to
invest up to 15% of its total assets in illiquid securities. In
addition, certain states consider investment of more than 5% of a
Fund's total assets in illiquid securities to be speculative and
require special disclosure in a Fund's Prospectus with respect
thereto.
Under current SEC interpretations, a Fund may purchase, without
regard to the foregoing 10% (or 15%) limitation, securities which are
not registered under the Securities Act of 1933, as amended (the
'Securities Act'), provided that they are determined to be liquid
pursuant to guidelines and procedures established by the Board.
Included among such securities are foreign securities traded in a
foreign securities market and securities which can be offered and
sold to 'qualified institutional buyers', as defined in Rule 144A
under the Securities Act ('Rule 144A Securities'). Certain MLAM Funds
do not permit the Board discretion with respect to Rule 144A
Securities.
The proposed investment restriction would increase the Funds'
flexibility with respect to the amount of securities deemed illiquid
in which the Fund may invest up to the current SEC limit, assuming
that the Fund is not otherwise limited with respect to investment in
illiquid securities. A Fund, in its Prospectus and Statement of
Additional Information, may limit investment in illiquid securities
to a percentage of less than 15%, pursuant to state blue sky
regulations or for other reasons.
Current applicable law does not require a Fund to state its
limitation on investment in illiquid securities as a fundamental
policy; however, a number of MLAM Funds currently state their
limitations on illiquid securities as a fundamental, rather than a
non-fundamental, restriction.
D. INVEST IN WARRANTS IF, AT THE TIME OF ACQUISITION, ITS INVESTMENTS IN
WARRANTS, VALUED AT THE LOWER OF COST OR MARKET VALUE, WOULD EXCEED 5% OF THE
FUND'S TOTAL ASSETS; INCLUDED WITHIN SUCH LIMITATION, BUT NOT TO EXCEED 2% OF
THE FUND'S TOTAL 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
17
ACQUIRED BY THE FUND IN UNITS OR ATTACHED TO SECURITIES MAY BE DEEMED TO BE
WITHOUT VALUE.
Commentary: Certain MLAM Funds currently prohibit investment in
warrants; others impose limitations that are as restrictive or more
restrictive than the proposed restriction. If a Fund is otherwise
authorized to invest in warrants as a matter of investment policy,
such Fund will now be subject to the limitation set forth in proposed
non-fundamental investment restriction (d). A Fund that is currently
prohibited from investing in warrants as a matter of investment
policy will not invest in warrants unless and until such policy is
amended by resolution of the Board and the Fund's Prospectus is
amended.
E. INVEST IN SECURITIES OF COMPANIES HAVING A RECORD, TOGETHER WITH
PREDECESSORS, OF LESS THAN THREE YEARS OF CONTINUOUS OPERATION, IF MORE THAN
5% OF THE FUND'S TOTAL ASSETS WOULD BE INVESTED IN SUCH SECURITIES. THIS
RESTRICTION SHALL NOT APPLY TO MORTGAGE-BACKED SECURITIES, ASSET-BACKED
SECURITIES OR OBLIGATIONS ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES.
Commentary: The proposed restriction, which addresses investment by a
Fund in 'unseasoned issuers', is in substance identical to the
applicable restriction in effect for certain MLAM Funds; however, a
number of MLAM Funds state this restriction as a fundamental, rather
than a non-fundamental, restriction.
Restrictions on unseasoned issuers are determined primarily by state
blue sky regulations. While several states have more lenient
restrictions concerning investment in the securities of unseasoned
issuers (i.e., up to 15%), the most restrictive state limitation is
currently 5%. Applicable state blue sky regulations do not require
that entities with less than three years of continuous operation that
issue mortgage-backed securities, asset-backed securities or
obligations supported by the U.S. Government, its agencies or
instrumentalities be included in the definition of 'unseasoned
issuers'. There is no federal limitation concerning investment in
unseasoned issuers.
F. PURCHASE OR RETAIN THE SECURITIES OF ANY ISSUER, IF THOSE INDIVIDUAL
OFFICERS AND DIRECTORS OF THE FUND, THE OFFICERS AND GENERAL PARTNER OF THE
INVESTMENT ADVISER, THE DIRECTORS OF SUCH GENERAL PARTNER OR THE OFFICERS AND
DIRECTORS OF ANY SUBSIDIARY THEREOF EACH OWNING 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.
Commentary: The proposed restriction, which addresses investment by a
Fund in securities of an issuer in which management of the Fund owns
shares, is in substance similar to the applicable restriction in
effect for certain MLAM Funds; however, a number of MLAM Funds
currently state this restriction as a fundamental, rather than a
non-fundamental, restriction.
18
Restrictions on these types of investments are determined primarily
by state blue sky regulations. Certain MLAM Funds' current investment
restrictions apply to the Investment Adviser or any 'affiliate'
thereof, which would make the restriction applicable to ML & Co. and
any entity controlled by ML & Co. The proposed restriction reflects
currently applicable law and applies only to MLAM and certain
affiliates.
G. INVEST IN REAL ESTATE LIMITED PARTNERSHIP INTERESTS OR INTERESTS IN
OIL, GAS OR OTHER MINERAL LEASES, OR EXPLORATION OR DEVELOPMENT PROGRAMS,
EXCEPT THAT THE FUND MAY INVEST IN SECURITIES ISSUED BY COMPANIES THAT ENGAGE
IN OIL, GAS OR OTHER MINERAL EXPLORATION OR DEVELOPMENT ACTIVITIES.
Commentary: Restrictions with respect to these types of investments
are determined primarily by state blue sky regulations. The proposed
restriction is in substance similar to the applicable restriction in
effect for each MLAM Fund; however, a number of MLAM Funds state this
restriction, in whole or in part, as a fundamental, rather than a
non-fundamental, restriction.
H. WRITE, PURCHASE OR SELL PUTS, CALLS, STRADDLES, SPREADS OR
COMBINATIONS THEREOF, EXCEPT TO THE EXTENT PERMITTED IN THE FUND'S PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION, AS THEY MAY BE AMENDED FROM TIME TO
TIME.
Commentary: The proposed restriction is in substance similar to the
applicable restriction in effect for each MLAM Fund authorized to
engage in these types of transactions, except that certain MLAM Funds
impose specific percentage limitations in the investment restriction
on the investments. A number of MLAM Funds state this restriction as
a fundamental, rather than a non-fundamental, restriction.
If the proposed restrictions are approved, MLAM Funds that currently
are authorized to engage in puts, calls, straddles, spreads and
combinations thereof will be subject to the proposed restriction.
MLAM Funds that are not currently authorized to engage in these types
of transactions would not be permitted to engage in such transactions
unless and until the Board determines to establish an investment
policy in this regard and the Fund's Prospectus is amended.
------------------------
Elimination of Investment Restrictions on Eligible Securities for
Municipal Bond Funds. Each of the Funds covered by this Proxy Statement which
invest primarily in municipal bonds currently is subject to a fundamental
investment restriction that such Fund may not purchase any securities other
than securities referred to in the investment objective and policies section
of the Prospectus of the Fund. Under the proposed uniform investment
restrictions, this restriction is eliminated. The elimination of this
restriction is not considered to be significant because the Prospectuses of
such Funds generally contain broad definitions of eligible tax-exempt
securities. The investment objective of each of the Funds will continue to be
19
a fundamental policy changeable only by shareholder vote. Generally the
investment objective of each such Fund specifies that the Fund will seek to
provide shareholders with income exempt from Federal income taxes and, in the
case of state-specific funds, income exempt from income tax of the relevant
state. Such investment objective mandates significant investment in tax-exempt
securities. Interpretations by the staff of the SEC require that under normal
market conditions tax-exempt funds be at least 80% invested in tax-exempt
securities and, if state specific, at least 65% invested in the tax-exempt
securities of the relevant state. Accordingly, any change in the fundamental
investment objective of such Funds will require shareholder approval.
------------------------
Elimination of Restrictions Applicable to Foreign Securities. Investment
restrictions relating to investment in foreign securities have been eliminated
in the proposed uniform restrictions. Certain MLAM Funds that commenced
operations more than 10 years ago were required by state blue sky regulations
then in effect to include an investment restriction limiting or prohibiting
investment in foreign securities. More recently, funds are no longer required
to state this policy as an investment restriction but instead include
investment policies with respect to foreign securities in their Prospectuses
and Statements of Additional Information.
Proposal 4
APPROVAL OR DISAPPROVAL OF A CHARTER AMENDMENT
IN CONNECTION WITH THE IMPLEMENTATION OF
THE MERRILL LYNCH SELECT PRICINGSM SYSTEM
DESCRIPTION OF THE SELECT PRICING SYSTEM
General. In 1988, MLAM developed a two-class distribution system pursuant
to which investors may choose to purchase Class A shares of a Fund with a
front-end sales charge or Class B shares with a contingent deferred sales
charge ('CDSC') and ongoing distribution fees (the 'Dual Distribution
System'). The Dual Distribution System was among the first in the mutual fund
industry to offer investors alternative sales charge arrangements within the
same Fund.
On April 12, 1994, the SEC issued an exemptive order permitting certain
MLAM-advised mutual funds to issue multiple classes of shares (the 'Order').
The Order permits each Fund to create an unlimited number of classes of shares
to expand the types of sales charge arrangements available to Fund investors
without otherwise affecting investment in the Fund. In this regard, the Funds
intend to implement the Select Pricing System, under which eligible investors
may choose from different sales charge alternatives in four classes of shares.
20
AT ITS MEETING HELD AUGUST , 1994, THE BOARD APPROVED THE MANNER IN WHICH
SHARES OF EACH CLASS WILL BE OFFERED AND SOLD UNDER THE SELECT PRICING SYSTEM,
AS DESCRIBED IN DETAIL BELOW. THE SPECIFIC AMOUNTS OF THE SALES CHARGES, AND
ACCOUNT MAINTENANCE AND DISTRIBUTION FEES FOR EACH FUND ARE SET FORTH IN EXHIBIT
A. ALTHOUGH THE FUNDS CURRENTLY INTEND TO IMPLEMENT THE SELECT PRICING SYSTEM AS
DESCRIBED HEREIN, CHANGES MAY BE MADE TO THE DISTRIBUTION ARRANGEMENTS OF ANY
CLASS AT ANY TIME; HOWEVER, CHANGES WILL NOT BE MADE TO THE TERMS OF THE SELECT
PRICING SYSTEM AS IT APPLIES TO ANY FUND UNLESS AND UNTIL (I) THE BOARD OF THE
FUND EXPLICITLY AUTHORIZES, BY RESOLUTION, ANY CHANGE IN THE TERMS AND (II) THE
PROSPECTUS OF THE FUND IS AMENDED TO REFLECT THE CHANGE. CHANGES TO THE SELECT
PRICING SYSTEM ORDINARILY WOULD NOT REQUIRE A VOTE OF THE SHAREHOLDERS OF A
FUND, EXCEPT IN CERTAIN CIRCUMSTANCES NECESSITATING A CHARTER AMENDMENT OR IN
WHICH FEES PAID BY EXISTING SHAREHOLDERS PURSUANT TO RULE 12B-1 UNDER THE
INVESTMENT COMPANY ACT ('RULE 12B-1') ARE INCREASED.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Select Pricing System, followed by a more
detailed description of each class.
ACCOUNT
SALES MAINTENANCE DISTRIBUTION CONVERSION
CLASS CHARGE FEE FEE FEATURE
A* Maximum 5.25% front- No No No
end sales charge**
B CDSC for periods of up Maximum Maximum B shares convert
to 4 years, at a 0.25% 0.75% to D shares
maximum rate of 4.0% automatically
during the first year, after Conversion
decreasing 1.0% Period
annually to 0.0%
C 1.0% CDSC for one year Maximum Maximum No
0.25% 0.75%
D Maximum 5.25% front- Maximum No No
end 0.25%
sales charge**
(footnotes on next page)
21
(footnotes from previous page)
* Offered only to eligible investors. See 'Class A' below.
** Certain Class A and Class D purchases will be subject to a maximum 1.0% CDSC
for one year. See 'Class A' and 'Class D' below.
Class A: Class A shares will be sold subject to a front-end sales charge
and will bear no ongoing distribution or account maintenance fees.
For most Funds, the front-end sales charge on purchases of Class A
shares under the Select Pricing System will be lower than the
front-end sales charge currently imposed on Class A shares. Class
A shares will be offered to a limited group of investors.
Investors that currently own Class A shares of a Fund in an
account will be entitled to purchase additional Class A shares of
that Fund in that account. Class A shares also will be offered to
certain retirement plans. In addition, Class A shares will be
offered to directors of ML & Co. and employees of ML & Co. and its
subsidiaries, Board members and members of the Boards of other
MLAM-advised mutual funds and participants in certain investment
programs. Class A shares also will be issued on reinvestment of
dividends paid on Class A shares.
Exchange Privilege. THE EXCHANGE PRIVILEGE FOR CLASS A
SHAREHOLDERS WILL BE MODIFIED UNDER THE SELECT PRICING SYSTEM
MAKING IT MORE RESTRICTIVE THAN PRESENTLY EXISTS. Under the Select
Pricing System, Class A shareholders may exchange Class A shares
of one Fund for Class A shares of a second MLAM-advised mutual
fund if the shareholder holds any Class A shares of the second
Fund in his account in which the exchange is made at the time of
the exchange. If the Class A shareholder wants to exchange his
Class A shares for shares of a second Fund, and the shareholder
does not hold Class A shares of the second Fund in his account at
the time of the exchange, the shareholder will receive Class D
shares of the second Fund as a result of the exchange. Class A or
Class D shares may be exchanged for Class A shares of a second
Fund at any time as long as, at the time of the exchange, the
shareholder holds Class A shares of the second Fund in the account
in which the exchange is made.
For example, a shareholder owns 50 Class A shares of Merrill Lynch
Basic Value Fund, Inc. ('Basic Value') and 50 Class A shares of
Merrill Lynch World Income Fund, Inc. ('World Income') in his
personal account and 50 Class A shares of Merrill Lynch Pacific
Fund, Inc. ('Pacific') in his individual
22
retirement account ('IRA'). In his personal account, the
shareholder eliminates his position in Basic Value by exchanging
25 shares of Basic Value for shares of equivalent value of World
Income and 25 shares of Basic Value for shares of equivalent value
of Pacific. The shareholder will receive Class A shares of World
Income, because he holds World Income Class A shares in his
personal account at the time of the exchange, and he will receive
Class D shares of Pacific, because although he owns Pacific Class
A shares, he does not hold them in his personal account.
Similarly, if the shareholder decides to exchange back into Basic
Value, he will receive Class D shares, because he no longer holds
Class A shares of Basic Value in his personal account.
In his IRA, if the investor decides to exchange 25 Class A shares
of Pacific for shares of equivalent value of Merrill Lynch Fund
for Tomorrow, Inc. ('Fund for Tomorrow'), he will receive Class D
shares of Fund for Tomorrow, because he holds no Class A shares of
Fund for Tomorrow in his IRA. If he decides, however, to exchange
back into Pacific, he can receive Class A shares of Pacific as
long as he still holds any Class A shares of Pacific in his IRA at
the time of the exchange.
Class A shareholders also may exchange Class A shares for shares
of certain MLAM-advised money market funds. For further
information regarding the Select Pricing System exchange
privilege, see 'Exchange Privilege' below.
Reduced initial sales charges. Class A investors may qualify for
reduced initial sales charges through a right of accumulation
taking into account an investor's holdings in both Class A and
Class D shares of any MLAM-advised Fund. Under the Select Pricing
System, Class B shares will no longer be counted toward the right
of accumulation. See 'Right of Accumulation' below. Under a right
of accumulation, certain Class A shareholders who purchase or
accumulate at least $1 million in Class A and/or Class D shares of
any MLAM-advised Fund also qualify to add to their investment in
Class A shares of a Fund without the imposition of a front-end
sales charge. Although these investors will not be subject to a
front-end sales charge, they will be subject to a CDSC of 1.0% if
the shares are redeemed within one year after purchase.
Redesignation of Class A Shares. Class A shares outstanding on the
date of the implementation of the Select Pricing System (the
'Implementation Date') that are subject to ongoing account
23
maintenance fees automatically will be redesignated Class D
shares. None of the Funds covered by this Proxy Statement
currently have Class A shares that will be redesignated as Class D
shares on the Implementation Date. The redesignation of the Class
A shares to Class D shares will not be deemed a purchase or sale
of the shares for Federal income tax purposes. See 'Redesignation
of Shares of Certain MLAM-Advised Funds' below.
Class B: Class B shares will be sold on a deferred sales charge basis.
Class B shares do not incur a front-end sales charge, but they are
subject to a maximum ongoing 0.25% account maintenance fee, an
ongoing distribution fee and a CDSC for periods of up to four
years.
Conversion of Class B Shares to Class D Shares. After a set time
period (the 'Conversion Period'), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares are
subject to an ongoing account maintenance fee but no distribution
fee. Automatic conversion of Class B shares into Class D shares
will occur at least once a month (on the 'Conversion Date') on the
basis of the relative net asset values of the shares of the two
classes on the Conversion Date, without the imposition of any
sales load, fee or other charge. Conversion of Class B shares to
Class D shares will not be deemed a purchase or sale of the shares
for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on
Class B shares also will convert automatically to Class D shares.
The Conversion Date for dividend reinvestment shares will be
calculated taking into account the length of time the shares
underlying such dividend reinvestment shares were outstanding.
In general, Class B shares of equity Funds will convert
approximately eight years after initial purchase, and Class B
shares of taxable and tax-exempt fixed income Funds will convert
approximately ten years after initial purchase. Specific
Conversion Periods for each Fund are set forth in Exhibit A. If
during the Conversion Period a shareholder exchanges Class B
shares with a ten-year Conversion Period for Class B shares with
an eight-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange
will apply, and the holding period for the shares exchanged will
be 'tacked' onto the holding period for the shares acquired. The
Conversion Period for certain retirement plans will be modified
24
as described under 'Proposed Charter Amendment--Class B Retirement
Plans' below.
The Class B distribution fee is subject to the limitations on
asset-based sales charges imposed by the National Association of
Securities Dealers, Inc. (the 'NASD'), as voluntarily modified by
MLFD. See 'Limitations on Asset-Based Sales Charges' below.
Exchange Privilege. Class B shareholders may exchange Class B
shares of the Fund for Class B shares of any MLAM-advised mutual
fund as well as shares of certain MLAM-advised money market funds.
See 'Exchange Privilege' below.
Redesignation of Class B Shares. Class B shares of Merrill Lynch
Fundamental Growth Fund, Inc. outstanding on the Implementation
Date automatically will be redesignated Class C shares. This
redesignation of Class B shares to Class C shares will not be
deemed a purchase or sale of the shares for Federal income tax
purposes. See 'Redesignation of Shares of Certain MLAM-Advised
Funds' below.
Class C: Class C shares will not incur a front-end sales charge when
purchased, but Class C shares are subject to a maximum ongoing
0.25% account maintenance fee and an ongoing distribution fee. In
the case of fixed income Funds, the Class C distribution fees will
be different from the Class B distribution fees of a particular
Fund. In the case of equity Funds, Class C distribution fees will
equal Class B distribution fees. Class C shares are sold subject
to a CDSC of 1.0% for one year. The Class C distribution fee will
be charged indefinitely subject to approval of the continuance of
the Fund's Class C Distribution Plan pursuant to Rule 12b-1 and
the limitations on asset-based sales charges imposed by the NASD.
See 'Limitations on Asset-Based Sales Charges' below.
Exchange Privilege. Class C shareholders may exchange Class C
shares of the Fund for Class C shares of any MLAM-advised mutual
fund as well as shares of certain MLAM-advised money market funds.
See 'Exchange Privilege' below.
Class D: Class D shares will be sold subject to a front-end sales charge
which will be identical to the front-end sales charge imposed on
Class A shares under the Select Pricing System. Class D shares are
charged a maximum ongoing 0.25% account maintenance fee but are
not subject to an ongoing distribution fee.
Reduced Initial Sales Charges. Class D investors may qualify for
reduced initial sales charges through a right of accumulation
25
taking into account each investor's holdings in both Class A and
Class D shares of any MLAM-advised Fund. See 'Right of
Accumulation' below. Under a right of accumulation, certain
investors who purchase or accumulate at least $1 million in Class
A and/or Class D shares of any MLAM-advised Fund will not be
subject to a front-end sales charge upon the purchase of Class D
shares; however, they will be subject to a CDSC of 1.0% if the
shares are redeemed within one year after purchase.
Exchange Privilege. Class D shareholders may exchange Class D
shares of one Fund for Class D shares of any MLAM-advised mutual
fund. If the shareholder holds any Class A shares of the second
Fund in his account at the time of the exchange, he may exchange
Class D shares for Class A shares of the second Fund. Class D
shareholders also may exchange Class D shares of the Fund for
shares of certain MLAM-advised money market funds. See 'Exchange
Privilege' below.
Class D shares also will be issued upon conversion of Class B
shares after the Class B Conversion Period, as more fully
described below.
------------------------
MLAM developed the Dual Distribution System to provide investors with the
alternatives within the same Fund of purchasing shares pursuant to either the
front-end sales charge method or the deferred sales charge method. The Select
Pricing System was developed to expand the alternatives available under the Dual
Distribution System by providing investors with additional distribution
alternatives. These alternative sales arrangements permit the investor to choose
the method of purchasing shares that is most beneficial given the amount of the
investor's purchase, the length of time the investor expects to hold the shares
and other relevant circumstances.
Front-End Sales Charge Alternatives. Investors who prefer a front-end sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the front-end sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because of the account maintenance fee imposed
on Class D shares. Investors qualifying for significantly reduced front-end
sales charges may find the front-end sales charge alternative particularly
attractive because similar sales charge reductions are not available with
respect to the deferred sales charges imposed in connection with purchases of
Class B or Class C shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their
26
investment for an extended period of time also may elect to purchase Class A or
Class D shares, because over time the accumulated ongoing account maintenance
and distribution fees on Class B or Class C shares may exceed the initial
front-end sales charge and, in the case of Class D shares, the account
maintenance fee. Although some investors that previously purchased Class A
shares may no longer be eligible to purchase Class A shares of other Funds,
those previously purchased Class A shares, as well as any new Class D shares
acquired, will count toward a right of accumulation which may qualify the
investor for reduced initial sales charges on new front-end sales charge
purchases. In addition, the ongoing Class B and Class C account maintenance and
distribution fees will cause Class B and Class C shares to have higher expense
ratios, pay lower dividends and have lower total returns than the front-end
sales charge shares. The ongoing Class D account maintenance fees will cause
Class D shares to have a higher expense ratio, pay lower dividends and have a
lower total return than Class A shares.
The benefit of an initial sales charge waiver for investors who purchase at
least $1 million in Class A or Class D shares of any MLAM-advised Fund may be
offset to the extent the shareholder must pay a CDSC on shares redeemed in less
than one year.
Deferred Sales Charge Alternatives. Investors that do not qualify for a
reduction of front-end sales charges may prefer the deferred sales charge
alternatives, because while Class A and Class D initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the benefit
of putting all of the investor's dollars to work from the time the investment is
made. Both Class B and Class C shares are subject to ongoing account maintenance
fees and distribution fees; however, the ongoing account maintenance and
distribution charges potentially may be offset to the extent any return is
realized on the additional funds initially invested in Class B or Class C
shares. In addition, Class B shares will be converted into Class D shares of the
Fund after the Conversion Period and thereafter will be subject to significantly
lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend to
hold their shares for an extended period of time. In making this decision, Class
B purchasers will take into account whether they intend to redeem their shares
within the CDSC period and, if not, whether they intend to remain invested until
the end of the Conversion Period and thereby take advantage of the reduction in
ongoing fees. Other investors, however, may elect to purchase Class C shares if
they determine that it is advantageous to have all their funds invested
initially and they are uncertain as to the amount of time they intend to hold
the shares. Although Class C shareholders are subject to a shorter CDSC period
at a lower rate, they forgo the Class B conversion
27
feature, making their investment subject to account maintenance and distribution
fees for an indefinite period of time. In addition, while both Class B and Class
C distribution fees are subject to the limitations on asset-based sales charges
imposed by the NASD, Class B shares are further limited under a MLFD voluntary
waiver of asset-based sales charges. See 'Limitations on Asset-Based Sales
Charges' below.
------------------------
Each Class A, Class B, Class C and Class D share of a Fund will represent
identical interests in the investment portfolio of the Fund and have the same
rights, except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fee and Class B and Class C shares also bear the
expenses of the ongoing distribution fee and the additional incremental transfer
agency costs resulting from the deferred sales charge arrangement. Class B,
Class C and Class D shares have exclusive voting rights with respect to the
distribution plan adopted pursuant to Rule 12b-1 under the Investment Company
Act applicable to each respective class. Each class also has different exchange
privileges. The deferred sales charges that are imposed on Class B and Class C
shares will be imposed directly and respectively against those classes and not
against all assets of the Fund and, accordingly, such charges will not affect
the net asset value of any other class or have any impact on investors choosing
another sales charge option.
The implementation of the Select Pricing System will not adversely affect
the net asset value of a current shareholder's investment in the
Fund. Outstanding shares will not be subject to any charge as a result of the
reclassification. Two new and separate classes will be added, having no adverse
effect on the shares that are issued and outstanding; however, the creation of
Class D will provide a significant benefit to Class B shareholders as described
herein.
Exchange Privilege. As previously stated, investors who hold Class A shares
of a Fund in an account will be entitled, subsequent to the Implementation Date,
to purchase additional Class A shares of that Fund in that account only. Current
Class A shareholders that do not qualify to purchase Class A shares under the
Select Pricing System and wish to exchange their Class A shares for shares of a
second Fund will receive Class A shares of that Fund only if such shareholder
owned Class A shares of the second Fund on the date of the exchange. Otherwise,
shareholders that do not qualify to purchase Class A shares under the Select
Pricing System will receive Class D shares in exchange for Class A shares after
the Implementation Date. Investors will have the right to exchange Class D
shares for Class A shares of any Fund held in the account, provided that
28
Class A shares of the Fund acquired in the exchange are held in the account at
the time of the exchange.
Class A and Class D shares also will be exchangeable for shares of certain
money market funds specifically designated as available for exchange by holders
of Class A or Class D shares. The period of time that Class A or Class D shares
are held in a money market fund, however, will not count toward satisfaction of
the holding period requirement for reduction of any CDSC imposed in connection
with a reduced initial sales charge purchase.
Class B and Class C shares will be exchangeable only with shares of the
same class of other mutual funds advised by MLAM as well as certain money market
funds specifically designated as available for exchange by holders of Class B or
Class C shares. The period of time that Class B or Class C shares are held in a
money market fund, however, will not count toward satisfaction of the holding
period requirement for reduction of the CDSC for Class B or Class C shares or
the Conversion Period for Class B shares.
Right of Accumulation. Under the Select Pricing System, reduced sales
charges will be applicable through a right of accumulation under which eligible
investors are permitted to purchase Class A or Class D shares of a Fund at the
offering price applicable to the total of (a) the dollar amount then being
purchased plus (b) an amount equal to the then net asset value or cost,
whichever is higher, of the purchaser's combined holdings of Class A and Class D
shares of the Fund and of any other Fund with an initial sales charge for which
MLFD is the distributor. Class B and Class C shares owned will not count toward
this right of accumulation.
Redesignation of Shares of Certain MLAM-Advised Funds. The following nine
Funds currently offer Class A shares subject to an account maintenance fee:
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch International Equity Fund, Merrill
Lynch Latin America Fund, Inc. and Merrill Lynch Short-Term Global Income Fund,
Inc. In order to continue the same sales charge and account maintenance fee
arrangements on these Class A shares, on the Implementation Date, Class A shares
of those Funds will be automatically redesignated Class D shares. Subsequent to
the Implementation Date, reinvestment of dividends paid on these redesignated
Class A shares will be in Class D shares.
Outstanding Class B shares of Merrill Lynch Fundamental Growth Fund, Inc.
('Fundamental Growth'), which currently are subject to the same CDSC, account
maintenance fee and distribution fee as Class C shares will be under the Select
Pricing System, will be automatically redesignated Class C
29
shares on the Implementation Date. Subsequent to the Implementation Date,
reinvestment of dividends paid on these redesignated Class B shares of
Fundamental Growth will be in Class C shares.
Redesignation of shares of any Fund in connection with the implementation
of the Select Pricing System will not be deemed a purchase or sale of the shares
for Federal income tax purposes.
Limitations on Asset-Based Sales Charges. Class B and Class C distribution
fees are subject to the limitations on asset-based sales charges imposed by the
NASD. As applicable to the Funds, the NASD rule limits the aggregate of
distribution fee payments and CDSCs payable by a Fund to (1) 6.25% of eligible
gross sales of Class B or Class C shares (defined to exclude shares issued
pursuant to dividend reinvestments and exchanges) plus (2) interest on the
unpaid balance at the prime rate plus 1% (the unpaid balance being the maximum
amount payable minus amounts received from the payment of the distribution fee
and the CDSC). The maximum allowable payments under the NASD rule is referred to
as the 'NASD maximum'. Aggregate distribution fee payments on Class C shares
will be limited in accordance with the NASD maximum.
With respect to Class B shares, MLFD 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 MLFD (referred to as the
'Class B voluntary maximum') is 6.75% of eligible gross sales. MLFD retains the
right to stop waiving the interest charges at any time. To the extent payments
would exceed the Class B voluntary maximum, in the case of Class B shares, or
the NASD maximum, in the case of Class C shares, the Fund will not make further
payments of the distribution fee and any CDSCs will be paid to the Fund rather
than to MLFD; however, the Fund will continue to make payments of the account
maintenance fee. In certain circumstances the amount payable pursuant to the
Class B voluntary maximum may exceed the amount payable under the NASD formula.
In such circumstances payments in excess of the amount payable under the NASD
maximum will not be made.
PROPOSED CHARTER AMENDMENT
On August , 1994, the Board approved the Select Pricing System and a
related amendment to the Fund's charter. The proposed amendment to the charter,
among other things, will enable each Fund to institute the Class B to Class D
automatic conversion feature which is integral to the implementation of the
Select Pricing System. In addition, while the Fund's charter permits the Board
to reclassify unissued shares into additional classes, the proposed amendment to
the Fund's charter also will permit the Board to institute
30
automatic conversion features with respect to all classes by reclassifying
issued shares of the Fund into additional classes at a future date.
Class B Retirement Plans. Certain shareholders of the Fund purchased Class
B shares through retirement plans. These purchases qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares under exemptive orders and
a no-action letter granted by the SEC. Retirement plans holding Class B shares
purchased without a CDSC are herein referred to as 'Class B Retirement Plans'.
Since these Class B shares were sold without a CDSC, there was heretofore no
reason to track the length of time that such shares were held, and therefore
Class B Retirement Plan shares cannot be converted to Class D shares in the same
manner as other Class B shares.
To ensure that both the Class B Retirement Plan shareholders and the other
Class B shareholders are treated fairly under the Select Pricing System, the
proposed charter amendment provides that rather than imposing the usual Class B
Conversion Periods which apply to the shares, a ten-year Conversion Period will
be applied to each Class B Retirement Plan. After the Implementation Date, the
Class B Retirement Plans will continue to purchase Class B shares without a
CDSC. When the first share purchased by a Class B Retirement Plan has been held
for ten years (i.e., ten years from the date the relationship between the Funds
and the plan was established), all Class B shares of all Funds held in that
Class B Retirement Plan will be converted into Class D shares of the appropriate
Funds. Subsequent to such conversion, that retirement plan will be sold Class D
shares of the appropriate Funds.
Text of Proposed Charter Amendment. Each Fund's state of organization is
set forth in Exhibit A. With respect to the Funds that are Maryland
corporations, the charter will be amended to add the following provision:
The Board of Directors may classify and reclassify any issued shares
of capital stock 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; provided, however,
that any such classification or reclassification shall not substantially
adversely affect the rights of holders of such issued shares. The Board's
authority pursuant to this paragraph shall include, but not be limited to,
the power to vary among all the holders of a particular class or series (a)
the length of time shares must be held prior to reclassification to shares
of another class or series (the 'Holding Period(s)'), (b) the manner in
which the time for such Holding
31
Period(s) is determined and (c) the class or series into which the
particular class or series is being reclassified; provided, however, that,
subject to the first sentence of this section, with respect to holders of
the Corporation's shares issued on or after the date of the Corporation's
first effective prospectus which sets forth Holding Period(s) (the 'First
Holding Period Prospectus'), the Holding Period(s), the manner in which the
time for such Holding Period(s) is determined and the class or series into
which the particular class or series is being reclassified shall be
disclosed in the Corporation's prospectus or statement of additional
information in effect at the time such shares, which are the subject of the
reclassification, were issued; and provided, further, that, subject to the
first sentence of this section, with respect to holders of the
Corporation's Class B shares issued prior to the date of the Corporation's
First Holding Period Prospectus, the Holding Period shall be ten (10) years
for retirement plan (as recognized by the Internal Revenue Code of 1986, as
amended from time to time) holders of issued Class B shares purchased
without a contingent deferred sales charge (a 'CDSC-Waived Retirement
Plan') and shall be the Holding Period set forth in the Corporation's First
Holding Period Prospectus for all other holders of issued Class B shares;
Class B shares held by a CDSC-Waived Retirement Plan shall be reclassified
to Class D shares in the month following the month in which the first Class
B share of any mutual fund advised by Merrill Lynch Asset Management, L.P.,
Fund Asset Management, L.P., or their affiliates or successors, held by
such CDSC-Waived Retirement Plan has been held for the ten (10) year
Holding Period established by the Corporation's Board of Directors for such
CDSC-Waived Retirement Plan Class B shareholder; and the Class B shares of
every shareholder other than CDSC-Waived Retirement Plans shall be
reclassified to Class D shares in the month following the month in which
such shares have been held for the Holding Period established by the
Corporation's Board of Directors for shareholders other than CDSC-Wavied
Retirement Plans in the Corporation's First Holding Period Prospectus.
With respect to the Funds that are Massachusetts business trusts, the
charters generally will be amended as follows (changes are underlined).
For Merrill Lynch Municipal Series Trust and Merrill Lynch Strategic
Dividend Fund, Section 6.2. and 6.1, respectively, will be amended by
adding the following:
The Trustees may provide that shares of a class will be
exchanged for shares of another class without any act or deed on
the part of the holder of shares of the class being exchanged,
whether or not shares of such class are issued and
32
outstanding, all on terms and conditions as the Trustees may
specify. The Trustees may redesignate a class or series of shares
of beneficial interest or a portion of a class or series of
shares of beneficial interest whether or not shares of such class
or series are issued and outstanding, provided that such
redesignation does not substantially adversely affect the
preference, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of such shares of beneficial
interest.
For Merrill Lynch Municipal Series Trust and Merrill Lynch Strategic
Dividend Fund, Section 6.3 and 6.2, respectively, will be amended as
follows:
Rights of Shareholders. The ownership of the Trust Property
of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees,
and the Shareholders shall have no interest therein other than
the beneficial interest conferred by their Shares, and they shall
have no right to call for any partition or division of any
property, profits, rights or interests of the Trust nor can they
be called upon to share or assume any losses of the Trust or
suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall be personal property giving only the
rights in this Declaration specifically set forth. The Shares
shall not entitle the holder to preference, preemptive,
appraisal, conversion or exchange rights (except for rights of
appraisal specified in Section 11.4 and except as may be
specified by the Trustees in connection with the division of
shares into classes or the redesignation of classes or portions
of classes in accordance with [Section 6.1 for Merrill Lynch
Strategic Dividend Fund and Section 6.2 for Merrill Lynch
Municipal Series Trust]).
For each of Merrill Lynch Municipal Series Trust and Merrill Lynch
Strategic Dividend Fund, Section 10.1 will be amended as follows:
10.1. Voting Powers. The Shareholders shall have power to
vote (i) for the removal of Trustees as provided in [Section 2.2
for Merrill Lynch Municipal Series Trust and Section 2.3 for
Merrill Lynch Strategic Dividend Fund]; (ii) with respect to any
advisory or management contract as provided in Section 4.1; (iii)
with respect to the amendment of this Declaration as provided in
Section 11.3; (iv) with respect
33
to such additional matters relating to the Trust as may be
required or authorized by the 1940 Act, the laws of the
Commonwealth of Massachusetts or other applicable law or by this
Declaration or the By-Laws of the Trust; and (v) with respect to
such additional matters relating to the Trust as may be properly
submitted for Shareholder approval. If the Shares of a Series
shall be divided into classes as provided in Article VI hereof,
the Shares of each class shall have identical voting rights
except that the Trustees, in their discretion, may provide a
class with exclusive voting rights with respect to matters
related to expenses being borne solely by such class whether or
not shares of such class are issued and outstanding.
Implementation of the Select Pricing System is conditioned upon approval of
the charter amendment by all shareholders of the Fund, voting as a single class,
as well as by existing Class B shareholders, voting as a separate class. On
August , 1994, the Board approved the proposed charter amendment. The Board
recommends that the shareholders approve the charter amendment.
* * *
OTHER PERTINENT INFORMATION REGARDING THE FUND
INFORMATION CONCERNING MLAM AND FAM
Effective January 1, 1994, MLAM and FAM were reorganized as Delaware
limited partnerships. Both MLAM and FAM are owned and controlled by ML & Co.,
and the general partner of both MLAM and FAM is Princeton Services, a
wholly-owned subsidiary of ML & Co. The reorganization did not result in a
change of management of either MLAM or FAM, in any of its personnel, or in an
adverse change in its financial condition. Prior to the reorganization, MLAM
(which was known as Merrill Lynch Investment Management, Inc. and which did
business as Merrill Lynch Asset Management) and FAM (which was known as Fund
Asset Management, Inc.) were Delaware corporations. MLAM was a wholly-owned
subsidiary of ML & Co. and FAM was a wholly-owned subsidiary of MLAM.
MLFD, an affiliate of MLAM and FAM, acts as distributor of the Fund's
shares. MLAM, FAM, Princeton Services and MLFD are located at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536. ML & Co. is located at 250 Vesey Street, New
York, New York 10281.
34
MLAM and FAM act as the investment adviser to more than 100 registered
investment companies. In addition, MLAM offers portfolio management and
portfolio analysis services to individuals and institutions.
The audited balance sheet of each of MLAM and FAM for the fiscal year ended
December 31, 1993 is set forth in Exhibit B.
Securities held by the Fund also may be held by or be appropriate
investments for other funds or clients (collectively referred to as 'clients')
for which MLAM or FAM acts as an 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 security. If purchases or sales
of securities for the Fund or other clients arise for consideration at or about
the same time, transactions in such securities will be made, insofar as
feasible, for the respective clients in a manner deemed equitable to all by MLAM
or FAM. To the extent that transactions on behalf of more than one client of
MLAM or FAM during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
The following table sets forth the name, title and principal occupation of
the principal executive officer of MLAM and FAM and the directors of Princeton
Services, the general partner of both MLAM and FAM.
NAME* TITLE PRINCIPAL OCCUPATION
- --------------------- -------------------------- --------------------------
Arthur Zeikel........ President and Chief President and Chief
Investment Officer of MLAM Investment Officer of
and FAM and Director of MLAM and FAM;
Princeton Services Executive Vice
President of ML & Co.;
President of Princeton
Services
Terry K. Glenn....... Executive Vice President Executive Vice
of MLAM and FAM and President of MLAM and
Director of Princeton FAM; Executive Vice
Services President of Princeton
Services
Philip L. Kirstein... Senior Vice President and Senior Vice President
General Counsel of MLAM and General Counsel
and FAM and Director of of MLAM and FAM;
Princeton Services Senior Vice President
of Princeton Services
(footnotes on next page)
35
(footnotes from previous page)
* Mr. Zeikel is presently a Board member of the Fund. The address of Messrs.
Zeikel, Glenn and Kirstein is P.O. Box 9011, Princeton, New Jersey 08543-9011,
which is also the address of MLAM and FAM.
TERMS OF INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement provides that, subject to the direction
of the Board, the Investment Adviser is responsible for the actual management of
the Fund's portfolio and for the review of the Fund'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. The
Investment Adviser provides the portfolio managers for the Fund who consider
analyses from various sources (including brokerage firms with which the Fund
does business), make the necessary investment decisions and place transactions
accordingly. The Investment Adviser is also obligated to perform certain
administrative and management services for the Fund and is obligated to provide
all the office space, facilities, equipment and personnel necessary to perform
its duties under the Investment Advisory Agreement.
Investment Advisory Fee. The Investment Advisory Agreement provides that as
compensation for its services to the Fund, the Investment Adviser receives from
the Fund at the end of each month a fee calculated as an annual percentage of
the Fund's average daily net assets (i.e., the average daily value of the total
assets of the Fund minus the sum of accrued liabilities of the Fund).
Information pertaining to the Fund's investment advisory fee is set forth in
Exhibit A.
Payment of Expenses. The Investment Advisory Agreement obligates the
Investment Adviser to provide investment advisory services and to pay all
compensation of and furnish office space for officers and employees of the Fund
connected with the investment and economic research, trading and investment
management of the Fund, as well as the fees of all Board members of the Fund who
are affiliated persons of the Investment Adviser or any of its affiliates. The
Fund pays all other expenses incurred in its operation, including, among other
things, expenses for legal and auditing services; taxes; costs of printing
proxies, stock certificates and shareholder reports; charges of the custodian
and transfer agent, dividend disbursing agent and registrar fees; SEC fees; fees
and expenses of unaffiliated Board members; accounting and pricing costs;
insurance; interest; brokerage costs; litigation and other extraordinary or
non-recurring expenses; mailing and other expenses properly payable by the Fund.
Accounting services are provided to the Fund by the Investment Adviser, and
the Fund reimburses the Investment Adviser for its costs in
36
connection with such services. Information with respect to such reimbursement is
set forth in Exhibit A.
California imposes limitations on the expenses of those Funds whose shares
are registered or qualified for sale in California. At the date of this proxy
statement, these annual expense limitations require that the Investment Adviser
reimburse the Fund in an amount necessary to prevent the aggregate ordinary
operating expenses (excluding taxes, brokerage fees and commissions,
distribution fees and extraordinary charges such as litigation costs) from
exceeding in any fiscal year 2.5% of the Fund's first $30 million of average net
assets, 2.0% of the next $70 million and 1.5% of the remaining average net
assets. The Investment Adviser's obligation to reimburse the Fund is limited to
the amount of the investment advisory fee. No payment will be made to the
Investment Adviser during any fiscal year which will cause expenses to exceed
the most restrictive expense limitation at the time of such payment. Additional
information with respect to the Fund's reimbursement pursuant to such expense
limitations, if any, is set forth in Exhibit A.
Duration and Termination. The Investment Advisory Agreement will continue
in effect from year to year if approved annually (a) by the Board or by a
majority of the outstanding shares of the Fund and (b) by a majority of the
Board members who are not parties to such agreement or interested persons (as
defined in the Investment Company Act) of any such party. Such agreement is not
assignable and may be terminated without penalty on 60 days' written notice at
the option of either party thereto or by the vote of the shareholders of the
Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board, the Investment Adviser is
primarily responsible for the execution of each Fund's portfolio transactions
and the allocation of brokerage. In executing such transactions, the Investment
Adviser seeks to obtain the best results for the Fund, 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 Fund does not necessarily pay the lowest commission or spread
available.
The Fund has no obligation to deal with any broker or group of brokers in
the execution of transactions in portfolio securities. Subject to obtaining the
best price and execution, brokers or dealers who provided supplemental
investment research (such as information concerning money market securities,
economic data and market forecasts) to the Investment Adviser,
37
including Merrill Lynch, may receive orders for transactions by the Fund.
Information so received will be in addition to and not in lieu of the services
required to be performed by the Investment Adviser under the Investment Advisory
Agreement, and the expenses of the Investment Adviser will not necessarily be
reduced as a result of the receipt of such supplemental information.
Each Fund invests in securities traded in the over-the-counter markets, and
where possible, deals directly with 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 a Fund are prohibited from dealing with
the Fund as principal in the purchase and sale of securities. Since transactions
in the over-the-counter market usually involve transactions with dealers acting
as principal for their own account, a Fund will not deal with affiliated
persons, including Merrill Lynch and its affiliates, in connection with such
transactions except that pursuant to an exemptive order, obtained by the
Investment Adviser, certain Funds may engage in principal transactions with
Merrill Lynch in high-quality short-term, tax-exempt securities. For information
about transactions with and brokerage commissions paid to Merrill Lynch see
Exhibit A.
The Board has considered the possibility of recapturing for the benefit of
the Fund brokerage commissions, dealer spreads and other expenses of possible
portfolio transactions, such as underwriting commissions, by conducting
portfolio transactions through affiliated entities, including Merrill Lynch. For
example, brokerage commissions received by Merrill Lynch could be offset against
the investment advisory fee paid by the Fund to the Investment Adviser. After
considering all factors deemed relevant, the Board members made a determination
not to seek such recapture. The Board members will reconsider this matter from
time to time.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing by the Fund of the proxy
materials in connection with the matters to be considered at the meeting will be
borne by the Fund. The Fund will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation material to the beneficial
owners of the shares of the Fund. The Fund also may hire proxy solicitors at the
expense of the Fund.
The proposal to elect the Fund's Board (Proposal 1) for each of Merrill
Lynch Corporate Bond Fund, Inc. and Merrill Lynch Municipal Bond Fund, Inc. may
be approved by a plurality of the votes cast by each Fund's shareholders, voting
in person or by proxy, at a meeting at which a quorum is duly constituted. For
each of Merrill Lynch Fund for Tomorrow, Inc., Merrill
38
Lynch Global Utility, Inc. and Merrill Lynch Utility Income Fund, Inc. (together
with Merrill Lynch Corporate Bond Fund, Inc. and Merrill Lynch Municipal Bond
Fund, Inc., the 'Maryland Corporations'), Proposal 1 may be approved by a
majority of the votes cast by each Fund's shareholders, voting in person or by
proxy, at a meeting at which a quorum is duly constituted. Proposal 1 for each
of Merrill Lynch Municipal Series Trust and Merrill Lynch Strategic Dividend
Fund (together, the 'Massachusetts business trusts') may be approved by the
affirmative vote of a majority of each Fund's shares represented at the Meeting
at which a quorum is duly constituted.
The proposal to ratify the selection of the Fund's independent auditors
(Proposal 2) for each of the Maryland Corporations may be approved by a majority
of the votes cast by the Fund's shareholders, voting in person or by proxy, at a
meeting at which a quorum is duly constituted and for the Massachusetts business
trusts, may be approved by a majority of the votes of the Fund's shareholders
represented at a meeting at which a quorum is duly constituted.
The proposal to amend the fundamental investment restrictions of the Fund
(Proposal 3) requires the affirmative vote of the lesser of (i) 67% of the
shares represented at the Meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding shares.
The proposal to amend the Fund's charter (Proposal 4) must be approved by
the affirmative vote of (i) at least 66 2/3% of the outstanding shares of the
Fund for Merrill Lynch Corporate Bond Fund, Inc., or (ii) a majority of the
outstanding shares of the Fund for all other Funds covered by this proxy
statement. The charter amendment also must be approved separately by the
affirmative vote of the outstanding Class B shares of the Fund in the same
percentages as set forth in (i) and (ii) immediately above.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Fund. It is anticipated that the cost of such supplementary
solicitation, if any, will be nominal. For Merrill Lynch Corporate Bond Fund,
Inc., Merrill Lynch Fund for Tomorrow, Inc., Merrill Lynch Global Utility Fund,
Inc. and Merrill Lynch Municipal Bond Fund, Inc., a quorum consists of a
majority of the shares entitled to vote at the Meeting, present in person or by
proxy; for Merrill Lynch Municipal Series Trust, Merrill Lynch Strategic
Dividend Fund and Merrill Lynch Utility Income Fund, Inc., a quorum consists of
33 1/3% of the shares entitled to vote at the Meeting, present in person or by
proxy. Class B quorum requirements for the separate Class B vote on Proposal 4
will be identical to the overall quorum requirements for each Fund.
39
All shares represented by properly executed proxies, unless such proxies
have previously been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated, the shares will be
voted 'FOR' the Board member nominees, 'FOR' the ratification of the independent
auditors, 'FOR' the amendments to the fundamental investment restrictions of the
Fund and 'FOR' the charter amendment.
With respect to each Fund whose fiscal year ended subsequent to June 30,
1994, the Board represents that there has been no material adverse change in the
financial operations of the Fund since the date of the unaudited financial
statements contained in the Fund's most recent semi-annual report. Also, with
respect to each Fund whose fiscal year ended subsequent to June 30, 1994, shares
will not be voted for Proposal 1 unless the Fund has received a certificate from
its President, dated the Meeting Date, that, to his knowledge, there has been no
material adverse change in the Fund's financial operations since the date of the
unaudited financial statements included in the Fund's most recent semi-annual
report, unless such material adverse change has been disclosed to shareholders
in additional proxy material. If you wish to receive a copy of the Fund's most
recent annual report and any semi-annual report, without charge, please call
1-609-282-2800 and one will be sent to you.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in
'street name' for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on each
Proposal before the Meeting. The Fund understands that, under the rules of the
New York Stock Exchange, such broker-dealer firms may, without instructions from
their customers and clients, grant authority to the proxies designated to vote
on the election of Board members (Proposal 1), the ratification of the selection
of independent auditors (Proposal 2) and the proposed charter amendment
(Proposal 4) if no instructions have been received prior to the date specified
in the broker-dealer firm's request for voting instructions. Broker-dealer
firms, including Merrill Lynch, will not be permitted to grant voting authority
without instructions with respect to the amendments to the fundamental
investment restrictions (Proposal 3). The Fund will include shares held of
record by broker-dealers as to which such authority has been granted in its
tabulation of the total number of votes present for purposes of determining
whether the necessary quorum of shareholders exists. Proxies which are returned
but which are marked 'abstain' or on which a broker-dealer has declined to vote
on any proposal ('broker non-votes') will be counted as present for the purposes
of a quorum. Merrill Lynch has advised the Fund that it intends to exercise
discretion over shares held in its name for which no instructions have been
received by voting such shares on Proposals 1, 2 and 4 in the same proportion as
it has voted shares for which it has received instructions. However,
40
abstentions and broker non-votes will not be counted as votes cast. Abstentions
and broker non-votes will not have an effect on the vote on Proposals 1 and 2
(in the case of Maryland corporations) or on Proposal 1 only (in the case of
Massachusetts business trusts); however, abstentions and broker non-votes will
have the same effect as a vote against Proposals 3 and 4 (in the case of
Maryland corporations) or Proposals 2, 3 and 4 (in the case of Massachusetts
business trusts).
With respect to Funds organized in Massachusetts: The charter, which is on
file with the Secretary of State of the Commonwealth of Massachusetts, provides
that the name of the Fund refers to the Board members under the charter
collectively as Board members, but not as individuals or personally; and no
Board member, shareholder, officer, employee or agent of the Fund shall be held
to any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim of the Fund but the Fund Estate only
shall be liable.
MEETINGS OF SHAREHOLDERS
The Fund's charter does not require that the Fund hold an annual meeting of
shareholders. The Fund will be required, however, to call special meetings of
shareholders in accordance with the requirements of the Investment Company Act
to seek approval of new management and advisory arrangements or of a change in
the fundamental policies, objectives or restrictions of the Fund. The Fund also
would be required to hold a special shareholders' meeting to elect new Board
members at such time as less than a majority of the Board members holding office
have been elected by shareholders. The charters or by-laws of the Funds provide
for the calling of shareholders' meetings as follows: (i) at the request of 10%
of the outstanding shares of Merrill Lynch Corporate Bond Fund, Inc., Merrill
Lynch Municipal Bond Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill
Lynch Strategic Dividend Fund and Merrill Lynch Utility Income Fund, Inc., or
(ii) by the written request of the holders of shares of Merrill Lynch Fund for
Tomorrow, Inc. and Merrill Lynch Global Utility Fund, Inc., entitled to vote at
such meeting, or by a majority of the Board members.
By Order of the Board
SUSAN B. BAKER
MARK B. GOLDFUS
ROBERT HARRIS
MICHAEL J. HENNEWINKEL
THOMAS D. JONES, III
PATRICK D. SWEENEY
Secretaries of the Funds
Dated: August 10, 1994
41
EXHIBIT A
INFORMATION PERTAINING TO EACH FUND
GENERAL INFORMATION PERTAINING TO THE FUNDS
DEFINED TERM USED FISCAL STATE OF
FUND IN EXHIBIT A YEAR END ORGANIZATION MEETING TIME
Merrill Lynch Corporate Bond Fund, Inc.* Corporate Bond 9/30 MD 12:00p.m.
Merrill Lynch Fund For Tomorrow, Inc. Fund For Tomorrow 1/31 MD 2:00p.m.
Merrill Lynch Global Utility Fund, Inc. Global Utility 11/30 MD 11:00a.m.
Merrill Lynch Municipal Bond Fund, Inc.** Municipal Bond 6/30 MD 3:30p.m.
Merrill Lynch Municipal Series Trust-- 10/31 MA 11:30a.m.
Merrill Lynch Municipal Intermediate Term Fund Municipal
Intermediate
Merrill Lynch Strategic Dividend Fund Strategic Dividend 7/31 MA 3:00p.m.
Merrill Lynch Utility Income Fund, Inc. Utility Income 8/31 MD 2:30p.m.
* Consists of three separate Portfolios: High Income Portfolio, Investment
Grade Portfolio, and Intermediate Term Portfolio
** Consists of three separate Portfolios: Insured Portfolio, Limited Maturity
Portfolio, and National Portfolio
SHARES OUTSTANDING AS OF THE RECORD DATE
FUND CLASS A CLASS B
Corporate Bond
High Income Portfolio
Investment Grade Portfolio
Intermediate Term Portfolio
Fund For Tomorrow
Global Utility
Municipal Bond
Insured Portfolio
Limited Maturity Portfolio
National Portfolio
Municipal Intermediate
Strategic Dividend
Utility Income
A-1
INFORMATION PERTAINING TO OFFICERS AND BOARD MEMBERS
YEAR IN WHICH EACH NOMINEE BECAME A MEMBER OF THE BOARD
FUND FORBES MONTGOMERY REILLY RYAN WEST ZEIKEL
Corporate Bond 1977 -- 1991 1992 1981 1977
Fund For Tommorow 1984 -- 1990 1992 1984 1984
Global Utility 1990 -- 1990 1992 1990 1990
Municipal Bond 1977 -- 1991 1992 1981 1977
Municipal Intermediate 1986 -- 1990 1992 1986 1986
Strategic Dividend 1987 -- 1990 1992 1987 1987
Utility Income 1993 1993 1993 1993 1993 1993
Set forth in the table below is information regarding board and committee
meetings held and compensation paid to Independent Board members during each
Fund's most recently completed fiscal year.
BOARD AUDIT AND NOMINATING COMMITTEE
ANNUAL PER MEETING ANNUAL CHAIRMAN
# MEETINGS FEE FEE # MEETINGS FEE ANNUAL FEE
FUND HELD ($) ($) HELD ($) ($)
Corporate Bond 4 4,000 800 4 2,000 1,000
Fund For Tommorow 4 1,000 400 4 1,000 1,000
Global Utility 4 1,000 400 4 1,000 1,000
Municipal Bond 4 3,000 850 4 2,000 1,000
Municipal Intermediate 4 800 400 4 500 1,000
Strategic Dividend 4 1,000 400 4 1,000 1,000
Utility Income 4 2,000 400 4 1,000 1,000
AGGREGATE FEES AND
EXPENSES
FUND ($)
Corporate Bond 41,834
Fund For Tommorow 31,896
Global Utility 31,371
Municipal Bond 48,135
Municipal Intermediate 11,547
Strategic Dividend 27,010
Utility Income 9,802*
* From October 29, 1993[February 28, 1994].
A-2
Set forth in the table below is information regarding stock ownership by the
nominees as of July 29, 1994
FUND FORBES MONTGOMERY REILLY RYAN WEST
Corporate Bond
High Income Portfolio--Class A 921.464 -- -- 741.974 --
High Income Portfolio--Class B 928.649 -- -- -- --
Investment Grade Portfolio--Class A -- -- -- -- --
Investment Grade Portfolio--Class B -- -- -- -- --
Intermediate Term Portfolio--Class A -- -- 12,000.728 -- --
Intermediate Term Portfolio--Class B -- -- 11,883.736 -- --
Fund For Tomorrow--Class A -- -- -- -- --
Fund For Tomorrow--Class B -- -- -- -- --
Global Utility--Class A -- -- -- 502.395 --
Global Utility--Class B -- -- -- -- --
Municipal Bond
Insured Portfolio--Class A -- -- -- -- --
Insured Portfolio--Class B -- -- -- -- --
Limited Maturity Portfolio--Class A -- -- -- -- --
Limited Maturity Portfolio--Class B -- -- -- -- --
National Portfolio--Class A -- -- -- -- 20,698.511
National Portfolio--Class B -- -- 26,660.286 -- 10,751.549
Municipal Intermediate--Class A -- -- -- -- --
Municipal Intermediate--Class B -- -- -- -- --
Strategic Dividend--Class A 114.642 -- -- -- --
Strategic Dividend--Class B 117.301 -- -- -- --
Utility Income--Class A -- -- -- -- --
Utility Income--Class B -- -- -- -- --
FUND ZEIKEL
Corporate Bond
High Income Portfolio--Class A 649.969
High Income Portfolio--Class B --
Investment Grade Portfolio--Class A --
Investment Grade Portfolio--Class B --
Intermediate Term Portfolio--Class A --
Intermediate Term Portfolio--Class B --
Fund For Tomorrow--Class A --
Fund For Tomorrow--Class B --
Global Utility--Class A 230.373
Global Utility--Class B --
Municipal Bond
Insured Portfolio--Class A --
Insured Portfolio--Class B --
Limited Maturity Portfolio--Class A 281,412.603
Limited Maturity Portfolio--Class B --
National Portfolio--Class A --
National Portfolio--Class B --
Municipal Intermediate--Class A --
Municipal Intermediate--Class B --
Strategic Dividend--Class A 4,497.341
Strategic Dividend--Class B 358.933
Utility Income--Class A --
Utility Income--Class B --
A-3
Set forth in the table below are the officers of all of the Funds; specific
officers of each Fund are indicated according to the year in which he or she
became an officer.
Officer Information
Officer Since
Name and Corporate Fund for Global Municipal Municipal
Biography Age Office Bond Tomorrow Utility Bond Intermediate
Arthur Zeikel ................................... 62 President 1978 1984 1990 1977 1986
President of MLAM since 1977 and Chief
Investment Officer since 1976; President and
Chief Investment Officer of FAM since 1977;
President and Director of Princeton Services
since 1993; Executive Vice President of ML & Co.
since 1990; Executive Vice President of Merrill
Lynch since 1990 and Senior Vice President from
1985 to 1990; Director of MLFD.
Terry K. Glenn .................................. 53 Executive 1986 1986 1990 1983 1986
Executive Vice President of MLAM and FAM since Vice President
1983; Executive Vice President and Director of
Princeton Services since 1993; President of MLFD
since 1986 and Director since 1991; President of
Princeton Administrators, L.P. since 1988.
Gerald M. Richard ............................... 45 Treasurer 1984 1984 1990 1984 1986
Senior Vice President and Treasurer of MLAM and
FAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993;
Treasurer of MLFD since 1984 and Vice President
since 1981.
Vincent R. Giordano ............................ 49 Senior Vice -- -- -- 1981 1986
Portfolio Manager of FAM and MLAM since 1977 and President
Senior Vice President of FAM and MLAM since
1984; Vice President of MLAM from 1980 to 1984;
Senior Vice President of Princeton Services
since 1993.
Name and Strategic Utility
Biography Dividend Income
Arthur Zeikel ................................... 1987 1993
President of MLAM since 1977 and Chief
Investment Officer since 1976; President and
Chief Investment Officer of FAM since 1977;
President and Director of Princeton Services
since 1993; Executive Vice President of ML & Co.
since 1990; Executive Vice President of Merrill
Lynch since 1990 and Senior Vice President from
1985 to 1990; Director of MLFD.
Terry K. Glenn .................................. 1987 1993
Executive Vice President of MLAM and FAM since
1983; Executive Vice President and Director of
Princeton Services since 1993; President of MLFD
since 1986 and Director since 1991; President of
Princeton Administrators, L.P. since 1988.
Gerald M. Richard ............................... 1987 1993
Senior Vice President and Treasurer of MLAM and
FAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993;
Treasurer of MLFD since 1984 and Vice President
since 1981.
Vincent R. Giordano ............................ -- --
Portfolio Manager of FAM and MLAM since 1977 and
Senior Vice President of FAM and MLAM since
1984; Vice President of MLAM from 1980 to 1984;
Senior Vice President of Princeton Services
since 1993.
A-4
Officer Information
Officer Since
Name and Corporate Fund for Global Municipal Municipal
Biography Age Office Bond Tomorrow Utility Bond Intermediate
Norman R. Harvey ................................ 61 Senior Vice -- 1984 1990 -- --
Senior Vice President of MLAM and FAM since President
1982; Senior Vice President of Princeton
Services since 1993.
N. John Hewitt .................................. 59 Senior Vice 1993 -- -- 1981 --
Senior Vice President of MLAM and FAM since President
1976; Manager of the Fixed Income Mutual Fund
and Insurance Portfolio Groups of MLAM since
1980; Senior Vice President of Princeton
Services since 1993.
Donald C. Burke ................................. 34 Vice President 1993 1993 1993 1993 1993
Vice President and Director of Taxation of MLAM
since 1990; Employee of Deloitte & Touche from
1982 to 1990.
Vincent P. DiLeo ................................ 55 Vice President -- 1984 -- -- --
Portfolio manager of MLAM since 1984.
Jay C. Harbeck .................................. 59 Vice President 1992 -- -- -- --
Vice President of MLAM since 1986.
Kenneth A. Jacob ................................ 43 Vice President -- -- -- 1982 1986
Vice President of FAM and MLAM since 1984.
Vincent T. Lathbury, III ........................ 53 Vice President 1982 -- -- -- --
President and Portfolio Manager of FAM and MLAM
since 1982; Vice President and Manager of Bond
Department of INA Capital Management, Inc. from
1979 to 1982.
Walter D. Rogers ................................ 51 Vice President -- -- 1990 -- --
Vice President of MLAM since 1987; Vice
President of Continental Insurance Asset
Management from 1984 to 1987.
Name and Strategic Utility
Biography Dividend Income
Norman R. Harvey ................................ 1987 1993
Senior Vice President of MLAM and FAM since
1982; Senior Vice President of Princeton
Services since 1993.
N. John Hewitt .................................. -- --
Senior Vice President of MLAM and FAM since
1976; Manager of the Fixed Income Mutual Fund
and Insurance Portfolio Groups of MLAM since
1980; Senior Vice President of Princeton
Services since 1993.
Donald C. Burke ................................. 1993 1993
Vice President and Director of Taxation of MLAM
since 1990; Employee of Deloitte & Touche from
1982 to 1990.
Vincent P. DiLeo ................................ -- --
Portfolio manager of MLAM since 1984.
Jay C. Harbeck .................................. -- --
Vice President of MLAM since 1986.
Kenneth A. Jacob ................................ -- --
Vice President of FAM and MLAM since 1984.
Vincent T. Lathbury, III ........................ -- --
President and Portfolio Manager of FAM and MLAM
since 1982; Vice President and Manager of Bond
Department of INA Capital Management, Inc. from
1979 to 1982.
Walter D. Rogers ................................ 1987 1993
Vice President of MLAM since 1987; Vice
President of Continental Insurance Asset
Management from 1984 to 1987.
A-5
Officer Information
Officer Since
Name and Corporate Fund for Global Municipal Municipal
Biography Age Office Bond Tomorrow Utility Bond Intermediate
Frederick K. Stuebe ............................. 43 Vice President -- -- -- -- 1990
Vice President of MLAM and FAM and their
predecessors since 1989 and Vice President of
Old Republic Insurance Company from 1985 to
1989.
Susan B. Baker .................................. 36 Secretary -- 1990 -- -- 1991
Vice President of MLAM since 1993; attorney
associated with MLAM since 1987; attorney in
private practice from 1985 to 1987.
Mark B. Goldfus ................................. 47 Secretary -- -- -- 1985 --
Vice President of MLAM and FAM since 1985.
Robert Harris ................................... 42 Secretary -- -- -- -- --
Vice President of MLAM since 1984; Secretary of
MLFD since 1982.
Michael J. Hennewinkel .......................... 42 Secretary 1985 -- -- -- --
Vice President of MLAM since 1985 and attorney
associated with the Investment Adviser and MLAM
since 1982.
Thomas D. Jones, III ............................ 29 Secretary -- -- -- -- --
Attorney with MLAM since 1992; Lawyer in private
practice from 1990 to 1992; student prior
thereto.
Patrick D. Sweeney .............................. 40 Secretary -- -- 1990 -- --
Vice President of MLAM since 1990; Vice
President and Associate Counsel of Security
Pacific Merchant Bank from 1988 to 1990; Lawyer
in private practice from 1981 to 1988.
Name and Strategic Utility
Biography Dividend Income
Frederick K. Stuebe ............................. -- --
Vice President of MLAM and FAM and their
predecessors since 1989 and Vice President of
Old Republic Insurance Company from 1985 to
1989.
Susan B. Baker .................................. -- --
Vice President of MLAM since 1993; attorney
associated with MLAM since 1987; attorney in
private practice from 1985 to 1987.
Mark B. Goldfus ................................. -- --
Vice President of MLAM and FAM since 1985.
Robert Harris ................................... 1987 --
Vice President of MLAM since 1984; Secretary of
MLFD since 1982.
Michael J. Hennewinkel .......................... -- --
Vice President of MLAM since 1985 and attorney
associated with the Investment Adviser and MLAM
since 1982.
Thomas D. Jones, III ............................ -- 1993
Attorney with MLAM since 1992; Lawyer in private
practice from 1990 to 1992; student prior
thereto.
Patrick D. Sweeney .............................. -- --
Vice President of MLAM since 1990; Vice
President and Associate Counsel of Security
Pacific Merchant Bank from 1988 to 1990; Lawyer
in private practice from 1981 to 1988.
A-6
INFORMATION PERTAINING TO THE SELECT PRICING SYSTEM
SALES CHARGES
For Fund For Tomorrow, Strategic Dividend:
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C
Maximum 4.0% CDSC during the first Maximum 5.25%** 4.0% CDSC during the first 1.0% CDSC during the first
6.5%* year, decreasing 1.0% year, decreasing 1.0% year, decreasing to 0.0%
annually to 0.0% after the annually to 0.0% after the after the first year
fourth year fourth year
SELECT PRICING
CLASS D
Maximum 5.25%**
* 6.5% for purchases less than $10,000; 6.0% for purchases between $10,000 and
$25,000; 5.0% for purchases between $25,000 and $50,000; 4.0% for purchases
between $50,000 and $100,000; 3.0% for purchases between $100,000 and
$250,000; 2.0% for purchases between $250,000 and $1,000,000; .75% for
purchases of $1,000,000 and greater.
** 4.75% for purchases between $25,000 and $50,000; 4.0% for purchases between
$50,000 and $100,000; 3.0% for purchases between $100,000 and $250,000; 2.0%
for purchases between $250,000 and $1,000,000; 0% for purchases of $1,000,000
and greater.
For Global Utility, Utility Income:
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C
Maximum 4.0% CDSC during the first Maximum 4.0%** 4.0% CDSC during the first 1.0% CDSC during the first
6.5%* year, decreasing 1.0% year, decreasing 1.0% year, decreasing to 0.0%
annually to 0.0% after the annually to 0.0% after the after the first year
fourth year fourth year
SELECT PRICING
CLASS D
Maximum 4.0%**
* 6.5% for purchases less than $10,000; 6.0% for purchases between $10,000 and
$25,000; 5.0% for purchases between $25,000 and $50,000; 4.0% for purchases
between $50,000 and $100,000; 3.0% for purchases between $100,000 and
$250,000; 2.0% for purchases between $250,000 and $1,000,000; .75% for
purchases of $1,000,000 and greater.
** 3.75% for purchases between $25,000 and $50,000; 3.25% for purchases between
$50,000 and $100,000; 2.5% for purchases between $100,000 and $250,000; 1.5%
for purchases between $250,000 and $1,000,000; 0% for purchases of $1,000,000
and greater.
A-7
For Municipal Intermediate:
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C
Maximum 2.0% CDSC during the first Maximum 1.0%** 1.0% CDSC during the first 1.0% CDSC during the first
2.0%* year, decreasing 0.50% year, decreasing to 0.0% year, decreasing to 0.0%
annually to 0.0% after the after the first year after the first year
fourth year
SELECT PRICING
CLASS D
Maximum 1.0%**
* 2.0% for purchases less than $100,000; 1.5% for purchases between $100,000
and $500,000; 1.0% for purchases between $500,000 and $1,000,000; .50% for
purchases of $1,000,000 and greater.
** .75% for purchases between $100,000 and $250,000; .50% for purchases between
$250,000 and $500,000; .30% for purchases between $500,000 and $1,000,000; 0%
for purchases of $1,000,000 and greater.
For Corporate Bond (High Income Portfolio and Investment Grade Portfolio):
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C
Maximum 4.0% CDSC during the first Maximum 4.0%** 4.0% CDSC during the first 1.0% CDSC during the first
4.0%* year, decreasing 1.0% year, decreasing 1.0% year, decreasing to 0.0%
annually to 0.0% after the annually to 0.0% after the after the first year
fourth year fourth year
SELECT PRICING
CLASS D
Maximum 4.0%**
* 4.0% for purchases less than $50,000; 3.5% for purchases between $50,000 and
$100,000; 3.0% for purchases between $100,000 and $250,000; 2.5% for
purchases between $250,000 and $500,000; 2.0% for purchases between $500,000
and $750,000; 1.5% for purchases between $750,000 and $1,000,000; 1.0% for
purchases between $1,000,000 and $2,500,000; .50% for purchases of $2,500,000
and greater.
** 3.75% for purchases between $25,000 and $50,000; 3.25% for purchases between
$50,000 and $100,000; 2.5% for purchases between $100,000 and $250,000; 1.5%
for purchases between $250,000 and $1,000,000; 0% for purchases of $1,000,000
and greater.
A-8
For Corporate Bond (Intermediate Term Portfolio):
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C
Maximum 2.0% CDSC during the first Maximum 1.0%** 1.0% CDSC during the first 1.0% CDSC during the first
2.0%* year, decreasing 0.50% year, decreasing to 0.0% year, decreasing to 0.0%
annually to 0.0% after the after the first year after the first year
fourth year
SELECT PRICING
CLASS D
Maximum 1.0%**
* 2.0% for purchases less than $100,000; 1.5% for purchases between $100,000
and $500,000; 1.0% for purchases between $500,000 and $1,000,000; .50% for
purchases of $1,000,000 and greater.
** .75% for purchases between $100,000 and $250,000; .50% for purchases between
$250,000 and $500,000; .30% for purchases between $500,000 and $1,000,000; 0%
for purchases of $1,000,000 and greater.
For Municipal Bond (Insured Portfolio and National Portfolio):
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C
Maximum 4.0% CDSC during the first Maximum 4.0%** 4.0% CDSC during the first 1.0% CDSC during the first
4.0%* year, decreasing 1.0% year, decreasing 1.0% year, decreasing to 0.0%
annually to 0.0% after the annually to 0.0% after the after the first year
fourth year fourth year
SELECT PRICING
CLASS D
Maximum 4.0%**
* 4.0% for purchases less than $25,000; 3.75% for purchases between $25,000 and
$50,000; 3.25% for purchases between $50,000 and $100,000; 2.5% for purchases
between $100,000 and $250,000; 1.5% for purchases between $250,000 and
$1,000,000; .50% for purchases of $1,000,000 and greater.
** 3.75% for purchases between $25,000 and $50,000; 3.25% for purchases between
$50,000 and $100,000; 2.5% for purchases between $100,000 and $250,000; 1.5%
for purchases between $250,000 and $1,000,000; 0% for purchases of $1,000,000
and greater.
For Municipal Bond (Limited Maturity Portfolio):
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C
Maximum 1.0% CDSC during the first Maximum 1.0%** 1.0% CDSC during the first 1.0% CDSC during the first
0.75%* year, decreasing to 0.0% year, decreasing to 0.0% year, decreasing to 0.0%
after the first year after the first year after the first year
SELECT PRICING
CLASS D
Maximum 1.0%**
* .75% for purchases of less than $25,000; .50% for purchases between $25,000
and $100,000; .40% for purchases between $100,000 and $500,000; .30% for
purchases between $500,000 and $1,000,000; .20% for purchases of $1,000,000
and greater.
** .75% for purchases between $100,000 and $250,000; .50% for purchases between
$250,000 and $500,000; .30% for purchases between $500,000 and $1,000,000; 0%
for purchases of $1,000,000 and greater.
A-9
DISTRIBUTION AND ACCOUNT MAINTENANCE FEES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
For Municipal Intermediate:
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION
FEE FEE FEE FEE FEE FEE FEE
None 0.10% 0.20% None 0.10% 0.20% 0.10% 0.20% None
SELECT PRICING
CLASS D
ACCOUNT
MAINTENANCE
FEE
0.10%
For Corporate Bond (High Income Portfolio and Investment Grade Portfolio),
Municipal Bond (Insured Portfolio and National Portfolio), Global Utility and
Utility Income:
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION
FEE FEE FEE FEE FEE FEE FEE
None 0.50% 0.25% None 0.50% 0.25% 0.55% 0.25% None
SELECT PRICING
CLASS D
ACCOUNT
MAINTENANCE
FEE
0.25%
For Strategic Dividend, Fund For Tomorrow:
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION
FEE FEE FEE FEE FEE FEE FEE
None 0.75% 0.25% None 0.75% 0.25% 0.75% 0.25% None
SELECT PRICING
CLASS D
ACCOUNT
MAINTENANCE
FEE
0.25%
A-10
For Corporate Bond (Intermediate Term Portfolio):
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION
FEE FEE FEE FEE FEE FEE FEE
None 0.25% 0.25% None 0.25% 0.25% 0.25% 0.25% None
SELECT PRICING
CLASS D
ACCOUNT
MAINTENANCE
FEE
0.10%
For Municipal Bond (Limited Maturity Portfolio):
DUAL DISTRIBUTION SELECT PRICING
CLASS A CLASS B CLASS A CLASS B CLASS C CLASS D
ACCOUNT ACCOUNT ACCOUNT
DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION MAINTENANCE DISTRIBUTION
FEE FEE FEE FEE FEE FEE FEE
None 0.25% 0.10% None 0.20% 0.15% 0.20% 0.15% None
SELECT PRICING
CLASS D
ACCOUNT
MAINTENANCE
FEE
0.10%
A-11
CLASS B CONVERSION PERIODS
Corporate Bond 10 years
Fund For Tomorrow 8 years
Global Utility 10 years
Municipal Bond 10 years
Municipal Intermediate 10 years
Strategic Dividend 8 years
Utility Income 10 years
A-12
INFORMATION PERTAINING TO THE FUND'S INVESTMENT ADVISORY ARRANGEMENTS
FEE INFORMATION
Investment Advisory Fee Paid
for Fund's Most Recent Fiscal
Year
MOST BASED ON
ANNUAL RECENT MOST RECENT AVERAGE NET FEE
INVESTMENT DATE FEE DIRECTOR SHAREHOLDER FEE ASSETS OF AMOUNT
FUND ADVISER EXECUTED RATE APPROVAL APPROVAL AMOUNT ($) APPROX. ($) ($)
Corporate Bond
High Income Portfolio FAM 9/08/80 0.55%1 3/16/94 9/30/88 8,790,993 2,073,446,213
Investment Grade
Portfolio FAM 9/08/80 0.50%2 3/16/94 9/30/88 2,983,402 777,457,308
Intermediate Term
Portfolio FAM 9/08/80 0.50%2 3/16/94 8/11/92 906,448 248,528,106
Fund For Tomorrow MLAM 12/31/83 0.65%3 3/16/94 9/30/88 2,782,877 425,801,738
Global Utility MLAM 12/28/90 0.60%4 3/16/94 3/13/92 2,346,433 391,072,130
Municipal Bond
Insured Portfolio FAM 01/01/81 0.40%5 3/16/94 9/30/88 11,040,540 2,930,481,068
Limited Maturity
Portfolio FAM 01/01/81 0.40%6 3/16/94 8/11/92 3,305,839 780,972,950
National Portfolio FAM 01/01/81 0.50%7 3/16/94 9/30/88 8,514,268 1,641,766,986
Municipal Intermediate MLAM 9/16/86 0.55%8 12/9/93 2/05/88 891,237 162,488,267
Strategic Dividend MLAM 8/10/87 0.60%9 9/1/93 10/24/88 1,546,576 258,470,846
Utility Income* MLAM 9/1/93 0.55%10 9/1/93 9/3/93 56,629 30,554,069
FEE INFORMATION
ADVISORY FEE PAYABLE BASED REIMBURSEMENTS
ON NET ASSETS AT DURING FISCAL
RECORD DATE YEAR
PURSUANT TO
FOR CALIFORNIA
FEE BASED ON NET ACCOUNTING EXPENSE
AMOUNT ASSETS OF SERVICES LIMITATIONS
FUND ($) APPROX. ($) ($) ($)
Corporate Bond
High Income Portfolio 133,112 0
Investment Grade
Portfolio 64,024 0
Intermediate Term
Portfolio 48,744 0
Fund For Tomorrow 88,054 0
Global Utility 81,576 0
Municipal Bond
Insured Portfolio 170,190 0
Limited Maturity
Portfolio 100,650 0
National Portfolio 143,453 0
Municipal Intermediate 15,803 0
Strategic Dividend 29,748 0
Utility Income* 11,130 0
* From October 29, 1993[February 28, 1994].
1 0.55% of the average
daily net assets not exceeding $250 million, 0.50% of the average
daily net assets exceeding $250 million but not exceeding $500
million, 0.45% of the average daily net assets exceeding $500 million
but not exceeding $750 million, and 0.40% of the average daily net
assets exceeding $750 million. (footnotes continued on next page)
A-13
(footnotes continued from previous page)
2 0.50% of the average daily net assets not exceeding $250 million,
0.45% of the average daily net assets exceeding $250 million but not
exceeding $500 million, 0.40% of the average daily net assets
exceeding $500 million but not exceeding $750 million, and 0.35% of
the average daily net assets exceeding $750 million.
3 0.65% of the average daily net assets not exceeding $750 million,
0.60% of the average daily net assets exceeding $750
million but not exceeding $1 billion, and 0.55% of the average daily
net assets exceeding $1 billion.
4 0.60% of the average daily net assets.
5 0.40% of the average daily net assets not exceeding $250 million,
0.375% of the average daily net assets exceeding $250 million but not
exceeding $400 million, 0.375% of the average daily net assets
exceeding $400 million but not exceeding $550 million, 0.375% of the
average daily net assets exceeding $550 million but not exceeding
$1.5 billion, and 0.35% of the average daily net assets exceeding
$1.5 billion.
6 0.40% of the average daily net assets not exceeding $250 million,
0.375% of the average daily net assets exceeding $250 million but not
exceeding $400 million, 0.35% of the average daily net assets
exceeding $400 million but not exceeding $550 million, 0.325% of the
average daily net assets exceeding $550 million but not exceeding
$1.5 billion, and 0.325% of the average daily net assets exceeding
$1.5 billion.
7 0.50% of the average daily net assets not exceeding $250 million,
0.475% of the average daily net assets exceeding $250 million but not
exceeding $400 million, 0.475% of the average daily net assets
exceeding $400 million but not exceeding $550 million, 0.475% of the
average daily net assets exceeding $550 million but not exceeding
$1.5 billion, and 0.475% of the average daily net assets exceeding
$1.5 billion.
8 0.55% of the average daily net assets.
9 0.60% of the average daily net assets.
10 0.55% of the average daily net assets.
A-14
Set forth in the table below is information regarding portfolio transactions and
brokerage commissions for each Fund's most recent fiscal year:
BROKERAGE COMMISSIONS
DOLLAR AMOUNT PAID % PAID TO
FUND DOLLAR AMOUNT TO MERRILL LYNCH MERRILL LYNCH
Corporate Fund
High Income Portfolio 45,972 10,896 23.70%
Investment Grade Portfolio 0 0 0
Intermediate Term Portfolio 0 0 0
Fund For Tomorrow 526,282 29,058 5.52%
Global Utility 435,246 11,578 2.7%
Municipal Bond
Insured Portfolio 0 0 0
Limited Maturity Portfolio 0 0 0
National Portfolio 0 0 0
Municipal Intermediate 0 0 0
Strategic Dividend 246,230 9,564 3.88%
Utility Income* 0 0 0
BROKERAGE COMMISSIONS
% OF AGGREGATE DOLLAR AMOUNT
OF TRANSACTIONS EFFECTED THROUGH
FUND MERRILL LYNCH
Corporate Fund
High Income Portfolio 39.89%
Investment Grade Portfolio 0
Intermediate Term Portfolio 0
Fund For Tomorrow 4.89%
Global Utility 2.0%
Municipal Bond
Insured Portfolio 0
Limited Maturity Portfolio 0
National Portfolio 0
Municipal Intermediate 0
Strategic Dividend 5.44%
Utility Income* 0
* From October 29, 1993[February 28, 1994].
A-15
EXHIBIT B
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1993 AND INDEPENDENT AUDITORS' REPORT
B-1
INDEPENDENT AUDITORS' REPORT
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.:
We have audited the accompanying consolidated balance sheet of Merrill Lynch
Investment Management, Inc. and its subsidiaries (the 'Company') as of December
31, 1993. This consolidated balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
balance sheet 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 balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all material
respects, the financial position of the Company at December 31, 1993 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Parsippany, New Jersey
February 28, 1994
B-2
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
1993
------------
ASSETS
Cash and cash equivalents..................................... $ 1,664,075
Receivable from affiliated companies:
Lease transactions.......................................... 708,616,571
Sale of leased investment................................... 48,312,532
Investments in affiliated limited partnership................. 62,218,528
Investments in leases:
Leveraged leases............................................ 57,431,668
Sales-type lease............................................ 3,362,521
Investments in affiliated investment companies--(market:
$26,066,372)................................................ 24,610,184
Fund management and administrative fees receivable............ 49,098,914
Fixed assets (net of $11,457,912 accumulated depreciation).... 10,406,280
Prepaid expenses and other assets............................. 15,376,412
------------
TOTAL ASSETS.................................................. $981,097,685
------------
------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Payable to affiliates......................................... $759,321,639
Accrued liabilities and other payables........................ 8,432,888
Deferred income--unearned fees................................ 7,007,406
Deferred income taxes:
Arising from leveraged leases............................... 52,938,886
Arising from sales-type lease............................... 1,351,622
Other....................................................... 43,685,367
------------
Total liabilities............................................. 872,737,808
------------
STOCKHOLDER'S EQUITY:
Common stock, par value $1.00 per share--authorized 25,000
shares;
outstanding 10,000 shares................................... 10,000
Additional paid-in capital.................................... 23,266,792
Accumulated translation adjustment............................ 642,388
Retained earnings............................................. 84,440,697
------------
Total stockholder's equity.................................... 108,359,877
------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................... $981,097,685
------------
------------
See notes to consolidated balance sheet.
B-3
MERRILL LYNCH INVESTMENT MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Merrill Lynch Investment Management, Inc. and its subsidiaries (the
'Company'), serve as investment adviser to certain registered investment
companies, and provide investment advisory services for individuals and
institutions. Merrill Lynch Investment Management, Inc., a wholly-owned
subsidiary of Merrill Lynch Group, Inc., is an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ('ML&Co.').
The Company's consolidated balance sheet reflects its 100 percent ownership
of Merrill Lynch Funds Distributor, Inc., a distributor of shares of various
affiliated managed registered investment companies, Fund Asset Management, Inc.,
an investment adviser to various registered investment companies and a lessor
participant in leveraged lease agreements, Merrill Lynch International Asset
Management, Ltd., a Channel Islands based investment adviser and Princeton
Administrators, Inc., an administrator to certain non-affiliated investment
companies, and its 60% ownership of Merrill Lynch International Capital
Management Co., a Japan based investment advisor.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated balance sheet, cash and cash equivalents
include marketable securities with initial maturity dates of less than three
months. The carrying amount approximates fair value because of the short
maturity of those instruments.
FIXED ASSETS
Fixed assets are recorded at cost and consist principally of furniture and
equipment. Depreciation is calculated using the straight-line method over a
period ranging from 3 to 10 years.
DEFERRED INCOME--UNEARNED FEES
Investment advisory services are billed at the beginning of the period for
which services are to be rendered. The fee is deferred and credited to income on
a pro rata basis over the period of the contract, which normally does not exceed
one year.
B-4
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993--( CONTINUED)
INCOME TAXES
The results of operations of the Company are included in the consolidated
Federal and combined state and local income tax returns filed by ML&Co. It is
the policy of ML&Co. to allocate the tax associated with such operating results
to each respective subsidiary in a manner which approximates the separate
company method. In 1992, ML&Co. adopted Statement of Financial Accounting
Standards No. 109, 'Accounting for Income Taxes' ('SFAS 109') which requires an
asset and liability method in recording income taxes on all transactions that
have been recognized in the financial statements. SFAS 109 provides that
deferred taxes be adjusted to reflect tax rates at which future tax liabilities
or assets are expected to be settled or realized.
TRANSACTIONS WITH AFFILIATES
The Company serves as an investment adviser for certain investment
companies. In addition, the Company, through its 100% owned subsidiary,
Princeton Administrators, Inc., serves as an administrator for certain non-
affiliated investment companies. Management fees earned as adviser and
administrator are based on a percentage of the net assets of each investment
company. Such fees are recognized in the period earned.
The Company maintains investments in certain of these investment companies.
Such investments are carried at the lower of cost or market value. Market value
is determined based upon quoted market prices.
The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ('MLPF&S'), an affiliate which provides that the Company, which
receives revenue as investment adviser to certain investment companies (the
'Funds'), reimburse MLPF&S for certain costs incurred in processing transactions
involving shares of the Funds.
In connection with the formation of certain affiliated investment companies
(the 'Investment Companies'), the Company has reimbursed MLPF&S for subscription
expenses incurred in offering the Investment Companies' shares for sale. The
unamortized balance included in prepaid expenses and other assets totalled
$5,276,842 as of December 31, 1993.
The Company has unsecured note agreements with ML&Co. for $700,000,000.
These amounts bear interest at a floating rate approximating ML&Co's. average
borrowing rate, of which $650,000,000 is payable on
B-5
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993--( CONTINUED)
TRANSACTIONS WITH AFFILIATES--(Continued)
demand and $50,000,000 is due August 26, 1994. In addition, the Company has
certain other amounts payable to affiliates.
During 1992, the Company's investments in Merrill Lynch Interfunding, Inc.
and Merlease Leasing Corp. were sold to an affiliate at book value. Receivable
from affiliated companies-lease transactions represents the proceeds from this
transaction.
The Company has a 98 percent limited partnership interest in ML Plainsboro
Limited Partnership ('MLP'), whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.
The 'Receivable from affiliated companies' arising from lease transactions
is summarized as follows:
Monies advanced to fund lease transactions......... $(103,476,954)
Tax benefits allocated to the Company by ML&Co..... 88,699,254
Proceeds from sale of subsidiaries................. 684,115,048
Other.............................................. 39,279,223
-------------
Total.............................................. $ 708,616,571
-------------
-------------
ML&Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML&Co. credits the Company for interest at a
floating rate approximating ML&Co.'s average borrowing rate based on the
Company's average daily balance due to/from ML&Co.
INVESTMENTS IN LEASES
The Company is a lessor participant in leveraged lease agreements.
Pertinent information relating to the Company's investments in leveraged leases
is summarized as follows:
ESTIMATED
LENGTH OF RESIDUAL VALUE
LEASE EQUITY OF LEASED
TYPE OF PROPERTY (YEARS) INVESTMENT PROPERTY
- -------------------------------------- --------- ---------- --------------
Generating plant...................... 24-25 34.06% 15.0%
Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is collateralized by a first
lien on the properties and related rentals. At the end of the respective lease
terms, ownership of the properties remains with the Company.
B-6
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993--( CONTINUED)
INVESTMENTS IN LEASES--(Continued)
The Company's net investment in leveraged leases is summarized as follows:
Rentals receivable (net of principal and interest on
nonrecourse debt)............................................ $66,075,030
Estimated residual values of leased assets..................... 18,964,143
Less:
Unearned and deferred income................................. (26,617,505)
Allowance for uncollectibles................................. (990,000)
-----------
Investment in leveraged leases................................. 57,431,668
Less deferred taxes arising from leveraged leases.............. (52,938,886)
-----------
Net investment in leveraged leases............................. $ 4,492,782
-----------
-----------
In 1993, one of the Company's subsidiaries sold its equity interest in a
chemical tanker previously accounted for as a leverage lease. The sale resulted
in an after-tax gain of $112,000.
The Company's investment in the sales-type lease consisted of the following
elements at December 31, 1993:
Minimum lease payments receivable............................... $3,672,000
Less:
Unearned income............................................... (59,479)
Allowance for uncollectibles.................................. (250,000)
----------
Investment in sales-type financing leases....................... $3,362,521
----------
----------
At December 31, 1993, minimum lease payments receivable are $3,672,000 for
1994.
For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding long-term debt. For
state and local tax purposes, the Company also receives the benefits of tax
deductions from (i) and (ii) above. Since, during the early years of the leases,
those deductions exceed the Company's lease rental income, substantial excess
deductions are available to be applied against the Company's other income and
the consolidated income of ML&Co. In the later years of these leases, rental
income will exceed the related deductions and taxes will be payable (to the
extent that net deductions arising from additional leveraged lease transactions
do not offset such lease income). Deferred taxes have been provided to reflect
these temporary differences.
INCOME TAXES
As part of the consolidated group, the Company transfers its current
Federal and state tax liabilities to the Parent. At December 31, 1993, the
B-7
MERRILL LYNCH INVESTMENT MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993--( CONCLUDED)
INCOME TAXES--(Continued)
Company had a current Federal tax receivable of $1,015,000 and current state tax
payable of $2,900,000 to the Parent.
PENSION PLAN
The Company participates in the ML&Co. Comprehensive Retirement Program
(the 'Program'), consisting of the Retirement Accumulation Plan ('RAP') and the
Employee Stock Ownership Plan (the 'ESOP'). Both plans became effective January
1, 1989. Under the Program, cash contributions made by the Company and the
ML&Co. stock held by the ESOP are allocated quarterly to participant's accounts.
Allocations are based on years of service, age and eligible compensation.
Actuarial data regarding the Company's Plan participants is not separately
available.
NAME CHANGE
Effective December 28, 1991, the Company, through an amendment of its
certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc., ('MLIM'). MLIM does business under the name 'Merrill Lynch
Asset Management'.
LITIGATION
The Company is a party to certain lawsuits arising from the normal conduct
of its business. While the ultimate result of the lawsuits against the Company
cannot be predicted with certainty, management does not expect that these
matters will have a material adverse effect on the Company's financial position
or the results of its operations.
SUBSEQUENT EVENT
Effective January 1, 1994, the Company contributed certain net investment
advisory assets to Merrill Lynch Asset Management, L.P., a newly formed Delaware
limited partnership, in exchange for a 99% limited partnership interest. The
general partner, Princeton Services, Inc. (a wholly-owned subsidiary of Merrill
Lynch & Co., Inc.) contributed 1% of the value of the net investment advisory
assets in exchange for its 1% general partnership interest. The partnership's
profits and losses are to be allocated in proportion to the capital
contributions of the partners.
B-8
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1993 AND INDEPENDENT AUDITORS' REPORT
B-9
INDEPENDENT AUDITORS' REPORT
FUND ASSET MANAGEMENT, INC.:
We have audited the accompanying consolidated balance sheet of Fund Asset
Management, Inc. and subsidiary (the 'Company') as of December 31, 1993. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on the balance sheet 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 balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all material
respects, the financial position of the Company at December 31, 1993 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Parsippany, New Jersey
February 28, 1994
B-10
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
1993
-------------
ASSETS
Cash......................................................... $ 996,680
Receivable from affiliated companies:
Lease transactions......................................... 24,501,523
Sale of leased investment.................................. 48,312,532
Fund management fees receivable.............................. 28,927,938
Investments in leases:
Leveraged leases........................................... 57,431,668
Sales-type lease........................................... 3,362,521
Investments in affiliated investment companies-- (market:
$19,731,088) 18,181,262
Investment in affiliated limited partnership................. 31,109,264
-------------
TOTAL ASSETS................................................. $ 212,823,388
-------------
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Payable to Merrill Lynch & Co., Inc. and affiliates.......... $ 21,554,955
Deferred income taxes:
Arising from leveraged leases.............................. 52,938,886
Arising from sales-type lease.............................. 1,351,622
Other...................................................... 15,838,124
Other........................................................ 8,501
-------------
Total liabilities............................................ 91,692,088
-------------
STOCKHOLDER'S EQUITY:
Common stock, par value $1.00 per share--authorized 25,000
shares;
outstanding 1,000 shares................................... 1,000
Additional paid-in capital................................... 686,215,876
Retained earnings............................................ 119,029,472
Proceeds receivable from Merrill Lynch & Co., Inc. from sale
of subsidiary.............................................. (684,115,048)
-------------
Total stockholder's equity................................... 121,131,300
-------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY................... $ 212,823,388
-------------
-------------
See notes to consolidated balance sheet.
B-11
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
ORGANIZATION
Fund Asset Management, Inc. and subsidiary (the 'Company'), a wholly-owned
subsidiary of Merrill Lynch Investment Management Inc. (the 'Parent'), or 'MLIM'
which is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ('ML &
Co.'), serves as an investment adviser to various registered open-end investment
companies. The Company is also a lessor participant in certain leveraged and
sales-type lease agreements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes--The results of the operations of the Company are included in
the consolidated Federal and combined state and local income tax returns filed
by ML & Co. It is the policy of ML & Co. to allocate the tax associated with
such operating results to each respective subsidiary in a manner which
approximates the separate company method. In 1992, ML & Co. adopted Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes' ('SFAS
109') which requires an asset and liability method in recording income taxes on
all transactions that have been recognized in the financial statements. SFAS 109
provides that deferred taxes be adjusted to reflect tax rates at which future
tax liabilities or assets are expected to be settled or realized.
TRANSACTIONS WITH AFFILIATES
The Company serves as an investment adviser for certain affiliated
investment companies. The Company maintains investments in certain of these
investment companies. Such investments are carried at the lower of cost or
market value. Market value is determined based upon quoted market prices.
The Company has an arrangement with Merrill Lynch, Pierce, Fenner & Smith
Incorporated ('MLPF&S') an affiliate which provides that the Company, which
receives revenue as investment adviser to certain investment companies (the
'Funds'), reimburse MLPF&S for certain costs incurred in processing transactions
involving shares of the Funds.
ML & Co. is the holder of the Company's excess cash, which is available on
demand to meet current liabilities. ML & Co. credits the Company for interest,
at a floating rate approximating ML & Co.'s average borrowing rate, based on the
Company's average daily balances due to/from ML & Co.
B-12
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993--( CONTINUED)
TRANSACTIONS WITH AFFILIATES--(CONTINUED)
The 'Receivable from affiliated companies' arising from lease transactions
is summarized as follows:
Monies advanced to fund lease
transactions........................... $(103,476,954)
Tax benefits allocated to the Company
by ML & Co............................. 88,699,254
Other.................................... 39,279,223
-------------
Total.................................... $ 24,501,523
-------------
-------------
The Company has a 49 percent limited partnership interest in ML Plainsboro
Limited Partnership ('MLP') whose general partner is an affiliate. Profits and
losses are allocated to the Company based on its percentage interest.
During 1992, the Company sold its investment in Merrill Lynch Interfunding,
Inc. and Merlease Leasing Corp. to an affiliate at book value, resulting in a
receivable from ML & Co. This receivable is reflected as a reduction to
stockholder's equity.
INVESTMENTS IN LEASES
The Company is a lessor participant in leveraged leases.
Pertinent information relating to the Company's investments in leveraged
leases is summarized as follows:
ESTIMATED
LENGTH OF RESIDUAL VALUE
LEASE EQUITY OF LEASED
TYPE OF PROPERTY (YEARS) INVESTMENT PROPERTY
- ------------------ --------- ---------- --------------
Generating plant.. 24-25 34.06% 15.0%
Financing beyond the Company's equity interest in the purchase price of the
properties was furnished by outside parties in the form of long-term debt that
provides for no recourse against the Company and is secured by a first lien on
the properties and related rentals. At the end of the respective lease terms,
ownership of the properties remains with the Company.
B-13
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993--( CONTINUED)
INVESTMENTS IN LEASES--(CONTINUED)
The Company's net investment in leveraged leases is summarized as follows:
Rentals receivable (net of principal and
interest on nonrecourse debt)............ $66,075,030
Estimated residual values of leased
assets................................... 18,964,143
Less:
Unearned and deferred income.......... (26,617,505)
Allowance for uncollectibles.......... (990,000)
-----------
Investment in leveraged leases............. $57,431,668
Less deferred taxes arising from leveraged
leases................................... (52,938,886)
-----------
Net investment in leveraged leases......... $ 4,492,782
-----------
-----------
During 1993, the Company sold its equity interest in the chemical tanker
previously accounted for as a leveraged lease. The sale resulted in an after-tax
gain of $112,000.
The Company's investment in the sales-type leases consisted of the
following elements at December 31, 1993:
Minimum lease payments receivable.......... $3,672,000
Less:
Unearned income....................... (59,479)
Allowance for uncollectibles.......... (250,000)
----------
Investment in sales type financing leases.. $3,362,521
----------
----------
At December 31, 1993 minimum lease payments receivable are $3,672,000 for
1994.
For Federal income tax purposes, the Company receives the investment tax
credit and has the benefit of tax deductions for (i) depreciation on the entire
amount of leased assets and (ii) interest on the outstanding long-term debt. For
state and local tax purposes, the Company also receives the benefits of tax
deductions from (i) and (ii) above. Since, during the early years of the leases,
those deductions exceed the Company's lease rental income, substantial excess
deductions are available to be applied against the Company's other income and
the consolidated income of ML & Co. In the
B-14
FUND ASSET MANAGEMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993--( CONCLUDED)
INVESTMENTS IN LEASES--(CONTINUED)
later years of these leases, rental income will exceed the related deductions
and taxes will be payable (to the extent that net deductions arising from
additional leveraged lease transactions do not offset such net lease income).
Deferred taxes have been provided to reflect these temporary differences.
INCOME TAXES
As part of the consolidated group, the Company transfers its current
Federal and state tax liabilities to MLIM. No such amounts were due to MLIM at
December 31, 1993.
PENSION PLAN
The Company participates in the ML & Co. Comprehensive Retirement Program
(the 'Program') consisting of the Retirement Accumulation Plan ('RAP') and the
Employee Stock Ownership Plan (the 'ESOP'). Under the Program, cash
contributions made by the Company and the ML & Co. stock held by the ESOP will
be allocated quarterly to participants' accounts. Allocations will be based on
years of service, age and eligible compensation. Actuarial data regarding the
Company's Plan participants is not separately available.
NAME CHANGE
Effective December 28, 1991, the Company's Parent, through an amendment of
its certificate of incorporation, changed its name to Merrill Lynch Investment
Management, Inc. ('MLIM'). MLIM does business under the name 'Merrill Lynch
Asset Management'.
SUBSEQUENT EVENT
Effective January 1, 1994, Fund Asset Management, Inc. contributed certain
net investment advisory assets to Fund Asset Management, L.P., a newly formed
Delaware limited partnership, in exchange for a 99% limited partnership
interest. The general partner, Princeton Services, Inc. (a wholly-owned
subsidiary of Merrill Lynch & Co., Inc.) contributed 1% of the value of the net
investment advisory assets in exchange for its 1% general partnership interest.
The partnership's profits and losses are to be allocated in proportion to the
capital contributions of the partners.
B-15
EXHIBIT C
EXISTING INVESTMENT RESTRICTIONS
RELATING TO EACH FUND
MERRILL LYNCH CORPORATE BOND FUND, INC.
Fundamental Investment Restrictions
The Fund may not:
1. Invest more than 5% of the total assets of any Portfolio (taken at
market value at the time of each investment) in the securities (other than
United States Government or Government agency securities) of any one issuer
(including repurchase agreements with any one bank) or purchase more than either
10% (i) in principal amount of the outstanding securities of an issuer, or (ii)
of the outstanding voting securities of an issuer, except that such restrictions
shall not apply to United States Government or Government agency securities,
bank money instruments or bank repurchase agreements.
2. Invest more than 25% of the total assets of any Portfolio (taken at
market value at the time of each investment) in the securities of issuers
primarily engaged in the same industry. Utilities will be divided according to
their services; for example, gas, gas transmission, electric and telephone each
will be considered a separate industry for purposes of this restriction.
3. Make investments for the purpose of exercising control over, or
management of, any issuer.
4. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisitions or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved, and only if immediately thereafter not more than 10% of
the total assets of any Portfolio, taken at market value, would be invested in
such securities.
5. Purchase or sell interests in oil, gas or other mineral exploration or
development programs, real estate, commodities, or commodity contracts (provided
that such restriction shall not apply to options on debt securities or interest
rate futures contracts and options thereon), except that any Portfolio may
purchase securities of issuers which invest or deal in any of the above.
6. Purchase any securities on margin, except that any Portfolio may (a)
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities, (b) make margin payments in connection with
transactions in interest rate futures contracts, options thereon
C-1
and options on debt securities or (c) maintain a short position in interest rate
futures contracts and options thereon and may write, purchase or sell puts,
calls, straddles, spreads or combinations thereof with respect to such contracts
or options and with respect to options on debt securities.
7. Make loans, except as provided in (8) below and except through the
purchase of obligations in private placements (the purchase of publicly-traded
obligations not being considered the making of a loan).
8. Lend portfolio securities of any Portfolio in excess of 20% of the total
assets of such Portfolio, taken at market value at the time of the loan, and
provided that such loans shall be made in accordance with the guidelines set
forth below.
9. Issue senior securities, or borrow amounts in any Portfolio in excess of
5% of the total assets of such Portfolio, taken at market value at the time of
the borrowing, and then only from banks as a temporary measure for extraordinary
or emergency purposes.
10. Mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by any Portfolio except as may be
necessary in connection with borrowings mentioned in (9) above, in which case
such mortgaging, pledging or hypothecating may not exceed 10% of such
Portfolio's total assets, taken at market value, or as may be necessary in
connection with transactions in options on debt securities, interest rate
futures contracts and options thereon, as set forth in (6) above. In order to
comply with certain state statutes, each Portfolio will not, as a matter of
operating policy, mortgage, pledge or hypothecate its portfolio securities to
the extent that at any time the percentage of the value of pledged securities
plus the maximum sales charge will exceed 10% of the value of the Portfolio's
shares at the maximum offering price.
11. Invest in securities which cannot be readily resold to the public
because of legal or contractual restrictions or for which no readily available
market exists if, regarding all such securities held by a Portfolio, more than
10% of the total assets of such Portfolio, taken at market value, would be
invested in such securities. If, through the appreciation of restricted
securities or the depreciation of unrestricted securities held by a Portfolio,
more than 10% of the assets of such Portfolio should be invested in restricted
securities, such Portfolio will consider appropriate steps to assure maximum
flexibility.
12. Underwrite securities of other issuers except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
C-2
13. Write, purchase or sell puts, calls or combinations thereof (provided
that such restriction shall not apply to options on debt securities or on
interest rate futures contracts).
14. Invest in securities of foreign issuers if at the time of acquisition
more than 10% of the total assets of any Portfolio, taken at market value at the
time of the investment, would be invested in such securities. However, up to 25%
of the total assets of any Portfolio may be invested in securities (i) issued,
assumed or guaranteed by foreign governments, or political subdivisions or
instrumentalities thereof, (ii) assumed or guaranteed by domestic issuer,
including Eurodollar securities, or (iii) issued, assumed or guaranteed by
foreign issuers having a class of securities listed for trading on the New York
Stock Exchange.
15. Invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if more than 5%
of the total assets of any Portfolio, taken at market value at the time of
investment, would be invested in such securities.
16. Participate on a joint (or a joint and several) basis in any trading
account in securities (but this does not include the 'bunching' of orders for
the sale or purchase of portfolio securities with other funds or individually
managed accounts advised or sponsored by the Investment adviser or any of its
affiliates to reduce brokerage commissions or otherwise to achieve best overall
execution).
17. Purchase or retain the securities of any issuer, if those individual
officers and directors of the Fund, Merrill Lynch Investment Management, Inc. or
any subsidiary thereof each owning beneficially more than 1/2 of 1% of the
securities of such issuer owns in the aggregate more than 5% of the securities
of such issuer.
MERRILL LYNCH FUND FOR TOMORROW, INC.
Fundamental Investment Restrictions
The Fund may not:
1. Invest more than 5% of its assets in the securities of any one issuer
(except for government securities); or purchase more than 10% of the outstanding
voting securities of any one company or more than 10% of any class of a
company's securities.
2. Pledge any of its assets, except that the Fund may pledge securities
having a value of not more than 10% of its total assets in order to secure
permitted borrowings from banks. Such borrowings may not exceed 5% of the value
of the Fund's assets.
C-3
3. Purchase a restricted security or a security for which there is no
readily available market if as a result of such purchase more than 5% of the
Fund's assets would be invested in such securities.
4. Invest more than 25% of the value of its total assets in the securities
of issuers in any single industry.
5. Invest in companies for the purpose of exercising control or management.
6. Purchase or sell real estate, except that the Fund may invest in
securities secured by real estate or interests therein or issued by companies,
including real estate investment trusts, which invest in real estate or
interests therein.
7. Purchase or sell commodities or commodity contracts.
8. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities.
9. Make short sales of securities or maintain a short position in any
security.
10. Lend money to other persons, except through the purchase of debt
obligations and repurchase agreements consistent with the Fund's investment
policies.
11. Lend securities in an amount exceeding 33 1/3% of the value of the
Fund's total assets, taken at market value at the time any such loan is made.
12. Enter into a repurchase agreement maturing in more than seven days if,
as a result, such repurchase agreement, together with restricted securities and
securities for which there are no readily available markets, would constitute
more than 10% of the Fund's total assets.
13. Underwrite securities of other issuers except insofar as the Fund may
technically be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities.
14. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
15. Issue senior securities as defined in the Act, except that this
restriction shall not be deemed to prohibit the Fund from borrowing money,
lending its portfolio securities or entering into repurchase agreements.
Non-fundamental Investment Restrictions
The Fund may not:
a. Purchase or sell interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in the securities of
companies which invest in such interests or sponsor such programs.
C-4
b. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except that the Fund may write 'covered call options' as described in
the Prospectus.
c. Invest in warrants if at the time of acquisition more than 2% of the
value of the Fund's assets, taken at market value, would be invested in
warrants. (For purposes of this restriction, warrants acquired by the Fund in
units or attached to securities are deemed to have no value.)
d. Invest in the securities of any issuer if, to the knowledge of the Fund,
any officer or Director of the Fund or its Investment Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer and such officer and
directors who own more than 1/2 of 1% own in the aggregate more than 5% of the
outstanding securities of such issuer. (The Fund has a policy of not purchasing
securities of companies in which Directors or management personnel of the Fund,
ML & Co. or any subsidiary thereof have a substantial beneficial interest.)
e. Enter into a repurchase agreement if, as a result, more than 5% of its
assets are invested in repurchase agreements.
f. Invest in the securities of a foreign issuer if at the time of the
acquisition more than 25% of the value of the Fund's total assets would be
invested in such securities.
g. Invest more than 5% of its assets in companies having a record, together
with predecessors, of less than three years of continuous operation.
MERRILL LYNCH GLOBAL UTILITY FUND, INC.
Fundamental Investment Restrictions
The Fund may not:
1. Invest in the securities of any one issuer if, immediately after and as
a result of such investment, the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the Fund's total assets, taken at market
value, or the Fund owns more than 10% of the outstanding voting securities of
such issuer, except that such restriction shall not apply to securities issued
or guaranteed by the Government of the United States or any of its agencies or
instrumentalities.
2. Invest less than 65% of its total assets in equity and debt securities
issued by domestic and foreign companies in the utilities industries, except
during temporary defensive periods.
C-5
3. Make investments for the purpose of exercising control or management.
4. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than (i) 3%
of the total outstanding voting stock of such company is owned by the Fund, (ii)
5% of the Fund's total assets, taken at market value, would be invested in any
one such company, or (iii) 10% of the Fund's total assets, taken at market
value, would be invested in such securities.
5. Purchase or sell real estate (including real estate limited
partnership), except that the Fund may invest in securities secured by real
estate or interests therein or issued by companies, including real estate
investment trusts, which invest in real estate or interests therein.
6. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities. The payment by the Fund of initial or variation margin
in connection with futures or related options transactions, if applicable, shall
not be considered the purchase of a security on margin.
7. Make short sales of securities or maintain a short position.
8. 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, bankers'
acceptances and repurchase agreements and purchase and sale contracts shall not
be deemed to be the making of a loan, and except further that the Fund may lend
its portfolio securities as set forth in (9) below.
9. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans may only be made in accordance
with the guidelines set forth below.
10. Issue senior securities, borrow money or pledge its assets except that
the Fund 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
the market value) of its total assets and pledge its assets to secure such
borrowings. (For the purpose of this restriction, collateral arrangements with
respect to the writing of options, and, if applicable, futures contracts,
options on futures contracts, and collateral arrangements with respect to
initial and variation margin are not deemed to be a pledge of assets and neither
such arrangements nor the purchase or sale
C-6
of futures or related options are deemed to be the issuance of a senior
security.) The Fund will not purchase securities while borrowings exceed 5%
(taken at market value) of its total assets.
11. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable,
including repurchase agreements and purchase and sale contracts maturing in more
than seven days, if at the time of acquisition more than 10% of its net assets
would be invested in such securities. Asset-backed securities which the Fund has
the option to put to the issuer or a stand-by bank or broker and receive the
principal amount or redemption price thereof less transaction costs on no more
than seven days' notice or when the Fund has the right to convert such
securities into a readily marketable security in which it could otherwise invest
upon not less than seven days' notice are not subject to this restriction.
12. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933, as
amended, in selling portfolio securities.
13. Purchase or sell interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or development
activities.
Non-fundamental Investment Restrictions
The Fund 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 the
Fund's net assets; included within such limitation, but not to exceed 2% of the
Fund's net assets, are warrants which are not listed on the New York or American
Stock Exchange. For purposes of this restriction, warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.
b. Purchase or sell commodities or commodity contracts, except that the
Fund may deal in forward foreign exchange between currencies of the different
countries in which it may invest and purchase and sell stock index and currency
options, stock index futures, financial futures and currency futures contracts
and related options on such futures.
c. Invest in securities of corporate issuers having a record, together with
predecessors, of less than three years of continuous operations, if more than 5%
of its total assets, taken at market value, would be invested in such
securities.
C-7
d. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except to the extent described in the Fund's Prospectus and Statement
of Additional Information.
e. Purchase or retain the securities of any issuer, if those individual
officers and directors of the Fund, the Manager or any subsidiary thereof each
owning beneficially more than 1/2 of 1% of the securities of such issuer, own in
the aggregate more than 5% of the securities of such issuer.
f. Invest in oil, gas or other mineral leases.
MERRILL LYNCH MUNICIPAL BOND FUND, INC.
Fundamental Investment Restrictions
The Fund may not:
1. Purchase any securities other than Municipal Bonds and Temporary
Investments as referred to in the Fund's Prospectus and Statement of Additional
Information.
2. Invest more than 5% of the total assets of any Portfolio (taken at
market value at the time of each investment) in the securities of any one issuer
(including repurchase agreements with any one bank or dealer) except that such
restrictions shall not apply to United States Government or Government agency
securities (for the purposes of this restriction, the Fund will regard each
state and each political subdivision, agency or instrumentality of such state
and each multi-state agency of which such state is a member and each public
authority which issues industrial development bonds on behalf of a private
entity as a separate issuer).
3. Purchase, in connection with Temporary Investments, securities (other
than securities of the United States Government, its agencies and
instrumentalities) if, as a result of such purchase, more than 20% of the total
assets of any Portfolio (taken at market value) would be invested in any one
industry.
4. Enter into a repurchase agreement if, as a result thereof, more than 10%
of the total assets of any Portfolio (taken at market value at the time of each
investment) would be subject to repurchase agreements maturing in more than
seven days.
5. Make investments for the purpose of exercising control or management.
6. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization.
C-8
7. Purchase or sell real estate (provided that such restriction shall not
apply to Permissible Investments consisting of Municipal Bonds and Temporary
Investments secured by real estate or issued by companies which invest in real
estate or interests therein), commodities or commodity contracts (provided that
such restriction shall not apply to financial futures contracts), interests in
oil, gas or other mineral exploration or development programs.
8. Purchase any securities on margin, except (a) to use short-term credit
necessary for clearance or purchases and sales of portfolio securities and (b)
to make margin payments in connection with transactions in financial futures
contracts.
9. Make short sales of securities or maintain a short position in
securities or write, purchase or sell puts, calls, straddles, spreads or
combinations thereof (this restriction does not apply to transactions in options
on financial futures contracts).
10. Make loans to other persons, provided that the Fund may make
Permissible Investments (the acquisition of Municipal Bonds or bonds, debentures
or other corporate debt securities which are not publicly distributed is
considered to be the making of a loan under the Investment Company Act of 1940).
11. Borrow amounts in any Portfolio in excess of 10% of the total assets of
such Portfolio, taken at market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes (usually only 'leveraged'
investment companies may borrow in excess of 5% of their assets; however, the
Portfolios will not borrow to increase income but only to meet redemption
requests which might otherwise require untimely dispositions of portfolio
securities).
12. Mortgage, pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by any Portfolio except as may be
necessary in connection with borrowings mentioned in (11) above, in which case
such mortgaging, pledging or hypothecating may not exceed 10% of such
Portfolio's total assets, taken at market value, or as may be necessary in
connection with transactions in financial futures contracts as set forth in (8)
above.
13. Invest in securities with legal or contractual restrictions on resale
(except for repurchase agreements) or for which no readily available market
exists if, regarding all such securities, more than 5% of the total assets of
any Portfolio (taken at market value) would be invested in such securities.
C-9
14. Act as an underwriter of securities, except to the extent that the Fund
may technically be deemed an underwriter when engaged in the activities
described in (10) above or insofar as the Fund may be deemed an underwriter
under the Securities Act of 1933 in selling portfolio securities.
15. Invest in securities of any one issuer with a record of less than three
years of continuous operations, including predecessors, except obligations
issued or guaranteed by the United States Government or its agencies or
Municipal Bonds (except that, in case of industrial revenue bonds, this
restriction shall apply to the entity supplying the revenues from which the
issue is to be paid), if such investments by any Portfolio would exceed 5% of
the total value of its total assets (taken at market value).
MERRILL LYNCH MUNICIPAL SERIES TRUST
Fundamental Investment Restrictions
The Fund may not:
1. Purchase any securities other than Municipal Bonds or Temporary
Investments as referred to in the Fund's Prospectus and Statement of Additional
Information.
2. Invest more than 5% of its total assets (taken at market value at the
time of each investment) in the securities of any one issuer, except that such
restriction shall not apply to securities backed by the United States Government
or its agencies or instrumentalities (for purposes of this restriction, the Fund
will regard each state and each political subdivision, agency or instrumentality
of such state and each multi-state agency of which such state is a member and
each public authority which issues securities on behalf of a private entity as a
separate issuer; and if the security is backed only by the assets and revenues
of a non-government entity, then the entity with the ultimate obligation for the
payment of interest and principal may be regarded as the sole issuer).
3. Invest more than 5% of its total assets (taken at market value at the
time of each investment) in industrial revenue bonds where the entity supplying
the revenues from which the issue is to be paid, including predecessors, has a
record of less than three years of continuous operation.
4. Enter into a repurchase agreement if, as a result thereof, more than 10%
of the net assets of the Fund (taken at market value at the time of each
investment) would be subject to repurchase agreements maturing in more than
seven days.
5. Make investments for the purpose of exercising control or management.
C-10
6. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization.
7. Purchase or sell real estate (provided that such restriction shall not
apply to securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein), commodities or
commodity contracts (except that the Fund may purchase and sell financial
futures contracts), interests in oil, gas or other mineral exploration or
development programs.
8. Purchase any securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities (the
deposit or payment by the Fund of initial or variation margin in connection with
financial futures contracts is not considered the purchase of a security on
margin).
9. Make short sales of securities or maintain a short position or invest in
put, call, straddle or spread options or combinations thereof, except that the
Fund reserves the authority to purchase and sell options on Municipal Bonds and
on financial futures contracts.
10. Make loans to other persons, provided that the Fund may purchase a
portion of an issue of tax-exempt securities and provided further that for
purpose of this restriction the acquisition of a portion of publicly distributed
bonds, debentures or other corporate debt securities and investment in
Government obligations, short-term commercial paper, certificates of deposit,
bankers' acceptances and repurchase agreements shall not be deemed to be the
making of a loan.
11. Borrow amounts in excess of 20% of its total assets taken at value
(including the amount borrowed), and then only from banks as a temporary measure
for extraordinary or emergency purposes. (Usually only 'leveraged' investment
companies may borrow in excess of 5% of their assets; however, the Fund will not
borrow to increase income but only to meet redemption requests which otherwise
might require untimely dispositions of Fund securities. The Fund will not
purchase securities while borrowings are outstanding. Interest paid on such
borrowings will reduce net income.)
12. Mortgage, pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by the Fund except as may be necessary
in connection with borrowings mentioned in (11) above, and then such mortgaging,
pledging or hypothecating may not exceed 10% of its total assets, taken at
market value, or except as may be necessary in connection with transactions in
financial futures contracts.
C-11
13. Invest in securities with legal or contractual restrictions on resale
or for which no readily available market exists if, regarding all such
securities, more than 10% of its net assets (taken at market value), would be
invested in such securities.
14. Act as an underwriter of securities, except to the extent that the Fund
technically may be deemed an underwriter when engaged in the activities
described in (10) above or insofar as the Fund may be deemed an underwriter
under the Securities Act of 1933 in selling portfolio securities.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
Fundamental Investment Restrictions
The Fund may not:
1. Invest more than 5% of its total assets (taken at market value at the
time of each investment) in securities of any one issuer, except that such
restrictions shall not apply to securities backed by the United States
Government or its agencies or instrumentalities.
2. Invest in the securities of any single issuer if, immediately after and
as a result of such investment, the Fund owns more than 10% of the outstanding
voting securities of such issuer.
3. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry.
4. Make investments for the purpose of exercising control or management.
5. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commissions, is involved and only if immediately thereafter not more than 10% of
the Fund's total assets, taken at market value, would be invested in such
securities.
6. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
7. Purchase or sell securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities. (The deposit or payment by the Fund of initial or
variation margin in connection with futures or related
C-12
options transactions, if applicable, is not considered the purchase of a
security on margin.)
8. Make short sales of securities or maintain short position.
9. Make loans to other persons (except as provided in (10) below);
provided, that for purposes of this restriction an investment in repurchase
agreements and purchase and sale contracts shall not be deemed to be the making
of a loan.
10. Lend its portfolio securities in excess of 33% of its total assets,
taken at market value; provided that such loans shall be made in accordance with
the guidelines set forth in the Fund's Prospectus and Statement of Additional
Information.
11. Issue senior securities, borrow money or pledge its assets in excess of
20% of its total assets taken at market value (including the amount borrowed)
and then only from a bank as a temporary measure for extraordinary or emergency
purposes. Usually only 'leveraged' investment companies may borrow in excess of
5% of their assets; however, the Fund will not borrow to increase income but
only to meet redemption requests which may otherwise require untimely
dispositions of Fund securities. The Fund will not purchase securities while
borrowings are outstanding except to honor prior commitments and to exercise
subscription rights. Interest paid on such borrowings will reduce net income.
(See restriction (12) below regarding the exclusion from this restriction of
arrangements with respect to options, futures contracts and options on futures
contracts.)
12. Mortgage, pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by the Fund except as may be necessary
in connection with borrowings mentioned in (11) above, and then such mortgaging,
pledging or hypothecating may not exceed 10% of its total assets, taken at
market value. (For the purpose of this restriction and restriction (11) above,
collateral arrangements with respect to the writing of options, futures
contracts, options on futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a pledge of assets,
and neither such arrangements nor the purchase and sale of options, futures or
related options are deemed to be the issuance of a senior security.)
13. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which are not otherwise readily marketable,
including repurchase agreements and purchase and sale contracts maturing in more
than seven days, if, regarding all such securities, more than 10% of its net
assets, taken at market value, would be invested in such securities.
C-13
14. Act as an underwriter of securities, except to the extent that the Fund
may technically be deemed an underwriter when investing in repurchase agreements
and purchase and sale contracts or insofar as the Fund may be deemed an
underwriter under the Securities Act of 1933 in selling portfolio securities.
15. Purchase or sell interests in oil, gas or other mineral exploration or
development programs except that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or development
activities.
Non-fundamental Investment Restrictions
The Fund 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 the
Fund's net assets; included within such limitations, but not to exceed 2% of the
Fund's net assets, are warrants which are not listed on the New York or American
Stock Exchange. For purposes of this restriction, warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.
b. Purchase or sell commodities or commodity contracts, except that the
Fund may deal in forward foreign exchange between currencies of the different
countries in which it may invest and purchase and sell stock index and currency
options, stock index futures, financial futures and currency futures contracts
and related options on such futures.
c. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more than 5%
of its total assets would be invested in such securities.
d. Write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except to the extent described in the Fund's Prospectus and Statement
of Additional Information.
e. Purchase or retain the securities of any issuer, if those individual
Trustees, officers and directors of the Fund, the Manager or any subsidiary
thereof, each owning beneficially more than of 1% of the securities of such
issuer, own in the aggregate more than 5% of the securities of such issuer.
f. Purchase or sell OTC options and the securities underlying such options
if, as a result of such transactions, such options, together with all other
illiquid securities or securities which are not readily marketable, exceed 10%
of the net assets of the Fund, taken at market value except that with respect to
OTC options sold by the Fund to primary U.S. Government securities dealers who
agree that the Fund may repurchase such options at a
C-14
predetermined price (which may be based upon a formula), the Fund will treat as
illiquid an amount equal to the repurchase price less the amount by which the
option is in-the-money.
g. Invest in (a) real estate limited partnerships and (b) oil, gas or other
mineral leases.
MERRILL LYNCH UTILITY INCOME FUND, INC.
Fundamental Investment Restrictions
The Fund may not:
1. With respect to 75% of its assets, invest in the securities of any one
issuer if, immediately after and as a result of such investment, the value of
the holdings of the Fund in the securities of such issuer exceeds 5% of the
Fund's total assets, taken at market value, or the Fund owns more than 10% of
the outstanding voting securities of such issuer, except that such restriction
shall not apply to U.S. Government Securities.
2. Make investments for the purpose of exercising control or management.
3. Purchase securities of other investment companies except to the extent
that such purchases are permitted by applicable law.
4. Purchase or sell real estate or real estate mortgage loans, except that
the Fund may invest in securities directly or indirectly secured by real estate
or interests therein or issued by companies which invest in real estate or
interests therein.
5. Make short sales of securities or maintain a short position except to
the extent permitted by applicable law.
6. 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, bankers'
acceptances, repurchase agreements and similar instruments shall not be deemed
to be the making of a loan, and except further that the Fund may lend its
portfolio securities as set forth in restriction (7) below.
7. Lend its portfolio securities, provided that such loans may be made only
in accordance with applicable law and the guidelines set forth in the Fund's
Prospectus and Statement of Additional Information.
8. Issue senior securities to the extent such issuance would violate
applicable law.
C-15
9. Borrow money or pledge its assets, except that the Fund (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 its
total assets and pledge its assets to secure such borrowings, (b) may obtain
such short-term credit as may be necessary for the clearance of purchase and
sales of portfolio securities and (c) may purchase securities on margin to the
extent permitted by applicable law. The Fund will not purchase securities while
borrowings exceed 5% (taken at market value) of its total assets.
10. 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 to a third party, or which do not mature within seven days, or
which the Board of Directors of the Fund have not determined to be liquid
pursuant to applicable law, if at the time of acquisition more than 15% of its
net assets would be invested in such securities.
11. Underwrite securities of other issuers, except insofar as the Fund
technically may be deemed an underwriter under the Securities Act in selling
portfolio securities.
12. Purchase or sell interests in oil, gas or other mineral exploration or
development programs, except that the Fund may invest in securities issued by
companies that engage in oil, gas or other mineral exploration or development
activities.
13. Purchase or sell commodities or contracts on commodities, except to the
extent the Fund may do so in accordance with applicable law and the Fund's
Prospectus and Statement of Additional Information, and without registering as a
commodity pool operator under the Commodity Exchange Act.
Non-fundamental Investment Restrictions
The Fund 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 the
Fund's net assets; included within such limitation, but not to exceed 2% of the
Fund's net assets, are warrants which are not listed on the New York Stock
Exchange or American Stock Exchange or a major foreign exchange. For purpose of
this restriction, warrants acquired by the Fund 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 its total assets would be invested in such securities. This restriction
C-16
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, of those individual
officers and directors of the Fund, the Manager 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 Fund's Prospectus and Statement
of Additional Information.
C-17
PROXY
Meeting of the Shareholders of
Merrill Lynch Corporate Bond Fund, Inc.
Merrill Lynch Fund for Tomorrow, Inc.
Merrill Lynch Global Utility Fund, Inc.
Merrill Lynch Municipal Bond Fund, Inc.
Merrill Lynch Municipal Intermediate Term Fund
Merrill Lynch Strategic Dividend Fund
Merrill Lynch Utility Income Fund, Inc.
P.O. Box 9011, Princeton, NJ 08543-9011
Please mark your choices below in blue or black ink.
This Proxy has been personalized to reflect those shares of the indicated Funds
that are held within a single account. If a shareholder holds shares in multiple
accounts, it will be necessary to execute a proxy for each such account. With
respect to proposal 4, a separate vote is required for Class A and Class B
shares owned.
This Proxy is solicited on behalf of the Directors/Trustees
The undersigned hereby appoints _____________________ as proxies, each with the
power to appoint his subsititute, and hereby authorizes each to represent and to
vote, as designated below, all shares in one or more of the above-mentioned
Funds held of record by the undersigned on August __, 1994, at the Meeting of
Shareholders of such Fund to be held on September __, 1994, or any adjournments
thereof. Such proxies are also authorized to vote on such other matters as may
properly come before such meeting or any adjournment thereof.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made for any specific item, this
Proxy will be voted FOR all nominees for Director/Trustee and for each of the
proposals related to each Fund.
Shares Held in Account 1. Election of Directors/Trustees. Nominees: Ronald W. Forbes, Cynthia A. Montgomery, Charles C. Reilly,
Kevin A. Ryan, Richard R. West and Arthur Zeikel
* To withhold authority for a Nominee for a particular Fund, check
the "FOR ALL EXCEPT" box and print name of Nominees on the
appropriate line below.
Class A Class B FOR WITHHOLD FOR ALL
ALL ALL EXCEPT*
000000000 000000000 Merrill Lynch Corporate Bond- _____ Portfolio [_] [_] [_] _______________________________
000000000 000000000 Merrill Lynch Fund for Tomorrow [_] [_] [_] _______________________________
000000000 000000000 Merrill Lynch Global Utility [_] [_] [_] _______________________________
000000000 000000000 Merrill Lynch Municipal Bond- _____ Portfolio [_] [_] [_] _______________________________
000000000 000000000 Merrill Lynch Municipal Intermediate Term [_] [_] [_] _______________________________
000000000 000000000 Merrill Lynch Strategic Dividend [_] [_] [_] _______________________________
000000000 000000000 Merrill Lynch Utility Income [_] [_] [_] _______________________________
2. Ratify the selection of independent auditors
FOR AGAINST ABSTAIN
Merrill Lynch Corporate Bond- _____ Portfolio [_] [_] [_]
Merrill Lynch Fund for Tomorrow [_] [_] [_]
Merrill Lynch Global Utility [_] [_] [_]
Merrill Lynch Municipal Bond- _____ Portfolio [_] [_] [_]
Merrill Lynch Municipal Intermediate Term [_] [_] [_]
Merrill Lynch Strategic Dividend [_] [_] [_]
Merrill Lynch Utility Income [_] [_] [_]
3. Amend the fundamental investment restrictions.
FOR AGAINST ABSTAIN
Merrill Lynch Corporate Bond- _____ Portfolio [_] [_] [_]
Merrill Lynch Fund for Tomorrow [_] [_] [_]
Merrill Lynch Global Utility [_] [_] [_]
Merrill Lynch Municipal Bond- _____ Portfolio [_] [_] [_]
Merrill Lynch Municipal Intermediate Term [_] [_] [_]
Merrill Lynch Strategic Dividend [_] [_] [_]
Merrill Lynch Utility Income [_] [_] [_]
4. Amend the character of the Fund in connection with the implementation of
Merrill Lynch Select Pricing/(Service Mark)/.
--Class A Shares--
FOR AGAINST ABSTAIN
Merrill Lynch Corporate Bond- _____ Portfolio [_] [_] [_]
Merrill Lynch Fund for Tomorrow [_] [_] [_]
Merrill Lynch Global Utility [_] [_] [_]
Merrill Lynch Municipal Bond- _____ Portfolio [_] [_] [_]
Merrill Lynch Municipal Intermediate Term [_] [_] [_]
Merrill Lynch Strategic Dividend [_] [_] [_]
Merrill Lynch Utility Income [_] [_] [_]
--Class B Shares--
FOR AGAINST ABSTAIN
Merrill Lynch Corporate Bond- _____ Portfolio [_] [_] [_]
Merrill Lynch Fund for Tomorrow [_] [_] [_]
Merrill Lynch Global Utility [_] [_] [_]
Merrill Lynch Municipal Bond- _____ Portfolio [_] [_] [_]
Merrill Lynch Municipal Intermediate Term [_] [_] [_]
Merrill Lynch Strategic Dividend [_] [_] [_]
Merrill Lynch Utility Income [_] [_] [_]
5. In the discretion of such proxies, upon such other business as may
properly come before the meeting or any adjournment thereof.
Please mark, sign, date, and mail your Proxy in the enclosed postage-paid
envelope.
Signature _________________________________________ Date _______________
If joint owner, each should sign. When signing as executor, trustee,
etc., give full title as such.
[BAR CODE APPEARS HERE]
[CLUSTER B 8/1/94]