-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, SDoH4jg0YJA39cmqox8sCTwJMiBZRhhVpYRY9z7MxDk/IceDu4zC/cv0CODOM6ni Ws0Z7AcCj2iUalBkbzofLQ== 0000950130-94-001460.txt : 19941018 0000950130-94-001460.hdr.sgml : 19941018 ACCESSION NUMBER: 0000950130-94-001460 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19941017 EFFECTIVENESS DATE: 19941021 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH BALANCED FD FOR INV & RET CENTRAL INDEX KEY: 0000746637 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-91329 FILM NUMBER: 94552830 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04035 FILM NUMBER: 94552831 BUSINESS ADDRESS: STREET 1: P O BOX 9011 CITY: PRINCETON STATE: NJ ZIP: 08543 BUSINESS PHONE: 6092823319 FORMER COMPANY: FORMER CONFORMED NAME: MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROG INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MERRILL LYNCH BALANCED FUND FOR INVESTMENT & RETIREMENT DATE OF NAME CHANGE: 19910529 FORMER COMPANY: FORMER CONFORMED NAME: MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM INC DATE OF NAME CHANGE: 19910501 485BPOS 1 FORM 485BPOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1994 FILE NOS. 2-91329 811-4035 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_] PRE-EFFECTIVE AMENDMENT NO. [_] [X] POST-EFFECTIVE AMENDMENT NO. 13 AND/OR REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_] [X] AMENDMENT NO. 16 MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) P. O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 282-2800 ARTHUR ZEIKEL P. O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 (NAME AND ADDRESS OF AGENT FOR SERVICE) ---------------- COPIES TO: JOEL H. GOLDBERG, ESQ. SHEREFF, and PHILIP L. KIRSTEIN, ESQ. MERRILL FRIEDMAN, HOFFMAN & GOODMAN 919 LYNCH ASSET MANAGEMENT P.O. BOX 9011 THIRD AVENUE NEW YORK, NEW YORK PRINCETON, NEW JERSEY 08543-9011 10022 IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE: [_] Immediately upon filing pursuant to paragraph (b), or [_] 60 days after filing pursuant to paragraph (a), or [X] on October 21, 1994 pursuant to paragraph (b), or [_] on (date) pursuant to paragraph (a), of Rule 485 [_] 75 days after filing pursuant to paragraph (a)(ii) [_] on (date) pursuant to paragraph (a)(ii) of rule 485. IF APPROPRIATE, CHECK THE FOLLOWING BOX: [_] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF ITS COMMON STOCK UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULES FOR THE REGISTRANT'S MOST RECENT FISCAL YEAR WILL BE FILED ON OR BEFORE NOVEMBER 30, 1994. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC. POST-EFFECTIVE AMENDMENT NO. 13 ON FORM N-1A CROSS REFERENCE SHEET PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
N-1A ITEM NO. LOCATION ------------- -------- PART A Item 1. Cover Page..................... Cover Page Item 2. Synopsis....................... Fee Table Item 3. Condensed Financial Information................... Financial Highlights; Performance Item 4. General Description of Data Registrant.................... Investment Objective and Policies; The Fund and Its Management; Investment Practices and Restrictions; Additional Information Item 5. Management of the Registrant... Fee Table; The Fund and Its Management; Investment Practices and Restrictions Item 5A. Management's Discussion of Fund Performance................... Not Applicable Item 6. Capital Stock and Other Securities.................... Additional Information Item 7. Purchase of Securities Being Offered....................... Cover Page; Merrill Lynch Select PricingSM System; Purchase of Shares; Shareholder Services; Additional Information Item 8. Redemption or Repurchase....... Merrill Lynch Select PricingSM System; Purchase of Shares; Redemption of Shares Item 9. Pending Legal Proceedings...... Not Applicable PART B Item 10. Cover Page..................... Cover Page Item 11. Table of Contents.............. Back Cover Page Item 12. General Information and History....................... General Information Item 13. Investment Objectives and Policies...................... Investment Objective and Policies; Investment Practices and Restrictions Item 14. Management of the Fund......... Management of the Fund Item 15. Control Persons and Principal Holders of Securities......... Management of the Fund Item 16. Investment Advisory and Other Services...................... Management of the Fund; Purchase of Shares; General Information Item 17. Brokerage Allocation........... Investment Practices and Restrictions Item 18. Capital Stock and Other Securities.................... General Information Item 19. Purchase, Redemption and Pricing of Securities Being Offered....................... Purchase of Shares; Redemption of Shares; Determination of Net Asset Value; Shareholder Services Item 20. Tax Status..................... Dividends, Distributions and Taxes Item 21. Underwriters................... Purchase of Shares Item 22. Calculation of Performance Data.......................... Performance Data Item 23. Financial Statements........... Financial Statements
PART C Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Post-Effective Amendment to the Registration Statement. PROSPECTUS OCTOBER 21, 1994 MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800 ---------------- Merrill Lynch Retirement Benefit Investment Program, Inc., doing business as Merrill Lynch Balanced Fund for Investment and Retirement, is a mutual fund of the type permitted to have a number of different portfolios, or series. The fund and its only series, the Full Investment Portfolio, are referred to as the "Fund." The Fund seeks to provide shareholders with as high a level of total investment return as is consistent with reasonable risk. The Fund seeks to achieve its objective through investment in common stocks and other types of securities, including fixed-income securities and convertible securities. Because the Fund is designed for investors for whom current tax liability is not a consideration, such as certain tax qualified employee benefit plans, the Fund (and any other series that may be added in the future) will invest without regard to tax considerations. ---------------- Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four classes of shares, each with a different combination of sales charges, ongoing fees and other features. The Merrill Lynch Select PricingSM System permits an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other relevant circumstances. See "Merrill Lynch Select PricingSM System" on page 3. Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc. (the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 (609) 282-2800, or from securities dealers which have entered into dealer agreements with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). The minimum initial purchase price is $1,000 ($100 for retirement plans) and the minimum subsequent purchase is $50 ($1 for retirement plans). Merrill Lynch may charge its customers a processing fee (presently $4.85) for confirming purchases and repurchases. Purchases and redemptions directly through the Fund's transfer agent are not subject to the processing fee. See "Purchase of Shares" and "Redemption of Shares". ---------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI- TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------- This Prospectus is a concise statement of information about the Fund that is relevant to making an investment in the Fund. This Prospectus should be retained for future reference. A statement containing additional information about the Fund, dated October 21, 1994 (the "Statement of Additional Information"), has been filed with the Securities and Exchange Commission and is available, without charge, by calling or by writing the Fund at the above telephone number or address. The Statement of Additional Information is hereby incorporated by reference into this Prospectus. ---------------- MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR FEE TABLE A general comparison of the sales arrangements and other nonrecurring and recurring expenses applicable to shares of the Fund follows:
CLASS A(A) CLASS B(B) CLASS C(C) CLASS D(C) ---------- ---------- ---------- ---------- SHAREHOLDER TRANSACTION EXPENSES: Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)....... 5.25%(d) None None 5.25%(d) Sales Charge Imposed on Dividend Reinvest- ments................. None None None None Deferred Sales Charge (as a percentage of original purchase None (e) 4.0% during the first 1% for one year None (e) price or redemption year, decreasing 1.0% proceeds, whichever annually thereafter to 0.0% is lower)............. after the fourth year Exchange Fee........... None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)(F)......... Investment Advisory Fees(g)............... 0.62% 0.62% 0.62% 0.62% 12b-1 Fees(h): Account Maintenance Fees................ None 0.25% 0.25% 0.25% Distribution Fees.... None 0.75% 0.75% None (Class B shares convert to Class D shares automatically after approximately eight years and cease being subject to distribution fees) Other Expenses: Custodial Fees....... 0.02% 0.02% 0.02% 0.02% Shareholder Servicing Costs(i)............ 0.12% 0.14% 0.14% 0.12% Other................ 0.07% 0.07% 0.07% 0.07% ---- ---- ---- ---- Total Other Ex- penses............ 0.21% 0.23% 0.23% 0.21% ---- ---- ---- ---- Total Fund Operating Expenses.............. 0.83% 1.85% 1.85% 1.08% ==== ==== ==== ====
- -------- (a) Class A shares are sold to a limited group of investors including existing Class A shareholders, certain retirement plans and investment programs. See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares"--page 12. (b) Class B shares convert to Class D shares automatically approximately eight years after initial purchase. See "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares"--page 14. (c) Prior to the date of this Prospectus, the Fund has not offered its Class C and Class D shares to the public. (d) Reduced for purchases of $25,000 and over. Class A or Class D purchases of $1,000,000 or more may not be subject to an initial sales charge. See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares"--page 12. (e) Class A and Class D shares are not subject to a contingent deferred sales charge ("CDSC"), except that purchases of $1,000,000 or more which may not be subject to an initial sales charge will instead be subject to a CDSC of 1.0% of amounts redeemed within the first year of purchase. (f) Information for Class A and Class B shares is stated for the fiscal year ended September 30, 1993. Information under "Other Expenses" for Class C and Class D shares is estimated for the fiscal year ending September 30, 1995. (g) See "The Fund and Its Management--Advisory Fee"--page 10. (h) See "Purchase of Shares--Distribution Plans"--page 18. (i) See "The Fund and Its Management--Transfer Agency Services"--page 10. 2 EXAMPLE:
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF: --------------------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------- ---------- ----------- ----------- An investor would pay the following expenses on a $1,000 investment in- cluding the maximum $52.50 initial sales charge (Class A and Class D shares only) and assuming (1) the Total Fund Operating Expenses for each class set forth above; (2) a 5% annual return throughout the periods and (3) redemp- tion at the end of the period: Class A................. $ 61 $ 78 $ 96 $ 150 Class B................. $ 59 $ 78 $ 100 $ 197* Class C................. $ 29 $ 58 $ 100 $ 217 Class D................. $ 63 $ 85 $ 109 $ 177 An investor would pay the following expenses on the same $1,000 invest- ment assuming no redemp- tion at the end of the period: Class A................. $ 61 $ 78 $ 96 $ 150 Class B................. $ 19 $ 58 $ 100 $ 197* Class C................. $ 19 $ 58 $ 100 $ 217 Class D................. $ 63 $ 85 $ 109 $ 177
- -------- * Assumes conversion to Class D shares approximately eight years after purchase. The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that a shareholder in the Fund will bear directly or indirectly. The Example set forth above assumes reinvestment of all dividends and distributions and utilizes a 5% annual rate of return as mandated by Securities and Exchange Commission (the "Commission") regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATE OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C shareholders who own their shares for an extended period of time may pay more in Rule 12b-1 distribution fees than the economic equivalent of the maximum front-end sales charge permitted under the Rules of Fair Practice of the National Association of Securities Dealers, Inc. ("NASD"). Merrill Lynch may charge its customers a processing fee (presently $4.85) for confirming purchases and repurchases. Purchases and redemptions directly through the Fund's transfer agent are not subject to the processing fee. See "Purchase of Shares" and "Redemption of Shares". MERRILL LYNCH SELECT PRICINGSM SYSTEM The Fund offers four classes of shares under the Merrill Lynch Select PricingSM System. The shares of each class may be purchased at a price equal to the next determined net asset value per share subject to the sales charges and ongoing fee arrangements described below. Shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives, and shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. The Merrill Lynch Select PricingSM System is used by more than 50 mutual funds advised by Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset Management ("MLAM" or the "Investment Adviser") or an affiliate of MLAM, Fund Asset Management, L.P. ("FAM"). Funds advised by MLAM or FAM are referred to herein as "MLAM-advised mutual funds". Each Class A, Class B, Class C and Class D share of the Fund represents an identical interest in the investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. The deferred sales charges and account maintenance fees that are imposed on Class B and Class C shares, as well as the account maintenance fees that are imposed on the Class D shares, will be imposed directly against those classes and not against all assets of the Fund and, 3 accordingly, such charges will not affect the net asset value of any other class or have any impact on investors choosing another sales charge option. Dividends paid by the Fund for each class of shares will be calculated in the same manner at the same time and will differ only to the extent that account maintenance and distribution fees and any incremental transfer agency costs relating to a particular class are borne exclusively by that class. Each class has different exchange privileges. See "Shareholder Services--Exchange Privilege". Investors should understand that the purpose and function of the initial sales charges with respect to the Class A and Class D shares are the same as those of the deferred sales charges with respect to the Class B and Class C shares in that the sales charges applicable to each class provide for the financing of the distribution of the shares of the Fund. The distribution- related revenues paid with respect to a class will not be used to finance the distribution expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares. The following table sets forth a summary of the distribution arrangements for each class of shares under the Merrill Lynch Select PricingSM System, followed by a more detailed description of each class and a discussion of the factors that investors should consider in determining the method of purchasing shares under the Merrill Lynch Select PricingSM System that the investor believes is most beneficial under the investor's particular circumstances. More detailed information as to each class of shares is set forth under "Purchase of Shares".
ACCOUNT MAINTENANCE DISTRIBUTION CLASS SALES CHARGE(/1/) FEE FEE CONVERSION FEATURE - ------------------------------------------------------------------------------------------------- A Maximum 5.25% initial No No No sales charge(/2/)(/3/) - ------------------------------------------------------------------------------------------------- B CDSC for a period of 4 years, 0.25% 0.75% B shares convert to D shares at a rate of 4.0% during the automatically after first year, decreasing 1.0% approximately annually to 0.0% eight years(/4/) - ------------------------------------------------------------------------------------------------- C 1.0% CDSC for one year 0.25% 0.75% No - ------------------------------------------------------------------------------------------------- D Maximum 5.25% initial sales 0.25% No No charge(/3/)
- -------- (1) Initial sales charges are imposed at the time of purchase as a percentage of the offering price. Contingent deferred sales charges ("CDSCs") are imposed if the redemption occurs within the applicable CDSC time period. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. (2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares--Eligible Class A Investors". (3) Reduced for purchases of $25,000 or more. Class A and Class D share purchases of $1,000,000 or more may not be subject to an initial sales charge but instead will be subject to a 1.0% CDSC for one year. See "Class A" and "Class D" below. (4) The conversion period for dividend reinvestment shares and certain retirement plans is modified. Also, Class B shares of certain other MLAM- advised mutual funds into which exchanges may be made have a ten year conversion period. If Class B shares of the Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired. Class A: Class A shares incur an initial sales charge when they are purchased and bear no ongoing distribution or account maintenance fees. Class A shares are offered to a limited group of investors and also will be issued upon reinvestment of dividends on outstanding Class A shares. Investors that currently own Class A shares in a shareholder account are entitled to purchase additional Class A shares in that account. Other eligible investors include certain retirement plans and participants in certain investment programs. In addition, Class A shares will be offered to directors and 4 employees of Merrill Lynch & Co., Inc. and its subsidiaries (the term "subsidiaries", when used herein with respect to Merrill Lynch & Co., Inc., includes MLAM, FAM and certain other entities directly or indirectly wholly-owned and controlled by Merrill Lynch & Co., Inc.), and to members of the Boards of MLAM-advised mutual funds. The maximum initial sales charge is 5.25%, which is reduced for purchases of $25,000 and over. Purchases of $1,000,000 or more may not be subject to an initial sales charge but if the initial sales charge is waived such purchases will be subject to a CDSC of 1.0% if the shares are redeemed within one year after purchase. Sales charges also are reduced under a right of accumulation which takes into account the investor's holdings of all classes of all MLAM-advised mutual funds. See "Purchase of Shares-- Initial Sales Charge Alternatives--Class A and Class D Shares". Class B: Class B shares do not incur a sales charge when they are purchased, but they are subject to an ongoing account maintenance fee of 0.25%, an ongoing distribution fee of 0.75% of the Fund's average net assets attributable to the Class B shares, and a CDSC if they are redeemed within four years of purchase. Approximately eight years after issuance, Class B shares will convert automatically into Class D shares of the Fund, which are subject to an account maintenance fee but no distribution fee; Class B shares of certain other MLAM-advised mutual funds into which exchanges may be made convert into Class D shares automatically after approximately ten years. If Class B shares of the Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired. Automatic conversion of Class B shares into Class D shares will occur at least once a month on the basis of the relative net asset values of the shares of the two classes on the conversion date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes. Shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D shares. The conversion period for dividend reinvestment shares and for certain retirement plans is modified as described under "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares--Conversion of Class B Shares to Class D Shares". Class C: Class C shares do not incur a sales charge when they are purchased, but they are subject to an ongoing account maintenance fee of 0.25% and an ongoing distribution fee of 0.75% of the Fund's average net assets attributable to Class C shares. Class C shares are also subject to a CDSC if they are redeemed within one year of purchase. Although Class C shares are subject to a 1.0% CDSC for only one year (as compared to four years for Class B), Class C shares have no conversion feature and, accordingly, an investor that purchases Class C shares will be subject to distribution fees that will be imposed on Class C shares for an indefinite period subject to annual approval by the Fund's Board of Directors and regulatory limitations. Class D: Class D shares incur an initial sales charge when they are purchased and are subject to an ongoing account maintenance fee of 0.25% of the Fund's average net assets attributable to Class D shares. Class D shares are not subject to an ongoing distribution fee or any CDSC when they are redeemed. Purchases of $1 million or more may not be subject to an initial sales charge but if the initial sales charge is waived such purchases will be subject to a CDSC of 1.0% if the shares are redeemed within one year of purchase. The schedule of initial sales charges and reductions for the Class D shares is the same as the schedule for Class A shares. Class D shares also will be issued upon conversion of Class B shares as described above under "Class B". See "Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class D Shares". 5 The following is a discussion of the factors that investors should consider in determining the method of purchasing shares under the Merrill Lynch Select PricingSM System that the investor believes is most beneficial in the investor's particular circumstances. Initial Sales Charge Alternatives. Investors who prefer an initial sales charge alternative may elect to purchase Class D shares or, if an eligible investor, Class A shares. Investors choosing the initial sales charge alternative who are eligible to purchase Class A shares should purchase Class A shares rather than Class D shares because of the account maintenance fee imposed on Class D shares. Investors qualifying for significantly reduced initial sales charges may find the initial sales charge alternative particularly attractive because similar sales charge reductions are not available with respect to the deferred sales charges imposed in connection with purchases of Class B or Class C shares. Investors not qualifying for reduced initial sales charges who expect to maintain their investment for an extended period of time also may elect to purchase Class A or Class D shares, because over time the accumulated ongoing account maintenance and distribution fees on Class B or Class C shares may exceed the initial sales charge and, in the case of Class D shares, the account maintenance fee. Although some investors that previously purchased Class A shares may no longer be eligible to purchase Class A shares of other MLAM-advised mutual funds, those previously purchased Class A shares, together with Class B, Class C and Class D share holdings, will count toward a right of accumulation which may qualify the investor for reduced initial sales charges on new initial sales charge purchases. In addition, the ongoing Class B and Class C account maintenance and distribution fees will cause Class B and Class C shares to have higher expense ratios, pay lower dividends and have lower total returns than the initial sales charge shares. The ongoing Class D account maintenance fees will cause Class D shares to have a higher expense ratio, pay lower dividends and have a lower return than Class A shares. Deferred Sales Charge Alternatives. Because no initial sales charges are deducted at the time of purchase, Class B and Class C shares provide the benefit of putting all of the investor's dollars to work from the time the investment is made. The deferred sales charge alternatives may be particularly appealing to investors who do not qualify for a reduction in initial sales charges. Both Class B and Class C shares are subject to ongoing account maintenance fees and distribution fees; however, the ongoing account maintenance and distribution fees potentially may be offset to the extent any return is realized on the additional funds initially invested in Class B or Class C shares. In addition, Class B shares will be converted into Class D shares of the Fund after a conversion period of approximately eight years, and thereafter investors will be subject to lower ongoing fees. Certain investors may elect to purchase Class B shares if they determine it to be most advantageous to have all their funds invested initially and intend to hold their shares for an extended period of time. Investors in Class B shares should take into account whether they intend to redeem their shares within the CDSC period and, if not, whether they intend to remain invested until the end of the conversion period and thereby take advantage of the reduction in ongoing fees resulting from the conversion into Class D shares. Other investors, however, may elect to purchase Class C shares if they determine that it is advantageous to have all their assets invested initially and they are uncertain as to the length of time they intend to hold their assets in MLAM-advised mutual funds. Although Class C shareholders are subject to a shorter CDSC period at a lower rate, they forgo the Class B conversion feature, making their investment subject to account maintenance and distribution fees for an indefinite period of time. In addition, while both Class B and Class C distribution fees are subject to the limitations on asset- based sales charges imposed by the NASD, the Class B distribution fees are further limited under a voluntary waiver of asset-based sales charges. See "Purchase of Shares--Limitations on the Payment of Deferred Sales Charges". 6 FINANCIAL HIGHLIGHTS The financial information in the table below (other than for the six-month period ended March 31, 1994, which is unaudited) has been audited in conjunction with the audits of the financial statements of the Fund by Deloitte & Touche LLP, independent auditors. Financial statements for the year ended September 30, 1993, and the independent auditors' report thereon are included in the Statement of Additional Information. Unaudited financial statements for the six months ended March 31, 1994 are also included in the Statement of Additional Information. Financial information is not presented for Class C or Class D shares, since no shares of those classes are publicly issued as of the date of this Prospectus. Further information about the performance of the Fund is contained in the Fund's most recent annual report to shareholders which may be obtained, without charge, by calling or writing the Fund at the telephone number or address on the front cover of this Prospectus. THE FOLLOWING PER SHARE DATA AND RATIOS HAVE BEEN DERIVED FROM INFORMATION PROVIDED IN THE FINANCIAL STATEMENTS.
CLASS A --------------------------------------------------------- FOR THE SIX-MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, MARCH 31, -------------------------------------------- 1994 1993 1992 1991 1990 1989+ ---------- ------- ------- ------- ------- ------- INCREASE (DECREASE) IN NET ASSET VALUE: PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period........... $ 13.02 $ 12.57 $ 11.94 $ 10.61 $ 11.93 $ 11.18 ------- ------- ------- ------- ------- ------- Investment Income--net...... .17 .43 .47 .70 .64 .24 Realized and unrealized gain (loss) on investment and foreign currency transactions-- net(1)........... (.09) 1.29 .61 1.63 (1.41) 1.42 ------- ------- ------- ------- ------- ------- Total from investment operations....... .08 1.72 1.08 2.33 (.77) 1.66 ------- ------- ------- ------- ------- ------- Less dividends and distributions: Investment income--net...... (.20) (.39) (.45) (.62) (.55) (.90) Realized gain on investments-- net............. (1.23) (.88) -- (.38) -- (.01) ------- ------- ------- ------- ------- ------- Total dividends and distributions.... (1.43) (1.27) (.45) (1.00) (.55) (.91) ------- ------- ------- ------- ------- ------- Net asset value, end of period.... $ 11.67 $ 13.02 $ 12.57 $ 11.94 $ 10.61 $ 11.93 ======= ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN:** Based on net asset value per share............ 0.24%## 14.62% 9.23% 23.14% (6.86%) 15.54%## ======= ======= ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS: Expenses, excluding distribution fees............. .79%* .83% .81% .85% .83% .78%* ======= ======= ======= ======= ======= ======= Expenses......... .79%* .83% .81% .85% .83% .78%* ======= ======= ======= ======= ======= ======= Investment income--net...... 2.38%* 3.09% 3.18% 3.64% 5.12% 4.23%* ======= ======= ======= ======= ======= ======= SUPPLEMENTAL DATA: Net assets, end of period (in thousands)....... $40,175 $40,688 $20,320 $12,839 $ 4,511 $ 2,080 ======= ======= ======= ======= ======= ======= Portfolio turnover......... 30.76% 79.55% 65.40% 173.76% 163.56% 175.47% ======= ======= ======= ======= ======= ======= CLASS B ----------------------------------------------------------------------------------------------------------- FOR THE SIX-MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, MARCH 31, ---------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 1988 1987 1986++ ------------ --------- --------- --------- ------------ ----------- ------------ ----------- -------------- INCREASE (DECREASE) IN NET ASSET VALUE: PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period........... $ 13.09 $ 12.62 $ 11.99 $ 10.60 $ 11.91 $ 10.94 $ 12.54 $ 11.17 $ 10.00 ------------ --------- --------- --------- ------------ ----------- ------------ ----------- -------------- Investment Income--net...... .09 .24 .29 .39 .50 .53 .57 .39 .25 Realized and unrealized gain (loss) on investment and foreign currency transactions-- net(1)........... (.07) 1.37 .66 1.83 (1.39) 1.25 (1.40) 1.64 .98 ------------ --------- --------- --------- ------------ ----------- ------------ ----------- -------------- Total from investment operations....... .02 1.61 .96 2.22 (.89) 1.78 (.83) 2.03 1.23 ------------ --------- --------- --------- ------------ ----------- ------------ ----------- -------------- Less dividends and distributions: Investment income--net...... (.13) (.26) (.32) (.45) (.42) (.80) (.55) (.38) (.06) Realized gain on investments-- net............. (1.23) (.88) -- (.38) -- (.01) (.22) (.28) -- ------------ --------- --------- --------- ------------ ----------- ------------ ----------- -------------- Total dividends and distributions.... (1.36) (1.14) (.32) (.83) (.42) (.81) (.77) (.66) (.06) ------------ --------- --------- --------- ------------ ----------- ------------ ----------- -------------- Net asset value, end of period.... $ 11.75 $ 13.09 $ 12.62 $ 11.99 $ 10.60 $ 11.91 $ 10.94 $ 12.54 $ 11.17 ============ ========= ========= ========= ============ =========== ============ =========== ============== TOTAL INVESTMENT RETURN:** Based on net asset value per share............ (0.23%)* 13.49% 8.01% 21.91% (7.79%) 16.93% (6.36%) 18.98% 12.29%## ============ ========= ========= ========= ============ =========== ============ =========== ============== RATIOS TO AVERAGE NET ASSETS: Expenses, excluding distribution fees............. .81%* .85% .85% .90% .86% .84% .82% .73% .82%* ============ ========= ========= ========= ============ =========== ============ =========== ============== Expenses......... 1.81%* 1.85% 1.85% 1.90% 1.86% 1.84% 1.82% 1.73% 1.82%* ============ ========= ========= ========= ============ =========== ============ =========== ============== Investment income--net...... 1.36%* 1.99% 2.10% 3.37% 3.90% 3.73% 4.66% 3.60% 4.23%* ============ ========= ========= ========= ============ =========== ============ =========== ============== SUPPLEMENTAL DATA: Net assets, end of period (in thousands)....... $760,265 $830,955 $886,920 $986,895 $1,171,567 $1,735,873 $2,264,429 $3,384,647 $ 2,065,752 ============ ========= ========= ========= ============ =========== ============ =========== ============== Portfolio turnover......... 30.76% 79.55% 65.40% 173.76% 163.56% 175.47% 239.78% 145.17% 143.78% ============ ========= ========= ========= ============ =========== ============ =========== ==============
- ---- * Annualized. ** Total investment returns exclude the effects of sales loads. + Class A shares commenced operations on October 27, 1988. ++ Class B shares commenced operations on November 29, 1985. ## Aggregate total investment return. (1) Foreign currency transaction amounts have been reclassified to conform to the 1994 presentation. 7 INVESTMENT OBJECTIVE AND POLICIES The Fund is designed to provide investors with a convenient and professionally managed vehicle for seeking as high a level of total investment return as is consistent with a relatively low level of risk. This is a fundamental investment objective. The Fund seeks to achieve its objective through investment in high quality, larger capitalization common stocks (generally companies with $500,000,000 or more of market capitalization) and other types of securities, including fixed-income securities (preferred stock and debt securities) and convertible securities, as well as through the writing of covered call options and the lending of portfolio securities. It is anticipated that, except under unusual circumstances, the Fund will maintain at least 25% of the value of its assets in fixed-income senior securities. In its common stock investments, it is anticipated that the Fund will seek to emphasize issues with relatively low price earnings ratios, above average dividend yields, and relatively low price to book value ratios, as compared to prevailing market conditions. With respect to debt securities, the Fund will invest only in instruments which are rated Aa or better by Moody's Investors Service, Inc. ("Moody's") or AA or better by Standard & Poor's Ratings Group ("S & P"), or which are determined by the Fund's investment adviser to be of quality comparable to instruments so rated. To a limited extent, the Fund also may write covered call options and lend its portfolio securities. The Fund attempts to reduce overall exposure to risk from declines in securities prices by spreading its investments over many different companies in a variety of industries. No assurance can be given that the Fund will be able to achieve its investment objective. Total investment return is the sum of current income and capital gains received from portfolio investments, as well as the capital appreciation of investments retained in the portfolio. It is anticipated that ordinarily the Fund's emphasis on current income and capital appreciation will be relatively equal, although from time to time the Fund may vary its emphasis between these two elements as market or economic conditions change. In this regard, the composition of the Fund is largely unrestricted. In furtherance of its efforts to reduce overall exposure to investment and income risk through adequate diversification of its portfolio, the Fund may invest up to 20% of its total assets in securities issued by foreign companies. The Fund also reserves the right to invest all or a portion of its assets in high quality money market securities (such as U.S. Treasury bills, certificates of deposit issued by U.S. banks having more than $1 billion in assets, commercial paper and repurchase agreements with respect to U.S. government securities and U.S. government agency securities) for purposes of enhancing liquidity and avoiding the effects of declining securities prices when it seems advisable to do so in light of prevailing market or economic conditions. The Fund will invest only in commercial paper that is rated A-1 or A-2 by S & P, or P-1 or P-2 by Moody's, or, if not rated, issued by companies having an outstanding debt issue rated AA or better by S & P, or Aa or better by Moody's. The proportion of the Fund's assets that is invested in money market securities will vary from time to time. Because the Fund is designed for investors for whom current tax liability is not a consideration, the Fund may realize capital gains without regard to whether they will qualify as long-term capital gains. This means that the Fund has the flexibility to take advantage of short-term investment opportunities when determined appropriate by the Investment Adviser. For a discussion of the investment restrictions of the Fund, see "Investment Practices and Restrictions--Investment Restrictions". 8 THE FUND AND ITS MANAGEMENT The Fund is a mutual fund, technically known as an open-end diversified management investment company. It was incorporated under the laws of the State of Maryland on May 21, 1984. The Fund is a company of the series type. At the present time it consists of only one portfolio. The Fund is designed as an investment vehicle for investors who seek a high level of total investment return without regard to tax considerations, such as certain tax-qualified employee benefit plans, including Individual Retirement Accounts ("IRAs") and corporate, governmental and other retirement plans qualified under sections 401, 403(b) or 408 of the Internal Revenue Code of 1986, as amended (the "Code"). The Directors of the Fund consist of six individuals, five of whom are not "interested persons" of the Fund as defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"). The Directors of the Fund are responsible for the overall supervision of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the Investment Company Act. The Directors are: Arthur Zeikel*--President and Chief Investment Officer of MLAM and FAM; President and Director of Princeton Services, Inc.; Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") and Executive Vice President of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"); Director of Merrill Lynch Funds Distributor, Inc. Kenneth S. Axelson--Former Executive Vice President and Director, J.C. Penney Company, Inc. Herbert I. London--John M. Olin Professor of Humanities, Gallatin Division of New York University. Robert R. Martin--Chairman, WTC Industries, Inc. Joseph L. May--Attorney in private practice. Andre F. Perold--Professor, Harvard Business School. - -------- * Interested person, as defined in the Investment Company Act, of the Fund. MLAM, with offices at 800 Scudders Mill Road, Plainsboro, New Jersey 08536 (mailing address: P.O. Box 9011, Princeton, New Jersey 08543-9011), is the investment adviser for the Fund. MLAM is owned and controlled by ML & Co., a financial services holding company. MLAM manages the investment of the Fund's assets, provides administrative services and manages the Fund's business affairs. These services are subject to general oversight by the Fund's Board of Directors. The Investment Adviser has been engaged in the investment advisory business since 1976, and, together with its affiliate, FAM, currently serves as the investment adviser to more than 100 other registered investment companies, as well as to numerous pension plans and other institutions. As of August 31, 1994, the Investment Adviser and FAM had a total of approximately $165.7 billion in investment company and other portfolio assets under management, including accounts of certain affiliates of the Investment Adviser. 9 Denis B. Cummings is primarily responsible for the day-to-day management of the Fund's portfolio and has served in that capacity since 1991. Mr. Cummings has served as a Vice President of the Investment Adviser since 1978. Advisory Fee. The Fund pays the Investment Adviser a monthly fee based upon the average daily value of the portfolio's net assets at the following annual rates: 0.65% of the average daily net assets not exceeding $500 million; 0.60% of the average daily net assets exceeding $500 million but not exceeding $1.5 billion; 0.55% of the average daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.50% of the average daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; and 0.45% of the average daily net assets exceeding $3.5 billion. For the fiscal year ended September 30, 1993, the total management fee payable by the Fund to the Investment Adviser was $5,620,993 (based upon average net assets of approximately $902.2 million). For the fiscal year ended September 30, 1993, the annualized ratio of total expenses (excluding distribution fees) to average net assets was 0.83% for the Class A shares and 0.85% for the Class B shares; no Class C or Class D shares had been issued during that year. Transfer Agency Services. Financial Data Services, Inc. ("Transfer Agent"), which is a wholly-owned subsidiary of ML & Co., acts as the Fund's Transfer Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement"). Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of $11.00 per Class A and Class D shareholder account and $14.00 per Class B and Class C shareholder account and is entitled to reimbursement for out-of-pocket expenses incurred by it under the Transfer Agency Agreement. For the fiscal year ended September 30, 1993, the total fee paid by the Fund to the Transfer Agent was $1,324,708. At August 31, 1994, the Fund had 3,783 Class A shareholder accounts, 92,883 Class B shareholder accounts, no Class C shareholder accounts and no Class D shareholder accounts. At this level of accounts, the annual fee payable to the Transfer Agent would aggregate approximately $1,341,975 plus out-of-pocket expenses. Reimbursement for Portfolio Accounting Services. The Fund reimburses the Investment Adviser for its costs in providing portfolio accounting services to the Fund. For the fiscal year ended September 30, 1993, the Fund reimbursed the Investment Adviser $143,231 for accounting services. PURCHASE OF SHARES Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of both the Investment Adviser and Merrill Lynch, acts as the Distributor of the shares of the Fund. Shares of the Fund are offered continuously for sale by the Distributor and other eligible securities dealers (including Merrill Lynch). Shares of the Fund may be purchased from securities dealers or by mailing a purchase order directly to the Transfer Agent. The minimum initial investment is $1,000, and the minimum subsequent purchase is $50, except for retirement plans, the minimum initial purchase is $100 and the minimum subsequent purchase is $1.00. Different minimums may apply to purchases through the Merrill 10 Lynch BlueprintSM Program. See "Purchase of Shares--Reduced Initial Sales Charges--Merrill Lynch BlueprintSM Program" in the Statement of Additional Information. The Fund is offering its shares in four classes at a public offering price equal to the next determined net asset value per share plus sales charges imposed either at the time of purchase or on a deferred basis depending upon the class of shares selected by the investor under the Merrill Lynch Select PricingSM System described below. The applicable offering price for purchase orders is based upon the net asset value of the Fund next determined after receipt of the purchase orders by the Distributor. As to purchase orders received by securities dealers prior to 4:15 P.M., New York time, which includes orders received after the determination of net asset value on the previous day, the applicable offering price will be based on the net asset value determined as of 4:15 P.M. on the day the orders are placed with the Distributor, provided the orders are received by the Distributor prior to 4:30 P.M., New York time, on that day. If the purchase orders are not received by the Distributor prior to 4:30 P.M., New York time, such orders shall be deemed received on the next business day. Any order may be rejected by the Distributor or the Fund. The Fund or the Distributor may suspend the continuous offering of the Fund's shares of any class to the general public at any time in response to conditions in the securities markets or otherwise and may thereafter resume such offering from time to time. Neither the Distributor nor the dealers are permitted to withhold placing orders to benefit themselves by a price change. Merrill Lynch may charge its customers a processing fee (presently $4.85) to confirm a sale of shares to such customers. Purchases directly through the Fund's Transfer Agent are not subject to the processing fee. The Fund issues four classes of shares under the Merrill Lynch Select PricingSM System, which permits each investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of purchase, the length of time the investor expects to hold the shares and other relevant circumstances. Shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives and shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. Investors should determine whether under their particular circumstances it is more advantageous to incur an initial sales charge or to have the entire initial purchase price invested in the Fund with the investment thereafter being subject to a CDSC and ongoing distribution fees. A discussion of the factors that investors should consider in determining the method of purchasing shares under the Merrill Lynch Select PricingSM System is set forth under "Merrill Lynch Select PricingSM System" on page 3. Each Class A, Class B, Class C and Class D share of the Fund represents an identical interest in the investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees, and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. The deferred sales charges and account maintenance fees that are imposed on Class B and Class C shares, as well as the account maintenance fees that are imposed on Class D shares, will be imposed directly against those classes and not against all assets of the Fund and, accordingly, such charges will not affect the net asset value of any other class or have any impact on investors choosing another sales charge option. Dividends paid by the Fund for each class of shares will be calculated in the same manner at the same time and will differ only to the extent that account maintenance and distribution fees and any incremental transfer agency costs relating to a particular class are borne exclusively by that class. Class B, Class C and Class D shares each have exclusive voting rights with respect to the Rule 12b-1 11 distribution plan adopted with respect to such class pursuant to which account maintenance and/or distribution fees are paid. See "Distribution Plans" below. Each class has different exchange privileges. See "Shareholder Services-- Exchange Privilege". Investors should understand that the purpose and function of the initial sales charges with respect to Class A and Class D shares are the same as those of the deferred sales charges with respect to Class B and Class C shares in that the sales charges applicable to each class provide for the financing of the distribution of the shares of the Fund. The distribution-related revenues paid with respect to a class will not be used to finance the distribution expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares. Investors are advised that only Class A and Class D shares may be available for purchase through securities dealers, other than Merrill Lynch, which are eligible to sell shares. The following table sets forth a summary of the distribution arrangements for each class of shares under the Merrill Lynch SelectSM Pricing System.
ACCOUNT MAINTENANCE DISTRIBUTION CLASS SALES CHARGE(/1/) FEE FEE CONVERSION FEATURE - ------------------------------------------------------------------------------------------------- A Maximum 5.25% initial No No No sales charge(/2/)(/3/) - ------------------------------------------------------------------------------------------------- B CDSC for a period of 4 years, 0.25% 0.75% B shares convert to D shares at a rate of 4.0% during the automatically after first year, decreasing 1.0% approximately annually to 0.0% eight years(/4/) - ------------------------------------------------------------------------------------------------- C 1.0% CDSC for one year 0.25% 0.75% No - ------------------------------------------------------------------------------------------------- D Maximum 5.25% initial sales 0.25% No No charge(/3/)
- -------- (1) Initial sales charges are imposed at the time of purchase as a percentage of the offering price. CDSCs may be imposed if the redemption occurs within the applicable CDSC time period. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. (2) Offered only to eligible investors. See "Initial Sales Charge Alternatives--Class A and Class D Shares--Eligible Class A Investors". (3) Reduced for purchases of $25,000 or more. Class A and Class D share purchases of $1,000,000 or more may not be subject to an initial sales charge but instead will be subject to a 1.0% CDSC for one year. (4) The conversion period for dividend reinvestment shares and certain retirement plans is modified. Also, Class B shares of certain other MLAM- advised mutual funds into which exchanges may be made have a ten year conversion period. If Class B shares of the Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired. INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES Investors choosing the initial sales charge alternatives who are eligible to purchase Class A shares should purchase Class A shares rather than Class D shares because there is an account maintenance fee imposed on Class D shares. The public offering price of Class A and Class D shares for purchasers choosing the initial sales charge alternative is the next determined net asset value plus varying sales charges (i.e., sales loads), as set forth below. 12
SALES LOAD SALES LOAD DISCOUNT TO AS PERCENTAGE AS PERCENTAGE* SELECTED DEALERS OF OFFERING OF THE NET AS PERCENTAGE OF AMOUNT OF PURCHASE PRICE AMOUNT INVESTED THE OFFERING PRICE ------------------ ------------- --------------- ------------------ Less than $25,000............. 5.25% 5.54% 5.00% $25,000 but less than $50,000. 4.75 4.99 4.50 $50,000 but less than $100,000..................... 4.00 4.17 3.75 $100,000 but less than $250,000..................... 3.00 3.09 2.75 $250,000 but less than $1,000,000................... 2.00 2.04 1.80 $1,000,000 and over**......... 0.00 0.00 0.00
- -------- * Rounded to the nearest one-hundredth percent. ** The initial sales charge may be waived on Class A and Class D purchases of $1,000,000 or more made on or after October 21, 1994. If the sales charge is waived, such purchases will be subject to a CDSC of 1.0% if the shares are redeemed within one year after purchase. Class A purchases made prior to October 21, 1994 may be subject to a CDSC, in lieu of an initial sales charge, if the shares are redeemed within one year of purchase at the following rates: 1.00% on purchases of $1,000,000 to $2,500,000; 0.60% on purchases of $2,500,001 to $3,500,000; 0.40% on purchases of $3,500,001 to $5,000,000; and 0.25% on purchases of more than $5,000,000. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. A sales charge of 0.75% will be charged on purchases of $1 million or more of Class A or Class D shares by certain 401(k) plans. The Distributor may reallow discounts to such dealers and retain the balance over such discounts. At times the Distributor may reallow the entire sales charge to such dealers. Since securities dealers selling Class A and Class D shares of the Fund will receive a concession equal to most of the sales charge, they may be deemed to be underwriters under the Securities Act of 1933, as amended (the "Securities Act"). During the fiscal year ended September 30, 1993, the Fund sold 2,695,028 Class A shares for aggregate net proceeds of $33,091,210. The gross sales charges for the sale of Class A shares of the Fund for that year were $62,442, of which $3,517 and $58,925 were received by the Distributor and Merrill Lynch, respectively. The gross sales charges for the sale of Class A shares for the six-month period ended March 31, 1994 were $37,535, of which the Distributor received $2,294 and Merrill Lynch received $35,241. No CDSCs were received with respect to Class A shares for which the initial sales charge was waived during the fiscal year ended September 30, 1993 or the six months ended March 31, 1994. Eligible Class A Investors. Class A shares are offered to a limited group of investors and also will be issued upon reinvestment of dividends from outstanding Class A shares. Investors that currently own Class A shares in a shareholder account, including participants in the Merrill Lynch BlueprintSM Program, are entitled to purchase additional Class A shares in that account. Certain employer sponsored retirement or savings plans, including eligible 401(k) plans, may purchase Class A shares at net asset value provided such plans meet the required minimum number of eligible employees or required amount of assets advised by MLAM or any of its affiliates. Class A shares are available at net asset value to corporate warranty insurance reserve fund programs provided that the program has $3 million or more initially invested in MLAM-advised mutual funds. Also eligible to purchase Class A shares at net asset value are participants in certain investment programs including TMASM Managed Trusts to which Merrill Lynch Trust Company provides discretionary trustee services and certain purchases made in connection with the Merrill Lynch Mutual Fund Adviser program. In addition, Class A shares will be offered at net asset value to ML & Co. and its subsidiaries and their directors and employees and to members of the Boards of MLAM-advised investment companies, including the Fund. Certain persons who acquired shares of certain MLAM-advised closed-end funds who 13 wish to reinvest the net proceeds from a sale of their closed-end fund shares of common stock in shares of the Fund also may purchase Class A and Class D shares of the Fund if certain conditions set forth in the Statement of Additional Information are met for closed-end funds that commenced operations prior to October 21, 1994. For example, Class A shares of the Fund and certain other MLAM-advised mutual funds are offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. who wish to reinvest the net proceeds from a sale of certain of their shares of common stock of Merrill Lynch Senior Floating Rate Fund, Inc. in shares of such funds. Reduced Initial Sales Charges. No initial sales charges are imposed upon Class A and Class D shares issued as a result of the automatic reinvestment of dividends or capital gains distributions. Class A and Class D sales charges are reduced under a Right of Accumulation and a Letter of Intention. Class A shares are offered at net asset value to certain eligible Class A investors as set forth above under "Eligible Class A investors". Class D shares are offered at net asset value to an investor who has a business relationship with a financial consultant who joined Merrill Lynch from another investment firm within six months prior to the date of purchase if certain conditions set forth in the Statement of Additional Information are met. Class D shares may be offered at net asset value in connection with the acquisition of assets of other investment companies. Class D shares also are offered at net asset value, without sales charge, to an investor who has a business relationship with a Merrill Lynch financial consultant and who has (i) invested in a mutual fund sponsored by a non-Merrill Lynch company for which Merrill Lynch has served as a selected dealer and where Merrill Lynch has either received or given notice that such arrangement will be terminated or (ii) invested in a mutual fund sponsored by a non-Merrill Lynch company for which Merrill Lynch has not served as a selected dealer, if certain conditions set forth in the Statement of Additional Information are met. Class D shares are offered with reduced sales charges and, in certain circumstances, at net asset value, to participants in the Merrill Lynch BlueprintSM Program. Additional information concerning these reduced initial sales charges, including information regarding investments by Employee Sponsored Retirement or Savings Plans is set forth in the Statement of Additional Information. DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES Investors choosing the deferred sales charge alternatives should consider Class B shares if they intend to hold their shares for an extended period of time and Class C shares if they are uncertain as to the length of time they intend to hold their assets in MLAM-advised mutual funds. The public offering price of Class B and Class C shares for investors choosing the deferred sales charge alternatives is the next determined net asset value per share without the imposition of a sales charge at the time of purchase. As discussed below, Class B shares are subject to a four year CDSC, while Class C shares are subject only to a one year 1.0% CDSC. On the other hand, approximately eight years after Class B shares are issued, such Class B shares, together with shares issued upon dividend reinvestment with respect to those shares, are automatically converted into Class D shares of the Fund and thereafter will be subject to lower 14 continuing fees. See "Conversion of Class B Shares to Class D Shares" below. Both Class B and Class C shares are subject to an account maintenance fee of 0.25% of net assets and a distribution fee of 0.75% of net assets as discussed below under "Distribution Plans". Class B and Class C shares are sold without an initial sales charge so that the Fund will receive the full amount of the investor's purchase payment. Merrill Lynch compensates its financial consultants for selling Class B and Class C shares at the time of purchase from its own funds. See "Distribution Plans" below. Proceeds from the CDSC and the ongoing distribution fees are paid to the Distributor and are used in whole or in part by the Distributor to defray the expenses of dealers (including Merrill Lynch) related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation of financial consultants for selling Class B and Class C shares, from its own funds. The combination of the CDSC and the ongoing distribution fee facilitates the ability of the Fund to sell the Class B and Class C shares without a sales charge being deducted at the time of purchase. Approximately eight years after issuance, Class B shares will convert automatically into Class D shares of the Fund, which are subject to an account maintenance fee but no distribution fee; Class B shares of certain other MLAM-advised mutual funds into which exchanges may be made convert into Class D shares automatically after approximately ten years. If Class B shares of the Fund are exchanged for Class B shares of another MLAM-advised mutual fund, the conversion period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired. Imposition of the CDSC and the distribution fee on Class B and Class C shares is limited by the NASD asset-based sales charge rule. See "Limitations on the Payment of Deferred Sales Charges" below. The proceeds from the ongoing account maintenance fee are used to compensate Merrill Lynch for providing continuing account maintenance activities. Class B shareholders of the Fund exercising the exchange privilege described under "Shareholder Services--Exchange Privilege" will continue to be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares acquired as a result of the exchange. Contingent Deferred Sales Charges--Class B Shares. Class B shares which are redeemed within four years of purchase may be subject to a CDSC at the rates set forth below charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no CDSC will be assessed on shares derived from reinvestment of dividends or capital gains distributions. The following table sets forth the rates of the Class B CDSC:
CLASS B CDSC AS A PERCENTAGE OF YEAR SINCE PURCHASE DOLLAR AMOUNT PAYMENT MADE SUBJECT TO CHARGE ------------------- ------------------ 0-1..................................................... 4.00% 1-2..................................................... 3.00 2-3..................................................... 2.00 3-4..................................................... 1.00 4 and thereafter........................................ 0.00
15 For the fiscal year ended September 30, 1993, the Distributor received CDSCs of $182,110 with respect to Class B shares. In determining whether a CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. Therefore, it will be assumed that the redemption is first of shares held for over four years or shares acquired pursuant to reinvestment of dividends or distributions and then of shares held longest during the four-year period. The charge will not be applied to dollar amounts representing an increase in the net asset value since the time of purchase. A transfer of shares from a shareholder's account to another will be assumed to be made in the same order as a redemption. To provide an example, assume an investor purchased 100 shares at $10 per share (at a cost of $1,000) and in the third year after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to charge because of dividend reinvestment. With respect to the remaining 40 shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at a rate of 2.0% (the applicable rate in the third year after purchase). The Class B CDSC is waived on redemptions of shares in connection with certain post-retirement withdrawals from an IRA or other retirement plan or following the death or disability (as defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The Class B CDSC is waived on redemptions of shares in connection with certain post-retirement withdrawals from an IRA or other retirement plan or following the death or disability (as defined in the Internal Revenue Code of 1986, as amended) of a shareholder. The Class B CDSC also is waived on redemptions of shares by certain eligible 401(a) and eligible 401(k) plans and in connection with certain group plans placing orders through the Merrill Lynch BlueprintSM Program. The CDSC also is waived for any Class B shares which are purchased by eligible 401(k) or eligible 401(a) plans which are rolled over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at the time of redemption. The Class B CDSC also is waived for any Class B shares which are purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in such account at the time of redemption. Additional information concerning the waiver of the Class B CDSC is set forth in the Statement of Additional Information. Contingent Deferred Sales Charges--Class C Shares. Class C shares which are redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a percentage of the dollar amount subject thereto. The charge will be assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no Class C CDSC will be assessed on shares derived from reinvestment of dividends or capital gains distributions. In determining whether a Class C CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. Therefore, it will be assumed that the redemption is first of shares held for over one year or shares acquired pursuant to reinvestment of dividends 16 or distributions and then of shares held longest during the one-year period. The charge will not be applied to dollar amounts representing an increase in the net asset value since the time of purchase. A transfer of shares from a shareholder's account to another account will be assumed to be made in the same order as a redemption. Conversion of Class B Shares to Class D Shares. After approximately eight years (the "Conversion Period"), Class B shares will be converted automatically into Class D shares of the Fund. Class D shares are subject to an ongoing account maintenance fee of 0.25% of net assets but are not subject to the distribution fee that is borne by Class B shares. Automatic conversion of Class B shares into Class D shares will occur at least once each month (on the "Conversion Date") on the basis of the relative net asset values of the shares of the two classes on the Conversion Date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes. In addition, shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D shares. The Conversion Date for dividend reinvestment shares will be calculated taking into account the length of time the shares underlying such dividend reinvestment shares were outstanding. If at a Conversion Date the conversion of Class B shares to Class D shares of the Fund in a single account will result in less than $50 worth of Class B shares being left in the account, all of the Class B shares of the Fund held in the account on the Conversion Date will be converted to Class D shares of the Fund. Share certificates for Class B shares of the Fund to be converted must be delivered to the Transfer Agent at least one week prior to the Conversion Date applicable to those shares. In the event such certificates are not received by the Transfer Agent at least one week prior to the Conversion Date, the related Class B shares will convert to Class D shares on the next scheduled Conversion Date after such certificates are delivered. In general, Class B shares of equity MLAM-advised mutual funds will convert approximately eight years after initial purchase, and Class B shares of taxable and tax-exempt fixed income MLAM-advised mutual funds will convert approximately ten years after initial purchase. If, during the Conversion Period, a shareholder exchanges Class B shares with an eight-year Conversion Period for Class B shares with a ten-year Conversion Period, or vice versa, the Conversion Period applicable to the Class B shares acquired in the exchange will apply, and the holding period for the shares exchanged will be tacked onto the holding period for the shares acquired. The Conversion Period is modified for shareholders who purchased Class B shares through certain retirement plans which qualified for a waiver of the CDSC normally imposed on purchases of Class B shares ("Class B Retirement Plans"). When the first share of any MLAM-advised mutual fund purchased by a Class B Retirement Plan has been held for ten years (i.e., ten years from the date the relationship between MLAM-advised mutual funds and the Class B Retirement Plan was established), all Class B shares of all MLAM-advised mutual funds held in that Class B Retirement Plan will be converted into Class D shares of the appropriate funds. Subsequent to such conversion, that Class B Retirement Plan will be sold Class D shares of the appropriate funds at net asset value per share. 17 DISTRIBUTION PLANS The Fund has adopted separate distribution plans for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a "Distribution Plan") with respect to the account maintenance and/or distribution fees paid by the Fund to the Distributor with respect to such classes. The Class B and Class C Distribution Plans provide for the payment of account maintenance fees and distribution fees, and the Class D Distribution Plan provides for the payment of account maintenance fees. The Distribution Plans for Class B, Class C and Class D shares each provide that the Fund pays the Distributor an account maintenance fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.25% of the average daily net assets of the Fund attributable to shares of the relevant class in order to compensate the Distributor and Merrill Lynch (pursuant to a sub-agreement) in connection with account maintenance activities. The Distribution Plans for Class B and Class C shares each provide that the Fund also pays the Distributor a distribution fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets of the Fund attributable to the shares of the relevant class in order to compensate the Distributor and Merrill Lynch (pursuant to a sub-agreement) for providing shareholder and distribution services, and bearing certain distribution-related expenses of the Fund, including payments to financial consultants for selling Class B and Class C shares of the Fund. The Distribution Plans relating to Class B and Class C shares are designed to permit an investor to purchase Class B and Class C shares through dealers without the assessment of an initial sales charge and at the same time permit the dealer to compensate its financial consultants in connection with the sale of the Class B and Class C shares. In this regard, the purpose and function of the ongoing distribution fees and the CDSC are the same as those of the initial sales charge with respect to the Class A and Class D shares of the Fund in that the deferred sales charges provide for the financing of the distribution of the Fund's Class B and Class C shares. Prior to July 6, 1993, the Fund paid the Distributor an ongoing distribution fee, accrued daily and paid monthly, at the annual rate of 1.0% of average daily net assets of the Class B shares of the Fund under a distribution plan previously adopted by the Fund (the "Prior Plan") to compensate the Distributor and Merrill Lynch for providing account maintenance and distribution-related activities and services to Class B shareholders. The fee rate payable and the services provided under the Prior Plan are identical to the aggregate fee rate payable and the services provided under the Class B Distribution Plan, the difference being that the account maintenance and distribution services have been unbundled. For the year ended September 30, 1993, the Fund paid the Distributor account maintenance fees of $2,146,935 and distribution fees of $6,440,805 under the Class B Distribution Plan. The Fund did not begin to offer shares of Class C or Class D publicly until the date of this Prospectus. Accordingly, no payments have been made pursuant to the Class C or Class D Distribution Plans prior to the date of this Prospectus. The payments under the Distribution Plans are based upon a percentage of average daily net assets attributable to the shares regardless of the amount of expenses incurred and, accordingly, distribution-related revenues from the Distribution Plans may be more or less than distribution-related expenses. Information with respect to the distribution-related revenues and expenses is presented to the Directors for their consideration in connection with their deliberations as to the continuance of the Class B and Class C 18 Distribution Plans. This information is presented annually as of December 31 of each year on a "fully allocated accrual" basis and quarterly on a "direct expense and revenue/cash" basis. On the fully allocated accrual basis, revenues consist of the account maintenance fees, distribution fees, the CDSCs and certain other related revenues, and expenses consist of financial consultant compensation, branch office and regional operation center selling and transaction processing expenses, advertising, sales promotion and marketing expenses, corporate overhead and interest expense. On the direct expense and revenue/cash basis, revenues consist of the account maintenance fees, distribution fees and CDSCs and the expenses consist of financial consultant compensation. As of December 31, 1993, the last date for which fully allocated accrual data is available, the fully allocated accrual revenues incurred by the Distributor and Merrill Lynch since the Fund commenced operations on November 29, 1985 exceeded expenses for such period by $24,803,000 (2.99% of Class B net assets at that date). As of December 31, 1993, direct cash revenues for the period since the commencement of operations exceeded direct cash expenses by $109,814,195 (13.22% of Class B net assets at that date); as of July 31, 1994, direct cash revenues for the period since the commencement of operations exceeded direct cash expenses by $113,763,218 (15.59% of Class B net assets at that date). The Fund has no obligation with respect to distribution and/or account maintenance-related expenses incurred by the Distributor and Merrill Lynch in connection with the Class B, Class C and Class D shares, and there is no assurance that the Board of Directors of the Fund will approve the continuance of the Distribution Plans from year to year. However, the Distributor intends to seek annual continuation of the Distribution Plans. In their review of the Distribution Plans, the Directors will be asked to take into consideration expenses incurred in connection with the account maintenance and/or distribution of each class of shares separately. The initial sales charges, the account maintenance fee, the distribution fee and/or the CDSCs received with respect to one class will not be used to subsidize the sale of shares of another class. Payments of the distribution fee on Class B shares will terminate upon conversion of those Class B shares into Class D shares as set forth under "Deferred Sales Charge Alternatives--Class B and Class C Shares-- Conversion of Class B Shares to Class D Shares". LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES The maximum sales charge rule in the Rules of Fair Practice of the NASD imposes a limitation on certain asset-based sales charges such as the Fund's distribution fee and the CDSC borne by the Class B and Class C shares, but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges) plus (2) interest on the unpaid balance 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 Distributor has voluntarily agreed to waive interest charges on the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the maximum amount payable to the Distributor (referred to as the "voluntary maximum") in connection with the Class B shares is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving the interest charges at any time. To the extent payments would exceed the voluntary maximum, the Fund will not make further payments of the distribution fee with respect to Class B shares, and any CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances, the amount payable 19 pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstances payment in excess of the amount payable under the NASD formula will not be made. SHAREHOLDER SERVICES The Fund offers a number of shareholder services and investment plans designed to facilitate investment in its shares. Certain of such services are not available to investors who place orders for the Fund through the Merrill Lynch BlueprintSM Program. Full details as to each of such services, copies of the various plans described below and instructions as to how to participate in the various services or plans, or how to change options with respect thereto, can be obtained from the Fund, the Distributor or Merrill Lynch. Included in such services are the following: Investment Account. Each shareholder whose account is maintained at the Transfer Agent has an Investment Account and will receive statements, at least quarterly, from the Transfer Agent. These statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of ordinary income dividends and long-term capital gain distributions. The statements will also show any other activity in the account since the preceding statement. Shareholders will receive separate transaction confirmations for each purchase or sale transaction other than automatic investment purchases and the reinvestment of ordinary income dividends, and long-term capital gains distributions. Shareholders may make additions to their Investment Accounts at any time by mailing a check directly to the Transfer Agent. Shareholders may also maintain their accounts through Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch brokerage account, an Investment Account in the transferring shareholder's name will be automatically opened, without charge, at the Transfer Agent. Shareholders considering transferring their Class A or Class D shares from Merrill Lynch to another brokerage firm or financial institution should be aware that, if the firm to which the shares are to be transferred will not take delivery of shares of the Fund, a shareholder either must redeem the Class A or Class D shares (paying any applicable CDSC) so that the cash proceeds can be transferred to the account at the new firm or such shareholder must continue to maintain an Investment Account at the Transfer Agent for those Class A or Class D shares. Shareholders interested in transferring their Class B or Class C shares from Merrill Lynch and who do not wish to have an Investment Account maintained for such shares at the Transfer Agent may request their new brokerage firm to maintain such shares in an account registered in the name of the brokerage firm for the benefit of the shareholder at the Transfer Agent. Shareholders considering transferring a tax- deferred retirement account such as an IRA from Merrill Lynch to another brokerage firm or financial institution should be aware that, if the firm to which the retirement account is to be transferred will not take delivery of shares of the Fund, a shareholder must either redeem the shares (paying any applicable CDSC) so that the cash proceeds may be transferred to the account at the new firm, or such shareholder must continue to maintain a retirement account at Merrill Lynch for those shares. Exchange Privilege. Shareholders of each class of shares of the Fund each have an exchange privilege with certain other MLAM-advised mutual funds. There is currently no limitation on the number of times a shareholder may exercise the exchange privilege. The exchange privilege may be modified or terminated at any time in accordance with the rules of the Commission. 20 Under the Merrill Lynch Select PricingSM System, Class A shareholders may exchange Class A shares of the Fund for Class A shares of a second MLAM-advised mutual fund if the shareholder holds any Class A shares of the second fund in his account in which the exchange is made at the time of the exchange or is otherwise eligible to purchase Class A shares of the second fund. If the Class A shareholder wants to exchange Class A shares for shares of a second MLAM- advised mutual fund, and the shareholder does not hold Class A shares of the second fund in his account at the time of the exchange and is not otherwise eligible to acquire Class A shares of the second fund, the shareholder will receive Class D shares of the second fund as a result of the exchange. Class D shares also may be exchanged for Class A shares of a second MLAM-advised mutual fund at any time as long as, at the time of the exchange, the shareholder holds Class A shares of the second fund in the account in which the exchange is made or is otherwise eligible to purchase Class A shares of the second fund. Exchanges of Class A and Class D shares are made on the basis of the relative net asset values per Class A or Class D share, respectively, plus an amount equal to the difference, if any, between the sales charge previously paid on the Class A or Class D shares being exchanged and the sales charge payable at the time of the exchange on the shares being acquired. Class B, Class C and Class D shares will be exchangeable with shares of the same class of other MLAM-advised mutual funds. Shares of the Fund which are subject to a CDSC will be exchangeable on the basis of relative net asset value per share without the payment of any CDSC that might otherwise be due upon redemption of the shares of the Fund. For purposes of computing the CDSC that may be payable upon a disposition of the shares acquired in the exchange, the holding period for the previously owned shares of the Fund is "tacked" to the holding period of the newly acquired shares of the other Fund. Class A, Class B, Class C and Class D shares also will be exchangeable for shares of certain MLAM-advised money market funds specifically designated as available for exchange by holders of Class A, Class B, Class C or Class D shares. The period of time that Class A, Class B, Class C or Class D shares are held in a money market fund, however, will not count toward satisfaction of the holding period requirement for reduction of any CDSC imposed on such shares, if any, and, with respect to Class B shares, toward satisfaction of the Conversion Period. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the new Class B shares. In addition, Class B shares of the Fund acquired through use of the exchange privilege will be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares of the MLAM-advised mutual fund from which the exchange has been made. Exercise of the exchange privilege is treated as a sale for Federal income tax purposes. For further information, see "Shareholder Services--Exchange Privilege" in the Statement of Additional Information. The Fund's exchange privilege is modified with respect to purchases of Class A and Class D shares under the Merrill Lynch Mutual Fund Adviser ("MFA") program. First, the initial allocation of assets is made under the MFA program. Then, any subsequent exchange under the MFA program of Class A or Class D 21 shares of a MLAM-advised mutual fund for Class A or Class D shares of the Fund will be made solely on the basis of the relative net asset values of the shares being exchanged. Therefore, there will not be a charge for any difference between the sales charge previously paid on the shares of the other MLAM- advised mutual fund and the sales charge payable on the shares of the Fund being acquired in the exchange under the MFA program. Automatic Reinvestment of Dividends and Capital Gains Distributions. All dividends and capital gains distributions are reinvested automatically in full and fractional shares of the Fund, without sales charge, at the net asset value per share next determined on the ex-dividend date of such dividend or distribution. A shareholder may at any time, by written notification or by telephone (1-(800)-MER-FUND) to the Transfer Agent, elect to have subsequent dividends or both dividends and capital gains distributions paid in cash rather than reinvested, in which event payment will be mailed on or about the payment date. Cash payments can also be directly deposited to the shareholder's bank account. No CDSC will be imposed on redemption of shares issued as a result of the automatic reinvestment of dividends or capital gains distributions. Systematic Withdrawal Plans. A Class A or Class D shareholder may elect to receive systematic withdrawal payments from his Investment Account in the form of payments by check or through automatic payment by direct deposit to his bank account on either a monthly or quarterly basis. A Class A shareholder whose shares are held within a CMA (R), CBA (R) or Retirement Account may elect to have shares redeemed on a monthly, bi-monthly, quarterly, semiannual or annual basis through the Systematic Redemption Program, subject to certain conditions. Automatic Investment Plans. Regular additions of Class A, Class B, Class C or Class D shares may be made to an investor's Investment Account by prearranged charges of $50 or more to such investor's regular bank account. Investors who maintain CMA (R) accounts may arrange to have periodic investments made in the Fund in their CMA (R) account or in certain related accounts in amounts of $100 or more through the CMA Automated Investment Program. Retirement Plans. Self-directed individual retirement accounts and other retirement plans are available from Merrill Lynch. Under these plans, investments may be made in the Fund and in certain of the other mutual funds whose shares are distributed by the Distributor as well as in other securities. Merrill Lynch charges an initial establishment fee and an annual custodial fee for each account. The minimum initial purchase to establish any such plan is $100 and the minimum subsequent purchase is $1. REDEMPTION OF SHARES The Fund is required to redeem for cash all shares of the Fund on receipt of a written request in proper form. The redemption price is the net asset value per share next determined after the initial receipt of proper notice of redemption. Except for any CDSC which may be applicable, there will be no charge for redemption if the redemption request is sent directly to the Transfer Agent. Shareholders liquidating their holdings will receive upon redemption all dividends reinvested through the date of redemption. The value of shares at the 22 time of redemption may be more or less than the shareholder's cost, depending on the market value of the securities held by the Fund at such time. REDEMPTION A shareholder wishing to redeem shares may do so without charge by tendering the shares directly to the Fund's Transfer Agent, Financial Data Services, Inc., Transfer Agency Mutual Funds Operations, P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered other than by mail should be delivered to Financial Data Services, Inc., Transfer Agency Mutual Funds Operations, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice of redemption in the case of shares deposited with the Transfer Agent may be accompanied by a written letter requesting redemption. Proper notice of redemption in the case of shares for which certificates have been issued may be accomplished by a written letter as noted above accompanied by certificates for the shares to be redeemed. The notice in either event requires the signatures of all persons in whose names the shares are registered, signed exactly as their names appear on the Transfer Agent's register or on the certificate, as the case may be. The signature(s) on the redemption request must be guaranteed by an "eligible guarantor institution" as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. Notarized signatures are not sufficient. In certain instances, the Transfer Agent may require additional documents, such as, but not limited to, trust instruments, death certificates, appointments as executor or administrator, or certificates of corporate authority. For shareholders redeeming directly with the Transfer Agent, payment will be mailed within seven days of receipt of a proper notice of redemption. At various times the Fund may be requested to redeem shares for which it has not yet received good payment. The Fund may delay or cause to be delayed the mailing of a redemption check until such time as it has assured itself that good payment (e.g., cash or certified check drawn on a United States bank) has been collected for the purchase of such shares. Normally, this delay will not exceed 10 days. REPURCHASE The Fund also will repurchase shares through a shareholder's listed securities dealer. The Fund normally will accept orders to repurchase shares by wire or telephone from dealers for their customers at the net asset value next computed after receipt of the order by the dealer, less any applicable CDSC, provided that the request for repurchase is received by the dealer prior to the close of business on the New York Stock Exchange on the day received and such request is received by the Fund from the dealer not later than 4:30 p.m., New York Time, on the same day. Dealers have the responsibility of submitting such repurchase requests to the Fund not later than 4:30 P.M., New York time, in order to obtain that day's closing price. These repurchase arrangements are for the convenience of shareholders and do not involve a charge by the Fund (other than any applicable CDSC). Securities firms which do not have selected dealer agreements with the Distributor, however, may impose a transaction charge on the shareholder for transmitting the notice of repurchase to the Fund. Merrill Lynch may charge its customers a processing fee (presently $4.85) to confirm a repurchase of shares to such customers. Redemptions directly through the Fund's Transfer Agent are not subject to the processing fee. 23 The Fund reserves the right to reject any order for repurchase, which right of rejection might adversely affect shareholders seeking redemption through the repurchase procedure. However, a shareholder whose order for repurchase is rejected by the Fund may redeem shares as set forth above. REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES Shareholders who have redeemed their Class A or Class D shares have a one- time privilege to reinstate their accounts by purchasing Class A or Class D shares, as the case may be, of the Fund at net asset value without a sales charge up to the dollar amount redeemed. The reinstatement privilege may be exercised by sending a notice of exercise along with a check for the amount to be reinstated to the Transfer Agent within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. The reinstatement will be made at the net asset value per share next determined after the notice of reinstatement is received and cannot exceed the amount of the redemption proceeds. The reinstatement privilege is a one-time privilege and may be exercised by the Class A or Class D shareholder only the first time such shareholder makes a redemption. INVESTMENT PRACTICES AND RESTRICTIONS PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES The Fund may engage in various portfolio strategies to seek to increase its return through the use of options on portfolio securities and to hedge its portfolio against movements in the equity markets, interest rates and exchange rates between currencies. The Fund has authority to write (i.e., sell) covered call options on its portfolio securities, purchase put options on securities and engage in transactions in stock index options, stock index futures and financial futures, and related options on such futures. The Fund may also deal in forward foreign exchange transactions and foreign currency options and futures, and related options on such futures. Each of these portfolio strategies is described below. Although certain risks are involved in options and futures transactions (as discussed below in "Risk Factors in Options, Futures and Currency Transactions"), the Investment Adviser believes that, because the Fund will only engage in these transactions for hedging purposes, the options and futures portfolio strategies of the Fund will not subject the Fund to the risks frequently associated with the speculative use of options and futures transactions. While the Fund's use of hedging strategies is intended to reduce the volatility of the net asset value of Fund shares, the Fund's net asset value will fluctuate. There can be no assurance that the Fund's hedging transactions will be effective. Furthermore, the Fund will only engage in hedging activities from time to time and may not necessarily be engaging in hedging activities when movements in the equity markets, interest rates or currency exchange rates occur. Purchasing Put Options. The Fund is authorized to purchase put options to hedge against a decline in the market value of its portfolio securities. By buying a put option, the Fund has a right to sell the underlying security at the exercise price, thus limiting the Fund's risk of loss through a decline in the market value of the security until the put option expires. The amount of any appreciation in the value of the underlying security will be partially offset by the amount of the premium paid for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction and profit or loss from the sale will depend on whether the amount received is more or less than the premium paid for the 24 put option plus the related transaction costs. A closing sale transaction cancels out the Fund's position as the purchaser of an option by means of an offsetting sale of an identical option prior to the expiration of the option it has purchased. The Fund will not purchase put options on securities if, as a result of such purchase, the aggregate cost of all outstanding options on securities held by the Fund would exceed 5% of the market value of the Fund's total assets. Writing of Covered Call Options. The Fund may, from time to time, sell ("write") covered call options in order to attempt to increase the yield on its portfolio or to protect against declines in the value of its portfolio securities. A covered call option is an option whereby the Fund, in return for a premium, gives another party a right to buy particular securities owned by the Fund at a specified price for a certain period of time. By writing a covered call option, the Fund, in return for the premium income realized from the sale of the option, gives up the opportunity to profit from a price increase in the underlying security above the option exercise price, where the price increase occurs while the option is in effect. In addition, the Fund's ability to sell the underlying security will be limited while the option is in effect. The Fund may not write covered call options on underlying securities in an amount exceeding 25% of the value of its total assets. Stock Index Options and Futures and Financial Futures. The Fund is authorized to engage in transactions in stock index options and futures and financial futures, and related options on such futures. The Fund may purchase or write call options and purchase or write put options on stock indexes to hedge against the risks of market-wide stock price movements in the securities in which the Fund invests. The effectiveness of the hedge will depend on the degree of diversification of the Fund's portfolio and the sensitivity of the securities comprising the portfolio to factors influencing the market as a whole. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular stock, whether the Fund will realize a gain or loss on the purchase or sale of an option on an index depends upon movements in the level of prices in the stock market generally or in an industry or market segment rather than movements in the prices of a particular stock. Currently, stock index options traded include the S&P 100 Index, the S&P 500 Index, the NYSE Composite Index, the AMEX Market Value Index, the National Over-the-Counter Index and other standard, broadly based stock market indices. The Fund may also purchase and sell stock index futures contracts and financial futures contracts ("futures contracts") as a hedge against adverse changes in the market value of its portfolio securities and interest rates, as described below. A futures contract is an agreement between two parties which obligates the purchaser of the futures contract to buy and the seller of a futures contract to sell a security for a set price on a future date. Unlike most other futures contracts, a stock index futures contract does not require actual delivery of securities, but results in cash settlement based upon the difference in value of the index between the time the contract was entered into and the time of its settlement. The Fund may effect transactions in stock index futures contracts in securities and financial futures contracts in United States Government and agency securities and corporate debt securities. Transactions by the Fund in stock index futures and financial futures are subject to limitations as described below under "Restrictions on the Use of Futures Transactions". The Fund may sell stock index futures contracts in anticipation of or during a market decline to attempt to offset the decrease in market value of the Fund's securities portfolio that might otherwise result. When the Fund is not fully invested in the securities markets and anticipates a significant market advance, it may purchase stock index futures in order to gain rapid market exposure that may in part or entirely offset increases in the cost of securities that the Fund intends to purchase. As such securities purchases are made, 25 an equivalent amount of stock index futures contracts will be terminated by offsetting sales. The Fund does not consider purchases of futures contracts to be a speculative practice under these circumstances. It is anticipated that, in a substantial majority of these transactions, the Fund will purchase such securities upon termination of the long futures position, whether the long position is the purchase of a stock index futures contract or the purchase of a call option on a stock index future, but under unusual circumstances (e.g., the Fund experiences a significant amount of redemptions), a long futures position may be terminated without the corresponding purchase of securities. The Fund may sell financial futures contracts in anticipation of an increase in the general level of interest rates. Generally, as interest rates rise, the market values of debt securities which may be held by the Fund as a temporary defensive measure will fall, thus reducing the net asset value of the Fund. However, as interest rates rise, the value of the Fund's short position in the futures contract will also tend to increase, thus offsetting all or a portion of the depreciation in the market value of the Fund's investments which are being hedged. While the Fund will incur commission expenses in selling and closing out futures positions, these commissions are generally less than the transaction expenses which the Fund would have incurred had the Fund sold portfolio securities in order to reduce its exposure to increases in interest rates. The Fund also may purchase financial futures contracts in anticipation of a decline in interest rates when it is not fully invested in a particular market in which it intends to make investments to gain market exposure that may in part or entirely offset an increase in the cost of securities it intends to purchase. It is anticipated that, in a substantial majority of these transactions, the Fund will purchase securities upon termination of the futures contract. The Fund also has authority to purchase and write call and put options on futures contracts in connection with its hedging activities. Generally, these strategies are utilized under the same market and market sector conditions (i.e., conditions relating to specific types of investments) in which the Fund enters into futures transactions. The Fund may purchase put options or write call options on futures contracts rather than selling the underlying futures contract in anticipation of a decrease in the market value of a security or an increase in interest rates. Similarly, the Fund may purchase call options, or write put options on futures contracts, as a substitute for the purchase of such futures to hedge against the increased cost resulting from an increase in the market value or a decline in interest rates of securities which the Fund intends to purchase. The Fund may engage in options and futures transactions on exchanges and options in the over-the-counter markets ("OTC options"). In general, exchange- traded contracts are third-party contracts (i.e., performance of the parties' obligations is guaranteed by an exchange or clearing corporation) with standardized strike prices and expiration dates. OTC options transactions are two-party contracts with price and terms negotiated by the buyer and seller. See "Restrictions on OTC Options" below for information as to restrictions on the use of OTC options. Foreign Currency Options, Futures and Related Options. The Fund is also authorized to purchase or sell listed or over-the-counter foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates. Such transactions may be effected with respect to hedges on non-U.S. dollar denominated securities owned by the Fund, sold by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund. As an illustration, the Fund may use such techniques to hedge the stated value in United States dollars of an investment in a pound sterling denominated security. In such circumstances, for example, the Fund may 26 purchase a foreign currency put option enabling it to sell a specified amount of pounds for dollars at a specified price by a future date. To the extent the hedge is successful, a loss in value of the pound relative to the dollar will tend to be offset by an increase in the value of the put option. To offset, in whole or in part, the cost of acquiring such a put option, the Fund may also sell a call option which, if exercised, requires it to sell a specified amount of pounds for dollars at a specified price by a future date (a technique called a "straddle"). By selling such call option, the Fund gives up the opportunity to profit without limit from increases in the relative value of the pound to the dollar. The Investment Adviser believes that "straddles" of the type which may be utilized by the Fund constitute hedging transactions and are consistent with the policies described above. Certain differences exist between these foreign currency hedging instruments. Foreign currency options provide the holder thereof the right to buy or sell a currency at a fixed price on a future date (with exchange-traded contracts and OTC options having the characteristics described above). A futures contract on a foreign currency is an agreement between two parties to buy and sell a specified amount of currency for a set price on a future date. Futures contracts and options on futures contracts are traded on boards of trade or futures exchanges. The Fund will not speculate in foreign currency options, futures or related options. Accordingly, the Fund will not hedge a currency substantially in excess of the market securities which it has committed or anticipates to purchase which are denominated in such currency, and in the case of securities which have been sold by the Fund but not yet delivered, the proceeds thereof in its denominated currency. The Fund may not incur potential net liabilities of more than 20% of its total assets from foreign currency options, futures or related options. Restrictions on the Use of Futures Transactions. Under regulations of the Commodity Futures Trading Commission ("CFTC"), the futures trading activities described herein will not result in the Fund being deemed to be a "commodity pool," as defined under such regulations, provided that the Fund adheres to certain restrictions. In particular, the Fund may (i) purchase and sell futures contracts and options thereon for bona fide hedging purposes, as defined under CFTC regulations, without regard to the percentage of the Fund's assets committed to margin and option premiums, and (ii) the Fund may enter into non- hedging transactions, provided that the Fund not enter into such transactions for yield enhancement or risk management purposes if, immediately thereafter, the sum of the amount of initial margin deposits on the Fund's existing futures positions and option premiums would exceed 5% of the market value of its liquidation value, after taking into account unrealized profits and unrealized losses on any such transactions. However, the Fund intends to engage in options and futures transactions only for hedging purposes. Margin deposits may consist of cash or securities acceptable to the broker and the relevant contract market. When the Fund purchases a futures contract or writes a put option or purchases a call option thereon, an amount of cash and cash equivalents will be deposited in a segregated account with the Fund's custodian so that the amount so segregated, plus the amount of initial and variation margin held in the account of its broker, equals the market value of the futures contract, thereby ensuring that the use of such futures is unleveraged. An order has been obtained from the Commission which exempts the Fund from certain provisions of the Investment Company Act in connection with transactions involving futures contracts and options thereon. 27 Restrictions on OTC Options. The Fund will engage in OTC options, including over-the-counter foreign currency options and options on foreign currency futures, only with member banks of the Federal Reserve System and primary dealers in United States Government securities or with affiliates of such banks or dealers which have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. The Fund will acquire only those OTC options for which the Investment Adviser believes the Fund can receive on each business day at least two independent bids or offers (one of which will be from an entity other than a party to the option). The staff of the Commission has taken the position that purchased OTC options and the assets used as cover for written OTC options are illiquid securities. Therefore, the Fund has adopted an investment policy pursuant to which it will not purchase or sell OTC options (including OTC options on futures contracts) if, as a result of such transaction, the sum of the market value of OTC options currently outstanding which are held by the Fund, the market value of the underlying securities covered by OTC call options currently outstanding which were sold by the Fund and margin deposits on the Fund's existing OTC options on futures contracts exceed 5% of the total assets of the Fund, taken at market value, together with all other assets of the Fund which are illiquid or are not otherwise readily marketable. However, if the OTC option is sold by the Fund to a primary U.S. Government securities dealer recognized by the Federal Reserve Bank of New York and if the Fund has the unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then the Fund will treat as illiquid such amount of the underlying securities as is equal to the repurchase price less the amount by which the option is "in-the- money" (i.e., current market value of the underlying security minus the option's strike price). The repurchase price with the primary dealers is typically a formula price which is generally based on a multiple of the premium received for the option, plus the amount by which the option is "in-the-money". This policy is not a fundamental policy of the Fund and may be amended by the Board of Directors of the Fund without the approval of the Fund's shareholders. However, the Fund will not change or modify this policy prior to the change or modification by the Commission staff of its positions. Risk Factors in Options, Futures and Currency Transactions. Utilization of options and futures transactions to hedge the portfolio involves the risk of imperfect correlation in movements in the price of options and futures prices and movements in the prices of the securities, interest rates or currencies which are the subject of the hedge. If the price of the options or futures moves more or less than the price of the subject of the hedge, the Fund will experience a gain or loss which will not be completely offset by movements in the price of the subject of the hedge. The Fund intends to enter into options and futures transactions, on an exchange or in the over-the-counter market, only if there appears to be a liquid secondary market for such options or futures or, in the case of OTC options, the Investment Adviser believes the Fund can receive on each business day at least two independent bids or offers. However, there can be no assurance that a liquid secondary market will exist at any specific time. Thus, it may not be possible to close an options or futures position. The inability to close options and futures positions also could have an adverse impact on the Fund's ability to effectively hedge its portfolio. There is also the risk of loss by the Fund of margin deposits or collateral in the event of bankruptcy of a broker with whom the Fund has an open position in an option, a futures contract or a related option. The exchanges on which currency options are traded have generally established limitations governing the maximum number of call or put options on the same underlying currency (whether or not covered) which 28 may be written by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or through one or more brokers). "Trading limits" are imposed on the maximum number of contracts which any person may trade on a particular trading day. The Investment Adviser does not believe that these trading and position limits will have any adverse impact on the portfolio strategies for hedging the Fund's portfolio. OTHER INVESTMENT PRACTICES Lending of Portfolio Securities. The Fund may from time to time lend securities which it holds, with a value not exceeding 33 1/3% of its total assets, to approved borrowers such as brokers and financial institutions. All loans of portfolio securities will be fully collateralized by cash or U.S. government securities. During the period of this loan, the Fund receives the income on the loaned securities and either receives the income on the collateral or other compensation, i.e., negotiated loan premium or fee, for entering into the loan and thereby increases its yield. In the event that the borrower defaults on its obligation to return borrowed securities, because of insolvency or otherwise, the Fund could experience delays and costs in gaining access to the collateral and could suffer a loss to the extent that the value of the collateral fell below the market value of the borrowed securities. Repurchase Agreements. In repurchase transactions, the Fund purchases a collaterized debt security from a bank, broker-dealer or financial institution which agrees to repurchase such security on a certain date and at a fixed price calculated to produce a previously agreed upon return to the Fund. If the bank or financial institution were to default upon its repurchase obligation and the debt security were sold for a lesser amount, the Fund would realize a loss. Foreign Securities. The Fund may invest up to 20% of its total assets in securities issued by foreign companies. Investments in such securities involve certain additional risks not associated with investments in domestic companies, including the risks of fluctuation in exchange rates, the possibility of political or economic instability in the country of issue and the possible imposition of exchange controls or other foreign governmental laws or restrictions. For purposes of this investment restriction, an issuer ordinarily will be considered to be located in the country under the laws of which it is organized or where the primary trading market of its securities is located. The Fund, however, may consider a company to be located in a country, without reference to its domicile or to the primary trading market of its securities, when at least 50% of its non-current assets, capitalization, gross revenues or profits in any one of the two most recent fiscal years represents (directly or indirectly through subsidiaries) assets or activities located in such country. Forward Foreign Exchange Transactions. The Fund has authority to deal in forward foreign exchange between currencies of the different countries in which it will invest as a hedge against possible variations in the foreign exchange rate among these currencies. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date (up to one year) and price set at the time of the contract. The Fund's dealings in forward foreign exchange will be limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of forward foreign currency with respect to specific receivables or payables of the Fund accruing in connection with the purchase and sale of its portfolio securities, the sale and redemption of shares of the Fund or the payment of dividends and 29 distributions by the Fund. Position hedging is the sale of forward foreign currency with respect to portfolio security positions denominated or quoted in such foreign currency. The Fund will not speculate in forward foreign exchange. The Fund will not attempt to hedge all of its foreign portfolio positions. The Fund may not commit more than 15% of its assets to position hedging contracts. Portfolio Brokerage. The Fund has no obligation with any broker or group of brokers in the execution of transactions in portfolio securities. Orders for transactions in portfolio securities are placed for the Fund with a number of brokers and dealers, including Merrill Lynch. In placing orders it is the policy of the Fund to obtain the most favorable net results, taking into account various factors including price, commission, if any, size of the transaction, and difficulty of execution. Where practicable, the Investment Adviser surveys a number of brokers and dealers in connection with proposed portfolio transactions and selects the broker or dealer which offers the Fund the best price and execution or other services which are of benefit to the Fund. Investment Restrictions. The Fund has adopted certain investment restrictions which may not be changed without a vote of the Fund's shareholders, including a majority of the shares of the Fund and any other portfolio which might be added in the future. The Statement of Additional Information contains a description of those restrictions under "Investment Practices and Restrictions--Current Investment Restrictions." The Board of Directors of the Fund, at a meeting held on August 3, 1994, approved certain changes to the fundamental and non-fundamental investment restrictions of the Fund. These changes were proposed in connection with the creation of a set of standard fundamental and non-fundamental investment restrictions that would be adopted, subject to shareholder approval, by substantially all of the non-money market mutual funds advised by MLAM or FAM. The proposed uniform investment restrictions are designed to provide each of these funds, including the Fund, with as much investment flexibility as possible under the Investment Company Act and applicable state securities regulations, help promote operational efficiencies and facilitate monitoring of compliance. The investment objectives and policies of the Fund will be unaffected by the adoption of the proposed investment restrictions. The full text of the proposed investment restrictions is set forth under "Investment Practices and Restrictions--Proposed Uniform Investment Restrictions" in the Statement of Additional Information. Shareholders of the Fund are currently considering whether to approve the proposed revised investment restrictions. If such shareholder approval is obtained, the Fund's current investment restrictions will be replaced by the proposed restrictions, and the Fund's Prospectus and Statement of Additional Information will be supplemented to reflect such change. PERFORMANCE DATA From time to time the Fund may include its average annual total return for various specified time periods in advertisements or information furnished to present or prospective shareholders. Average annual total return is computed separately for Class A, Class B, Class C and Class D shares in accordance with a formula specified by the Commission. 30 Average annual total return quotations for the specified periods will be computed by finding the average annual compounded rates of return (based on net investment income and any capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each period. Average annual total return will be computed assuming all dividends and distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses, including the maximum sales charge in the case of Class A and Class D shares and the CDSC that would be applicable to a complete redemption of the investment at the end of the specified period in the case of Class B and Class C shares. Dividends paid by the Fund with respect to all shares, to the extent any dividends are paid, will be calculated in the same manner at the same time on the same day and will be in the same amount, except that account maintenance fees and distribution charges and any incremental transfer agency costs relating to each class of shares will be borne exclusively by that class. The Fund will include performance data for both Class A and Class B shares of the Fund in any advertisement or information including performance data for all classes of shares of the Fund. The Fund also may quote total return and aggregate total return performance data for various specified time periods. Such data will be calculated substantially as described above, except that (1) the rates of return calculated will not be average annual rates, but rather, actual annual, annualized or aggregate rates of return and (2) the maximum applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the impact on the performance data calculations of including or excluding the maximum applicable sales charges, actual annual or annualized total return data generally will be lower than average annual total return data since the average annual rates of return reflect compounding; aggregate total return data generally will be higher than average annual total return data since the aggregate rates of return reflect compounding over a longer period of time. In advertisements directed to investors whose purchases are subject to reduced sales charges in the case of Class A and Class D shares or waiver of the CDSC in the case of Class B and Class C shares (such as investors in certain retirement plans), performance data may take into account the reduced, and not the maximum, sales charge or may not take into account the CDSC and therefore may reflect greater total return since, due to the reduced sales charges or waiver of the CDSC, a lower amount of expenses may be deducted. See "Purchase of Shares". The Fund's total return may be expressed either as a percentage or as a dollar amount in order to illustrate the effect of such total return on a hypothetical $1,000 investment in the Fund at the beginning of each specified period. Total return figures are based on the Fund's historical performance and are not intended to indicate future performance. The Fund's total return will vary depending on market conditions, the securities comprising the Fund's portfolio, the Fund's operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The value of an investment in the Fund will fluctuate and an investor's shares, when redeemed, may be worth more or less than their original cost. On occasion, the Fund may compare its performance to that of the Standard & Poor's 500 Composite Stock Price Index, the Value Line Composite Index or the Dow Jones Industrial Average, or to data contained in publications such as Lipper Analytical Services, Inc., Morningstar Publications, Inc. ("Morningstar"), Money Magazine, U.S. News & World Report, Business Week, CDA Investment Technology, Inc., Forbes Magazine and Fortune Magazine. From time to time, the Fund may include the Fund's Morningstar risk-adjusted performance ratings in advertisements or supplemental sales literature. As 31 with other performance data, performance comparisons should not be considered representative of the Fund's relative performance for any future period. PORTFOLIO TRANSACTIONS AND BROKERAGE Subject to policies established by the Board of Directors of the Fund, the Investment Adviser is responsible for the Fund's portfolio decisions and the placing of the Fund's portfolio transactions. With respect to such transactions, the Investment Adviser seeks to obtain the best net 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 will not necessarily be paying the lowest commission or spread available. The Fund has no obligation to deal with any broker or dealer in the execution of its portfolio transactions. The Fund pays brokerage fees to Merrill Lynch in connection with portfolio transactions executed by Merrill Lynch. Brokers and dealers, including Merrill Lynch, who provide supplemental investment research to the Investment Adviser may receive orders for transactions by the Fund. Information so received is in addition to and not in lieu of the services required to be performed by the Investment Adviser under the Investment Advisory Agreement, and the expenses of the Investment Adviser will not necessarily be reduced as a result of the receipt of such supplemental information. Supplemental investment research received by the Investment Adviser also may be used in connection with other investment advisory accounts of the Investment Adviser and its affiliates. Whether or not a particular broker-dealer sells shares of the Fund neither qualifies nor disqualifies such broker-dealer to execute transactions for the Fund. ADDITIONAL INFORMATION DIVIDENDS AND DISTRIBUTIONS It is the Fund's intention to distribute all of its net investment income, if any. Dividends from such net investment income are paid semi-annually. All net realized long- or short-term capital gains, if any, are distributed to the Fund's shareholders at least annually. Premiums from expired call options written by the Fund and net gains from closing purchase transactions are treated as short-term capital gains for Federal income tax purposes. The per share dividends and distributions on each class of shares will be reduced as a result of any account maintenance, distribution and transfer agency fees applicable to that class. See "Additional Information--Determination of Net Asset Value". Dividends and distributions may be automatically reinvested in shares of the Fund, at the net asset value without a sales charge. Shareholders may elect in writing to receive any such dividends or distributions, or both, in cash. Dividends and distributions are taxable to shareholders as described below whether they are reinvested in shares of the Fund or received in cash. 32 DETERMINATION OF NET ASSET VALUE The net asset value of the shares of all classes of the Fund is determined once daily as of 4:15 p.m., New York time, on each day during which the New York Stock Exchange is open for trading. Any assets or liabilities initially expressed in terms of non-U.S. dollar currencies are translated into U.S. dollars at the prevailing market rates as quoted by one or more banks or dealers on the day of valuation. The net asset value per share is computed by dividing the sum of the value of the securities held by the Fund plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares outstanding at such time, rounded to the nearest cent. Expenses, including the investment advisory fees payable to the Investment Adviser and any account maintenance and/or distribution fee payable to the Distributor, are accrued daily. The Fund employs Merrill Lynch Securities Pricing Service ("MLSPS"), an affiliate of the Investment Adviser, to provide certain securities prices for the Fund. The Fund's arrangement with MLSPS was not effective until after the close of the Fund's most recently completed fiscal year end. Consequently, no fees were paid by the Fund to MLSPS for pricing services during the Fund's most recently completed fiscal year. The per share net asset value of the Class A shares generally will be higher than the per share net asset value of shares of the other classes, reflecting the daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to Class B and Class C shares and the daily expense accruals of the account maintenance fees applicable with respect to the Class D shares; moreover, the per share net asset value of Class D shares generally will be higher than the per share net asset value of Class B and Class C shares, reflecting the daily expense accruals of the distribution and higher transfer agency fees applicable with respect to Class B and Class C shares. It is expected, however, that the per share net asset value of the classes will tend to converge immediately after the payment of dividends or distributions, which will differ by approximately the amount of the expense accrual differentials among the classes. Portfolio securities and options which are traded on stock exchanges are valued at the last sale price as of the close of business on the day the securities are being valued, or, lacking any sales, at the last available bid price. Securities traded in the over-the-counter market are valued at the last quoted bid prices as at the close of trading on the New York Stock Exchange on each day by brokers that make markets in the securities. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund. TAXES The Fund has elected and intends to continue to qualify for the special tax treatment afforded regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Code"). If it so qualifies, the Fund (but not its shareholders) will not be subject to Federal income tax on the part of its net ordinary income and net realized capital gains which it distributes to Class A, Class B, Class C and Class D shareholders (together, the "shareholders"). The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined, in general, on an October 31 year end, plus certain undistributed amounts from previous years. If the Fund pays a dividend in January which was declared in the previous October, 33 November or December to shareholders of record on a specified date in one of such months, then such dividend or distribution will be treated for federal tax purposes as being paid on December 31, and will be taxable to shareholders as if received on December 31. The following discussion applies generally to shareholders of the Fund and, in particular, to those shareholders of the Fund whose income is subject to tax. Dividends paid by the Fund from its ordinary income, and distributions of the Fund's net realized short-term capital gains (together referred to hereafter as "ordinary income dividends") are taxable to shareholders as ordinary income. Distributions made from the Fund's net realized long-term capital gains (including long-term gains from certain transactions in options) are taxable to shareholders as long-term capital gains, regardless of the length of time the shareholder has owned Fund shares. Dividends and distributions are taxable to shareholders even though they are reinvested in additional shares of the Fund. Not later than 60 days after the close of its taxable year, the Fund will provide its shareholders with a written notice designating the amounts of any ordinary income dividends or capital gains dividends. A portion of the Fund's ordinary income dividends may be eligible for the dividends received deduction allowed to corporations under the Code, if certain requirements are met. Ordinary income dividends paid by the Fund to shareholders who are non- resident aliens or foreign entities generally will be subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Non-resident shareholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax. Pursuant to the Fund's investment objectives, the Fund may invest in foreign securities. Foreign taxes may be paid by the Fund as a result of tax laws of countries in which the Fund may invest. Income tax treaties between certain countries and the United States may reduce or eliminate such taxes. It is impossible to determine in advance the effective rate of foreign tax to which the Fund will be subject, since the amount of Fund assets to be invested in various countries is not known. Because the Fund limits its investment in foreign securities, shareholders will not be entitled to claim foreign tax credits with respect to their share of foreign taxes paid by the Fund on income from investments of foreign securities held by the Fund. Under certain provisions of the Code, some shareholders may be subject to a 31% withholding tax on ordinary income dividends, capital gains dividends and redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom a certified taxpayer identification number is not on file with the Fund, those who, to the Fund's knowledge, have furnished an incorrect number or those who are subject to backup withholding because of a failure to report income. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not subject to backup withholding. A shareholder who holds shares as a capital asset generally will recognize a capital gain or loss upon the sale of such shares, which will be a long-term capital gain or loss if such shares were held for more than one year. However, any loss realized by a shareholder who held shares for six months or less will be treated as a 34 long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares. No gain or loss will be recognized by Class B shareholders on the conversion of their Class B shares into Class D shares. A shareholder's basis in the Class D shares acquired will be the same as such shareholder's basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares. If a shareholder exercises an exchange privilege within 90 days of acquiring such shares, then the loss the shareholder can recognize on the exchange will be reduced (or the gain increased) to the extent the sales charge paid to the Fund reduces any sales charge the shareholder would have owed upon purchase of the new shares in the absence of the exchange privilege. Instead, such sales charge will be treated as an amount paid for the new shares. See "Shareholder Services--Exchange Privilege". A loss realized on a sale or exchange of shares of the Fund will be disallowed if other Fund shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and these Treasury regulations are subject to change by legislative or administrative action either prospectively or retroactively. The Fund intends to provide shareholders annually with information relating to the Fund's income and assets necessary to permit shareholders to determine whether and to what extent their dividend income from the Fund is exempt from their state income tax. Shareholders are urged to consult their tax advisers as to whether any portion of the dividends they receive from the Fund are exempt from state income tax and as to any other specific questions as to Federal, foreign, state or local taxes. Foreign investors should consider applicable foreign taxes in their evaluation of an investment in the Fund. ORGANIZATION OF THE FUND The Fund was incorporated under Maryland law on May 21, 1984. It has an authorized capital of 2,000,000,000 shares of Common Stock, par value $0.01 per share, divided into four classes, designated Class A, Class B, Class C and Class D Common Stock, each of which consists of 500,000,000 shares. Class A, Class B, Class C and Class D Common Stock represent interests in the same assets of the Fund and are identical in all respects except that Class B, Class C and Class D shares bear certain expenses related to the account maintenance associated with such shares, and Class B and Class C shares bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to account maintenance and distribution expenditures, as the case may be. See "Purchase of Shares". The Fund has received an order from the Commission permitting the issuance and sale of multiple classes of 35 Common Stock. The Directors of the Fund may classify and reclassify the shares of the Fund into additional classes of Common Stock at a future date. Shareholders are entitled to one vote for each share held and fractional votes for fractional shares held and will vote on the election of Directors and any other matter submitted to a shareholder vote. The Fund does not intend to hold meetings of shareholders in any year in which the Investment Company Act does not require shareholders to act upon any of the following matters: (i) election of Directors; (ii) approval of an investment advisory agreement; (iii) approval of a distribution agreement; and (iv) ratification of selection of independent accountants. Voting rights for Directors are not cumulative. Shares issued are fully paid and non-assessable and have no preemptive rights. Shares have the conversion rights described in this Prospectus. Each share of Common Stock is entitled to participate equally in dividends and distributions declared by the Fund and in the net assets of the Fund upon liquidation or dissolution after satisfaction of outstanding liabilities, except, as noted above, the Class B, Class C and Class D shares bear certain additional expenses. SHAREHOLDER INQUIRIES Shareholder inquiries may be addressed to the Fund at the address or telephone number set forth on the cover page of this Prospectus. SHAREHOLDER REPORTS Only one copy of each shareholder report and certain shareholder communications will be mailed to each identified shareholder regardless of the number of accounts such shareholder has. If a shareholder wishes to receive separate copies of each report and communication for each of the shareholder's related accounts the shareholder should notify in writing: Financial Data Services, Inc. Attn: TAMFO P.O. Box 45289 Jacksonville, Florida 32232-5289 The written notification should include the shareholder's name, address, tax identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated and/or mutual fund account numbers. If you have any questions regarding this please call your Merrill Lynch financial consultant or Financial Data Services, Inc. at 800-637-3863. 36 MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT AUTHORIZATION FORM (PART 1) - ------------------------------------------------------------------------------- NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH BLUEPRINT SM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT SM PROGRAM APPLICATION BY CALLING (800) 637-3766. - ------------------------------------------------------------------------------- 1. SHARE PURCHASE APPLICATION I, being of legal age, wish to purchase: (choose one) [_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares of Merrill Lynch Balanced Fund for Investment and Retirement and establish an Investment Account as described in the Prospectus. In the event that I am not eligible to purchase Class A shares, I understand that Class D shares will be purchased. Basis for establishing an Investment Account: A. I enclose a check for $............ payable to Financial Data Services, Inc. as an initial investment (minimum $1,000). I understand that this purchase will be executed at the applicable offering price next to be determined after this Application is received by you. B. I already own shares of the following Merrill Lynch mutual funds that would qualify for the Right of Accumulation as outlined in the Statement of Additional Information: Please list all funds. (Use a separate sheet of paper if necessary.) 1. .................................. 4. .................................. 2. .................................. 5. .................................. 3. .................................. 6. .................................. (Please Print) Name........................................................................... First Name Initial Last Name Name of Co-Owner (if any)...................................................... First Name Initial Last Name Address........................................................................ ................................................. Date........................ (Zip Code) Occupation........................... Name and Address of Employer ........ ..................................... ..................................... Signature of Owner Signature of Co-Owner (if any) (In the case of co-owner, a joint tenancy with rights of survivorship will be presumed unless otherwise specified.) - ------------------------------------------------------------------------------- 2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS Ordinary Income Dividends Long-Term Capital Gains Select [_] Reinvest Select [_] Reinvest One: [_] Cash One: [_] Cash If no election is made, dividends and capital gains will be automatically reinvested at net asset value without a sales charge. IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] CHECK OR [_] DIRECT DEPOSIT TO BANK ACCOUNT IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW: I hereby authorize payment of dividend and capital gain distributions by direct deposit to my bank account and, if necessary, debit entries and adjustments for any credit entries made to my account in accordance with the terms I have selected on the Merrill Lynch Balanced Fund for Investment and Retirement Authorization Form. SPECIFY TYPE OF ACCOUNT (CHECK ONE) [_] CHECKING [_] SAVINGS Name on your account .......................................................... Bank Name ..................................................................... Bank Number ...................... Account Number ............................ Bank Address .................................................................. I agree that this authorization will remain in effect until I provide written notification to Financial Data Services, Inc. amending or terminating this service. Signature of Depositor ........................................................ Signature of Depositor ............................... Date................... (if joint account, both must sign) NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION. - ------------------------------------------------------------------------------- 37 MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT AUTHORIZATION FORM (PART 1) -- (CONTINUED) 3. SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER Social Security Number or Taxpayer Identification Number Under penalty of perjury, I certify (1) that the number set forth above is my correct Social Security Number or Taxpayer Identification Number and (2) that I am not subject to backup withholding (as discussed in the Prospectus under "Taxes") either because I have not been notified that I am subject thereto as a result of a failure to report all interest or dividends, or the Internal Revenue Service ("IRS") has notified me that I am no longer subject thereto. INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING AND IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS. ..................................... ..................................... Signature of Owner Signature of Co-Owner (if any) - ------------------------------------------------------------------------------- 4. LETTER OF INTENTION--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION) ..................., 19...... Date of Initial Purchase Dear Sir/Madam: Although I am not obligated to do so, I intend to purchase shares of Merrill Lynch Balanced Fund for Investment and Retirement or any other investment company with an initial sales charge or deferred sales charge for which Merrill Lynch Funds Distributor, Inc. acts as distributor over the next 13 month period which will equal or exceed: [_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $1,000,000 Each purchase will be made at the then reduced offering price applicable to the amount checked above, as described in the Fund's prospectus. I agree to the terms and conditions of this Letter of Intention. I hereby irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc. my attorney, with full power of substitution, to surrender for redemption any or all shares of Merrill Lynch Balanced Fund for Investment and Retirement held as security. By .................................. ..................................... Signature of Owner Signature of Co-Owner (If registered in joint names, both must sign) In making purchases under this letter, the following are the related accounts on which reduced offering prices are to apply: (1) Name............................. (2) Name............................. Account Number....................... Account Number....................... - ------------------------------------------------------------------------------- 5. FOR DEALER ONLY Branch Office, Address, Stamp. We hereby authorize Merrill Lynch Funds Distributor, Inc. to act as - - - our agent in connection with transactions under this authorization form and agree to notify the Distributor of any purchases made under a Letter of Intention or Systematic Withdrawal Plan. We guarantee the shareholder's signature. - - - This form when completed should be mailed to: ..................................... Dealer Name and Address Merrill Lynch Balanced Fund for Investment and Retirement By .................................. c/o Financial Data Services, Authorized Signature of Dealer Inc. Transfer Agency Mutual Fund Operations [_][_][_] [_][_][_][_] F/C Last Name P.O. Box 45289 Branch-Code F/C No. Jacksonville, FL 32232-5289 [_][_][_] [_][_][_][_] Dealer's Customer A/C No. 38 MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT AUTHORIZATION FORM (PART 2) - ------------------------------------------------------------------------------- NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR AUTOMATIC INVESTMENT PLANS ONLY. - ------------------------------------------------------------------------------- 1. ACCOUNT REGISTRATION Name of Owner...................... Name of Co-Owner (if any).......... Social Security No. or Taxpayer Identification Number Address............................ Account Number .................... (if existing account) ................................... - ------------------------------------------------------------------------------- 2. SYSTEMATIC WITHDRAWAL PLAN--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION) MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for quarterly, of [_] Class A or [_] Class D shares in Merrill Lynch Balanced Fund for Investment and Retirement at cost or current offering price. Withdrawals to be made either (check one) [_] Monthly on the 24th day of each month, or [_] Quarterly on the 24th day of March, June, September and December. If the 24th falls on a weekend or holiday, the next succeeding business day will be utilized. Begin systematic withdrawal on . . . . . . . . . .(month) or as soon as possible thereafter. SPECIFY HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): [_] $ or [_] % of the current value of [_] Class A or [_] Class D shares in the account. SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account (check one and complete part (a) or (b) below): DRAW CHECKS PAYABLE (CHECK ONE) (a)I hereby authorize payment by check [_] as indicated in Item 1. [_] to the order of.......................................................... Mail to (check one) [_] the address indicated in Item 1. [_] Name (Please Print)...................................................... Address ....................................................................... .......................................................................... Signature of Owner................................ Date.................. Signature of Co-Owner (if any)............................................ (B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND (IF NECESSARY) DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE IN ERROR TO MY ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN NOTIFICATION TO FINANCIAL DATA SERVICES, INC. AMENDING OR TERMINATING THIS SERVICE. Specify type of account (check one): [_] checking [_] savings Name on your Account........................................................... Bank Name...................................................................... Bank Number........................ Account Number............................ Bank Address................................................................... ............................................................................... Signature of Depositor................................. Date.................. Signature of Depositor......................................................... (If joint account, both must sign) NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION. 39 - ------------------------------------------------------------------------------- 3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN I hereby request that Financial Data Services, Inc. draw an automated clearing house ("ACH") debit on my checking account described below each month to purchase: (choose one) [_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares of Merrill Lynch Balanced Fund for Investment and Retirement, subject to the terms set forth below. In the event that I am not eligible to purchase Class A shares, I understand that Class D shares will be purchased. FINANCIAL DATA SERVICES, INC. AUTHORIZATION TO HONOR ACH DEBITS DRAWN BY FINANCIAL DATA SERVICES, INC. You are hereby authorized to draw an ACH debit each month on my bank account for investment in Merrill Lynch Balanced Fund for Investment and Retirement as indicated below: Amount of each check or ACH debit To...............................Bank $................................. (Investor's Bank) Bank Address......................... Account Number ................... City...... State...... Zip Code...... Please date and invest ACH debits on the 20th of each month beginning ......(month) or as soon thereafter as possible. As a convenience to me, I hereby request and authorize you to pay and I agree that you are drawing these charge to my account ACH debits ACH debits voluntarily at my request drawn on my account by and payable and that you shall not be liable for to Financial Data Services, Inc., I any loss arising from any delay in agree that your rights in respect of preparing or failure to prepare any each such debit shall be the same as such debit. If I change banks or if it were a check drawn on you and desire to terminate or suspend this signed personally by me. This program, I agree to notify you authority is to remain in effect promptly in writing. I hereby until revoked by me in writing. authorize you to take any action to Until you receive such notice, you correct erroneous ACH debits of my shall be fully protected in honoring bank account or purchases of fund any such debit. I further agree that shares including liquidating shares if any such debit be dishonored, of the Fund and credit my bank whether with or without cause and account. I further agree that if a whether intentionally or debit is not honored upon inadvertently, you shall be under no presentation, Financial Data liability. Services, Inc. is authorized to discontinue immediately the Automatic ............ ..................... Investment Plan and to liquidate Date Signature of sufficient shares held in my account Depositor to offset the purchase made with the dishonored debit. ............ ..................... Bank Signature of Depositor ............ ..................... Account (If joint account, Date Signature of Number both must sign) Depositor ...................... Signature of Depositor NOTE: IF AUTOMATIC INVESTMENT PLAN (If joint account, IS ELECTED, YOUR BLANK, UNSIGNED both must sign) CHECK MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION. 40 [This Page Intentionally Left Blank] 41 [This Page Intentionally Left Blank] 42 INVESTMENT ADVISER Merrill Lynch Asset Management Administrative Offices: 800 Scudders Mill Road Plainsboro, New Jersey Mailing Address: P.O. Box 9011 Princeton, New Jersey 08543-9011 DISTRIBUTOR Merrill Lynch Funds Distributor, Inc. Administrative Offices: 800 Scudders Mill Road Plainsboro, New Jersey Mailing Address: P.O. Box 9011 Princeton, New Jersey 08543-9011 CUSTODIAN The Chase Manhattan Bank, N.A. 4 Metro Tech Center 18th Floor Brooklyn, New York 11245 TRANSFER AGENT Financial Data Services, Inc. Administrative Offices: Transfer Agency Mutual Funds Operations 4800 Deer Lake Drive East Jacksonville, Florida 32246-6484 Mailing Address: P.O. Box 45289 Jacksonville, Florida 32232-5289 INDEPENDENT AUDITORS Deloitte & Touche LLP 117 Campus Drive Princeton, New Jersey 08540 COUNSEL Shereff, Friedman, Hoffman & Goodman 919 Third Avenue New York, New York 10022 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, THE INVESTMENT ADVISER, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. --------------- TABLE OF CONTENTS
PAGE ---- Fee Table.................................................................. 2 Merrill Lynch Select PricingSM System...................................... 3 Financial Highlights....................................................... 7 Investment Objective and Policies.......................................... 8 The Fund and Its Management................................................ 9 Purchase of Shares......................................................... 10 Initial Sales Charge Alternatives-- Class A and Class D Shares............................................... 12 Deferred Sales Charge Alternatives-- Class B and Class C Shares............................................... 14 Distribution Plans........................................................ 18 Limitations on the Payment of Deferred Sales Charges...................... 19 Shareholder Services....................................................... 20 Redemption of Shares....................................................... 22 Redemption................................................................ 23 Repurchase................................................................ 23 Reinstatement Privilege-- Class A and Class D Shares............................................... 24 Investment Practices and Restrictions...................................... 24 Portfolio Strategies Involving Options and Futures........................ 24 Other Investment Practices................................................ 29 Performance Data........................................................... 30 Portfolio Transactions and Brokerage....................................... 32 Additional Information..................................................... 32 Dividends and Distributions............................................... 32 Determination of Net Asset Value.......................................... 33 Taxes..................................................................... 33 Organization of the Fund.................................................. 35 Shareholder Inquiries..................................................... 36 Shareholder Reports....................................................... 36 Authorization Form......................................................... 37
Code #10331-1094 Prospectus (ART) - -------------------------------------------------------------------------------- MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT October , 1994 Distributor: Merrill Lynch Funds Distributor, Inc. This Prospectus should be retained for future reference STATEMENT OF ADDITIONAL INFORMATION - ----------------------------------- OCTOBER 21, 1994 MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800 ---------------- Merrill Lynch Retirement Benefit Investment Program, Inc., doing business as Merrill Lynch Balanced Fund for Investment and Retirement, is a mutual fund, technically known as an open-end diversified management investment company, of the type permitted to have a number of different portfolios, or series. The fund and its only series, the Full Investment Portfolio, are referred to as the "Fund." The Fund seeks to provide shareholders with as high a level of total investment return as is consistent with a relatively low level of risk. It tries to achieve its objective through investment in high quality, larger capitalization common stocks (generally companies with $500,000,000 or more of market capitalization) and other types of securities, including preferred stocks, debt securities and convertible securities. Because the Fund is designed for investors for whom current tax liability is not a consideration, such as certain tax qualified employee benefit plans, the Fund will invest without regard to tax considerations. ---------------- Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four classes of shares, each with a different combination of sales charges, ongoing fees and other features. The Merrill Lynch Select Pricing SM System permits an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor expects to hold the shares and other relevant circumstances. ---------------- This Statement of Additional Information of the Fund is not a prospectus and should be read in conjunction with the prospectus of the Fund, dated October 21, 1994 (the "Prospectus"), which has been filed with the Securities and Exchange Commission and can be obtained without charge from Merrill Lynch Funds Distributor, Inc., P.O. Box 9011, Princeton, New Jersey 08543-9011, (609) 282-2800, or from selected securities dealers. This Statement of Additional Information contains information in addition to, and more detailed than, that set forth in the Prospectus and has been incorporated by reference into the Prospectus. It is intended to provide investors with additional information regarding the activities and operations of the Fund. ---------------- MERRILL LYNCH ASSET MANAGEMENT -- INVESTMENT ADVISER MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR ---------------- INVESTMENT OBJECTIVE AND POLICIES As discussed on page 8 of the Prospectus, the investment objective of the Fund is to provide shareholders with as high a level of total investment return as is consistent with a relatively low level of risk. This is a fundamental investment objective. The Fund seeks to accomplish its objective through investment in high quality, larger capitalization common stocks (generally companies with $500,000,000 or more of market capitalization) and other types of securities, including preferred stocks, debt securities and convertible securities, as well as through the writing of covered call options and the lending of its portfolio securities. It is anticipated that, except under unusual circumstances, the Fund will maintain at least 25% of the value of its assets in fixed income senior securities. In its common stock investments, it is anticipated that the Fund will seek to emphasize issues with relatively low price earnings ratios, above average dividend yields, and relatively low price to book value ratios, as compared to prevailing market conditions. With respect to debt securities (other than money market instruments which are discussed below), the Fund will invest only in instruments which are rated Aa or better by Moody's Investors Service, Inc. or AA or better by Standard & Poor's Ratings Group or which are determined by the investment adviser of the Fund to be of quality comparable to instruments so rated. As discussed on page 8 of the Prospectus, the Fund may, under certain circumstances, invest all or a portion of its assets in high quality money market securities. Such securities can include the following: (1) U.S. Treasury bills; (2) bankers' acceptances and certificates of deposit; (3) commercial paper; and (4) repurchase agreements with respect to U.S. Government securities and U.S. Government agency securities. MANAGEMENT OF THE FUND The Investment Adviser. Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset Management (the "Investment Adviser" or "MLAM") is the investment adviser of the Fund. MLAM is owned and controlled by Merrill Lynch & Co., Inc., a financial services holding company ("ML & Co."). The Investment Adviser and its affiliate, Fund Asset Management, L.P. ("FAM"), together serve as the investment adviser to over 100 other registered investment companies, as well as to numerous pension plans and other institutions. The Advisory Agreement. Under its investment advisory agreement with the Fund (the "Agreement"), the Investment Adviser is responsible for the actual management of the Fund's portfolio. Responsibility for making decisions to buy, sell or hold a particular security rests with the Investment Adviser, subject to general oversight by the Board of Directors. The Investment Adviser provides the portfolio managers for the Fund, who make investment decisions and place orders to effect portfolio transactions for the Fund. In this regard, the Investment Adviser has access to the total securities research and economic research facilities of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Pursuant to the Agreement, the Investment Adviser also performs certain administrative and management services for the Fund. The Agreement obligates the Investment Adviser to pay all compensation of and furnish office space for officers and employees of the Fund connected with investment and economic research, trading and investment management of the Fund, and to pay the fees of all Directors of the Fund who are affiliated with ML & Co. or any of its subsidiaries. Portfolio accounting services are provided for the Fund by the Investment Adviser, and the Fund reimburses the Investment Adviser for its costs in connection with such services. 2 The Agreement will continue in effect until April 3, 1995, and may continue in effect thereafter from year to year if approved at least annually by vote of a majority of the Directors of the Fund or by the holders of a majority of the outstanding shares of each series of the Fund. Any such continuation also requires approval by a majority of the Directors who are not parties to the Agreement or "interested persons" of any such party as defined in the Investment Company Act by vote cast in person at a meeting called for such purpose. The Agreement may be terminated at any time, without penalty, on sixty days' written notice by the Fund's Board of Directors, by the holders of a majority of the Fund's outstanding voting securities or by the Investment Adviser. The Agreement automatically terminates in the event of its assignment (as defined in the Act and the rules thereunder). As discussed under "The Fund and Its Management" in the Prospectus, the Agreement provides that the Fund will pay the Investment Adviser a monthly fee based upon the average daily value of the portfolio's net assets at the following annual rate: 0.65% of the average daily net assets not exceeding $500 million; 0.60% of the average daily net assets exceeding $500 million but not exceeding $1.5 billion; 0.55% of the average daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.50% of the average daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; and 0.45% of the average daily net assets exceeding $3.5 billion. Certain states in which the shares of the Fund are qualified for sale impose limitations on the expenses of the Fund. At the date of this Statement of Additional Information, the most restrictive annual expense limitations to which the Fund is subject require that the Investment Adviser reimburse each portfolio in any amount necessary to prevent the portfolio's aggregate ordinary operating expenses (excluding interest, taxes, account maintenance, distribution and brokerage fees and commissions, and extraordinary charges such as litigation costs) from exceeding in any fiscal year 2.5% of the first $30 million of the portfolio's average net assets, 2.0% of the next $70 million of average net assets and 1.5% of the portfolio's remaining average net assets. Any such reimbursements would be made on a monthly basis. No payment of the investment advisory fee will be made to the Investment Adviser which would result in expenses of any portfolio exceeding on a cumulative annualized basis the most restrictive applicable expense limitation in effect at the time of such payment. (Expenses not covered by the limitation are interest, taxes, brokerage commissions and other items such as extraordinary legal expenses.) For the Fund's fiscal years ended September 30, 1993, 1992, and 1991, the Investment Adviser earned a fee of approximately $5,620,993, $6,063,373, and $6,868,382, respectively, from the Fund. Directors and Officers. The Directors and executive officers of the Fund and their principal occupations for at least the last five years are set forth below. Unless otherwise noted, the address of each Director and executive officer is P.O. Box 9011, Princeton, New Jersey 08543-9011. Arthur Zeikel--President and Director (1)(2)--President of the Investment Adviser (which term as used herein includes its corporate predecessors) since 1977 and Chief Investment Officer thereof since 1976; President and Chief Investment Officer of FAM (which term as used herein includes its corporate predecessors) since 1977; President and Director of Princeton Services, Inc. ("Princeton Services") since 1993; Executive Vice President of Merrill Lynch since 1990 and a Senior Vice President thereof from 1985 to 1990; Executive Vice President of ML & Co. since 1990; Director of Merrill Lynch Funds Distributor, Inc. ("MLFD" or the "Distributor"). Kenneth S. Axelson--Director (2)--75 Jameson Point Road, Rockland, Maine 04841, Executive Vice President and Director, J.C. Penney Company, Inc., until 1982; Director, Protection Mutual Insurance 3 Company, UNUM Corporation, and, until 1994, of Grumman Corporation and Zurn Industries, Inc., and until 1992, of Central Maine Power Company and Key Trust Company of Maine; Trustee of The Chicago Dock and Canal Trust. Herbert I. London--Director (2)--New York University-Gallatin Division, 113- 115 University Place, New York, New York 10003. John M. Olin Professor of Humanities, New York University since 1993 and Professor thereof since 1973; Dean, Gallatin Division of New York University from 1978 to 1993 and Director from 1975 to 1976; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Director, Damon Corporation since 1991; Overseer, Center for Naval Analyses. Robert R. Martin--Director (2)--513 Grand Hill, St. Paul, Minnesota 55102. Chairman of the Board, WTC Industries, Inc. since 1994; Chairman and Chief Executive Officer, Kinnard Investments, Inc. from 1990 to 1993; Executive Vice President, Dain Bosworth from 1974 to 1989; Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof in 1979; Director, Securities Industry Association from 1981 to 1982 and Public Securities Association from 1979 to 1980; Trustee, Northland College since 1992. Joseph L. May--Director (2)--424 Church Street, Suite 2000, Nashville, Tennessee 37219. Attorney in private practice since 1984; President, May and Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983; Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May Corporation (personal holding company) from 1972 to 1983; Director, Signal Apparel Co. from 1972 to 1989. Andre F. Perold--Director (2)--Morgan Hall, Soldiers Field Road, Boston, Massachusetts 02163. Professor, Harvard Business School since 1989 and Associate Professor from 1983 to 1989; Trustee, The Common Fund, since 1989; Director, Quantec Limited since 1991 and Teknekron Software Systems since 1994. Terry K. Glenn--Executive Vice President (1)(2)--Executive Vice President of the Investment Adviser and FAM since 1983; Executive Vice President and Director of Princeton Services since 1993; President of MLFD since 1986 and Director thereof since 1991. Bernard J. Durnin--Senior Vice President (1)(2)--Senior Vice President of the Investment Adviser and FAM since 1981 and Vice President from 1977 to 1981. Denis B. Cummings--Vice President (1)--Vice President of the Investment Adviser since 1978. Donald C. Burke--Vice President (1)(2)--Vice President and Director of Taxation of MLAM since 1990; employee of Deloitte & Touche LLP from 1981 to 1990. Gerald M. Richard--Treasurer (1)(2)--Senior Vice President and Treasurer of FAM and the Investment Adviser since 1984; Senior Vice President and Treasurer of Princeton Services since 1993; Treasurer of MLFD since 1984 and Vice President since 1981; employee of MLFD since 1978. Jerry Weiss--Secretary (1)(2)--Vice President of the Investment Adviser since 1990; Attorney in private practice from 1982 to 1990. - -------- (1) Interested person, as defined in the Investment Company Act, of the Fund. (2) Such Director or officer is a director or officer of certain other investment companies for which the Investment Adviser or its affiliate, FAM, acts as investment adviser or manager. 4 Pursuant to the terms of the management agreement with the Fund, the Investment Adviser pays all compensation of officers of the Fund as well as the fees of all Directors who are affiliated persons of the Investment Adviser. The Fund pays each Director not affiliated with the Investment Adviser a fee of $5,000 per year plus $500 per meeting attended, together with such Director's out-of-pocket expenses relating to attendance at meetings. The Fund also compensates members of its Audit and Nominating Committee, which consists of all of the Directors of the Fund who are not interested persons of the Fund, with a fee of $1,000 per year and a per meeting fee of $250 per year. For the fiscal year ended September 30, 1993, fees and expenses paid to the unaffiliated Directors aggregated $36,447. As of September 30, 1994, the officers and Directors of the Fund as a group (12 persons) owned, in the aggregate, less than 1% of the outstanding shares of the Fund. PURCHASE OF SHARES Reference is made to "Purchase of Shares" in the Prospectus for certain information as to the purchase of Fund shares. The Fund issues four classes of shares under the Merrill Lynch Select PricingSM System: Class A and Class D shares are sold to investors choosing the initial sales charge alternatives and Class B shares are sold to investors choosing the deferred sales charge alternative. Each Class A, Class B, Class C and Class D shares of the Fund represents identical interests in the investment portfolio of the Fund, have the same rights and are identical in all respects, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements. Class B, Class C and Class D shares each have exclusive voting rights with respect to the Rule 12b-1 distribution plan adopted with respect to such class pursuant to which the account maintenance and distribution fees are paid. Each class has different exchange privileges. See "Shareholder Services--Exchange Privilege". The Merrill Lynch Select PricingSM System is used by more than 50 mutual funds advised by the Investment Adviser or its affiliate, FAM. Funds advised by the Investment Adviser or FAM are referred to herein as "MLAM-advised mutual funds". The Fund has entered into separate distribution agreements with the Distributor in connection with the continuous offering of each class of shares of the Fund (the "Distribution Agreements"). The Distribution Agreements obligate the Distributor to pay certain expenses in connection with the offering of each class of shares of the Fund. After the prospectuses, statements of additional information and periodic reports have been prepared, set in type and mailed to the shareholders, the Distributor pays for the printing and distribution of copies thereof used in connection with the offering to dealers and investors. The Distributor also pays for other supplementary sales literature and advertising costs. The Distribution Agreements are 5 subject to the same renewal requirements and termination provisions as the Investment Advisory Agreement described above. INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES The gross sales charges for the sale of Class A shares for the six-month period ended March 31, 1994 were $37,535, of which the Distributor received $2,294 and Merrill Lynch received $35,241. The gross sales charges for the sale of Class A shares for the fiscal year ended September 30, 1993 were $62,442, of which the Distributor received $3,517 and Merrill Lynch received $58,925. For the fiscal year ended September 30, 1993 and the six months ended March 31, 1994, the Distributor received no CDSCs with respect to Class A shares for which the initial sales charge was waived. The term "purchase," as used in the Prospectus and this Statement of Additional Information in connection with an investment in Class A and Class D shares of the Fund, refers to a single purchase by an individual, or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his spouse and their children under the age of 21 years purchasing shares for his or their own account and to single purchases by a trustee or other fiduciary purchasing shares for a single trust estate or single fiduciary account although more than one beneficiary is involved. The term "purchase" also includes purchases by any "company," as that term is defined in the Investment Company Act, but does not include purchases by any such company which has not been in existence for at least six months or which has no purpose other than the purchase of shares of the Fund or shares of other registered investment companies at a discount; provided, however, that it shall not include purchases by any group of individuals whose sole organizational nexus is that the participants therein are credit cardholders of a company, policyholders of an insurance company, customers of either a bank or broker-dealer or clients of an investment adviser. REDUCED INITIAL SALES CHARGES Right of Accumulation. Reduced sales charges are applicable through a right of accumulation under which eligible investors are permitted to purchase shares of the Fund subject to an initial sales charge at the offering price applicable to the total of (a) the public offering price then being purchased plus (b) an amount equal to the then current net asset value or cost, whichever is higher, of the purchaser's combined holdings of all classes of shares of the Fund and of other MLAM-advised mutual funds. For any such right of accumulation to be made available, the Distributor must be provided at the time of purchase, by the purchaser or the purchaser's securities dealer, with sufficient information to permit confirmation of qualification. Acceptance of the purchase order is subject to such confirmation. The right of accumulation may be amended or terminated at any time. Shares held in the name of a nominee or custodian under pension, profit-sharing or other employee benefit plans may not be combined with other shares to qualify for the right of accumulation. Letter of Intention. Reduced sales charges are applicable to purchases aggregating $25,000 or more of the Class A or Class D shares of the Fund or any other MLAM-advised mutual funds made within a thirteen-month period starting with the first purchase pursuant to a Letter of Intention in the form provided in the Prospectus. The Letter of Intention is available only to investors whose accounts are maintained at Financial Data Services, Inc., the Fund's transfer agent (the "Transfer Agent"). The Letter of Intention is not available 6 to employee benefit plans for which Merrill Lynch provides plan participant recordkeeping services. The Letter of Intention is not a binding obligation to purchase any amount of Class A or Class D shares, but its execution will result in the purchaser paying a lower sales charge at the appropriate quantity purchase level. A purchase not originally made pursuant to a Letter of Intention may be included under a subsequent Letter executed within 90 days of such purchase if the Distributor is informed in writing of this intent within such 90-day period. The value of Class A and Class D shares of the Fund and of other MLAM-advised mutual funds presently held, at cost or maximum offering price (whichever is higher), on the date of the first purchase under the Letter of Intention, may be included as a credit toward the completion of such Letter. If the total amount of shares does not equal the amount stated in the Letter of Intention (minimum of $25,000), the investor will be notified and must pay, within 20 days of the expiration of such Letter, the difference between the sales charge on the Class A or Class D shares purchased at the reduced rate and the sales charge applicable to the shares actually purchased through the Letter. Class A or Class D shares equal to five percent of the intended amount will be held in escrow during the 13-month period (while remaining registered in the name of the purchaser) for this purpose. The first purchase under the Letter of Intention must be at least five percent or more of the dollar amount of such Letter. If during the term of such Letter, a purchase brings the total amount invested to an amount equal to or in excess of the amount indicated in the Letter, the purchaser will be entitled on that purchase and subsequent purchases to the reduced percentage sales charge which would be applicable to a single purchase equal to the total dollar value of the shares then being purchased under such Letter, but there will be no retroactive reduction of the sales charges on any previous purchase. The value of any shares redeemed or otherwise disposed of by the purchaser prior to termination or completion of the Letter of Intention will be deducted from the total purchases made under such Letter. An exchange from a MLAM-advised money market fund into the Fund that creates a sales charge will count toward completing a new or existing Letter of Intention from the Fund. Merrill Lynch Blueprint SM Program. Class D shares of the Fund are offered to participants in the Merrill Lynch Blueprint SM Program ("Blueprint"). In addition, participants in Blueprint who own Class A shares of the Fund may purchase additional Class A shares of the Fund through Blueprint. Blueprint is directed to small investors, group Investment Retirement Accounts ("IRAs") and participants in certain affinity groups such as credit unions, trade associations and benefit plans. Investors placing orders to purchase Class A or Class D shares of the Fund through Blueprint will acquire the Class A or Class D shares at net asset value plus a sales charge calculated in accordance with the Blueprint sales charge schedule (i.e., up to $300 at 4.25%, $300.01 up to $5,000 at 3.25% plus $3 and $5,000.01 or more at the standard sales charge rates disclosed in the Prospectus). In addition, Class A or Class D shares of the Fund are being offered at net asset value plus a sales charge of 1/2 of 1% for corporate or group IRA programs placing orders to purchase their Class A or Class D shares through Blueprint. Services, including the exchange privilege, available to Class A and Class D investors through Blueprint, however, may differ from those available to other investors in Class A and Class D shares. Orders for purchases and redemptions of Class A or Class D shares of the Fund may be grouped for execution purposes which, in some circumstances, may involve the execution of such orders two business days following the day such orders are placed. The minimum initial purchase price is $100, with a $50 minimum for subsequent purchases through Blueprint. There are no minimum initial or subsequent purchase requirements for participants who are part of an automatic investment plan. Class A and Class D shares are offered at net asset value to participants in the Merrill Lynch Blueprint Program through the Merrill Lynch Directed IRA Rollover Program ("IRA Rollover Program") available 7 from Merrill Lynch Business Financial Services, a business unit of Merrill Lynch. The IRA Rollover Program is available to custodian rollover assets from Employer Sponsored Retirement and Savings Plans (see definition below) whose Trustee and/or Plan Sponsor offers the Merrill Lynch Directed IRA Rollover Program. Additional information concerning purchases through Blueprint, including any annual fees and transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint SM Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441. Employer Sponsored Retirement and Savings Plans. Class A and Class D shares are offered at net asset value to employer sponsored retirement or savings plans, such as tax qualified retirement plans within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), deferred compensation plans within the meaning of Section 403(b) and 457 of the Code, other deferred compensation arrangements, Voluntary Employee Benefits Association ("VEBA") plans, and non-qualified After Tax Savings and Investment programs, maintained on the Merrill Lynch Group Employee Services system, herein referred to as "Employer Sponsored Retirement or Savings Plans", provided the plan has accumulated at least $20 million in MLAM-advised mutual funds (in the case of Class A shares) or $5 million in MLAM-advised mutual funds (in the case of Class D shares). Class D shares may be offered at net asset value to new Employer Sponsored Retirement or Savings Plans, provided the plan has $3 million or more initially invested in MLAM-advised mutual funds. Assets of Employer Sponsored Retirement or Savings Plans sponsored by the same sponsor or an affiliated sponsor may be aggregated. Class A shares and Class D shares also are offered at net asset value to Employer Sponsored Retirement or Savings Plans that have at least 1,000 employees eligible to participate in the plan (in the case of Class A shares) or between 500 and 999 employees eligible to participate in the plan (in the case of Class D shares). Employees eligible to participate in Employer Sponsored Retirement or Savings Plans of the same sponsoring employer or its affiliates may be aggregated. Tax qualified retirement plans within the meaning of Section 401(a) of the Code meeting any of the foregoing requirements and which are provided specialized services (e.g., plans whose participants may direct on a daily basis their plan allocations among a wide range of investments including individual corporate equities and other securities in addition to mutual fund shares) by the Merrill Lynch Blueprint SM Program, are offered Class A shares at a price equal to net asset value per share plus a reduced sales charge of 0.50%. Any Employer Sponsored Retirement or Savings Plan which does not meet the above described qualifications to purchase Class A shares or Class D shares at net asset value has the option of (i) purchasing Class A shares at the initial sales charge and possible CDSC schedule disclosed in the Prospectus if it is otherwise eligible to purchase Class A shares, or (ii) purchasing Class D shares at the initial sales charge and possible CDSC schedule disclosed in the Prospectus, (iii) if the Employer Sponsored Retirement or Savings Plan meets the specified requirements, purchasing Class B shares with a waiver of the CDSC upon redemption, or (iv) if the Employer Sponsored Retirement or Savings Plan does not qualify to purchase Class B shares with a waiver of the CDSC upon redemption, purchasing Class C shares at the CDSC schedule disclosed in the Prospectus. The minimum initial and subsequent purchase requirements are waived in connection with all the above referenced Employer Sponsored Retirement or Savings Plans. Purchase Privileges of Certain Persons. Directors of the Fund, members of the Boards of other MLAM-advised investment companies, directors and employees of ML & Co. and its subsidiaries (the term "subsidiaries", when used herein with respect to Merrill Lynch & Co., Inc., includes MLAM, FAM and certain other entities directly or indirectly wholly-owned and controlled by Merrill Lynch & Co., Inc.), and 8 any trust, pension, profit-sharing or other benefit plan for such persons, may purchase Class A shares of the Fund at net asset value. Under such programs, the Fund realizes economies of scale and reduction of sales related expenses by virtue of familiarity with the Fund. Employees and directors wishing to purchase shares of the Fund must satisfy the Fund's suitability standards. Class D shares of the Fund will be offered at net asset value, without sales charge, to an investor who has a business relationship with a financial consultant who joined Merrill Lynch from another investment firm within six months prior to the date of purchase by such investor, if the following conditions are satisfied. First the investor must advise Merrill Lynch that it will purchase Class D shares of the Fund with proceeds from a redemption of a mutual fund that was sponsored by the financial consultant's previous firm and was subject to a sales charge either at the time of purchase or on a deferred basis. Second, the investor must also establish that such redemption was made within 60 days prior to the investment in the Fund, and the proceeds from the redemption had been maintained in the interim in cash or a money market fund. Class D shares of the Fund will be offered at net asset value, without sales charge, to an investor who has a business relationship with a Merrill Lynch financial consultant and who has invested in a mutual fund for which Merrill Lynch has not served as a selected dealer if the following conditions are satisfied: First, the investor must advise Merrill Lynch that it will purchase Class D shares of the Fund with proceeds from a redemption of such shares of other mutual funds and that such shares have been outstanding for a period of no less than 6 months. Second, such purchase of Class D shares must be made within 60 days after the redemption and the proceeds from the redemption must have been maintained in the interim in cash or a money market fund. Class D shares of the Fund are also offered at net asset value, without sales charge, to an investor who has a business relationship with a Merrill Lynch financial consultant and who has invested in a mutual fund sponsored by a non- Merrill Lynch company for which Merrill Lynch has served as a selected dealer and where Merrill Lynch has either received or given notice that such arrangement will be terminated ("notice"), if the following conditions are satisfied. First, the investor must purchase Class D shares of the Fund with proceeds from a redemption of shares of such other mutual fund and such fund was subject to a sales charge either at the time of purchase or on a deferred basis; and second, such purchase of Class D shares must be made within 90 days after such notice. Closed-End Fund Investment Option. Class A shares of the Fund and other MLAM- advised mutual funds ("Eligible Class A shares") are offered at net asset value to shareholders of certain closed-end funds advised by the Investment Adviser or FAM who purchased such closed-end fund shares prior to October 21, 1994 and wish to reinvest the net proceeds of a sale of their closed-end fund shares of common stock in Eligible Class A shares, if the conditions set forth below are satisfied. Alternatively, closed-end fund shareholders who purchased such shares on or after October 21, 1994 and wish to reinvest the net proceeds from a sale of their closed-end fund shares are offered Class A shares (if eligible to buy Class A shares) or Class D shares of the Fund and other MLAM-advised mutual funds ("Eligible Class D shares"), if the following conditions are met. First, the sale of closed-end fund shares must be made through Merrill Lynch, and the net proceeds therefrom must be immediately reinvested in Eligible Class A or Class D shares. Second, 9 the closed-end fund shares either must have been acquired in the initial public offering or be shares representing dividends from shares of common stock acquired in such offering. Third, the closed-end fund shares must have been continuously maintained in a Merrill Lynch securities account. Fourth, there must be a minimum purchase of $250 to be eligible for the investment option. Class A shares of the Fund are offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. ("Senior Floating Rate Fund") who wish to reinvest the net proceeds from a sale of certain of their shares of common stock of the Senior Floating Rate Fund in shares of the Fund. In order to exercise this investment option, Senior Floating Rate Fund shareholders must sell their Senior Floating Rate Fund shares to the Senior Floating Rate Fund in connection with a tender offer conducted by the Senior Floating Rate Fund and reinvest the proceeds immediately in the Fund. This investment option is available only with respect to the proceeds of the Senior Floating Rate Fund shares as to which no Early Withdrawal Charge (as defined in the Senior Floating Rate Fund prospectus) is applicable. Purchase orders from Senior Floating Rate Fund shareholders wishing to exercise this investment option will be accepted only on the day that the related Senior Floating Rate Fund tender offer terminates and will be effected at the net asset value of the Fund at such day. TMA SM Managed Trusts. Class A shares are offered to TMA SM Managed Trusts to which Merrill Lynch Trust Company provides discretionary trustee services at net asset value. Acquisition of Certain Investment Companies. The public offering price of Class D shares may be reduced to the net asset value per Class D share in connection with the acquisition of the assets of or merger or consolidation with a personal holding company or a public or private investment company. The value of the assets or company acquired in a tax-free transaction may be adjusted in appropriate cases to reduce possible adverse tax consequences to the Fund which might result from an acquisition of assets having net unrealized appreciation which is disproportionately higher at the time of acquisition than the realized or unrealized appreciation of the Fund. The issuance of Class D shares for consideration other than cash is limited to bona fide reorganizations, statutory mergers or other acquisitions of portfolio securities which (i) meet the investment objectives and policies of the Fund; (ii) are acquired for investment and not for resale (subject to the understanding that the disposition of the Fund's portfolio securities shall at all times remain within its control); and (iii) are liquid securities, the value of which is readily ascertainable, which are not restricted as to transfer either by law or liquidity of market (except that the Fund may acquire through such transactions restricted or illiquid securities to the extent the Fund does not exceed the applicable limits on acquisition of such securities set forth under "Investment Objective and Policies" herein). DISTRIBUTION PLANS Reference is made to "Purchase of Shares--Distribution Plans" in the Prospectus for certain information with respect to the separate distribution plans for Class B, Class C and Class D shares pursuant to Rule12b-1 under the Investment Company Act (each a "Distribution Plan") with respect to the account maintenance and/or distribution fees paid by the Fund to the Distributor with respect to such classes. Payments of the distribution fees and/or account maintenance fees are subject to the provisions of Rule 12b-1 under the Investment Company Act. Among other things, each Distribution Plan provides that the Distributor shall provide and the Directors shall review quarterly reports of the disbursement of the account 10 maintenance fees and/or distribution fees paid to the Distributor. In their consideration of each Distribution Plan, the Directors must consider all factors they deem relevant, including information as to the benefits of the Distribution Plan to the Fund and its related class of shareholders. Each Distribution Plan further provides that, so long as the Distribution Plan remains in effect, the selection and nomination of Directors who are not "interested persons" of the Fund, as defined in the Investment Company Act (the "Independent Directors"), shall be committed to the discretion of the Independent Directors then in office. In approving each Distribution Plan in accordance with Rule 12b-1, the Independent Directors concluded that there is reasonable likelihood that such Distribution Plan will benefit the Fund and its related class of shareholders. Each Distribution Plan can be terminated at any time, without penalty, by the vote of a majority of the Independent Directors or by the vote of the holders of a majority of the outstanding related class of voting securities of the Fund. A Distribution Plan cannot be amended to increase materially the amount to be spent by the Fund without the approval of the related class of shareholders, and all material amendments are required to be approved by the vote of the Directors, including a majority of the Independent Directors who have no direct or indirect financial interest in such Distribution Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Fund preserve copies of each Distribution Plan and any report made pursuant to such plan for a period of not less than six years from the date of such Distribution Plan or such report, the first two years in an easily accessible place. During the fiscal year ended September 30, 1993, the Fund paid the Distributor account maintenance fees of $2,146,935 and distribution fees of $6,440,805 under the Class B Distribution Plan. The Fund did not begin to offer shares of Class C or Class D publicly until the date of this Statement of Additional Information. Accordingly, no payments have been made pursuant to the Class C or Class D Distribution Plans prior to the date of this Statement of Additional Information. LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES The maximum sales charge rule in the Rules of Fair Practice of the National Association of Securities Dealers, Inc. ("NASD") imposes a limitation on certain asset-based sales charges such as the distribution fee and the CDSC borne by the Class B and Class C shares, but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges), plus (2) interest on the unpaid balance for the respective class, computed separately, at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts received from the payment of the distribution fee and the CDSC). In connection with the Class B shares, the Distributor has voluntarily agreed to waive interest charges on the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the maximum amount payable to the Distributor (referred to as the "voluntary maximum") in connection with the Class B shares is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving the interest charges at any time. To the extent payments would exceed the voluntary maximum, the Fund will not make further payments of the distribution fee with respect to Class B shares, and any CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances the amount payable pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstances payment in excess of the amount payable under the NASD formula will not be made. The following table sets forth comparative information as of March 31, 1994 with respect to the Class B shares of the Fund indicating the maximum allowable payments that can be made under the NASD maximum sales charge 11 rule and the Distributor's voluntary maximum for the period November 29, 1985 (commencement of the public offering of Class B shares) to March 31, 1994. Since Class C shares of the Fund had not been publicly issued prior to the date of this Statement of Additional Information, information concerning Class C shares is not yet provided below.
DATA CALCULATED AS OF MARCH 31, 1994 (IN THOUSANDS) ------------------------------------------------------------------------------------ ALLOWABLE AMOUNTS ANNUAL ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE DISTRIBUTION GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID FEE AT CURRENT SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE NET ASSET LEVEL(4) ---------- --------- ---------- -------- -------------- --------- ------------------ Under NASD Rule as Adopted.... $3,615,428 $225,964 $132,021 $357,985 $145,799 $212,186 $5,702 Under Distribu- tor's Voluntary Waiver........ $3,615,428 $225,964 $ 18,077 $244,041 $145,799 $ 98,243 $5,702
- -------- (1) Purchase price of all eligible Class B shares sold since November 29, 1985 (commencement of the public offering of Class B shares) other than shares acquired through dividend reinvestment and the exchange privilege. (2) Interest is computed on a monthly basis based upon the prime rate, as reported in The Wall Street Journal, plus 1.0% as permitted under the NASD Rule. (3) Consists of CDSC payments, distribution fee payments and accruals. Of the distribution fee payments made prior to July 6, 1993 under a prior plan at the 1.0% rate, 0.75% of average daily net assets has been treated as a distribution fee and 0.25% of average daily net assets has been deemed to have been a service fee and not subject to the NASD maximum sales charge rule. See "Purchase of Shares--Distribution Plans" in the Prospectus. (4) Provided to illustrate the extent to which the current level of distribution fee payments (not including any CDSC payments) is amortizing the unpaid balance. No assurance can be given that payments of the distribution fee will reach either the voluntary maximum or the NASD maximum. REDEMPTION OF SHARES Reference is made to "Redemption of Shares" in the Prospectus for certain information as to the redemption and repurchase of Fund shares. Payment for shares presented for redemption will be made by check sent within seven days after receipt by the Transfer Agent of your written request in proper form and, if issued, certificates for the shares being redeemed. The right to redeem shares or to receive payment with respect to any such redemption may be suspended only for any period during which trading on the New York Stock Exchange is restricted as determined by the Commission or such Exchange is closed (other than customary weekend and holiday closings), for any period during which an emergency exists as defined by the Commission, as a result of which disposal of portfolio securities or determination of the net asset value of the Fund is not reasonably practicable, and for such other periods as the Commission may by order permit for the protection of shareholders of the Fund. The value of shares at the time of redemption may be more or less than the shareholder costs, depending on the net asset value of such shares at such time. DEFERRED SALES CHARGE--CLASS B SHARES As discussed in the Prospectus under "Purchase of Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares", while Class B shares redeemed within four years of purchase are subject to a CDSC under most circumstances, the charge is waived on redemptions of Class B shares in connection with 12 certain post-retirement withdrawals from an IRA or other retirement plan or following the death or disability of a Class B shareholder. Redemptions for which the waiver applies are: (a) any partial or complete redemption in connection with a distribution following retirement under a tax-deferred retirement plan which is permitted to be made without tax penalty under the Internal Revenue Code, or attaining age 59 1/2 in the case of an IRA or other retirement plan, or part of a series of equal periodic payments (not less frequently than annually) made for life (or life expectancy) or any redemption resulting from the tax-free return of an excess contribution to an IRA; or (b) any partial or complete redemption following the death or disability (as defined in the Internal Revenue Code) of a Class B shareholder (including one who owns the Class B shares as joint tenant with his or her spouse), provided the redemption is requested within one year of the death or initial determination of disability. For the year ended September 30, 1993, the Distributor received CDSCs of $182,110, all of which was paid to Merrill Lynch. Merrill Lynch BlueprintSM Program. Class B shares are offered to certain participants in Blueprint. Blueprint is directed to small investors, group IRAs and participants in certain affinity groups such as trade associations, credit unions and benefit plans. Class B shares of the Fund are offered through Blueprint only to members of certain affinity groups. The CDSC is waived in connection with purchase orders placed through Blueprint. Services, including the exchange privilege, available to Class B investors through Blueprint, however, may differ from those available to other Class B investors. Orders for purchases and redemptions of Class B shares of the Fund may be grouped for execution purposes which, in some circumstances, may involve the execution of such orders two business days following the day such orders are placed. The minimum initial purchase price is $100, with a $50 minimum for subsequent purchases through Blueprint. There is no minimum initial or subsequent purchase requirement for investors who are part of a Blueprint automatic investment plan. Additional information concerning Blueprint, including any annual fees or transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441. Retirement Plans. Any Retirement Plan which does not meet the qualifications to purchase Class A or Class D shares at net asset value has the option of purchasing Class A or Class D shares at the sales charge schedule disclosed in the Prospectus, or if the Retirement Plan meets the following requirements, then it may purchase Class B shares with a waiver of the CDSC upon redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B shares. "Eligible 401(k) Plan" is defined as a retirement plan qualified under Section 401(k) of the Code with a salary reduction feature offering a menu of investments to plan participants. The CDSC is also waived for redemptions from a 401(a) plan qualified under the Code, provided, however, that each such plan has the same or an affiliated sponsoring employer as an Eligible 401(k) Plan purchasing Class B shares of MLAM-advised mutual funds ("Eligible 401(a) Plan"). Other tax qualified retirement plans within the meaning of Section 401(a) and 403(b) of the Code which are provided specialized services (e.g., plans whose participants may direct on a daily basis their plan allocations among a menu of investments) by independent administration firms contracted through Merrill Lynch also may purchase Class B shares with a waiver of the CDSC. The CDSC also is waived for any Class B or Class C shares which are purchased by an Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at the time of redemption. The Class B CDSC also is waived for any Class B shares which are purchased by a Merrill Lynch rollover IRA, that was funded by a rollover from a terminated 401(k) plan managed by the MLAM Private Portfolio Group and held in such account at the time of redemption. The minimum initial and subsequent purchase requirements are waived in connection with all the above-referenced Retirement Plans. 13 DETERMINATION OF NET ASSET VALUE The net asset value of the shares of the Fund is determined once daily Monday through Friday as of 4:15 p.m., New York time on each day during which the New York Stock Exchange is open for trading. The New York Stock Exchange is not open on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Any assets or liabilities initially expressed in terms of non-U.S. dollar currencies are translated into U.S. dollars at the prevailing market rates as quoted by one or more banks or dealers on the day of valuation. The net asset value per share is computed by dividing the sum of the value of the securities held by the Fund plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares outstanding at such time, rounded to the nearest cent. Expenses, including the investment advisory fees and account maintenance and/or distribution fees, are accrued daily. The per share net asset value of the Class B, Class C and Class D shares generally will be lower than the per share net asset value of the Class A shares reflecting the daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to the Class B and Class C shares and the daily expense accruals of the account maintenance fees applicable with respect to the Class D shares; moreover the per share net asset value of the Class B and Class C shares generally will be lower than the per share net asset value of its Class D shares reflecting the daily expense accruals of the distribution fees and higher transfer agency fees applicable with respect to the Class B and Class C shares of the Fund. It is expected, however, that the per share net asset value of the four classes will tend to converge immediately after the payment of dividends or distributions, which will differ by approximately the amount of the expense accrual differential between the classes. Portfolio securities and options which are traded on stock exchanges are valued at the last sale price as of the close of business on the day the securities are being valued, or, lacking any sales, at the last available bid price. Securities traded in the over-the-counter market are valued at the last quoted bid prices at the close of trading on the New York Stock Exchange on each day by brokers that make markets in the securities. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund. SHAREHOLDER SERVICES The Fund offers a number of shareholder services described below which are designed to facilitate investment in its shares. Certain of such services are not available to investors who place orders for the Fund through the Merrill Lynch BlueprintSM Program. Full details as to each of such services and copies of the various plans described below can be obtained from the Fund, the Distributor or Merrill Lynch. INVESTMENT ACCOUNT Each shareholder whose account is maintained at the Transfer Agent has an Investment Account and will receive, at least quarterly, statements from the Transfer Agent. These statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of ordinary income dividends and 14 long-term capital gain distributions. The statements will also show any other activity in the account since the preceding statement. Shareholders will receive separate transaction confirmations for each purchase or sale transaction other than automatic investment purchases and the reinvestment of income dividends, and long-term capital gain distributions. Shareholders considering transferring their Class A or Class D shares from Merrill Lynch to another brokerage firm or financial institution should be aware that, if the firm to which the Class A or Class D shares are to be transferred will not take delivery of shares of the Fund, a shareholder either must redeem the Class A or Class D shares so that the cash proceeds can be transferred to the account at the new firm or such shareholder must continue to maintain an Investment Account at the Transfer Agent for those Class A or Class D shares. Shareholders interested in transferring their Class B or Class C shares from Merrill Lynch and who do not wish to have an Investment Account maintained for such shares at the Transfer Agent may request their new brokerage firm to maintain such shares in an account registered in the name of the brokerage firm for the benefit of the shareholder. If the new brokerage firm is willing to accommodate the shareholder in this manner, the shareholder must request that he be issued certificates for his shares, and then must turn the certificates over to the new firm for re-registration as described in the preceding sentence. Shareholders may make additions to their Investment Account at any time by mailing a check directly to the Transfer Agent. Share certificates are issued only for full shares and only upon the specific request of the shareholder who has an Investment Account. Issuance of certificates representing all or only part of the full shares in an Investment Account may be requested by a shareholder directly from the Transfer Agent. AUTOMATIC INVESTMENT PLANS A shareholder may make additions to an Investment Account at any time by purchasing Class A shares (if an eligible Class A investor as described in the Prospectus) or Class B, Class C or Class D shares at the applicable public offering price either through the shareholder's securities dealer, or by mail directly to the Transfer Agent, acting as agent for such securities dealer. Voluntary accumulation can also be made through a service known as the Automatic Investment Plan whereby the Transfer Agent is authorized through pre- authorized checks or automatic clearing house debits of $50 or more to charge the regular bank account of the shareholder on a regular basis to provide systematic additions to the Investment Account of such shareholder. For investors who buy shares of the Fund through the Merrill Lynch BlueprintSM Program, no minimum charge to the investor's bank account is required. Investors who maintain CMA(R) accounts may arrange to have periodic investments made in the Fund, in the CMA accounts or in certain related accounts in amounts of $100 or more ($1 for retirement accounts) through the CMA Automated Investment Program. AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS Unless specific instructions are given as to the method of payment of dividends and capital gains distributions, dividends and distributions will be reinvested automatically in additional shares of the Fund. Such reinvestment will be at the net asset value of shares of the Fund, without sales charge, as of the close of business on the ex-dividend date of the dividend or distribution. Shareholders may elect in writing or by telephoning (1-(800)-MER- FUND) to receive either their dividends or capital gains distributions, or both, in cash, in which event payment will be mailed or direct deposited on or about the payment date. 15 Shareholders may, at any time, notify the Transfer Agent in writing that they no longer wish to have their dividends and/or capital gains distributions reinvested in shares of the Fund or vice versa and, commencing ten days after the receipt by the Transfer Agent of such notice, those instructions will be effected. SYSTEMATIC WITHDRAWAL PLANS--CLASS A AND CLASS D SHARES A Class A or Class D shareholder may elect to make withdrawals from an Investment Account in the form of payments by check or through automatic payment by direct deposit to his bank account on either a monthly or quarterly basis as provided below. Quarterly withdrawals are available for shareholders who have acquired Class A or Class D shares of the Fund having a value, based on cost or the current offering price, of $5,000 or more, and monthly withdrawals are available for shareholders with Class A or Class D shares with such a value of $10,000 or more. At the time of each withdrawal payment, sufficient Class A or Class D shares are redeemed from those on deposit in the shareholder's account to provide the withdrawal payment specified by the shareholder. The shareholder may specify either a dollar amount or a percentage of the value of his Class A or Class D shares. Redemptions will be made at net asset value as determined at the close of business on the New York Stock Exchange on the 24th day of each month or the 24th day of the last month of each quarter, whichever is applicable. If the Exchange is not open for business on such date, the Class A or Class D shares will be redeemed at the close of business on the following business day. The check for the withdrawal payment will be mailed or the direct deposit for withdrawal payment will be made on the next business day following redemption. When a shareholder is making systematic withdrawals, dividends and distributions on all Class A shares in the Investment Account are reinvested automatically in Class A or Class D shares, respectively, of the Fund. A shareholder's Systematic Withdrawal Plan may be terminated at any time, without charge or penalty, by the shareholder, the Fund, the Fund's Transfer Agent or the Distributor. Withdrawal payments should not be considered as dividends, yield or income. Each withdrawal is a taxable event. If periodic withdrawals continuously exceed reinvested dividends, the shareholder's original investment may be reduced correspondingly. Purchases of additional Class A or Class D shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and tax liabilities. The Fund will not knowingly accept purchase orders for Class A or Class D shares of the Fund from investors who maintain a Systematic Withdrawal Plan unless such purchase is equal to at least one year's scheduled withdrawals or $1,200, whichever is greater. Periodic investments may not be made into an Investment Account in which the shareholder has elected to make systematic withdrawals. A Class A or Class D shareholder whose shares are held within a CMA (R), CBA (R) or Retirement Account may elect to have shares redeemed on a monthly, bi-monthly, quarterly, semiannual or annual basis through the Systematic Redemption Program. The minimum fixed dollar amount redeemable is $25. The proceeds of systematic redemptions will be posted to the shareholder's account five business days after the date the shares are redeemed. Monthly systematic redemptions will be made at net asset value on the first Monday of each month, bi-monthly systematic redemptions will be made at net asset value on the first Monday of every other month, and quarterly, semiannual or annual redemptions are made at net asset value on the first Monday of months selected at the shareholder's option. If the first Monday of the month is a holiday, the redemption will be processed at net asset value on the next business day. The Systematic Redemption Program is not available if Fund shares are being purchased within the account pursuant to the 16 Automatic Investment Program. For more information on the Systematic Redemption Program, eligible shareholders should contact their Financial Consultant. RETIREMENT PLANS Self-directed individual retirement accounts and other retirement plans are available from Merrill Lynch. Under these plans, investments may be made in the Fund and certain of the other mutual funds sponsored by Merrill Lynch as well as in other securities. Merrill Lynch charges an initial establishment fee and an annual custodial fee for each account. Information with respect to these plans is available on request from Merrill Lynch. The minimum initial purchase to establish any such plan is $100. However, there is no minimum for purchases through the Merrill Lynch BlueprintSM Program's systematic investment plans). Capital gains and income received in each of the plans referred to above are exempt from Federal taxation until distributed from the plans. Investors considering participation in any such plan should review specific tax laws relating thereto and should consult their attorneys or tax advisers with respect to the establishment and maintenance of any such plan. EXCHANGE PRIVILEGE Shareholders of each class of shares of the Fund have an exchange privilege with certain other MLAM-advised mutual funds listed below. Under the Merrill Lynch Select PricingSM System, Class A shareholders may exchange Class A shares of the Fund for Class A shares of a second MLAM-advised mutual fund if the shareholder holds any Class A shares of the second fund in his account in which the exchange is made at the time of the exchange or is otherwise eligible to purchase Class A shares of the second fund. If the Class A shareholder wants to exchange Class A shares for shares of a second MLAM-advised mutual fund, and the shareholder does not hold Class A shares of the second fund in his account at the time of the exchange and is not otherwise eligible to acquire Class A shares of the second fund, the shareholder will receive Class D shares of the second fund as a result of the exchange. Class D shares also may be exchanged for Class A shares of a second MLAM-advised mutual fund at any time as long as, at the time of the exchange, the shareholder holds Class A shares of the second fund in the account in which the exchange is made or is otherwise eligible to purchase Class A shares of the second fund. Class B, Class C and Class D shares will be exchangeable with shares of the same class of other MLAM-advised mutual funds. For purposes of computing the CDSC that may be payable upon a disposition of the shares acquired in the exchange, the holding period for the previously owned shares of the Fund is "tacked" to the holding period of the newly acquired shares of the other Fund as more fully described below. Class A, Class B, Class C and Class D shares also will be exchangeable for shares of certain MLAM-advised money market funds specifically designated below as available for exchange by holders of Class A, Class B, Class C or Class D shares. Shares with a net asset value of at least $100 are required to quality for the exchange privilege, and any shares utilized in an exchange must have been held by the shareholder for 15 days. It is contemplated that the exchange privilege may be applicable to other new mutual funds whose shares may be distributed by the Distributor. Exchanges of Class A or Class D shares outstanding ("outstanding Class A or Class D shares") for Class A or Class D shares of another MLAM-advised mutual fund ("new Class A or Class D shares") are transacted on the basis of relative net asset value per Class A or Class D share, respectively, plus an amount equal to the difference, if any, between the sales charge previously paid on the outstanding Class A or Class D shares and the sales charge payable at the time of the exchange on the new Class A or Class D shares. With respect to outstanding Class A or Class D shares as to which previous exchanges have taken place, the 17 "sales charge previously paid" shall include the aggregate of the sales charges paid with respect to such Class A or Class D shares in the initial purchase and any subsequent exchange. Class A and Class D shares issued pursuant to dividend reinvestment are sold on a no-load basis in each of the funds offering Class A or Class D shares. For purposes of the exchange privilege, Class A and Class D shares acquired through dividend reinvestment shall be deemed to have been sold with a sales charge equal to the sales charge previously paid on the Class A or Class D shares on which the dividend was paid. Based on this formula, Class A and Class D shares generally may be exchanged into the Class A or Class D shares of the other funds or into shares of the Class A money market funds without a sales charge. In addition, each of the funds with Class B and Class C shares outstanding ("outstanding Class B or Class C shares") offers to exchange its Class B or Class C shares for Class B or Class C shares, respectively, of another MLAM- advised mutual fund ("new Class B or Class C shares") on the basis of relative net asset value per Class B or Class C share, without the payment of any CDSC that might otherwise be due on redemption of the outstanding shares. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the new Class B shares acquired through use of the exchange privilege. In addition, Class B shares of the Fund acquired through use of the exchange privilege will be subject to the Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares of the fund from which the exchange has been made. For purposes of computing the sales charge that may be payable on a disposition of the new Class B or Class C shares, the holding period for the outstanding Class B or Class C shares is "tacked" to the holding period of the new Class B or Class C shares. For example, an investor may exchange Class B shares of the Fund for those of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund") after having held Class B shares of the Fund for two and a half years. The 2% sales charge that generally would apply to a redemption would not apply to the exchange. Three years later the investor may decide to redeem the Class B shares of Special Value Fund and receive cash. There will be no CDSC due on this redemption, since by "tacking" the two and a half year holding period of Fund Class B shares to the three year holding period for the Special Value Fund Class B shares, the investor will be deemed to have held the new Class B shares for more than five years. Shareholders also may exchange shares of the Fund into shares of a money market fund advised by the Investment Adviser or its affiliates, but the period of time that Class B or Class C shares are held in a money market fund will not count towards satisfaction of the holding period requirement for purposes of reducing the CDSC or, with respect to Class B shares, towards satisfaction of the conversion period. However, shares of a money market fund which were acquired as a result of an exchange for Class B or Class C shares of the fund may in turn be exchanged back into Class B or Class C shares of any fund offering such shares, in which event the holding period for Class B or Class C shares of the fund will be aggregated with previous holding periods for purposes of reducing the CDSC. Thus, for example, an investor may exchange Class B shares of the Fund for shares of Merrill Lynch Institutional Fund ("Institutional Fund") after having held Class B shares of the Fund for two and a half years and three years later decide to redeem the shares of Institutional Fund for cash. At the time of this redemption, the 2% CDSC that would have been due had the Class B shares of the Fund been redeemed for cash rather than exchanged for shares of Institutional Fund will be payable. If, instead of such redemption, the shareholder exchanged such shares for Class B shares of a fund which the shareholder continues to hold for an additional two and a half years, any subsequent redemption will not incur a CDSC. 18 Set forth below is a description of the investment objectives of the other funds into which exchanges can be made: Funds issuing Class A, Class B, Class C and Class D Shares: Merrill Lynch Adjustable Rate Securities Fund, Inc. .............. High current income consistent with a policy of limiting the degree of fluctuation in net asset value by investing primarily in a portfolio of adjustable rate securities, consisting principally of mortgage- backed and asset-backed securities. Merrill Lynch Americas Income Fund, Inc. ............................... A high level of current income, consistent with prudent investment risk, by investing primarily in debt securities denominated in a currency of a country located in the Western Hemisphere (i.e., North and South America and the surrounding waters). Merrill Lynch Arizona Limited Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi- State Limited Maturity Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Arizona income taxes as is consistent with prudent investment management through investment in a portfolio primarily of intermediate- term investment grade Arizona Municipal Bonds. Merrill Lynch Arizona Municipal Bond Fund................................ A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide investors with as high a level of income exempt from Federal and Arizona income taxes as is consistent with prudent investment management. Merrill Lynch Arkansas Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a Series Fund, whose objective is to provide as high a level of income exempt from Federal and Arkansas income taxes as is consistent with prudent investment management. A high level of current income through Merrill Lynch Asset Growth Fund, investment primarily in United States Inc................................. fixed income securities. Merrill Lynch Asset Income Fund, High total investment return, Inc................................. consistent with prudent risk, from investment in United States and foreign equity, debt and money market securities, the combination of which will be varied both with respect to types of securities and markets in response to changing market and economic trends. 19 Merrill Lynch Basic Value Fund, Capital appreciation and, secondarily, Inc. ............................... income through investment in securities, primarily equities, that are undervalued and therefore represent basic investment value. Merrill Lynch California Insured Municipal Bond Fund................. A portfolio of Merrill Lynch California Municipal Series Trust, a series fund, whose objective is to provide as high a level of insured income exempt from Federal and California income taxes as is consistent with prudent investment management through investment in a portfolio primarily of insured California Municipal Bonds. Merrill Lynch California Limited Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi- State Limited Maturity Municipal Series Trust, a series fund, whose objective is to provide shareholders with as high a level of income exempt from Federal and California income taxes as is consistent with prudent investment management through investment in a portfolio primarily of intermediate-term investment grade California Municipal Bonds. Merrill Lynch California Municipal Bond Fund........................... A portfolio of Merrill Lynch California Municipal Series Trust, a series fund whose objective is to provide investors with as high a level of income exempt from Federal and California income taxes as is consistent with prudent investment management. Merrill Lynch Capital Fund, Inc. .... The highest total investment return consistent with prudent risk through a fully managed investment policy utilizing equity, debt and convertible securities. Merrill Lynch Colorado Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Colorado income taxes as is consistent with prudent investment management. Merrill Lynch Connecticut Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Connecticut income taxes as is consistent with prudent investment management. 20 Merrill Lynch Corporate Bond Fund, Current income from three separate Inc. ............................... diversified portfolios of fixed- income securities. Merrill Lynch Developing Capital Markets Fund, Inc. ................. Long-term appreciation through investment in securities, principally equities, of issuers in countries having smaller capital markets. Merrill Lynch Dragon Fund, Inc. ..... Capital appreciation primarily through investment in equity and debt securities of issuers domiciled in developing countries located in Asia and the Pacific Basin. Merrill Lynch EuroFund............... Capital appreciation primarily through investment in equity securities of corporations domiciled in Europe. Merrill Lynch Federal Securities High current return through Trust............................... investments in U.S. Government and Government agency securities, including GNMA mortgage-backed certificates and other mortgaged- backed Government securities. Merrill Lynch Florida Limited Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi- State Limited Maturity Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal income taxes as is consistent with prudent investment management while seeking to offer shareholders the opportunity to own securities exempt from Florida intangible personal property taxes through investment in a portfolio primarily of intermediate-term investment grade Florida Municipal Bonds. Merrill Lynch Florida Municipal Bond Fund................................ A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal income taxes as is consistent with prudent investment management while seeking to offer shareholders the opportunity to own securities exempt from Florida intangible personal property taxes. Merrill Lynch Fund For Tomorrow, Long-term growth through investment in Inc................................. a portfolio of good quality securities, primarily common stock, potentially positioned to benefit from demographic and cultural changes as they affect consumer markets. 21 Merrill Lynch Fundamental Growth Fund, Inc........................... Long-term growth through investment in a diversified portfolio of equity securities placing particular emphasis on companies that have exhibited an above-average growth rate in earnings. Merrill Lynch Global Allocation Fund, Inc........................... High total return consistent with prudent risk, through a fully managed investment policy utilizing United States and foreign equity, debt and money market securities, the combination of which will be varied from time to time both with respect to the types of securities and markets in response to changing market and economic trends. Merrill Lynch Global Bond Fund For Investment and Retirement........... High total investment return from investment in a global portfolio of debt instruments denominated in various currencies and multi-national currency units. Merrill Lynch Global Convertible Fund, Inc........................... High total return from investment primarily in an internationally diversified portfolio of convertible debt securities, convertible preferred stock and "synthetic" convertible securities consisting of a combination of debt securities or preferred stock and warrants or options. Merrill Lynch Global Holdings, Inc. (residents of Arizona must meet investor suitability standards)..... The highest total investment return consistent with prudent risk through worldwide investment in an internationally diversified portfolio of securities. Merrill Lynch Global Resources Long-term growth and protection of Trust............................... capital from investment in securities of foreign and domestic companies that possess substantial natural resource assets. Merrill Lynch Global SmallCap Fund, Inc................................. Long-term growth of capital by investing primarily in equity securities of companies with relatively small market capitalizations located in various foreign countries and in the United States. 22 Merrill Lynch Global Utility Fund, Capital appreciation and current Inc................................. income through investment of at least 65% of its total assets in equity and debt securities issued by domestic and foreign companies primarily engaged in the ownership or operation of facilities used to generate, transmit or distribute electricity, telecommunications, gas or water. Merrill Lynch Growth Fund for Investment and Retirement........... Growth of capital and, secondarily, income from investment in a diversified portfolio of equity securities placing principal emphasis on those securities which management of the fund believes to be undervalued. Merrill Lynch Healthcare Fund, Inc. (residents of Wisconsin must meet investor suitability standards)..... Capital appreciation through worldwide investment in equity securities of companies that derive or are expected to derive a substantial portion of their sales from products and services in healthcare. Merrill Lynch International Equity Fund................................ Capital appreciation and, secondarily, income by investing in a diversified portfolio of equity securities of issuers located in countries other than the United States. Merrill Lynch Latin America Fund, Capital appreciation by investing Inc. ............................... primarily in Latin American equity and debt securities. Merrill Lynch Maryland Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Maryland income taxes as is consistent with prudent investment management. Merrill Lynch Massachusetts Limited Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi- State Limited Maturity Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Massachusetts income taxes as is consistent with prudent investment management through investment in a portfolio primarily of intermediate- term investment grade Massachusetts Municipal Bonds. 23 Merrill Lynch Massachusetts Municipal Bond Fund................. A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide investors with as high a level of income exempt from both Federal and Massachusetts income taxes as is consistent with prudent investment management. Merrill Lynch Michigan Limited Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi- State Limited Maturity Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Michigan income taxes as is consistent with prudent investment management through investment in a portfolio primarily of intermediate- term investment grade Michigan Municipal Bonds. Merrill Lynch Michigan Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Michigan income taxes as is consistent with prudent investment management. Merrill Lynch Minnesota Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Minnesota personal income taxes as is consistent with prudent investment management. Merrill Lynch Municipal Bond Fund, Tax-exempt income from three separate Inc................................. diversified portfolios of municipal bonds. Merrill Lynch Municipal Intermediate Term Fund........................... Currently the only portfolio of Merrill Lynch Municipal Series Trust, a series fund, whose objective is to provide as high a level as possible of income exempt from Federal income taxes by investing in investment grade obligations with a dollar weighted average maturity of five to twelve years. 24 Merrill Lynch New Jersey Limited Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi- State Limited Maturity Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and New Jersey income taxes as is consistent with prudent investment management through a portfolio primarily of intermediate-term investment grade New Jersey Municipal Bonds. Merrill Lynch New Jersey Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and New Jersey income taxes as is consistent with prudent investment management. Merrill Lynch New Mexico Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and New Mexico income taxes as is consistent with prudent investment management. Merrill Lynch New York Limited Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi- State Limited Maturity Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal, New York State and New York City income taxes as is consistent with prudent investment management through investment in a portfolio primarily of intermediate-term investment grade New York Municipal Bonds. Merrill Lynch New York Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal, New York State and New York City income taxes as is consistent with prudent investment management. Merrill Lynch North Carolina Municipal Bond Fund................. A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and North Carolina income taxes as is consistent with prudent investment management. 25 Merrill Lynch Ohio Municipal Bond A portfolio of Merrill Lynch Multi- Fund................................ State Municipal Series Trust, a series fund, whose objective is to provide investors with as high a level of income exempt from both Federal and Ohio income taxes as is consistent with prudent investment management. Merrill Lynch Oregon Municipal Bond Fund................................ A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide investors with as high a level of income exempt from both Federal and Oregon income taxes as is consistent with prudent investment management. Merrill Lynch Pacific Fund, Inc...... Capital appreciation by investing in equity securities of corporations domiciled in Far Eastern and Western Pacific countries, including Japan, Australia, Hong Kong, and Singapore. Merrill Lynch Pennsylvania Limited Maturity Municipal Bond Fund........ A portfolio of Merrill Lynch Multi- State Limited Maturity Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Pennsylvania income taxes as is consistent with prudent investment management through investment in a portfolio of intermediate-term investment grade Pennsylvania Municipal Bonds. Merrill Lynch Pennsylvania Municipal Bond Fund........................... A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund, whose objective is to provide as high a level of income exempt from Federal and Pennsylvania income taxes as is consistent with prudent investment management. Merrill Lynch Phoenix Fund, Inc...... Long-term growth of capital by investing in equity and fixed income securities, including tax exempt securities, of issuers in weak financial condition or experiencing poor operating results believed to be undervalued relative to the current or prospective condition of such issuer. 26 Merrill Lynch Short-Term Global Income Fund, Inc.................... As high a level of current income as is consistent with prudent investment management from a global portfolio of high quality debt securities denominated in various currencies and multi-national currency units and having remaining maturities not exceeding three years. Merrill Lynch Special Value Fund, Long-term growth of capital from Inc................................. investments in securities, primarily common stock, or relatively small companies believed to have special investment value and emerging growth companies regardless of size. Merrill Lynch Strategic Dividend Long-term total return from investment Fund................................ in dividend paying common stocks which yield more than Standard & Poor's 500 Composite Stock Price Index. Merrill Lynch Technology Fund, Inc... Capital appreciation through worldwide investment in equity securities of companies that derive or are expected to derive a substantial portion of their sales from products and services in technology. Merrill Lynch Texas Municipal Bond Fund................................ A portfolio of Merrill Lynch Multi- State Municipal Series Trust, a series fund whose objective is to provide investors with as high a level of income exempt from Federal income taxes as is consistent with prudent investment management by investing primarily in a portfolio of long-term, investment grade obligations issued by the State of Texas, its political subdivisions, agencies and instrumentalities. Merrill Lynch Utility Income Fund, High current income through investment Inc. ............................... primarily in equity and debt securities issued by companies primarily engaged in the ownership or operation of facilities used to generate, transmit or to distribute electricity, telecommunications, gas or water. Merrill Lynch World Income Fund, High current income by investing in a Inc. ............................... global portfolio of fixed-income securities denominated in various currencies, including multinational currencies. 27 Class A Share Money Market Funds: Merrill Lynch Ready Assets Trust..... Preservation of capital, liquidity and the highest possible current income consistent with the foregoing objectives from the short-term money market securities in which the Trust invests. Merrill Lynch Retirement Reserves Money Fund (available only for exchanges within certain retirement plans).............................. Currently the only portfolio of Merrill Lynch Retirement Series Trust, a series fund, whose objectives are current income, preservation of capital and liquidity available from investing in a diversified portfolio of short-term money market securities. Merrill Lynch U.S.A. Government Reserves............................ Preservation of capital, current income and liquidity available from investing in direct obligations of the U.S. Government and repurchase agreements relating to such securities. Merrill Lynch U.S. Treasury Money Preservation of capital, liquidity and Fund................................ current income through investment exclusively in a diversified portfolio of short-term marketable securities which are direct obligations of the U.S. Treasury. Class B; Class C and Class D Share Money Market Funds: Merrill Lynch Government Fund........ A portfolio of Merrill Lynch Funds For Institutions Series, a series fund, whose objective is to provide current income consistent with liquidity and security of principal from investment in securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities and in repurchase agreements secured by such obligations. Merrill Lynch Institutional Fund..... A portfolio of Merrill Lynch Funds For Institutions Series, a series fund, whose objective is to provide maximum current income consistent with liquidity and the maintenance of a high-quality portfolio of money market securities. Merrill Lynch Institutional Tax- Exempt Fund......................... A portfolio of Merrill Lynch Funds For Institutions Series, a series fund, whose objective is to provide current income exempt from Federal income taxes, preservation of capital and liquidity available from investing in a diversified portfolio of short- term, high quality municipal bonds. 28 Merrill Lynch Treasury Fund.......... A portfolio of Merrill Lynch Funds For Institutions Series, a series fund, whose objective is to provide current income consistent with liquidity and security of principal from investment in direct obligations of the U.S. Treasury and up to 10% of its total assets in repurchase agreements secured by such obligations. Before effecting an exchange, shareholders should obtain a currently effective prospectus of the fund into which the exchange is to be made. To exercise the exchange privilege, shareholders should contact their Merrill Lynch financial consultant, who will advise the Fund of the exchange. Shareholders of the Fund, and shareholders of the other funds described above with shares for which certificates have not been issued, may exercise the exchange privilege by wire through their securities dealers. The Fund reserves the right to require a properly completed Exchange Application. This exchange privilege may be modified or terminated in accordance with the rules of the Commission. The Fund reserves the right to limit the number of times an investor may exercise the exchange privilege. Certain funds may suspend the continuous offering of their shares to the general public at any time and may thereafter resume such offering from time to time. The exchange privilege is available only to U.S. shareholders in states where the exchange legally may be made. DIVIDENDS, DISTRIBUTIONS AND TAXES DIVIDENDS AND DISTRIBUTIONS It is the Fund's intention to distribute all of its net investment income, if any. Dividends from such investment income are paid semi-annually. All net realized long- or short-term capital gains, if any, are distributed to the Fund's shareholders at least annually. Premiums from expired call options written by the Fund and net gains from closing purchase transactions are treated as short-term capital gains for Federal income tax purposes. See "Shareholder Services--Automatic Reinvestment of Dividends and Capital Gains Distributions" for information concerning the manner in which dividends and distributions may be reinvested automatically in shares of the Fund. Shareholders may elect in writing to receive any such dividends or distributions, or both, in cash. Dividends and distributions are taxable to shareholders as described below whether they are invested in shares of the Fund or received in cash. The per share dividends and distributions on Class B and Class C shares will be lower than the per share dividends and distributions on Class A and Class D shares as a result of the account maintenance, distribution and higher transfer agency fees applicable with respect to the Class B and Class C shares; similarly, the per share dividends and distributions on Class D shares will be lower than the per share dividends and distributions on Class A shares as a result of the account maintenance fees applicable with respect to the Class D shares. See "Determination of Net Asset Value". TAXES The Fund has elected and intends to continue to qualify for the special tax treatment afforded regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Code"). If it so 29 qualifies, the Fund will not be subject to Federal income tax on the part of its net ordinary income and net realized capital gains which it distributes to Class A, Class B, Class C and Class D shareholders (together, the "shareholders"). Dividends paid by the Fund from its ordinary income and distributions of the Fund's net realized short-term capital gains (together referred to hereafter as "ordinary income dividends") are taxable to shareholders as ordinary income. Distributions made from the Fund's net realized long-term capital gains (including long-term gains from certain transactions in options) are taxable to shareholders as long-term capital gains, regardless of the length of time the shareholder has owned Fund shares. Any loss on a sale or exchange of shares held for six months or less, however, will be treated as long-term capital loss to the extent of any long-term capital gains distribution with respect to such shares. Dividends are taxable to shareholders even though they are reinvested in additional shares of the Fund. Not later than 60 days after the close of its taxable year, the Fund will provide its shareholders with a written notice designating the amounts of any dividends or capital gains distributions. A portion of the Fund's ordinary income dividends may be eligible for the dividends received deduction allowed to corporations under the Code, if certain requirements are met. For this purpose, the Fund will allocate dividends eligible for the dividends received deduction among the Class A, Class B, Class C and Class D shareholders according to a method (which it believes is consistent with the Securities and Exchange Commission exemptive order permitting the issuance and sale of multiple classes of stock) that is based on the gross income allocable to Class A, Class B, Class C and Class D shareholders during the taxable year, or such other method as the Internal Revenue Service may prescribe. Pursuant to the Fund's investment objectives, the Fund may invest in foreign securities. Foreign taxes may be paid by the Fund as a result of tax laws of countries in which the Fund may invest. Income tax treaties between certain countries and the United States may reduce or eliminate such taxes. It is impossible to determine in advance the effective rate of foreign tax to which the Fund will be subject, since the amount of Fund assets to be invested in various countries is not known. Because the Fund limits its investment in foreign securities, shareholders will not be entitled to claim foreign tax credits with respect to their share of foreign taxes paid by the Fund on income from investments of foreign securities held by the Fund. Under certain provisions of the Code, some shareholders may be subject to a 31% withholding tax on ordinary income dividends, capital gains distributions and redemption payments ("backup withholding"). Generally, shareholders subject to backup withholding will be those for whom a certified taxpayer identification number is not on file with the Fund, those who, to the Fund's knowledge, have furnished an incorrect number or those who are subject to backup withholding because of a failure to report income. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such shareholder is not otherwise subject to backup withholding. No gain or loss will be recognized by Class B shareholders on the conversion of their Class B shares for Class D shares. A shareholder's basis in the Class D shares acquired will be the same as such shareholder's basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period of the converted Class B shares. Ordinary income dividends paid by the Fund to shareholders who are non- resident aliens or foreign entities generally will be subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding 30 exemption is provided under applicable treaty law. Non-resident shareholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax. A loss realized on a sale or exchange of shares of the Fund will be disallowed if other Fund shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined, in general, on an October 31 year end, plus certain undistributed amounts from previous years. If the Fund pays a dividend in January which was declared in the previous October, November or December to shareholders of record on a specified date in one of such months, then such dividend or distribution will be treated for federal tax purposes as being paid on December 31 and will be taxable to shareholders as if received on December 31. While the Fund intends to distribute its ordinary income and capital gains in the manner necessary to avoid imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's taxable income and capital gains will be distributed to avoid entirely the imposition of the tax. In such event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirements. Tax Treatment of Option Transactions. The Fund may write (i.e., sell) covered call options with respect to the securities that it holds in its portfolio. In general, gain or loss from transactions in such options contracts will be capital gain or loss. Code Section 1092, which applies to certain "straddles," may affect the taxation of the Fund's transactions in options contracts. Under Section 1092, the Fund may be required to postpone recognition for tax purposes of losses incurred in certain closing transactions in options. One of the requirements for qualification as a RIC is that less than 30% of the Fund's gross income may be derived from gains from the sale or other disposition of securities held for less than three months. Accordingly, the Fund may be restricted in effecting closing transactions within three months after entering into an option contract or from making short-term investments in securities. Special Rules for Certain Foreign Currency Transactions. In general, gains from "foreign currencies" and from foreign currency options, foreign currency futures and forward foreign exchange contracts relating to investments in stock, securities or foreign currencies will be qualifying income for purposes of determining whether the Fund qualifies as a RIC. It is currently unclear, however, who will be treated as the issuer of a foreign currency instrument or how foreign currency options, futures, or forward foreign exchange contracts will be valued for purposes of the RIC diversification requirements applicable to the Fund. Under Code Section 988, special rules are provided for certain transactions in a foreign currency other than the taxpayer's functional currency (i.e., unless certain special rules apply, currencies other than the U.S. dollar). In general, foreign currency gains or losses from certain forward contracts not traded in the interbank market, from futures contracts that are not "regulated futures contracts," and from unlisted options will be treated as ordinary income or loss under Code Section 988. In certain circumstances, the Fund may elect 31 capital gain or loss treatment for such transactions. In general, however, Code Section 988 gains or losses will increase or decrease the amount of the Fund's investment company taxable income available to be distributed to shareholders as ordinary income, rather than increasing or decreasing the amount of the Fund's net capital gain. Additionally, if Code Section 988 losses exceed other investment company taxable income during a taxable year, the Fund would not be able to make any ordinary dividend distributions, and any distributions made before the losses were realized but in the same taxable year would be recharacterized as a return of capital to shareholders, thereby reducing each shareholder's basis in his Fund shares. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury Regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury Regulations promulgated thereunder. The Code and the Treasury Regulations are subject to change by legislative or administrative action either prospectively or retroactively. Ordinary income and capital gains distributions also may be subject to state and local taxes. Shareholders are urged to consult their own tax advisers regarding specific questions as to Federal, state or local taxes. PERFORMANCE DATA From time to time the Fund may include its average annual total return and other total return data in advertisements or information furnished to present or prospective shareholders. Total return figures are based on the Fund's historical performance and are not intended to indicate future performance. Average annual total return is determined separately for Class A, Class B, Class C and Class D shares in accordance with a formula specified by the Commission. Average annual total return quotations for the specified periods are computed by finding the average annual compounded rates of return (based on net investment income and any realized and unrealized capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each period. Average annual total return is computed assuming all dividends and distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses, including the maximum sales charge in the case of Class A and Class D shares and the CDSC that would be applicable to a complete redemption of the investment at the end of the specified period in the case of Class B and Class C shares. The Fund also may quote annual, average annual and annualized total return and aggregate total return performance data, both as a percentage and as a dollar amount based on a hypothetical $1,000 investment, for various periods other than those noted below. Such data will be computed as described above, except that, (1) as required by the periods of the quotations, actual annual, annualized or aggregate data, rather than average annual data, may be quoted and (2) the maximum applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the impact on the performance data calculations of including or excluding the maximum applicable sales charges, actual annual or annualized total return data generally will be lower than average annual total return data since the average rates of return reflect compounding of return; aggregate total return data generally will be higher than average annual total return data since the aggregate rates of return reflect compounding over a longer period of time. 32 Set forth below is total return information for both Class A and Class B shares of the Fund for the periods indicated. Since Class C and Class D shares have not been issued prior to the date of this Statement of Additional Information, performance information concerning Class C and Class D shares is not yet provided.
CLASS A SHARES* CLASS B SHARES** ----------------------------------- ----------------------------------- REDEEMABLE REDEEMABLE VALUE OF A VALUE OF A EXPRESSED AS A HYPOTHETICAL EXPRESSED AS A HYPOTHETICAL PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT ON A HYPOTHETICAL AT THE END OF THE ON A HYPOTHETICAL AT THE END OF THE PERIOD $1,000 INVESTMENT PERIOD $1,000 INVESTMENT PERIOD ------ ----------------- ----------------- ----------------- ----------------- AVERAGE ANNUAL TOTAL RETURN (INCLUDING MAXIMUM APPLICABLE SALES CHARGE) One Year Ended March 31, 1994................... (0.64%) $ 993.60 0.19% $1,001.90 Five Years Ended March 31, 1994............... 8.91% $1,532.60 8.96% $1,536.10 November 29, 1985 to March 31, 1994......... 8.74% $2,011.60 October 27, 1988 to March 31, 1994......... 8.74% $1,575.80 ANNUAL TOTAL RETURN (EXCLUDING MAXIMUM APPLICABLE SALES CHARGE) For the six months ended March 31, 1994......... 0.24% $1,002.40 (0.23%) $ 997.70 YEAR ENDED SEPTEMBER 30, - ------------------------ 1993.................... 14.62% $1,146.20 13.49% $1,134.90 1992.................... 9.23% $1,092.30 8.01% $1,080.10 1991.................... 23.14% $1,231.40 21.91% $1,219.10 1990.................... (6.86%) $ 931.40 (7.79%) $ 922.10 1989.................... 16.93% $1,169.30 1988.................... (6.36%) $ 936.40 1987.................... 18.98% $1,189.80 November 29, 1985 to September 30, 1986..... 12.29% $1,122.90 October 27, 1988 to September 30, 1989..... 15.54% $1,155.40 AGGREGATE TOTAL RETURN (INCLUDING MAXIMUM APPLICABLE SALES CHARGES) November 29, 1985 to March 31, 1994......... 101.16% $2,011.60 October 27, 1988 to March 31, 1994......... 57.58% $1,575.80
- -------- * Information as to Class A shares is presented only for the period October 27, 1988 to March 31, 1994. No Class A shares were sold prior to October 27, 1988. ** Commencement of Operations of Class B shares was November 29, 1985. In order to reflect the reduced sales charges in the case of Class A or Class D shares or the waiver of the CDSC in the case of Class B or Class C shares applicable to certain investors, as described under "Purchase of Shares" and "Redemption of Shares", respectively, the total return data quoted by the Fund, in advertisements directed to such investors, may take into account the reduced, and not the maximum, sales charge or may not take into account the CDSC and therefore may reflect greater total return since, due to the reduced sales charges or the waiver of sales charges, a lower amount of expenses may be deducted. From time to time, the Fund may include the Fund's Morningstar risk-adjusted performance rating in advertisements or supplemental sales literature. 33 INVESTMENT PRACTICES AND RESTRICTIONS Reference is made to "Investment Objective and Policies" in the Prospectus for a discussion of the investment objective and policies of the Fund. PORTFOLIO STRATEGIES INVOLVING OPTIONS AND FUTURES Reference is made to the discussion under "Investment Practices and Restrictions--Portfolio Strategies Involving Options and Futures" for information regarding various portfolio strategies involving options and futures. The Fund may engage in various portfolio strategies to seek to increase its return through the use of options on portfolio securities and to hedge its portfolio against movements in the equity markets, interest rates and exchange rates between currencies. The Fund has authority to write (i.e., sell) covered call options on its portfolio securities, purchase put options on securities and engage in transactions in stock index options, stock index futures and financial futures, and related options on such futures. The Fund may also deal in forward foreign exchange transactions and foreign currency options and futures, and related options on such futures. Each of these portfolio strategies is described below. Although certain risks are involved in options and futures transactions (as discussed below in "Risk Factors in Options, Futures and Currency Transactions"), the Investment Adviser believes that, because the Fund will only engage in these transactions for hedging purposes, the options and futures portfolio strategies of the Fund will not subject the Fund to the risks frequently associated with the speculative use of options and futures transactions. While the Fund's use of hedging strategies is intended to reduce the volatility of the net asset value of Fund shares, the Fund's net asset value will fluctuate. There can be no assurance that the Fund's hedging transactions will be effective. Furthermore, the Fund will only engage in hedging activities from time to time and may not necessarily be engaging in hedging activities when movements in the equity markets, interest rates or currency exchange rates occur. Writing of Covered Call Options. As discussed in the Prospectus, the Fund may from time to time sell ("write") covered call options. The term option, as used herein, means an option issued by the Options Clearing Corporation and traded on a national securities exchange. A call option gives the purchaser of the option the right to buy, and obligates the writer (seller) to sell, the underlying security at the exercise price during the option period. When the Fund writes an option it receives a premium. This premium is the price of such option on the exchange on which it is traded. At the time the option is written, the exercise price of the option may be lower, equal to or higher than the market price of the security on which the option is written. A call option is "covered" if the Fund already owns securities subject to the option ("underlying securities") or has an absolute and immediate right to acquire that security without additional cash consideration upon conversion or exchange of other securities held in its portfolio. By writing a covered call option, the Fund, in return for the premium income realized from the sale of the option, gives up the opportunity to profit from any increase in the price of the underlying security above the option exercise price during the period until the option expires, is exercised or the Fund effects a "closing purchase transaction" as described below. In addition the Fund will not be able to sell the security during the period of the option without taking special steps described below which will involve expense. If the call option expires unexercised, the Fund realizes a gain (short-term capital gain for Federal income tax purposes) in the amount of the 34 premium received for the option. This gain may be offset by a decline in the market price of the underlying security during the option period. The Fund can terminate its obligation under an option prior to the expiration date of the option by effecting a "closing purchase transaction." This is done by purchasing on an exchange an option of the same series (i.e., same underlying security, exercise price and expiration date) as the option previously written. This can be done, however, only on an exchange which provides a secondary market for an option of the same series and there is no assurance that a secondary market will exist for any particular option. With respect to a covered call option, in the event the Fund is unable to effect a closing purchase transaction, it will not be able to dispose of the underlying securities until the option expires or until the underlying securities are delivered upon exercise of the option, with the result that the Fund will be subject to the risk of decline in the price of the underlying securities during such period. The Fund writes options on securities only if management believes that secondary markets will exist on an exchange for options of the same series which will permit the Fund to effect closing purchase transactions. Depending on the premium paid by the Fund in effecting a closing purchase transaction and transaction costs, the cost of a closing purchase transaction may exceed the premium received by the Fund from writing the original option, in which case the transaction will result in a loss to the Fund. Purchasing Put Options. The Fund is authorized to purchase put options to hedge against a decline in the market value of its portfolio securities. By buying a put option, the Fund has a right to sell the underlying security at the exercise price, thus limiting the Fund's risk of loss through a decline in the market value of the security until the put option expires. The amount of any appreciation in the value of the underlying security will be partially offset by the amount of the premium paid for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction and profit or loss from the sale will depend on whether the amount received is more or less than the premium paid for the put option plus the related transaction costs. A closing sale transaction cancels out the Fund's position as the purchaser of an option by means of an offsetting sale of an identical option prior to the expiration of the option it has purchased. The Fund will not purchase put options on securities if, as a result of such purchase, the aggregate cost of all outstanding options on securities held by the Fund would exceed 5% of the market value of the Fund's total assets. Stock Index Options and Futures and Financial Futures. The Fund is authorized to engage in transactions in stock index options and futures and financial futures, and related options on such futures. The Fund may purchase or write call options and purchase or write put options on stock indexes to hedge against the risks of market-wide stock price movements in the securities in which the Fund invests. The effectiveness of the hedge will depend on the degree of diversification of the Fund's portfolio and the sensitivity of the securities comprising the portfolio to factors influencing the market as a whole. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular stock, whether the Fund will realize a gain or loss on the purchase or sale of an option on an index depends upon movements in the level of prices in the stock market generally or in an industry or market segment rather than movements in the prices of a particular stock. Currently, stock index options traded include the S&P 100 Index, the S&P 500 Index, the NYSE Composite Index, the AMEX Market Value Index, the National Over-the-Counter Index and other standard, broadly based stock market indices. 35 The Fund may also purchase and sell stock index futures contracts and financial futures contracts ("futures contracts") as a hedge against adverse changes in the market value of its portfolio securities and interest rates, as described below. A futures contract is an agreement between two parties which obligates the purchaser of the futures contract to buy and the seller of a futures contract to sell a security for a set price on a future date. Unlike most other futures contracts, a stock index futures contract does not require actual delivery of securities, but results in cash settlement based upon the difference in value of the index between the time the contract was entered into and the time of its settlement. The Fund may effect transactions in stock index futures contracts in securities and financial futures contracts in United States Government and agency securities and corporate debt securities. Transactions by the Fund in stock index futures and financial futures are subject to limitations as described below under "Restrictions on the Use of Futures Transactions". The Fund may sell stock index futures contracts in anticipation of or during a market decline to attempt to offset the decrease in market value of the Fund's securities portfolio that might otherwise result. When the Fund is not fully invested in the securities markets and anticipates a significant market advance, it may purchase stock index futures in order to gain rapid market exposure that may in part or entirely offset increases in the cost of securities that the Fund intends to purchase. As such securities purchases are made, an equivalent amount of stock index futures contracts will be terminated by offsetting sales. The Fund does not consider purchases of futures contracts to be a speculative practice under these circumstances. It is anticipated that, in a substantial majority of these transactions, the Fund will purchase such securities upon termination of the long futures position, whether the long position is the purchase of a stock index futures contract or the purchase of a call option on a stock index future, but under unusual circumstances (e.g., the Fund experiences a significant amount of redemptions), a long futures position may be terminated without the corresponding purchase of securities. The Fund may sell financial futures contracts in anticipation of an increase in the general level of interest rates. Generally, as interest rates rise, the market values of debt securities which may be held by the Fund as a temporary defensive measure will fall, thus reducing the net asset value of the Fund. However, as interest rates rise, the value of the Fund's short position in the futures contract will also tend to increase, thus offsetting all or a portion of the depreciation in the market value of the Fund's investments which are being hedged. While the Fund will incur commission expenses in selling and closing out futures positions, these commissions are generally less than the transaction expenses which the Fund would have incurred had the Fund sold portfolio securities in order to reduce its exposure to increases in interest rates. The Fund also may purchase financial futures contracts in anticipation of a decline in interest rates when it is not fully invested in a particular market in which it intends to make investments to gain market exposure that may in part or entirely offset an increase in the cost of securities it intends to purchase. It is anticipated that, in a substantial majority of these transactions, the Fund will purchase securities upon termination of the futures contract. The Fund also has authority to purchase and write call and put options on futures contracts in connection with its hedging activities. Generally, these strategies are utilized under the same market and market sector conditions (i.e., conditions relating to specific types of investments) in which the Fund enters into futures transactions. The Fund may purchase put options or write call options on futures contracts rather than selling the underlying futures contract in anticipation of a decrease in the market value of a security or an increase in interest rates. Similarly, the Fund may purchase call options, or write put options on futures 36 contracts, as a substitute for the purchase of such futures to hedge against the increased cost resulting from an increase in the market value or a decline in interest rates of securities which the Fund intends to purchase. The Fund may engage in options and futures transactions on exchanges and options in the over-the-counter markets ("OTC options"). In general, exchange- traded contracts are third-party contracts (i.e., performance of the parties' obligations is guaranteed by an exchange or clearing corporation) with standardized strike prices and expiration dates. OTC options transactions are two-party contracts with price and terms negotiated by the buyer and seller. See "Restrictions on OTC Options" below for information as to restrictions on the use of OTC options. Foreign Currency Options, Futures and Related Options. The Fund is also authorized to purchase or sell listed or over-the-counter foreign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possible variations in foreign exchange rates. Such transactions may be effected with respect to hedges on non-U.S. dollar denominated securities owned by the Fund, sold by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund. As an illustration, the Fund may use such techniques to hedge the stated value in United States dollars of an investment in a pound sterling denominated security. In such circumstances, for example, the Fund may purchase a foreign currency put option enabling it to sell a specified amount of pounds for dollars at a specified price by a future date. To the extent the hedge is successful, a loss in value of the pound relative to the dollar will tend to be offset by an increase in the value of the put option. To offset, in whole or in part, the cost of acquiring such a put option, the Fund may also sell a call option which, if exercised, requires it to sell a specified amount of pounds for dollars at a specified price by a future date (a technique called a "straddle"). By selling such call option, the Fund gives up the opportunity to profit without limit from increases in the relative value of the pound to the dollar. The Investment Adviser believes that "straddles" of the type which may be utilized by the Fund constitute hedging transactions and are consistent with the policies described above. Certain differences exist between these foreign currency hedging instruments. Foreign currency options provide the holder thereof the right to buy or sell a currency at a fixed price on a future date (with exchange-traded contracts and OTC options having the characteristics described above). A futures contract on a foreign currency is an agreement between two parties to buy and sell a specified amount of currency for a set price on a future date. Futures contracts and options on futures contracts are traded on boards of trade or futures exchanges. The Fund will not speculate in foreign currency options, futures or related options. Accordingly, the Fund will not hedge a currency substantially in excess of the market securities which it has committed or anticipates to purchase which are denominated in such currency, and in the case of securities which have been sold by the Fund but not yet delivered, the proceeds thereof in its denominated currency. The Fund may not incur potential net liabilities of more than 20% of its total assets from foreign currency options, futures or related options. Restrictions on the Use of Futures Transactions. Under regulations of the Commodity Futures Trading Commission ("CFTC"), the futures trading activities described herein will not result in the Fund being deemed to be a "commodity pool," as defined under such regulations, provided that the Fund adheres to certain restrictions. In particular, the Fund may (i) purchase and sell futures contracts and options thereon for bona fide hedging purposes, as defined under CFTC regulations, without regard to the percentage of the Fund's assets committed to margin and option premiums, and (ii) the Fund may enter into non- hedging 37 transactions, provided that the Fund not entered into such transactions for yield enhancement or risk management purposes if, immediately thereafter, the sum of the amount of initial margin deposits on the Fund's existing futures positions and option premiums would exceed 5% of the market value of its liquidating value, after taking into account unrealized profits and unrealized losses on any such transactions. However, the Fund intends to engage in options and futures transactions only for hedging purposes. Margin deposits may consist of cash or securities acceptable to the broker and the relevant contract market. When the Fund purchases a futures contract or writes a put option or purchases a call option thereon, an amount of cash and cash equivalents will be deposited in a segregated account with the Fund's custodian so that the amount so segregated, plus the amount of initial and variation margin held in the account of its broker, equals the market value of the futures contract, thereby ensuring that the use of such futures is unleveraged. An order has been obtained from the Commission which exempts the Fund from certain provisions of the Investment Company Act in connection with transactions involving futures contracts and options thereon. Restrictions on OTC Options. The Fund will engage in OTC options, including over-the-counter foreign currency options and options on foreign currency futures, only with member banks of the Federal Reserve System and primary dealers in United States Government securities or with affiliates of such banks or dealers which have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. The Fund will acquire only those OTC options for which the Investment Adviser believes the Fund can receive on each business day at least two independent bids or offers (one of which will be from an entity other than a party to the option). The staff of the Commission has taken the position that purchased OTC options and the assets used as cover for written OTC options are illiquid securities. Therefore, the Fund has adopted an investment policy pursuant to which it will not purchase or sell OTC options (including OTC options on futures contracts) if, as a result of such transaction, the sum of the market value of OTC options currently outstanding which are held by the Fund, the market value of the underlying securities covered by OTC call options currently outstanding which were sold by the Fund and margin deposits on the Fund's existing OTC options on futures contracts exceed 5% of the total assets of the Fund, taken at market value, together with all other assets of the Fund which are illiquid or are not otherwise readily marketable. However, if the OTC option is sold by the Fund to a primary U.S. Government securities dealer recognized by the Federal Reserve Bank of New York and if the Fund has the unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then the Fund will treat as illiquid such amount of the underlying securities as is equal to the repurchase price less the amount by which the option is "in-the- money" (i.e., current market value of the underlying security minus the option's strike price). The repurchase price with the primary dealers is typically a formula price which is generally based on a multiple of the premium received for the option, plus the amount by which the option is "in-the-money". This policy is not a fundamental policy of the Fund and may be amended by the Board of Directors of the Fund without the approval of the Fund's shareholders. However, the Fund will not change or modify this policy prior to the change or modification by the Commission staff of its positions. 38 Risk Factors in Options, Futures and Currency Transactions. Utilization of options and futures transactions to hedge the portfolio involves the risk of imperfect correlation in movements in the price of options and futures prices and movements in the prices of the securities, interest rates or currencies which are the subject of the hedge. If the price of the options or futures moves more or less than the price of the subject of the hedge, the Fund will experience a gain or loss which will not be completely offset by movements in the price of the subject of the hedge. The Fund intends to enter into options and futures transactions, on an exchange or in the over-the-counter market, only if there appears to be a liquid secondary market for such options or futures or, in the case of OTC options, the Investment Adviser believes the Fund can receive on each business day at least two independent bids or offers. However, there can be no assurance that a liquid secondary market will exist at any specific time. Thus, it may not be possible to close an options or futures position. The inability to close options and futures positions also could have an adverse impact on the Fund's ability to effectively hedge its portfolio. There is also the risk of loss by the Fund of margin deposits or collateral in the event of bankruptcy of a broker with whom the Fund has an open position in an option, a futures contract or a related option. The exchanges on which currency options are traded have generally established limitations governing the maximum number of call or put options on the same underlying currency (whether or not covered) which may be written by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on the same or different exchanges or are held or written on one or more accounts or through one or more brokers). "Trading limits" are imposed on the maximum number of contracts which any person may trade on a particular trading day. The Investment Adviser does not believe that these trading and position limits will have any adverse impact on the portfolio strategies for hedging the Fund's portfolio. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for the Fund to hedge against a devaluation that is so generally anticipated that the Fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. It is possible that, under certain circumstances, the Fund may have to limit its currency transactions to qualify as a regulated investment company under the Code; in this regard, the Fund presently intends to limit its gross income from currency hedging transactions to less than 10% of its gross income in any taxable year until such time as the Fund determines that income from the transactions is not subject to this restriction. The cost to the Fund of engaging in foreign currency transactions varies with such factors as the currency involved, the length of the contract period and the market conditions then prevailing. Since transactions in foreign currency exchange are usually conducted on a principal basis, no fees or commissions are involved. OTHER INVESTMENT POLICIES AND PRACTICES Lending of Portfolio Securities. As discussed in the Prospectus, the Fund may from time to time lend its portfolio securities in order to increase the total yield on its portfolio. Such loans will be effected in accordance with applicable regulatory guidelines and will at all times be secured by cash collateral or securities issued or guaranteed by the United States government in an amount that is at least equal to the market value, determined daily, of the loaned securities. Cash collateral received by the Fund is invested in short-term money market securities, and a portion of the yield earned on such securities is retained by the 39 Fund. Where securities, instead of cash, are delivered to the Fund as collateral, the Fund earns its return in the form of a loan premium paid by the borrower. The Fund retains the right to regain record ownership of loaned securities and to exercise beneficial rights such as voting rights, subscription rights and rights to dividends, interest or other distributions. Securities loans can be terminated by the Fund at any time. The Fund may pay reasonable finders', administrative and custodial fees in connection with such loans. Foreign Securities. As discussed in the Prospectus, the Fund may invest up to 20% of its total assets in securities issued by foreign companies. Foreign investments may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to uniform accounting, auditing and financial reporting standards requirements comparable to those applicable to U.S. companies. Securities of some foreign companies may be less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees are generally higher than in the U.S. There is generally less government regulation of stock exchanges, brokers and listed companies abroad than in the U.S. Investment in foreign securities may also be subject to other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividends or interest payments. Forward Foreign Exchange Transactions. Generally, the foreign exchange transactions of the Fund will be conducted on a spot, i.e., cash, basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market. This rate under normal market conditions differs from the prevailing exchange rate in an amount generally less than 0.1 of one percent due to the costs of converting from one currency to another. However, the Fund has authority to deal in forward foreign exchange between currencies of the different countries in which it will invest as a hedge against possible variations in the foreign exchange rate between these currencies. This is accomplished through contractual agreements to purchase or sell a specified currency at a specified future date and price set at the time of the contract. The Fund's dealings in forward foreign exchange will be limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of forward foreign currency with respect to specific receivables or payables of the Fund accruing in connection with the purchase and sale of its portfolio securities, the sale and redemption of shares of the Fund or the payment of dividends and distributions by the Fund. Position hedging is the sale of forward foreign currency with respect to portfolio security positions denominated or quoted in such foreign currency. The Fund will not speculate in forward foreign exchange. The Fund may not position hedge with respect to the currency of a particular country to an extent greater than the aggregate market value (at the time of making such sale) of the securities held in its portfolio denominated or quoted in that particular foreign currency. If the Fund enters into a position hedging transaction, its custodian bank will place cash or liquid equity or debt securities in a separate account of the Fund in an amount equal to the value of the Fund's total assets committed to the consummation of such forward contract. If the value of the securities placed in the separate account declines, additional cash or securities will be placed in the account so that the value of the account will equal the amount of the Fund's commitment with respect to such contracts. The Fund will not attempt to hedge all of its foreign portfolio positions and will enter into such transactions only to the extent, if any, deemed appropriate by the Investment Adviser. The Fund will not enter into a position hedging commitment if, as a result thereof, the Fund would have more than 15% of the value of its assets committed to such contracts. The Fund will not enter into a forward contract with a term of more than one year. Restricted Securities. The Fund may purchase securities that are not registered ("restricted securities") under the Securities Act of 1933, as amended (the "Securities Act"), but can be offered and sold to "qualified 40 institutional buyers" under Rule 144A under the Securities Act. However, the Fund will not invest more than 5% of its net assets in illiquid investments, which includes securities for which there is no readily available market, securities subject to contractual restrictions on resale, certain investments in asset-backed and receivable-backed securities and restricted securities, unless the Fund's Board of Directors continuously determines, based on the trading markets for the specific restricted security, that it is liquid. The Board of Directors may adopt guidelines and delegate to the Investment Adviser the daily function of determining and monitoring liquidity of restricted securities. The Board of Directors, however, will retain sufficient oversight and be ultimately responsible for the determinations. The Board of Directors monitors the Fund's investments in these securities purchased pursuant to Rule 144A, focusing on such factors, among others, as valuation, liquidity and availability of information. These investments in securities purchased pursuant to Rule 144A could have the effect of increasing the level of illiquidity in the Fund to the extent that qualified institutional buyers become for a time uninterested in purchasing these restricted securities. Portfolio Turnover. The Fund has not placed any limit on its rate of portfolio turnover and securities may be sold without regard to the time they have been held when, in the opinion of the Investment Adviser, investment considerations warrant such action. As a result, portfolio turnover rate may vary greatly from year to year or during periods within a year. Also, the use of covered call options at times when the underlying securities are appreciating in value may result in higher portfolio turnover than would otherwise be the case. The Fund pays brokerage commissions in connection with writing call options and effecting closing purchase transactions, as well as in connection with purchases and sales of portfolio securities. A high rate of portfolio turnover would result in correspondingly greater brokerage commission expenses. Portfolio turnover rate is calculated by dividing the lesser of the Fund's annual sales or purchases of portfolio securities (exclusive of purchases and sales of Government securities and of all other securities, including options, whose maturity or expiration dates at the time of acquisition were one year or less) by the monthly average value of the securities in the Fund during the fiscal year. For the years ended September 30, 1993 and 1992 the rate of portfolio turnover for the Fund was 79.55% and 65.40%, respectively. Portfolio Brokerage. Subject to policies established by the Board of Directors of the Fund, the Investment Adviser is responsible for the Fund's portfolio decisions and the placing of orders to effect the Fund's portfolio transactions. With respect to such transactions, the Investment Adviser seeks to obtain the best net 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, 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 will not necessarily be paying the lowest commission or spread available. The Fund has no obligation to deal with any broker or dealer in the execution of its portfolio transactions. The Fund contemplates that, consistent with the above policy of obtaining the best net results, a substantial amount of its brokerage transactions will be conducted through Merrill Lynch. The Fund has been informed by Merrill Lynch that it will not attempt to influence or control the placing by the Investment Adviser or by the Fund of orders for brokerage transactions. Brokers and dealers, including Merrill Lynch, who provide supplemental investment research (such as economic data and market forecasts) to the Investment Adviser may receive orders for transactions by the Fund. Information so received is in addition to, and not in lieu of, the services required to be performed by the Investment Adviser under the Investment Advisory Agreement with the Fund. The expenses of the Investment Adviser are not necessarily reduced as a result of the receipt of such supplemental information. 41 Supplemental investment research received by the Investment Adviser may also be used in connection with other investment advisory accounts of the Investment Adviser and its affiliates. The Fund may invest in securities traded in the over-the-counter market. Transactions in the over-the-counter market are generally principal transactions with dealers and the costs of such transactions involve dealer spreads rather than brokerage commissions. With respect to over-the-counter transactions, the Fund deals directly with dealers who make markets in the securities involved where possible, except in circumstances where better prices and execution are available elsewhere. Under the Investment Company Act, Merrill Lynch and its affiliates are generally prohibited from dealing with the Fund or its portfolios 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, neither Merrill Lynch nor any affiliate of Merrill Lynch may serve as the Fund's dealer in connection with such transactions. However, such companies may serve as broker for the Fund in over-the-counter transactions conducted on an agency basis. The aggregate dollar amounts of brokerage commissions paid by the Fund for the fiscal years ended September 30, 1993, 1992 and 1991 were $1,375, 992, $1,433,924 and $2,548,636, respectively. The aggregate dollar amounts of such portfolio transactions were $843,535,870, $1,042,727,092 and $4,045,684,979, respectively, for such periods. During those periods, the aggregate dollar amounts of brokerage commissions paid by the Fund to Merrill Lynch were $80,436, $99,711 and $184,039, respectively. These amounts represent 5.85%, 6.95% and 7.22%, respectively, of the Fund's aggregate brokerage commissions paid to all brokers during those periods. The Fund's aggregate dollar amounts of transactions involving the payment of commissions effected through Merrill Lynch during those periods were 1.65%, 5.83% and 1.99%, respectively, of the aggregate dollar amount of all Fund transactions involving the payment of commissions. The Fund and one or more of the other investment companies or accounts which the Investment Adviser or its affiliate, FAM, manages, may own the same investments from time to time. Similarly, a particular security may be bought for one or more companies or accounts at the same time that one or more companies or accounts are selling the same security. If purchases or sales of securities for the Fund and other companies or accounts arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective companies and accounts in a manner deemed equitable to all. To the extent that transactions on behalf of more than one company or account 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 the price of the security being purchased or sold for the Fund. Current Investment Restrictions. The Fund has adopted certain fundamental investment restrictions which may not be changed without the prior approval of the holders of the majority of the Fund's outstanding voting securities, including a majority of the voting securities of each portfolio affected. A majority for this purpose means: (a) more than 50% of the outstanding voting securities, or (b) 67% of the outstanding voting securities represented at a meeting where more than 50% of the outstanding voting securities are represented, whichever is less. For purposes of the following restrictions, all percentage limitations apply immediately after a purchase or initial investment and any subsequent change in any application percentage resulting from market fluctuations does not require elimination of any security from a portfolio. Under its fundamental investment restrictions, the Fund may not: 1. Invest more than 5% of the total assets of any portfolio 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. 42 2. Pledge any of its assets, except that each portfolio may pledge securities having a market value of not more than 10% of its total assets in order to secure permitted borrowings from banks. Such borrowings may not exceed 10% of any such portfolio's assets. No such portfolio may make additional investments while outstanding borrowings are in excess of 5% of its assets. 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 total assets of the portfolio making the purchase would be invested in such securities. 4. Invest more than 25% of the value of the total assets of any portfolio in the securities of issuers in any single industry. 5. Invest in companies for the purpose of exercising control of management. 6. Purchase or sell real estate. 7. Purchase or sell commodities or commodity contracts. 8. Purchase any securities on margin, except that any portfolio 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 investment policies of the portfolio taking such action. 11. Lend securities of any portfolio in an amount exceeding 33 1/3% of the value of total assets of such portfolio, both 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 value of the total assets of the portfolio entering into such agreement. 13. Underwrite securities of other issuers except insofar as the Fund or any portfolio thereof may technically be deemed an underwriter under the Securities Act of 1933 in selling portfolio securities. 14. Purchase securities of other open-end 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 any portfolio from making permitted borrowings, lending its portfolio securities or entering into repurchase agreements. The following additional investment restrictions have been adopted by the Fund and may be changed by the Board of Directors. Under these restrictions, the Fund may not: 1. Invest more than 5% of the assets of any portfolio, taken at market value at the time of the investment, in companies having a record, together with predecessors, of less than three years of continuous operation. 2. Purchase or sell interests in oil, gas or other mineral exploration or development programs, except that any portfolio may invest in the securities of companies which invest in such interests or sponsor such programs. 3. Invest in warrants if at the time of acquisition more than 2% of the value of the total assets of the portfolio making such acquisition, taken at market value, would be invested in warrants. (For purposes of this restriction, warrants acquired by a portfolio in units or attached to securities are deemed to have no value.) 43 4. 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 officers and directors who own more than 1/2 of 1% own in the aggregate more than 5% of the outstanding securities of such issuer. 5. Borrow money, except for temporary or emergency purposes, and in any case the Fund may not make borrowings in an aggregate amount in excess of 33 1/3% of its net assets. Proposed Uniform Investment Restrictions. As discussed in the Prospectus under "Investment Objective and Policies--Investment Restrictions", the Board of Directors of the Fund has approved the replacement of the Fund's existing investment restrictions with the fundamental and non-fundamental investment restrictions set forth below. These uniform investment restrictions have been proposed for adoption by all of the non-money market mutual funds advised by the Investment Adviser or its affiliate, FAM. The investment objective and policies of the Fund will be unaffected by the adoption of the proposed investment restrictions. Shareholders of the Fund are currently considering whether to approve the proposed revised investment restrictions. If such shareholder approval is obtained, the Fund's current investment restrictions will be replaced by the proposed restrictions, and the Fund's Prospectus and Statement of Additional Information will be supplemented to reflect such change. Under the proposed fundamental investment restrictions, the Fund may not: 1. Make any investment inconsistent with the Fund's classification as a diversified company under the Investment Company Act. 2. Invest more than 25% of its assets, taken at market value, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities). 3. Make investments for the purpose of exercising control or management. 4. Purchase or sell real estate, except that, to the extent permitted by applicable law, the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein. 5. Make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments shall not be deemed to be the making of a loan, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set forth in the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time. 6. Issue senior securities to the extent such issuance would violate applicable law. The Fund currently does not intend to engage in short sales, except short sales "against the box". 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 44 securities and (iv) the Fund may purchase securities on margin to the extent permitted by applicable law. The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Fund's investment policies as set forth in its Prospectus and Statement of Additional Information, as they may be amended from time to time, in connection with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment strategies. 8. Underwrite securities of other issuers except insofar as the Fund technically may be deemed an underwriter under the Securities Act of 1933, as amended (the "Securities Act") in selling portfolio securities. 9. Purchase or sell commodities or contracts on commodities, except to the extent that the Fund may do so in accordance with applicable law and the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time, and without registering as a commodity pool operator under the Commodity Exchange Act. 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. b. Make short sales of securities or maintain a short position, except to the extent permitted by applicable law. c. Invest in securities which cannot be readily resold because of legal or contractual restrictions or which cannot otherwise be marketed, redeemed or put to the issuer or a third party, if at the time of acquisition more than 15% of its total assets would be invested in such securities. This restriction shall not apply to securities which mature within seven days or securities which the Board of Directors of the Fund has otherwise determined to be liquid pursuant to applicable law. Notwithstanding the 15% limitation herein, to the extent the laws of any state in which the Fund's shares are registered or qualified for sale require a lower limitation, the Fund will observe such limitation. As of the date hereof, therefore, the Fund will not invest more than 10% of its total assets in securities which are subject to this investment restriction (c). Notwithstanding the fact that the Board may determine that a Rule 144A security is liquid and not subject to limitations set forth in this investment restriction (c), the State of Ohio does not recognize Rule 144A securities as securities that are free of restrictions as to resale. To the extent required by Ohio law, the Fund will not invest more than 5% of its total assets in securities of issuers that are restricted as to disposition, including Rule 144A securities. d. Invest in warrants if, at the time of acquisition, its investments in warrants, valued at the lower of cost or market value, would exceed 5% of the Fund's 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 45 Stock Exchange or American Stock Exchange or a major foreign exchange. For purposes of this restriction, warrants acquired by the Fund in units or attached to securities may be deemed to be without value. e. Invest in securities of companies having a record, together with predecessors, of less than three years of continuous operation, if more than 5% of the Fund's total assets would be invested in such securities. This restriction shall not apply to mortgage-backed securities, asset- backed securities or obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. f. Purchase or retain the securities of any issuer, if those individual officers and directors of the Fund, the officers and general partner of the Investment Adviser, the directors of such general partner or the officers and directors of any subsidiary thereof each owning beneficially more than one-half of one percent of the securities of such issuer own in the aggregate more than 5% of the securities of such issuer. g. Invest in real estate limited partnership interests or interests in oil, gas or other mineral leases, or exploration or development programs, except that the Fund may invest in securities issued by companies that engage in oil, gas or other mineral exploration or development activities. h. Write, purchase or sell puts, calls, straddles, spreads or combinations thereof, except to the extent permitted in the Fund's Prospectus and Statement of Additional Information, as they may be amended from time to time. i. Notwithstanding fundamental restriction (7) above, borrow amounts in excess of 10% of its total assets, taken at market value, and then only from banks as a temporary measure for extraordinary or emergency purposes such as the redemption of Fund shares. In addition, the Fund will not purchase securities while borrowings exceed 5% of its assets. Because of the affiliation of Merrill Lynch with the Fund, the Fund is prohibited from engaging in certain transactions involving Merrill Lynch except pursuant to a permissive order or otherwise in compliance with the provisions of the Investment Company Act and the rules and regulations thereunder. Included among such restricted transactions are purchases from or sales to Merrill Lynch of securities in transactions in which it acts as principal and purchases of securities from underwriting syndicates of which Merrill Lynch is a member. 46 GENERAL INFORMATION DESCRIPTION OF SHARES The Fund was incorporated under Maryland law on May 21, 1984, under the name Merrill Lynch Retirement Fund, Inc. The name of the Fund was changed to Merrill Lynch Retirement Benefit Investment Program, Inc. on August 8, 1985. On April 30, 1991, the Fund began doing business under the name Merrill Lynch Balanced Fund for Investment and Retirement. The Fund has an authorized capital of 2,000,000,000 shares of Common Stock, par value $0.01 per share, divided into four classes, designated Class A, Class B, Class C and Class D Common Stock, each of which consists of 500,000,000 shares. Shares of Class A, Class B, Class C and Class D Common Stock represent an interest in the same assets of the Fund and are identical in all respects except that the Class B, Class C and Class D shares bear certain expenses related to the account maintenance and/or distribution of such shares and have exclusive voting rights with respect to matters relating to such account maintenance and/or distribution expenditures. The Fund has received an order from the Commission permitting the issuance and sale of multiple classes of Common Stock. The Board of Directors of the Fund may classify and reclassify the shares of the Fund into additional classes of Common Stock at a future date. Shareholders are entitled to one vote for each share held and fractional votes for fractional shares held and will vote on the election of Directors and any other matter submitted to a shareholder vote. The Fund does not intend to hold meetings of shareholders in any year in which the Act does not require shareholders to act upon any of the following matters: (i) election of Directors; (ii) approval of an investment advisory agreement; (iii) approval of a distribution agreement; and (iv) ratification of selection of independent accountants. Generally, under Maryland law, a meeting of shareholders may be called for any purpose on the written request of the holders of at least 25% of the outstanding shares of the Fund. Voting rights for Directors are not cumulative. Shares issued are fully paid and non-assessable and have no preemptive rights. Redemption and conversion rights are discussed elsewhere herein and in the Prospectus. Each share is entitled to participate equally in dividends and distributions declared by the Fund and in the net assets of the Fund upon liquidation or dissolution after satisfaction of outstanding liabilities. Stock certificates are issued by the Transfer Agent only on specific request. Certificates for fractional shares are not issued in any case. COMPUTATION OF OFFERING PRICE PER SHARE The offering price for Class A and Class B shares of the Fund, based on the value of the Fund's net assets and number of shares outstanding as of March 31, 1994, is calculated as set forth below. Information is not provided for Class C or Class D shares since no Class C or Class D shares were publicly offered prior to the date of this Statement of Additional Information.
CLASS A CLASS B ----------- ------------ Net Assets............................................ $40,175,446 $760,264,660 =========== ============ Number of Shares Outstanding.......................... 3,441,241 64,695,953 =========== ============ Net Asset Value Per Share (net assets divided by number of shares outstanding)........................ $ 11.67 $ 11.75 Sales Charge*......................................... $ .65 $ -- ----------- ------------ Offering Price (for Class A shares; 5.25% of offering price (5.54% of net asset value per share)).......... $ 12.32 $ 11.75 =========== ============
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge is applicable. 47 INDEPENDENT AUDITORS Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has been selected as the independent auditors of the Fund. The selection of independent auditors is subject to ratification by the shareholders of the Fund, and the employment of such auditors may be terminated without any penalty by vote of a majority of the outstanding shares of the Fund at a meeting called for the purpose of terminating such employment. The independent auditors are responsible for auditing the annual financial statements of the Fund. CUSTODIAN Chase Manhattan Bank N.A., 4 Chase MetroTech Center, 18th Floor Brooklyn, NY 11245, acts as Custodian of the Fund's assets. The Custodian is responsible for safeguarding and controlling the Fund's cash and securities, handling the delivery of securities and collecting interest and dividends on the Fund's investments. TRANSFER AGENT Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 33246-6484, acts as the Fund's Transfer Agent. The Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening, maintenance and servicing of shareholder accounts. See "The Fund and Its Management-- Transfer Agency Services" in the Prospectus. LEGAL COUNSEL Shereff, Friedman, Hoffman & Goodman, 919 Third Avenue, New York, New York 10022, is counsel for the Fund. REPORTS TO SHAREHOLDERS The fiscal year of the Fund ends on September 30 of each year. The Fund will send to its shareholders at least semi-annually reports showing the Fund's portfolio and other information. An annual report, containing financial statements audited by independent auditors, is sent to shareholders each year. ADDITIONAL INFORMATION The Prospectus and this Statement of Additional Information do not contain all the information set forth in the Registration Statement and the exhibits relating thereto, which the Fund has filed with the Securities and Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the Investment Company Act of 1940, to which reference is hereby made. To the knowledge of the Fund, no person or entity owned beneficially 5% or more of the Fund's shares on September 30, 1994. 48 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, Merrill Lynch Balanced Fund for Investment and Retirement (formerly Merrill Lynch Retirement Benefit Investment Program, Inc.); We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Merrill Lynch Balanced Fund for Investment and Retirement as of September 30, 1993, the related statements of operations for the year then ended and changes in net assets for each of the years in the two- year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at September 30, 1993 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Merrill Lynch Balanced Fund for Investment and Retirement as of September 30, 1993, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey October 29, 1993 49 SCHEDULE OF INVESTMENTS
Face Value Percent of Industries Amount* Corporate Bonds Cost (Note 1a) Net Assets Financial $10,000,000 American General Financial Corp., 7.38% Services due 5/13/1997 $ 9,993,200 $ 10,737,500 1.2% 10,000,000 Ford Capital BV, 9.375% due 1/01/1998 10,037,900 11,475,000 1.3 5,000,000 Landeskreditbank, 7.875% due 4/15/2004 4,972,067 5,625,000 0.6 Tobacco 10,000,000 Philip Morris Companies, Inc., 7.75% due 5/01/1999 9,975,000 10,900,000 1.3 Total Investments in Corporate Bonds 34,978,167 38,737,500 4.4 Country US Government & Agency Obligations United States Federal Home Loan Mortgage Corp.: 4,659,000 REMIC 1243-HP, 7.50% due 11/15/2004(a) 4,547,621 4,891,950 0.6 25,000,000 REMIC FHG 16PH, 6.75% due 4/15/2021(a) 25,390,625 25,753,906 3.0 20,000,000 Federal National Mortgage Association, REMIC 1993 103PG, 6.75% due 5/25/2022(a) 20,262,500 20,384,375 2.3 5,000,000 Republic of Italy, 8.75% due 2/08/2001 5,373,050 5,817,445 0.7 US Treasury Notes: 55,000,000 7.875% due 8/15/2001 53,943,600 64,255,455 7.4 25,000,000 6.25% due 2/15/2003 25,710,938 26,441,400 3.0 35,000,000 5.75% due 8/15/2003 36,432,813 35,907,830 4.1 22,000,000 US Treasury STRIPS++, 4.79% due 5/15/2000(b) 15,175,873 15,659,600 1.8 Total Investments in US Government & Agency Obligations 186,837,020 199,111,961 22.9 Foreign Obligations Australia A$ 4,000,000 Queensland Treasury Corp. Global, 8.00% due 7/14/1999 2,977,727 2,742,114 0.3 Canada C$ 14,500,000 Government of Canada, 7.25% due 6/01/2003 10,739,024 11,025,826 1.3 France Ffr 32,500,000 Obligations Assimables de Tresor, 8.50% due 4/25/2003 6,538,792 6,687,965 0.8 Italy Lit 10,500,000,000 BTPS, 12.00% due 1/01/1998 6,889,745 7,254,215 0.8 Japan Yen 350,000,000 Kingdom of Belgium, 6.875% due 7/09/2001 2,850,635 3,847,026 0.5 World Bank: 550,000,000 4.50% due 12/22/1997 4,631,436 5,442,871 0.6 200,000,000 5.25% due 3/20/2002 1,455,944 2,050,992 0.2 Mexico Mxp 45,013,640 Mexican Cetes, 12.60% due 9/07/1995(b) 11,613,458 11,352,583 1.3 Sweden Skr 34,000,000 Government of Sweden, 10.75% due 1/23/1997 4,797,378 4,652,887 0.5 United Pound Kingdom Sterling 1,350,000 UK Treasury Gilt, 8.75% due 9/01/1997 2,267,919 2,195,660 0.3 Total Investments in Foreign Obligations 54,762,058 57,252,139 6.6 Total Investments in Corporate Bonds, US Government & Agency & Foreign Obligations 276,577,245 295,101,600 33.9
50 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held US Stocks & Warrants Cost (Note 1a) Net Assets Basic Industry Auto & Truck 155,000 Consorcio G Groupo Dina (ADR) (d) $ 2,506,119 $ 3,138,750 0.4% Chemical 140,000 PPG Industries, Inc. 10,063,769 9,135,000 1.0 Forest Products 195,000 Willamette Industries, Inc. 7,348,738 7,410,000 0.9 Packaging 615,000 Crown Cork & Seal Co., Inc. 16,800,048 21,986,250 2.5 Plastics 125,000 Rohm & Haas Co. 6,791,460 6,296,875 0.7 Total Basic Industry 43,510,134 47,966,875 5.5 Capital Spending Aerospace 257,000 Allied-Signal Inc. 13,823,545 18,728,875 2.1 Communication 150,000 Motorola, Inc. 8,615,563 15,150,000 1.7 Equipment Computer Services 130,000 ++++Computer Sciences Corp. 9,841,829 11,927,500 1.4 140,000 General Motors Corp. 4,261,130 4,077,500 0.5 Electrical 132,000 Emerson Electric Co. 6,798,426 7,755,000 0.9 Equipment 675,000 Singer Co. N.V. 17,730,688 25,312,500 2.9 Electronics 30,000 ++++Solectron Corp. 1,122,882 1,642,500 0.2 280,000 ++++Teradyne Inc. 4,418,915 7,770,000 0.9 Engineering & 50,000 Thermo Electron Corp. 2,987,818 3,175,000 0.4 Construction Miscellaneous 400,000 Corning Glass Works 14,012,126 13,400,000 1.5 135,000 Tellabs, Inc. 5,554,861 8,437,500 1.0 35,000 Whirlpool Corp. 1,854,188 2,060,625 0.2 Office Equipment 240,000 Danka Business Systems (ADR) (d) 6,123,041 7,080,000 0.8 Pollution Control 1,140,000 Wheelabrator Technologies, Inc. 12,797,181 20,092,500 2.3 Total Capital Spending 109,942,193 146,609,500 16.8 Consumer Goods & Services Apparel 245,000 Phillips-Van Heusen Corp. 5,697,027 7,870,625 0.9 Automobile & Equipment 450,000 Cooper Tire & Rubber Co. 8,426,497 11,306,250 1.3 Automotive 210,000 Ford Motor Co. 11,292,000 11,602,500 1.3 Beverages 26,000 Coca-Cola Femsa S.A. (ADR) (d) 566,372 617,500 0.1 19,100 Pan American Beverage 487,050 544,350 0.1 70,000 PepsiCo., Inc. 2,782,941 2,738,750 0.3 Healthcare--Products 510,000 Huntingdon International Holdings PLC (ADR) (d) 12,702,548 5,610,000 0.6 & Services 80,000 Johnson & Johnson, Inc. 3,200,505 3,140,000 0.4
51 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held US Stocks & Warrants Cost (Note 1a) Net Assets Consumer Goods & Services (concluded) Household Products 25,000 Procter & Gamble Co. $ 1,212,120 $ 1,187,500 0.1 Media/Publishing 40,000 News Corp. (ADR) (d) 1,815,791 2,250,000 0.3 Medical 200,000 ++++Physician Corp. 3,715,593 3,800,000 0.4 Printing & Publishing 355,000 Gannett Co. 15,790,424 16,995,625 2.0 Retail Stores 150,000 Heilig-Meyers Co. 1,973,810 4,781,250 0.5 Services 90,000 Block (H & R), Inc. 2,675,014 3,420,000 0.4 Soap 140,000 Colgate-Palmolive Co. 6,283,473 7,350,000 0.8 Telecommunications 76,200 ALC Communications Corp. 1,943,100 2,095,500 0.3 11,300 ++++Antec Corp. 203,400 265,550 0.0 155,000 ++++DSC Communications Corp. 7,060,659 9,455,000 1.1 550,000 MCI Communications Corp. 15,538,597 15,056,250 1.7 Total Consumer Goods & Services 103,366,921 110,086,650 12.6 Credit-Sensitive & Financial Services Banking 315,000 Bank of New York Co. 13,183,294 17,836,875 2.0 80,000 Bank of New York Co. (Warrants) (c) 595,620 810,000 0.1 122,500 Espirito Santo (ADR) (d) 3,447,435 4,011,875 0.5 315,000 Society Corp. 10,387,520 10,080,000 1.2 Communications 324,875 ++++LDDS Communications (Class A) 13,898,703 16,162,531 1.9 Equipment 50,000 ++++Picture Tel Corp. 910,880 862,500 0.1 Insurance 70,000 Capital Holding Corp. 2,697,825 3,027,500 0.3 Total Credit-Sensitive & Financial Services 45,121,277 52,791,281 6.1 Energy Oil 140,000 British Petroleum PLC (ADR)(d)(1) 7,683,915 8,312,500 1.0 413,018 British Petroleum PLC 1,943,586 2,005,929 0.2 90,000 Chevron Corp. 7,904,107 8,797,500 1.0 115,000 Royal Dutch British Petroleum Co. N.V. (ADR)(d) 9,786,535 11,686,875 1.3 Petroleum 300,000 Phillips Petroleum Co. 8,639,686 10,087,500 1.2 Utilities 314,000 California Energy Co., Inc. 5,576,243 5,769,750 0.7 Total Energy 41,534,072 46,660,054 5.4
52 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held US Stocks & Warrants Cost (Note 1a) Net Assets Smaller Capital Smaller Growth 260,000 ++++ADC Telecommunications, Inc. $ 6,959,902 $ 10,140,000 1.2% 140,000 Bandag, Inc. (Class A) 6,400,395 7,332,500 0.8 62,775 Kelly Services, Inc. (Class A) 1,792,414 1,490,906 0.2 110,000 ++++Vivra Inc. 3,078,837 3,795,000 0.4 Total Smaller Capital 18,231,548 22,758,406 2.6 Total Investments in US Stocks & Warrants 361,706,145 426,872,766 49.0 Foreign Stocks & Warrants Argentina Banking 50,000 Banco de Galicia y Buenos Aires S.A. (ADR) (d) 1,087,500 1,587,500 0.2 Miscellaneous 275,000 ++++Telefonica de Argentina S.A. 1,120,159 1,295,090 0.1 Australia Banking 328,144 National Australia Bank Ltd. 2,046,966 2,557,163 0.3 Multi-Industry 294,274 Pacific Dunlop, Ltd. 1,105,242 943,486 0.1 Retail 270,000 Coles Myer Ltd. (Warrants)(c) 808,121 362,288 0.1 Canada Miscellaneous 280,000 International Semi-Tech Microelectronics (Receipts) (f) 1,806,344 1,784,108 0.2 Chile Utilities 121,600 Distribuidora Chilectra Metropolitana S.A. (ADR)(d)(1) 3,323,793 3,449,792 0.4 France Electronics 3,500 Compagnie Generale des Eaux 1,306,017 1,589,116 0.2 Germany Machinery 2,000 Mannesmann A.G. 343,289 376,304 0.0 Hong Kong Banking 518,766 HSBC Holdings PLC 2,806,717 5,466,696 0.6 Electronics 1,300,000 Johnson Electric Co. 2,603,189 3,143,264 0.4 Multi-Industry 3,004,000 Hutchison Whampoa, Ltd. 5,907,278 9,205,431 1.1 800,000 Swire Pacific, Ltd. (Class A) 3,049,508 4,189,294 0.5 Real Estate 40,000 Cheung Kong (Holdings) Ltd. 144,109 142,229 0.0 1,000,000 Hong Kong Land Holdings, Ltd. 1,944,997 2,262,736 0.3
53 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held Foreign Stocks & Warrants Cost (Note 1a) Net Assets Italy Utilities 1,000,000 ++++Societa Finanziaria Telefonica S.p.A. (STET) $ 1,589,749 $ 2,031,196 0.2% Japan Capital Goods 150,000 Hitachi Cable, Ltd. 1,217,317 1,127,479 0.1 250,000 Hitachi, Ltd. 1,835,126 1,933,428 0.2 Construction & 75,000 Daiwa House Industries 1,227,714 1,175,637 0.1 Housing Electrical 175,000 Sharp Corp. 1,778,863 2,412,653 0.3 Equipment Electronics 75,000 Makita Electric Work 1,247,512 1,253,541 0.1 Insurance 300,000 Nippon Fire & Marine Insurance Co., Ltd. 2,048,480 2,181,303 0.3 Machinery 150,000 Komatsu, Ltd. 940,949 1,046,742 0.1 150,000 Mitsubishi Heavy Industries, Ltd. 784,198 912,181 0.1 Utilities-Electric 25,000 Tokyo Electric Power Company, Inc. 924,882 774,315 0.1 Mexico Banking 125,000 Grupo Financiero Bancomer, S.A. de C.V. (ADR)(d) (1) 3,681,243 3,750,000 0.4 Construction 300,000 Empresas ICA Sociedad Controladora, S.A. de C.V. (ADR)(d) 5,870,455 5,175,000 0.6 Multi-Industry 700,000 ++++Grupo Carso, S.A. de C.V. (ADR)(d) (1) 5,957,220 9,275,000 1.1 Retail Stores 2,000,000 ++++Cifra, S.A. de C.V. 'C' 1,755,970 4,358,276 0.5 Telecommunications 350,000 Telefonos de Mexico, S.A. de C.V. (ADR)(d) 13,274,795 17,675,000 2.0 Netherlands Insurance 127,658 Aegon N.V. 5,441,143 6,119,155 0.7 Portugal Banking 96,000 Banco Commercial Portugal (New) (ADR)(d) 1,280,967 1,284,000 0.1 97,000 Banco Commercial Portugal (Registered) 1,233,051 1,272,890 0.1 Spain Electrical Utilities 75,000 Empresa Nacional de Electricidad S.A. (ADR)(d) 1,049,706 3,046,875 0.4 Oil & Related 60,000 Repsol S.A. 1,616,190 1,735,160 0.2 United Kingdom Business Services 75,000 Reuters Holding PLC (ADR)(d) 3,856,856 5,175,000 0.6
54 SCHEDULE OF INVESTMENTS (concluded)
Shares Value Percent of Industries Held Foreign Stocks & Warrants Cost (Note 1a) Net Assets Venezuela Automobile & 657,500 Siderurgica Venezolana SIVENSA Equipment S.A.I.C.A.-S.A.C.A. (ADR) (Warrants)(c)(d)(1) $ 1,544,625 $ 19,725 0.0% Steel 95,000 ++++Venezolana de Prerreducidos Caroni 'Venprecar' (GDS)(e)(1) 693,500 558,125 0.1 Total Investments in Foreign Stocks & Warrants 90,253,740 112,647,178 12.9 Total Investments in US & Foreign Stocks & Warrants 451,959,885 539,519,944 61.9 Face Amount Short-Term Securities Commercial $21,296,000 General Electric Capital Corp., 3.45% due Paper** 10/01/1993 21,296,000 21,296,000 2.4 Total Investments in Short-Term Securities 21,296,000 21,296,000 2.4 Total Investments $749,833,130 855,917,544 98.2 ============ Other Assets Less Liabilities 15,725,364 1.8 ------------ ------ Net Assets $871,642,908 100.0% ============ ====== (a)Real Estate Mortgage Investment Conduits (REMICs). (b)Represents the yield-to-maturity on this zero coupon issue. (c)Warrants entitle the Fund to purchase a predetermined number of shares of Common Stock. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date. (d)American Depositary Receipt (ADR). (e)Global Depositary Shares (GDS). (f)Receipts evidence payment by the Fund of 40% of the pur- chase price of Class A Shares of International Semi-Tech Microelectronics, Inc. The Fund is obligated to pay the remaining 60%, approximately $2,700,000 over the next two years. *Denominated in US dollars unless otherwise indicated. **Commercial Paper is traded on a discount basis; the interest rates shown are the discount rates paid at the time of purchase by the Fund. ++Separate Trading of Registrated Interest and Principal of Securities (STRIPS). ++++Non-income producing security. See Notes to Financial Statements. (1)Restricted securities as to resale. The value of the Fund's investment in restricted securities was approximately $25,365,000, representing 2.9% of net assets. Value Issue Acquisition Date Cost (Note 1a) British Petroleum PLC (ADR) 5/27/92-8/09/93 $7,683,915 $8,312,500 Distribuidora Chilectra Metropolitana S.A. (ADR) 2/12/92-2/26/92 3,323,793 3,449,792 Grupo Carso, S.A. de C.V. (ADR) 9/24/91-1/24/92 5,957,220 9,275,000 Grupo Financiero Bancomer, S.A. de C.V. (ADR) 4/03/92-10/06/92 3,681,243 3,750,000 Siderurgica Venezolana SIVENSA S.A.I.C.A.- S.A.C.A. (ADR) (Warrants) 2/13/92-3/16/92 1,544,625 19,725 Venezolana de Prerreducidos Caroni 'Venprecar' (GDS) 2/13/92 693,500 558,125 Total $22,884,296 $25,365,142 =========== ===========
55 FINANCIAL INFORMATION
STATEMENT OF ASSETS AND LIABILITIES AS OF SEPTEMBER 30, 1993 Assets: Investments, at value (identified cost--$749,833,130) (Note 1a) $855,917,544 Cash 104,957 Receivables: Securities sold $ 14,049,878 Interest 3,794,532 Dividends 839,969 Capital shares sold 614,161 19,298,540 ------------ Deferred organization expenses (Note 1f) 2,683 Prepaid registration fees and other assets (Note 1) 145,110 ------------ Total assets 875,468,834 ------------ Liabilities: Payables: Capital shares redeemed 2,182,862 Distributor (Note 2) 684,001 Investment adviser (Note 2) 451,029 3,317,892 ------------ Accrued expenses and other liabilities 508,034 ------------ Total liabilities 3,825,926 ------------ Net Assets: Net assets $871,642,908 ============ Net Assets Class A Common Stock, $0.01 par value, 500,000,000 shares authorized $ 31,261 Consist of: Class B Common Stock, $0.01 par value, 500,000,000 shares authorized 634,896 Paid-in capital in excess of par 687,221,327 Undistributed investment income--net 4,746,266 Undistributed realized capital gains--net 72,960,816 Unrealized appreciation on investments--net 106,048,342 ------------ Net assets $871,642,908 ============ Net Asset Class A--Based on net assets of $40,688,322 and 3,126,077 shares Value: outstanding $ 13.02 ============ Class B--Based on net assets of $830,954,586 and 63,489,601 shares outstanding $ 13.09 ============ See Notes to Financial Statements.
56 FINANCIAL INFORMATION (continued)
Statement of Operations for the Year Ended September 30, 1993 Investment Interest and discount earned $ 21,852,613 Income Dividends (net of $356,183 foreign withholding tax) 10,955,111 (Notes 1d & 1e): ------------ Total income 32,807,724 ------------ Expenses: Distribution fees--Class B (Note 2) 8,587,740 Investment advisory fees (Note 2) 5,620,993 Transfer agent fees--Class B (Note 2) 1,281,016 Printing and shareholder reports 203,151 Accounting services (Note 2) 143,231 Custodian fees 142,314 Professional fees 66,179 Registration fees (Note 1f) 55,261 Transfer agent fees--Class A (Note 2) 43,692 Directors' fees and expenses 36,447 Amortization of organization expenses (Note 1f) 32,191 Pricing fees 4,616 Other 20,035 ------------ Total expenses 16,236,866 ------------ Realized transaction gain--net (Note 1b) 1,780,462 ------------ Investment income--net 18,351,320 ------------ Realized & Realized gain on investments--net 81,149,148 Unrealized Gain on Change in unrealized appreciation on investments--net 14,121,027 Investments--Net ------------ (Notes 1e & 3): Net Increase in Net Assets Resulting from Operations $113,621,495 ============ Statements of Changes in Net Assets For the Year Ended Sept. 30, Increase (Decrease) in Net Assets: 1993 1992 Operations: Investment income--net $ 18,351,320 $ 20,626,192 Realized gain on investments--net 81,149,148 62,706,063 Change in unrealized appreciation on investments--net 14,121,027 (5,892,297) ------------ ----------- Net increase in net assets resulting from operations 113,621,495 77,439,958 ------------ ----------- Dividends & Investment Income--net: Distributions to Class A (994,119) (594,211) Shareholders Class B (17,314,603) (24,114,241) (Note 1g): Realized gain on investments--net: Class A (1,508,643) -- Class B (59,542,543) -- ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (79,359,908) (24,708,452) ------------ ------------ Capital Share Trans- Net decrease in net assets derived from capital actions (Note 4): share transactions (69,858,642) (145,224,775) ------------- ------------ Net Assets: Total decrease in net assets (35,597,055) (92,493,269) Beginning of year 907,239,963 999,733,232 ------------ ------------ End of year* $871,642,908 $907,239,963 ============ ============ *Undistributed investment income-net $ 4,746,266 $ 4,703,668 ============ ============ See Notes to Financial Statements.
57 FINANCIAL INFORMATION (continued)
Financial Highlights Class A ---------------------------------------------------- For the Period Oct. 27, 1988++ to The following per share data and ratios have been For the Year Ended September 30, Sept. 30, derived from information provided in the financial statements. 1993 1992 1991 1990 1989 Increase (Decrease) in Net Asset Value: Per Share Net asset value, beginning of period $ 12.57 $ 11.94 $ 10.61 $ 11.93 $ 11.18 Operating ------- ------- ------- ------- ------- Performance: Investment income-net .47 .46 .64 .64 .24 Realized and unrealized gain (loss) on investments--net 1.25 .62 1.69 (1.41) 1.42 ------- ------- ------- ------- ------- Total from investment operations 1.72 1.08 2.33 (.77) 1.66 ------- ------- ------- ------- ------- Less dividends and distributions: Investment income--net (.39) (.45) (.62) (.55) (.90) Realized gain on investments--net (.88) -- (.38) -- (.01) ------- ------- ------- ------- ------- Total dividends and distributions (1.27) (.45) (1.00) (.55) (.91) ------- ------- ------- ------- ------- Net asset value, end of period $ 13.02 $ 12.57 $ 11.94 $ 10.61 $ 11.93 ======= ======= ======= ======= ======= Total Investment Based on net asset value per share 14.62% 9.23% 23.14% (6.86%) 15.54%+++ Return:** ======= ======= ======== ======== ======= Ratios to Average Expenses .83% .81% .85% .83% .78%* Net Assets: ======= ======= ======== ======== ======== Investment income--net 3.09% 3.18% 3.64% 5.12% 4.23%* ======= ======= ======== ======== ======== Supplemental Data: Net assets, end of period (in thousands) $40,688 $20,320 $12,839 $ 4,511 $ 2,080 ======= ======= ======= ======== ======== Portfolio turnover 79.55% 65.40% 173.76% 163.56% 175.47% ======= ======= ======= ======== ======== *Annualized. **Total investment returns exclude the effects of sales loads. ++Commencement of Operations. +++Aggregate total investment returns. See Notes to Financial Statements.
58 FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded) The following per share data and ratios have been derived from information provided in the financial statements. Class B For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 1993 1992 1991 1990 1989 Per Share Net asset value, beginning of year $ 12.62 $ 11.99 $ 10.60 $ 11.91 $ 10.94 Operating -------- -------- -------- ---------- ---------- Performance: Investment income--net .27 .28 .41 .50 .53 Realized and unrealized gain (loss) on investments--net 1.34 .67 1.81 (1.39) 1.25 -------- --------- --------- ---------- ---------- Total from investment operations 1.61 .95 2.22 (.89) 1.78 Less dividends and distributions: -------- --------- --------- ---------- ---------- Investment income--net (.26) (.32) (.45) (.42) (.80) Realized gain on investments--net (.88) -- (.38) -- (.01) -------- --------- --------- ---------- ---------- Total dividends and distributions (1.14) (.32) (.83) (.42) (.81) -------- --------- --------- ---------- ---------- Net asset value, end of year $ 13.09 $ 12.62 $ 11.99 $ 10.60 $ 11.91 ======== ========= ========= ========== ========== Total Investment Based on net asset value per share 13.49% 8.01% 21.91% (7.79%) 16.93% Return:* ======== ========= ========= ========== ========== Ratios to Average Expenses, excluding distribution fees .85% .85% .90% .86% .84% Net Assets: ======== ========= ======== ========== ========== Expenses 1.85% 1.85% 1.90% 1.86% 1.84% ======== ========= ======== ========== ========== Investment income--net 1.99% 2.10% 3.37% 3.90% 3.73% ======== ========= ======== ========== ========== Supplemental Data: Net assets, end of year (in thousands) $830,955 $886,920 $986,895 $1,171,567 $1,735,873 ======== ======== ======== ========== ========== Portfolio turnover 79.55% 65.40% 173.76% 163.56% 175.47% ======== ======== ======== ========== ========== *Total investment returns exclude the effects of sales loads. See Notes to Financial Statements.
59 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: Merrill Lynch Retirement Benefit Investment Pro- gram, Inc., Full Investment Portfolio does business under the name Merrill Lynch Balanced Fund for Investment and Retirement. Merrill Lynch Balanced Fund for Investment and Retirement (the "Fund") is registered under the Investment Company Act of 1940 as a diversified, open-end investment management company. The Fund offers both Class A and Class B Shares. Class A Shares are sold with a front-end sales charge. Class B Shares may be subject to a contingent deferred sales charge. Both classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class B Shares bear certain expenses related to the distribution of such shares and have exclusive voting rights with respect to matters relating to such distribution expenditures. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Portfolio securities and options which are traded on stock exchanges are valued at the last sale price as of the close of busi- ness on the day the securities are being valued or, lacking any sales, at the mean between closing bid and asked prices. Securities traded in the over- the-counter market are valued at the last quoted bid prices at the close of trading on the New York Stock Exchange on each day by brokers that make markets in the securities. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market. Short- term securities are valued at amortized cost which approximates market. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund. (b) Foreign currency transactions--Transactions denominated in foreign currencies are recorded in the Fund's records at the rate prevailing when earned or in- curred. Asset and liability accounts that are denomi- nated in a foreign currency are adjusted to reflect the current exchange rate at the end of the period. Trans- action gains or losses resulting from settlement of the foreign currency transactions are reported in net investment income for the current period. The Fund is authorized to enter into forward foreign exchange contracts as a hedge against either spe- cific transactions or portfolio positions. Such con- tracts are not entered on the Fund's records. However, the effect on net investment income is recorded from the date the Fund enters into such contracts. Premium or discount is amortized over the life of the contracts. (c) Options--When the Fund sells an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is sold through an exercise of an option, the related premium received is deducted from the basis of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or loss or gain to the extent the cost of the closing transaction is less than or greater than the premium paid or received). Written and purchased options are non-income producing investments. (d) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (e) Security transactions and investment income-- Security transactions are recorded on the dates the transactions are entered into (the trade dates). Divi- dend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Interest income (including amortization of discount) is recognized on the accrual basis. Realized gains and losses on security transactions are determined on the identified cost basis. (f) Deferred organization expenses and prepaid reg- istration fees--Deferred organization expenses are charged to expense on a straight-line basis over a five-year period. Costs related to the organization of the second class of shares are charged to expense over a period not exceeding five years. Prepaid regis- tration fees are charged to expense as the related shares are issued. 60 (g) Dividends and distributions--Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transaction with Affiliates: The Fund has entered into an Investment Advisory Agreement with Merrill Lynch Asset Management ("MLAM" or "Adviser"). MLAM is the name under which Merrill Lynch Investment Management, Inc. ("MLIM") does business. MLIM is an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. The Fund has also entered into a Distribution Agreement and a Distribution Plan with Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distrib- utor"), a wholly-owned subsidiary of MLIM. MLAM is responsible for the management of the Fund's portfolio and provides the necessary person- nel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee based upon the average daily value of the Fund's net assets at the following annual rates: 0.65% of the average daily net assets not exceeding $500 million; 0.60% of the average daily net assets exceeding $500 mil- lion but not exceeding $1.5 billion; 0.55% of the average daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.50% of the average daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; and 0.45% of the average daily net assets exceeding $3.5 billion. The most restrictive annual expense limitation requires that the Adviser reimburse the Fund to the extent the Fund's expenses (excluding interest, taxes, distribution fees, brokerage fees and commissions, and extraordinary items) exceed 2.5% of the Fund's first $30 million of average daily net assets, 2.0% of the next $70 million of average daily net assets, and 1.5% of the average daily net assets in excess thereof. No payment will be made to MLAM during any fiscal year which will cause such expenses to exceed the most restrictive expense limitation applicable at the time of such payment. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 pursuant to which MLFD receives a fee from the Fund at the end of each month at the annual rate of 1.0% of the average daily net assets of the Fund's Class B Shares. This fee is to compensate MLFD for services provided and the expense borne by it under the Distribution Agree- ment. As authorized by the Plan, MLFD has entered into an agreement with Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S") which provides for the compensation of MLPF&S for providing distribution- related services to the Fund. For the year ended September 30, 1993, MLFD earned underwriting discounts of $3,517, and MLPF&S received dealer concessions of $58,925 on sales of the Fund's Class A Shares. MLPF&S received contingent deferred sales charges of $182,110 relating to transactions in Class B Shares and $80,436 in commissions on the execution of portfolio security transactions for the Fund during the period. Financial Data Services, Inc. ("FDS"), a wholly- owned subsidiary of Merrill Lynch & Co., Inc., is the Fund's transfer agent. Accounting services are provided to the Fund by MLAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of MLIM, MLPF&S, FDS, MLFD, and/or Merrill Lynch & Co., Inc. 3. Investments: Purchases and sales of investments, excluding short- term securities, for the year ended September 30, 1993 were $675,275,908 and $801,290,251, respectively. Net realized and unrealized gains (losses) as of September 30, 1993 were as follows: Realized Unrealized Gains Gains (Losses) (Losses) Long-term investments $ 81,114,248 $106,084,414 Short-term investments (43) -- Options written 34,943 -- Foreign currency transactions 1,780,462 (36,072) ------------ ------------ Total $ 82,929,610 $106,048,342 ============ ============ As of September 30, 1993, net unrealized apprecia- tion for Federal income tax purposes aggregated $106,084,414, of which $121,183,280 related to appreciated securities and $15,098,866 related to depreciated securities. The aggregate cost of invest- ments at September 30, 1993 for Federal income tax purposes was $749,833,130. 61 NOTES TO FINANCIAL STATEMENTS (concluded) Transactions in call options written for the year ended September 30, 1993 were as follows: Par Value/Shares Covered by Premiums Written Options Received Outstanding options at beginning of year 16,500 $ 69,628 Options written 15,000 34,943 Options closed Options exercised (16,500) (69,628) Options expired (15,000) (34,943) -------- -------- Outstanding options at end of year -- $ -- ======== ======== 4. Capital Share Transactions: Net decrease in net assets derived from capital share transactions was $69,858,642 and $145,224,775 for the years ended September 30, 1993 and September 30, 1992, respectively. Transactions in capital shares for Class A and Class B Shares were as follows: Class A Shares for the Year Dollar Ended September 30, 1993 Shares Amount Shares sold 2,695,028 $ 33,091,210 Shares issued to share- holders in reinvestment of dividends and distri- butions 161,050 1,956,633 ---------- ------------ Total issued 2,856,078 35,047,843 Shares redeemed (1,346,924) (17,015,867) ---------- ------------ Net increase 1,509,154 $ 18,031,976 ========= ============ Class A Shares for the Year Dollar Ended September 30, 1992 Shares Amount Shares sold 697,474 $ 8,796,367 Shares issued to share- holders in reinvestment of dividends 35,938 437,001 --------- ----------- Total issued 733,412 9,233,368 Shares redeemed (191,640) (2,379,244) --------- ----------- Net increase 541,772 $ 6,854,124 ========= =========== Class B Shares for the Year Dollar Ended September 30, 1993 Shares Amount Shares sold 2,722,243 $ 34,400,436 Shares issued to share- holders in reinvestment of dividends and distri- butions 5,336,253 65,136,704 ----------- ------------- Total issued 8,058,496 99,537,140 Shares redeemed (14,832,136) (187,427,758) ----------- ------------- Net decrease (6,773,640) $ (87,890,618) ============ ============= Class B Shares for the Year Dollar Ended September 30, 1992 Shares Amount Shares sold 3,734,041 $ 46,964,102 Shares issued to share- holders in reinvestment of dividends 1,676,910 20,414,677 ------------ -------------- Total issued 5,410,951 67,378,779 Shares redeemed (17,491,842) (219,457,678) ------------ -------------- Net decrease (12,080,891) $ (152,078,899) ============= ============== 62 THE FOLLOWING SEMI-ANNUAL FINANCIAL STATEMENTS FOR THE FUND FOR THE PERIOD ENDED MARCH 31, 1994 ARE UNAUDITED. These unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal recurring nature. 63 SCHEDULE OF INVESTMENTS
Face Value Percent of Industries Amount* Corporate Bonds Cost (Note 1a) Net Assets Financial $ 10,000,000 Ford Capital BV, 9.375% due 1/01/1998 $ 10,037,900 $ 10,890,640 1.4% Services 5,000,000 Landeskreditbank, N.V., 7.875% due 4/15/2004 4,972,067 5,256,255 0.6 Financial 10,000,000 American General Financial Corp., 7.38% Services- due 5/13/1997 9,993,200 10,275,000 1.3 Consumer Tobacco 10,000,000 Philip Morris Companies, Inc., 7.75% due 5/01/1999 9,975,000 10,275,000 1.3 Total Investments in Corporate Bonds 34,978,167 36,696,895 4.6 Country US Government & Agency Obligations United States Federal Home Loan Mortgage Corp.: 4,910,000 REMIC 1243-HP, 5.625% due 4/25/2024(a) 4,788,017 4,713,600 0.6 25,000,000 REMIC FHG 16PH, 6.75% due 4/15/2021(a) 25,390,625 23,468,750 2.9 20,000,000 Federal National Mortgage Association, REMIC 1993 103PG, 6.75% due 5/25/2022(a) 20,262,500 18,400,313 2.3 5,000,000 Republic of Italy, 8.75% due 2/08/2001 5,373,050 5,388,690 0.7 US Treasury Notes: 55,000,000 7.875% due 8/15/2001 53,943,600 58,884,375 7.4 25,000,000 6.25% due 2/15/2003 25,710,937 24,125,000 3.0 35,000,000 5.75% due 8/15/2003 36,432,812 32,467,960 4.1 22,000,000 US Treasury STRIPS++, 6.81% due 5/15/2000(b) 15,607,802 14,826,988 1.8 Total Investments in US Government & Agency Obligations 187,509,343 182,275,676 22.8 Foreign Obligations Australia A$ 13,100,000 Queensland Treasury Corp. Global, 8.00% due 7/14/1999 9,812,507 9,230,822 1.2 Canada C$ 14,500,000 Government of Canada, 7.25% due 6/01/2003 10,739,024 10,005,964 1.2 Italy Buoni Poliennali del Tesoro: Lit 5,050,000,000 9.00% due 10/01/1998 3,073,203 3,134,632 0.4 12,500,000,000 10.00% due 8/01/2003 7,957,684 8,079,078 1.0 Mexico Mxp 45,013,640 Mexican Cetes, 9.04% due 9/07/1995(b) 12,341,483 11,361,416 1.4 Spain Pta 600,000,000 Spanish Government Bonds, 10.50% due 10/30/2003 5,158,819 4,815,005 0.6 Sweden Skr 40,000,000 Government of Sweden, 6.50% due 6/05/2001 4,894,532 4,635,597 0.6 United UK Treasury Gilt: Kingdom Pound 1,350,000 8.75% due 9/01/1997 2,267,919 2,106,366 0.3 Sterling 4,500,000 8.00% due 6/10/2003 7,536,136 6,826,707 0.8 Total Investments in Foreign Obligations 63,781,307 60,195,587 7.5 Total Investments in Corporate Bonds, US Government & Agency & Foreign Obligations 286,268,817 279,168,158 34.9
64 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held US Stocks & Warrants Cost (Note 1a) Net Assets Basic Industry Chemicals 70,000 du Pont (E.I.) de Nemours & Co. $ 4,084,332 $ 3,710,000 0.5% 55,000 IMC Fertilizer Group, Inc. 2,523,134 2,172,500 0.3 125,000 Rohm & Haas Co. 6,791,460 6,828,125 0.9 Consumer-- 30,000 Duracell International Inc. 1,245,024 1,192,500 0.1 Miscellaneous Containers 170,000 Crown Cork & Seal Co., Inc. 5,064,404 6,651,250 0.8 Forest Products 132,500 Willamette Industries, Inc. 4,954,250 6,260,625 0.8 Paper 153,000 Scott Paper Co. 6,566,724 6,406,875 0.8 Railroads 130,000 CSX Corp. 11,448,373 10,660,000 1.3 270,000 Southern Pacific Rail Co. 5,596,644 5,670,000 0.7 Total Basic Industry 48,274,345 49,551,875 6.2 Capital Spending Aerospace 250,000 Allied-Signal Inc. 7,805,352 9,156,250 1.1 Auto & Truck 155,000 Consorcio G Groupo Dina, S.A. de C.V. (ADR) (d)(1) 2,506,119 2,499,375 0.3 Capital Goods 1,140,000 Wheelabrator Technologies, Inc. 12,797,181 21,802,500 2.7 Communications 50,000 Motorola, Inc. 4,263,282 5,062,500 0.6 75,000 Tellabs, Inc. 3,080,391 4,068,750 0.5 Computer Services 500,000 Computer Sciences Corp. 14,036,687 18,250,000 2.3 325,000 General Motors Corp. (Class E) 9,470,962 11,131,250 1.4 Computer Technology 22,800 Novell Inc. 509,503 410,400 0.1 Electrical Equipment 162,000 Emerson Electric Co. 9,124,573 9,618,750 1.2 35,000 W.W. Grainger 2,267,080 2,222,500 0.3 Electronics 50,000 Perkin Elmer Corp. 1,959,750 1,668,750 0.2 210,000 Solectron Corp. 5,168,718 6,326,250 0.8 Engineering & 210,000 Thermo Electron Corp. 8,634,781 8,163,750 1.0 Construction Office Equipment 325,000 Danka Business Systems PLC (ADR)(d)(1) 9,952,519 12,634,375 1.6 Telecommunications 385,000++++ADC Telecommunications, Inc. 11,768,964 14,533,750 1.8 & Equipment 90,000 DSC Communications Corp. 5,136,258 4,522,500 0.6 Total Capital Spending 108,482,120 132,071,650 16.5
65 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held US Stocks & Warrants Cost (Note 1a) Net Assets Consumer Goods & Services Apparel 140,000 Phillips-Van Heusen Corp. $ 3,151,463 $ 4,882,500 0.6% Appliances 675,000 Singer Co. N.V. (1) 17,730,688 23,203,125 2.9 639,500 Sunbeam-Oster Inc. 12,710,739 11,830,750 1.5 Automotive 100,000 Ford Motor Co. 5,841,808 5,875,000 0.7 150,000 Magna International Inc. 7,474,189 7,050,000 0.9 Beverages 19,100 Panamerican Beverage Inc. (1) 487,050 661,337 0.1 Conglomerates 690,000++++Grupo Carso, S.A. de C.V. (ADR)(d)(1)++++++ 5,878,820 12,506,250 1.5 Healthcare-- 420,000 Humana Inc. 7,781,015 7,822,500 1.0 Products & Services 75,000 Vivra Inc. 1,398,603 1,837,500 0.2 Household Products 140,000 Procter & Gamble Co. 7,773,736 7,507,500 0.9 Medical 245,000++++Physician Corp. 4,985,524 6,431,250 0.8 Printing & Publishing 100,000 Gannett Co. 5,007,669 5,262,500 0.7 Retail 27,400 Heilig-Meyers Co. 341,708 849,400 0.1 Services 200,000 Block (H & R), Inc. 7,764,675 8,600,000 1.1 60,275 Kelly Services, Inc. (Class A) 1,715,024 1,401,394 0.2 Telecommunications 61,200 ALC Communications Corp. 1,560,600 2,034,900 0.3 100,000 GTE Corp. 3,204,870 3,100,000 0.4 515,750 LDDS Communications Inc. (Class A) 11,447,075 12,249,062 1.5 550,000 MCI Communications Corp. 15,538,597 12,856,250 1.6 70,000 Sprint Corp. 2,594,900 2,397,500 0.3 315,000 Telefonos de Mexico, S.A. de C.V. (ADR) (d)(1) 12,692,065 18,978,750 2.4 Tires & Rubber 140,000 Bandag, Inc. (Class A) 6,400,395 6,755,000 0.9 350,000 Cooper Tire & Rubber Co. 7,181,026 8,925,000 1.1 Total Consumer Goods & Services 150,662,239 173,017,468 21.7 Credit-Sensitive & Financial Services Banking 80,000 Banco de Galicia y Buenos Aires S.A. (ADR) (d)(1) 2,018,496 2,540,000 0.3 40,000 Banco Frances del Rio de la Plata S.A. (ADR) (d)(1) 1,476,693 1,255,000 0.2 80,000 BankAmerica Corp. 3,457,141 3,150,000 0.4 50,000 Bank of New York Co. 2,404,161 2,550,000 0.3 122,500 Espirito Santo Financial Holding S.A. (ADR) (d)(1) 3,447,435 3,613,750 0.4 130,000 Grupo Financiero Serfin S.A. 3,204,369 3,266,250 0.4 90,000 Istituto Mobiliare (ADR)(d)(1) 1,976,579 2,115,000 0.3 Telecommunications 35,000 International Telephone & Telegraph Corp. 2,966,908 3,001,250 0.4 Total Credit-Sensitive & Financial Services 20,951,782 21,491,250 2.7
66 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held US Stocks & Warrants Cost (Note 1a) Net Assets Energy Oil--Integrated 20,000 Mobil Oil Corp. $ 1,571,620 $ 1,487,500 0.2% Oil International 70,000 Royal Dutch Petroleum Co. N.V. (ADR)(d)(1) 6,155,380 6,956,250 0.9 Petroleum 170,000 Phillips Petroleum Co. 4,864,574 4,526,250 0.5 Utilities--Electric 350,000 California Energy Co., Inc. 6,244,403 6,300,000 0.8 Total Energy 18,835,977 19,270,000 2.4 Total Investments in US Stocks & Warrants 347,206,463 395,402,243 49.5 Foreign Stocks & Warrants Argentina Utilities-- 560,000 Telecom Argentina S.A. (Class B) 3,305,379 3,108,311 0.4 Communications Australia Banking 335,942 National Australia Bank Ltd. 2,106,640 2,680,702 0.3 Multi-Industry 300,948 Pacific Dunlop, Ltd. 1,129,136 1,055,124 0.1 Retail 270,000 Coles Myer Ltd. (Warrants)(c) 808,121 357,822 0.0 Canada Consumer--Durables 280,000 International Semi-Tech Microelectronics, Inc. (Receipts)(e) 1,806,344 1,619,433 0.2 Media/Publishing 80,000 News Corp. (ADR)(d) 4,079,037 4,030,000 0.5 Retail Stores 50,000 Hudson's Bay Company (Ord.) 1,529,050 1,066,368 0.1 Chile Utilities 11,000 Compania de Telefonos de Chile S.A. 1,274,185 981,750 0.1 Utilities--Electric 121,600 Distribuidora Chilectra Metropolitana S.A. (ADR)(d)++++++ 3,323,793 4,354,496 0.6 France Multi-Industry 3,750 Compagnie Generale des Eaux 1,401,331 1,709,177 0.2 Oil-Integrated 149,100 Societe Nationale Elf Aquitaine (ADR)(d) 5,303,144 4,864,387 0.6
67 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held Foreign Stocks & Warrants Cost (Note 1a) Net Assets Germany Automotive 50,000 Daimler-Benz AG (ADR)(d) $ 2,337,500 $ 2,543,750 0.3% Machinery 2,000 Mannesmann AG 343,289 499,251 0.1 Hong Kong Banking 274,108 HSBC Holdings PLC 1,613,351 3,086,123 0.4 Electronics 1,300,000 Johnson Electric Co. 2,603,189 3,179,636 0.4 Foods/Food 500,000 Dairy Farm International Holdings Ltd. 866,896 757,056 0.1 Processing Multi-Industry 504,000 Hutchison Whampoa, Ltd. 1,010,407 2,054,534 0.3 Mexico Engineering & 291,600 Empresas ICA Sociedad Controladora, Construction S.A. de C.V. (ADR)(d) 5,751,141 6,998,400 0.9 Portugal Banking 100,000 Banco Commercial Portugal (New)(ADR)(d) 1,342,303 1,562,500 0.2 97,000 Banco Commercial Portugal (Registered) 1,233,051 1,583,824 0.2 Singapore Beverages 65,000 Fraser & Neave Ltd. (Ordinary) 730,745 696,873 0.1 Spain Petroleum 60,000 Repsol S.A. 1,616,190 1,882,310 0.2 Utilities--Electric 50,000 Empresa Nacional de Electricidad S.A. (ADR)(d) 701,000 2,537,500 0.3 United Kingdom Business Services 50,000 Reuters Holding PLC (ADR)(d) 2,571,186 4,306,250 0.5 Consumer-- 50,000 Hanson PLC Sponsored (ADR)(d) 1,106,687 993,750 0.1 Miscellaneous Electronics 100,000 Siebe PLC 886,652 877,507 0.1 Engineering & 510,000 Huntingdon International Holdings PLC (ADR)(d) 12,702,548 3,123,750 0.4 Construction
68 SCHEDULE OF INVESTMENTS (concluded)
Shares Value Percent of Industries Held Foreign Stocks & Warrants Cost (Note 1a) Net Assets Venezuela Automotive & 657,500 Siderurgica Venezolana SIVENSA Equipment S.A.I.C.A.-S.A.C.A. (ADR)(Warrants)(c)(d)++++++ $ 1,544,625 $ 19,725 0.0% Total Investments in Foreign Stocks & Warrants 65,026,920 62,530,309 7.7 Total Investments in US & Foreign Stocks & Warrants 412,233,383 457,932,552 57.2 Face Amount* Short-Term Securities Commercial $30,000,000 du Pont (E.I.) de Nemours & Co., 3.49% due Paper** 4/25/1994 29,930,200 29,930,200 3.7 General Electric Capital Corp.: 635,000 3.50% due 4/01/1994 635,000 635,000 0.1 20,609,000 3.53% due 4/04/1994 20,602,938 20,602,938 2.6 Total Investments in Short-Term Securities 51,168,138 51,168,138 6.4 Total Investments $749,670,338 788,268,848 98.5 ============ Other Assets Less Liabilities 12,171,258 1.5 ------------ ------ Net Assets $800,440,106 100.0% ============ ====== (a)Real Estate Mortgage Investment Conduits (REMIC). (b)Represents the yield-to-maturity on this zero coupon issue. (c)Warrants entitle the Fund to purchase a predetermined number of shares of common stock. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date. (d)American Depositary Receipt (ADR). (e)Receipts evidence payment by the Fund of 40% of the pur- chase price of Class A Shares of International Semi-Tech Microelectronics, Inc. The Fund is obligated to pay the remaining 60%, approximately $2,700,000 over the next two years. *Denominated in US dollars unless otherwise indicated. **Commercial Paper is traded on a discount basis; the interest rates shown are the discount rates paid at the time of purchase by the Fund. ++Separate Trading of Registrated Interest and Principal of Securities (STRIPS). ++++Non-income producing security. ++++++Restricted security pursuant to Rule 144A. (1)Consistent with the general policy of the Securities and Exchange Commission, the nationality or domicile of an issuer for determina- tion of foreign issuer status may be (i) the country under whose laws the issuer is organized, (ii) the country in which the issuer's securities are principally traded, or (iii) the country in which the issuer derives a significant proportion (at least 50%) of its revenue or profits from goods produced or sold, investments made, or services performed in the country, or in which at least 50% of the assets of the issuer are situated. See Notes to Financial Statements.
69 FINANCIAL INFORMATION
Statement of Assets and Liabilities as of March 31, 1994 Assets: Investments, at value (identified cost--$749,670,338) (Note 1a) $788,268,848 Receivables: Securities sold $ 17,442,878 Interest 3,296,857 Capital shares sold 711,423 Dividends 406,028 21,857,186 ------------ Deferred organization expenses (Note 1f) 2,683 Prepaid registration fees and other assets (Note 1f) 144,208 ------------ Total assets 810,272,925 ------------ Liabilities: Payables: Securities purchased 5,024,240 Capital shares redeemed 2,758,319 Distributor (Note 2) 674,136 Investment adviser (Note 2) 448,623 8,905,318 ------------ Accrued expenses and other liabilities 927,501 ------------ Total liabilities 9,832,819 ------------ Net Assets: Net assets $800,440,106 ============ Net Assets Class A Common Stock, $0.01 par value, 500,000,000 shares authorized $ 34,412 Consist of: Class B Common Stock, $0.01 par value, 500,000,000 shares authorized 646,960 Paid-in capital in excess of par 702,898,369 Undistributed investment income--net 2,421,693 Undistributed realized capital gains on investments and foreign currency transactions--net 55,845,048 Unrealized appreciation on investments and foreign currency transactions--net 38,593,624 ------------ Net assets $800,440,106 ============ Net Asset Class A--Based on net assets of $40,175,446 and 3,441,241 shares Value: outstanding $ 11.67 ============ Class B--Based on net assets of $760,264,660 and 64,695,953 shares outstanding $ 11.75 ============ See Notes to Financial Statements.
70 FINANCIAL INFORMATION (continued)
Statement of Operations for the Six Months Ended March 31, 1994 Investment Interest and discount earned $ 10,813,618 Income Dividends (net of $130,379 foreign withholding tax) 2,886,327 (Notes ------------ 1d & 1e): Total income 13,699,945 ------------ Expenses: Distribution fees--Class B (Note 2) 4,093,753 Investment advisory fees (Note 2) 2,716,119 Transfer agent fees--Class B (Note 2) 486,429 Custodian fees 91,000 Printing and shareholder reports 73,439 Accounting services (Note 2) 35,921 Professional fees 31,131 Registration fees (Note 1f) 28,737 Transfer agent fees--Class A (Note 2) 21,255 Directors' fees and expenses 19,956 Amortization of organization expenses (Note 1f) 798 Pricing fees 798 Other 8,781 ------------ Total expenses 7,608,117 ------------ Investment income--net 6,091,828 ------------ Realized & Realized gain from: Unrealized Investments--net $ 61,211,346 Gain Foreign currency transactions--net 968,386 62,179,732 (Loss) on ------------ Investments Change in unrealized appreciation/depreciation on: & Foreign Investments--net (67,485,904) Currency Foreign currency transactions--net 31,186 (67,454,718) Transac- ------------ ------------ tions--Net Net realized and unrealized loss on investments and foreign currency Notes 1b, transactions (5,274,986) 1e & 3): ------------ Net Increase in Net Assets Resulting from Operations $ 816,842 ============ See Notes to Financial Statements.
71 FINANCIAL INFORMATION (continued) Statements of Changes in Net Assets
For the Six Months For the Ended Year Ended March 31, September 30, Increase (Decrease) in Net Assets: 1994 1993 Operations: Investment income--net $ 6,091,828 $ 16,570,858 Realized gain on investments and foreign currency transactions--net 62,179,732 82,929,610 Change in unrealized appreciation/depreciation on investments and foreign currency transactions--net (67,454,718) 14,121,027 ------------ ------------ Net increase in net assets resulting from operations 816,842 113,621,495 ------------ ------------ Dividends & Investment income--net: Distri- Class A (656,642) (994,119) butions to Class B (7,759,759) (17,314,603) Shareholders Realized gain on investments--net: (Note 1g): Class A (4,103,194) (1,508,643) Class B (75,192,306) (59,542,543) ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders (87,711,901) (79,359,908) ------------ ------------ Capital Share Net increase (decrease) in net assets derived from capital Transactions share transactions 15,692,257 (69,858,642) (Note 4): ------------ ------------ Net Assets: Total decrease in net assets (71,202,802) (35,597,055) Beginning of period 871,642,908 907,239,963 ------------ ------------ End of period* $800,440,106 $871,642,908 ============ ============ *Undistributed investment income--net $ 2,421,693 $ 4,746,266 ============ ============ See Notes to Financial Statements.
72 FINANCIAL INFORMATION (continued) Financial Highlights
Class A For the The following per share data and ratios have been Six Months derived from information provided in the financial statements. Ended March 31, For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990 Per Share Net asset value, beginning of period $ 13.02 $ 12.57 $ 11.94 $ 10.61 $ 11.93 Operating -------- -------- -------- -------- -------- Performance: Investment income--net .17 .43 .47 .70 .64 Realized and unrealized gain (loss) on investments and foreign currency transactions (1)--net (.09) 1.29 .61 1.63 (1.41) -------- -------- -------- -------- -------- Total from investment operations .08 1.72 1.08 2.33 (.77) -------- -------- -------- -------- -------- Less dividends and distributions: Investment income--net (.20) (.39) (.45) (.62) (.55) Realized gain on investments--net (1.23) (.88) -- (.38) -- -------- -------- -------- -------- -------- Total dividends and distributions (1.43) (1.27) (.45) (1.00) (.55) -------- -------- -------- -------- -------- Net asset value, end of period $ 11.67 $ 13.02 $ 12.57 $ 11.94 $ 10.61 ======== ======== ======== ======== ======== Total Based on net asset value per share 0.24%++ 14.62% 9.23% 23.14% (6.86%) Investment ======== ======== ======== ======== ======== Return:** Ratios to Expenses .79%* .83% .81% .85% .83% Average ======== ======== ======== ======== ======== Net Assets: Investment income--net 2.38%* 3.09% 3.18% 3.64% 5.12% ======== ======== ======== ======== ======== Supplemental Net assets, end of period (in thousands) $ 40,175 $ 40,688 $ 20,320 $ 12,839 $ 4,511 Data: ======== ======== ======== ======== ======== Portfolio turnover 30.76% 79.55% 65.40% 173.76% 163.56% ======== ======== ======== ======== ======== *Annualized. **Total investment returns exclude the effects of sales loads. ++Aggregate total investment return. (1)Foreign currency transaction amounts have been reclassified to conform to the 1994 presentation. See Notes to Financial Statements.
73 FINANCIAL INFORMATION (concluded) Financial Highlights (concluded)
Class B For the The following per share data and ratios have been Six Months derived from information provided in the financial statements. Ended March 31, For the Year Ended September 30, Increase (Decrease) in Net Asset Value: 1994 1993 1992 1991 1990 Per Share Net asset value, beginning of period $ 13.09 $ 12.62 $ 11.99 $ 10.60 $ 11.91 Operating -------- -------- -------- -------- ---------- Performance: Investment income--net .09 .24 .29 .39 .50 Realized and unrealized gain (loss) on investments and foreign currency transactions (1)--net (.07) 1.37 .66 1.83 (1.39) -------- -------- -------- -------- ---------- Total from investment operations .02 1.61 .95 2.22 (.89) -------- -------- -------- -------- ---------- Less dividends and distributions: Investment income--net (.13) (.26) (.32) (.45) (.42) Realized gain on investments--net (1.23) (.88) -- (.38) -- -------- -------- -------- -------- ---------- Total dividends and distributions (1.36) (1.14) (.32) (.83) (.42) -------- -------- -------- -------- ---------- Net asset value, end of period $ 11.75 $ 13.09 $ 12.62 $ 11.99 $ 10.60 ======== ======== ======== ======== ========== Total Based on net asset value per share (0.23%)++ 13.49% 8.01% 21.91% (7.79%) Investment ======== ======== ======== ======== ========== Return:** Ratios to Expenses, excluding distribution fees .81%* .85% .85% .90% .86% Average ======== ======== ======== ======== ========== Net Assets: Expenses 1.81%* 1.85% 1.85% 1.90% 1.86% ======== ======== ======== ======== ========== Investment income--net 1.36%* 1.99% 2.10% 3.37% 3.90% ======== ======== ======== ======== ========== Supplemental Net assets, end of period (in thousands) $760,265 $830,955 $886,920 $986,895 $1,171,567 Data: ======== ======== ======== ======== ========== Portfolio turnover 30.76% 79.55% 65.40% 173.76% 163.56% ======== ======== ======== ======== ========== *Annualized. **Total investment returns exclude the effects of sales loads. ++Aggregate total investment return. (1)Foreign currency transaction amounts have been reclassified to conform to the 1994 presentation. See Notes to Financial Statements.
74 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: Merrill Lynch Retirement Benefit Investment Program, Inc., Full Investment Portfolio does business under the name Merrill Lynch Balanced Fund for Investment and Retirement. Merrill Lynch Balan- ced Fund for Investment and Retirement (the "Fund") is registered under the Investment Company Act of 1940 as a diversified, open- end investment management company. The Fund offers both Class A and Class B Shares. Class A Shares are sold with a front-end sales charge. Class B Shares may be subject to a contingent de- ferred sales charge. Both classes of shares have identical vot- ing, dividend, liquidation and other rights and the same terms and conditions, except that Class B Shares bear certain expenses related to the distribution of such shares and have exclusive voting rights with respect to matters relating to such dis- tribution expenditures. The following is a summary of signifi- cant accounting policies followed by the Fund. (a) Valuation of investments--Portfolio securities and options which are traded on stock exchanges are valued at the last sale price as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Securities traded in the over-the-counter market are valu- ed at the last quoted bid prices at the close of trading on the New York Stock Exchange on each day by brokers that make markets in the securities. Portfolio securities which are traded both in the over-the-counter market and on a stock exchange are valued ac- cording to the broadest and most representative market. Short- term securities are valued at amortized cost, which approximates market. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund. (b) Foreign currency transactions--Transactions denominated in foreign currencies are recorded at the exchange rate prevailing when recognized. Assets and liabilities denominated in foreign cur- rencies are valued at the exchange rate at the end of the period. Foreign currency transactions are the result of settling (real- ized) and valuing (unrealized) assets and liabilities expressed in foreign currencies into US dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange sales on investments. The Fund is authorized to enter into forward foreign exchange con- tracts as a hedge against either specific transactions or portfolio positions. Such contracts are not entered on the Fund's records. However, the effect on operations is recorded from the date the Fund enters into such contracts. Premium or discount is amortized over the life of the contracts. The Fund may also purchase or sell listed or over-the-counter for- eign currency options, foreign currency futures and related options on foreign currency futures as a short or long hedge against possi- ble variations in foreign exchange rates. Such transactions may be effected with respect to hedges on non-US dollar denominated secur- ities owned by the Fund, sold by the Fund but not yet delivered, or committed or anticipated to be purchased by the Fund. (c) Options--When the Fund sells an option, an amount equal to the premium received by the Fund is reflected as an asset and an equiv- alent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is sold through an exercise of an option, the re- lated premium received is deducted from the basis of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or loss or gain to the extent the cost of the closing transaction is less than or greater than the premium paid or received). Written and purchased options are non-income producing investments. (d) Income taxes--It is the Fund's policy to comply with the re- quirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (e) Security transactions and investment income--Security trans- actions are recorded on the dates the transactions are entered in- to (the trade dates). Dividend income is recorded on the ex-div- idend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded 75 as soon as the Fund is informed of the ex-dividend date. Interest income (including amortization of discount) is recognized on the accrual basis. Realized gains and losses on security transactions are determined on the identified cost basis. NOTES TO FINANCIAL STATEMENTS (concluded) (f) Deferred organization expenses and prepaid registration fees-- Deferred organization expenses are charged to expense on a straight- line basis over a five-year period. Costs related to the organ- ization of the second class of shares are charged to expense over a period not exceeding five years. Prepaid registration fees are charged to expense as the related shares are issued. (g) Dividends and distributions--Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. (h) Reclassifications--Certain 1993 amounts have been reclassified to conform to the 1994 presentation. 2. Investment Advisory Agreement and Transaction with Affiliates: The Fund has entered into an Investment Advisory Agreement with Merrill Lynch Asset Management, L.P. ("MLAM"). Effective January 1, 1994, the investment advisory business of MLAM was reorganized from a corporation to a limited partnership. Both prior to and after the reorganization, ultimate control of MLAM was vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general partner of MLAM is Princeton Services, Inc., an indirect wholly-owned sub- sidiary of ML & Co. The limited partners are ML & Co. and Merrill Lynch Investment Management, Inc. ("MLIM"), which is also an in- direct wholly-owned subsidiary of ML & Co. The Fund has also entered into a Distribution Agreement and a Distribution Plan with Merrill Lynch Funds Distributor, Inc. ("MLFD" or "Distri- butor"), a wholly-owned subsidiary of MLIM. MLAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee based upon the average daily value of the Fund's net assets at the following annual rates: 0.65% of the average daily net assets not exceeding $500 million; 0.60% of the average daily net assets exceeding $500 million but not exceeding $1.5 billion; 0.55% of the av- erage daily net assets exceeding $1.5 billion but not exceeding $2.5 billion; 0.50% of the average daily net assets exceeding $2.5 billion but not exceeding $3.5 billion; and 0.45% of the average daily net assets exceeding $3.5 billion. The most restrictive an- nual expense limitation requires that the Adviser reimburse the Fund to the extent the Fund's expenses (excluding interest, taxes, distribution fees, brokerage fees and commissions, and extraor- dinary items) exceed 2.5% of the Fund's first $30 million of av- erage daily net assets, 2.0% of the next $70 million of average daily net assets, and 1.5% of the average daily net assets in excess thereof. No payment will be made to MLAM during any fis- cal year which will cause such expenses to exceed the most restric- tive expense limitation applicable at the time of such payment. Pursuant to a Distribution Plan (the "Distribution Plan") adopted by the Fund in accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor an ongoing account maintenance fee and distribution fee, which are accrued daily and paid monthly at the annual rates of 0.25% and 0.75%, respectively, of the average daily net assets of the Class B Shares of the Fund. Pursuant to a sub-agreement with the Dis- tributor, Merrill Lynch provides account maintenance and distri- bution services to the Fund with respect to Class B Shares. As authorized by the Plan, the Distributor has entered into an agree- ment with Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), which provides for the compensation of MLPF&S for providing dis- tribution-related services to the Fund. For the six months ended March 31, 1994, MLFD earned under- writing discounts of $2,294, and MLPF&S received dealer con- cessions of $35,241 on sales of the Fund's Class A Shares. MLPF&S received contingent deferred sales charges of $78,329 relating to transactions in Class B Shares and $53,670 in com- missions on the execution of portfolio security transactions for the Fund during the period. Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. Accounting services are provided to the Fund by MLAM at cost. 76 Certain officers and/or directors of the Fund are officers and/ or directors of MLIM, MLPF&S, FDS, MLFD, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securi- ties, for the six months ended March 31, 1994 were $250,984,195 and $344,304,826, respectively. Net realized and unrealized gains (losses) as of March 31, 1994 were as follows: Unrealized Realized Gains Gains (Losses) Long-term investments $ 61,211,346 $ 38,598,510 Options written 21,243 -- Foreign currency transactions 947,143 (4,886) ------------ ------------ Total $ 62,179,732 $ 38,593,624 ============ ============ As of March 31, 1994, net unrealized appreciation for Federal in- come tax purposes aggregated $38,598,510, of which $75,149,692 re- lated to appreciated securities and $36,551,182 related to de- preciated securities. The aggregate cost of investments less premiums received for options written, at March 31, 1994 for Federal income tax purposes was $749,670,338. Transactions in call options written for the six months ended March 31, 1994 were as follows: Par Value/Shares Covered by Premiums Written Options Received Outstanding options at beginning of period -- -- Options written 25,800 $ 38,999 Options closed (10,400) (10,154) Options exercised (1,800) (15,010) Options expired (13,600) (13,835) ------------ ------------ Outstanding options at end of period -- $ -- ============ ============ 4. Capital Share Transactions: Net increase (decrease) in net assets derived from capital share transactions was $15,692,257 for the six months ended March 31, 1994 and ($69,858,642) for the year ended September 30, 1993, re- spectively. Transactions in capital shares for Class A and Class B Shares were as follows: Class A Shares for the Six Months Dollar Ended March 31, 1994 Shares Amount Shares sold 1,016,163 $ 12,847,884 Shares issued to sharehold- ers in reinvestment of dividends and distributions 376,995 4,535,252 ------------ ------------- Total issued 1,393,158 17,383,136 Shares redeemed (1,077,993) (13,288,826) ------------ ------------- Net increase 315,165 $ 4,094,310 ============ ============= Class A Shares for the Year Dollar Ended September 30, 1993 Shares Amount Shares sold 2,695,028 $ 33,091,210 Shares issued to share- holders in reinvestment of dividends 161,050 1,956,633 ------------ ------------- Total issued 2,856,078 35,047,843 Shares redeemed (1,346,924) (17,015,867) ------------ ------------- Net increase 1,509,154 $ 18,031,976 ============ ============= Class B Shares for the Six Months Dollar Ended March 31, 1994 Shares Amount Shares sold 1,673,591 $ 21,175,801 Shares issued to sharehold- ers in reinvestment of dividends and distributions 5,798,154 70,389,583 ------------ ------------- Total issued 7,471,745 91,565,384 Shares redeemed (6,265,393) (79,967,437) ------------ ------------- Net increase 1,206,352 $ 11,597,947 ============ ============= Class B Shares for the Year Dollar Ended September 30, 1993 Shares Amount Shares sold 2,722,243 $ 34,400,436 Shares issued to share- holders in reinvestment of dividends 5,336,253 65,136,704 ------------ ------------- Total issued 8,058,496 99,537,140 Shares redeemed (14,832,136) (187,427,758) ------------ ------------- Net decrease (6,773,640) $ (87,890,618) ============ ============= 5. Loan Securities: At March 31, 1994, the Fund held US Treasury Bonds having an aggregate value of approximately $5,300,000 as collateral for portfolio securities loaned having a market value of approximately $4,030,000. 6. Commitments: At March 31, 1994, the Fund had entered into forward exchange contracts under which it had agreed to sell various foreign currencies with approx- imate values of $765,000. 77 [This Page Intentionally Left Blank] 78 [This Page Intentionally Left Blank] 79 TABLE OF CONTENTS
PAGE ---- Investment Objective and Policies.......................................... 2 Management of the Fund..................................................... 2 Purchase of Shares......................................................... 5 Initial Sales Charge Alternatives-- Class A and Class D Shares............................................... 6 Reduced Initial Sales Charges............................................. 6 Distribution Plans........................................................ 10 Limitations on the Payment of Deferred Sales Charges...................... 11 Redemption of Shares....................................................... 12 Deferred Sales Charge-- Class B Shares........................................................... 12 Determination of Net Asset Value........................................... 14 Shareholder Services....................................................... 14 Investment Account........................................................ 14 Automatic Investment Plans................................................ 15 Automatic Reinvestment of Dividends and Capital Gains Distributions....... 15 Systematic Withdrawal Plans-- Class A and Class D Shares............................................... 16 Retirement Plans.......................................................... 17 Exchange Privilege........................................................ 17 Dividends, Distributions and Taxes......................................... 29 Dividends and Distributions............................................... 29 Taxes..................................................................... 29 Performance Data........................................................... 32 Investment Practices and Restrictions...................................... 34 Portfolio Strategies Involving Options and Futures........................ 34 Other Investment Policies and Practices................................... 39 General Information........................................................ 47 Description of Shares..................................................... 47 Computation of Offering Price Per Share................................... 47 Independent Auditors...................................................... 48 Custodian................................................................. 48 Transfer Agent............................................................ 48 Legal Counsel............................................................. 48 Reports to Shareholders................................................... 48 Additional Information.................................................... 48 Independent Auditors' Report............................................... 49 Financial Statements....................................................... 50 Financial Statements (unaudited)........................................... 63
Code #10332-1094 Statement of Additional Information (ART) - -------------------------------------------------------------------------------- MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT October , 1994 PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements: (1) Financial Statements included in Part A, the Prospectus: Financial Highlights (selected per share data and ratios) for each of the periods in the seven year period ended September 30, 1993 and for the period November 29, 1985 (Commencement of Operations) to September 30, 1986 (audited) and for the six months ended March 31, 1994 (unaudited). (2) Financial Statements included in Part B, the Statement of Additional Information: Schedule of Investments as of September 30, 1993. Statement of Assets and Liabilities as of September 30, 1993. Statement of Operations for the Year Ended September 30, 1993. Statements of Changes in Net Assets for the Years Ended September 30, 1993 and 1992. Financial Highlights for each of the periods in the five year period ended September 30, 1993. Schedule of Investments as of March 31, 1994 (unaudited). Statement of Assets and Liabilities as of March 31, 1994 (unaudited). Statement of Operations for the Six Months Ended March 31, 1994 (unaudited). Statements of Changes in Net Assets for the Six Months Ended March 31, 1994 (unaudited) and the Year Ended September 30, 1993. Financial Highlights for each of the periods in the Four Years Ended September 30, 1993 and the Six Months Ended March 31, 1994 (unaudited). (b) Exhibits:
EXHIBIT NUMBER DESCRIPTION ------- ----------- (1)(A)* --Articles of Incorporation of Registrant, as amended. (1)(B). --Articles Supplementary. (2)* --By-Laws of Registrant. (3) --Not applicable. (4)(A)* --Specimen certificate for Class A shares of common stock of Registrant. (4)(B)* --Specimen certificate for Class B shares of common stock of Registrant. (4)(C)+++ --Instruments Defining Rights of Shareholders. (5)** --Investment Advisory Agreement between Registrant and Merrill Lynch Asset Management. (6)(A)* --Class A Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (6)(B)*** --Class B Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (6)(C) --Form of Class A Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (6)(D) --Form of Class C Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (6)(E) --Form of Class D Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (7) --Not applicable. (8)(A)*** --Custody Agreement between Registrant and First Jersey National Bank (now known as National Westminster Bank NJ). (8)(B)*** --Sub-Custody Agreement between First Jersey National Bank (now known as National Westminster Bank NJ) and Chase Manhattan Bank, N.A. (8)(C) --Form of Custody Agreement between Registrant and The Chase Manhattan Bank, N.A. (9)(A)*** --Administrative and Sub-Accounting Services Agreement between Registrant and Merrill Lynch Asset Management. (9)(B)** --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between Registrant and Merrill Lynch Financial Data Service, Inc. (now known as Financial Data Services, Inc.)
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EXHIBIT NUMBER DESCRIPTION ------- ----------- (9)(C)*** --Agreement Pursuant to Rule 11a2-2(T) under the Securities Exchange Act of 1934. (10)+++ --Opinion and consent of Shereff, Friedman, Hoffman & Goodman, counsel for the Registrant. (11)(A) --Consent of Deloitte & Touche LLP, independent auditors for the Registrant. (11)(B). --Consent of Morningstar, Inc. (12) --Not applicable. (13)* --Representation of Merrill Lynch Asset Management. (14)(A)+ --Prototype Individual Retirement Account Plan available from Merrill Lynch, Pierce, Fenner & Smith Incorporated. (14)(B)++ --Basic Retirement Plan available from Merrill Lynch, Pierce, Fenner & Smith Incorporated. (15)(A)*** --Amended and Restated Class B Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940. (15)(B) --Form of Class C Distribution Plan and Class C Distribution Plan Sub-Agreement. (15)(C) --Form of Class D Distribution Plan and Class D Distribution Plan Sub-Agreement. (16)(A).. --Schedule for computation of each performance quotation provided in the Registration Statement in response to Item 22 (Class B Shares) (16)(B)... --Schedule for computation of each performance quotation provided in the Registration Statement in response to Item 22 (Class A Shares). (17)(A) --Financial Data Schedule for Class A shares. (17)(B) --Financial Data Schedule for Class B shares. (18)(degrees) --Other Exhibits Powers of Attorney for Officers and Directors Arthur Zeikel Herbert I. London Robert R. Martin Joseph L. May Andre F. Perold Gerald M. Richard
- -------- * Incorporated by reference to Exhibit No. 1 in Pre-Effective Amendment No. 2 to this Registration Statement (File No. 2-91329). ** Incorporated by reference to the identically numbered Exhibit in Post- Effective Amendment No. 3 to this Registration Statement (File No. 2- 91329). *** Incorporated by reference to the identically numbered Exhibit in Post- Effective Amendment No. 1 to this Registration Statement (File No. 2- 91329). . Incorporated by reference to identically numbered Exhibit in Post-Effective Amendment No. 9 to this Registration Statement (File No. 2-91329). .. Incorporated by reference to Exhibit No. 16 in Post-Effective Amendment No. 4 to this Registration Statement (File No. 2-91329). ... Incorporated by reference to the identically numbered Exhibit in Post- Effective Amendment No. 6 to this Registration Statement (File No. 2- 91329). + Incorporated by reference to Exhibit 14 to Pre-Effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933 on Form N-1 (File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed on January 26, 1982. ++ Incorporated by reference to Exhibit 14 to Post-Effective Amendment No. 3 to the Registration Statement under the Securities Act of 1933 on Form N-1A (File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed December 29, 1983. +++ Incorporated by reference to the identically numbered Exhibit to Post- Effective Amendment No. 11 to the Registration Statement (File No. 2- 91329). (degrees) Incorporated by reference to Exhibit 17 to Post-Effective Amendment No. 11 to the Registration Statement (File No. 2-91329). C-2 ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. Not applicable. ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD HOLDERS AT TITLE OF CLASS SEPTEMBER 30, 1994 -------------- ------------------ Class A Common Stock, par value $.01 per share.......... 17 Class B Common Stock, par value $.01 per share.......... 1,985 Class C Common Stock, par value $.01 per share.......... 0 Class D Common Stock, par value $.01 per share.......... 0
ITEM 27. INDEMNIFICATION Reference is made to Article VI of Registrant's Articles of Incorporation, Article VI of Registrant's By-Laws and Section 2-418 of the Maryland General Corporation Law. Article VI of the By-Laws provides that each officer and director of the Registrant shall be indemnified by the Registrant to the full extent permitted under the General Laws of the State of Maryland, except that such indemnity shall not protect any such person against any liability to the Registrant or any stockholder thereof to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Absent a court determination that an officer or director seeking indemnification was not liable on the merits or guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, the decision by the Registrant to indemnify such person must be based upon the reasonable determination of independent counsel or non-party independent directors, after review of the facts, that such officer or director is not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. The Registrant may purchase insurance on behalf of an officer or director protecting such person to the full extent permitted under the General Laws of the State of Maryland from liability arising from his activities as officer or director of the Registrant. The Registrant, however, may not purchase insurance on behalf of any officer or director of the Registrant that protects or purports to protect such person from liability to the Registrant or to its stockholders to which such officer or director would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. The Registrant may indemnify or purchase insurance to the extent provided in Article VI on behalf of an employee or agent who is not an officer or director of the Registrant. Insofar as the conditional advancing of indemnification moneys for actions based upon the Investment Company Act of 1940 may be concerned, such payments will be made only on the following conditions: (i) the advances must be limited to amounts used, or to be used, for the preparation or presentation of a defense to the action, including costs connected with the preparation of a settlement; (ii) advances may be made only upon receipt of: (a) a written affirmation by the director of the director's good faith belief that the standard of conduct necessary for indemnification by the corporation as authorized in this section has been met, and (b) a written promise by, or on behalf of, the recipient to repay that amount of the advance which exceeds the amount to which it is ultimately determined that he is entitled to receive from the Registrant by reason of indemnification; and (iii) (a) such promise must be secured by a surety bond, other suitable insurance or an equivalent form of security which assures that any repayments may be obtained by the Registrant without delay or litigation, which bond, insurance or other form of security must be provided by the recipient of the advance, or (b) a majority of a quorum of the Registrant's disinterested, nonparty directors, or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts, that the recipient of the advance ultimately will be found entitled to indemnification. C-3 Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant and the principal underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant and the principal underwriter in connection with the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person or the principal underwriter in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER Merrill Lynch Asset Management, L.P., doing business as Merrill Lynch Asset Management (the "Investment Adviser" or "MLAM"), acts as the investment adviser for the following companies: Convertible Holdings, Inc., Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Balanced Fund for Investment and Retirement, Merrill Lynch Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Institutional Intermediate Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable Series Funds, Inc. Fund Asset Management, L.P. ("FAM"), an affiliate of the Investment Adviser, acts as the investment adviser for the following registered investment companies: Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Financial Institutions Series Trust, Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield Pennsylvania C-4 Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Emerging Tigers Fund, Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Senior Strategic Income Fund, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund, Inc. The address of each of these investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds for Institutions Series and Merrill Lynch Institutional Intermediate Fund is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of MLAM, FAM, Princeton Services, Inc. ("Princeton Services"), Merrill Lynch Funds Distributor, Inc. and Princeton Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281. The address of Financial Data Services, Inc. ("FDS") is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Set forth below is a list of each executive officer and partner of the Investment Adviser indicating each business, profession, vocation or employment of a substantial nature in which each such person or entity has been engaged since July 1, 1992, for such person's or entity's own account or in the capacity of director, officer, partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard is Treasurer and Mr. Glenn is Executive Vice President of all or substantially all of the investment companies described in the preceding paragraph. Mr. Zeikel is a director of substantially all of such companies, and Mr. Glenn is a director of certain of such companies. Messrs. Durnin, Giordano, Harvey, Hewitt, Kirstein, Monagle and Ms. Griffin are directors or officers of one or more of such companies. Officers and partners of MLAM are set forth as follows;
OTHER SUBSTANTIAL BUSINESS, NAME POSITION WITH THE INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT ---- ------------------------------------ ---------------------------------- ML & Co. ............... Limited Partner Financial Services Holding Company Merrill Lynch Investment Management, Inc. ...... Limited Partner Investment Advisory Services Princeton Services, Inc. .................. General Partner General Partner of FAM ("Princeton Services") Arthur Zeikel........... President President of FAM; President and Director of Princeton Services; Director of MLFD; Executive Vice President of ML & Co.; Executive Vice President of Merrill Lynch Terry K. Glenn.......... Executive Vice Executive Vice President of FAM; Executive President Vice President and Director of Princeton Services; President and Director of MLFD; President of Princeton Administrators Bernard J. Durnin....... Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton Services Vincent R. Giordano..... Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton Services Elizabeth Griffin....... Senior Vice President Senior Vice President of FAM Norman R. Harvey........ Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton Services N. John Hewitt.......... Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton Services Philip L. Kirstein...... Senior Vice Senior Vice President, General Counsel and President, General Secretary of FAM; Senior Vice President, Counsel and General Counsel Director and Secretary of Secretary Princeton Services; Director of MLFD
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OTHER SUBSTANTIAL BUSINESS, NAME POSITION WITH THE INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT ---- ------------------------------------ ---------------------------------- Ronald M. Kloss......... Senior Vice President Senior Vice President and Controller of and Controller FAM; Senior Vice President and Controller of Princeton Services Stephen M.M. Miller..... Senior Vice President Executive Vice President of Princeton Administrators, L.P. Joseph T. Monagle, Jr. . Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton Services Gerald M. Richard....... Senior Vice President Senior Vice President and Treasurer of FAM; and Treasurer Senior Vice President and Treasurer of Princeton Services; Vice President and Treasurer of MLFD Richard L. Rufener...... Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton Services; Vice President of FAM Ronald L. Welburn....... Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton Services Anthony Wiseman......... Senior Vice President Senior Vice President of FAM; Senior Vice President of Princeton Services
ITEM 29. PRINCIPAL UNDERWRITERS. (a) MLFD acts as the principal underwriter for the Registrant and for each of the open-end investment companies referred to in the first paragraph of Item 28 except Apex Municipal Fund, Inc., CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc. MuniVest Pennsylvania Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund, Inc. C-6 (b) Set forth below is information concerning each director and officer of MLFD. The principal business address of each such person is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the address of Messrs. Aldrich, Crook, Graczyk, Fatseas and Wasel is One Financial Center, 15th Floor, Boston, Massachusetts 02111-2665.
(2) (3) (1) POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH MLFD WITH REGISTRANT ----- ---------------------- ---------------------- Terry K. Glenn............. President and Director Executive Vice President Arthur Zeikel.............. Director President and Director Philip L. Kirstein......... Director None William E. Aldrich......... Senior Vice President None Robert W. Crook............ Senior Vice President None Kevin P. Boman............. Vice President None Michael J. Brady........... Vice President None Sharon Creveling........... Vice President and None Assistant Treasurer Mark A. DeSario............ Vice President None James J. Fatseas........... Vice President None Stanley Graczyk............ Vice President None Debra W. Landsman-Yaros.... Vice President None Michelle T. Lau............ Vice President None Gerald M. Richard.......... Vice President and Treasurer Treasurer Richard L. Rufener......... Vice President None Salvatore Venezia.......... Vice President None William Wasel.............. Vice President None Lisa Gobora................ Assistant Vice President None Susan Kibler............... Assistant Vice President None Mark A. Maguire............ Assistant Vice President None Richard Romm............... Assistant Vice President None Patricia A. Schena......... Assistant Vice President None Robert Harris.............. Secretary Secretary
(c) Not applicable. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS. All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules thereunder will be maintained at the offices of the Registrant and its Custodian and Transfer Agent, FDS, 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. ITEM 31. MANAGEMENT SERVICES. Other than as set forth under the caption "The Fund and Its Management" in the Prospectus constituting Part A of the Registration Statement and under "Management of the Fund" in the Statement of Additional Information constituting Part B of the Registration Statement, Registrant is not a party to any management related service contract. ITEM 32. UNDERTAKINGS. (a) Not applicable. (b) Not applicable. (c) The Registrant will furnish each person to whom a Prospectus is delivered with a copy of Registrant's latest annual report to shareholders, upon request and without charge. C-7 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWNSHIP OF PLAINSBORO AND STATE OF NEW JERSEY, ON THE 11TH DAY OF OCTOBER, 1994. Merrill Lynch Retirement Benefit Investment Program, Inc. /s/ Arthur Zeikel By___________________________________ ARTHUR ZEIKEL, PRESIDENT PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST- EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURES TITLE DATE /s/ Arthur Zeikel President and October 11, - ------------------------------------- Director (Principal 1994 (ARTHUR ZEIKEL) Executive Officer) /s/ Gerald M. Richard Treasurer (Principal October 11, - ------------------------------------- Financial and 1994 (GERALD M. RICHARD) Accounting Officer) * Director - ------------------------------------- (KENNETH S. AXELSON) * Director - ------------------------------------- (HERBERT I. LONDON) * Director - ------------------------------------- (ROBERT R. MARTIN) * Director - ------------------------------------- (JOSEPH L. MAY) * Director - ------------------------------------- (ANDRE F. PEROLD) - -------- * This Amendment has been signed by each of the persons so indicated by the undersigned as Attorney-in- Fact. /s/ Arthur Zeikel October 11, *By _________________________________ 1994 (ARTHUR ZEIKEL, ATTORNEY-IN-FACT) C-8 EXHIBIT INDEX
EXHIBIT PAGE NUMBER NUMBER ------- ------ (6)(C) --Form of Class A Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (6)(D) --Form of Class C Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (6)(E) --Form of Class D Distribution Agreement between Registrant and Merrill Lynch Funds Distributor, Inc. (8)(C) --Form of Custody Agreement between Registrant and The Chase Manhattan Bank, N.A. (11) --Consent of Deloitte & Touche LLP, independent auditors for Registrant (15)(B) --Form of Class C Distribution Plan and Class C Distribution Plan Sub-Agreement (15)(C) --Form of Class D Distribution Plan and Class D Distribution Plan Sub-Agreement (17)(A) --Financial Data Schedule for Class A shares (17)(B) --Financial Data Schedule for Class B shares
GRAPHICS APPENDIX LIST PAGE WHERE GRAPHIC APPEARS DESCRIPTION OF GRAPHIC OR CROSS REFERENCE - -------------------------------------------------------------------------------- Back cover of Prospectus and Compass plate, circular back cover of Statement of graph paper and Merrill Lynch Additional information logo including stylized market bull - -------------------------------------------------------------------------------- EX-27.CLASSA 2 ART. 6 FDS FOR 485BPOS CLASS A
6 CLASS A 1 YEAR 6-MOS SEP-30-1993 SEP-30-1994 OCT-01-1992 OCT-01-1993 SEP-30-1993 MAR-31-1994 749,833,130 749,670,338 855,917,544 788,268,848 19,298,540 21,857,186 252,750 146,891 0 0 875,468,834 810,272,925 0 5,024,240 0 0 3,825,926 4,808,579 3,825,926 9,832,819 0 0 687,887,484 703,579,741 3,126,077 3,441,241 1,616,923 3,126,077 4,746,266 2,421,693 0 0 72,960,816 55,845,048 0 0 106,048,342 38,593,624 40,688,322 40,175,446 10,955,111 2,886,327 21,852,613 10,813,618 0 0 16,236,866 7,608,117 16,570,858 6,091,828 82,929,610 62,179,732 14,121,027 (67,454,718) 113,621,495 816,842 0 0 994,119 656,642 1,508,643 4,103,194 0 0 2,695,028 1,016,163 1,346,924 1,077,993 161,050 376,995 (35,597,055) (71,202,802) 4,703,668 4,746,266 52,862,854 72,960,816 0 0 0 0 5,620,993 2,716,119 0 0 16,236,866 7,608,117 36,391,513 45,193,917 12.57 13.02 .47 .17 1.25 (.09) .39 .20 .88 1.23 0 0 13.02 11.67 .83 .79 0 0 0 0
EX-27.CLASSB 3 ART. 6 FDS FOR 485BPOS CLASS B
6 CLASS B 2 YEAR 6-MOS SEP-30-1993 SEP-30-1994 OCT-01-1992 OCT-01-1993 SEP-30-1993 MAR-31-1994 749,833,130 749,670,338 855,917,544 788,268,848 19,298,540 21,857,186 252,750 146,891 0 0 875,468,834 810,272,925 0 5,024,240 0 0 3,825,926 4,808,579 3,825,926 9,832,819 0 0 687,887,484 703,579,741 3,126,077 64,695,953 1,616,923 63,489,601 4,746,266 2,421,693 0 0 72,960,816 55,845,048 0 0 106,048,342 38,593,624 40,688,322 760,264,660 10,955,111 2,886,327 21,852,613 10,813,618 0 0 16,236,866 7,608,117 16,570,858 6,091,828 82,929,610 62,179,732 14,121,027 (67,454,718) 113,621,495 816,842 0 0 994,119 7,759,759 1,508,643 75,192,306 0 0 3,695,028 1,673,591 1,346,924 6,265,393 161,050 5,798,154 (35,597,055) (71,202,802) 4,703,668 4,746,266 52,862,854 72,960,816 0 0 0 0 5,620,993 2,716,119 0 0 16,236,866 7,608,117 36,391,513 820,999,833 12.57 13.09 .47 .09 1.25 (.07) .39 .13 .88 1.23 0 0 13.02 11.75 .83 1.81 0 0 0 0
EX-99.6.C 4 CLASS C DISTRIBUTION AGREEMENT EXHIBIT 99.6(C) CLASS A SHARES DISTRIBUTION AGREEMENT AGREEMENT made as of the ____ day of October 1994 between MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, a Maryland corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end investment company, and it is affirmatively in the interest of the Fund to offer its shares for sale continuously; and WHEREAS, the Distributor is a securities firm engaged in the business of selling shares of investment companies either directly to purchasers or through other securities dealers; and WHEREAS, the Fund and the Distributor wish to enter into an agreement with each other with respect to the continuous offering of the Class A shares of common stock in the Fund. NOW, THEREFORE, the parties agree as follows: Section 1. Appointment of the Distributor. The Fund hereby appoints the ------------------------------ Distributor as the principal underwriter and distri- butor of the Fund to sell Class A shares of common stock in the Fund (sometimes herein referred to as "Class A shares") to eligible investors (as defined below) and hereby agrees during the term of this Agreement to sell Class A shares of the Fund to the Distributor upon the terms and conditions herein set forth. Section 2. Exclusive Nature of Duties. The Distributor shall be the -------------------------- exclusive representative of the Fund to act as principal underwriter and distributor, except that: (a) The Fund may, upon written notice to the Distributor, from time to time designate other principal underwriters and distributors of Class A shares with respect to areas other than the United States as to which the Distributor may have expressly waived in writing its right to act as such. If such designation is deemed exclusive, the right of the Distributor under this Agreement to sell Class A shares in the areas so designated shall terminate, but this Agreement shall remain otherwise in full effect until terminated in accordance with the other provisions hereof. (b) The exclusive right granted to the Distributor to purchase Class A shares from the Fund shall not apply to Class A shares issued in connection with the merger or consolidation of any other investment company or personal holding company with the Fund or the acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding Class A shares of any such company by the Fund. 2 (c) Such exclusive right also shall not apply to Class A shares issued by the Fund pursuant to reinvestment of dividends or capital gains distributions. (d) Such exclusive right also shall not apply to Class A shares issued by the Fund pursuant to any conversion, exchange or reinstatement privilege afforded redeeming shareholders or to any other Class A shares as shall be agreed between the Fund and the Distributor from time to time. Section 3. Purchase of Class A shares from the Fund. ---------------------------------------- (a) The Distributor shall have the right to buy from the Fund the Class A shares needed, but not more than the Class A shares needed (except for clerical errors in transmission) to fill unconditional orders for Class A shares of the Fund placed with the Distributor by eligible investors or securities dealers. Investors eligible to purchase Class A shares shall be those persons so identified in the currently effective prospectus and statement of additional information of the Fund (the "prospectus" and "statement of additional information", respectively) under the Securities Act of 1933, as amended (the "Securities Act"), relating to such Class A shares ("eligible investors"). The price which the Distributor shall pay for the Class A shares so purchased from the Fund shall be the net asset value, determined as set forth in Section 3(d) hereof, used in determining the public offering price on which such orders were based. (b) The Class A shares are to be resold by the Distributor to eligible investors at the public offering price, as set forth 3 in Section 3(c) hereof, or to securities dealers having agreements with the Distributor upon the terms and conditions set forth in Section 7 hereof. (c) The public offering price(s) of the Class A shares, i.e., the price - - per share at which the Distributor or selected dealers may sell Class A shares to eligible investors, shall be the public offering price as set forth in the prospectus and statement of additional information relating to such Class A shares, but not to exceed the net asset value at which the Distributor is to purchase the Class A shares, plus a sales charge not to exceed 5.25% of the public offering price (5.54% of the net amount invested), subject to reductions for volume purchases. Class A shares may be sold to certain Directors, officers and employees of the Fund, directors and employees of Merrill Lynch & Co., Inc. and its subsidiaries, and to certain other persons described in the prospectus and statement of additional information, without a sales charge or at a reduced sales charge, upon terms and conditions set forth in the prospectus and statement of additional information. If the public offering price does not equal an even cent, the public offering price may be adjusted to the nearest cent. All payments to the Fund hereunder shall be made in the manner set forth in Section 3(f). (d) The net asset value of Class A shares shall be determined by the Fund or any agent of the Fund in accordance with the method set forth in the prospectus and statement of additional 4 information of the Fund and guidelines established by the Directors. (e) The Fund shall have the right to suspend the sale of its Class A shares at times when redemption is suspended pursuant to the conditions set forth in Section 4(b) hereof. The Fund shall also have the right to suspend the sale of its Class A shares if trading on the New York Stock Exchange shall have been suspended, if a banking moratorium shall have been declared by Federal or New York authorities, or if there shall have been some other event, which, in the judgment of the Fund, makes it impracticable or inadvisable to sell the Class A shares. (f) The Fund, or any agent of the Fund designated in writing by the Fund, shall be promptly advised of all purchase orders for Class A shares received by the Distributor. Any order may be rejected by the Fund; provided, however, that the Fund will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of Class A shares from eligible investors. The Fund (or its agent) will confirm orders upon their receipt, will make appropriate book entries and, upon receipt by the Fund (or its agent) of payment therefor, will deliver deposit receipts or certificates for such Class A shares pursuant to the instructions of the Distributor. Payment shall be made to the Fund in New York Clearing House funds. The Distributor agrees to cause such payment and such instructions to be delivered promptly to the Fund (or its agent). 5 Section 4. Repurchase or Redemption of Class A shares by the Fund. ------------------------------------------------------ (a) Any of the outstanding Class A shares may be tendered for redemption at any time, and the Fund agrees to repurchase or redeem the Class A shares so tendered in accordance with its obligations as set forth in Article VII of its Articles of Incorporation, as amended from time to time, and in accordance with the applicable provisions set forth in the prospectus and statement of additional information. The price to be paid to redeem or repurchase the Class A shares shall be equal to the net asset value calculated in accordance with the provisions of Section 3(d) hereof, less any contingent deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set forth in the prospectus and statement of additional information of the Fund. All payments by the Fund hereunder shall be made in the manner set forth below. The redemption or repurchase by the Fund of any of the Class A shares purchased by or through the Distributor will not affect the sales charge secured by the Distributor or any selected dealer in the course of the original sale, except that if any Class A shares are tendered for redemption or repurchase within seven business days after the date of the confirmation of the original purchase, the right to the sales charge shall be forfeited by the Distributor and the selected dealer which sold such Class A shares. The Fund shall pay the total amount of the redemption price as defined in the above paragraph pursuant to the instructions of 6 the Distributor in New York Clearing House funds on or before the seventh business day subsequent to its having received the notice of redemption in proper form. The proceeds of any redemption of shares shall be paid by the Fund as follows: (i) any applicable CDSC shall be paid to the Distributor, and (ii) the balance shall be paid to or for the account of the shareholder, in each case in accordance with the applicable provisions of the prospectus and statement of additional information. (b) Redemption of Class A shares or payment may be suspended at times when the New York Stock Exchange is closed, when trading on said Exchange is suspended, when trading on said Exchange is restricted, when an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or during any other period when the Securities and Exchange Commission, by order, so permits. Section 5. Duties of the Fund. ------------------ (a) The Fund shall furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of Class A shares of the Fund, and this shall include, upon request by the Distributor, one certified copy of all financial statements prepared for the Fund by independent public accountants. The Fund shall make available to the Distributor 7 such number of copies of the prospectus and statement of additional information as the Distributor shall reasonably request. (b) The Fund shall take, from time to time, but subject to any necessary approval of the Class A shareholders, all necessary action to fix the number of authorized Class A shares and such steps as may be necessary to register the same under the Securities Act, to the end that there will be available for sale such number of Class A shares as the Distributor may reasonably be expected to sell. (c) The Fund shall use its best efforts to qualify and maintain the qualification of an appropriate number of its Class A shares for sale under the securities laws of such states as the Distributor and the Fund may approve. Any such qualification may be withheld, terminated or withdrawn by the Fund at any time in its discretion. As provided in Section 8(c) hereof, the expense of qualification and maintenance of qualification shall be borne by the Fund. The Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Fund in connection with such qualification. (d) The Fund will furnish, in reasonable quantities upon request by the Distributor, copies of annual and interim reports of the Fund. Section 6. Duties of the Distributor. ------------------------- (a) The Distributor shall devote reasonable time and effort to effect sales of Class A shares of the Fund but shall not be obligated to sell any specific number of Class A shares. The 8 services of the Distributor to the Fund hereunder are not to be deemed exclusive and nothing herein contained shall prevent the Distributor from entering into like arrangements with other investment companies so long as the performance of its obligations hereunder is not impaired thereby. (b) In selling the Class A shares of the Fund, the Distributor shall use its best efforts in all respects duly to conform with the requirements of all Federal and state laws relating to the sale of such securities. Neither the Distributor nor any selected dealer, as defined in Section 7 hereof, nor any other person is authorized by the Fund to give any information or to make any representations, other than those contained in the registration statement or related prospectus and statement of additional information and any sales literature specifically approved by the Fund. (c) The Distributor shall adopt and follow procedures, as approved by the officers of the Fund, for the confirmation of sales to eligible investors and selected dealers, the collection of amounts payable by eligible investors and selected dealers on such sales, and the cancellation of unsettled transactions, as may be necessary to comply with the requirements of the National Association of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to time exist. Section 7. Selected Dealers Agreements. --------------------------- (a) The Distributor shall have the right to enter into selected dealers agreements with securities dealers of its choice 9 ("selected dealers") for the sale of Class A shares and fix therein the portion of the sales charge which may be allocated to the selected dealers; provided that the Fund shall approve the forms of agreements with dealers and the dealer compensation set forth therein. Class A shares sold to selected dealers shall be for resale by such dealers only at the public offering price(s) set forth in the prospectus and statement of additional information. The form of agreement with selected dealers to be used during the continuous offering of the Class A shares is attached hereto as Exhibit A. (b) Within the United States, the Distributor shall offer and sell Class A shares only to such selected dealers as are members in good standing of the NASD. Section 8. Payment of Expenses. ------------------- (a) The Fund shall bear all costs and expenses of the Fund, including fees and disbursements of its counsel and auditors, in connection with the preparation and filing of any required registration statements and/or prospectuses and statements of additional information under the Investment Company Act, the Securities Act, and all amendments and supplements thereto, and preparing and mailing annual and interim reports and proxy materials to Class A shareholders (including but not limited to the expense of setting in type any such registration statements, prospectuses, statements of additional information, annual or interim reports or proxy materials). 10 (b) The Distributor shall be responsible for any payments made to selected dealers as reimbursement for their expenses associated with payments of sales commissions to financial consultants. In addition, after the prospectuses, statements of additional information and annual and interim reports have been prepared and set in type, the Distributor shall bear the costs and expenses of printing and distributing any copies thereof which are to be used in connection with the offering of Class A shares to selected dealers or eligible investors pursuant to this Agreement. The Distributor shall bear the costs and expenses of preparing, printing and distributing any other literature used by the Distributor or furnished by it for use by selected dealers in connection with the offering of the Class A shares for sale to eligible investors and any expenses of advertising incurred by the Distributor in connection with such offering. (c) The Fund shall bear the cost and expenses of qualification of the Class A shares for sale pursuant to this Agreement and, if necessary or advisable in connection therewith, of qualifying the Fund as a broker or dealer in such states of the United States or other jurisdictions as shall be selected by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and expenses payable to each such state for continuing qualification therein until the Fund decides to discontinue such qualification pursuant to Section 5(c) hereof. 11 Section 9. Indemnification. --------------- (a) The Fund shall indemnify and hold harmless the Distributor and each person, if any, who controls the Distributor against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damage or expense and reasonable counsel fees incurred in connection therewith), as incurred, arising by reason of any person acquiring any Class A shares, which may be based upon the Securities Act, or on any other statute or at common law, on the ground that the registration statement or related prospectus and statement of additional information, as from time to time amended and supplemented, or an annual or interim report to shareholders of the Fund, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, unless such statement or omission was made in reliance upon, and in conformity with, information furnished to the Fund in connection therewith by or on behalf of the Distributor; provided, however, that in no case (i) is the indemnity of the Fund in favor of the Distributor and any such controlling persons to be deemed to protect such Distributor or any such controlling persons thereof against any liability to the Fund or its security holders to which the Distributor or any such controlling persons would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard 12 of their obligations and duties under this Agreement; or (ii) is the Fund to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any such controlling persons, unless the Distributor or such controlling persons, as the case may be, shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Distributor or such controlling persons (or after the Distributor or such controlling persons shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Fund will be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if the Fund elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Distributor or such controlling person or persons, defendant or defendants in the suit. In the event the Fund elects to assume the defense of any such suit and retain such counsel, the Distributor or such controlling person or persons, defendant or defendants in the suit shall bear the fees and expenses of any additional counsel retained by them, but in case the Fund does not elect to assume the defense of any such suit, it will reim- 13 burse the Distributor or such controlling person or persons, defendant or defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Fund shall promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or Directors in connection with the issuance or sale of any of the Class A shares. (b) The Distributor shall indemnify and hold harmless the Fund and each of its Directors and officers and each person, if any, who controls the Fund against any loss, liability, claim, damage or expense described in the foregoing indemnity contained in subsection (a) of this Section, but only with respect to statements or omissions made in reliance upon, and in conformity with, information furnished to the Fund in writing by or on behalf of the Distributor for use in connection with the registration statement or related prospectus and statement of additional information, as from time to time amended, or the annual or interim reports to Class A shareholders. In case any action shall be brought against the Fund or any person so indemnified, in respect of which indemnity may be sought against the Distributor, the Distributor shall have the rights and duties given to the Fund, and the Fund and each person so indemnified shall have the rights and duties given to the Distributor by the provisions of subsection (a) of this Section 9. Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection with ------------------------------------------ the Merrill Lynch Mutual Fund Adviser Program, 14 the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to offer and sell shares of the Fund, as agent for the Fund, to participants in such program. The terms of this Agreement shall apply to such sales, including terms as to the offering price of shares, the proceeds to be paid to the Fund, the duties of the Distributor, the payment of expenses and indemnification obligations of the Fund and the Distributor. Section 11. Duration and Termination of this Agreement. This Agreement ------------------------------------------ shall become effective as of the date first above written and shall remain in force until October __, 1995 and thereafter, but only for so long as such continuance is specifically approved at least annually by (i) the Directors or by the vote of a majority of the outstanding voting securities of the Fund and (ii) by the vote of a majority of those Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time, without the payment of any penalty, by the Directors or by vote of a majority of the outstanding voting securities of the Fund, or by the Distributor, on sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. The terms "vote of a majority of the outstanding voting securities", "assignment", "affiliated person" and "interested 15 person", when used in this Agreement, shall have the respective meanings specified in the Investment Company Act. Section 12. Amendments of this Agreement. This Agreement may be amended ---------------------------- by the parties only if such amendment is specifically approved by (i) the Directors or by the vote of a majority of outstanding voting securities of the Fund and (ii) by the vote of a majority of those Directors of the Fund who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. Section 13. Governing Law. The provisions of this Agreement shall be ------------- construed and interpreted in accordance with the laws of the State of New York as at the time in effect and the applicable provisions of the Investment Company Act. To the extent that the applicable law of the State of New York, or any of the provisions herein, conflict with the applicable provisions of the Investment Company Act, the latter shall control. Section 14. This Agreement supersedes the prior Distribution Agreement entered into by the parties hereto with respect to the Class A shares of the Fund. 16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT By_____________________________________ Title: MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By_____________________________________ Title: 17 EXHIBIT A MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT CLASS A SHARES OF COMMON STOCK SELECTED DEALERS AGREEMENT -------------------------- Gentlemen: Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement with Merrill Lynch Retirement Benefit Investment Program, Inc., doing business as Merrill Lynch Balanced Fund for Investment and Retirement, a Maryland corporation (the "Fund"), pursuant to which it acts as the distributor for the sale of Class A shares of common stock, par value $0.01 per share (herein referred to as "Class A shares"), of the Fund and as such has the right to distribute Class A shares of the Fund for resale. The Fund is an open-end investment company registered under the Investment Company Act of 1940, as amended, and its Class A shares are registered under the Securities Act of 1933, as amended. You have received a copy of the Class A shares Distribution Agreement (the "Distribution Agreement") between ourself and the Fund and reference is made herein to certain provisions of such Distribution Agreement. The terms "Prospectus" and "Statement of Additional Information" used herein refer to the prospectus and statement of additional information, respectively, on file with the Securities and Exchange Commission which is part of the most recent effective registration statement pursuant to the Securities Act of 1933, as amended. We offer to sell to you, as a member of the Selected Dealers Group, Class A shares of the Fund for resale to investors identified in the Prospectus and Statement of Additional Information as eligible to purchase Class A shares ("eligible investors") upon the following terms and conditions: 1. In all sales of these Class A shares to eligible investors, you shall act as dealer for your own account and in no transaction shall you have any authority to act as agent for the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special programs as we from time to time agree, in which case you shall have authority to offer and sell shares, as agent for the Fund, to participants in such program. 1 2. Orders received from you will be accepted through us only at the public offering price applicable to each order, as set forth in the current Prospectus and Statement of Additional Information of the Fund. The procedure relating to the handling of orders shall be subject to Section 5 hereof and instructions which we or the Fund shall forward from time to time to you. All orders are subject to acceptance or rejection by the Distributor or the Fund in the sole discretion of either. The minimum initial and subsequent purchase requirements are as set forth in the current Prospectus and Statement of Additional Information of the Fund. 3. The sales charges for sales to eligible investors, computed as percentages of the public offering price and the amount invested, and the related discount to Selected Dealers are as follows:
Discount to Selected Sales Charge Dealers as Sales Charge as Percentage* Percentage as Percentage of the Net of the of the Amount Offering Amount of Purchase Offering Price Invested Price - --------------------------- --------------- --------------- ----------- Less than $25,000.......... 5.25% 5.54% 5.00% $25,000 but less than $50,000.............. 4.75 4.99 4.50 $50,000 but less than $100,000............. 4.00 4.17 3.75 $100,000 but less than $250,000............. 3.00 3.09 2.75 $250,000 but less than $1,000,000........... 2.00 2.04 1.80 $1,000,000 and over**...... 0.00 0.00 0.00
- ------------------------------ * Rounded to the nearest one-hundredth percent. ** Initial sales charges will be waived for certain classes of offerees as set forth in the current Prospectus and Statement of Additional Information of the Fund. Such purchases may be subject to a contingent deferred sales charge as set forth in the current Prospectus and Statement of Additional Information. 2 The term "purchase" refers to a single purchase by an individual, or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his spouse and their children under the age of 21 years purchasing Class A shares for his or their own account and to single purchases by a trustee or other fiduciary purchasing Class A shares for a single trust estate or single fiduciary account although more than one beneficiary is involved. The term "purchase" also includes purchases by any "company" as that term is defined in the Investment Company Act of 1940, as amended, but does not include purchases by any such company which has not been in existence for at least six months or which has no purpose other than the purchase of Class A shares of the Fund or Class A shares of other registered investment companies at a discount; provided, however, that it shall not include purchases by any group of individuals whose sole organizational nexus is that the participants therein are credit cardholders of a company, policyholders of an insurance company, customers of either a bank or broker-dealer or clients of an investment adviser. The reduced sales charges are applicable through a right of accumulation under which certain eligible investors are permitted to purchase Class A shares of the Fund at the offering price applicable to the total of (a) the public offering price of the shares then being purchased plus (b) an amount equal to the then current net asset value or cost, whichever is higher, of the purchaser's combined holdings of Class A, Class B, Class C and Class D shares of the Fund and of any other investment company with an initial sales charge for which the Distributor acts as the distributor. For any such right of accumulation to be made available, the Distributor must be provided at the time of purchase, by the purchaser or you, with sufficient information to permit confirmation of qualification, and acceptance of the purchase order is subject to such confirmation. The reduced sales charges are applicable to purchases aggregating $25,000 or more of Class A shares or of Class D shares of any other investment company with an initial sales charge for which the Distributor acts as the distributor made through you within a thirteen-month period starting with the first purchase pursuant to a Letter of Intention in the form provided in the Prospectus. A purchase not originally made pursuant to a Letter of Intention may be included under a subsequent letter executed within 90 days of such purchase if the Distributor is informed in writing of this intent within such 90-day period. If the intended amount of shares is not purchased within the thirteen-month period, an appropriate price adjustment will be made pursuant to the terms of the Letter of Intention. 3 You agree to advise us promptly at our request as to amounts of any sales made by you to eligible investors qualifying for reduced sales charges. Further information as to the reduced sales charges pursuant to the right of accumulation or a Letter of Intention is set forth in the Prospectus and Statement of Additional Information. 4. You shall not place orders for any of the Class A shares unless you have already received purchase orders for such Class A shares at the applicable public offering prices and subject to the terms hereof and of the Distribution Agreement. You agree that you will not offer or sell any of the Class A shares except under circumstances that will result in compliance with the applicable Federal and state securities laws and that in connection with sales and offers to sell Class A shares you will furnish to each person to whom any such sale or offer is made a copy of the Prospectus and, if requested, the Statement of Additional Information (as then amended or supplemented) and will not furnish to any person any information relating to the Class A shares of the Fund which is inconsistent in any respect with the information contained in the Prospectus and Statement of Additional Information (as then amended or supplemented) or cause any advertisement to be published in any newspaper or posted in any public place without our consent and the consent of the Fund. 5. As a selected dealer, you are hereby authorized (i) to place orders directly with the Fund for Class A shares of the Fund to be resold by us to you subject to the applicable terms and conditions governing the placement of orders by us set forth in Section 3 of the Distribution Agreement and subject to the compensation provisions of Section 3 hereof and (ii) to tender Class A shares directly to the Fund or its agent for redemption subject to the applicable terms and conditions set forth in Section 4 of the Distribution Agreement. 6. You shall not withhold placing orders received from your customers so as to profit yourself as a result of such withholding: e.g., by a change in the - - "net asset value" from that used in determining the offering price to your customers. 7. If any Class A shares sold to you under the terms of this Agreement are repurchased by the Fund or by us for the account of the Fund or are tendered for redemption within seven business days after the date of the confirmation of the original purchase by you, it is agreed that you shall forfeit your right to, and refund to us, any discount received by you on such Class A shares. 8. No person is authorized to make any representations concerning Class A shares of the Fund except those contained in the current Prospectus and Statement of Additional Information of the 4 Fund and in such printed information subsequently issued by us or the Fund as information supplemental to such Prospectus and Statement of Additional Information. In purchasing Class A shares through us you shall rely solely on the representations contained in the Prospectus and Statement of Additional Information and supplemental information above mentioned. Any printed information which we furnish you other than the Fund's Prospectus, Statement of Additional Information, periodic reports and proxy solicitation material is our sole responsibility and not the responsibility of the Fund, and you agree that the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 9. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus and, if requested, the Statement of Additional Information at or prior to the time of offering or sale and you agree thereafter to deliver to such purchasers copies of the annual and interim reports and proxy solicitation materials of the Fund. You further agree to endeavor to obtain proxies from such purchasers. Additional copies of the Prospectus and Statement of Additional Information, annual or interim reports and proxy solicitation materials of the Fund will be supplied to you in reasonable quantities upon request. 10. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Class A shares entirely or to certain persons or entities in a class or classes specified by us. Each party hereto has the right to cancel this agreement upon notice to the other party. 11. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the continuous offering. We shall be under no liability to you except for lack of good faith and for obligations expressly assumed by us herein. Nothing contained in this paragraph is intended to operate as, and the provisions of this paragraph shall not in any way whatsoever constitute, a waiver by you of compliance with any provision of the Securities Act of 1933, as amended, or of the rules and regulations of the Securities and Exchange Commission issued thereunder. 12. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Rules of Fair Practice of such Association. 13. Upon application to us, we will inform you as to the states in which we believe the Class A shares have been qualified for sale under, or are exempt from the requirements of, the 5 respective securities laws of such states, but we assume no responsibility or obligation as to your right to sell Class A shares in any jurisdiction. We will file with the Department of State in New York a Further State Notice with respect to the Class A shares, if necessary. 14. All communications to us should be sent to the address below. Any notice to you shall be duly given if mailed or telegraphed to you at the address specified by you below. 15. Your first order placed pursuant to this Agreement for the purchase of Class A shares of the Fund will represent your acceptance of this Agreement. 16. This Agreement supersedes any prior Selected Dealers Agreement entered into by the parties hereto with respect to the Class A shares of the Fund. MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By ---------------------------------- (Authorized Signature) Please return one signed copy of this agreement to: MERRILL LYNCH FUNDS DISTRIBUTOR, INC. Box 9011 Princeton, New Jersey 08543-9011 Accepted: Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc. -------------------------------------------- By: --------------------------------------------- Address: 800 Scudders Mill Road ---------------------------------------- Plainsboro, New Jersey 08536 ------------------------------------------------ Date: October , 1994 ------------------------------------------- 6 EX-99.6.D 5 CLASS D DISTRIBUTION AGREEMENT EXHIBIT 99.6(D) CLASS C SHARES DISTRIBUTION AGREEMENT AGREEMENT made as of the ______ day of October 1994, between MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, a Maryland corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor"). W I T N E S S E T H: ------------------- WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end investment company, and it is affirmatively in the interest of the Fund to offer its shares for sale continuously; and WHEREAS, the Distributor is a securities firm engaged in the business of selling shares of investment companies either directly to purchasers or through other securities dealers; and WHEREAS, the Fund and the Distributor wish to enter into an agreement with each other with respect to the continuous offering of the Fund's Class C shares in order to promote the growth of the Fund and facilitate the distribution of its Class C shares. NOW, THEREFORE, the parties agree as follows: Section 1. Appointment of the Distributor. The Fund hereby appoints the ------------------------------ Distributor as the principal underwriter and distributor of the Fund to sell Class C shares of common stock in the Fund (sometimes herein referred to as "Class C shares") to the public and hereby agrees during the term of this Agreement to sell shares of the Fund to the Distributor upon the terms and conditions herein set forth. Section 2. Exclusive Nature of Duties. The Distributor shall be the -------------------------- exclusive representative of the Fund to act as principal underwriter and distributor of the Class C shares, except that: (a) The Fund may, upon written notice to the Distributor, from time to time designate other principal underwriters and distributors of Class C shares with respect to areas other than the United States as to which the Distributor may have expressly waived in writing its right to act as such. If such designation is deemed exclusive, the right of the Distributor under this Agreement to sell Class C shares in the areas so designated shall terminate, but this Agreement shall remain otherwise in full effect until terminated in accordance with the other provisions hereof. (b) The exclusive right granted to the Distributor to purchase Class C shares from the Fund shall not apply to Class C shares of the Fund issued in connection with the merger or consolidation of any other investment company or personal holding company with the Fund or the acquisition by purchase or otherwise 2 of all (or substantially all) the assets or the outstanding Class C shares of any such company by the Fund. (c) Such exclusive right also shall not apply to Class C shares issued by the Fund pursuant to reinvestment of dividends or capital gains distributions. (d) Such exclusive right also shall not apply to Class C shares issued by the Fund pursuant to any conversion, exchange or reinstatement privilege afforded redeeming shareholders or to any other Class C shares as shall be agreed between the Fund and the Distributor from time to time. Section 3. Purchase of Class C Shares from the Fund. ---------------------------------------- (a) It is contemplated that the Fund will commence an offering of its Class C shares, and thereafter the Distributor shall have the right to buy from the Fund the Class C shares needed, but not more than the Class C shares needed (except for clerical errors in transmission) to fill unconditional orders for Class C shares of the Fund placed with the Distributor by eligible investors or securities dealers. Investors eligible to purchase Class C shares shall be those persons so identified in the currently effective prospectus and statement of additional information of the Fund (the "prospectus" and "statement of additional information", respectively) under the Securities Act of 1933, as amended (the "Securities Act"), relating to such Class C shares. The price which the Distributor shall pay for the 3 Class C shares so purchased from the Fund shall be the net asset value, determined as set forth in Section 3(c) hereof. (b) The Class C shares are to be resold by the Distributor to investors at net asset value, as set forth in Section 3(c) hereof, or to securities dealers having agreements with the Distributor upon the terms and conditions set forth in Section 7 hereof. (c) The net asset value of Class C shares of the Fund shall be determined by the Fund or any agent of the Fund in accordance with the method set forth in the prospectus and statement of additional information and guidelines established by the Board of Directors. (d) The Fund shall have the right to suspend the sale of its Class C shares at times when redemption is suspended pursuant to the conditions set forth in Section 4(b) hereof. The Fund shall also have the right to suspend the sale of its Class C shares if trading on the New York Stock Exchange shall have been suspended, if a banking moratorium shall have been declared by Federal or New York authorities, or if there shall have been some other event, which, in the judgment of the Fund, makes it impracticable or inadvisable to sell the Class C shares. (e) The Fund, or any agent of the Fund designated in writing by the Fund, shall be promptly advised of all purchase orders for Class C shares received by the Distributor. Any order may be rejected by the Fund; provided, however, that the Fund 4 will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of Class C shares. The Fund (or its agent) will confirm orders upon their receipt, will make appropriate book entries and, upon receipt by the Fund (or its agent) of payment therefor, will deliver deposit receipts or certificates for such Class C shares pursuant to the instructions of the Distributor. Payment shall be made to the Fund in New York Clearing House funds. The Distributor agrees to cause such payment and such instructions to be delivered promptly to the Fund (or its agent). Section 4. Repurchase or Redemption of Class C Shares by the Fund. ------------------------------------------------------ (a) Any of the outstanding Class C shares may be tendered for redemption at any time, and the Fund agrees to repurchase or redeem the Class C shares so tendered in accordance with its obligations as set forth in Article VII of its Articles of Incorporation, as amended from time to time, and in accordance with the applicable provisions set forth in the prospectus and statement of additional information of the Fund. The price to be paid to redeem or repurchase the Class C shares shall be equal to the net asset value calculated in accordance with the provisions of Section 3(c) hereof, less any contingent deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set forth in the prospectus and statement of additional information of the 5 Fund. All payments by the Fund hereunder shall be made in the manner set forth below. The Fund shall pay the total amount of the redemption price as defined in the above paragraph pursuant to the instructions of the Distributor on or before the seventh business day subsequent to its having received the notice of redemption in proper form. The proceeds of any redemption of shares shall be paid by the Fund as follows: (i) any applicable CDSC shall be paid to the Distributor, and (ii) the balance shall be paid to or for the account of the shareholder, in each case in accordance with the applicable provisions of the prospectus and statement of additional information. (b) Redemption of Class C shares or payment may be suspended at times when the New York Stock Exchange is closed, when trading on said Exchange is suspended, when trading on said Exchange is restricted, when an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or during any other period when the Securities and Exchange Commission, by order, so permits. Section 5. Duties of the Fund. ------------------ (a) The Fund shall furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the 6 distribution of Class C shares of the Fund, and this shall include, upon request by the Distributor, one certified copy of all financial statements prepared for the Fund by independent public accountants. The Fund shall make available to the Distributor such number of copies of its prospectus and statement of additional information as the Distributor shall reasonably request. (b) The Fund shall take, from time to time, but subject to any necessary approval of the shareholders, all necessary action to fix the number of authorized shares and such steps as may be necessary to register the same under the Securities Act to the end that there will be available for sale such number of Class C shares as the Distributor reasonably may be expected to sell. (c) The Fund shall use its best efforts to qualify and maintain the qualification of an appropriate number of its Class C shares for sale under the securities laws of such states as the Distributor and the Fund may approve. Any such qualification may be withheld, terminated or withdrawn by the Fund at any time in its discretion. As provided in Section 8(c) hereof, the expense of qualification and maintenance of qualification shall be borne by the Fund. The Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Fund in connection with such qualification. (d) The Fund will furnish, in reasonable quantities upon request by the Distributor, copies of annual and interim reports of the Fund. 7 Section 6. Duties of the Distributor. ------------------------- (a) The Distributor shall devote reasonable time and effort to effect sales of Class C shares of the Fund but shall not be obligated to sell any specific number of shares. The services of the Distributor to the Fund hereunder are not to be deemed exclusive and nothing herein contained shall prevent the Distributor from entering into like arrangements with other investment companies so long as the performance of its obligations hereunder is not impaired thereby. (b) In selling the Class C shares of the Fund, the Distributor shall use its best efforts in all respects duly to conform with the requirements of all Federal and state laws relating to the sale of such securities. Neither the Distributor nor any selected dealer, as defined in Section 7 hereof, nor any other person is authorized by the Fund to give any information or to make any representations, other than those contained in the registration statement or related prospectus and statement of additional information and any sales literature specifically approved by the Fund. (c) The Distributor shall adopt and follow procedures, as approved by the officers of the Fund, for the confirmation of sales to investors and selected dealers, the collection of amounts payable by investors and selected dealers on such sales, and the cancellation of unsettled transactions, as may be necessary to comply with the requirements of the National Association 8 of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to time exist. Section 7. Selected Dealer Agreements. -------------------------- (a) The Distributor shall have the right to enter into selected dealer agreements with securities dealers of its choice ("selected dealers") for the sale of Class C shares; provided, that the Fund shall approve the forms of agreements with dealers. Class C shares sold to selected dealers shall be for resale by such dealers only at net asset value determined as set forth in Section 3(c) hereof. The form of agreement with selected dealers to be used during the continuous offering of the shares is attached hereto as Exhibit A. (b) Within the United States, the Distributor shall offer and sell Class C shares only to such selected dealers that are members in good standing of the NASD. Section 8. Payment of Expenses. ------------------- (a) The Fund shall bear all costs and expenses of the Fund, including fees and disbursements of its counsel and auditors, in connection with the preparation and filing of any required registration statements and/or prospectuses and statements of additional information under the Investment Company Act, the Securities Act, and all amendments and supplements thereto, and preparing and mailing annual and interim reports and proxy materials to Class C shareholders (including but not limited to the expense of setting in type any such registration statements, 9 prospectuses, statements of additional information, annual or interim reports or proxy materials). (b) The Distributor shall be responsible for any payments made to selected dealers as reimbursement for their expenses associated with payments of sales commissions to financial consultants. In addition, after the prospectuses, statements of additional information and annual and interim reports have been prepared and set in type, the Distributor shall bear the costs and expenses of printing and distributing any copies thereof which are to be used in connection with the offering of Class C shares to selected dealers or investors pursuant to this Agreement. The Distributor shall bear the costs and expenses of preparing, printing and distributing any other literature used by the Distributor or furnished by it for use by selected dealers in connection with the offering of the Class C shares for sale to the public and any expenses of advertising incurred by the Distributor in connection with such offering. It is understood and agreed that so long as the Fund's Class C Shares Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act remains in effect, any expenses incurred by the Distributor hereunder may be paid from amounts recovered by it from the Fund under such Plan. (c) The Fund shall bear the cost and expenses of qualification of the Class C shares for sale pursuant to this Agreement and, if necessary or advisable in connection therewith, of quali- 10 fying the Fund as a broker or dealer in such states of the United States or other jurisdictions as shall be selected by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and expenses payable to each such state for continuing qualification therein until the Fund decides to discontinue such qualification pursuant to Section 5(c) hereof. Section 9. Indemnification. --------------- (a) The Fund shall indemnify and hold harmless the Distributor and each person, if any, who controls the Distributor against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damage or expense and reasonable counsel fees incurred in connection therewith), as incurred, arising by reason of any person acquiring any Class C shares, which may be based upon the Securities Act, or on any other statute or at common law, on the ground that the registration statement or related prospectus and statement of additional information, as from time to time amended and supplemented, or an annual or interim report to Class C shareholders of the Fund, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, unless such statement or omission was made in reliance upon, and in conformity with, information furnished to the Fund in connection therewith by or on behalf of the Distributor; provided, however, that in no case (i) 11 is the indemnity of the Fund in favor of the Distributor and any such controlling persons to be deemed to protect such Distributor or any such controlling persons thereof against any liability to the Fund or its security holders to which the Distributor or any such controlling persons would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their obligations and duties under this Agreement; or (ii) is the Fund to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any such controlling persons, unless the Distributor or such controlling persons, as the case may be, shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Distributor or such controlling persons (or after the Distributor or such controlling persons shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Fund will be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if the Fund elects to assume the defense, such defense shall be 12 conducted by counsel chosen by it and satisfactory to the Distributor or such controlling person or persons, defendant or defendants in the suit. In the event the Fund elects to assume the defense of any such suit and retain such counsel, the Distributor or such controlling person or persons, defendant or defendants in the suit shall bear the fees and expenses, as incurred, of any additional counsel retained by them, but in case the Fund does not elect to assume the defense of any such suit, it will reimburse the Distributor or such controlling person or persons, defendant or defendants in the suit, for the reasonable fees and expenses, as incurred, of any counsel retained by them. The Fund shall promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or Directors in connection with the issuance or sale of any of the Class C shares. (b) The Distributor shall indemnify and hold harmless the Fund and each of its Directors and officers and each person, if any, who controls the Fund against any loss, liability, claim, damage or expense, as incurred, described in the foregoing indemnity contained in subsection (a) of this Section, but only with respect to statements or omissions made in reliance upon, and in conformity with, information furnished to the Fund in writing by or on behalf of the Distributor for use in connection with the registration statement or related prospectus and statement of additional information, as from time to time amended, or the 13 annual or interim reports to shareholders. In case any action shall be brought against the Fund or any person so indemnified, in respect of which indemnity may be sought against the Distributor, the Distributor shall have the rights and duties given to the Fund, and the Fund and each person so indemnified shall have the rights and duties given to the Distributor by the provisions of subsection (a) of this Section 9. Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection with ------------------------------------------ the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to offer and sell shares of the Fund, as agent for the Fund, to participants in such program. The terms of this Agreement shall apply to such sales, including terms as to the offering price of shares, the proceeds to be paid to the Fund, the duties of the Distributor, the payment of expenses and indemnification obligations of the Fund and the Distributor. Section 11. Duration and Termination of this Agreement. This Agreement ------------------------------------------ shall become effective as of the date first above written and shall remain in force until October __, 1995 and thereafter, but only for so long as such continuance is specifically approved at least annually by (i) the Directors or by the vote of a majority of the outstanding voting securities of the Fund and (ii) by the vote of a majority of those Directors who are not parties to this Agreement or interested persons of 14 any such party cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time, without the payment of any penalty, by the Directors or by vote of a majority of the outstanding voting securities of the Fund, or by the Distributor, on sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. The terms "vote of a majority of the outstanding voting securities", "assignment", "affiliated person" and "interested person", when used in this Agreement, shall have the respective meanings specified in the Investment Company Act. Section 12. Amendments of this Agreement. This Agreement may be amended ---------------------------- by the parties only if such amendment is specifically approved by (i) the Directors or by the vote of a majority of outstanding voting securities of the Fund and (ii) by the vote of a majority of those Directors of the Fund who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. Section 13. Governing Law. The provisions of this Agreement shall be ------------- construed and interpreted in accordance with the laws of the State of New York as at the time in effect and the applicable provisions of the Investment Company Act. To the extent that the applicable law of the State of New York, or any 15 of the provisions herein, conflict with the applicable provisions of the Investment Company Act, the latter shall control. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT By ____________________________________ Title: MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By ____________________________________ Title: 16 EXHIBIT A MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC. doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT CLASS C SHARES OF COMMON STOCK SELECTED DEALER AGREEMENT ------------------------- Gentlemen: Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement with Merrill Lynch Retirement Benefit Investment Program, doing business as Merrill Lynch Balanced Fund for Investment and Retirement, a Maryland corporation (the "Fund"), pursuant to which it acts as the distributor for the sale of Class C shares of common stock, par value $0.01 per share (herein referred to as the "Class C shares"), of the Fund and as such has the right to distribute Class C shares of the Fund for resale. The Fund is an open-end investment company registered under the Investment Company Act of 1940, as amended, and its Class C shares being offered to the public are registered under the Securities Act of 1933, as amended. You have received a copy of the Class C Shares Distribution Agreement (the "Distribution Agreement") between ourself and the Fund and reference is made herein to certain provisions of such Distribution Agreement. The terms "Prospectus" and "Statement of Additional Information" as used herein refer to the prospectus and statement of additional information, respectively, on file with the Securities and Exchange Commission which is part of the most recent effective registration statement pursuant to the Securities Act of 1933, as amended. We offer to sell to you, as a member of the Selected Dealers Group, Class C shares of the Fund upon the following terms and conditions: 1. In all sales of these Class C shares to the public, you shall act as dealer for your own account and in no transaction shall you have any authority to act as agent for the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special programs as we from time to time agree, in which case you shall have authority to offer and sell shares, as agent for the Fund, to participants in such program. 2. Orders received from you will be accepted through us only at the public offering price applicable to each order, as set forth in the current Prospectus and Statement of Additional Information of the Fund. The procedure relating to the handling of orders shall be subject to Section 4 hereof and instructions which we or the Fund shall forward from time to time to you. All 1 orders are subject to acceptance or rejection by the Distributor or the Fund in the sole discretion of either. The minimum initial and subsequent purchase requirements are as set forth in the current Prospectus and Statement of Additional Information of the Fund. 3. You shall not place orders for any of the Class C shares unless you have already received purchase orders for such Class C shares at the applicable public offering prices and subject to the terms hereof and of the Distribution Agreement. You agree that you will not offer or sell any of the Class C shares except under circumstances that will result in compliance with the applicable Federal and state securities laws and that in connection with sales and offers to sell Class C shares you will furnish to each person to whom any such sale or offer is made a copy of the Prospectus and, if requested, the Statement of Additional Information (as then amended or supplemented) and will not furnish to any person any information relating to the Class C shares of the Fund which is inconsistent in any respect with the information contained in the Prospectus and Statement of Additional Information (as then amended or supplemented) or cause any advertisement to be published in any newspaper or posted in any public place without our consent and the consent of the Fund. 4. As a selected dealer, you are hereby authorized (i) to place orders directly with the Fund for Class C shares of the Fund to be resold by us to you subject to the applicable terms and conditions governing the placement of orders by us set forth in Section 3 of the Distribution Agreement and (ii) to tender Class C shares directly to the Fund or its agent for redemption subject to the applicable terms and conditions set forth in Section 4 of the Distribution Agreement. 5. You shall not withhold placing orders received from your customers so as to profit yourself as a result of such withholding: e.g., by a change in the - - "net asset value" from that used in determining the offering price to your customers. 6. No person is authorized to make any representations concerning Class C shares of the Fund except those contained in the current Prospectus and Statement of Additional Information of the Fund and in such printed information subsequently issued by us or the Fund as information supplemental to such Prospectus and Statement of Additional Information. In purchasing Class C shares through us you shall rely solely on the representations contained in the Prospectus and Statement of Additional Information and supplemental information above mentioned. Any printed information which we furnish you other than the Fund's Prospectus, Statement of Additional Information, periodic reports and proxy solicitation material is our sole responsibility and not the responsibility of the Fund, and you agree that the Fund shall 2 have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 7. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus and, if requested, the Statement of Additional Information at or prior to the time of offering or sale and you agree thereafter to deliver to such purchasers copies of the annual and interim reports and proxy solicitation materials of the Fund. You further agree to endeavor to obtain proxies from such purchasers. Additional copies of the Prospectus and Statement of Additional Information, annual or interim reports and proxy solicitation materials of the Fund will be supplied to you in reasonable quantities upon request. 8. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Class C shares entirely or to certain persons or entities in a class or classes specified by us. Each party hereto has the right to cancel this Agreement upon notice to the other party. 9. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the continuous offering. We shall be under no liability to you except for lack of good faith and for obligations expressly assumed by us herein. Nothing contained in this paragraph is intended to operate as, and the provisions of this paragraph shall not in any way whatsoever constitute, a waiver by you of compliance with any provision of the Securities Act of 1933, as amended, or of the rules and regulations of the Securities and Exchange Commission issued thereunder. 10. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Rules of Fair Practice of such Association. 11. Upon application to us, we will inform you as to the states in which we believe the Class C shares have been qualified for sale under, or are exempt from the requirements of, the respective securities laws of such states, but we assume no responsibility or obligation as to your right to sell Class C shares in any jurisdiction. We will file with the Department of State in New York a Further State Notice with respect to the Class C shares, if necessary. 12. All communications to us should be sent to the address below. Any notice to you shall be duly given if mailed or telegraphed to you at the address specified by you below. 3 13. Your first order placed pursuant to this Agreement for the purchase of Class C shares of the Fund will represent your acceptance of this Agreement. MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By ---------------------------------- (Authorized Signature) Please return one signed copy of this Agreement to: MERRILL LYNCH FUNDS DISTRIBUTOR, INC. Box 9011 Princeton, New Jersey 08543-9011 Accepted: Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc. ------------------------------------------ By: ------------------------------------------------- Address: 800 Scudders Mill Road -------------------------------------------- Plainsboro, New Jersey 08536 -------------------------------------------- Date: October , 1994 ----------------------------------------------- 4 EX-99.6.E 6 CLASS E DISTRIBUTION AGREEMENT EXHIBIT 99.6(E) CLASS D SHARES DISTRIBUTION AGREEMENT AGREEMENT made as of the ____ day of October 1994 between MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT, a Maryland corporation (the "Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Fund is registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as an open-end investment company, and it is affirmatively in the interest of the Fund to offer its shares for sale continuously; and WHEREAS, the Distributor is a securities firm engaged in the business of selling shares of investment companies either directly to purchasers or through other securities dealers; and WHEREAS, the Fund and the Distributor wish to enter into an agreement with each other with respect to the continuous offering of the Class D shares of common stock in the Fund. NOW, THEREFORE, the parties agree as follows: Section 1. Appointment of the Distributor. The Fund hereby appoints the ------------------------------ Distributor as the principal underwriter and distri- butor of the Fund to sell Class D shares of common stock in the Fund (sometimes herein referred to as "Class D shares") to the public and hereby agrees during the term of this Agreement to sell Class D shares of the Fund to the Distributor upon the terms and conditions herein set forth. Section 2. Exclusive Nature of Duties. The Distributor shall be the -------------------------- exclusive representative of the Fund to act as principal underwriter and distributor, except that: A. The Fund may, upon written notice to the Distributor, from time to time designate other principal underwriters and distributors of Class D shares with respect to areas other than the United States as to which the Distributor may have expressly waived in writing its right to act as such. If such designation is deemed exclusive, the right of the Distributor under this Agreement to sell Class D shares in the areas so designated shall terminate, but this Agreement shall remain otherwise in full effect until terminated in accordance with the other provisions hereof. B. The exclusive right granted to the Distributor to purchase Class D shares from the Fund shall not apply to Class D shares issued in connection with the merger or consolidation of any other investment company or personal holding company with the Fund or the acquisition by purchase or otherwise of all (or substantially all) the assets or the outstanding Class D shares of any such company by the Fund. 2 C. Such exclusive right also shall not apply to Class D shares issued by the Fund pursuant to reinvestment of dividends or capital gains distributions. D. Such exclusive right also shall not apply to Class D shares issued by the Fund pursuant to any conversion, exchange or reinstatement privilege afforded redeeming shareholders or to any other Class D shares as shall be agreed between the Fund and the Distributor from time to time. Section 3. Purchase of Class D Shares from the Fund. ---------------------------------------- (a) It is contemplated that the Fund will commence an offering of its Class D shares, and thereafter the Distributor shall have the right to buy from the Fund the Class D shares needed, but not more than the Class D shares needed (except for clerical errors in transmission) to fill unconditional orders for Class D shares of the Fund placed with the Distributor by eligible investors or securities dealers. Investors eligible to purchase Class D shares shall be those persons so identified in the currently effective prospectus and statement of additional information of the Fund (the "prospectus" and "statement of additional information", respectively) under the Securities Act of 1933, as amended (the "Securities Act"), relating to such Class D shares. The price which the Distributor shall pay for the Class D shares so purchased from the Fund shall be the net asset value, determined as set forth in Section 3(d) hereof, used in determining the public offering price on which such orders were based. 3 (b) The Class D shares are to be resold by the Distributor to investors at the public offering price, as set forth in Section 3(c) hereof, or to securities dealers having agreements with the Distributor upon the terms and conditions set forth in Section 7 hereof. (c) The public offering price(s) of the Class D shares, i.e., the price - - per share at which the Distributor or selected dealers may sell Class D shares to the public, shall be the public offering price as set forth in the prospectus and statement of additional information relating to such Class D shares, but not to exceed the net asset value at which the Distributor is to purchase the Class D shares, plus a sales charge not to exceed 5.25% of the public offering price (5.54% of the net amount invested), subject to reductions for volume purchases. Class D shares may be sold to certain Directors, officers and employees of the Fund, directors and employees of Merrill Lynch & Co., Inc. and its subsidiaries, and to certain other persons described in the prospectus and statement of additional information, without a sales charge or at a reduced sales charge, upon terms and conditions set forth in the prospectus and statement of additional information. If the public offering price does not equal an even cent, the public offering price may be adjusted to the nearest cent. All payments to the Fund hereunder shall be made in the manner set forth in Section 3(f). 4 (d) The net asset value of Class D shares shall be determined by the Fund or any agent of the Fund in accordance with the method set forth in the prospectus and statement of additional information of the Fund and guidelines established by the Directors. (e) The Fund shall have the right to suspend the sale of its Class D shares at times when redemption is suspended pursuant to the conditions set forth in Section 4(b) hereof. The Fund shall also have the right to suspend the sale of its Class D shares if trading on the New York Stock Exchange shall have been suspended, if a banking moratorium shall have been declared by Federal or New York authorities, or if there shall have been some other event, which, in the judgment of the Fund, makes it impracticable or inadvisable to sell the Class D shares. (f) The Fund, or any agent of the Fund designated in writing by the Fund, shall be promptly advised of all purchase orders for Class D shares received by the Distributor. Any order may be rejected by the Fund; provided, however, that the Fund will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of Class D shares. The Fund (or its agent) will confirm orders upon their receipt, will make appropriate book entries and, upon receipt by the Fund (or its agent) of payment therefor, will deliver deposit receipts or certificates for such Class D shares pursuant to the instructions of the Distributor. Payment shall be made to the Fund in New York Clearing House funds. The Distributor agrees to cause such 5 payment and such instructions to be delivered promptly to the Fund (or its agent). Section 4. Repurchase or Redemption of Class D Shares by the Fund. ------------------------------------------------------ (a) Any of the outstanding Class D shares may be tendered for redemption at any time, and the Fund agrees to repurchase or redeem the Class D shares so tendered in accordance with its obligations as set forth in Article VII of its Articles of Incorporation, as amended from time to time, and in accordance with the applicable provisions set forth in the prospectus and statement of additional information. The price to be paid to redeem or repurchase the Class D shares shall be equal to the net asset value calculated in accordance with the provisions of Section 3(d) hereof, less any contingent deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set forth in the prospectus and statement of additional information of the Fund. All payments by the Fund hereunder shall be made in the manner set forth below. The redemption or repurchase by the Fund of any of the Class D shares purchased by or through the Distributor will not affect the sales charge secured by the Distributor or any selected dealer in the course of the original sale, except that if any Class D shares are tendered for redemption or repurchase within seven business days after the date of the confirmation of the original purchase, the right to the sales charge shall be forfeited by the Distributor and the selected dealer which sold such Class D shares. 6 The Fund shall pay the total amount of the redemption price as defined in the above paragraph pursuant to the instructions of the Distributor in New York Clearing House funds on or before the seventh business day subsequent to its having received the notice of redemption in proper form. The proceeds of any redemption of shares shall be paid by the Fund as follows: (i) any applicable CDSC shall be paid to the Distributor, and (ii) the balance shall be paid to or for the account of the shareholder, in each case in accordance with the applicable provisions of the prospectus and statement of additional information. (b) Redemption of Class D shares or payment may be suspended at times when the New York Stock Exchange is closed, when trading on said Exchange is suspended, when trading on said Exchange is restricted, when an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or during any other period when the Securities and Exchange Commission, by order, so permits. Section 5. Duties of the Fund. ------------------ (a) The Fund shall furnish to the Distributor copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of Class D shares of the Fund, and this shall include, upon request by the Distributor, one certified copy of all financial statements prepared for the Fund by independent public 7 accountants. The Fund shall make available to the Distributor such number of copies of the prospectus and statement of additional information as the Distributor shall reasonably request. (b) The Fund shall take, from time to time, but subject to any necessary approval of the Class D shareholders, all necessary action to fix the number of authorized Class D shares and such steps as may be necessary to register the same under the Securities Act, to the end that there will be available for sale such number of Class D shares as the Distributor may reasonably be expected to sell. (c) The Fund shall use its best efforts to qualify and maintain the qualification of an appropriate number of its Class D shares for sale under the securities laws of such states as the Distributor and the Fund may approve. Any such qualification may be withheld, terminated or withdrawn by the Fund at any time in its discretion. As provided in Section 8(c) hereof, the expense of qualification and maintenance of qualification shall be borne by the Fund. The Distributor shall furnish such information and other material relating to its affairs and activities as may be required by the Fund in connection with such qualification. (d) The Fund will furnish, in reasonable quantities upon request by the Distributor, copies of annual and interim reports of the Fund. 8 Section 6. Duties of the Distributor. ------------------------- (a) The Distributor shall devote reasonable time and effort to effect sales of Class D shares of the Fund but shall not be obligated to sell any specific number of Class D shares. The services of the Distributor to the Fund hereunder are not to be deemed exclusive and nothing herein contained shall prevent the Distributor from entering into like arrangements with other investment companies so long as the performance of its obligations hereunder is not impaired thereby. (b) In selling the Class D shares of the Fund, the Distributor shall use its best efforts in all respects duly to conform with the requirements of all Federal and state laws relating to the sale of such securities. Neither the Distributor nor any selected dealer, as defined in Section 7 hereof, nor any other person is authorized by the Fund to give any information or to make any representations, other than those contained in the registration statement or related prospectus and statement of additional information and any sales literature specifically approved by the Fund. (c) The Distributor shall adopt and follow procedures, as approved by the officers of the Fund, for the confirmation of sales to investors and selected dealers, the collection of amounts payable by investors and selected dealers on such sales, and the cancellation of unsettled transactions, as may be necessary to comply with the requirements of the National 9 Association of Securities Dealers, Inc. (the "NASD"), as such requirements may from time to time exist. Section 7. Selected Dealers Agreements. --------------------------- (a) The Distributor shall have the right to enter into selected dealers agreements with securities dealers of its choice ("selected dealers") for the sale of Class D shares and fix therein the portion of the sales charge which may be allocated to the selected dealers; provided that the Fund shall approve the forms of agreements with dealers and the dealer compensation set forth therein. Class D shares sold to selected dealers shall be for resale by such dealers only at the public offering price(s) set forth in the prospectus and statement of additional information. The form of agreement with selected dealers to be used during the continuous offering of the Class D shares is attached hereto as Exhibit A. (b) Within the United States, the Distributor shall offer and sell Class D shares only to such selected dealers as are members in good standing of the NASD. Section 8. Payment of Expenses. ------------------- (a) The Fund shall bear all costs and expenses of the Fund, including fees and disbursements of its counsel and auditors, in connection with the preparation and filing of any required registration statements and/or prospectuses and statements of additional information under the Investment Company Act, the Securities Act, and all amendments and supplements thereto, and preparing and mailing annual and interim reports and proxy 10 materials to Class D shareholders (including but not limited to the expense of setting in type any such registration statements, prospectuses, statements of additional information, annual or interim reports or proxy materials). (b) The Distributor shall be responsible for any payments made to selected dealers as reimbursement for their expenses associated with payments of sales commissions to financial consultants. In addition, after the prospectuses, statements of additional information and annual and interim reports have been prepared and set in type, the Distributor shall bear the costs and expenses of printing and distributing any copies thereof which are to be used in connection with the offering of Class D shares to selected dealers or investors pursuant to this Agreement. The Distributor shall bear the costs and expenses of preparing, printing and distributing any other literature used by the Distributor or furnished by it for use by selected dealers in connection with the offering of the Class D shares for sale to the public and any expenses of advertising incurred by the Distributor in connection with such offering. It is understood and agreed that so long as the Fund's Class D Shares Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act remains in effect, any expenses incurred by the Distributor hereunder in connection with account maintenance activities may be paid from amounts recovered by it from the Fund under such plan. 11 (c) The Fund shall bear the cost and expenses of qualification of the Class D shares for sale pursuant to this Agreement and, if necessary or advisable in connection therewith, of qualifying the Fund as a broker or dealer in such states of the United States or other jurisdictions as shall be selected by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and expenses payable to each such state for continuing qualification therein until the Fund decides to discontinue such qualification pursuant to Section 5(c) hereof. Section 9. Indemnification. --------------- (a) The Fund shall indemnify and hold harmless the Distributor and each person, if any, who controls the Distributor against any loss, liability, claim, damage or expense (including the reasonable cost of investigating or defending any alleged loss, liability, claim, damage or expense and reasonable counsel fees incurred in connection therewith), as incurred, arising by reason of any person acquiring any Class D shares, which may be based upon the Securities Act, or on any other statute or at common law, on the ground that the registration statement or related prospectus and statement of additional information, as from time to time amended and supplemented, or an annual or interim report to shareholders of the Fund, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, unless such statement or omission was made in reliance upon, and in conformity with, information 12 furnished to the Fund in connection therewith by or on behalf of the Distributor; provided, however, that in no case (i) is the indemnity of the Fund in favor of the Distributor and any such controlling persons to be deemed to protect such Distributor or any such controlling persons thereof against any liability to the Fund or its security holders to which the Distributor or any such controlling persons would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their obligations and duties under this Agreement; or (ii) is the Fund to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Distributor or any such controlling persons, unless the Distributor or such controlling persons, as the case may be, shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Distributor or such controlling persons (or after the Distributor or such controlling persons shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve it from any liability which it may have to the person against whom such action is brought otherwise than on account of its indemnity agreement contained in this paragraph. The Fund will be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if 13 the Fund elects to assume the defense, such defense shall be conducted by counsel chosen by it and satisfactory to the Distributor or such controlling person or persons, defendant or defendants in the suit. In the event the Fund elects to assume the defense of any such suit and retain such counsel, the Distributor or such controlling person or persons, defendant or defendants in the suit shall bear the fees and expenses of any additional counsel retained by them, but in case the Fund does not elect to assume the defense of any such suit, it will reimburse the Distributor or such controlling person or persons, defendant or defendants in the suit, for the reasonable fees and expenses of any counsel retained by them. The Fund shall promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or Directors in connection with the issuance or sale of any of the Class D shares. (b) The Distributor shall indemnify and hold harmless the Fund and each of its Directors and officers and each person, if any, who controls the Fund against any loss, liability, claim, damage or expense described in the foregoing indemnity contained in subsection (a) of this Section, but only with respect to statements or omissions made in reliance upon, and in conformity with, information furnished to the Fund in writing by or on behalf of the Distributor for use in connection with the registration statement or related prospectus and statement of additional information, as from time to time amended, or the 14 annual or interim reports to Class D shareholders. In case any action shall be brought against the Fund or any person so indemnified, in respect of which indemnity may be sought against the Distributor, the Distributor shall have the rights and duties given to the Fund, and the Fund and each person so indemnified shall have the rights and duties given to the Distributor by the provisions of subsection (a) of this Section 9. Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection with ------------------------------------------ the Merrill Lynch Mutual Fund Adviser Program, the Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated, are authorized to offer and sell shares of the Fund, as agent for the Fund, to participants in such program. The terms of this Agreement shall apply to such sales, including terms as to the offering price of shares, the proceeds to be paid to the Fund, the duties of the Distributor, the payment of expenses and indemnification obligations of the Fund and the Distributor. Section 11. Duration and Termination of this Agreement. This Agreement ------------------------------------------ shall become effective as of the date first above written and shall remain in force until October __, 1995 and thereafter, but only for so long as such continuance is specifically approved at least annually by (i) the Directors or by the vote of a majority of the outstanding voting securities of the Fund and (ii) by the vote of a majority of those Directors who are not parties to this Agreement or interested persons of 15 any such party cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time, without the payment of any penalty, by the Directors or by vote of a majority of the outstanding voting securities of the Fund, or by the Distributor, on sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. The terms "vote of a majority of the outstanding voting securities", "assignment", "affiliated person" and "interested person", when used in this Agreement, shall have the respective meanings specified in the Investment Company Act. Section 12. Amendments of this Agreement. This Agreement may be amended ---------------------------- by the parties only if such amendment is specifically approved by (i) the Directors or by the vote of a majority of outstanding voting securities of the Fund and (ii) by the vote of a majority of those Directors of the Fund who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. Section 13. Governing Law. The provisions of this Agreement shall be ------------- construed and interpreted in accordance with the laws of the State of New York as at the time in effect and the applicable provisions of the Investment Company Act. To the extent that the applicable law of the State of New York, or any 16 of the provisions herein, conflict with the applicable provisions of the Investment Company Act, the latter shall control. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT By_____________________________________ Title: MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By_____________________________________ Title: 17 EXHIBIT A MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT CLASS D SHARES OF COMMON STOCK SELECTED DEALERS AGREEMENT -------------------------- Gentlemen: Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement with Merrill Lynch Retirement Benefit Investment Program, Inc., doing business as Merrill Lynch Balanced Fund for Investment and Retirement, a Maryland corporation (the "Fund"), pursuant to which it acts as the distributor for the sale of Class D shares of common stock, par value $0.01 per share (herein referred to as "Class D shares"), of the Fund and as such has the right to distribute Class D shares of the Fund for resale. The Fund is an open-end investment company registered under the Investment Company Act of 1940, as amended, and its Class D shares being offered to the public are registered under the Securities Act of 1933, as amended. You have received a copy of the Class D Shares Distribution Agreement (the "Distribution Agreement") between ourself and the Fund and reference is made herein to certain provisions of such Distribution Agreement. The terms "Prospectus" and "Statement of Additional Information" used herein refer to the prospectus and statement of additional information, respectively, on file with the Securities and Exchange Commission which is part of the most recent effective registration statement pursuant to the Securities Act of 1933, as amended. We offer to sell to you, as a member of the Selected Dealers Group, Class D shares of the Fund upon the following terms and conditions: 1. In all sales of these Class D shares to the public, you shall act as dealer for your own account and in no transaction shall you have any authority to act as agent for the Fund, for us or for any other member of the Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund Adviser program and such other special programs as we from time to time agree, in which case you shall have authority to offer and sell shares, as agent for the Fund, to participants in such program. 2. Orders received from you will be accepted through us only at the public offering price applicable to each order, as 1 set forth in the current Prospectus and Statement of Additional Information of the Fund. The procedure relating to the handling of orders shall be subject to Section 5 hereof and instructions which we or the Fund shall forward from time to time to you. All orders are subject to acceptance or rejection by the Distributor or the Fund in the sole discretion of either. The minimum initial and subsequent purchase requirements are as set forth in the current Prospectus and Statement of Additional Information of the Fund. 3. The sales charges for sales to the public, computed as percentages of the public offering price and the amount invested, and the related discount to Selected Dealers are as follows:
Discount to Selected Sales Charge Dealers as Sales Charge as Percentage* Percentage as Percentage of the Net of the of the Amount Offering Amount of Purchase Offering Price Invested Price - ------------------ --------------- -------------- ------------ Less than $25,000...... 5.25% 5.54% 5.00% $25,000 but less than $50,000.......... 4.75 4.99 4.50 $50,000 but less than $100,000......... 4.00 4.17 3.75 $100,000 but less than $250,000......... 3.00 3.09 2.75 $250,000 but less than $1,000,000....... 2.00 2.04 1.80 $1,000,000 and over**.. 0.00 0.00 0.00
___________________ * Rounded to the nearest one-hundredth percent. ** Initial sales charges will be waived for certain classes of offerees as set forth in the current Prospectus and Statement of Additional Information of the Fund. Such purchases may be subject to a contingent deferred sales charge as set forth in the current Prospectus and Statement of Additional Information. 2 The term "purchase" refers to a single purchase by an individual, or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his spouse and their children under the age of 21 years purchasing Class D shares for his or their own account and to single purchases by a trustee or other fiduciary purchasing Class D shares for a single trust estate or single fiduciary account although more than one beneficiary is involved. The term "purchase" also includes purchases by any "company" as that term is defined in the Investment Company Act of 1940, as amended, but does not include purchases by any such company which has not been in existence for at least six months or which has no purpose other than the purchase of Class D shares of the Fund or Class D shares of other registered investment companies at a discount; provided, however, that it shall not include purchases by any group of individuals whose sole organizational nexus is that the participants therein are credit cardholders of a company, policyholders of an insurance company, customers of either a bank or broker-dealer or clients of an investment adviser. The reduced sales charges are applicable through a right of accumulation under which eligible investors are permitted to purchase Class D shares of the Fund at the offering price applicable to the total of (a) the public offering price of the shares then being purchased plus (b) an amount equal to the then current net asset value or cost, whichever is higher, of the purchaser's combined holdings of Class A, Class B, Class C and Class D shares of the Fund and of any other investment company with an initial sales charge for which the Distributor acts as the distributor. For any such right of accumulation to be made available, the Distributor must be provided at the time of purchase, by the purchaser or you, with sufficient information to permit confirmation of qualification, and acceptance of the purchase order is subject to such confirmation. The reduced sales charges are applicable to purchases aggregating $25,000 or more of Class A shares or of Class D shares of any other investment company with an initial sales charge for which the Distributor acts as the distributor made through you within a thirteen-month period starting with the first purchase pursuant to a Letter of Intention in the form provided in the Prospectus. A purchase not originally made pursuant to a Letter of Intention may be included under a subsequent letter executed within 90 days of such purchase if the Distributor is informed in writing of this intent within such 90-day period. If the intended amount of shares is not purchased within the thirteen-month period, an appropriate price adjustment will be made pursuant to the terms of the Letter of Intention. You agree to advise us promptly at our request as to amounts of any sales made by you to the public qualifying for reduced sales charges. Further information as to the reduced sales charges pursuant to the right of accumulation or a Letter of Intention is set forth in the Prospectus and Statement of Additional Information. 3 4. You shall not place orders for any of the Class D shares unless you have already received purchase orders for such Class D shares at the applicable public offering prices and subject to the terms hereof and of the Distribution Agreement. You agree that you will not offer or sell any of the Class D shares except under circumstances that will result in compliance with the applicable Federal and state securities laws and that in connection with sales and offers to sell Class D shares you will furnish to each person to whom any such sale or offer is made a copy of the Prospectus and, if requested, the Statement of Additional Information (as then amended or supplemented) and will not furnish to any person any information relating to the Class D shares of the Fund which is inconsistent in any respect with the information contained in the Prospectus and Statement of Additional Information (as then amended or supplemented) or cause any advertisement to be published in any newspaper or posted in any public place without our consent and the consent of the Fund. 5. As a selected dealer, you are hereby authorized (i) to place orders directly with the Fund for Class D shares of the Fund to be resold by us to you subject to the applicable terms and conditions governing the placement of orders by us set forth in Section 3 of the Distribution Agreement and subject to the compensation provisions of Section 3 hereof and (ii) to tender Class D shares directly to the Fund or its agent for redemption subject to the applicable terms and conditions set forth in Section 4 of the Distribution Agreement. 6. You shall not withhold placing orders received from your customers so as to profit yourself as a result of such withholding: e.g., by a change in the - - "net asset value" from that used in determining the offering price to your customers. 7. If any Class D shares sold to you under the terms of this Agreement are repurchased by the Fund or by us for the account of the Fund or are tendered for redemption within seven business days after the date of the confirmation of the original purchase by you, it is agreed that you shall forfeit your right to, and refund to us, any discount received by you on such Class D shares. 8. No person is authorized to make any representations concerning Class D shares of the Fund except those contained in the current Prospectus and Statement of Additional Information of the Fund and in such printed information subsequently issued by us or the Fund as information supplemental to such Prospectus and Statement of Additional Information. In purchasing Class D shares through us you shall rely solely on the representations contained in the Prospectus and Statement of Additional Information and supplemental information above mentioned. Any printed information which we furnish you other than the Fund's Prospectus, Statement of Additional Information, periodic reports and proxy solicitation material is our sole responsibility and not the responsibility 4 of the Fund, and you agree that the Fund shall have no liability or responsibility to you in these respects unless expressly assumed in connection therewith. 9. You agree to deliver to each of the purchasers making purchases from you a copy of the then current Prospectus and, if requested, the Statement of Additional Information at or prior to the time of offering or sale and you agree thereafter to deliver to such purchasers copies of the annual and interim reports and proxy solicitation materials of the Fund. You further agree to endeavor to obtain proxies from such purchasers. Additional copies of the Prospectus and Statement of Additional Information, annual or interim reports and proxy solicitation materials of the Fund will be supplied to you in reasonable quantities upon request. 10. We reserve the right in our discretion, without notice, to suspend sales or withdraw the offering of Class D shares entirely or to certain persons or entities in a class or classes specified by us. Each party hereto has the right to cancel this agreement upon notice to the other party. 11. We shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the continuous offering. We shall be under no liability to you except for lack of good faith and for obligations expressly assumed by us herein. Nothing contained in this paragraph is intended to operate as, and the provisions of this paragraph shall not in any way whatsoever constitute, a waiver by you of compliance with any provision of the Securities Act of 1933, as amended, or of the rules and regulations of the Securities and Exchange Commission issued thereunder. 12. You represent that you are a member of the National Association of Securities Dealers, Inc. and, with respect to any sales in the United States, we both hereby agree to abide by the Rules of Fair Practice of such Association. 13. Upon application to us, we will inform you as to the states in which we believe the Class D shares have been qualified for sale under, or are exempt from the requirements of, the respective securities laws of such states, but we assume no responsibility or obligation as to your right to sell Class D shares in any jurisdiction. We will file with the Department of State in New York a Further State Notice with respect to the Class D shares, if necessary. 14. All communications to us should be sent to the address below. Any notice to you shall be duly given if mailed or telegraphed to you at the address specified by you below. 5 15. Your first order placed pursuant to this Agreement for the purchase of Class D shares of the Fund will represent your acceptance of this Agreement. MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By ---------------------------------- (Authorized Signature) Please return one signed copy of this agreement to: MERRILL LYNCH FUNDS DISTRIBUTOR, INC. Box 9011 Princeton, New Jersey 08543-9011 Accepted: Firm Name: Merrill Lynch, Pierce, Fenner & Smith Inc. -------------------------------------------- By: -------------------------------------------------- Address: 800 Scudders Mill Road --------------------------------------------- Plainsboro, New Jersey 08536 ----------------------------------------------------- Date: October , 1994 ---------------------------------------------- 6 EX-99.8.C 7 GLOBAL CUSTODY AGREEMENT [LOGO CHASE] EXHIBIT 99.8(c) GLOBAL CUSTODY AGREEMENT This AGREEMENT is effective ___________________, 19___, and is between THE CHASE MANHATTAN BANK, N.A. (the "Bank") and ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________ (the "Customer"). 1. CUSTOMER ACCOUNTS. The Bank agrees to establish and maintain the following accounts ("Accounts"): (a) A custody account in the name of the Customer ("Custody Account") for any and all stocks, shares, bonds, debentures, notes, mortgages or other obligations for the payment of money, bullion, coin and any certificates, receipts, warrants or other instruments representing rights to receive, purchase or subscribe for the same or evidencing or representing any other rights or interests therein and other similar property whether certificated or uncertificated as may be received by the Bank or its Subcustodian (as defined in Section 3) for the account of the Customer ("Securities"); and (b) A deposit account in the name of the Customer ("Deposit Account") for any and all cash in any currency received by the Bank or its Subcustodian for the account of the Customer, which cash shall not be subject to withdrawal by draft or check. The Customer warrants its authority to: 1) deposit the cash and Securities ("Assets") received in the Accounts and 2) give Instructions (as defined in Section 11) concerning the Accounts. The Bank may deliver securities of the same class in place of those deposited in the Custody Account. Upon written agreement between the Bank and the Customer, additional Accounts may be established and separately accounted for as additional Accounts under the terms of this Agreement. 2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS. Unless Instructions specifically require another location acceptable to the Bank: (a) Securities will be held in the country or other jurisdiction in which the principal trading market for such Securities is located, where such Securities are to be presented for payment or where such Securities are acquired; and (b) Cash will be credited to an account in a country or other jurisdiction in which such cash may be legally deposited or is the legal currency for the payment of public or private debts. Cash may be held pursuant to Instructions in either interest or non- interest bearing accounts as may be available for the particular currency. To the extent Instructions are issued and the Bank can comply with such Instructions, the Bank is authorized to maintain cash balances on deposit for the Customer with itself or one of its affiliates at such reasonable rates of interest as may from time to time be paid on such accounts, or in non-interest bearing accounts as the Customer may direct, if acceptable to the Bank. If the Customer wishes to have any of its Assets held in the custody of an institution other than the established Subcustodians as defined in Section 3 (or their securities depositories), such arrangement must be authorized by a written agreement, signed by the Bank and the Customer. 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Bank may act under this Agreement through the subcustodians listed in Schedule A of this Agreement with which the Bank has entered into subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank to hold Assets in the Accounts in accounts which the Bank has established with one or more of its branches or Subcustodians. The Bank and Subcustodians are authorized to hold any of the Securities in their account with any securities depository in which they participate. The Bank reserves the right to add new, replace or remove Subcustodians. The Customer will be given reasonable notice by the Bank of any amendment to Schedule A. Upon request by the Customer, the Bank will identify the name, address and principal place of business of any Subcustodian of the Customer's Assets and the name and address of the governmental agency or other regulatory authority that supervises or regulates such Subcustodian. 4. USE OF SUBCUSTODIAN. (a) The Bank will identify such Assets on its books as belonging to the Customer. (b) A Subcustodian will hold such Assets together with assets belonging to other customers of the Bank in accounts identified on such Subcustodian's books as special custody accounts for the exclusive benefit of customers of the Bank. (c) Any Assets in the Accounts held by a Subcustodian will be subject only to the instructions of the Bank or its agent. Any Securities held in a securities depository for the account of a Subcustodian will be subject only to the instructions of such Subcustodian. (d) Any agreement the Bank enters into with a Subcustodian for holding its customer's assets shall provide that such assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of such Subcustodian except for safe custody or administration, and that the beneficial ownership of such assets will be freely transferable without the payment of money or value other than for safe custody or administration. The foregoing shall not apply to the extent of any special agreement or arrangement made by the Customer with any particular Subcustodian. 5. DEPOSIT ACCOUNT TRANSACTIONS. (a) The Bank or its Subcustodians will make payments from the Deposit Account upon receipt of Instructions which include all information required by the Bank. (b) In the event that any payment to be made under this Section 5 exceeds the funds available in the Deposit Account, the Bank, in its discretion, may advance the Customer such excess amount which shall be deemed a loan payable on demand, bearing interest at the rate customarily charged by the Bank on similar loans. (c) If the Bank credits the Deposit Account on a payable date, or at any time prior to actual collection and reconciliation to the Deposit Account, with interest, dividends, redemptions or any other amount due, the Customer will promptly return any such amount upon oral or written notification: (i) that such amount has not been received in the ordinary course of business or (ii) that such amount was incorrectly credited. If the Customer does not promptly return any amount upon such notification, the Bank shall be entitled, upon oral or written notification to the Customer, to reverse such credit by debiting the Deposit Account for the amount previously credited. The Bank or its Subcustodian shall have no duty or obligation to institute legal proceedings, file a claim or a proof of claim in any insolvency proceeding or take any other action with respect to the collection of such amount, but may act for the Customer upon Instructions after consultation with the Customer. 6. CUSTODY ACCOUNT TRANSACTIONS. (a) Securities will be transferred, exchanged or delivered by the Bank or its Subcustodian upon receipt by the Bank of Instructions which include all information required by the Bank. Settlement and payment for Securities received for, and delivery of Securities out of, the Custody Account may be made in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivery of Securities to a purchaser, dealer or their agents against a receipt with the expectation of receiving later payment and free delivery. Delivery of Securities out of the Custody Account may also be made in any manner specifically required by Instructions acceptable to the Bank. (b) The Bank, in its discretion, may credit or debit the Accounts on a contractual settlement date with cash or Securities with respect to any sale, exchange or purchase of Securities. Otherwise, such transactions will be credited or debited to the Accounts on the date cash or Securities are actually received by the Bank and reconciled to the Account. (i) The Bank may reverse credits or debits made to the Accounts in its discretion if the related transaction fails to settle within a reasonable period, determined by the Bank in its discretion, after the contractual settlement date for the related transaction. (ii) If any Securities delivered pursuant to this Section 6 are returned by the recipient thereof, the Bank may reverse the credits and debits of the particular transaction at any time. 7. ACTIONS OF THE BANK. The Bank shall follow Instructions received regarding assets held in the Accounts. However, until it receives Instructions to the contrary, the Bank will: (a) Present for payment any Securities which are called, redeemed or retired or otherwise become payable and all coupons and other income items which call for payment upon presentation, to the extent that the Bank or Subcustodian is actually aware of such opportunities. (b) Execute in the name of the Customer such ownership and other certificates as may be required to obtain payments in respect of Securities. (c) Exchange interim receipts or temporary Securities for definitive Securities. (d) Appoint brokers and agents for any transaction involving the Securities, including, without limitation, affiliates of the Bank or any Subcustodian. (e) Issue statements to the Customer, at times mutually agreed upon, identifying the Assets in the Accounts. The Bank will send the Customer an advice or notification of any transfers of Assets to or from the Accounts. Such statements, advices or notifications shall indicate the identity of the entity having custody of the Assets. Unless the Customer sends the Bank a written exception or objection to any Bank statement within sixty (60) days of receipt, the Customer shall be deemed to have approved such statement. In such event, or where the Customer has otherwise approved any such statement, the Bank shall, to the extent permitted by law, be released, relieved and discharged with respect to all matters set forth in such statement or reasonably implied therefrom as though it had been settled by the decree of a court of competent jurisdiction in an action where the Customer and all persons having or claiming an interest in the Customer or the Customer's Accounts were parties. All collections of funds or other property paid or distributed in respect of Securities in the Custody Account shall be made at the risk of the Customer. The Bank shall have no liability for any loss occasioned by delay in the actual receipt of notice by the Bank or by its Subcustodians of any payment, redemption or other transaction regarding Securities in the Custody Account in respect of which the Bank has agreed to take any action under this Agreement. 8. CORPORATE ACTIONS; PROXIES. Whenever the Bank receives information concerning the Securities which requires discretionary action by the beneficial owner of the Securities (other than a proxy), such as subscription rights, bonus issues, stock repurchase plans and rights offerings, or legal notices or other material intended to be transmitted to securities holders ("Corporate Actions"), the Bank will give the Customer notice of such Corporate Actions to the extent that the Bank's central corporate actions department has actual knowledge of a Corporate Action in time to notify its customers. When a rights entitlement or a fractional interest resulting from a rights issue, stock dividend, stock split or similar Corporate Action is received which bears an expiration date, the Bank will endeavor to obtain Instructions from the Customer or its Authorized Person, but if Instructions are not received in time for the Bank to take timely action, or actual notice of such Corporate Action was received too late to seek Instructions, the Bank is authorized to sell such rights entitlement or fractional interest and to credit the Deposit Account with the proceeds or take any other action it deems, in good faith, to be appropriate in which case it shall be held harmless for any such action. The Bank will deliver proxies to the Customer or its designated agent pursuant to special arrangements which may have been agreed to in writing. Such proxies shall be executed in the appropriate nominee name relating to Securities in the Custody Account registered in the name of such nominee but without indicating the manner in which such proxies are to be voted; and where bearer Securities are involved, proxies will be delivered in accordance with Instructions. 9. NOMINEES. Securities which are ordinarily held in registered form may be registered in a nominee name of the Bank, Subcustodian or securities depository, as the case may be. The Bank may without notice to the Customer cause any such Securities to cease to be registered in the name of any such nominee and to be registered in the name of the Customer. In the event that any Securities registered in a nominee name are called for partial redemption by the issuer, the Bank may allot the called portion to the respective beneficial holders of such class of security in any manner the Bank deems to be fair and equitable. The Customer agrees to hold the Bank, Subcustodians, and their respective nominees harmless from any liability arising directly or indirectly from their status as a mere record holder of Securities in the Custody Account. 10. AUTHORIZED PERSONS. As used in this Agreement, the term "Authorized Person" means employees or agents including investment managers as have been designated by written notice from the Customer or its designated agent to act on behalf of the Customer under this Agreement. Such persons shall continue to be Authorized Persons until such time as the Bank receives Instructions from the Customer or its designated agent that any such employee or agent is no longer an Authorized Person. 11. INSTRUCTIONS. The term "Instructions" means instructions of any Authorized Person received by the Bank, via telephone, telex, TWX, facsimile transmission, bank wire or other teleprocess or electronic instruction or trade information system acceptable to the Bank which the Bank believes in good faith to have been given by Authorized Persons or which are transmitted with proper testing or authentication pursuant to terms and conditions which the Bank may specify. Unless otherwise expressly provided, all Instructions shall continue in full force and effect until canceled or superseded. Any Instructions delivered to the Bank by telephone shall promptly thereafter be confirmed in writing by an Authorized Person (which confirmation may bear the facsimile signature of such Person), but the Customer will hold the Bank harmless for the failure of an Authorized Person to send such confirmation in writing, the failure of such confirmation to conform to the telephone instructions received or the Bank's failure to produce such confirmation at any subsequent time. The Bank may electronically record any Instructions given by telephone, and any other telephone discussions with respect to the Custody Account. The Customer shall be responsible for safeguarding any testkeys, identification codes or other security devices which the Bank shall make available to the Customer or its Authorized Persons. 12. STANDARD OF CARE; LIABILITIES. (a) The Bank shall be responsible for the performance of only such duties as are set forth in this Agreement or expressly contained in Instructions which are consistent with the provisions of this Agreement as follows: (i) The Bank will use reasonable care with respect to its obligations under this Agreement and the safekeeping of Assets. The Bank shall be liable to the Customer for any loss which shall occur as the result of the failure of a Subcustodian to exercise reasonable care with respect to the safekeeping of such Assets to the same extent that the Bank would be liable to the Customer if the Bank were holding such Assets in New York. In the event of any loss to the Customer by reason of the failure of the Bank or its Subcustodian to utilize reasonable care, the Bank shall be liable to the Customer only to the extent of the Customer's direct damages, to be determined based on the market value of the property which is the subject of the loss at the date of discovery of such loss and without reference to any special conditions or circumstances. (ii) The Bank will not be responsible for any act, omission, default or for the solvency of any broker or agent which it or a Subcustodian appoints unless such appointment was made negligently or in bad faith. (iii) The Bank shall be indemnified by, and without liability to the Customer for any action taken or omitted by the Bank whether pursuant to Instructions or otherwise within the scope of this Agreement if such act or omission was in good faith, without negligence. In performing its obligations under this Agreement, the Bank may rely on the genuineness of any document which it believes in good faith to have been validly executed. (iv) The Customer agrees to pay for and hold the Bank harmless from any liability or loss resulting from the imposition or assessment of any taxes or other governmental charges, and any related expenses with respect to income from or Assets in the Accounts. (v) The Bank shall be entitled to rely, and may act, upon the advice of counsel (who may be counsel for the Customer) on all matters and shall be without liability for any action reasonably taken or omitted pursuant to such advice. (vi) The Bank need not maintain any insurance for the benefit of the Customer. (vii) Without limiting the foregoing, the Bank shall not be liable for any loss which results from: 1) the general risk of investing, or 2) investing or holding Assets in a particular country including, but not limited to, losses resulting from nationalization, expropriation or other governmental actions; regulation of the banking or securities industry; currency restrictions, devaluations or fluctuations; and market conditions which prevent the orderly execution of securities transactions or affect the value of Assets. (viii) Neither party shall be liable to the other for any loss due to forces beyond their control including, but not limited to strikes or work stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion, fission or radiation, or acts of God. (b) Consistent with and without limiting the first paragraph of this Section 12, it is specifically acknowledged that the Bank shall have no duty or responsibility to: (i) question Instructions or make any suggestions to the Customer or an Authorized Person regarding such Instructions; (ii) supervise or make recommendations with respect to investments or the retention of Securities; (iii) advise the Customer or an Authorized Person regarding any default in the payment of principal or income of any security other than as provided in Section 5(c) of this Agreement; (iv) evaluate or report to the Customer or an Authorized Person regarding the financial condition of any broker, agent or other party to which Securities are delivered or payments are made pursuant to this Agreement; (v) review or reconcile trade confirmations received from brokers. The Customer or its Authorized Persons (as defined in Section 10) issuing Instructions shall bear any responsibility to review such confirmations against Instructions issued to and statements issued by the Bank. (c) The Customer authorizes the Bank to act under this Agreement notwithstanding that the Bank or any of its divisions or affiliates may have a material interest in a transaction, or circumstances are such that the Bank may have a potential conflict of duty or interest including the fact that the Bank or any of its affiliates may provide brokerage services to other customers, act as financial advisor to the issuer of Securities, act as a lender to the issuer of Securities, act in the same transaction as agent for more than one customer, have a material interest in the issue of Securities, or earn profits from any of the activities listed herein. 13. FEES AND EXPENSES. The Customer agrees to pay the Bank for its services under this Agreement such amount as may be agreed upon in writing, together with the Bank's reasonable out-of-pocket or incidental expenses, including, but not limited to, legal fees. The Bank shall have a lien on and is authorized to charge any Accounts of the Customer for any amount owing to the Bank under any provision of this Agreement. 14. MISCELLANEOUS. (a) Foreign Exchange Transactions. To facilitate the administration of the ------------------------------ Customer's trading and investment activity, the Bank is authorized to enter into spot or forward foreign exchange contracts with the Customer or an Authorized Person for the Customer and may also provide foreign exchange through its subsidiaries, affiliates or Subcustodians. Instructions, including standing instructions, may be issued with respect to such contracts but the Bank may establish rules or limitations concerning any foreign exchange facility made available. In all cases where the Bank, its subsidiaries, affiliates or Subcustodians enter into a foreign exchange contract related to Accounts, the terms and conditions of the then current foreign exchange contract of the Bank, its subsidiary, affiliate or Subcustodian and, to the extent not inconsistent, this Agreement shall apply to such transaction. (b) Certification of Residency, etc. The Customer certifies that it is a -------------------------------- resident of the United States and agrees to notify the Bank of any changes in residency. The Bank may rely upon this certification or the certification of such other facts as may be required to administer the Bank's obligations under this Agreement. The Customer will indemnify the Bank against all losses, liability, claims or demands arising directly or indirectly from any such certifications. (c) Access to Records. The Bank shall allow the Customer's independent ------------------ public accountant reasonable access to the records of the Bank relating to the Assets as is required in connection with their examination of books and records pertaining to the Customer's affairs. Subject to restrictions under applicable law, the Bank shall also obtain an undertaking to permit the Customer's independent public accountants reasonable access to the records of any Subcustodian which has physical possession of any Assets as may be required in connection with the examination of the Customer's books and records. (d) Governing Law; Successors and Assigns. This Agreement shall be -------------------------------------- governed by the laws of the State of New York and shall not be assignable by either party, but shall bind the successors in interest of the Customer and the Bank. (e) Entire Agreement; Applicable Riders. Customer represents that the ------------------------------------ Assets deposited in the Accounts are (Check one): ____ Employee Benefit Plan or other assets subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); ____ Mutual Fund assets subject to certain Securities and Exchange Commission ("SEC") rules and regulations; ____ Neither of the above. This Agreement consists exclusively of this document together with Schedule A, Exhibits I - _______ and the following Rider(s) [Check applicable rider(s)]: ____ ERISA ____ MUTUAL FUND ____ SPECIAL TERMS AND CONDITIONS There are no other provisions of this Agreement and this Agreement supersedes any other agreements, whether written or oral, between the parties. Any amendment to this Agreement must be in writing, executed by both parties. (f) Severability. In the event that one or more provisions of this ------------- Agreement are held invalid, illegal or enforceable in any respect on the basis of any particular circumstances or in any jurisdiction, the validity, legality and enforceability of such provision or provisions under other circumstances or in other jurisdictions and of the remaining provisions will not in any way be affected or impaired. (g) Waiver. Except as otherwise provided in this Agreement, no failure or ------- delay on the part of either party in exercising any power or right under this Agreement operates as a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right. No waiver by a party of any provision of this Agreement, or waiver of any breach or default, is effective unless in writing and signed by the party against whom the waiver is to be enforced. (h) Notices. All notices under this Agreement shall be effective when -------- actually received. Any notices or other communications which may be required under this Agreement are to be sent to the parties at the following addresses or such other addresses as may subsequently be given to the other party in writing: Bank: The Chase Manhattan Bank, N.A. Chase MetroTech Center Brooklyn, NY 11245 Attention: Global Custody Division or telex: ____________________________________________________ Customer: ______________________________________________________________ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- or telex: ____________________________________________________ (i) Termination. This Agreement may be terminated by the Customer or the ------------ Bank by giving sixty (60) days written notice to the other, provided that such notice to the Bank shall specify the names of the persons to whom the Bank shall deliver the Assets in the Accounts. If notice of termination is given by the Bank, the Customer shall, within sixty (60) days following receipt of the notice, deliver to the Bank Instructions specifying the names of the persons to whom the Bank shall deliver the Assets. In either case the Bank will deliver the Assets to the persons so specified, after deducting any amounts which the Bank determines in good faith to be owed to it under Section 13. If within sixty (60) days following receipt of a notice of termination by the Bank, the Bank does not receive Instructions from the Customer specifying the names of the persons to whom the Bank shall deliver the Assets, the Bank, at its election, may deliver the Assets to a bank or trust company doing business in the State of New York to be held and disposed of pursuant to the provisions of this Agreement, or to Authorized Persons, or may continue to hold the Assets until Instructions are provided to the Bank. CUSTOMER By:____________________________________________ Title THE CHASE MANHATTAN BANK, N.A. By:____________________________________________ Title STATE OF ) : ss. COUNTY OF ) On this day of , 19 , before me personally came , to me known, who being by me duly sworn, did depose and say that he/she resides in at ; that he/she is of , the entity described in and which executed the foregoing instrument; that he/she knows the seal of said entity, that the seal affixed to said instrument is such seal, that it was so affixed by order of said entity, and that he/she signed his/her name thereto by like order. - -------------------------------------------------------------------------------- Sworn to before me this ______________ day of ______________, 19_____. - ---------------------------------------- Notary STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) On this day of ,19 , before me personally came , to me known, who being by me duly sworn, did depose and say that he/she resides in at ; that he/she is a Vice President of THE CHASE MANHATTAN BANK, (National Association), the corporation described in and which executed the foregoing instrument; that he/she knows the seal of said corporation, that the seal affixed to said instrument is such corporate seal, that it was so affixed by order of the Board of Directors of said corporation, and that he/she signed his/her name thereto by like order. - --------------------------------------------- Sworn to before me this ___________________ day of ________________, 19________. - ---------------------------------------------- Notary Mutual Fund Rider to Global Custody Agreement Between The Chase Manhattan Bank, N.A. and --------------------------------------------- _______________________, effective __________ ----------------------- Customer represents that the Assets being placed in the Bank's custody are subject to the Investment Company Act of 1940 (the Act), as the same may be amended from time to time. Except to the extent that the Bank has specifically agreed to comply with a condition of a rule, regulation, interpretation promulgated by or under the authority of the SEC or the Exemptive Order applicable to accounts of this nature issued to the Bank (Investment Company Act of 1940, Release No. 12053, November 20, 1981), as amended, or unless the Bank has otherwise specifically agreed, the Customer shall be solely responsible to assure that the maintenance of Assets under this Agreement complies with such rules, regulations, interpretations or exemptive order promulgated by or under the authority of the Securities Exchange Commission. The following modifications are made to the Agreement: Section 3. Subcustodians and Securities Depositories. ------------------------------------------ Add the following language to the end of Section 3: The terms Subcustodian and securities depositories as used in this Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign custodian or an eligible foreign securities depository, which are further defined as follows: (a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in Rule 17f-5 under the Investment Company Act of 1940; (b) "eligible foreign custodian" shall mean (i) a banking institution or trust company incorporated or organized under the laws of a country other than the United States that is regulated as such by that country's government or an agency thereof and that has shareholders' equity in excess of $200 million in U.S. currency (or a foreign currency equivalent thereof), (ii) a majority owned direct or indirect subsidiary of a qualified U.S. bank or bank holding company that is incorporated or organized under the laws of a country other than the United States and that has shareholders' equity in excess of $100 million in U.S. currency (or a foreign currency equivalent thereof)(iii) a banking institution or trust company incorporated or organized under the laws of a country other than the United States or a majority owned direct or indirect subsidiary of a qualified U.S. bank or bank holding company that is incorporated or organized under the laws of a country other than the United States which has such other qualifications as shall be specified in Instructions and approved by the Bank; or (iv) any other entity that shall have been so qualified by exemptive order, rule or other appropriate action of the SEC; and (c) "eligible foreign securities depository" shall mean a securities depository or clearing agency, incorporated or organized under the laws of a country other than the United States, which operates (i) the central system for handling securities or equivalent book-entries in that country, or (ii) a transnational system for the central handling of securities or equivalent book-entries. The Customer represents that its Board of Directors has approved each of the Subcustodians listed in Schedule A to this Agreement and the terms of the subcustody agreements between the Bank and each Subcustodian, which are attached as Exhibits I through _____ of Schedule A, and further represents that its Board has determined that the use of each Subcustodian and the terms of each subcustody agreement are consistent with the best interests of the Fund(s) and its (their) shareholders. The Bank will supply the Customer with any amendment to Schedule A for approval. The Customer has supplied or will supply the Bank with certified copies of its Board of Directors resolution(s) with respect to the foregoing prior to placing Assets with any Subcustodian so approved. Section 11. Instructions. ------------- Add the following language to the end of Section 11: Deposit Account Payments and Custody Account Transactions made pursuant to Section 5 and 6 of this Agreement may be made only for the purposes listed below. Instructions must specify the purpose for which any transaction is to be made and Customer shall be solely responsible to assure that Instructions are in accord with any limitations or restrictions applicable to the Customer by law or as may be set forth in its prospectus. (a) In connection with the purchase or sale of Securities at prices as confirmed by Instructions; (b) When Securities are called, redeemed or retired, or otherwise become payable; (c) In exchange for or upon conversion into other securities alone or other securities and cash pursuant to any plan or merger, consolidation, reorganization, recapitalization or readjustment; (d) Upon conversion of Securities pursuant to their terms into other securities; (e) Upon exercise of subscription, purchase or other similar rights represented by Securities; (f) For the payment of interest, taxes, management or supervisory fees, distributions or operating expenses; (g) In connection with any borrowings by the Customer requiring a pledge of Securities, but only against receipt of amounts borrowed; (h) In connection with any loans, but only against receipt of adequate collateral as specified in Instructions which shall reflect any restrictions applicable to the Customer; (i) For the purpose of redeeming shares of the capital stock of the Customer and the delivery to, or the crediting to the account of, the Bank, its Subcustodian or the Customer's transfer agent, such shares to be purchased or redeemed; (j) For the purpose of redeeming in kind shares of the Customer against delivery to the Bank, its Subcustodian or the Customer's transfer agent of such shares to be so redeemed; (k) For delivery in accordance with the provisions of any agreement among the Customer, the Bank and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Customer; (l) For release of Securities to designated brokers under covered call options, provided, however, that such Securities shall be released only upon payment to the Bank of monies for the premium due and a receipt for the Securities which are to be held in escrow. Upon exercise of the option, or at expiration, the Bank will receive from brokers the Securities previously deposited. The Bank will act strictly in accordance with Instructions in the delivery of Securities to be held in escrow and will have no responsibility or liability for any such Securities which are not returned promptly when due other than to make proper request for such return; (m) For spot or forward foreign exchange transactions to facilitate security trading, receipt of income from Securities or related transactions; (n) For other proper purposes as may be specified in Instructions issued by an officer of the Customer which shall include a statement of the purpose for which the delivery or payment is to be made, the amount of the payment or specific Securities to be delivered, the name of the person or persons to whom delivery or payment is to be made, and a certification that the purpose is a proper purpose under the instruments governing the Customer; and (o) Upon the termination of this Agreement as set forth in Section 14(i). Section 12. Standard of Care; Liabilities. ------------------------------ Add the following subsection (c) to Section 12: (c) The Bank hereby warrants to the Customer that in its opinion, after due inquiry, the established procedures to be followed by each of its branches, each branch of a qualified U.S. bank, each eligible foreign custodian and each eligible foreign securities depository holding the Customer's Securities pursuant to this Agreement afford protection for such Securities at least equal to that afforded by the Bank's established procedures with respect to similar securities held by the Bank and its securities depositories in New York. Section 14. Access to Records. ------------------------------- Add the following language to the end of Section 14(c): ------------------------------------------------------- Upon reasonable request from the Customer, the Bank shall furnish the Customer such reports (or portions thereof) of the Bank's system of internal accounting controls applicable to the Bank's duties under this Agreement. The Bank shall endeavor to obtain and furnish the Customer with such similar reports as it may reasonably request with respect to each Subcustodian and securities depository holding the Customer's assets. 1 OCTOBER, 1994 SUB-CUSTODIANS EMPLOYED BY -------------------------- THE CHASE MANHATTAN BANK, N.A. LONDON, GLOBAL CUSTODY ----------------------------------------------------- 17F-5 QUALIFIED AGENTS
COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK - ------- ------------- ------------------ ARGENTINA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - --------- Main Branch Buenos Aires 25 De Mayo 130/140 Buenos Aires ARGENTINA AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank - --------- Australia Limited Australia Limited 36th Floor Sydney World Trade Centre Jamison Street Sydney New South Wales 2000 AUSTRALIA AUSTRIA Creditanstalt - Bankverein Credit Lyonnais - ------- Schottengasse 6 Vienna A - 1011, Vienna AUSTRIA BANGLADESH Standard Chartered Bank Standard Chartered Bank - ---------- 18-20 Motijheel C.A. Dhaka Box 536, Dhaka-1000 BANGLADESH BELGIUM Generale Bank Credit Lyonnais Bank - ------- 3 Montagne Du Parc Brussels 1000 Bruxelles BELGIUM
2 BOTSWANA Barclays Bank of Barclays Bank of - -------- Botswana Ltd. Botswana Ltd. Gaborone Gaborone BOTSWANA BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan S.A. - ------ Chase Manhattan Center Sao Paulo Rua Verbo Divino, 1400 Sao Paulo, SP 04719-002 BRAZIL CANADA The Royal Bank of Canada Royal Bank of Canada - ------ Royal Bank Plaza Toronto Toronto Ontario M5J 2J5 CANADA Canada Trust Royal Bank of Canada Canada Trust Tower Toronto BCE Place 161 Bay at Front Toronto Ontario M5J 2T2 CANADA CHILE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - ----- Agustinas 1235 Santiago Casilla 9192 Santiago CHILE COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A. - -------- Sociedad Fiduciaria Sociedad Fiduciaria Carrera 9a No 99-02 Santafe de Bogota Santafe de Bogota, DC COLOMBIA CZECH REPUBLIC Ceskoslovenska Obchodni Ceskoslovenska Obchodni - -------------- Banka, A.S. Banka, Na Prikope 14 A.S. 115 20 Praha 1 Praha CZECH REPUBLIC
3 DENMARK Den Danske Bank Den Danske Bank - ------ 2 Holmens Kanala DK 1091 Copenhagen Copenhagen DENMARK EGYPT National Bank of Egypt National Bank of Egypt - ----- 24 Sherif Street Cairo Cairo EGYPT EUROBONDS Cedel S.A. ECU:Lloyds Bank PLC - --------- 67 Boulevard Grande International Banking Division Duchesse Charlotte London LUXEMBOURG For all other currencies: see A/c The Chase Manhattan Bank, N.A. relevant country London A/c No. 17817 EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC - -------- 27 Leadenhall Street Banking Division London London EC3A 1AA For all other currencies: see UNITED KINGDOM relevant country FINLAND Kansallis-Osake-Pankki Kanasallis-Osake-Pankki - ------- Aleksis Kiven 3-5 Helsinki 00500 Helsinki FINLAND FRANCE Banque Paribas Societe Generale - ------ Ref 256 Paris BP 141 3, Rue D'Antin 75078 Paris Cedex 02 FRANCE GERMANY Chase Bank A.G. Chase Bank A.G. - ------- Alexanderstrasse 59 Frankfurt Postfach 90 01 09 60441 Frankfurt/Main GERMANY GHANA Barclays Bank of Barclays Bank of - ----- Ghana Ltd. Ghana Ltd. Accra GHANA GREECE Barclays Bank Plc National Bank of Greece S.A. - ------ 1 Kolokotroni Street Athens 10562 Athens A/c Chase Manhattan Bank, N.A., GREECE London A/c No. 040/7/921578-68
4 HONG KONG The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - --------- 40/F One Exchange Square Hong Kong 8, Connaught Place Central, Hong Kong HONG KONG HUNGARY Citibank Budapest Rt. Citibank Budapest Rt. - ------- Vaci Utca 19-21 Budapest 1052 Budapest V HUNGARY INDIA The Hongkong and Shanghai The Hongkong and Shanghai - ----- Banking Corporation Limited Banking Corporation Limited 52/60 Mahatma Gandhi Road Bombay Bombay 400 001 INDIA INDONESIA The Hongkong and Shanghai The Chase Manhattan Bank, N.A. - --------- Banking Corporation Limited Jakarta World Trade Center J1. Jend Sudirman Kav. 29-31 Jakarta 10023 INDONESIA IRELAND Bank of Ireland Allied Irish Bank - ------- International Financial Services Dublin Centre 1 Harbourmaster Place Dublin 1 IRELAND ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel B.M. - ------ 19 Herzl Street Tel Aviv 65136 Tel Aviv ISRAEL ITALY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - ----- Piazza Meda 1 Milan 20121 Milan ITALY JAPAN The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - ----- 1-3 Marunouchi 1-Chome Tokyo Chiyoda-Ku Tokyo 100 JAPAN
5 JORDAN Arab Bank Limited Arab Bank Limited - ------ P O Box 950544-5 Amman Amman Shmeisani JORDAN MALAYSIA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - -------- Pernas International Kuala Lumpur Jalan Sultan Ismail 50250, Kuala Lumpur MALAYSIA MAURITIUS The Hongkong and Shanghai The Hongkong and Shanghai - --------- Banking Corporation Limited Banking Corporation Limited Port Louis Port Louis MAURITIUS MEXICO The Chase Manhattan Bank, N.A. No correspondent Bank - ------ Hamburgo 213, Piso 7 (Equities) Colonia Juarez, 06660 Mexico D.F. MEXICO (Government Bonds) Banco Nacional de Mexico, No correspondent Bank Avenida Juarez No. 104 - 11 Piso 06040 Mexico D.F. MEXICO MOROCCO Banque Commerciale du Maroc Banque Commerciale du Maroc - ------- 1 Rue Idriss Lahrizi Casablanca Casablanca 01 MOROCCO NETHERLANDS ABN AMRO N.V. Credit Lyonnais - ----------- Securities Centre Bank Nederland N.V. P O Box 3200 Rotterdam 4800 De Breda NETHERLANDS NEW ZEALAND National Nominees Limited National Bank of New Zealand - ----------- Level 2 BNZ Tower Wellington 125 Queen Street Auckland NEW ZEALAND NORWAY Den norske Bank Den norske Bank - ------ Kirkegaten 21 Oslo Oslo 1 NORWAY
6 PAKISTAN Citibank N.A. Citibank N.A. - -------- State Life Building No. 1 Karachi I.I. Chundrigar Road Karachi PAKISTAN PERU Citibank, N.A. Citibank N.A. - ---- Camino Real 457 Lima CC Torre Real - 5th Floor San Isidro, Lima 27 PERU PHILIPPINES The Hongkong and Shanghai The Hongkong and Shanghai - ----------- Banking Corporation Limited Banking Corporation Limited Hong Kong Bank Centre 3/F Manila San Miguel Avenue Ortigas Commercial Centre Pasig Metro Manila PHILIPPINES POLAND Bank Handlowy W. Warsawie. S.A. Bank Polska Kasa Opieki S.A. - ------ Custody Dept. Capital Markets Warsaw Centre - V Branch Ul, Kasprzaka 18/20 01-211 Warsaw POLAND PORTUGAL Banco Espirito Santo & Comercial Banco Pinto & Sotto Mayor - -------- de Lisboa Avenida Fontes Pereira de Melo Servico de Gestaode Titulos 1000 Lisbon R. Mouzinho da Silveira, 36 r/c 1200 Lisbon PORTUGAL SHANGHAI (CHINA) The Hongkong and Shanghai The Chase Manhattan Bank, N.A. - ---------------- Banking Corporation Limited Hong Kong Shanghai Branch Corporate Banking Centre Unit 504, 5/F Shanghai Centre 1376 Nanjing Xi Lu Shanghai THE PEOPLE'S REPUBLIC OF CHINA
7 SHENZHEN (CHINA) The Hongkong and Shanghai The Chase Manhattan Bank, N.A. - ---------------- Banking Corporation Limited Hong Kong 1st Floor Central Plaza Hotel No.1 Chun Feng Lu Shenzhen THE PEOPLE'S REPUBLIC OF CHINA SINGAPORE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - --------- Shell Tower Singapore 50 Raffles Place Singapore 0104 SINGAPORE SOUTH AFRICA Standard Bank of South Africa Standard Bank of South Africa - ------------ Standard Bank Chambers South Africa 46 Marshall Street Johannesburg 2001 SOUTH AFRICA SOUTH KOREA The Hongkong & Shanghai The Hongkong & Shanghai - ----------- Banking Corporation Limited Banking Corporation Limited 6/F Kyobo Building Seoul #1 Chongro, 1-ka Chongro-Ku, Seoul SOUTH KOREA SPAIN The Chase Manhattan Bank, N.A. Banco Zaragozano, S.A. - ----- Calle Peonias 2 Madrid 7th Floor La Piovera 28042 Madrid SPAIN SRI LANKA The Hongkong & Shanghai The Hongkong & Shangai - --------- Banking Corporation Limited Banking Corporation Limited 24, Sir Baron Jayatilaka Mawatha, Colombo Colombo 1, SRI LANKA SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken - ------ Kungstradgardsgatan 8 Stockholm Stockholm S-106 40 SWEDEN SWITZERLAND Union Bank of Switzerland Union Bank of Switzerland - ----------- 45 Bahnhofstrasse Zurich 8021 Zurich SWITZERLAND
8 TAIWAN The Chase Manhattan Bank, N.A. No correspondent Bank 673 Min Sheng East Road - 9th Floor Taipei TAIWAN Republic of China THAILAND The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - -------- Bubhajit Building Bangkok 20 North Sathorn Road Silom, Bangrak Bangkok 10500 THAILAND TURKEY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - ------ Yildiz Posta Caddesi 52 Istanbul Dedeman Ticaret Merkezi, Kat 11 80700 Esentepe Istanbul TURKEY U.K. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - ---- Woolgate House London Coleman Street London EC2P 2HD UNITED KINGDOM URUGUAY The First National Bank of Boston The First National Bank of Boston - ------- Zabala 1463 Montevideo Montevideo URUGUAY U.S.A. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A. - ----- 1 Chase Manhattan Plaza New York New York NY 10081 U.S.A. VENEZUELA Citibank N.A. Citibank N.A. - --------- Carmelitas a Altagracia Caracas Edificio Citibank Caracas 1010 VENEZUELA ZIMBABWE Barclays Bank of Zimbabwe Barclays Bank of Zimbabwe - -------- Ground Floor Harare Kurima House 42 George Silundika Avenue Harare ZIMBABWE
EX-99.11 8 CONSENT OF IND. AUDITORS EXHIBIT 11 INDEPENDENT AUDITORS' CONSENT Merrill Lynch Balanced Fund for Investment and Retirement (formerly Merrill Lynch Retirement Benefit Investment Program, Inc.): We consent to the use in Post-Effective Amendment No. 13 to Registration Statement No. 2-91329 of our report dated October 29, 1993 appearing in the Statement of Additional Information, which is a part of such Registration Statement, and to the references to us under the caption "Financial Highlights" appearing in the Prospectus, which also is a part of such Registration Statement. Deloitte & Touche LLP Princeton, New Jersey October 17, 1994 EX-99.15.B 9 CLASS C DISTRIBUTION PLAN EXHIBIT 99.15(B) CLASS C DISTRIBUTION PLAN OF MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT PURSUANT TO RULE 12b-1 DISTRIBUTION PLAN made as of the day of October 1994, by and between Merrill Lynch Retirement Benefit Investment Program, Inc., doing business as Merrill Lynch Balanced Fund For Investment and Retirement, a Maryland corporation (the "Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"). W I T N E S S E T H: ------------------- WHEREAS, the Fund is engaged in business as an open-end investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"); and WHEREAS, MLFD is a securities firm engaged in the business of selling shares of investment companies either directly to purchasers or through other securities dealers; and WHEREAS, the Fund proposes to enter into a Class C Shares Distribution Agreement with MLFD, pursuant to which MLFD will act as the exclusive distributor and representative of the Fund in the offer and sale of Class C shares of common stock, par value $0.10 per share (the "Class C shares"), of the Fund to the public; and WHEREAS, the Fund desires to adopt this Class C Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to which the Fund will pay an account maintenance fee and a distribution fee to MLFD with respect to the Fund's Class C shares; and WHEREAS, the Directors of the Fund have determined that there is a reasonable likelihood that adoption of the Plan will benefit the Fund and its shareholders. NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on the following terms and conditions: 1. The Fund shall pay MLFD an account maintenance fee under the Plan at the end of each month at the annual rate of 0.25% of average daily net assets of the Fund relating to Class C shares to compensate MLFD and securities firms with which MLFD enters into related agreements pursuant to Paragraph 3 hereof ("Sub-Agreements") for providing account maintenance activities with respect to Class C shareholders of the Fund. Expenditures under the Plan may consist of payments to financial consultants for maintaining accounts in connection with Class C shares of the Fund and payment of expenses incurred in connection with such account maintenance activities including the costs of making services available to shareholders including assistance in connection with inquiries related to shareholder accounts. 2. The Fund shall pay MLFD a distribution fee under the Plan at the end of each month at the annual rate of .75% of average daily net assets of the Fund relating to Class C shares to compensate MLFD and securities firms with which MLFD enters into related Sub-Agreements for providing sales and promotional activities and services. Such activities and services will relate to the sale, promotion and marketing of the Class C shares of the Fund. Such expenditures may consist of sales commissions to financial consultants for selling Class C shares of the Fund, compensation, sales incentives and payments to sales and marketing personnel, and the payment of expenses incurred in its sales and promotional activities, including advertising expenditures related to the Fund and the costs of preparing and distributing promotional materials. The distribution fee may also be used to pay the financing costs of carrying the unreimbursed expenditures described in this Paragraph 2. Payment of the distribution fee described in this Paragraph 2 shall be subject to any limitations set forth in any applicable regulation of the National Association of Securities Dealers, Inc. 3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to such Securities Firms for activities and services of the type referred to in Paragraphs 1 and 2 hereof. MLFD may reallocate all or a portion of its account maintenance fee or distribution fee to such Securities Firms as compensation for the above- mentioned activities and services. Such Sub-Agreement shall provide that the Securities Firms shall provide MLFD with such information as is reasonably necessary to permit MLFD to comply with the reporting requirements set forth in Paragraph 4 hereof. 4. MLFD shall provide the Fund for review by the Board of Directors, and the Directors shall review, at least quarterly, a written report complying with the requirements of Rule 12b-1 regarding the disbursement of the account maintenance fee and the distribution fee during such period. 2 5. This Plan shall not take effect until it has been approved by a vote of at least a majority, as defined in the Investment Company Act, of the outstanding Class C voting securities of the Fund. 6. This Plan shall not take effect until it has been approved, together with any related agreements, by votes of a majority of both (a) the Directors of the Fund and (b) those Directors of the Fund who are not "interested persons" of the Fund, as defined in the Investment Company Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for the purpose of voting on the Plan and such related agreements. 7. The Plan shall continue in effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Paragraph 6. 8. The Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class C voting securities of the Fund. 9. The Plan may not be amended to increase materially the rate of payments provided for herein unless such amendment is approved by at least a majority, as defined in the Investment Company Act, of the outstanding Class C voting securities of the Fund, and by the Directors of the Fund in the manner provided for in Paragraph 6 hereof, and no material amendment to the Plan shall be made unless approved in the manner provided for approval and annual renewal in Paragraph 6 hereof. 10. While the Plan is in effect, the selection and nomination of Directors who are not interested persons, as defined in the Investment Company Act, of the Fund shall be committed to the discretion of the Directors who are not interested persons. 11. The Fund shall preserve copies of the Plan and any related agreements and all reports made pursuant to Paragraph 4 hereof, for a period of not less than six years from the date of 3 the Plan, or the agreements or such report, as the case may be, the first two years in an easily accessible place. IN WITNESS WHEREOF, the parties hereto have executed this Distribution Plan as of the date first above written. MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT By_____________________________________ Title: MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By_____________________________________ Title: 4 CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT AGREEMENT made as of the day of October 1994, by and between Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities Firm"). W I T N E S S E T H : -------------------- WHEREAS, MLFD has entered into an agreement with Merrill Lynch Retirement Benefit Investment Program, Inc., doing business as Merrill Lynch Balanced Fund for Investment and Retirement, a Maryland corporation (the "Fund"), pursuant to which it acts as the exclusive distributor for the sale of Class C shares of common stock, par value $0.01 per share (the "Class C shares"), of the Fund; and WHEREAS, MLFD and the Fund have entered into a Class C Shares Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an account maintenance fee from the Fund at the annual rate of 0.25% of average daily net assets of the Fund relating to Class C shares for account maintenance activities related to Class C shares of the Fund and a distribution fee from the Fund at the annual rate of .75% of average daily net assets of the Fund relating to Class C shares for providing sales and promotional activities and services related to the distribution of Class C shares; and WHEREAS, MLFD desires the Securities Firm to perform certain account maintenance activities and sales and promotional activities and services for the Fund's Class C shareholders and the Securities Firm is willing to perform such activities and services; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereby agree as follows: 1. The Securities Firm shall provide account maintenance activities and services with respect to the Class C shares of the Fund and incur expenditures in connection with such activities and services of the types referred to in Paragraph 1 of the Plan. 2. The Securities Firm shall provide sales and promotional activities and services with respect to the sale of the Class C shares of the Fund, and incur distribution expenditures, of the types referred to in Paragraph 2 of the Plan. 3. As compensation for its activities and services performed under this Agreement, MLFD shall pay the Securities Firm an account maintenance fee and a distribution fee at the end of each calendar month in an amount agreed upon by the parties hereto. 4. The Securities Firm shall provide MLFD, at least quarterly, such information as reasonably requested by MLFD to enable MLFD to comply with the reporting requirements of Rule 12b-1 regarding the disbursement of the account maintenance fee and the distribution fee during such period referred to in Paragraph 4 of the Plan. 5. This Agreement shall not take effect until it has been approved by votes of a majority of both (a) the Directors of the Fund and (b) those Directors of the Fund who are not "interested persons" of the Fund, as defined in the Act, and have no direct or indirect financial interest in the operation of the Plan, this Agreement or any agreements related to the Plan or this Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for the purpose of voting on this Agreement. 6. This Agreement shall continue in effect for as long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Paragraph 6. 7. This Agreement shall automatically terminate in the event of its assignment or in the event of the termination of the Plan or any amendment to the Plan that requires such termination. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By_____________________________________ Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By_____________________________________ Title: 6 EX-99.15.C 10 CLASS D DISTR. PLAN EXHIBIT 99.15(C) CLASS D DISTRIBUTION PLAN OF MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT PURSUANT TO RULE 12b-1 DISTRIBUTION PLAN made as of the day of October 1994, by and between Merrill Lynch Retirement Benefit Investment Program, Inc., doing business as Merrill Lynch Balanced Fund for Investment and Retirement, a Maryland corporation (the "Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"). W I T N E S S E T H : -------------------- WHEREAS, the Fund is engaged in business as an open-end investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"); and WHEREAS, MLFD is a securities firm engaged in the business of selling shares of investment companies either directly to purchasers or through other securities dealers; and WHEREAS, the Fund proposes to enter into a Class D Shares Distribution Agreement with MLFD, pursuant to which MLFD will act as the exclusive distributor and representative of the Fund in the offer and sale of Class D shares of common stock, par value $0.10 per share (the "Class D shares"), of the Fund to the public; and WHEREAS, the Fund desires to adopt this Class D Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant to which the Fund will pay an account maintenance fee to MLFD with respect to the Fund's Class D shares; and WHEREAS, the Directors of the Fund have determined that there is a reasonable likelihood that adoption of the Plan will benefit the Fund and its shareholders. NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to the terms of, the Plan in accordance with Rule 12b-1 under the Investment Company Act on the following terms and conditions: 1. The Fund shall pay MLFD an account maintenance fee under the Plan at the end of each month at the annual rate of 0.25% of average daily net assets of the Fund relating to Class D shares to compensate MLFD and securities firms with which MLFD enters into related agreements ("Sub-Agreements") pursuant to Paragraph 2 hereof for providing account maintenance activities with respect to Class D shareholders of the Fund. Expenditures under the Plan may consist of payments to financial consultants for maintaining accounts in connection with Class D shares of the Fund and payment of expenses incurred in connection with such account maintenance activities including the costs of making services available to shareholders including assistance in connection with inquiries related to shareholder accounts. 2. The Fund hereby authorizes MLFD to enter into Sub-Agreements with certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce, Fenner & Smith Incorporated, to provide compensation to such Securities Firms for activities of the type referred to in Paragraph 1. MLFD may reallocate all or a portion of its account maintenance fee to such Securities Firms as compensation for the above-mentioned activities. Such Sub-Agreement shall provide that the Securities Firms shall provide MLFD with such information as is reasonably necessary to permit MLFD to comply with the reporting requirements set forth in Paragraph 3 hereof. 3. MLFD shall provide the Fund for review by the Board of Directors, and the Directors shall review, at least quarterly, a written report complying with the requirements of Rule 12b-1 regarding the disbursement of the account maintenance fee during such period. 4. This Plan shall not take effect until it has been approved by a vote of at least a majority, as defined in the Investment Company Act, of the outstanding Class D voting securities of the Fund. 5. This Plan shall not take effect until it has been approved, together with any related agreements, by votes of a majority of both (a) the Directors of the Fund and (b) those Directors of the Fund who are not "interested persons" of the Fund, as defined in the Investment Company Act, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for the purpose of voting on the Plan and such related agreements. 6. The Plan shall continue in effect for so long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Paragraph 5. 2 7. The Plan may be terminated at any time by vote of a majority of the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class D voting securities of the Fund. 8. The Plan may not be amended to increase materially the rate of payments provided for in Paragraph 1 hereof unless such amendment is approved by at least a majority, as defined in the Investment Company Act, of the outstanding Class D voting securities of the Fund, and by the Directors of the Fund in the manner provided for in Paragraph 5 hereof, and no material amendment to the Plan shall be made unless approved in the manner provided for approval and annual renewal in Paragraph 5 hereof. 9. While the Plan is in effect, the selection and nomination of Directors who are not interested persons, as defined in the Investment Company Act, of the Fund shall be committed to the discretion of the Directors who are not interested persons. 10. The Fund shall preserve copies of the Plan and any related agreements and all reports made pursuant to Paragraph 3 hereof, for a period of not less than six years from the date of the Plan, or the agreements or such report, as the case may be, the first two years in an easily accessible place. IN WITNESS WHEREOF, the parties hereto have executed this Distribution Plan as of the date first above written. MERRILL LYNCH RETIREMENT BENEFIT INVESTMENT PROGRAM, INC., doing business as MERRILL LYNCH BALANCED FUND FOR INVESTMENT AND RETIREMENT By_____________________________________ Title: MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By_____________________________________ Title: 3 CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT AGREEMENT made as of the day of October 1994, by and between Merrill Lynch Funds Distributor, Inc. a Delaware corporation ("MLFD"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation ("Securities Firm"). W I T N E S S E T H : -------------------- WHEREAS, MLFD has entered into an agreement with Merrill Lynch Retirement Benefit Investment Program, Inc., doing business as Merrill Lynch Balanced Fund for Investment and Retirement, a Maryland corporation (the "Fund"), pursuant to which it acts as the exclusive distributor for the sale of Class D shares of common stock, par value $0.01 per share (the "Class D shares"), of the Fund; and WHEREAS, MLFD and the Fund have entered into a Class D Shares Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an account maintenance fee from the Fund at the annual rate of 0.25% of average daily net assets of the Fund relating to Class D shares for providing account maintenance activities and services with respect to Class D shares; and WHEREAS, MLFD desires the Securities Firm to perform certain account maintenance activities and services, including assistance in connection with inquiries related to shareholder accounts, for the Fund's Class D shareholders and the Securities Firm is willing to perform such services; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereby agree as follows: 1. The Securities Firm shall provide account maintenance activities and services with respect to the Class D shares of the Fund and incur expenditures in connection with such activities and services, of the types referred to in Paragraph 1 of the Plan. 2. As compensation for its services performed under this Agreement, MLFD shall pay the Securities Firm a fee at the end of each calendar month in an amount agreed upon by the parties hereto. 3. The Securities Firm shall provide MLFD, at least quarterly, such information as reasonably requested by MLFD to enable MLFD to comply with the reporting requirements of Rule 4 12b-1 regarding the disbursement of the fee during such period referred to in Paragraph 3 of the Plan. 4. This Agreement shall not take effect until it has been approved by votes of a majority of both (a) the Directors of the Fund and (b) those Directors of the Fund who are not "interested persons" of the Fund, as defined in the Act, and have no direct or indirect financial interest in the operation of the Plan, this Agreement or any agreements related to the Plan or this Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings called for the purpose of voting on this Agreement. 5. This Agreement shall continue in effect for as long as such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Paragraph 5. 6. This Agreement shall automatically terminate in the event of its assignment or in the event of the termination of the Plan or any amendment to the Plan that requires such termination. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. MERRILL LYNCH FUNDS DISTRIBUTOR, INC. By_____________________________________ MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By_____________________________________ 5 -----END PRIVACY-ENHANCED MESSAGE-----