P r o s p e c t u s
[LOGO] Merrill Lynch
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Merrill Lynch Large Cap
Series Funds, Inc.
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Merrill Lynch Large Cap
Growth Fund
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Merrill Lynch Large Cap
Value Fund
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Merrill Lynch Large Cap
Core Fund
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[GRAPHIC]
December 22, 1999
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This prospectus
contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for
future reference.
|
|
The Securities and
Exchange Commission has not approved or disapproved these securities or
passed upon the adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
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Table of Contents
MERRILL LYNCH LARGE CAP SERIES FUNDS, INC.
[GRAPHIC] Key Facts
In an effort to help you better understand the many concepts
involved in making an investment decision, we have defined the
highlighted terms in this prospectus in the sidebar.
Equity Securities —
securities representing ownership of a corporation or
securities whose price is linked to the value of securities that
represent company ownership.
Large Cap Companies
— companies whose market capitalization is higher
than the top 5% of U.S. securities traded.
Common Stock —
units of ownership of a corporation.
Russell 1000® Index
— an index that measures the performance of the 1,000
largest companies in the Russell 3000® Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
® Index.
Russell 1000® Growth Index
— a subset of the Russell 1000® Index that
consists of those Russell 1000® securities with or greater than
average growth orientation.
Russell 1000® Value Index
— a subset of the Russell 1000® Index that
consists of those Russell 1000® securities with lower price to book
ratios and lower forecasted growth value.
MERRILL LYNCH LARGE CAP SERIES FUNDS AT A GLANCE
What are the Funds’ investment objectives?
Merrill Lynch Large Cap Series Funds, Inc. is an open end series
type mutual fund that consists of three separate Funds, each of which
issues its own shares:
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Ÿ
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Merrill
Lynch Large Cap Growth Fund
|
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Ÿ
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Merrill
Lynch Large Cap Value Fund
|
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Ÿ
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Merrill
Lynch Large Cap Core Fund
|
The investment objective of each Fund is long term capital
growth. In other words, each Fund tries to choose investments that will
increase in value. Current income from dividends and interest will not
be an important consideration in selecting portfolio
securities.
What are the Funds’ main investment strategies?
Each Fund invests primarily in a diversified portfolio of
equity securities of large cap companies
located in the United States. The Large Cap Growth Fund will invest
primarily in equity securities that the Investment Adviser believes
have good prospects for earnings growth. The Large Cap Value Fund will
invest primarily in equity securities that the Investment Adviser
believes are undervalued. The Large Cap Core Fund will use an
investment approach that blends growth and value.
A company whose earnings per share grow faster than inflation
and the economy in general usually has a higher stock price over time
than a company with slower earnings growth. The Funds’ evaluation
of the prospects for a company’s industry or market sector is an
important factor in evaluating a particular company’s earnings
prospects. A company’s stock is considered to be undervalued when
its price is less than what the Investment Adviser believes it is
worth. We cannot guarantee that any Fund will achieve its
objective.
The Investment Adviser uses quantitative models that employ
various factors to look for companies that, in its opinion, are
consistent with the investment strategy of each individual Fund. Each
Fund seeks its objective by investing primarily in common
stocks of companies the Investment Adviser selects from among
those included in the Fund’s applicable Russell 1000®
Index, as follows:
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
| Fund |
|
Applicable Index
|
| |
| Large Cap Growth
Fund |
|
Russell 1000® Growth
Index |
| |
| Large Cap Value
Fund |
|
Russell 1000®
Value Index |
| |
| Large Cap Core
Fund |
|
Russell 1000®
Index |
| |
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
3
[GRAPHIC] Key Facts
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
Each Fund is a “feeder” fund that invests
all of its assets in a corresponding “master” portfolio
(each, a “Portfolio”) of the Master Large Cap Series Trust
(“the Trust”) that has the same objectives as the Fund.
All investments will be made at the Trust level. This structure is
sometimes called a “master/feeder” structure. Each Fund
’s investment results will correspond directly to the
investment results of the Portfolio in which it invests. For
simplicity, this Prospectus uses the term “Fund” to
include the Portfolio in which a Fund invests.
What are the main risks of investing in the
Funds?
As with any fund, the value of a Fund’s
investments—and therefore the value of Fund shares—may
fluctuate. These changes may occur because a particular stock market
is rising or falling. At other times, there are specific factors
that may affect the value of a particular investment. Each Fund is
also subject to the risk that the stocks the Investment Adviser
selects will underperform the stock markets, the relevant indices or
other funds with similar investment objectives and investment
strategies. Since foreign markets may differ significantly from U.S.
markets in terms of both economic conditions and government
regulation, investment in foreign securities involves special risks.
If the value of your Fund’s investments goes down, you may lose
money.
Who should invest?
A Fund may be an appropriate investment for you if
you:
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Are
investing with long term goals in mind, such as retirement or
funding a child’s education
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Ÿ
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Want a
professionally managed and diversified portfolio
|
|
Ÿ
|
Are
willing to accept the risk that the value of your investment may
decline in order to seek long term capital growth
|
|
Ÿ
|
Are not
looking for a significant amount of current income
|
This Prospectus does not include a Risk/Return Bar
Chart because as of the date of this Prospectus, the Funds have not
yet commenced operations.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
4
UNDERSTANDING EXPENSES
Fund investors pay various expenses, either directly
or indirectly. Listed below are some of the main types of expenses,
which all mutual funds may charge:
Expenses paid directly by the
shareholder:
Shareholder Fees
— these fees include sales charges, which you may pay
when you buy or sell shares of a Fund.
Expenses paid indirectly by the
shareholder:
Annual Fund Operating
Expenses — expenses that cover the
costs of operating a Fund.
Management Fee
— a fee paid to the Investment Adviser for managing a
Fund.
Distribution Fees
— fees used to support a Fund’s marketing and
distribution efforts, such as compensating Financial Consultants,
advertising and promotion.
Service (Account Maintenance)
Fees — fees used to compensate
securities dealers for account maintenance activities.
Each Fund offers four different classes of shares.
Although your money will be invested the same way no matter which
class of shares you buy, there are differences among the fees and
expenses associated with each class. Not everyone is eligible to buy
every class. After determining which classes you are eligible to
buy, decide which class best suits your needs. Your Merrill Lynch
Financial Consultant can help you with this decision.
This table shows the different fees and expenses that
you may pay if you buy and hold the different classes of shares of a
Fund. Future expenses may be greater or less than those indicated
below.
Shareholder
Fees (Fees paid directly from your
investment)(a): |
|
Class
A |
|
Class
B(b) |
|
Class
C |
|
Class
D |
|
Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering
price) |
|
5.25%(c) |
|
None |
|
None |
|
5.25%(c) |
|
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, whichever is
lower) |
|
None(d) |
|
4.0%(c) |
|
1.0%(c) |
|
None(d) |
|
Maximum Sales Charge (Load) imposed on
Dividend Reinvestments |
|
None |
|
None |
|
None |
|
None |
|
|
Redemption Fee |
|
None |
|
None |
|
None |
|
None |
|
|
Exchange Fee |
|
None |
|
None |
|
None |
|
None |
|
Annual Fund Operating Expenses (Expenses that are
deducted from the Funds’
assets)(e): |
|
|
Management Fee(f) |
|
0.75% |
|
0.75% |
|
0.75% |
|
0.75% |
|
|
Distribution and/or Service (12b-1)
Fees(g) |
|
None |
|
1.00% |
|
1.00% |
|
0.25% |
|
|
Other Expenses (including transfer agency
fees)(h) |
|
0.80% |
|
0.80% |
|
0.80% |
|
0.80% |
|
|
Total Annual Fund Operating Expenses |
|
1.55% |
|
2.55% |
|
2.55% |
|
1.80% |
|
|
Fee Waiver/ and/or Expense Reimbursement(i) |
|
0.05% |
|
0.05% |
|
0.05% |
|
0.05% |
|
|
Net Total Operating Expenses(j) |
|
1.50% |
|
2.50% |
|
2.50% |
|
1.75% |
|
(a)
|
In
addition, Merrill Lynch may charge a processing fee (currently
$5.35) when a client buys or sells shares.
|
(b)
|
Class B
shares automatically convert to Class D shares about eight years
after you buy them and will no longer be subject to distribution
fees.
|
(c)
|
Some
investors may qualify for reductions in the sales charge
(load).
|
(d)
|
You may
pay a deferred sales charge if you purchase $1 million or more and
you redeem within one year.
|
(e)
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For each
Fund, the fees and expenses include the expenses of both the Fund
and the Portfolio in which it invests.
|
(f)
|
Paid by
each Portfolio. The Investment Adviser provides accounting
services to each Portfolio at its cost.
|
(g)
|
The Funds
call the “Service Fee” an “Account Maintenance Fee.
” Account Maintenance Fee is the term used elsewhere in this
Prospectus and in all other Fund materials. If you hold Class B or
Class C shares for a long time, it may cost you more in
distribution (12b-1) fees than the maximum sales charge that you
would have paid if you had bought one of the other
classes.
|
(h)
|
Based on
estimated amounts for the current fiscal year. Each Fund pays the
Transfer Agent $11.00 for each Class A and Class D shareholder
account and $14.00 for each Class B and Class C shareholder
account and reimburses the Transfer Agent’s out-of-pocket
expenses. Each Fund pays a 0.10% fee for certain accounts that
participate in the Merrill Lynch Mutual Fund Advisor program. Each
Fund also pays $0.20 monthly closed account charge, which is
assessed upon all accounts that close during the year. This fee
begins the month following the month the account is closed and
ends at the end of the calendar year.
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(i)
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With
respect to each Fund the Investment Adviser has entered into a
contractual arrangement with either the Fund or its Portfolio as
necessary to assure that expenses incurred by each class of that
Fund will not exceed 1.50%. This does not include Distribution
and/or Service (12b-1) Fees. This arrangement has a one-year term
and is renewable.
|
(j)
|
The net
total operating expenses reflect the Investment Adviser’s
estimate of expenses that will actually be incurred during each
Fund’s current fiscal year, restated to reflect the
contractual fee waiver and/or expense reimbursement currently in
effect.
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MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
5
[GRAPHIC] Key Facts
Example:
These examples are intended to help you compare the
cost of investing in the Funds with the cost of investing in other
mutual funds.
These examples assume that you invest $10,000 in a
Fund for the time periods indicated, that your investment has a 5%
return each year, that you pay the sales charges, if any, that apply
to the particular class and that the Fund’s operating expenses
remain the same. This assumption is not meant to indicate you will
receive a 5% annual rate of return. Your annual return may be more
or less than the 5% used in these examples. Although your actual
costs may be higher or lower, based on these assumptions, your costs
would be:
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|
|
|
EXPENSES IF YOU DID REDEEM YOUR
SHARES:* |
|
| |
|
1
Year |
|
3 Years
† |
|
| Class
A |
|
$670 |
|
$
984 |
|
| Class
B |
|
$653 |
|
$
989 |
|
| Class
C |
|
$353 |
|
$
789 |
|
| Class
D |
|
$694 |
|
$1,057 |
|
|
|
EXPENSES IF YOU DID NOT REDEEM YOUR
SHARES:* |
|
| |
|
1
Year |
|
3 Years
† |
|
| Class
A |
|
$670 |
|
$
984 |
|
| Class
B |
|
$253 |
|
$
789 |
|
| Class
C |
|
$253 |
|
$
789 |
|
| Class
D |
|
$694 |
|
$1,057 |
|
*
|
For
each Fund, the expenses include the expenses of both the Fund
and the Portfolio in which it invests.
|
†
|
These
expenses do not reflect the continuation of the contractual
arrangement between the Investment Adviser and each Fund that
limits expenses incurred by each class of that Fund to 1.50%
beyond the first year. This does not include Distribution and/or
Service (12b-1) Fees. As stated above, this arrangement has a
one-year term and is renewable.
|
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
6
[GRAPHIC] Details About the Fund
ABOUT THE
PORTFOLIO MANAGER
Robert C. Doll, Jr. is a Senior Vice President and
the Portfolio Manager of the Funds. Mr. Doll has been a Senior
Vice President of Fund Asset Management since 1999. Prior to
joining the Investment Adviser, Mr. Doll was Chief Investment
Officer of OppenheimerFunds, Inc. in 1999 and an Executive Vice
President thereof from 1991 to 1999.
ABOUT THE INVESTMENT ADVISER
The Funds are managed by Fund Asset
Management.
Each Fund’s objective is long term capital
growth. Each Fund tries to achieve its objective by investing
primarily in a diversified portfolio of equity securities of large
cap companies located in the United States.
Each Fund seeks its investment objective by
investing at least 80% of its total assets in common stocks of
companies the Investment Adviser selects from among those included
in the Fund’s applicable Russell 1000® index. The
Investment Adviser uses a different multi-factor quantitative
model to look for companies within the applicable Russell 1000
® index that, in its opinion, are consistent with the
investment objective of each Fund.
As a large cap fund, each Fund’s common stock
holdings will have a dollar-weighted market capitalization that
exceeds that of the top 5% of U.S. securities traded.
Each Fund will seek to outperform its
benchmark:
|
·
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The Large Cap Growth Fund–will seek
to outperform the Russell 1000® Growth Index by investing in
equity securities that the Investment Adviser believes have
above average earnings prospects. The Russell 1000® Growth
Index (which consists of those Russell 1000® securities with
a greater-than-average growth orientation) is a subset of the
Russell 1000® Index.
|
|
·
|
The Large Cap Value Fund–will seek to
outperform the Russell 1000® Value Index by investing in
equity securities that the Investment Adviser believes are
selling at below normal valuations. The Russell 1000® Value
Index, another subset of the Russell 1000® Index, consists
of those Russell 1000® companies with lower price-to-book
ratios and lower forecasted growth values.
|
|
·
|
The Large Cap Core Fund–has a blended
investment strategy that emphasizes a mix of both growth and
value and will seek to outperform the Russell 1000®
Index.
|
Although the Growth Fund emphasizes growth-oriented
investments, the Value Fund emphasizes value-oriented investments
and the Core Fund uses a blend of growth and value, there are
equity investment strategies common to all three Funds. In
selecting securities for a Fund’s portfolio from that Fund
’s benchmark universe, the Investment Adviser uses a
different proprietary quantitative model for each Fund. Each model
employs three filters in its
initial screens: earnings momentum, earnings surprise and valuation.
For each Fund, the Investment Adviser looks for strong relative
earnings growth, preferring internal growth and unit growth to
growth resulting from a company’s pricing structure. A company
’s stock price relative to its earnings and book value is
also examined—if the Investment Adviser believes that a
company is overvalued, it will not be considered as an investment
for any Fund. After the initial screening is done, the Investment
Adviser relies on fundamental analysis, using both internal and
external research, to optimize its quantitative model to choose
companies the Investment Adviser believes have strong, sustainable
earnings growth with current momentum at attractive price
valuations.
Each Fund typically will hold between 60 and 100
stocks from among those included in its applicable Russell 1000
® index. Because a Fund generally will not hold all the stocks
in its applicable index, and because a Fund’s investments may
be allocated in amounts that vary from the proportional weightings
of the various stocks in that index, the Funds are not “index
” funds. In seeking to outperform the relevant benchmark,
however, the Investment Adviser reviews potential investments
using certain criteria that are based on the securities in the
relevant index. These criteria currently include the
following:
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Relative price to earnings and price to book
ratios
|
|
Ÿ
|
Weighted median market capitalization of a Fund’s
portfolio
|
|
Ÿ
|
Allocation among the economic sectors of a Fund’s
portfolio as compared to the applicable index
|
|
Ÿ
|
Weighted individual stocks within the applicable
index
|
These criteria are explained in detail in the
Statement of Additional Information.
Each Fund also may invest up to 10% of its total
assets in securities of companies organized under the laws of
countries other than the United States that are traded on foreign
securities exchanges or in the foreign over-the-counter markets,
including securities of foreign issuers that are represented by
American Depositary Receipts, or “ADRs.” Securities of
foreign issuers that are represented by ADRs or that are listed on
a U.S. securities exchange or traded in the U.S. over-the-counter
markets are considered “foreign securities” for the
purpose of the Fund’s investment allocations. The Fund
anticipates that it would generally limit its foreign securities
investments to ADRs of issuers in developed countries.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
8
Each Fund may invest in investment grade
convertible securities, preferred stocks and U.S. Government debt
securities (i.e., securities that are direct obligations of the
U.S. Government). There are no restrictions on the maturity of the
debt securities in which a Fund may invest.
As a temporary measure for defensive purposes, each
Fund may invest without limit in cash, cash equivalents or
short-term U.S. Government securities. These investments may
include high quality, short-term money market instruments such as
U.S. Treasury and agency obligations, commercial paper
(short-term, unsecured, negotiable promissory notes of a domestic
or foreign company), short-term debt obligations of corporate
issuers and certificates of deposit and bankers’ acceptances.
These investments may hamper a Fund’s ability to meet its
investment objective.
This section contains a summary discussion of the
general risks of investing in the Funds. As with any fund, there
can be no guarantee that a Fund will meet its objective, or that a
Fund’s performance will be positive over any period of
time.
Market Risk and Selection
Risk — As equity
funds, the Funds’ principal risks are market risk and
selection risk. Market risk is the risk that the equity markets
will go down in value, including the possibility that the equity
markets will go down sharply and unpredictably. Selection risk is
the risk that the stocks that the Investment Adviser selects will
underperform the markets or other funds with similar investment
objectives and investment strategies.
The Funds also may be subject to risks associated
with the following investment strategies.
Derivatives —
The Funds may use derivatives
such as futures and options for hedging purposes, including
anticipatory hedges and cross-hedges. Hedging is a strategy in
which a Fund uses a derivative to offset the risk that other Fund
holdings may decrease in value. While hedging can reduce losses,
it can also reduce or eliminate gains if the market moves in a
different manner than anticipated by the Fund or if the cost of
the derivative outweighs the benefit of the hedge. Hedging also
involves the risk that changes in the value of the derivative will
not match those of the holdings being hedged as expected by the
Fund, in which case any losses on the holdings being hedged may
not be reduced. There can be no assurance that any Fund’s
hedging strategy will reduce risk or that hedging transactions
will be either available or cost
effective. The Funds are not required to use hedging and may choose
not to do so.
When Issued and Delayed
Delivery Securities and Forward Commitments
— When issued and
delayed delivery securities and forward commitments involve the
risk that a security a Fund buys will lose value prior to its
delivery. There also is the risk that the security will not be
issued or that the other party will not meet its obligation. If
this occurs, the Fund both loses the investment opportunity for
the assets it has set aside to pay for the security and any gain
in the security’s price.
Borrowing and
Leverage — Each Fund may borrow for temporary emergency
purposes including to meet redemptions. Borrowing may exaggerate
changes in the net asset value of a Fund’s shares and in the
yield on a Fund’s portfolio. Borrowing will cost a Fund
interest expense and other fees. The costs of borrowing may reduce
a Fund’s return. Certain securities that the Funds buy may
create leverage including, for example, derivatives, when issued
securities, forward commitments and options. The use of
investments that create leverage subjects a Fund to the risk that
relatively small market movements may result in large changes in
the value of an investment and may result in losses that greatly
exceed the amount invested.
Foreign Market Risks
— Each Fund may
invest in companies located in countries other than the United
States. This may expose each Fund to risks associated with foreign
investments.
|
Ÿ
|
The
value of holdings traded outside the U.S. (and any hedging
transactions in foreign currencies) will be affected by changes
in currency exchange rates
|
|
Ÿ
|
The
costs of non-U.S. securities transactions tend to be higher than
those of U.S. transactions
|
|
Ÿ
|
These
holdings may be adversely affected by foreign government
action
|
|
Ÿ
|
International trade barriers or economic sanctions
against certain non-U.S. countries may adversely affect these
holdings
|
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the
Funds, including how they invest, please see the Statement of
Additional Information.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
10
[GRAPHIC] Your Account
MERRILL LYNCH SELECT PRICING
SM
SYSTEM
Each Fund offers four classes of shares, each with
its own sales charge and expense structure, allowing you to invest
in the way that best suits your needs. Each share class represents
an ownership interest in the same investment portfolio. When you
choose your class of shares, you should consider the size of your
investment and how long you plan to hold your shares. Your Merrill
Lynch Financial Consultant can help you determine which share
class is best suited to your personal financial goals.
For example, if you select Class A or D shares, you
generally pay a sales charge at the time of purchase. If you buy
Class D shares, you also pay an ongoing account maintenance fee of
0.25%. You may be eligible for a sales charge reduction or
waiver.
If you select Class B or C shares, you will invest
the full amount of your purchase price, but you will be subject to
a distribution fee of 0.75% and an account maintenance fee of
0.25%. Because these fees are paid out of a Fund’s assets on
an ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales
charge. In addition, you may be subject to a deferred sales charge
when you sell Class B or C shares.
The Funds’ shares are distributed by Merrill
Lynch Funds Distributor, a division of Princeton Funds
Distributor, Inc., an affiliate of Merrill Lynch.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
11
[LOGO] Your Account
The table below summarizes key features of the
Merrill Lynch Select Pricing
SM
System.
| |
|
Class
A |
|
Class
B |
|
Class
C |
|
Class
D |
|
| Availability |
|
Limited to
certain
investors including:
Ÿ Current Class A
shareholders
Ÿ Certain Retirement
Plans
Ÿ Participants in
certain Merrill Lynch-
sponsored programs
Ÿ Certain affiliates of
Merrill Lynch |
|
Generally
available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally
available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally
available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
|
|
Initial Sales
Charge? |
|
Yes. Payable at
time
of purchase. Lower
sales charges available
for certain larger
investments. |
|
No. Entire
purchase
price is invested in
shares of the Fund. |
|
No. Entire
purchase
price is invested in
shares of the Fund. |
|
Yes. Payable at
time
of purchase. Lower
sales charges available
for larger
investments. |
|
Deferred Sales
Charge? |
|
No. (May be
charged
for purchases over
$1 million that are
redeemed within one
year.) |
|
Yes. Payable if
you
redeem within four
years of purchase. |
|
Yes. Payable if
you
redeem within one
year of purchase. |
|
No. (May be
charged
for purchases over
$1 million that are
redeemed within one
year.) |
|
|
|
Account
Maintenance and
Distribution Fees? |
|
No. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
No Distribution Fee. |
|
Conversion to
Class D Shares? |
|
No. |
|
Yes,
automatically
after approximately
eight years. |
|
No. |
|
No. |
|
|
|
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
12
Right of Accumulation — permits you to pay the
sales charge that would apply to the cost or value (whichever is
higher) of all shares you own in the Merrill Lynch mutual funds
that offer Select Pricing options.
Letter of Intent
— permits you to pay the sales charge that would be
applicable if you add up all shares of Merrill Lynch Select
Pricing
SM
System funds that you agree to buy within a 13 month
period. Certain restrictions apply.
Class A and Class D Shares — Initial
Sales Charge Options
If you select Class A or D shares, you will pay a
sales charge at the time of purchase as shown in the following
table.
| Your
Investment |
|
As a
% of
Offering Price |
|
As a
% of
Your Investment* |
|
Dealer
Compensation
as a % of
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.
|
**
|
If you invest $1,000,000 or more in Class A or D
shares, you may not pay an initial sales charge. However, if
you redeem your shares within one year after purchase, you may
be charged a deferred sales charge. This charge is 1% of the
lesser of the original cost of the shares being redeemed or
your redemption proceeds. A sales charge of 0.75% will be
charged on purchases of $1,000,000 or more of Class A and D
shares by certain employer sponsored retirement or savings
plans.
|
No initial sales charge applies to Class A or
Class D shares that you buy through reinvestment of
dividends.
A reduced or waived sales charge on a purchase of
Class A or D shares may apply for:
|
Ÿ
|
Purchases under a Right of Accumulation
or Letter of Intent
|
|
Ÿ
|
Merrill Lynch Blueprint
SM
Program participants
|
|
Ÿ
|
Certain Merrill Lynch investment or central
asset accounts
|
|
Ÿ
|
Certain employer-sponsored retirement or savings
plans
|
|
Ÿ
|
Purchases using proceeds from the sale of
certain Merrill Lynch closed-end funds under certain
circumstances
|
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
13
[GRAPHIC] Your Account
|
Ÿ
|
Certain investors, including directors or
trustees of Merrill Lynch mutual funds and Merrill Lynch
employees
|
|
Ÿ
|
Certain Merrill Lynch fee-based
programs
|
Only certain investors are eligible to buy Class A
shares. Your Merrill Lynch Financial Consultant can help you
determine whether you are eligible to buy Class A shares or to
participate in any of these programs.
If you decide to buy shares under the initial
sales charge alternative and you are eligible to buy both Class A
and Class D shares, you should buy Class A shares since Class D
shares are subject to a 0.25% account maintenance fee, while
Class A shares are not.
If you redeem Class A or Class D shares and within
30 days buy new shares of the same class, you will not pay a
sales charge on the new purchase amount. The amount eligible for
this “Reinstatement Privilege” may not exceed the
amount of your redemption proceeds. To exercise the privilege,
contact your Merrill Lynch Financial Consultant or the Funds
’ Transfer Agent at 1-800-MER-FUND.
Class B and Class C Shares —
Deferred Sales Charge Options
If you select Class B or Class C shares, you do
not pay an initial sales charge at the time of purchase. However,
if you redeem your Class B shares within four years after
purchase or Class C shares within one year after purchase, you
may be required to pay a deferred sales charge. You will also pay
distribution fees of 0.75% and account maintenance fees of 0.25%
each year under distribution plans that each Fund has adopted
under Rule 12b-1. Because these fees are paid out of the Funds
’ assets on an ongoing basis, over time these fees increase
the cost of your investment and may cost you more than paying an
initial sales charge. The Distributor uses the money that it
receives from the deferred sales charge and the distribution fees
to cover the costs of marketing, advertising and compensating the
Merrill Lynch Financial Consultant or other securities dealer who
assists you in your decision in purchasing Fund
shares.
Class B Shares
If you redeem Class B shares within four years
after purchase, you may be charged a deferred sales charge. The
amount of the charge gradually decreases as you hold your shares
over time, according to the following schedule:
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
14
| Years Since
Purchase |
|
Sales
Charge* |
|
|
0 – 1 |
|
4.00% |
|
|
1 – 2 |
|
3.00% |
|
|
2 – 3 |
|
2.00% |
|
|
3 – 4 |
|
1.00% |
|
|
4 and thereafter |
|
0.00% |
|
*
|
The percentage charge will apply to the lesser
of the original cost of the shares being redeemed or the
proceeds of your redemption. Shares acquired by dividend
reinvestment are not subject to a deferred sales charge.
Merrill Lynch funds may not all have identical deferred sales
charge schedules. In the event of an exchange for the shares of
another Merrill Lynch fund, the higher charge would
apply.
|
The deferred sales charge relating to Class B
shares may be reduced or waived in certain circumstances, such
as:
|
Ÿ
|
Certain post-retirement withdrawals from an IRA
or other retirement plan if you are over 59
1
/2 years old
|
|
Ÿ
|
Redemption by certain eligible 401(a) and 401(k)
plans, certain related accounts, group plans participating in
the Merrill Lynch Blueprint
SM
Program and certain retirement plan
rollovers
|
|
Ÿ
|
Redemption in connection with participation in
certain Merrill Lynch fee-based programs
|
|
Ÿ
|
Withdrawals resulting from shareholder death or
disability as long as the waiver request is made within one
year after death or disability or, if later, reasonably
promptly following completion of probate, or in connection with
involuntary termination of an account in which Fund shares are
held
|
|
Ÿ
|
Withdrawal through the Merrill Lynch Systematic
Withdrawal Plan of up to 10% per year of your Class B account
value at the time the plan is established
|
Your Class B shares convert automatically into
Class D shares approximately eight years after purchase. Any
Class B shares received through reinvestment of dividends paid on
converting shares will also convert at that time. Class D shares
are subject to lower annual expenses than Class B shares. The
conversion of Class B shares to Class D shares is not a taxable
event for Federal income tax purposes.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
15
[GRAPHIC] Your Account
Different conversion schedules apply to Class B
shares of different Merrill Lynch mutual funds. For example,
Class B shares of a fixed income fund typically convert
approximately ten years after purchase compared to approximately
eight years for equity funds. If you acquire your Class B shares
in an exchange from another fund with a shorter conversion
schedule, the Funds’ eight year conversion schedule will
apply. If you exchange your Class B shares in a Fund for Class B
shares of a fund with a longer conversion schedule, the other fund
’s conversion schedule will apply. The length of time that
you hold the original and exchanged Class B shares in both funds
will count toward the conversion schedule. The conversion
schedule may be modified in certain other cases as
well.
Class C Shares
If you redeem Class C shares within one year after
purchase, you may be charged a deferred sales charge of 1.00%.
The charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. You
will not be charged a deferred sales charge when you redeem
shares that you acquire through reinvestment of Fund dividends.
The deferred sales charge relating to Class C shares may be
reduced or waived in connection with involuntary termination of
an account in which Fund shares are held and withdrawals through
the Merrill Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion
privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart below summarizes how to buy, sell,
transfer and exchange shares through Merrill Lynch or other
securities dealers. You may also buy shares through the Transfer
Agent. To learn more about buying shares through the Transfer
Agent, call 1-800-MER-FUND. Because the selection of a mutual
fund involves many considerations, your Merrill Lynch Financial
Consultant may help you with this decision.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
16
| If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
| Buy
Shares |
|
First, select
the share class
appropriate for you |
|
Please refer to
the Merrill Lynch Select Pricing table on page 12.
Be sure to read this prospectus carefully. |
|
|
|
| |
|
Next,
determine the
amount of your investment |
|
The minimum
initial investment for each Fund is $1,000 for all
accounts except:
Ÿ $250 for certain Merrill Lynch fee-based
programs
Ÿ $100 for retirement plans |
|
|
| |
|
|
|
(The minimums
for initial investments may be waived under
certain circumstances.) |
|
| |
|
Have your
Merrill Lynch
Financial Consultant or
securities dealer submit
your purchase order |
|
The price of
your shares is based on the next calculation of net
asset value after your order is placed. Any purchase orders
placed
prior to the close of business on the New York Stock Exchange
(generally, 4:00 p.m. Eastern time) will be priced at the net
asset
value determined that day. |
|
|
| |
|
|
|
Purchase
orders placed after that time will be priced at the net
asset value determined on the next business day. The Funds may
reject any order to buy shares and may suspend the sale of shares
at any time. Merrill Lynch may charge a processing fee to confirm
a purchase. This fee is currently $5.35. |
|
| |
|
Or contact the
Transfer
Agent |
|
To purchase
shares directly, call the Transfer Agent at 1-800-MER-
FUND and request a purchase application. Mail the completed
purchase application to the Transfer Agent at the address on the
inside back cover of this prospectus. |
|
Add to Your
Investment |
|
Purchase
additional shares |
|
The minimum
investment for additional purchases is generally $50
except that retirement plans have a minimum additional purchase
of $1 and certain programs, such as automatic investment plans,
may have higher minimums. |
|
|
| |
|
|
|
(The minimums
for additional purchases may be waived under
certain circumstances.) |
|
| |
|
Acquire
additional shares
through the automatic
dividend reinvestment plan |
|
All dividends
are automatically reinvested without a sales
charge. |
|
| |
|
Participate in
the automatic
investment plan |
|
You may invest
a specific amount on a periodic basis through
certain Merrill Lynch investment or central asset
accounts. |
|
Transfer
Shares to
Another Securities
Dealer |
|
Transfer to a
participating
securities dealer |
|
You may
transfer your Fund shares only to another securities
dealer that has entered into an agreement with Merrill Lynch.
Certain shareholder services may not be available for the
transferred shares. You may only purchase additional shares of
funds previously owned before the transfer. All future trading of
these shares must be coordinated by the receiving
firm. |
|
| |
|
Transfer to a
non-
participating securities
dealer |
|
You must
either:
Ÿ Transfer your shares to an account with
the Transfer Agent; or
Ÿ Sell your shares, paying any applicable
deferred sales charge. |
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
17
[LOGO] Your Account
| If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
| Sell Your
Shares |
|
Have your
Merrill Lynch
Financial Consultant or
securities dealer submit
your sales order |
|
The price of
your shares is based on the next calculation of net
asset value after your order is placed. For your redemption
request
to be priced at the net asset value on the day of your request,
you
must submit your request to your dealer prior to the close of
business on the New York Stock Exchange (generally 4:00 p.m.
Eastern time). Any redemption request placed after that time will
be priced at the net asset value at the close of business on the
next business day. |
|
|
| |
|
|
|
Securities
dealers, including Merrill Lynch, may charge a fee to
process a redemption of shares. Merrill Lynch currently charges a
fee of $5.35. No processing fee is charged if you redeem shares
directly through the Transfer Agent. |
|
|
| |
|
|
|
The Funds may
reject an order to sell shares under certain
circumstances. |
|
| |
|
Sell through
the Transfer
Agent |
|
You may sell
shares held at the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of this
prospectus. All shareholders on the account must sign the
letter. A
signature guarantee generally will be required but may be waived
in certain limited circumstances. You can obtain a signature
guarantee from a bank, securities dealer, securities broker,
credit
union, savings association, national securities exchange and
registered securities association. A notary public seal will not
be
acceptable. If you hold stock certificates, return the
certificates
with the letter. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly
completed request. If you make a redemption request before a
Fund has collected payment for the purchase of shares, the Fund
or the Transfer Agent may delay mailing your proceeds. This delay
usually will not exceed ten days. |
|
|
| |
|
|
|
If you hold
share certificates, they must be delivered to the
Transfer Agent before they can be converted. Check with the
Transfer Agent or your Merrill Lynch Financial Consultant for
details. |
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
18
| If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
Sell Shares
Systematically |
|
Participate in
a Fund’s
Systematic Withdrawal Plan |
|
You can choose
to receive systematic payments from your Fund
account either by check or through direct deposit to your bank
account on a monthly or quarterly basis. If you hold your Fund
shares in a Merrill Lynch CMA®, CBA® or Retirement
Account you
can arrange for systematic redemptions of a fixed dollar amount
on a monthly, bi-monthly, quarterly, semi-annual or annual basis,
subject to certain conditions. Under either method you must have
dividends automatically reinvested. For Class B and C shares your
total annual withdrawals cannot be more than 10% per year of
the value of your shares at the time your plan is established.
The
deferred sales charge is waived for systematic redemptions. Ask
your Merrill Lynch Financial Consultant for details. |
|
Exchange Your
Shares |
|
Select the
fund into which
you want to exchange. Be
sure to read that fund’s
prospectus |
|
You can
exchange your shares of a Fund for shares of many other
Merrill Lynch mutual funds. You must have held the shares used in
the exchange for at least 15 calendar days before you can
exchange to another fund. |
|
|
| |
|
|
|
Each class of
Fund shares is generally exchangeable for shares of
the same class of another Merrill Lynch fund. If you own Class A
shares and wish to exchange into a fund in which you have no
Class A shares (and you are not eligible to purchase Class A
shares),
you will exchange into Class D shares. |
|
|
| |
|
|
|
Some of the
Merrill Lynch mutual funds impose a different initial
or deferred sales charge schedule. If you exchange Class A or
Class
D shares for shares of a fund with a higher initial sales charge
than you originally paid, you will be charged the difference at
the
time of exchange. If you exchange Class B shares for shares of a
fund with a different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or C shares in
both
funds will count when determining your holding period for
calculating a deferred sales charge at redemption. If you
exchange
Class A or D shares for money market fund shares, you will
receive
Class A shares of Summit Cash Reserves Fund. Class B or C shares
of
a Fund will be exchanged for Class B shares of
Summit. |
|
|
| |
|
|
|
Although there
is currently no limit on the number of exchanges
that you can make, the exchange privilege may be modified or
terminated at any time in the future. |
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
19
[GRAPHIC] Your Account
Net Asset
Value — the market value of a Fund
’s total assets after deducting liabilities, divided by the
number of shares outstanding.
HOW SHARES ARE PRICED
When you buy shares, you pay the net asset
value, plus any applicable sales charge. This is the
offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Funds
calculate their net asset value (generally by using market
quotations) each day the New York Stock Exchange is open as of
the close of business on the Exchange based on prices at the
time of closing. The Exchange generally closes at 4:00 p.m.
Eastern time. The net asset value used in determining your price
is the next one calculated after your purchase or redemption
order is placed. Foreign securities owned by the Funds may trade
on weekends or other days when the Funds do not price their
shares. As a result, the Funds’ net asset value may change
on days when you will not be able to purchase or redeem Fund
shares.
Generally, Class A shares will have the highest
net asset value because that class has the lowest expenses, and
Class D shares will have a higher net asset value than Class B
or Class C shares. Also, dividends paid on Class A and Class D
shares will generally be higher than dividends paid on Class B
and Class C shares because Class A and Class D shares have lower
expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
If you participate in certain fee-based programs
offered by Merrill Lynch, you may be able to buy Class A shares
at net asset value, including by exchanges from other share
classes. Sales charges on the shares being exchanged may be
reduced or waived under certain circumstances.
You generally cannot transfer shares held through
a fee-based program into another account. Instead, you will have
to redeem your shares held through the program and purchase
shares of another class, which may be subject to distribution
and account maintenance fees. This may be a taxable event and
you will pay any applicable sales charges.
If you leave one of these programs, your shares
may be redeemed or automatically exchanged into another class of
a Fund’s shares or into a money market fund. The class you
receive may be the class you originally owned when you entered
the program, or in certain cases, a different class. If the
exchange is into Class B shares, the period before conversion to
Class D shares may be modified. Any redemption or exchange will
be at net asset value. However, if you participate in the
program for less than a specified period, you may be charged a
fee in accordance with the terms of the program.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
20
Dividends —
ordinary income and capital gains paid to shareholders.
Dividends may be reinvested in additional Fund shares as they
are paid.
“BUYING A DIVIDEND”
Unless your investment is in a tax-deferred
account, you may want to avoid buying shares shortly before a
Fund pays a dividend. The reason? If you buy shares when a fund
has realized but not yet distributed ordinary income or capital
gains, you will pay the full price for the shares and then
receive a portion of the price back in the form of a taxable
dividend. Before investing you may want to consult your tax
adviser.
Details about these features and the relevant
charges are included in the client agreement for each fee-based
program and are available from your Merrill Lynch Financial
Consultant.
DIVIDENDS AND TAXES
The Funds will distribute at least annually any
net investment income and any net realized long or short-term
capital gains. The Funds may also pay a special distribution at
the end of the calendar year to comply with Federal tax
requirements. Dividends may be reinvested
automatically in shares of a Fund at net asset value without a
sales charge or may be taken in cash. If your account is with
Merrill Lynch, contact your Merrill Lynch Financial Consultant
about which option you would like. If your account is with the
Transfer Agent, and you would like to receive dividends in cash,
contact the Transfer Agent. Although this cannot be predicted
with any certainty, each Fund anticipates that the majority of
its dividends, if any, will consist of capital
gains.
You will pay tax on dividends from a Fund whether
you receive them in cash or additional shares. If you redeem
Fund shares or exchange them for shares of another fund, any
gain on the transaction may be subject to tax. Capital gain
dividends are generally taxed at different rates than ordinary
income dividends.
If you are neither a lawful permanent resident
nor a citizen of the U.S. or if you are a foreign entity, a Fund
’s ordinary income dividends (which include distributions
of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate
applies.
By law, a Fund must withhold 31% of your
dividends and redemption proceeds if you have not provided a
taxpayer identification number or social security number or if
the number you have provided is incorrect.
Dividends and interest received by the Funds may
give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes.
This section summarizes some of the consequences
under current Federal tax law of an investment in a Fund. It is
not a substitute for personal tax advice. Consult your personal
tax adviser about the potential tax consequences of an
investment in a Fund under all applicable tax laws.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
21
[GRAPHIC] Management of the Fund
Fund Asset Management, the Funds’
Investment Adviser, manages each Portfolio’s investments
under the overall supervision of the Board of Trustees of the
Master Large Cap Series Trust. The Investment Adviser has the
responsibility for making all investment decisions for the
Funds. The Investment Adviser has a sub-advisory agreement with
Merrill Lynch Asset Management U.K. Limited, an affiliate, under
which the Investment Adviser may pay a fee for services it
receives. The Trust pays the Investment Adviser a fee at the
annual rate of 0.75% of the average daily net assets of the
Trust.
Fund Asset Management was organized as an
investment adviser in 1977 and offers investment advisory
services to more than 50 registered investment companies.
Merrill Lynch Asset Management U.K. Limited was organized as an
investment adviser in 1986 and acts as sub-adviser to more than
50 registered investment companies. Fund Asset Management is
part of the Asset Management Group of ML & Co., which had
approximately $534 billion in investment company and other
portfolio assets under management as of November 1999. This
amount includes assets managed for affiliates of the Investment
Adviser.
Each Fund is a series of Merrill Lynch Large Cap
Series Funds, Inc. and is a “feeder” fund that invests
in a corresponding “master” portfolio of the Master
Large Cap Series Trust. (Except where indicated, this prospectus
uses the term “Fund” to mean a feeder fund and its
Portfolio taken together.) Investors in a Fund will acquire an
indirect interest in the corresponding Portfolio.
Each Portfolio accepts investments from other
feeder funds, and all the feeders of a given Portfolio bear the
portfolio’s expenses in proportion to their assets. This
structure may enable the Funds to reduce costs through economies
of scale. A larger investment portfolio may also reduce certain
transaction costs to the extent that contributions to and
redemptions from the Portfolio from different feeders may offset
each other and produce a lower net cash flow.
However, each feeder can set its own transaction
minimums, fund-specific expenses, and other conditions. This
means that one feeder could offer access to the same Portfolio
on more attractive terms, or could experience better
performance, than another feeder.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
22
Whenever a Portfolio holds a vote of its feeder
funds, the Fund investing in that Portfolio will pass the vote
through to its own shareholders. Smaller feeder funds may be
harmed by the actions of larger feeder funds. For example, a
larger feeder fund could have more voting power than a Fund over
the operations of its Portfolio.
A Fund may withdraw from its master portfolio at
any time and may invest all of its assets in another pooled
investment vehicle or retain an investment adviser to manage the
Fund’s assets directly.
A Note About Year 2000
As the year 2000 began, there were few problems
caused by the inability of certain computer systems to tell the
difference between the year 2000 and the year 1900 (commonly
known as the “Year 2000 Problem”). It is still
possible that some computer systems could malfunction in the
future because of the Year 2000 Problem or as a result of
actions taken to address the Year 2000 Problem. Fund management
does not anticipate that its services or those of the Funds
’ other service providers will be adversely affected, but
Fund management will continue to monitor the situation. If
malfunctions related to the Year 2000 Problem do arise, the
Funds and their investments could be negatively
affected.
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
23
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MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
[This page intentionally left
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MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
[This page intentionally left
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MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
[FLOW CHART]
------------------------------------
POTENTIAL
INVESTORS
Open an account (two options).
------------------------------------
________________|____________________
| |
| |
1 2
\|/ \|/
------------------------- --------------------------------
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT Financial Data Services, Inc.
or SECURITIES DEALER P.O. Box 44062
Jacksonville, Florida 32232-4062
Advises shareholders on
their Fund investments Performs recordkeeping and
reporting services
------------------------- -------------------------------
| |
| |
| |
| |
| |
| ------------------------------------ |
| DISTRIBUTOR |
|__________\ /________|
/ Merrill Lynch Funds Distributor, \
a division of Princeton Funds Distributor, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
-------------------------------------
|
|
\|/
------------------------ ------------------------ ------------------------------
COUNSEL THE FUNDS CUSTODIAN
The Board of Directors
Brown & Wood LLP oversees the Fund. Brown Brothers Harriman & Co.
One World Trade Center 40 Water Street
New York, New York 10048-0557 Boston, Massachusetts 02109
Provides legal advice to the Funds Holds the Funds' assets for
safekeeping.
----------------------- ---------------------- --------------------------------
/|\ /|\
-------------------------- | | -------------------------------
INDEPENDENT AUDITORS ________| |________ INVESTMENT ADVISER
Deloitte & Touche LLP Fund Asset
Princeton Forrestal Village Management, L.P.
116-300 Village Boulevard ADMINISTRATIVE OFFICES
Princeton, New Jersey 08540-6400 800 Scudders Mill Road
Audits the financial Plainsboro, New Jersey 08536
statements of the Fund on behalf MAILING ADDRESS
of the shareholders. P.O. Box 9011
-------------------------- Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Funds' day-to-day
activities.
--------------------------------
MERRILL LYNCH LARGE CAP SERIES FUNDS,
INC.
[GRAPHIC] For More Information
Additional information about each Fund’s
investments will be available in the Funds’ annual and
semi-annual reports to shareholders. In the Fund’s annual
report you will find a discussion of the market conditions and
investment strategies that significantly affected each Fund
’s performance during its last fiscal year. You may obtain
these reports at no cost by calling 1-800-MER-FUND.
Each Fund will send you one copy of each
shareholder report and certain other mailings, regardless of the
number of Fund accounts you have. To receive separate
shareholder reports for each account, call your Merrill Lynch
Financial Consultant or write to the Transfer Agent at its
mailing address. Include your name, address, tax identification
number and Merrill Lynch brokerage or mutual fund account
number. If you have any questions, please call your Merrill
Lynch Financial Consultant or the Transfer Agent at
1-800-MER-FUND.
Statement of Additional Information
The Funds’ Statement of Additional
Information contains further information about the Funds and is
incorporated by reference (legally considered to be part of this
Prospectus). You may request a free copy by writing the Funds at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville,
Florida 32232-5289 or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant
or the Funds at the telephone number or address indicated above,
if you have any questions.
Information about the Funds (including the
Statement of Additional Information) can be reviewed and copied
at the SEC’s Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC
’s Internet Site at http://www.sec.gov and copies may be
obtained upon payment of a duplicating fee by writing the Public
Reference Section of the SEC, Washington, D.C.
20549-6009.
You should rely only on the information
contained in this Prospectus. No one is authorized to provide
you with information that is different from the information
contained in this Prospectus.
Investment Company Act File #811-9637
Code #19076-01-00
©
Fund Asset Management, L.P.
[LOGO] Merrill Lynch
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Merrill Lynch Large Cap Growth Fund
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Merrill Lynch Large Cap Value Fund
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Merrill Lynch Large Cap Core Fund
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December 22,
1999 |
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[GRAPHIC]
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(Revised January 11, 2000)
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Merrill Lynch Large Cap Series Funds,
Inc.
Merrill Lynch Large Cap Growth
Fund
Merrill Lynch Large Cap Value
Fund
Merrill Lynch Large Cap Core
Fund
P.O. Box 9011, Princeton, New Jersey
08543-9011 Ÿ
Phone No. (609) 282-2800
Merrill Lynch Large Cap Series Funds, Inc. (the
“Corporation”), an open-end management investment
company organized as a Maryland corporation, consists of three
separate series: Merrill Lynch Large Cap Growth Fund (the
“Growth Fund”), Merrill Lynch Large Cap Value Fund
(the “Value Fund”) and Merrill Lynch Large Cap Core
Fund (the “Core Fund”). Each series of the corporation
is herein referred to as a “Fund.”
The main objective of each Fund is long term capital
growth. Each Fund seeks to achieve this objective through
investments primarily in a diversified portfolio of equity
securities of large cap companies that Fund management selects
from among those included in the Fund’s applicable Russell
1000® index.
Each Fund is a “feeder” fund that invests all of
its assets in a corresponding “master” portfolio
(each, a “Portfolio”) of the Master Large Cap Series
Trust (the “Trust”) that has the same investment
objective as the Fund. All investments will be made at the Trust
level. Each Fund’s investment results will correspond
directly to the investment results of the Portfolio in which it
invests. There can be no assurance that any Fund will achieve
its objective.
Pursuant to the Merrill Lynch Select Pricing
SM
System, each 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. See “Purchase of Shares.”
This Statement of Additional Information is not a
prospectus and should be read in conjunction with the Prospectus
of the Funds, dated December 22, 1999 (the “Prospectus
”), which has been filed with the Securities and Exchange
Commission (the “Commission”) and can be obtained,
without charge, by calling 1-800-MER-FUND or your Merrill Lynch
Financial Consultant, or by writing to the address listed above.
The Prospectus is incorporated by reference into this Statement
of Additional Information, and this Statement of Additional
Information is incorporated by reference into the
Prospectus.
Fund Asset Management — Investment
Adviser
Merrill Lynch Funds Distributor —
Distributor
The date of this Statement of Additional
Information is December 22, 1999.
TABLE OF CONTENTS
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Page
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Investment Objectives and Policies
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2 |
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Foreign Securities |
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3 |
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Warrants |
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4 |
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Borrowing and Leverage |
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4 |
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Convertible Securities |
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4 |
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Debt Securities |
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4 |
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Derivatives |
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4 |
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Other Investment Policies and
Practices |
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8 |
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Investment Restrictions |
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10 |
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Portfolio Turnover |
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12 |
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Management of the Funds
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13 |
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Directors and Officers |
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13 |
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Compensation of
Directors/Trustees |
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14 |
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Management and Advisory
Arrangements |
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15 |
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Code of Ethics |
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16 |
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Purchase of Shares
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17 |
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Initial Sales Charge Alternatives
— Class A and Class D Shares |
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18 |
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Reduced Initial Sales
Charges |
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18 |
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Deferred Sales Charges —
Class B and Class C Shares |
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21 |
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Distribution Plans |
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24 |
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Limitations on the Payment of Deferred
Sales Charges |
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25 |
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Redemption of Shares
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26 |
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Redemption |
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26 |
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Repurchase |
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26 |
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Reinstatement Privilege —
Class A and Class D Shares |
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27 |
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Pricing of Shares
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27 |
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Determination of Net Asset
Value |
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27 |
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Computation of Offering Price Per
Share |
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29 |
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Portfolio Transactions and Brokerage
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29 |
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Transactions in Portfolio
Securities |
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29 |
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Shareholder Services
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31 |
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Investment Account |
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31 |
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Exchange Privilege |
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31 |
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Fee-Based Programs |
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33 |
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Retirement and Educational Savings
Plans |
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33 |
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Automatic Investment Plans |
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34 |
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Automatic Dividend Reinvestment
Plan |
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34 |
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Systematic Withdrawal Plans |
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34 |
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Dividends and Taxes
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35 |
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Dividends |
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35 |
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Taxes |
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36 |
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Tax Treatment of Options and Futures
Transactions |
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37 |
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Special Rules for Certain Foreign
Currency Transactions |
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37 |
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Performance Data
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38 |
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General Information
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39 |
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Description of Shares |
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39 |
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Independent Auditors |
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40 |
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Custodian |
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40 |
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Transfer Agent |
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40 |
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Legal Counsel |
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41 |
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Reports to Shareholders |
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41 |
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Shareholder Inquiries |
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41 |
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Additional Information |
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41 |
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Independent Auditors’ Report
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42 |
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Statement of Assets and Liabilities
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43 |
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each Fund is long term capital
growth. This is a fundamental policy and cannot be changed
without shareholder approval. Each Fund seeks to achieve this
objective through investments primarily in a diversified
portfolio of equity securities of large cap companies located in
the United States. Each Fund also may invest up to 10% of its
assets in equity securities of companies located in countries
other than the United States. Reference is made to “How the
Funds Invest” in the Prospectus for a discussion of the
investment objective and policies of each Fund.
Each Fund is a “feeder” fund that invests all of
its assets in a corresponding “master” portfolio of
the Trust that has the same investment objective as the Fund.
All investments will be made at the Trust level. This structure
is sometimes called a “master/feeder” structure. Each
Fund’s investment results will correspond directly to the
investment results of the Portfolio in which it invests. For
simplicity, however, this Statement of Additional Information,
like the Prospectus, uses the term “Fund” to include
the underlying Portfolio in which that Fund invests. Reference
is made to the discussion under “How the Funds Invest”
and “Investment Risks” in the Prospectus for
information with respect to each Fund and its Trust portfolio
’s investment objective and policies. There can be no
guarantee that any Fund’s investment objectives will be
achieved.
As described in the Prospectus, each Fund generally seeks
to invest in companies that have a dollar-weighted market
capitalization greater than the top 5% of U.S. securities
traded. For each Fund, Fund Asset Management, L.P. (the
“Investment Adviser”) uses a different proprietary
multi-factor quantitative model to look for companies within the
applicable Russell 1000® index that, in the Investment
Adviser’s opinion, are consistent with the investment
objective of each Fund, as follows:
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The Growth Fund.
The Growth Fund seeks to invest in equity securities
that the Investment Adviser believes have above-average
earnings prospects; i.e., are likely to experience
consistent earnings growth over time. In seeking to outperform
its benchmark, the Russell 1000® Growth Index, the Fund
will allocate its common stock investments among industry
sectors in a manner generally comparable to the sector
weightings in the Russell 1000® Growth Index, as those
sectors are defined in the Standard & Poor’s 500
Index (“S&P 500”). The Fund also anticipates
that its individual holdings generally will be allocated so
that no individual security held by the Fund is overweighted
in the portfolio as compared to its weighting in the Russell
1000® Growth Index by more than 1%, and no security held
by the Fund is underweighted as compared to its weighting in
the Russell 1000® Growth Index by more than
2%.
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The Value Fund.
The Value Fund seeks to invest in equity securities that
the Investment Adviser believes are selling at below-normal
valuations; i.e., securities with lower price-to-book
ratios and lower price-to-earnings ratios. In seeking to
outperform its benchmark, the Russell 1000® Value Index,
the Fund will allocate its common stock investments among
industry sectors in a manner generally comparable to the
sector weightings in the Russell 1000® Value Index, as
those sectors are defined in the S&P 500. The Fund also
anticipates that its individual holdings generally will be
allocated so that no individual security is overweighted in
the portfolio as compared to its weighting in the Russell 1000
® Value Index by more than 1%, and no security is
underweighted as compared to its weighting in the Russell 1000
® Value Index by more than 2%.
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The Core Fund.
The Core Fund seeks to invest in securities that the
Investment Adviser believes are undervalued or show good
prospects for earnings growth. The Core Fund seeks securities
such that the sum of the relative (to the S&P 500)
price-to-earnings ratio and price-to-book ratio for a
particular security are between 1.75 and 2.25. In seeking to
outperform its benchmark, the Russell 1000® Index, the
Fund will allocate its common stock investments among industry
sectors in a manner generally comparable to the sector
weightings in the Russell 1000® Index, as those sectors
are defined in the S&P 500. The Fund also anticipates that
its individual holdings generally will be allocated so that no
individual security held by the Fund is overweighted in the
portfolio as compared to its weighting in the Russell 1000
® Index by more than 1%, and no security held by the Fund
is underweighted as compared to its weighting in the Russell
1000® Index by more than 1%.
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Each Fund anticipates that its sector allocations, as a
percentage of its common stock investments, to larger
capitalized industries generally will be no more than two times
that sector’s weighting in the applicable Russell 1000®
index, while its sector allocations to smaller capitalized
industries generally will be no more than three times that sector
’s weighting in the Russell 1000® Index. “Larger
” or “smaller” capitalized industries for this
purpose will be determined by the relative size of the sector
within the applicable Russell 1000® index, with any sector
representing approximately 10% or more of the index being
considered as a “larger” industry. Notwithstanding
these sector allocation guidelines, each Fund reserves the right
to invest up to 10% of its total assets in any one sector of the
applicable Russell 1000® index; however, the Funds are not
limited to investing only 10% of total assets in any one sector
if the sector allocations listed above permit a larger
allocation. While the Investment Adviser anticipates that each
Fund generally will adhere to the targeted parameters described
for each Fund, the implementation may vary in particular cases,
and the Investment Adviser is not required to follow any or all
of these parameters in selecting securities at all times.
Additionally, the Investment Adviser is not required to sell
securities if their value changes and they then fall outside of
these parameters.
Investment emphasis is on equities, primarily common
stock. Each Fund generally will invest at least 80% of its total
assets in equity securities. Each Fund also may invest in
securities convertible into common stock, preferred stock and
rights and warrants to subscribe for common stock. A Fund may
invest in U.S. Government debt securities and, to a lesser
extent, in non-convertible debt securities rated investment
grade by a nationally recognized statistical ratings
organization, although it typically will not invest in any debt
securities to a significant extent.
A
Fund may hold assets in cash or cash equivalents and investment
grade, short term securities, including money market securities,
in such proportions as, in the opinion of the Investment
Adviser, prevailing market or economic conditions warrant or for
temporary defensive purposes.
Foreign Securities
Each Fund may invest in companies located in countries
other than the United States. This may expose the Funds to risks
associated with foreign investments. Foreign investments involve
certain risks not typically involved in domestic investments,
including fluctuations in foreign exchange rates, future
political and economic developments, different legal systems and
the existence or possible imposition of exchange controls or
other U.S. or non-U.S. governmental laws or restrictions
applicable to such investments. Securities prices in different
countries are subject to different economic, financial and
social factors. Because the Funds may invest in securities
denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates may affect the value
of securities in the Portfolios and the unrealized appreciation
or depreciation of investments insofar as U.S. investors are
concerned. Foreign currency exchange rates are determined by
forces of supply and demand in the foreign exchange markets.
These forces are, in turn, affected by international balance of
payments and other economic and financial conditions, government
intervention, speculation and other factors. With respect to
certain countries, there may be the possibility of expropriation
of assets, confiscatory taxation, high rates of inflation,
political or social instability or diplomatic developments that
could affect investment in those countries. In addition, certain
investments may be subject to non-U.S. withholding
taxes.
European Economic and Monetary Union.
A number of European countries entered into the
European Economic and Monetary Union (“EMU”) in an
effort to reduce trade barriers between themselves and eliminate
fluctuations in their currencies. EMU established a single
European currency (the euro), which was introduced on January 1,
1999, and is expected to replace the existing national
currencies of all initial EMU participants by July 1, 2002.
Certain securities (beginning with government and corporate
bonds) were redenominated in the euro and will trade and make
dividend and other payments only in euros. Like other investment
companies and business organizations, including the companies in
which the Funds invest, the Funds could be adversely affected if
the transition to the euro, or EMU as a whole, does not proceed
as planned or if a participating country withdraws from
EMU.
Warrants
Each Fund may invest in warrants, which are securities
permitting, but not obligating, the warrant holder to subscribe
for other securities. Buying a warrant does not make a Fund a
shareholder of the underlying stock. The warrant holder has no
right to dividends or votes on the underlying stock. A warrant
does not carry any right to assets of the issuer, and for this
reason investment in warrants may be more speculative than other
equity-based investments.
Borrowing and Leverage
Each 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) and may borrow up to an additional 5% of
its total assets for temporary purposes. Each Fund may obtain
such short term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and may purchase
securities on margin to the extent permitted by applicable law,
and may use borrowing to enable it to meet redemptions. The use
of leverage by the Funds creates an opportunity for greater
total return, but, at the same time, creates special risks. For
example, leveraging may exaggerate changes in the net asset
value of Fund shares and in the yield on a Fund’s
portfolio. Although the principal of such borrowings will be
fixed, a Fund’s assets may change in value during the time
the borrowings are outstanding. Borrowings will create interest
expenses for the Fund that can exceed the income from the assets
purchased with the borrowings. To the extent the income or
capital appreciation derived from securities purchased with
borrowed funds exceeds the interest a Fund will have to pay on
the borrowings, that Fund’s return will be greater than if
leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such borrowed
funds is not sufficient to cover the cost of borrowing, the
return to the Fund will be less than if leverage had not been
used, and therefore the amount available for distribution to
shareholders as dividends will be reduced. In the latter case,
the Investment Adviser in its best judgment nevertheless may
determine to maintain the Fund’s leveraged position if it
expects that the benefits to the Fund’s shareholders of
maintaining the leveraged position will outweigh the current
reduced return.
The Funds at times may borrow from affiliates of the
Investment Adviser, provided that the terms of such borrowings
are no less favorable than those available from comparable
sources of funds in the marketplace.
Convertible Securities
Convertibles are generally debt securities or preferred
stocks that may be converted into common stock. Convertibles
typically pay current income as either interest (debt security
convertibles) or dividends (preferred stocks). A convertible
’s value usually reflects both the stream of current income
payments and the value of the underlying common stock. The
market value of a convertible performs like a regular debt
security, that is, if market interest rates rise, the value of a
convertible usually falls. Since it is convertible into common
stock, the convertible also has the same types of market and
issuer risk as the underlying common stock.
Debt Securities
Debt securities, such as bonds, involve credit risk. This
is the risk that the borrower will not make timely payments of
principal and interest. The degree of credit risk depends on the
issuer’s financial condition and on the terms of the bonds.
This risk is minimized to the extent a Fund limits its debt
investments to U.S. Government securities. All debt securities,
however, are subject to interest rate risk. This is the risk
that the value of the security may fall when interest rates
rise. In general, the market price of debt securities with
longer maturities will go up or down more in response to changes
in interest rates than the market price of shorter term
securities.
Derivatives
The Funds may use instruments referred to as
“Derivatives.” Derivatives are financial instruments
the value of which is derived from another security, a commodity
(such as gold or oil) or an index (a measure of value or rates,
such as the Russell 1000® Index, the S&P 500 or the
prime lending rate). Derivatives allow each Fund to
increase or decrease the level of risk to which the Fund is
exposed more quickly and efficiently than transactions in other
types of instruments.
Hedging. Each Fund may use
Derivatives for hedging purposes. Hedging is a strategy in which
a Derivative is used to offset the risk that other Fund holdings
may decrease in value. Losses on the other investment may be
substantially reduced by gains on a Derivative that reacts in an
opposite manner to market movements. While hedging can reduce
losses, it can also reduce or eliminate gains if the market
moves in a different manner than anticipated by the Fund
investing in the Derivative or if the cost of the Derivative
outweighs the benefit of the hedge. Hedging also involves the
risk that changes in the value of the Derivative will not match
those of the holdings being hedged as expected by the applicable
Fund, in which case any losses on the holdings being hedged may
not be reduced. The Funds are not required to use hedging and
may choose not to do so.
The Funds may use the following types of derivative
investments and trading strategies:
Options on Securities and Securities
Indices
Purchasing Put Options. Each
Fund may purchase put options on securities held in its
portfolio or on securities or interest rate indices which are
correlated with securities held in its portfolio. When a Fund
purchases a put option in consideration for an up front payment
(the “option premium”), that Fund acquires a right to
sell to another party specified securities owned by the Fund at
a specified price (the “exercise price”) on or before
a specified date (the “expiration date”), in the case
of an option on securities, or to receive from another party a
payment based on the amount a specified securities index
declines below a specified level on or before the expiration
date, in the case of an option on a securities index. The
purchase of a put option limits a Fund’s risk of loss in
the event of a decline in the market value of the portfolio
holdings underlying the put option prior to the option’s
expiration date. If the market value of the portfolio holdings
associated with the put option increases rather than decreases,
however, the Fund will lose the option premium and will
consequently realize a lower return on the portfolio holdings
than would have been realized without the purchase of the put.
Purchasing a put option may involve correlation risk, and may
also involve liquidity and credit risk.
Purchasing Call Options. Each
Fund also may purchase call options on securities it intends to
purchase or securities or interest rate indices, which are
correlated with the types of securities it intends to purchase.
When a Fund purchases a call option, in consideration for the
option premium the Fund acquires a right to purchase from
another party specified securities at the exercise price on or
before the expiration date, in the case of an option on
securities, or to receive from another party a payment based on
the amount a specified securities index increases beyond a
specified level on or before the expiration date, in the case of
an option on a securities index. The purchase of a call option
may protect the Fund from having to pay more for a security as a
consequence of increases in the market value for the security
during a period when the Fund is contemplating its purchase, in
the case of an option on a security, or attempting to identify
specific securities in which to invest in a market the Fund
believes to be attractive, in the case of an option on an index
(an “anticipatory hedge”). In the event a Fund
determines not to purchase a security underlying a call option,
however, the Fund may lose the entire option premium. Purchasing
a call option involves correlation risk, and may also involve
liquidity and credit risk.
Each Fund also is authorized to purchase put or call
options in connection with closing out put or call options it
has previously sold.
Writing Call Options. Each Fund
may write (i.e., sell) call options on securities held in
its portfolio or securities indices the performance of which
correlates with securities held in its portfolio. When a Fund
writes a call option, in return for an option premium, the Fund
gives another party the right to buy specified securities owned
by the Fund at the exercise price on or before the expiration
date, in the case of an option on securities, or agrees to pay
to another party an amount based on any gain in a specified
securities index beyond a specified level on or before the
expiration date, in the case of an option on a securities index.
A Fund may write call options to earn income, through the
receipt of option premiums. In the event the party to which a
Fund has written an option fails to exercise its rights under
the option because the value of the underlying securities is
less than the exercise price, the Fund will partially offset any
decline in the value of the underlying securities through the
receipt of the option premium. By writing a call option,
however, a Fund limits its ability to sell the underlying
securities and
gives up the opportunity to profit from any increase in the value
of the underlying securities beyond the exercise price, while
the option remains outstanding. Writing a call option may
involve correlation risk.
Each Fund also is authorized to sell call or put options
in connection with closing out call or put options it has
previously purchased.
Other than with respect to closing transactions, a Fund
will only write call or put options that are “covered.
” A call or put option will be considered covered if the
Fund has segregated assets with respect to such option in the
manner described in “Risk Factors in Derivatives”
below. A call option will also be considered covered if the Fund
owns the securities it would be required to deliver upon
exercise of the option (or, in the case of an option on a
securities index, securities which substantially correlate with
the performance of such index) or owns a call option, warrant or
convertible instrument which is immediately exercisable for, or
convertible into, such security.
Types of Options. The Fund may
engage in transactions in options on securities or securities
indices on exchanges and in the over-the-counter (“OTC
”) markets. In general, exchange-traded options have
standardized exercise prices and expiration dates and require
the parties to post margin against their obligations, and the
performance of the parties’ obligations in connection with
such options is guaranteed by the exchange or a related clearing
corporation. OTC options have more flexible terms negotiated
between the buyer and the seller, but generally do not require
the parties to post margin and are subject to greater credit
risk. OTC options also involve greater liquidity risk. See
“Additional Risk Factors of OTC Transactions; Limitations
on the Use of OTC Derivatives” below.
Futures
Each Fund may engage in transactions in futures and
options thereon. Futures are standardized, exchange-traded
contracts that obligate a purchaser to take delivery, and a
seller to make delivery, of a specific amount of an asset at a
specified future date at a specified price. No price is paid
upon entering into a futures contract. Rather, upon purchasing
or selling a futures contract, a Fund is required to deposit
collateral (“margin”) equal to a percentage (generally
less than 10%) of the contract value. Each day thereafter until
the futures position is closed, the Fund will pay additional
margin representing any loss experienced as a result of the
futures position the prior day or be entitled to a payment
representing any profit experienced as a result of the futures
position the prior day. Futures involve substantial leverage
risk.
The sale of a futures contract limits a Fund’s risk
of loss through a decline in the market value of portfolio
holdings correlated with the futures contract prior to the
futures contract’s expiration date. In the event the market
value of the portfolio holdings correlated with the futures
contract increases rather than decreases, however, the Fund will
realize a loss on the futures position and a lower return on the
portfolio holdings than would have been realized without the
purchase of the futures contract.
The purchase of a futures contract may protect a Fund from
having to pay more for securities as a consequence of increases
in the market value for such securities during a period when the
Fund was attempting to identify specific securities in which to
invest in a market the Fund believes to be attractive. In the
event that such securities decline in value or the Fund
determines not to complete an anticipatory hedge transaction
relating to a futures contract, however, the Fund may realize a
loss relating to the futures position.
The Fund will limit transactions in futures and options on
futures to financial futures contracts (i.e., contracts
for which the underlying asset is a currency or securities or
interest rate index) purchased or sold for hedging purposes
(including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent
necessary to prevent the Fund from being deemed a
“commodity pool” under regulations of the Commodity
Futures Trading Commission.
Indexed Securities
Each Fund may invest in securities the potential return of
which is based on an index. As an illustration, a Fund may
invest in a debt security that pays interest based on the
current value of an interest rate index, such as
the prime rate. A Fund also may invest in a debt security which
returns principal at maturity based on the level of a securities
index or a basket of securities, or based on the relative
changes of two indices. Indexed securities involve credit risk,
and certain indexed securities may involve leverage risk and
liquidity risk. Each Fund may invest in indexed securities for
hedging purposes only. When used for hedging purposes, indexed
securities involve correlation risk.
Risk Factors in
Derivatives
Derivatives are volatile and involve significant risks,
including:
Credit risk — the risk that the
counterparty (the party on the other side of the transaction) on
a derivative transaction will be unable to honor its financial
obligation to a Fund.
Currency risk — the risk that changes
in the exchange rate between currencies will adversely affect
the value (in U.S. dollar terms) of an investment.
Leverage risk — the risk associated
with certain types of investments or trading strategies that
relatively small market movements may result in large changes in
the value of an investment. Certain investments or trading
strategies that involve leverage can result in losses that
greatly exceed the amount originally invested.
Liquidity risk — the risk that certain
securities may be difficult or impossible to sell at the time
that the seller would like or at the price that the seller
believes the security is currently worth.
Use of Derivatives for hedging purposes involves
correlation risk. If the value of the Derivative moves more or
less than the value of the hedged instruments, the Fund using
the Derivative will experience a gain or loss that will not be
completely offset by movements in the value of the hedged
instruments.
The Funds intend to enter into transactions involving
Derivatives only if there appears to be a liquid secondary
market for such instruments or, in the case of illiquid
instruments traded in OTC transactions, such instruments satisfy
the criteria set forth below under “Additional Risk Factors
of OTC Transactions; Limitations on the Use of OTC Derivatives.
” However, there can be no assurance that, at any specific
time, either a liquid secondary market will exist for a
Derivative or the Fund will otherwise be able to sell such
instrument at an acceptable price. It may therefore not be
possible to close a position in a Derivative without incurring
substantial losses, if at all.
Certain transactions in Derivatives (such as futures
transactions or sales of put options) involve substantial
leverage risk and may expose a Fund to potential losses, which
exceed the amount originally invested by the Fund. When a Fund
engages in such a transaction, the Fund will deposit in a
segregated account at its custodian liquid securities with a
value at least equal to the Fund’s exposure, on a
mark-to-market basis, to the transaction (as calculated pursuant
to requirements of the Securities and Exchange Commission). Such
segregation will ensure that the Fund has assets available to
satisfy its obligations with respect to the transaction, but
will not limit the Fund’s exposure to loss.
Additional Risk Factors of OTC
Transactions; Limitations on the Use of OTC
Derivatives
Certain Derivatives traded in OTC markets, including
indexed securities, swaps and OTC options, involve substantial
liquidity risk. The absence of liquidity may make it difficult
or impossible for a Fund to sell such instruments promptly at an
acceptable price. The absence of liquidity may also make it more
difficult for a Fund to ascertain a market value for such
instruments. The Fund will therefore acquire illiquid OTC
instruments (i) if the agreement pursuant to which the
instrument is purchased contains a formula price at which the
instrument may be terminated or sold, or (ii) for which the
Investment Adviser anticipates the Fund can receive on each
business day at least two independent bids or offers, unless a
quotation from only one dealer is available, in which case that
dealer’s quotation may be used.
Because Derivatives traded in OTC markets are not
guaranteed by an exchange or clearing corporation and generally
do not require payment of margin, to the extent that a Fund has
unrealized gains in such instruments or
has deposited collateral with its counterparty, the Fund is at
risk that its counterparty will become bankrupt or otherwise
fail to honor its obligations. Each Fund will attempt to
minimize the risk that a counterparty will become bankrupt or
otherwise fail to honor its obligations by engaging in
transactions in Derivatives traded in OTC markets only with
financial institutions which have substantial capital or which
have provided the Fund with a third-party guaranty or other
credit enhancement.
Other Investment Policies and
Practices
Securities Lending. Each Fund
may lend securities with a value not exceeding 33
1
/3% of its total assets. In
return, the Fund receives collateral in an amount equal to at
least 100% of the current market value of the loaned securities
in cash or securities issued or guaranteed by the U.S.
Government. If cash collateral is received by a Fund, it is
invested in short term money market securities, and a portion of
the yield received in respect of such investment is retained by
that Fund. Alternatively, if securities are delivered to a Fund
as collateral, that Fund and the borrower negotiate a rate for
the loan premium to be received by that Fund for lending its
portfolio securities. In either event, the total yield on each
Fund’s portfolio is increased by loans of its portfolio
securities. Each Fund may receive a flat fee for its loans. The
loans are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business
days. Each Fund may pay reasonable finder’s, administrative
and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed
securities because of insolvency or for any other reason, a Fund
could experience delays and costs in gaining access to the
collateral and could suffer a loss to the extent the value of
the collateral falls below the market value of the borrowed
securities.
Illiquid or Restricted Securities.
Each Fund may invest up to 15% of its net assets in
securities that lack an established secondary trading market or
otherwise are considered illiquid. Liquidity of a security
relates to the ability to dispose easily of the security and the
price to be obtained upon disposition of the security, which may
be less than would be obtained for a comparable more liquid
security. Illiquid securities may trade at a discount from
comparable, more liquid investments. Investment of a Fund’s
assets in illiquid securities may restrict the ability of the
Fund to dispose of that investment in a timely fashion and for a
fair price as well as its ability to take advantage of market
opportunities. The risks associated with illiquidity will be
particularly acute where a Fund’s operations require cash,
such as when a Fund redeems shares or pays dividends, and could
result in a Fund borrowing to meet short term cash requirements
or incurring capital losses on the sale of illiquid
investments.
Each Fund may invest in securities that are
“restricted securities.” Restricted securities have
contractual or legal restrictions on their resale and include
“private placement” securities that the Funds may buy
directly from the issuer. Restricted securities may be neither
listed on an exchange nor traded in other established markets.
Privately placed securities may or may not be freely
transferable under the laws of the applicable jurisdiction or
due to contractual restrictions on resale. As a result of the
absence of a public trading market, privately placed securities
may be more difficult to value than publicly traded securities
and may be less liquid, or illiquid, and therefore may be
subject to the risks associated with illiquid securities, as
described in the preceding paragraph. Some restricted
securities, however, may be liquid. In addition, issuers whose
securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may
be applicable if their securities were publicly traded. If any
privately placed securities held by a Fund are required to be
registered under the securities laws of one or more
jurisdictions before being resold, that Fund may be required to
bear the expenses of registration. Certain of a Fund’s
investments in private placements may consist of direct
investments and may include investments in smaller,
less-seasoned issuers, which may involve greater risks. These
issuers may have limited product lines, markets or financial
resources, or they may be dependent on a limited management
group. In making investments in such securities, the Funds may
obtain access to material nonpublic information which may
restrict the Funds’ ability to conduct portfolio
transactions in such securities.
Repurchase Agreements. Each
Fund may invest in securities pursuant to repurchase agreements.
Under such agreements, the bank or primary dealer or an
affiliate thereof agrees, upon entering into the contract, to
repurchase the security at a mutually agreed upon time and
price, thereby determining the yield during the term of the
agreement. This insulates a Fund from fluctuations in the market
value of the underlying security during such period, although,
to the extent the repurchase agreement is not denominated in
U.S. dollars, that Fund’s return
may be affected by currency fluctuations. A Fund may not invest
more than 15% of its net assets in repurchase agreements
maturing in more than seven days (together with other illiquid
securities). Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by
the securities transferred to the purchaser. A Fund will require
the seller to provide additional collateral if the market value
of the securities falls below the repurchase price at any time
during the term of the repurchase agreement. In the event of
default by the seller under a repurchase agreement with a Fund
that is construed to be a collateralized loan, the underlying
securities are not owned by the Fund but only constitute
collateral for the seller’s obligation to pay the
repurchase price. Therefore, the Fund may suffer time delays and
incur costs or possible losses in connection with the
disposition of the collateral. In the event of a default under
such a repurchase agreement, instead of the contractual fixed
rate of return, the rate of return to a Fund shall be dependent
upon intervening fluctuations of the market value of such
security and the accrued interest on the security. In such
event, the Fund would have rights against the seller for breach
of contract with respect to any losses arising from market
fluctuations following the failure of the seller to
perform.
When Issued and Delayed Delivery Securities and Forward
Commitments. Each Fund may purchase
or sell securities that it is entitled to receive on a when
issued or delayed delivery basis. The Funds may also purchase or
sell securities through a forward commitment. These transactions
involve the purchase or sale of securities by a Fund at an
established price with payment and delivery taking place in the
future. A Fund enters into these transactions to obtain what is
considered an advantageous price to the Fund at the time of
entering into the transaction. The Funds have not established
any limit on the percentage of their assets that may be
committed in connection with these transactions. When a Fund is
purchasing securities in these transactions, that Fund maintains
a segregated account with its custodian of cash, cash
equivalents, U.S. Government securities or other liquid
securities in an amount equal to the amount of its purchase
commitments.
There can be no assurance that a security purchased on a
when-issued basis will be issued, or a security purchased or
sold through a forward commitment will be delivered. The value
of securities in these transactions on the delivery date may be
more or less than a Fund’s purchase price. A Fund may bear
the risk of a decline in the value of the security in these
transactions and may not benefit from an appreciation in the
value of the security during the commitment period.
Standby Commitment Agreements.
Each Fund may enter into standby commitment
agreements. These agreements commit a Fund, for a stated period
of time, to purchase a stated amount of securities which may be
issued and sold to that Fund at the option of the issuer. The
price of the security is fixed at the time of the commitment. At
the time of entering into the agreement a Fund is paid a
commitment fee, regardless of whether or not the security is
ultimately issued. A Fund will enter into such agreements for
the purpose of investing in the security underlying the
commitment at a price that is considered advantageous to that
Fund. A Fund will not enter into a standby commitment with a
remaining term in excess of 45 days and will limit its
investment in such commitments so that the aggregate purchase
price of securities subject to such commitments, together with
the value of portfolio securities subject to legal restrictions
on resale that affect their marketability, will not exceed 15%
of its net assets taken at the time of the commitment. Each Fund
will maintain a segregated account with its custodian of cash,
cash equivalents, U.S. Government securities or other liquid
securities in an aggregate amount equal to the purchase price of
the securities underlying the commitment.
There can be no assurance that the securities subject to a
standby commitment will be issued, and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, a Fund
may bear the risk of a decline in the value of such security and
may not benefit from an appreciation in the value of the
security during the commitment period.
The purchase of a security subject to a standby commitment
agreement and the related commitment fee will be recorded on the
date on which the security can reasonably be expected to be
issued, and the value of the security thereafter will be
reflected in the calculation of each Fund’s net asset
value. The cost basis of the security will be adjusted by the
amount of the commitment fee. In the event the security is not
issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
144A Securities. The Funds may
purchase restricted securities that can be offered and sold to
“qualified institutional buyers” under Rule 144A under
the Securities Act. The Funds’ Board has determined to
treat as liquid Rule 144A securities that are either freely
tradable in their primary markets offshore or have been
determined to be liquid in accordance with the policies and
procedures adopted by the Funds’ Board. The Board has
adopted guidelines and delegated to the Investment Adviser the
daily function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain
sufficient oversight and be ultimately responsible for the
determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities sold
and offered under Rule 144A will continue to develop, the Board
will carefully monitor the Funds’ investments in these
securities. This investment practice could have the effect of
increasing the level of illiquidity in each Fund to the extent
that qualified institutional buyers become for a time
uninterested in purchasing these securities.
Other Special Considerations.
The Funds may, without limit, make short term
investments, purchase high quality bonds or buy or sell
derivatives to reduce exposure to equity securities when the
Funds believe it is advisable to do so (on a temporary defensive
basis). Short term investments and temporary defensive positions
may limit the potential for growth in the value of shares of
each Fund.
Suitability. The economic
benefit of an investment in any Fund depends upon many factors
beyond the control of the Fund, the Corporation, the Trust, the
Investment Adviser and its affiliates. Each Fund should be
considered a vehicle for diversification and not as a balanced
investment program. The suitability for any particular investor
of a purchase of shares in any Fund will depend on, among other
things, such investor’s investment objectives and such
investor’s ability to accept the risks associated with
investing in securities, including the risk of loss of
principal.
Investment Restrictions
The Corporation has adopted the following restrictions and
policies relating to the investment of each Fund’s assets
and its activities. The fundamental restrictions set forth below
may not be changed with respect to a Fund without the approval
of the holders of a majority of that Fund’s outstanding
voting securities (which for this purpose and under the
Investment Company Act means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the
outstanding shares). Unless otherwise provided, all references
to the assets of a Fund below are in terms of current market
value. Provided that none of the following restrictions shall
prevent a Fund from investing all of its assets in shares of
another registered investment company with the same investment
objective (in a master/feeder structure), each Fund may
not:
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1. Make any investment inconsistent with each
Fund’s classification as a diversified company under the
Investment Company Act.
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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).
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3. Make investments for the purpose of
exercising control or management. Investments by a Fund in
wholly owned investment entities created under the laws of
certain countries will not be deemed the making of investments
for the purpose of exercising control or
management.
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4. Purchase or sell real estate, except that,
to the extent permitted by applicable law, a Fund may invest
in securities directly or indirectly secured by real estate or
interests therein or issued by companies that invest in real
estate or interests therein.
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5. Make loans to other persons, except that
the acquisition of bonds, debentures or other corporate debt
securities and investment in governmental 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 a 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 Funds’ Prospectus and Statement of
Additional Information, as they may be amended from time to
time.
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6. Issue senior securities to the extent such
issuance would violate applicable law.
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7. Borrow money, except that (i) a 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) a Fund may borrow up to
an additional 5% of its total assets for temporary purposes,
(iii) a Fund may obtain such short term credit as may be
necessary for the clearance of purchases and sales of
portfolio securities and (iv) a Fund may purchase securities
on margin to the extent permitted by applicable law. A Fund
may not pledge its assets other than to secure such borrowings
or, to the extent permitted by each Fund’s investment
policies as set forth in the Funds’ 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.
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8. Underwrite securities of other issuers
except insofar as the Fund technically may be deemed an
underwriter under the Securities Act, in selling portfolio
securities.
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9. Purchase or sell commodities or contracts
on commodities, except to the extent that a Fund may do so in
accordance with applicable law and the Funds’ 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.
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The Trust has adopted investment restrictions
substantially identical to the foregoing, which are fundamental
policies of the Trust and may not be changed with respect to a
Portfolio without the approval of the holders of a majority of
the interests of that Portfolio.
In addition, the Corporation has adopted non-fundamental
restrictions with respect to each Fund that may be changed by
the Board of Directors without shareholder approval. Like the
fundamental restrictions, none of the non-fundamental
restrictions, including but not limited to restriction (a)
below, shall prevent a Fund from investing all of its assets in
shares of another registered investment company with the same
investment objective (in a master/feeder structure). Under the
non-fundamental investment restrictions, each Fund may
not:
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(a) Purchase securities of other investment
companies, except to the extent such purchases are permitted
by applicable law. As a matter of policy, however, a Fund will
not purchase shares of any registered open-end investment
company or registered unit investment trust, in reliance on
Section 12(d)(1)(F) or (G) (the “fund of funds”
provisions) of the Investment Company Act, at any time a Fund
’s shares are owned by another investment company that is
part of the same group of investment companies as the
Fund.
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(b) Make short sales of securities or
maintain a short position, except to the extent permitted by
applicable law. The Funds currently do not intend to engage in
short sales, except short sales “against the box.
”
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(c) Invest in securities that cannot be
readily resold because of legal or contractual restrictions or
that cannot otherwise be marketed, redeemed or put to the
issuer or a third party, if at the time of acquisition more
than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities
that mature within seven days or securities that the Directors
of the Corporation have otherwise determined to be liquid
pursuant to applicable law. Securities purchased in accordance
with Rule 144A under the Securities Act (which are restricted
securities that can be resold to qualified institutional
buyers, but not to the general public) and determined to be
liquid by the Directors are not subject to the limitations set
forth in this investment restriction.
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(d) Notwithstanding fundamental investment
restriction (7) above, borrow money or pledge its assets,
except that the Fund (a) may borrow from a bank as a temporary
measure for extraordinary or emergency purposes or to meet
redemption in amounts not exceeding 33
1
/3% (taken at market value) of
its total assets and pledge its assets to secure such
borrowing, (b) may obtain such short term credit as may be
necessary for the clearance of purchases and sales of
portfolio securities and (c) may purchase securities on margin
to the
extent permitted by applicable law. However, at the present
time, applicable law prohibits the Funds from purchasing
securities on margin. The deposit or payment by a Fund of
initial or variation margin in connection with financial
futures contracts or options transactions is not considered to
be the purchase of a security on margin. The purchase of
securities while borrowing are outstanding will have the
effect of leveraging a Fund. Such leveraging or borrowing
increases a Fund’s exposure to capital risk and borrowed
funds are subject to interest costs which will reduce net
income. A Fund will not purchase securities while borrowing
exceeds 5% of its total assets.
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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 Corporation
and Trust have adopted an investment policy pursuant to which
neither a Fund nor its Portfolio will 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 that are held by a Fund or its
Portfolio, the market value of the underlying securities covered
by OTC call options currently outstanding that were sold by a
Fund or its Portfolio and margin deposits on a Fund or its
Portfolio’s existing OTC options on futures contracts
exceeds 15% of the net assets of such Fund or its Portfolio
taken at market value, together with all other assets of such
Fund or its Portfolio that are illiquid or are not otherwise
readily marketable. However, if the OTC option is sold by a Fund
or its Portfolio to a primary U.S. Government securities dealer
recognized by the Federal Reserve Bank of New York and if a Fund
or its Portfolio has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined
price, then that Fund or its Portfolio will treat as illiquid
such amount of the underlying securities as is equal to the
repurchase price less the amount by which the option is
“in-the-money” (i.e., current market value of
the underlying securities minus the option’s strike price).
The repurchase price with the primary dealers is typically a
formula price that is generally based on a multiple of the
premium received for the option plus the amount by which the
option is “in-the-money.” This policy as to OTC
options is not a fundamental policy of each Fund or its
Portfolio and may be amended by the Directors or the Trustees
without the approval of the shareholders. However, the Directors
or Trustees will not change or modify this policy prior to the
change or modification by the Commission staff of its
position.
In addition, as a non-fundamental policy that may be
changed by the Board of Directors and to the extent required by
the Commission or its staff, each Fund will, for purposes of
fundamental investment restrictions (1) and (2), treat
securities issued or guaranteed by the government of any one
foreign country as the obligations of a single
issuer.
Because of the affiliation of Merrill Lynch, Pierce,
Fenner & Smith Incorporated (“Merrill Lynch”) with
the Investment Adviser, the Funds and the Trust are prohibited
from engaging in certain transactions involving Merrill Lynch or
its affiliates, except for brokerage transactions permitted
under the Investment Company Act involving only usual and
customary commissions or transactions pursuant to an exemptive
order under the Investment Company Act. See “Portfolio
Transactions and Brokerage.” Without such an exemptive
order the Funds and the Trust would be prohibited from engaging
in portfolio transactions with Merrill Lynch or any of its
affiliates acting as principal.
Portfolio Turnover
Generally, the Funds will not purchase securities for
short term trading profits. However, each Fund may dispose of
securities without regard to the time they have been held when
such actions, for defensive or other reasons, appear advisable
to the Investment Adviser in light of a change in circumstances
in general market, economic or financial conditions. As a result
of its investment policies, each Fund may engage in a
substantial number of portfolio transactions. Accordingly, while
each Fund anticipates that its annual portfolio turnover rate
should not exceed 100% under normal conditions, it is impossible
to predict portfolio turnover rates. The portfolio turnover rate
is calculated by dividing the lesser of a Fund’s annual
sales or purchases of portfolio securities (exclusive of
purchases or sales of securities whose maturities at the time of
acquisition were one year or less) by the monthly average value
of the securities in the portfolio during the year. A high
portfolio turnover rate involves certain tax consequences and
correspondingly greater transaction costs in the form of dealer
spreads and brokerage commissions, which are borne by the
Funds.
Directors and Officers
The Directors of the Corporation consist of seven
individuals, five of whom are not “interested persons”
of the Corporation as defined in the Investment Company Act. The
same individuals serve as Trustees of the Trust and are
sometimes referred to herein as the “non-interested
Directors/Trustees.” The Directors are responsible for the
overall supervision of the operations of the Funds and perform
the various duties imposed on the directors of investment
companies by the Investment Company Act.
Information about the Directors and executive officers of
the Corporation, including their ages and their principal
occupations for at least the last five years, is set forth
below. Unless otherwise noted, the address of each executive
officer and Director is P.O. Box 9011, Princeton, New Jersey
08543-9011.
TERRY
K. GLENN
(59) — President and Director(1)(2)
— Executive Vice President of the Investment Adviser
and Merrill Lynch Asset Management, L.P. (“MLAM”)
(which terms as used herein include their corporate
predecessors) since 1983; Executive Vice President and Director
of Princeton Services, Inc. (“Princeton Services”)
since 1993; President of Princeton Funds Distributor, Inc. (
“PFD”) since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P. since
1988.
JAMES
H. BODURTHA
(55) — Director(2)(3) — 36
Popponesset Road, Cotuit, Massachusetts 02635. Director and
Executive Vice President, The China Business Group, Inc. since
1996; Chairman and Chief Executive Officer, China Enterprise
Management Corporation from 1993 to 1996; Chairman, Berkshire
Corporation since 1980; Partner, Squire, Sanders & Dempsey
from 1980 to 1993.
HERBERT
I. LONDON
(60) — Director(2)(3) — 2
Washington Square Village, New York, New York 10012. John M.
Olin Professor of Humanities, New York University since 1993 and
Professor thereof since 1980; President, Hudson Institute since
1997 and Trustee thereof since 1980; Dean, Gallatin Division of
New York University from 1976 to 1993; Distinguished Fellow,
Herman Kahn Chair, Hudson Institute from 1984 to 1985; Director,
Damon Corporation from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993; Limited Partner, Hypertech LP since
1996.
JOSEPH
L. MAY
(70) — Director(2)(3) — 424
Church Street, Suite 2000, Nashville, Tennessee 37219. Attorney
in private practice since 1984; Presiden, 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.
ANDRÉ
F. PEROLD
(47) — Director(2)(3) —
Morgan Hall, Soldiers Field, 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 from 1991 to 1999; Director,
TIBCO from 1994 to 1996; Director, Genbel Securities Limited and
Gensec Bank since 1999.
ROBERTA
C. RAMO
(57) — Director(2)(3) — P.O.
Box 2168, 500 Fourth Street, N.W., Albuquerque, New Mexico
87103. Shareholder, Modrall, Sperling, Roehl, Harris & Sisk,
P.A. since 1993; President, American Bar Association from 1995
to 1996 and Member of the Board of Governors thereof from 1994
to 1997; Partner, Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director, Coopers, Inc. since 1999;
Director, United New Mexico Bank (now Wells Fargo) from 1983 to
1988; Director, First National Bank of New Mexico (now First
Security) from 1975 to 1976.
ARTHUR
ZEIKEL
(67) — Director(1)(2) — 300
Woodland Avenue, Westfield, New Jersey 07090. Chairman of the
Manager and MLAM from 1997 to 1999 and President thereof from
1977 to 1997; Chairman of Princeton Services from 1997 to 1999,
Director thereof from 1993 to 1999 and President thereof from
1993 to 1997; Executive Vice President of Merrill Lynch &
Co., Inc. (“ML & Co.”) from 1990 to
1999.
ROBERT
C. DOLL
, JR
. (45) — Senior Vice President and Portfolio
Manager(1)(2) — Senior Vice President of the
Investment Adviser and MLAM since 1999; Senior Vice President of
Princeton Services since 1999; Chief Investment Officer of
OppenheimerFunds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
LINDA
J. GARDNER
(37) — Vice President(1)(2) —
Vice President and Chief Administrative Officer, Equities
of the Investment Adviser since 1999; Manager of Equity
Administration of OppenheimerFunds, Inc. from 1991 to
1999.
DONALD
C. BURKE
(39) — Vice President and Treasurer(1)(2)
— Senior Vice President and Treasurer of the
Investment Adviser and MLAM since 1999; Senior Vice President
and Treasurer of Princeton Services since 1999; Vice President
of PFD since 1999; First Vice President of MLAM from 1997 to
1999; Vice President of MLAM from 1990 to 1997; Director of
Taxation of MLAM since 1990.
ALICE
A. PELLEGRINO
(39) — Secretary(1)(2) — Vice
President of MLAM since 1999; Attorney associated with MLAM
since 1997; Associate with Kirkpatrick & Lockhart LLP from
1992 to 1997.
(1)
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Interested person, as defined in the Investment
Company Act, of the Trust and the Corporation.
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(2)
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Such Director or officer is a trustee, director
or officer of other investment companies for which the
Investment Adviser or one of its affiliates acts as investment
adviser or manager.
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(3)
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Member of the Corporation’s Audit and
Nominating Committee, which is responsible for the selection
of the independent auditors and the selection and nomination
of non-interested Directors.
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As of December 1, 1999, the officers and Directors of the
Corporation as a group (11 persons) owned an aggregate of less
than 1% of the outstanding shares of common stock of ML &
Co. and owned an aggregate of less than 1% of the outstanding
shares of the Corporation.
Compensation of
Directors/Trustees
The Trust pays fees to each non-interested
Director/Trustee for service to the Corporation and the Trust.
Each non-interested Director/Trustee receives an aggregate
annual retainer of $100,000 for his or her services to multiple
investment companies advised by the Investment Adviser or its
affiliate MLAM (“MLAM/FAM-advised funds”). The portion
of the annual retainer allocated to each MLAM/FAM-advised fund
is determined quarterly based on the relative net assets of each
fund. As of the date of this Statement of Additional
Information, this annual retainer applies to 52 MLAM/FAM-advised
funds, including the three Portfolios of the Trust, and the
portion of the annual retainer allocated to each Portfolio is
de minimis. In addition, each non-interested
Director/Trustee receives a fee per in-person board meeting
attended and per in-person Audit and Nominating Committee
meeting attended. The annual per meeting fees paid to
non-interested Directors/Trustees aggregate $62,500 for all
MLAM/FAM-advised funds for which the Directors/Trustees serve
and are allocated equally among those funds. The Trust also
reimburses the non-interested Directors/Trustees for actual
out-of-pocket expenses relating to attendance at meetings. The
Audit and Nominating Committee consists of all of the
non-interested Directors/Trustees of the Corporation and the
Trust.
The following table sets forth the estimated compensation
to be earned by the non-interested Directors/Trustees for the
fiscal year ended October 31, 2000, based on net assets at the
inception of the Portfolios, and the aggregate compensation paid
to them from all investment companies advised by the Investment
Adviser or MLAM/FAM-advised funds for the calendar year ended
December 31, 1998.
Name
|
|
Position
with
Corporation/Trust
|
|
Compensation
from
Corporation/Trust
|
|
Pension
or
Retirement Benefits
Accrued as Part of
Corporation/
Trust Expense
|
|
Estimated
Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation from
Corporation/Trust
and Other
MLAM/FAM-
Advised Funds(1)
|
| James
H. Bodurtha |
|
Director/Trustee |
|
$3,490 |
|
None |
|
None |
|
$163,500 |
| Herbert I. London |
|
Director/Trustee |
|
$3,490 |
|
None |
|
None |
|
$163,500 |
| Joseph L. May |
|
Director/Trustee |
|
$3,490 |
|
None |
|
None |
|
$163,500 |
| Andr
é F. Perold |
|
Director/Trustee |
|
$3,490 |
|
None |
|
None |
|
$163,500 |
| Roberta C. Ramo |
|
Director/Trustee |
|
$6,720 |
|
None |
|
None |
|
None |
(1)
|
The Directors/Trustees serve on boards of
MLAM/FAM-advised funds as follows: Mr. Bodurtha (36 registered
investment companies consisting of 52 portfolios); Mr. London
(36 registered investment companies consisting of 52
portfolios); Mr. May (36 registered investment companies
consisting of 52 portfolios); Mr. Perold (36 registered
investment companies consisting of 52 portfolios); and Ms.
Ramo (29 registered investment companies consisting of 27
portfolios).
|
The Directors of the Corporation and the Trustees
of the Trust may be eligible for reduced sales charges on
purchases of Class A shares. See “Reduced Initial Sales
Charges — Purchase Privileges of Certain Persons.
”
Management and Advisory
Arrangements
Advisory Services and Advisory Fee.
Each Fund invests all of its assets in shares of the
corresponding Portfolio of the Trust. Accordingly, the Funds do
not invest directly in portfolio securities and do not require
investment advisory services. All portfolio management occurs at
the Trust level. The Trust, on behalf of each Portfolio, has
entered into separate investment advisory agreements with Fund
Asset Management, L.P. as Investment Adviser (the “Advisory
Agreements”). As discussed in “Management of the Funds
” in the Prospectus, the Investment Adviser receives for
its services to each Portfolio monthly compensation at the
annual rate of 0.75% of the average daily net assets of each
Portfolio.
The Investment Adviser has also entered into a
sub-advisory agreement with Merrill Lynch Asset Management U.K.
Limited (“MLAM U.K.”) pursuant to which MLAM U.K.
provides investment advisory services to the Investment Adviser
with respect to the Portfolios. The following entities may be
considered “controlling persons” of MLAM U.K.: Merrill
Lynch Europe PLC (MLAM U.K.’s parent), a subsidiary of
Merrill Lynch International Holdings, Inc., a subsidiary of
Merrill Lynch International, Inc., a subsidiary of ML &
Co.
Payment of Trust Expenses. The
Advisory Agreements obligate the Investment Adviser to provide
investment advisory services and to pay, or cause an affiliate
to pay, for maintaining its staff and personnel and to provide
office space, facilities and necessary personnel for the Trust.
The Investment Adviser is also obligated to pay, or cause an
affiliate to pay, the fees of all officers, Trustees and
Directors who are affiliated persons of the Investment Adviser
or any affiliate. The Trust pays, or causes to be paid, all
other expenses incurred in the operation of each Portfolio and
the Trust (except to the extent paid by Merrill Lynch Funds
Distributor, a division of PFD (the “Distributor”)),
including, among other things, taxes, expenses for legal and
auditing services, costs of printing proxies, shareholder
reports, copies of the Registration Statement, charges of the
custodian, any sub-custodian and the transfer agent, expenses of
portfolio transactions, expenses of redemption of shares,
Commission fees, expenses of registering the shares under
federal, state or non-U.S. laws, fees and actual out-of-pocket
expenses of Trustees who are not affiliated persons of the
Investment Adviser or an affiliate of the Investment Adviser,
accounting and pricing costs (including the daily calculation of
net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Trust or a Portfolio.
Accounting services are provided to the Trust by the Investment
Adviser or an affiliate of the Investment Adviser, and the Trust
reimburses the Investment Adviser or an affiliate of the
Investment Adviser for its costs in connection with such
services.
Payment of Corporation Expenses.
The Corporation pays, or causes an affiliate to pay,
all other expenses incurred in the operation of the Corporation
and each Fund (except to the extent paid by the Distributor),
including, among other things, taxes, expenses for legal and
auditing services, costs of printing proxies, shareholder
reports and prospectuses and statements of additional
information, charges of the custodian, any sub-custodian and the
transfer agent, expenses of portfolio transactions, expenses of
redemption of shares, Commission fees, expenses of registering
the shares under federal, state or non-U.S. laws, fees and
actual out-of-pocket expenses of Directors who are not
affiliated persons of the Investment Adviser, or of an affiliate
of the Investment Adviser, accounting and pricing costs
(including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by
the Corporation or a Fund. The Distributor will pay certain of
the expenses of each Fund incurred in connection with the
continuous offering of its shares. Accounting services are
provided to the Corporation and each Fund by the Investment
Adviser, and the Corporation reimburses the Investment Adviser
for its costs in connection with such services.
Organization of the Investment Adviser.
Fund Asset Management, L.P. is a limited partnership,
the partners of which are ML & Co., a financial services
holding company and the parent of Merrill Lynch, and Princeton
Services. ML & Co. and Princeton Services are
“controlling persons” of the Investment Adviser as
defined under the Investment Company Act because of their
ownership of its voting securities and their power to exercise a
controlling influence over its management or
policies.
Duration and Termination.
Unless earlier terminated as described below, the
Advisory Agreements will remain in effect for two years from its
effective date. Thereafter, they will remain in effect from year
to year if approved annually (a) by the Board of Trustees or by
a majority of the outstanding shares of the applicable
Portfolio and (b) by a majority of the Trustees who are not
parties to such contract or interested persons (as defined in
the Investment Company Act) of any such party. Such contracts
are not assignable and may be terminated with respect to the
applicable Portfolio without penalty on 60 days’ written
notice at the option of either party thereto or by the vote of
the shareholders of that Portfolio.
Transfer Agency Services.
Financial Data Services, Inc. (the “Transfer Agent
”), a subsidiary of ML & Co., acts as the Corporation
’s Transfer Agent with respect to each Fund pursuant to
separate Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreements (the “Transfer
Agency Agreements”). Pursuant to the Transfer Agency
Agreements, 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 Agreements, the Transfer Agent receives a fee of $11.00
per Class A or Class D account and $14.00 per Class B or Class C
account and is entitled to reimbursement for certain transaction
charges and out-of-pocket expenses incurred by the Transfer
Agent under the Transfer Agency Agreements. Additionally, a $.20
monthly closed account charge will be assessed on all accounts
that close during the calendar year. Application of this fee
will commence the month following the month the account is
closed. At the end of the calendar year, no further fee will be
due. For purposes of the Transfer Agency Agreements, the term
“account” includes a shareholder account maintained
directly by the Transfer Agent and any other account
representing the beneficial interest of a person in the relevant
share class on a recordkeeping system, provided the
recordkeeping system is maintained by a subsidiary of ML &
Co.
Distribution Expenses. The
Corporation has entered into separate distribution agreements
with the Distributor in connection with the continuous offering
of each class of shares of each 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 each Fund. After the
prospectuses, statements of additional information and periodic
reports have been prepared, set in type and mailed to
shareholders, the Distributor pays for the printing and
distribution of copies thereof used in connection with the
offering to dealers and investors. The Distributor also pays for
other supplementary sales literature and advertising costs. The
Distribution Agreements are subject to the same renewal
requirements and termination provisions as the Investment
Advisory Agreement described above.
Code of Ethics
The Board of Trustees of the Trust and the Board of
Directors of the Corporation each have adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act that incorporates
the Code of Ethics of the Investment Adviser (together, the
“Codes”). The Codes significantly restrict the
personal investing activities of all employees of the Investment
Adviser and, as described below, impose additional, more
onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Investment
Adviser pre-clear any personal securities investment (with
limited exceptions, such as government securities). The
pre-clearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable
to the proposed investment. The substantive restrictions
applicable to all employees of the Investment Adviser include a
ban on acquiring any securities in a “hot” initial
public offering and a prohibition from profiting on short term
trading in securities. In addition, no employee may purchase or
sell any security that at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee is
being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for
trading “blackout periods” that prohibit trading by
investment personnel of the Funds within periods of trading by
the Funds in the same (or equivalent) security (15 or 30 days
depending upon the transaction).
Reference is made to “How to Buy, Sell, Transfer and
Exchange Shares” in the Prospectus for certain information
as to the purchase of Fund shares.
Each Fund issues four classes of shares under the Merrill
Lynch Select Pricing
SM
System: shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives and
shares of Class B and Class C are sold to investors choosing the
deferred sales charge alternatives. Each Class A, Class B, Class
C and Class D share of a Fund represents an identical interest
in the investment portfolio of each 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 (also known as
service 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 contingent deferred sales charges (“CDSCs
”), distribution fees and account maintenance fees that are
imposed on Class B and Class C shares, as well as the account
maintenance fees that are imposed on Class D shares, are imposed
directly against those classes and not against all assets of the
Funds, and, accordingly, such charges do not affect the net
asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by each
Fund for each class of shares are calculated in the same manner
at the same time and differ only to the extent that account
maintenance and distribution fees and any incremental transfer
agency costs relation to a particular class are borne
exclusively by that class. Class B, Class C and Class D shares
each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to
which the account maintenance and/or distribution fees are paid
(except that Class B shareholders may vote upon any material
changes to expenses charged under the Class D Distribution
Plan). Each class has different exchange privileges. See
“Shareholder Services — Exchange Privilege.
”
Investors should understand that the purpose and function
of the initial sales charges with respect to the Class A and
Class D shares are the same as those of the CDSCs and
distribution fees with respect to the Class B and Class C shares
in that the sales charges and distribution fees applicable to
each class provide for the financing of the distribution of the
shares of each 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 Merrill Lynch Select Pricing
SM
System is used by more than 50 registered
investment companies advised by MLAM or FAM. Funds advised by
MLAM or FAM that utilize the Merrill Lynch Select
Pricing
SM
System are referred to herein as “Select
Pricing Funds.”
Each Fund offers its shares at a public offering price
equal to the next determined net asset value per share plus any
sales charge applicable to the class of shares selected by the
investor. The applicable offering price for purchase orders is
based upon the net asset value of a Fund next determined after
receipt of the purchase order by the Distributor. As to purchase
orders received by securities dealers prior to the close of
business on the New York Stock Exchange (the “NYSE”)
(generally 4:00 p.m., Eastern 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 on the day the order is placed with the
Distributor, provided that the orders are received by the
Distributor prior to 30 minutes after the close of business on
the NYSE on that day. If the purchase orders are not received
prior to 30 minutes after the close of business on the NYSE on
that day, such orders shall be deemed received on the next
business day. Dealers have the responsibility of submitting
purchase orders to the Funds not later than 30 minutes after the
close of business on the NYSE in order to purchase shares at
that day’s offering price.
A
Fund or the Distributor may suspend the continuous offering of
that Fund’s shares of any class at any time in response to
conditions in the securities markets or otherwise and may
thereafter resume such offering from time to time. Any order may
be rejected by a Fund or the Distributor. Neither the
Distributor nor the dealers are permitted to withhold placing
orders to benefit themselves by a price change. Certain
securities dealers may charge a processing fee to confirm a sale
of shares to such customers. For example, the fee currently
charged by Merrill Lynch is $5.35. Purchases made directly
through the Transfer Agent are not subject to the processing
fee.
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.
Class A shares are offered to a limited group of investors
and also will be issued upon reinvestment of dividends paid on
outstanding Class A shares. Investors who currently own Class A
shares in a shareholder account, including participants in the
Merrill Lynch Blueprint
SM
Program, are entitled to purchase additional
Class A shares of a Fund 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 and U.S. branches of foreign banking institutions
provided that the program or bank has $3 million or more
initially invested in Select Pricing Funds. Also eligible to
purchase Class A shares at net asset value are participants in
certain investment programs including TMA
SM
Managed Trusts to which Merrill Lynch Trust
Company provides discretionary trustee services, collective
investment trusts for which Merrill Lynch Trust Company serves
as trustee and certain purchases made in connection with certain
fee-based programs. In addition, Class A shares are offered at
net asset value to ML & Co. and its subsidiaries and their
directors and employees, to members of the Boards of Merrill
Lynch and MLAM-advised investment companies, including the
Corporation, and to employees of certain selected dealers.
Certain persons who acquired shares of certain MLAM-advised
closed-end funds in their initial offerings who wish to reinvest
the net proceeds from a sale of their closed-end fund shares of
common stock in shares of a Fund also may purchase Class A
shares of a Fund if certain conditions are met. In addition,
Class A shares of each Fund and certain other Select Pricing
Funds are offered at net asset value to shareholders of Merrill
Lynch Senior Floating Rate Fund, Inc. and, if certain conditions
are met, to shareholders of Merrill Lynch Municipal Strategy
Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock pursuant to a tender
offer conducted by such funds in shares of the Fund and certain
other Select Pricing Funds.
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 a 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 or her spouse and their children
under the age of 21 years purchasing shares for his or her 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 that has not been in existence for at least six
months or which has no purpose other than the purchase of shares
of a 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.
The Distributor may reallow discounts to selected dealers
and retain the balance over such discounts. At times the
Distributor may reallow the entire sales charge to such dealers.
Since securities dealers selling Class A and Class D shares of a
Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the
Securities Act.
Reduced Initial Sales Charges
Reductions in or exemptions from the imposition of a sales
load are due to the nature of the investors and/or the reduced
sales efforts that will be needed to obtain such
investments.
Reinvested Dividends. No
initial sales charges are imposed upon Class A and Class D
shares issued as a result of the automatic reinvestment of
dividends.
Rights of Accumulation. Reduced
sales charges are applicable through a right of accumulation
under which eligible investors are permitted to purchase shares
of each Fund subject to an initial sales charge at the offering
price applicable to the total of (a) the public offering price
of the shares then being purchased plus (b) an amount equal to
the then current net asset value or cost, whichever is higher,
of the purchaser’s combined holdings of all classes of
shares of each Fund and of any other Select Pricing 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 Intent. Reduced sales
charges are applicable to purchases aggregating $25,000 or more
of Class A or Class D shares of each Fund or any other Merrill
Lynch mutual funds made within a 13-month period starting with
the first purchase pursuant to the Letter of Intent. The Letter
of Intent is available only to investors whose accounts are
established and maintained at the Fund’s Transfer Agent.
The Letter of Intent is not available to employee benefit plans
for which affiliates of the Investment Adviser provide plan
participant record-keeping services. The Letter of Intent is not
a binding obligation to purchase any amount of Class A or Class
D shares; however, 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
Intent may be included under a subsequent Letter of Intent
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 each Fund and other
Select Pricing Funds presently held, at cost or maximum offering
price (whichever is higher), on the date of the first purchase
under the Letter of Intent, may be included as a credit toward
the completion of such Letter, but the reduced sales charge
applicable to the amount covered by such Letter will be applied
only to new purchases. If the total amount of shares does not
equal the amount stated in the Letter of Intent (minimum of
$25,000), the investor will be notified and must pay, within 20
days of the execution 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 B shares
equal to 5.0% 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 Intent must be at least 5.0% of the dollar
amount of such Letter. If a purchase during the term of such
Letter would otherwise be subject to a further reduced sales
charge based on the right of accumulation, the purchaser will be
entitled on that purchase and subsequent purchases to that
further reduced percentage sales charge but there will be no
retroactive reduction of the sales charges on any previous
purchase.
The value of any shares redeemed or otherwise disposed of
by the purchaser prior to termination or completion of the
Letter of Intent will be deducted from the total purchases made
under such Letter. An exchange from the Summit Cash Reserves
Fund into each Fund that creates a sales charge will count
toward completing a new or existing Letter of Intent from each
Fund.
Merrill Lynch Blueprint
SM
Program. Class
D shares of each Fund are offered to participants in the Merrill
Lynch Blueprint
SM
Program (“Blueprint”). In addition,
participants in Blueprint who own Class A shares of a Fund may
purchase additional Class A shares of that fund through
Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as credit
unions, trade associations and benefit plans. Investors placing
orders to purchase Class A or Class D shares of the 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 each Fund
are offered at net asset value plus a sales charge of .50% of 1%
for corporate or group IRA programs placing orders to purchase
their Class A or Class D shares through Blueprint. Services,
including the exchange privilege, available to Class A and Class
D investors through Blueprint, however, may differ from those
available to other Class A or Class D share
investors.
Class A and Class D shares are offered at net asset value
to participants in Blueprint through the Merrill Lynch Directed
IRA Rollover Program (“IRA Rollover Program”)
available from Merrill Lynch Business
Financial Services, a business unit of Merrill Lynch. The IRA
Rollover Program is available to custodian rollover assets from
employer-sponsored retirement and savings plans whose trustee
and/or plan sponsor has entered into a Merrill Lynch Directed
IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D
shares of a 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. 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.
TMA
SM
Managed Trusts.
Class A shares are offered at net asset value to
TMA
SM
Managed Trusts to which Merrill Lynch Trust
Company provides discretionary trustee services.
Employee Access
SM
Accounts.
Provided applicable threshold requirements are met,
either Class A or Class D shares are offered at net asset value
to Employee Access
SM
Accounts available through authorized employers.
The initial minimum investment for such accounts is $500, except
that the initial minimum investment for shares purchased for
such accounts pursuant to the Automatic Investment Program is
$50.
Employer-Sponsored Retirement or Savings Plans and Certain
Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset
value, based on the number of employees or number of employees
eligible to participate in the plan, the aggregate amount
invested by the plan in specified investments and/or the
services provided by Merrill Lynch to the plan. Additional
information regarding purchases by employer-sponsored retirement
or savings plans and certain other arrangements is available
toll-free from Merrill Lynch Business Financial Services at
(800) 237-7777.
Purchase Privileges of Certain Persons.
Directors of the Corporation and Trustees of the
Trust, members of the Boards of other MLAM/FAM-advised
investment companies, ML & Co. and its subsidiaries (the
term “subsidiaries,” when used herein with respect to
ML & Co., includes the Investment Adviser, MLAM and certain
other entities directly or indirectly wholly owned and
controlled by ML & Co.) and their directors and employees
and any trust, pension, profit-sharing or other benefit plan for
such persons, may purchase Class A shares of each Fund at net
asset value.
Class D shares of each Fund are offered at net asset
value, without a sales charge, to an investor that 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 a Fund
with proceeds from a redemption of shares of a mutual fund that
was sponsored by the Financial Consultant’s previous firm
and was subject to a sales charge either at the time of purchase
or on a deferred basis; and second, the investor must establish
that such redemption had been made within 60 days prior to the
investment in that Fund and the proceeds from the redemption had
been maintained in the interim in cash or a money market
fund.
Class D shares of a Fund are also offered at net asset
value, without a sales charge, to an investor that has a
business relationship with a Merrill Lynch Financial Consultant
and that 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 a Fund with
proceeds from a redemption of shares of such other mutual fund
and the shares of such other fund were subject to a sales charge
either at the time of purchase or on a deferred basis; and
second, such purchase of Class D shares must be made within 90
days after such notice.
Class D shares of a Fund are offered at net asset value,
without a sales charge, to an investor that has a business
relationship with a Merrill Lynch Financial Consultant and that
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 a Fund with proceeds from the
redemption of shares
of such other mutual fund and that such shares have been
outstanding for a period of no less than six months; and,
second, such purchase of Class D shares must be made within 60
days after the redemption and the proceeds from the redemption
must be maintained in the interim in cash or a money market
fund.
Closed-End Fund Investment Option.
Class A shares of a Fund and certain other Select
Pricing Funds (“Eligible Class A Shares”) are offered
at net asset value to shareholders of certain closed-end funds
advised by the Investment Adviser or MLAM who purchased such
closed-end fund shares prior to October 21, 1994 (the date the
Merrill Lynch Select Pricing
SM
System commenced operations) and wish to
reinvest the net proceeds from a sale of their closed-end fund
shares are offered 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 a Fund and other Select Pricing
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
Eligible Class D Shares. Second, the closed-end fund shares must
either have been acquired in the initial public offering or be
shares representing dividends from shares of common stock
acquired in such offering. Third, the closed-end fund shares
must have been continuously maintained in a Merrill Lynch
securities account. Fourth, there must be a minimum purchase of
$250 to be eligible for the investment option.
Shareholders of certain MLAM-advised continuously offered
closed-end funds may reinvest at net asset value the net
proceeds from a sale of certain shares of common stock of such
funds in shares of a Fund. Upon exercise of this investment
option, shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. and Merrill Lynch Senior Floating Rate II, Inc. will
receive Class A shares of a Fund and shareholders of Merrill
Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High
Income Municipal Bond Fund, Inc. will receive Class D shares of
a Fund, except that shareholders already owning Class A shares
of a Fund will be eligible to purchase additional Class A shares
pursuant to this option, if such additional Class A shares will
be held in the same account as the existing Class A shares and
the other requirements pertaining to the reinvestment privilege
are met. In order to exercise this investment option, a
shareholder of one of the above-referenced continuously offered
closed-end funds (an “eligible fund”) must sell his or
her shares of common stock of the eligible fund (the
“eligible shares”) back to the eligible fund in
connection with a tender offer conducted by the eligible fund
and reinvest the proceeds immediately in the designated class of
shares of a Fund. This investment option is available only with
respect to eligible shares as to which no Early Withdrawal
charge or CDSC (each as defined in the eligible fund’s
prospectus) is applicable. Purchase orders from eligible fund
shareholders wishing to exercise this investment option will be
accepted only on the day that the related tender offer
terminates and will be effected at the net asset value of the
designated class of a Fund on such day.
Acquisition of Certain Investment Companies.
Class D shares may be offered at net asset value
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.
Deferred Sales Charges — 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 Select Pricing Funds.
Because no initial sales charges are deducted at the time
of the 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 that do
not qualify for the 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.
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. See
“Pricing of Shares — Determination of Net
Asset Value” below.
Class B shares that are redeemed within four years of
purchase may be subject to a CDSC at the rates set forth below
charged as a percentage of the dollar amount subject thereto. In
determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the
lowest applicable rate being charged. 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. It will be assumed that the redemption is first of
shares held for over four years or shares acquired pursuant to
reinvestment of dividends and then of shares held longest during
the four-year period. 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.
The following table sets forth the Class B
CDSC:
Year Since
Purchase Payment Made
|
|
CDSC as a
Percentage of
Dollar amount
Subject to Charge
|
| 0
–1 |
|
4.0% |
| 1
–2 |
|
3.0% |
| 2
–3 |
|
2.0% |
| 3
–4 |
|
1.0% |
| 4 and
thereafter |
|
None |
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 a CDSC 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 may be waived on redemptions of shares in
connection with certain post-retirement withdrawals from an
Individual Retirement Account (“IRA”) or other
retirement plan or following the death or disability (as defined
in the Internal Revenue Code of 1986, as amended) of a
shareholder (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 or, if later, reasonably promptly following
completion of probate. The Class B CDSC also may be waived on
redemption of shares by certain eligible 401(a) and 401(k)
plans. The CDSC may also be waived for any Class B shares that
are purchased by eligible 401(k) or eligible 401(a) plans that
are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied IRA and held in such account at the time of
redemption. The Class B CDSC may be waived for any Class B
shares that were acquired and held at the time of the redemption
in an Employee Access
SM
Account available through employers providing
eligible 401(k) plans. The Class B CDSC also may be waived for
any Class B shares that 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 Class B CDSC also
may be waived or its terms may be modified in connection with
certain fee-based programs. The Class B CDSC may also be waived
in connection with involuntary termination of an account in
which Fund shares are held or for withdrawals through the
Merrill Lynch Systematic Withdrawal Plan. See “Shareholder
Services — Fee Based Programs” and “
— Systematic Withdrawal Plan.”
Employer-Sponsored Retirement or Savings Plans and Certain
Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class B shares with a waiver of the
CDSC upon redemption, based on the number of employees or number
of employees eligible to participate
in the plan, the aggregate amount invested by the plan in
specified investments and/or the services provided by Merrill
Lynch to the plan. Such Class B shares will convert into Class D
shares approximately ten years after the plan purchases the
first share of any Select Pricing fund. Minimum purchase
requirements may be waived or varied for such plans. Additional
information regarding purchases by employer-sponsored retirement
or savings plans and certain other arrangements is available
toll-free from Merrill Lynch Business Financial Services at
(800) 237-7777.
Merrill Lynch Blueprint
SM
Program. Class
B shares are offered to certain participants in Blueprint.
Blueprint is directed to small investors, group IRAs and
participants in certain affinity groups such as trade
associations and credit unions. Class B shares of each 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 investors in
Class B shares. Orders for purchases and redemptions of Class B
shares of a Fund will be grouped for execution purposes which,
in some circumstances, may involve the execution of such orders
two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for
subsequent purchases through Blueprint. There is no minimum
initial or subsequent purchase requirement for investors who are
part of the Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any
annual fees or transaction charges, is available from Merrill
Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
Conversion of Class B Shares to Class D Shares.
After approximately eight years (the
“Conversion Period”), Class B shares of each Fund will
be converted automatically into Class D shares of that Fund.
Class D shares are subject to an ongoing account maintenance fee
of 0.25% of the average daily net assets of a Fund 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 value 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 the Conversion Date the conversion of Class B
shares to Class D shares of a 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 that Fund held in the
account on the Conversion Date will be converted to Class D
shares of the Fund.
In general, Class B shares of equity Select Pricing Funds
will convert approximately eight years after initial purchase
and Class B shares of taxable and tax-exempt fixed income Select
Pricing 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 on to the holding period for
the shares acquired. The Conversion Period also may be modified
for investors that participate in certain fee-based programs.
See “Shareholder Services — Fee-Based
Programs.”
Class B shareholders of a Fund exercising the exchange
privilege described under “Shareholder Services —
Exchange Privilege” will continue to be subject to
that 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.
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.
Class C shares that 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. 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. 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. It will be assumed that the
redemption is first of shares held for over one year or shares
acquired pursuant to reinvestment of dividends and then of
shares held longest during the one-year period. 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. The
Class C CDSC may be waived in connection with involuntary
termination of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic Withdrawal
Plans. See “Shareholder Services —
Systematic Withdrawal Plan.” The Class C CDSC of each
Fund and certain other MLAM-advised mutual funds may be waived
with respect to Class C shares purchased by an investor with the
net proceeds of a tender offer made by certain MLAM-advised
closed-end funds, including Merrill Lynch Senior Floating Rate
Fund II, Inc. Such waiver is subject to the requirement that the
tendered shares shall have been held by the investor for a
minimum of one year and to such other conditions as are set
forth in the prospectus for the related closed-end
fund.
Class B and Class C Sales Charge Information.
Merrill Lynch compensates its Financial
Consultants for selling Class B and Class C shares at the time
of purchase from its own funds. Proceeds from the CDSC and the
distribution fee are paid to the Distributor and are used in
whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing
distribution-related services to each Fund in connection with
the sale of the Class B and Class C shares, such as the payment
of compensation to financial consultants for selling Class B and
Class C shares from the dealer’s own funds. The combination
of the CDSC and the ongoing distribution fee facilitates the
ability of each Fund to sell the Class B and Class C shares
without a sales charge being deducted at the time of purchase.
See “Distribution Plans” below. 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.
Distribution Plans
Reference is made to “Fees and Expenses” in the
Prospectus for certain information with respect to 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 Funds to the
Distributor with respect to such classes.
The Distribution Plan for each of the Class B, Class C and
Class D shares provides that each 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 each 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 with respect to
Class B, Class C and Class D shares. Each of those classes has
exclusive voting rights with respect to the Distribution Plan
adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid (except that Class
B shareholders may vote on any material changes to expenses
charged under the Class D Distribution Plan).
The Distribution Plans for Class B and Class C shares
provide that each 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 each 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 each Fund, including payments
to financial consultants for selling Class B and Class C shares
of each 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 each Fund in that the ongoing distribution fees and
deferred sales charges provide for the financing of the
distribution of each Fund’s Class B and Class C
shares.
The Funds’ Distribution Plans are subject to the
provisions of Rule 12b-1 under the Investment Company Act. In
their consideration of each Distribution Plan, the Directors
must consider all factors they deem relevant, including
information as to the benefits of each Distribution Plan to the
applicable Fund and the related class of shareholders. Each
Distribution Plan further provides that, so long as the
Distribution Plan remains in effect, the selection and
nomination of non-interested Directors shall be committed to the
discretion of the non-interested Directors then in office. In
approving each Distribution Plan in accordance with Rule 12b-1,
the non-interested Directors concluded that there is reasonable
likelihood that such Distribution Plan will benefit each 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 non-interested Directors or by the vote of the
holders of a majority of the outstanding related class of voting
securities of the affected Fund. A Distribution Plan cannot be
amended to increase materially the amount to be spent by a Fund
without the approval of the related class of shareholders, and
all material amendments are required to be approved by the vote
of Directors, including a majority of the non-interested
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 each Fund
preserve copies of its Distribution Plans and any report made
pursuant to such plan for a period of not less than six years
from the date of such Distribution Plans or such report, the
first two years in an easily accessible place.
Among other things, each Distribution Plan provides that
the Distributor shall provide and the Directors shall review
quarterly reports of the disbursement of the account maintenance
and/or distribution fees paid to the Distributor. Payments under
the Distribution Plans are based on a percentage of average
daily net assets attributable to the shares regardless of the
amount of expenses incurred and, accordingly,
distribution-related revenues from each Distribution Plan may be
more or less than distribution-related expenses of the related
class. 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 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 basis, revenues consist of the account
maintenance fees, the 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, the
distribution fees and CDSCs and the expenses consist of
financial consultant compensation.
Limitations on the Payment of Deferred Sales
Charges
The maximum sales charge rule in the Conduct Rules of the
NASD imposes a limitation on certain asset-based sales charges
such as the distribution fee and the CDSC borne by the Class B
and Class C shares, but not the account maintenance fee. The
maximum sales charge rule is applied separately to each class.
As applicable to each Fund, the maximum sales charge rule limits
the aggregate of distribution fee payments and CDSCs payable by
each 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 applicable 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 circumstance payment in
excess of the amount payable under the NASD formula will not be
made.
Reference is made to “How to Buy, Sell, Transfer and
Exchange Shares” in the Prospectus.
Each Fund is required to redeem for cash all shares of
that Fund upon receipt of a written request in proper form. The
redemption price is the net asset value per share next
determined after the initial receipt of proper notice of
redemption. Except for any CDSC that may be applicable, there
will be no charge for redemption if the redemption request is
sent directly to the Transfer Agent. Shareholders liquidating
their holdings will receive upon redemption all dividends
reinvested through the date of redemption.
The right to redeem shares or to receive payment with
respect to any such redemption may be suspended for more than
seven days only for any period during which trading on the NYSE
is restricted as determined by the Commission or during which
the NYSE 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 Funds is not reasonably practicable, and for such other
periods as the Commission may by order permit for the protection
of shareholders of the Funds.
The value of shares of a Fund at the time of redemption
may be more or less than the shareholder’s cost, depending
in part on the market value of the securities held by that Fund
at such time.
Redemption
A
shareholder wishing to redeem shares held with the Transfer
Agent may do so without charge by tendering the shares directly
to the Funds’ Transfer Agent, Financial Data Services,
Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484. Proper notice of
redemption in the case of shares deposited with the Transfer
Agent may be accomplished by a written letter requesting
redemption. Proper notice of redemption in the case of shares
for which certificates have been issued may be accomplished by a
written letter as noted above accompanied by certificates for
the shares to be redeemed. Redemption requests should not be
sent to the Corporation, the Trust or the Funds. A redemption
request in either event requires the signature(s) of all persons
in whose name(s) the shares are registered, signed exactly as
such name(s) appear(s) on the Transfer Agent’s register.
The signature(s) on the redemption request may require a
guarantee by an “eligible guarantor institution” as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934 (the “Exchange Act”), the existence and validity
of which may be verified by the Transfer Agent through the use
of industry publications. In the event a signature guarantee is
required, notarized signatures are not sufficient. In general,
signature guarantees are waived on redemptions of less than
$50,000 as long as the following requirements are met: (i) all
requests require the signature(s) of all persons in whose
name(s) shares are recorded on the Transfer Agent’s
register; (ii) all checks must be mailed to the stencil address
of record on the Transfer Agent’s register and (iii) the
stencil address must not have changed within 30 days. Certain
rules may apply regarding certain account types such as but not
limited to UGMA/UTMA accounts, Joint Tenancies With Rights of
Survivorship, contra broker transactions and institutional
accounts. 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,
payments will be mailed within seven days of receipt of a proper
notice of redemption.
At various times a Fund may be requested to redeem shares
for which it has not yet received good payment (e.g.,
cash, Federal funds or certified check drawn on a U.S. bank).
That Fund may delay or cause to be delayed the mailing of a
redemption check until such time as good payment (e.g.,
cash, Federal funds or certified check drawn on a U.S. bank) has
been collected for the purchase of such Fund shares, which will
not usually exceed 10 days.
Repurchase
Each Fund also will repurchase its shares through a
shareholder’s listed securities dealer. Each 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 the order is placed. Shares will be priced at
the net asset value calculated on the day the request is
received, provided that the request for repurchase is submitted
to the dealer prior to the close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) and such
request is received by the Fund from such dealer not later than
30 minutes after the close of business on the NYSE on the same
day. Dealers have the responsibility of submitting such
repurchase requests to the Funds not later than 30 minutes after
the close of business on the NYSE in order to obtain that day
’s closing price.
The foregoing repurchase arrangements are for the
convenience of shareholders and do not involve a charge by a
Fund (other than any applicable CDSC). Securities firms that do
not have selected dealer agreements with the Distributor,
however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to a Fund. Merrill Lynch
may charge its customers a processing fee (presently, $5.35) to
confirm a repurchase of shares to such customers. Repurchases
made directly through the Transfer Agent, on accounts held at
the Transfer Agent, are not subject to the processing fee. Each
Fund reserves the right to reject any order for repurchase,
which right of rejection might adversely affect shareholders
seeking redemption through the repurchase procedure. A
shareholder whose order for repurchase is rejected by a Fund,
however, may redeem Fund shares as set forth above.
Reinstatement Privilege — Class
A and Class D Shares
Shareholders of a Fund who have redeemed their Class A and
Class D shares of that Fund have a privilege to reinstate their
accounts by purchasing Class A or Class D shares, as the case
may be, of that 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.
Alternatively, the reinstatement privilege may be exercised
through the investor’s Merrill Lynch Financial Consultant
within 30 days after the date the request for redemption was
accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next
determined after the notice of reinstatement is received and
cannot exceed the amount of the redemption proceeds.
Determination of Net Asset
Value
Reference is made to “How Shares are Priced” in
the Prospectus.
The net asset value of the shares of all classes of each
Fund is determined once daily Monday through Friday as of the
close of business on the NYSE on each day the NYSE is open for
trading based on prices at the time of closing. The NYSE
generally closes at 4:00 p.m., Eastern time. Each Fund also will
determine its net asset value on any day in which there is
sufficient trading in the underlying Portfolio’s portfolio
securities that the net asset value might be affected
materially, but only if on any such day a Fund is required to
sell or redeem shares. 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 NYSE
is not open for trading on New Year’s Day, Martin Luther
King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
Net asset value is computed by dividing the value of the
securities held by each Portfolio on behalf of a 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 of the Fund outstanding
at such time, rounded to nearest cent. Expenses, including the
fees payable to the Investment Adviser and Distributor, are
accrued daily.
The per share net asset value of Class B, Class C and
Class D shares generally will be lower than the per share net
asset value of Class A shares, reflecting the daily expense
accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and
Class C shares, and the daily expense accruals of the account
maintenance fees applicable with respect to Class D shares.
Moreover, the per share net asset value of the Class B and Class
C shares of a Fund generally will be lower than the per share net
asset value of Class D shares of that Fund, reflecting the daily
expense accruals of the distribution fees and higher transfer
agency fees applicable with respect to Class B and Class C
shares of that Fund. It is expected, however, that the per share
net asset value of the four classes of a Fund will tend to
converge (although not necessarily meet) immediately after the
payment of dividends or distributions, which will differ by
approximately the amount of the expense accrual differentials
between the classes.
Portfolio securities, including ADRs, EDRs or GDRs, that
are traded on stock exchanges are valued at the last sale price
(regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available
bid price for long positions, and at the last available ask
price for short positions. In cases where securities are traded
on more than one exchange, the securities are valued on the
exchange designated by or under the authority of the Board of
Trustees of the Trust as the primary market. Long positions in
securities traded in the OTC market are valued at the last
available bid price in the OTC market prior to the time of
valuation. Portfolio securities that are traded both in the OTC
market and on a stock exchange are valued according to the
broadest and most representative market. Short positions in
securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of
valuation. When a Portfolio writes an option, the amount of the
premium received is recorded on the books of that Portfolio as
an asset and an equivalent liability. The amount of the
liability is subsequently valued to reflect the current market
value of the option written, based on the last sale price in the
case of exchange-traded options or, in the case of options
traded in the OTC market, the last ask price. Options purchased
by a Portfolio are valued at their last sale price in the case
of exchange-traded options or, in the case of options traded in
the OTC market, the last bid price. Other investments, including
financial futures contracts and related options, are stated at
market value. Securities and assets for which market quotations
are not readily available are stated at fair value as determined
in good faith by or under the direction of the Board of Trustees
of the Trust. Such valuations and procedures will be reviewed
periodically by the Board of Trustees.
Generally, trading in non-U.S. securities, as well as U.S.
Government securities and money market instruments, is
substantially completed each day at various times prior to the
close of business on the NYSE. The values of such securities
used in computing the net asset value of each Fund’s shares
are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on
the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times
at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of each Fund
’s net asset value.
Each investor in the Trust may add to or reduce its
investment in the Portfolio on each day the NYSE is open for
trading. The value of each investor’s (including each Fund
’s) interest in the Portfolio will be determined after the
close of business on the NYSE by multiplying the net asset value
of the Portfolio by the percentage, effective for that day, that
represents that investor’s share of the aggregate interests
in the Portfolio. The close of business on the NYSE is generally
4:00 p.m., Eastern time. Any additions or withdrawals to be
effected on that day will then be effected. The investor’s
percentage of the aggregate beneficial interests in the
Portfolio will then be recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor
’s investment in the Portfolio as of the time of
determination on such day plus or minus, as the case may be, the
amount of any additions to or withdrawals from the investor
’s investment in the Portfolio effected on such day, and
(ii) the denominator of which is the aggregate net asset value
of the Portfolio as of such time on such day plus or minus, as
the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in the Portfolio by
all investors in the Portfolio. The percentage so determined
will then be applied to determine the value of the investor
’s interest in the Portfolio after the close of business of
the NYSE on the next determination of net asset value of the
Portfolio.
Computation of Offering Price Per
Share
An illustration of the computation of the offering price
for Class A, Class B, Class C and Class D shares of each Fund
based on the projected value of each Fund’s estimated net
assets and projected number of shares outstanding on the date
its shares are offered for sale to public investors is as
follows:
|
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
|
Class
D
|
| Net
Assets |
|
$125,000 |
|
$125,000 |
|
$125,000 |
|
$125,000 |
| |
|
|
|
|
|
|
|
|
| Number of Shares Outstanding |
|
12,500 |
|
12,500 |
|
12,500 |
|
12,500 |
| |
|
|
|
|
|
|
|
|
Net
Asset Value Per Share (net assets divided by number of shares
outstanding) |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
|
$
10.00 |
Sales
Charge (for Class A and Class D Shares: 5.25% of Offering
Price (5.54% of net amount
invested))* |
|
0.55 |
|
** |
|
** |
|
0.55 |
| |
|
|
|
|
|
|
|
|
| Offering Price |
|
$
10.55 |
|
$
10.00 |
|
$
10.00 |
|
$
10.55 |
| |
|
|
|
|
|
|
|
|
*
|
Rounded to the nearest one-hundredth percent;
assumes maximum sales charge is applicable.
|
**
|
Class B and Class C shares are not subject to
an initial sales charge but may be subject to a CDSC on
redemption. See “Account Choices — Class B
and Class C shares — Deferred Sales Charge
Options” in the Prospectus and “Redemption of Shares
— Deferred Sales Charges —
Class B and Class C Shares” herein.
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions in Portfolio
Securities
Because each Fund will invest exclusively in shares of its
corresponding Portfolio of the Trust, it is expected that all
transactions in portfolio securities will be entered into by the
Trust. Subject to policies established by the Board of Trustees
of the Trust, the Investment Adviser is primarily responsible
for the execution of the Trust’s portfolio transactions and
the allocation of brokerage. The Trust has no obligation to deal
with any broker or group of brokers in the execution of
transactions in portfolio securities and does not use any
particular broker or dealer. In executing transactions with
brokers and dealers, the Investment Adviser seeks to obtain the
best net results for each Portfolio of the Trust, 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
and the firm’s risk in positioning a block of securities.
While the Investment Adviser generally seeks reasonably
competitive commission rates, the Trust does not necessarily pay
the lowest spread or commission available. In addition,
consistent with the Conduct Rules of the NASD and policies
established by the Board of Trustees of the Trust, the
Investment Adviser may consider sales of shares of a Fund as a
factor in the selection of brokers or dealers to execute
portfolio transactions for the Trust; however, whether or not a
particular broker or dealer sells shares of the Fund neither
qualifies nor disqualifies such broker or dealer to execute
transactions for the Trust.
Subject to obtaining the best net results, brokers who
provide supplemental investment research to the Investment
Adviser may receive orders for transactions by the Trust. Such
supplemental research services ordinarily consist of assessments
and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition
to and not in lieu of the services required to be performed by
the Investment Adviser under the Investment Advisory Agreements,
and the expenses of the Investment Adviser will not necessarily
be reduced as a result of the receipt of such supplemental
information. If in the judgment of the Investment Adviser the
Trust will benefit from supplemental research services, the
Investment Adviser is authorized to pay brokerage commissions to
a broker furnishing such services that are in excess of
commission that another broker may have charged for effecting
the same transactions. Certain supplemental research services
may primarily benefit one or more other investment companies or
other accounts for which the Investment Adviser exercises
investment discretion. Conversely, the Trust may be the primary
beneficiary of the supplemental research services received as a
result of portfolio transactions effected for such other
accounts or investment companies.
The Trust anticipates that its brokerage transactions
involving securities of issuers domiciled in countries other
than the United States generally will be conducted primarily on
the principal stock exchanges of such
countries. Brokerage commissions and other transaction costs on
foreign stock exchange transactions generally are higher than in
the United States, although the Trust will endeavor to achieve
the best net results in effecting its portfolio transactions.
There generally is less governmental supervision and regulation
of foreign stock exchanges and brokers than in the United
States.
Foreign equity securities may be held by the Trust in the
form of ADRs, EDRs, GDRs or other securities convertible into
foreign equity securities. ADRs, EDRs and GDRs may be listed on
stock exchanges, or traded in over-the-counter markets in the
United States or Europe, as the case may be. ADRs, like other
securities traded in the United States, will be subject to
negotiated commission rates. The Trust’s ability and
decisions to purchase or sell portfolio securities of foreign
issuers may be affected by laws or regulations relating to the
convertibility and repatriation of assets. Because the shares of
each Fund are redeemable on a daily basis in U.S. dollars, the
Trust intends to manage each Portfolio so as to give reasonable
assurance that it will be able to obtain U.S. dollars to the
extent necessary to meet anticipated redemptions. Under present
conditions, it is not believed that these considerations will
have significant effect on the Trust’s portfolio
strategies.
Each Fund may invest in certain securities traded in the
OTC market and intends to deal directly with the dealers who
make a market in securities involved, except in those
circumstances in which better prices and execution are available
elsewhere. Under the Investment Company Act, persons affiliated
with the Trust and persons who are affiliated with such
affiliated persons are prohibited from dealing with the Trust as
principal in the purchase and sale of securities unless a
permissive order allowing such transactions is obtained from the
Commission. Since transactions in the OTC market usually involve
transactions with the dealers acting as principal for their own
accounts, the Trust will not deal with affiliated persons,
including Merrill Lynch and its affiliates, in connection with
such transactions. However, an affiliated person of the Trust
may serve as its broker in OTC transactions conducted on an
agency basis provided that, among other things, the fee or
commission received by such affiliated broker is reasonable and
fair compared to the fee or commission received by
non-affiliated brokers in connection with comparable
transactions. In addition, the Trust may not purchase securities
during the existence of any underwriting syndicate for such
securities of which Merrill Lynch is a member or in a private
placement in which Merrill Lynch serves as placement agent
except pursuant to procedures approved by the Board of Trustees
of the Trust that either comply with rules adopted by the
Commission or with interpretations of the Commission staff. See
“Investment Objective and Policies —
Investment Restrictions.”
Section 11(a) of the Exchange Act generally prohibits
members of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional
accounts that they manage unless the member (i) has obtained
prior express authorization from the account to effect such
transactions, (ii) at least annually furnishes the account with
a statement setting forth the aggregate compensation received by
the member in effecting such transactions, and (iii) complies
with any rules the Commission has prescribed with respect to the
requirements of clauses (i) and (ii). To the extent Section
11(a) would apply to Merrill Lynch acting as a broker for the
Trust in any of its portfolio transactions executed on any such
securities exchange of which it is a member, appropriate
consents have been obtained from the Trust and annual statements
as to aggregate compensation will be provided to the Trust.
Securities may be held by, or be appropriate investments for,
the Trust as well as other funds or investment advisory clients
of the Investment Adviser or its affiliates.
The Board of Trustees of the Trust has considered the
possibility of seeking to recapture for the benefit of the Funds
brokerage commissions and other expenses of possible portfolio
transactions by conducting portfolio transactions through
affiliated entities. For example, brokerage commissions received
by affiliated brokers could be offset against the advisory fee
paid by the Trust on behalf of a portfolio to the Investment
Adviser. After considering all factors deemed relevant, the
Board of Trustees made a determination not to seek such
recapture. The Board will reconsider this matter from time to
time.
Because of different objectives or other factors, a
particular security may be bought for one or more clients of the
Investment Adviser or its affiliates when one or more clients of
the Investment Adviser or its affiliates are selling the same
security. If purchases or sales of securities arise for
consideration at or about the same time that would involve the
Trust or other clients or funds for which the Investment Adviser
or an affiliate act as investment adviser, transactions in such
securities will be made, insofar as feasible, for the respective
funds and clients in a manner deemed equitable to all. To the
extent that transactions on behalf of more than one client of
the Investment
Adviser or its affiliates during the same period may increase the
demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on
price.
Each Fund offers a number of shareholder services
described below that are designed to facilitate investment in
its shares. Full details as to each such service and copies of
the various plans or how to change options with respect thereto,
can be obtained from the Funds by calling the telephone number
on the cover page hereof, or from the Distributor or Merrill
Lynch. Certain of these services are available only to U.S.
investors, and certain of these services are not available to
investors who place orders through the Merrill Lynch
Blueprint
SM
Program.
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 dividends. The
statements also will show any other activity in the account
since the preceding statement. Shareholders also will receive
separate confirmations for each purchase or sale transaction
other than automatic investment purchases and the reinvestment
of dividends. A shareholder with an account held at the Transfer
Agent may make additions to his or her Investment Account at any
time by mailing a check directly to the Transfer Agent. Upon the
transfer of shares out of a Merrill Lynch brokerage account, an
Investment Account in the transferring shareholder’s name
may be opened automatically at the Transfer Agent.
Share certificates are issued only for full shares and
only upon the specific request of a shareholder who has an
Investment Account. Issuance of certificates representing all or
only part of the full shares in an Investment Account may be
requested by a shareholder directly from the Transfer
Agent.
Shareholders may transfer their Fund shares from Merrill
Lynch to another securities dealer that has entered into a
selected dealer agreement with Merrill Lynch. Certain
shareholder services may not be available for the transferred
shares. After the transfer, the shareholder may purchase
additional shares of funds owned before the transfer, and all
future trading of these assets must be coordinated by the new
firm. If a shareholder wishes to transfer his or her shares to a
securities dealer that has not entered into a selected dealer
agreement with Merrill Lynch, the shareholder must either (i)
redeem his or her shares, paying any applicable CDSC or (ii)
continue to maintain an Investment Account at the Transfer Agent
for those shares. The shareholder also may request the new
securities dealer to maintain the shares in an account at the
Transfer Agent registered in the name of the securities dealer
for the benefit of the shareholder, whether the securities
dealer has entered into a selected dealer agreement or
not.
Shareholders considering transferring a tax-deferred
retirement account, such as an individual retirement account,
from a Merrill Lynch to another securities dealer should be
aware that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of a Fund, a
shareholder must either redeem the shares (paying any applicable
CDSC) so that the cash proceeds can be transferred to the
account at the new firm, or such shareholder must continue to
maintain a retirement account at a selected dealer for those
shares.
Exchange Privilege
U.S. shareholders of each class of shares of each Fund
have an exchange privilege with certain other Select Pricing
Funds and Summit Cash Reserves Fund (“Summit”), a
series of Financial Institutions Series Trust, which is a
Merrill Lynch-sponsored money market fund specifically
designated as available for exchange by holders of Class A,
Class B, Class C and Class D shares Select Pricing Funds. Shares
with a net asset value of at least $100 are required to qualify
for the exchange privilege, and any shares used in an exchange
must have been held by the shareholder for at least 15 days.
Before effecting an exchange, shareholders should obtain a
currently effective prospectus of the fund into which the
exchange is to be made. Exercise of the exchange privilege is
treated as a sale of the exchanged shares and a purchase of the
acquired shares for Federal income tax purposes.
Exchanges of Class A and Class D Shares.
Class A shareholders may exchange Class A shares of a
Fund for Class A shares of a second Select Pricing Fund if the
shareholder holds any Class A shares of the second fund in the
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 Select Pricing Fund, but
does not hold Class A shares of the second fund in his or her
account at the time of 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 Select Pricing 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 D shares are exchangeable with shares of
the same class of other Select Pricing Funds.
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 Select Pricing Fund, or for Class A
shares of Summit (“new Class A or Class D shares”) are
transacted on the basis of relative net asset value per Class A
or Class D share, respectively, plus an amount equal to the
difference, if any, between the sales charge previously paid on
the outstanding Class A or Class D shares and the sales charge
payable at the time of the exchange on the new Class A or Class
D shares. With respect to outstanding Class A or Class D shares
as to which previous exchanges have taken place, the “sales
charge previously paid” shall include the aggregate of the
sales charges paid with respect to such Class A or Class D
shares in the initial purchase and any subsequent exchange.
Class A or Class D shares issued pursuant to dividend
reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange
privilege, Class A and Class D shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales
charge equal to the sales charge previously paid on the Class A
or Class D shares on which the dividend was paid. Based on this
formula, Class A and Class D shares of each Fund generally may
be exchanged into the Class A and Class D shares, respectively,
of the other funds with a reduced or without a sales
charge.
Exchanges of Class B and Class C Shares.
Certain Select Pricing Funds with Class B and Class C
shares outstanding (“outstanding Class B or Class C shares
”) offer to exchange their Class B or Class C shares for
Class B or Class C shares, respectively, of certain other Select
Pricing Funds or for Class B shares of Summit (“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 a Fund exercising
the exchange privilege will continue to be subject to that 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 a Fund
acquired through use of the exchange privilege will be subject
to that 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 was made. For purposes of computing
the CDSC that may be payable on a disposition of the new Class B
or Class C shares, the holding period for the outstanding Class
B 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 a Fund for those of Merrill Lynch Special
Value Fund, Inc. (“Special Value Fund”) after having
held that Fund’s Class B shares for two-and-a-half years.
The 2% CDSC that generally would apply to a redemption would not
apply to the exchange. Three years later the investor may decide
to redeem the Class B shares of Special Value Fund and receive
cash. There will be no CDSC due on this redemption since by
“tacking” the two-and-a-half year holding period of a
Fund’s 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 Special Value Fund Class B shares for more
than five years.
Exchanges for Shares of a Money Market Fund.
Class A and Class D shares are exchangeable for
Class A shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class A shares of
Summit have an exchange privilege back into Class A or Class D
shares of Select Pricing Funds; Class B shares of Summit have an
exchange privilege back into Class B or Class C shares of Select
Pricing Funds and, in the event of such an exchange, the period
of time that Class B shares of Summit are held will count toward
satisfaction of the holding period requirement for purposes of
reducing any CDSC and toward satisfaction of any Conversion
Period with respect to Class B shares. Class B shares of Summit
will be subject to a distribution fee at an annual
rate of 0.75% of average daily net assets of such Class B shares.
This exchange privilege does not apply with respect to certain
fee-based programs for which alternative exchange arrangements
may exist. Please see your Merrill Lynch Financial Consultant
for further information.
Prior to October 12, 1998, exchanges from the Funds and
other Select Pricing Funds into a money market fund were
directed to certain Merrill Lynch-sponsored money market funds
other than Summit. Shareholders who exchanged Select Pricing
Funds shares for such other money market funds and subsequently
wish to exchange those money market fund shares for shares of a
Fund will be subject to the CDSC schedule applicable to such
Fund shares, if any. The holding period for those money market
fund shares will not count toward satisfaction of the holding
period requirement for reduction of the CDSC imposed on such
shares, if any, and, with respect to Class B shares, toward
satisfaction of the Conversion Period. However, the holding
period for Class B or Class C shares of a Fund received in
exchange for such money market fund shares will be aggregated
with the holding period for the fund shares originally exchanged
for such money market fund shares for purposes of reducing the
CDSC or satisfying the Conversion Period.
Exercise of the Exchange Privilege.
To exercise the exchange privilege, a shareholder
should contact his or her Merrill Lynch Financial Consultant,
who will advise the relevant Fund of the exchange. Shareholders
of each Fund and shareholders of the other Select Pricing Funds
described above with shares for which certificates have not been
issued, may exercise the exchange privilege by wire through
their securities dealers. Each 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. Each 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. It is contemplated that the
exchange privilege may be applicable to other new mutual funds
whose shares may be distributed by the Distributor.
Fee-Based Programs
Certain Merrill Lynch fee-based programs, including
pricing alternatives for securities transactions (each referred
to in this paragraph as a “Program”), may permit the
purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit
other classes of shares, which will be exchanged for Class A
shares. Initial or deferred sales charges otherwise due in
connection with such exchanges may be waived or modified, as may
the Conversion Period applicable to the deposited shares.
Termination of participation in certain Programs may result in
the redemption of shares held therein or the automatic exchange
thereof to another class at net asset value. In addition, upon
termination of participation in a Program, shares that have been
held for less than specified periods within such Program may be
subject to a fee based on the current value of such shares.
These Programs also generally prohibit such shares from being
transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited
circumstances (which may also involve an exchange as described
above), such shares must be redeemed and another class of shares
purchased (which may involve the imposition of initial or
deferred sales charges and distribution and account maintenance
fees) in order for the investment not to be subject to Program
fees. Additional information regarding a specific Program
(including charges and limitations on transferability applicable
to shares that may be held in such Program) is available in the
Program’s client agreement and from the Transfer Agent at
1-800-MER-FUND (1-800-637-3863).
Retirement and Educational Savings
Plans
Individual retirement accounts and other retirement and
education savings plans are available from Merrill Lynch. Under
these plans, investments may be made in a Fund and certain of
the other mutual funds sponsored by Merrill Lynch as well as in
other securities. There may be fees associated with investing
through these plans, which are described in plan materials.
Information with respect to these plans is available on request
from Merrill Lynch.
Dividends received in each of the plans referred to above
are exempt from Federal taxation until distributed from the
plans. Different tax rules apply to Roth IRA plans and education
savings plans. Investors consider
participation in any retirement or education savings 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.
Automatic Investment Plans
A
shareholder may make additions to an Investment Account at any
time by purchasing Class A shares (if he or she is an eligible
Class A investor) or Class B, Class C or Class D shares at the
applicable public offering price. These purchases may be made
either through the shareholder’s securities dealer or by
mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made
through a service known as the Funds’ Automatic Investment
Plan. Each Fund would be authorized, on a regular basis, to
provide systematic additions to the Investment Account of such
shareholder through charges of $50 or more to the regular bank
account of the shareholder by either pre-authorized checks or
automated clearing house debits. Alternatively, an investor that
maintains a CMA® or CBA® Account may arrange to have
periodic investments made in a Fund in amounts of $100 ($1 for
retirement accounts) or more through the CMA® or CBA®
Automatic Investment Program.
Automatic Dividend Reinvestment
Plan
Dividends paid by the Funds may be taken in cash or
automatically reinvested in shares of the Funds at net asset
value without a sales charge. You should consult with your
Financial Consultant about which option you would like. If you
choose the reinvestment option, dividends paid with respect to a
Fund’s shares will be automatically reinvested, without
sales charge, in additional full and fractional shares of that
Fund. Such reinvestment will be at the net asset value of shares
of the Fund as determined after the close of business on the
NYSE on the monthly payment date for such dividends. No CDSC
will be imposed upon redemption of shares issued as a result of
the automatic reinvestment of dividends.
Shareholders may, at any time, by written notification to
Merrill Lynch if their account is maintained with Merrill Lynch,
or by written notification or by telephone (1-800-MER-FUND) to
the Transfer Agent, if their account is maintained with the
Transfer Agent, elect to have subsequent dividends of ordinary
income and/or capital gains paid with respect to shares of a
Fund in cash, rather than reinvested in shares of that Fund
(provided that, in the event that a payment on an account
maintained at the Transfer Agent would amount to $10.00 or less,
a shareholder will not receive such payment in cash and such
payment will automatically be reinvested in additional shares).
Commencing ten days after the receipt by the Transfer Agent of
such notice, those instructions will be effected. The Funds are
not responsible for any failure of delivery to the shareholder
’s address of records and no interest will accrue on
amounts represented by uncashed dividend checks. Cash payments
can also be directly deposited to the shareholder’s bank
account.
Systematic Withdrawal Plans
A
shareholder may elect to receive systematic withdrawals from his
or her Investment Account by check or through automatic payment
by direct deposit to his or her bank account on either a monthly
or quarterly basis as provided below. Quarterly withdrawals are
available for shareholders who have acquired shares of a 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 shares having a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient shares
are redeemed from those on deposit in the shareholder’s
account to provide the withdrawal payment specified by the
shareholder. The shareholder may specify the dollar amount and
class of shares to be redeemed. Redemptions will be made at net
asset value as determined after the close of business on the
NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) on
the 24th day of each month or the 24th day of the last month of
each quarter, whichever is applicable. If the NYSE is not open
for business on such date, the shares will be redeemed at the
net asset value determined 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 shares in the Investment Account are
reinvested
automatically in Fund shares. A shareholder’s Systematic
Withdrawal Plan may be terminated at any time, without a charge
or penalty, by the shareholder, each Fund, the Transfer Agent or
the Distributor.
With respect to redemptions of Class B and Class C shares
pursuant to a systematic withdrawal plan, the maximum number of
Class B or Class C shares that can be redeemed from an account
annually shall not exceed 10% of the value of shares of such
class in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that otherwise
might be due on such redemption of Class B or Class C shares
will be waived. Shares redeemed pursuant to a systematic
withdrawal plan will be redeemed in the same order as Class B or
Class C shares are otherwise redeemed. See “Purchase of
Shares — Deferred Sales Charge Alternatives
— Class B and C Shares.” Where the systematic
withdrawal plan is applied to Class B shares, upon conversion of
the last Class B shares in an account to Class D shares, a
shareholder must make a new election to join the systematic
withdrawal program with respect to the Class D shares. If an
investor wishes to change the amount being withdrawn in a
systematic withdrawal plan, the investor should contact his or
her Merrill Lynch Financial Consultant.
Withdrawal payments should not be considered as dividends.
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 shares concurrent with withdrawals are ordinarily
disadvantageous to the shareholder because of sales charges and
tax liabilities. A Fund will not knowingly accept purchase
orders for shares of that 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.
Alternatively, a shareholder whose shares are held within
a CMA® or CBA® Account may elect to have shares redeemed
on a monthly, bimonthly, quarterly, semiannual or annual basis
through the CMA® or CBA® Systematic Redemption Program.
The minimum fixed dollar amount redeemable is $50. The proceeds
of systematic redemptions will be posted to the shareholder
’s account three business days after the date the shares
are redeemed. All redemptions are made at net asset value. A
shareholder may elect to have his or her shares redeemed on the
first, second, third, or fourth Monday of each month, in the
case of monthly redemptions, or of every other month, in the
case of bimonthly redemptions. For quarterly, semiannual or
annual redemptions, the shareholder may select the month in
which the shares are to be redeemed and may designate whether
the redemption is to be made on the first, second, third or
fourth Monday of the month. If the Monday selected is not a
business day, the redemption will be processed at net asset
value on the next business day. The CMA® or CBA®
Systematic Redemption Program is not available if Fund shares
are being purchased within the account pursuant to the Automatic
Investment Program. For more information on the CMA® or CBA
® Systematic Redemption Program, eligible shareholders
should contact their Merrill Lynch Financial
Consultant.
Dividends
Each Fund intends to distribute substantially all of its
net investment income, if any. Dividends from such net
investment income will be paid at least annually. All net
realized capital gains, if any, will be distributed to each Fund
’s shareholders at least annually. From time to time, each
Fund may declare a special distribution at or about the end of
the calendar year in order to comply with Federal tax
requirements that certain percentages of its ordinary income and
capital gains be distributed during the year. If in any fiscal
year, the Funds have net income from certain foreign currency
transactions, such income will be distributed at least
annually.
See “Shareholder Services — Automatic
Dividend Reinvestment Plan” for information concerning the
manner in which dividends may be reinvested automatically in
shares of a Fund. A shareholder whose account is maintained at
the Transfer Agent or whose account is maintained through his or
her selected dealer may elect in writing to receive any such
dividends in cash. Dividends are taxable to shareholders, as
discussed below, whether they are reinvested in shares of each
Fund or received in cash. The per share dividends on Class B and
Class C shares will be lower than the per share dividends 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 on Class D shares will
be lower than the per share dividends on Class A shares as a
result of the account maintenance fees applicable with respect
to the Class A shares. See “Pricing of Shares —
Determination of Net Asset Value.”
Taxes
Each Fund intends to elect and to qualify for the special
tax treatment afforded regulated investment companies (“RICs
”) under the Internal Revenue Code of 1986, as amended (the
“Code”). As long as each Fund so qualifies, such 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 that it distributes to Class A, Class B, Class C
and Class D shareholders (together, the “shareholders
”). Each Fund intends to distribute substantially all of
such income.
Dividends paid by each Fund from its ordinary income or
from an excess of net short term capital gains over net long
term capital losses (together referred to hereafter as
“ordinary income dividends”) are taxable to
shareholders as ordinary income. Distributions made from an
excess of net long term capital gains over net short term
capital losses (including gains or losses from certain
transactions in warrants, futures and options) (“capital
gain dividends”) are taxable to shareholders as long term
capital gains, regardless of the length of time the shareholder
has owned Fund shares. Any loss upon the sale or exchange of
Fund shares held for six months or less will be treated as long
term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of each Fund
’s earnings and profits will first reduce the adjusted tax
basis of a holder’s shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset).
Certain categories of capital gains are taxable at different
rates. Generally not later than 60 days after the close of its
taxable year, each Fund will provide its shareholders with a
written notice designating the amount of any capital gain
dividends as well as any amount of capital gain dividends in the
different categories of capital gain referred to
above.
Dividends are taxable to shareholders even though they are
reinvested in additional shares of a Fund. A portion of each 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, each
Fund will allocate dividends eligible for the dividends received
deductions among the Class A, Class B, Class C and Class D
shareholders according to a method (which it believes is
consistent with the Commission rule permitting the issuance and
sale of multiple classes of stock) that is based on the gross
income allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other methods as
the Internal Revenue Service (“IRS”) may prescribe. If
a Fund pays a dividend in January that was declared in the
previous October, November or December to shareholders of record
on a specified date in one of such months, then such dividend
will be treated for tax purposes as being paid by each Fund and
received by its shareholders on December 31 of the year in which
such dividend was declared.
Ordinary income dividends paid to shareholders who are
non-resident aliens or foreign entities will be subject to a 30%
U.S. withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced
rate of withholding or a withholding exemption is provided under
applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisers concerning the applicability of
the U.S. withholding tax.
Under certain provisions of the Code, some shareholders
may be subject to a 31% withholding tax on ordinary income
dividends, capital gain dividends and redemption payments (
“backup withholding”). Generally, shareholders subject
to backup withholding will be those for whom no certified
taxpayer identification number is on file with a Fund or who, to
such Fund’s knowledge, have furnished an incorrect number.
When establishing an account, an investor must certify under
penalty of perjury that such number is correct and that such
investor is not otherwise subject to backup
withholding.
Dividends and interest received by each Fund may give rise
to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may
reduce or eliminate such taxes.
No gain or loss will be recognized by Class B shareholders
on the conversion of their Class B shares into Class D shares. A
shareholder’s basis in the Class D shares acquired will be
the same as such shareholder’s basis in the Class B shares
converted, and the holding period of the acquired Class D shares
will include the holding period for the converted Class B
shares.
If a shareholder exercises an exchange privilege within 90
days of acquiring the shares, then the loss the shareholder can
recognize on the exchange will be reduced (or the gain
increased) to the extent any sales charge paid on the exchanged
shares reduces any sales charge the shareholder would have owed
upon the purchase of the new shares in the absence of the
exchange privilege. Instead, such sales charge will be treated
as an amount paid for the new shares.
A
loss realized on a sale or exchange of shares of a Fund will be
disallowed if such shares are acquired (whether through the
automatic reinvestment of dividends or otherwise) within a
61-day period beginning 30 days before and ending 30 days after
the date that the shares are disposed of. In such a case, the
basis of the shares acquired will be adjusted to reflect the
disallowed loss.
The Code requires a RIC to pay a nondeductible 4% excise
tax to the extent the RIC does not distribute during each
calendar year, 98% of its ordinary income, determined on a
calendar year basis, and 98% of its capital gains, determined,
in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While each Fund
intends to distribute its income and capital gains in the manner
necessary to minimize imposition of the 4% excise tax, there can
be no assurance that sufficient amounts of each Fund’s
taxable income and capital gains will be distributed to avoid
entirely the imposition of the tax. In such event, a Fund will
be liable for the tax only on the amount by which it does not
meet the foregoing distribution requirements.
Tax Treatment of Options and Futures
Transactions
The Funds may write, purchase or sell options and futures.
In general, unless an election is available to the Fund or an
exception applies, options and futures contracts that are
“Section 1256 Contracts” will be “marked to market
” for Federal income tax purposes at the end of each
taxable year (i.e., each such option or futures contract
will be treated as sold for its fair market value on the last
day of the taxable year) and any gain or loss attributable to
Section 1256 contracts will be 60% long term and 40% short term
capital gain or loss. Application of these rules to Section 1256
contracts held by a Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined
above, however, will not apply to certain transactions entered
into by a Fund solely to reduce the risk of changes in price or
interest or currency exchange rates with respect to its
investments.
Code Section 1092, which applies to certain
“straddles,” may affect the taxation of a Fund’s
sales of securities and transactions in options and futures.
Under Section 1092, each Fund may be required to postpone
recognition for tax purposes of losses incurred in certain sales
of securities and certain closing transactions in options and
futures.
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
stocks, securities or foreign currencies will be qualifying
income for purposes of determining whether each 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 or futures will be valued for purposes of the
RIC diversification requirements applicable to each
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 debt
instruments, from certain forward contracts, from futures
contracts that are not “regulated futures contracts”
and from unlisted options will be treated as ordinary income or
loss under Code Section 988. In certain circumstances, each Fund
may elect capital gain or loss treatment for such transactions.
In general, however, Code Section 988 gains or losses will
increase or decrease the amount of each Fund’s investment
company taxable income available to be distributed to
shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed
other investment company taxable income of a Fund during a
taxable year, such Fund would not be able to make any ordinary
income dividend distributions, and all or a portion of
distributions made before the losses were realized but in the
same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each
shareholder’s Fund shares and resulting in a capital gain
for any shareholder who received a distribution greater than
such shareholder’s basis in Fund shares (assuming the
shares were held as a capital asset). These rules and the
mark-to-market rules described above, however, will not apply to
certain transactions entered into by each Fund solely to reduce
the risk of currency fluctuations with respect to its
investments.
The Trust will apply for a private letter ruling from the
IRS to the effect that, because each Portfolio is classified as
a partnership for tax purposes, each Fund will be entitled to
look to the underlying assets of the Portfolio in which it has
invested for purposes of satisfying various requirements of the
Code applicable to RICs. If any of the facts upon which such
ruling is premised change in any material respect (e.g., if the
Trust were required to register its interests under the
Securities Act) and the Trust is unable to obtain a private
letter ruling from the IRS indicating that each Portfolio will
continue to be classified as a partnership, then the Board of
Directors of the Corporation will determine, in its discretion,
the appropriate course of action for the Funds. One possible
course of action would be to withdraw a Fund’s investment
from its Portfolio and to retain an investment adviser to manage
the Fund’s assets in accordance with the investment
policies applicable to the Fund. See “Investment Objectives
and Policies.”
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and Treasury regulations
presently in effect. For the complete provisions, reference
should be made to the pertinent Code sections and the Treasury
regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative, judicial or
administrative action either prospectively or
retroactively.
Ordinary income and capital gain dividends may also be
subject to state and local taxes.
Certain states exempt from state income taxation dividends
paid by RICs that are derived from interest on U.S. Government
obligations. State law varies as to whether dividend income
attributable to U.S. Government obligations is exempt from state
income tax.
Shareholders are urged to consult their tax advisers
regarding specific questions as to Federal, foreign, state or
local taxes. Foreign investors should consider applicable
foreign taxes in their evaluation of an investment in the
Funds.
From time to time each 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 is based on each Fund’s historical performance
and is 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.
Each 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. In advertisements distributed to investors whose
purchases are subject to waiver of the CDSC in the case of Class
B and Class C shares (such as investors in certain retirement
plans) or to reduced sales loads in the case of Class A and
Class D shares, the 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 is deducted. See “Purchase of
Shares.” Each Fund’s total return may be expressed
either as a percentage or as a dollar amount in order to
illustrate such total return on a hypothetical $1,000 investment
in the Fund at the beginning of each specified
period.
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 each Fund in advertisements directed to such
investors may take into account the reduced, and not the
maximum, sales charge or may 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 is deducted.
On occasion, each Fund may compare its performance to,
among other things, its applicable Russell 1000® Index, the
Standard & Poor’s 500 Index, the Value Line Composite
Index, the Dow Jones Industrial Average, or other published
indices, or to data published by Lipper Analytical Services,
Inc., Morningstar Publications, Inc. (“Morningstar”),
Money Magazine, U.S. News & World Report, Business
Week, Forbes Magazine, Fortune Magazine, CDA
Investment Technology, Inc. or other industry publications. When
comparing its performance to a market index, a Fund may refer to
various statistical measures derived from the historic
performance of that Fund and the index, such as standard
deviation and beta. As with other performance data, performance
comparisons should not be considered indicative of a Fund’s
relative performance for any future period. From time to time,
each Fund may include its Morningstar risk-adjusted performance
rating in advertisements or supplemental sales literature. Each
Fund may from time to time quote in advertisements or other
materials other applicable measures of performance and may also
make reference to awards that may be given to the Investment
Adviser.
Description of Shares
Each Fund is a series of the Corporation and is a
“feeder” fund that invests in a corresponding
Portfolio. Investors in a Fund will acquire an indirect interest
in the corresponding Portfolio. Each Portfolio accepts
investments from other feeder funds, and all of the feeders of a
given Portfolio bear the Portfolio’s expenses in proportion
to their assets. This structure may enable the Funds to reduce
costs through economies of scale. A larger investment portfolio
also may reduce certain transaction costs to the extent that
contributions to and redemptions from the Portfolio from
different feeders may offset each other and produce a lower net
cash flow. However, each feeder can set its own transaction
minimums, fund-specific expenses, and other conditions. This
means that one feeder could offer access to the same Portfolio
on more attractive terms, or could experience better
performance, than another feeder.
The Corporation is a Maryland corporation incorporated on
October 20, 1999. It has an authorized capital of 3,000,000,000
shares of Common Stock, par value $.10 per share, divided into
three series known as Merrill Lynch Large Cap Growth Fund,
Merrill Lynch Large Cap Core Fund and Merrill Lynch Large Cap
Value Fund (collectively, the “Series” and each a
“Series”). Each Series consists of 500,000,000 shares.
Each of the Series is divided into four classes. Class A, Class
C and Class D shares of each Series consist of 100,000,000
shares and Class B shares of each Series consist of 200,000,000
shares.
Shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held in the
election of Directors (to the extent hereinafter provided) and
on other matters submitted to the vote of shareholders. All
classes and Series vote together as a single class, except that
shareholders of the class bearing distribution expenses as
provided above shall have exclusive voting rights with respect
to matters relating to such distribution expenditures (except
that Class B shareholders may vote upon any material changes to
expenses charged under the Class D Distribution Plan). Voting
rights are not cumulative, so that the holders of more than 50%
of the shares voting in the election of Directors can, if they
choose to do so, elect all the Directors of the Corporation, in
which event the holders of the remaining shares would be unable
to elect any person as a Director.
Whenever a Portfolio holds a vote of its feeder funds, the
Fund investing in that Portfolio will pass the vote through to
its own shareholders. Smaller feeder funds may be harmed by the
actions of larger feeder funds. For example, a larger feeder
fund could have more voting power than a Fund over the
operations of its Portfolio. A Fund may withdraw from its
Portfolio at any time and may invest all of its assets in
another pooled investment vehicle or retain an investment
adviser to manage the Fund’s assets directly.
There normally will be no meeting of shareholders for the
purpose of electing Directors unless and until such time as less
than a majority of the Directors holding office have been
elected by the shareholders, at which time the Directors then in
office will call a shareholders’ meeting for the election
of Directors. Shareholders may, in accordance with the terms of
the Articles of Incorporation, cause a meeting of shareholders
to be held for the purpose of voting on the removal of
Directors. Also, the Corporation will be required to call a
special meeting of shareholders in accordance with the
requirements of the Investment Company Act to seek approval of
new management and advisory arrangements, of a material increase
in account maintenance fees or of a change in fundamental
policies, objectives or restrictions. Except as set forth above,
the Directors of a Series shall continue to hold office and
appoint successor Directors. Each issued and outstanding share
of a Series is entitled to participate equally with other shares
of that Series in dividends and distributions declared and in
net assets upon liquidation or dissolution remaining after
satisfaction of outstanding liabilities, except for any expenses
which may be attributable to only one class. Shares that are
issued will be fully-paid and non-assessable by the Corporation
or a Fund.
The Trust consists of three Portfolios and is organized as
a Delaware Business Trust. Whenever a Fund is requested to vote
on any matter relating to its Portfolio, the Corporation will
hold a meeting of that Fund’s shareholders and will cast
its vote as instructed by that Fund’s
shareholders.
The Investment Adviser provided the initial capital for
the Corporation by purchasing 150,000 shares of common stock of
the Corporation for $1,500,000. Such shares were acquired for
investment and can only be disposed of by redemption. As of the
date of this Statement of Additional Information, the Investment
Adviser owned 100% of the outstanding common stock of the
Corporation. The Investment Adviser may be deemed to control the
Corporation until such time as it owns less than 25% of the
outstanding shares of the Investment Adviser.
Independent Auditors
Deloitte & Touche LLP
, Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540-6400, has been selected as the
independent auditors of the Corporation and the Trust. The
independent auditors are responsible for auditing the annual
financial statements of the Funds.
Custodian
Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts 02109 (the “Custodian”), acts as the
custodian of the Trust’s assets. Under its contract with
the Trust, the Custodian is authorized to establish separate
accounts in foreign currencies and to cause foreign securities
owned by the Trust to be held in its offices outside the United
States and with certain foreign banks and securities
depositories. The custodian is responsible for safeguarding and
controlling the Trust’s cash and securities, handling the
receipt and delivery of securities and collecting interest and
dividends on the Funds’ investments.
Transfer Agent
Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, which is a wholly owned
subsidiary of ML & Co., acts as the Funds’ Transfer
Agent pursuant to a transfer agency, dividend
disbursing agency and shareholder servicing agency agreement (the
“Transfer Agency Agreement”). The Transfer Agent is
responsible for the issuance, transfer and redemption of shares
and the opening, maintenance and servicing of shareholder
accounts.
Legal Counsel
Brown & Wood LLP
, One World Trade Center, New York, New York 10048-0557, is
counsel for the Trust and the Corporation.
Reports to Shareholders
The fiscal year of the Funds ends on October 31 of each
year. The Funds send to their shareholders at least
semi-annually reports showing each Fund’s portfolio and
other information. An annual report, containing financial
statements audited by independent auditors, is sent to
shareholders each year. After the end of each year, shareholders
will receive Federal income tax information regarding dividends
and capital gains distributions.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Funds at the
address or telephone number set forth on the cover page of this
Statement of Additional Information.
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 Corporation has filed with the Commission, Washington, D.C.,
under the Securities Act and the Investment Company Act, to
which reference is hereby made.
Under a separate agreement, ML & Co. has granted the
Funds the right to use the “Merrill Lynch” name and
has reserved the right to withdraw its consent to the use of
such name by the Funds at any time or to grant the use of such
name to any other company, and the Funds have granted ML &
Co. under certain conditions, the use of any other name it might
assume in the future, with respect to any corporation organized
by ML & Co.
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and
Shareholder,
Merrill Lynch Large Cap Series Funds,
Inc.:
We have audited the accompanying statements of
assets and liabilities of Merrill Lynch Large Cap Growth Fund,
Merrill Lynch Large Cap Value Fund and Merrill Lynch Large Cap
Core Fund of Merrill Lynch Large Cap Series Funds, Inc. as of
December 15, 1999. These financial statements are the
responsibility of the Funds’ management. Our responsibility
is to express an opinion on these financial statements 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 statement is free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statement. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the statements of assets and
liabilities present fairly, in all material respects, the
financial position of Merrill Lynch Large Cap Growth Fund,
Merrill Lynch Large Cap Value Fund and Merrill Lynch Large Cap
Core Fund of Merrill Lynch Large Cap Series Funds, Inc. as of
December 15, 1999 in conformity with generally accepted
accounting principles.
/S
/ DELOITTE &
TOUCHE
LLP
Princeton, New Jersey
December 20, 1999
STATEMENT OF ASSETS AND LIABILITIES
Merrill Lynch Large Cap Growth
Fund
of
Merrill Lynch Large Cap Series Funds,
Inc.
Statement of Assets and
Liabilities
December 15, 1999
| ASSETS: |
|
|
|
Investments in Master Large Cap Growth
Portfolio |
|
$500,000 |
|
Prepaid
registration fees and offering costs (Note 3) |
|
158,442 |
| |
|
|
|
Total
assets |
|
658,442 |
| |
|
|
| LIABILITIES: |
|
|
|
Liabilities and accrued expenses |
|
158,442 |
| |
|
|
| NET ASSETS: |
|
$500,000 |
| |
|
|
| NET ASSETS CONSIST OF: |
|
|
|
Class A
Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized |
|
$
1,250 |
|
Class B
Shares of Common Stock, $.10 par value, 200,000,000 shares
authorized |
|
1,250 |
|
Class C
Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized |
|
1,250 |
|
Class D
Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized |
|
1,250 |
|
Paid-in
Capital in excess of par |
|
495,000 |
| |
|
|
| NET ASSETS: |
|
$500,000 |
| |
|
|
| NET ASSET VALUE: |
|
|
| Class
A- Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
| Class
B- Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
| Class
C- Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
| Class
D- Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
Notes to Financial Statement.
(1)
|
Merrill Lynch Large Cap Series Funds, Inc. (the
“Corporation”) was organized as a Maryland
corporation on October 20, 1999 and is registered under the
Investment Company Act of 1940 as an open-end diversified
investment company. Merrill Lynch Large Cap Growth (the
“Fund”) is a series of the Corporation. To date, the
Fund has not had any transactions other than those relating to
organizational matters and the sale of 12,500 Class A shares,
12,500 Class B shares, 12,500 Class C shares and 12,500 Class
D shares of Common Stock to Fund Asset Management, L.P. (
“FAM”). The Fund invests all of its assets in the
Master Large Cap Growth Portfolio (the “Portfolio”)
of the Master Large Cap Series Trust (the “Trust
”).
|
(2)
|
The Trust, on behalf of the Portfolio, has
entered into an investment advisory agreement with FAM (the
“Investment Adviser”) and distribution agreements
with Merrill Lynch Funds Distributor (the “Distributor
”), a division of Princeton Funds Distributor, Inc. (See
“Management of the Funds—Investment and Advisory
Arrangements” in the Statement of Additional
Information.) Certain officers and/or directors of the Fund
are officers and/or directors of the Investment Adviser and
the Distributor.
|
(3)
|
Prepaid registration fees are charged to income
as the related shares are issued. Prepaid offering costs
consist of legal and printing feels related to preparing the
initial registration statement, and will be amortized over a
12 month period beginning with the commencement of operations
of the Fund. The Investment Adviser, on behalf of the Fund,
will incur organization costs estimated at
$10,000.
|
Merrill Lynch Large Cap Value
Fund
of
Merril Lynch Large Cap Series Funds,
Inc.
Statement of Assets and
Liabilities
December 15, 1999
| ASSETS: |
|
|
|
Investments in Master Large Cap Value
Portfolio |
|
$500,000 |
|
Prepaid
registration fees and offering costs (Note 3) |
|
158,442 |
| |
|
|
|
Total
assets |
|
658,442 |
| |
|
|
| LIABILITIES: |
|
|
|
Liabilities and accrued expenses |
|
158,442 |
| |
|
|
| NET ASSETS: |
|
$500,000 |
| |
|
|
| NET ASSETS CONSIST OF: |
|
|
|
Class A
Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized |
|
$
1,250 |
|
Class B
Shares of Common Stock, $.10 par value, 200,000,000 shares
authorized |
|
1,250 |
|
Class C
Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized |
|
1,250 |
|
Class D
Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized |
|
1,250 |
|
Paid-in
Capital in excess of par |
|
495,000 |
| |
|
|
| NET ASSETS: |
|
$500,000 |
| |
|
|
| NET ASSET VALUE: |
|
|
|
Class A-
Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
|
Class B-
Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
|
Class C-
Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
|
Class D-
Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
Notes to Financial Statement.
(1)
|
Merrill Lynch Large Cap Series Funds, Inc. (the
“Corporation”) was organized as a Maryland
corporation on October 20, 1999 and is registered under the
Investment Company Act of 1940 as an open-end diversified
investment company. Merrill Lynch Large Cap Value Fund (the
“Fund”) is a series of the Corporation. To date, the
Fund has not had any transactions other than those relating to
organizational matters and the sale of 12,500 Class A shares,
12,500 Class B shares, 12,500 Class C shares and 12,500 Class
D shares of Common Stock to Fund Asset Management, L.P. (
“FAM”). The Fund invests all of its assets in the
Master Large Cap Value Portfolio (the “Portfolio”)
of the Master Large Cap Series Trust (the “Trust
”).
|
(2)
|
The Trust, on behalf of the Portfolio, has
entered into an investment advisory agreement with FAM (the
“Investment Adviser”) and distribution agreements
with Merrill Lynch Funds Distributor (the “Distributor
”), a division of Princeton Funds Distributor, Inc. (See
“Management of the Funds—Management and Advisory
Arrangements” in the Statement of Additional
Information.) Certain officers and/or directors of the Fund
are officers and/or directors of the Investment Adviser and
the Distributor.
|
(3)
|
Prepaid registration fees are charged to income
as the related shares are issued. Prepaid offering costs
consist of legal and printing fees related to preparing the
initial registration statement, and will be amortized over a
12 month period beginning with the commencement of operations
of the Fund. The Investment Adviser, on behalf of the Fund,
will incur organization costs estimated at
$10,000.
|
Merrill Lynch Large Cap Core
Fund
of
Merrill Lynch Large Cap Series Funds,
Inc.
Statement of Assets and
Liabilities
December 15, 1999
| ASSETS: |
|
|
|
Investments in Master Large Cap Core
Portfolio |
|
$500,000 |
|
Prepared
registration fees and offering costs (Note 3) |
|
158,442 |
| |
|
|
|
Total
assets |
|
658,442 |
| |
|
|
| LIABILITIES: |
|
|
|
Liabilities and accrued expenses |
|
158,442 |
| |
|
|
| NET ASSETS: |
|
$500,000 |
| |
|
|
| NET ASSETS CONSIST OF: |
|
|
|
Class A
Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized |
|
$
1,250 |
|
Class B
Shares of Common Stock, $.10 par value, 200,000,000 shares
authorized |
|
1,250 |
|
Class C
Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized |
|
1,250 |
|
Class D
Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized |
|
1,250 |
|
Paid-in
Capital in excess of par |
|
495,000 |
| |
|
|
| NET ASSETS: |
|
$500,000 |
| |
|
|
| NET ASSET VALUE |
|
|
| Class
A- Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
| Class
B- Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
| Class
C- Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
| Class
D- Based on net assets of $125,000 and 12,500 shares
outstanding |
|
$
10.00 |
| |
|
|
Notes to Financial Statements.
(1)
|
Merrill Lynch Large Cap Series Funds, Inc. (the
“Corporation”) was organized as a Maryland
corporation on October 20, 1999 and is registered under the
Investment Company Act of 1940 as an open-end diversified
investment company. Merrill Lynch Large Cap Core Fund (the
“Fund”) is a series of the Corporation. To date, the
Fund has not had any transactions other than those relating to
organizational matters and the sale of 12,500 Class A shares,
12,500 Class B shares, 12,500 Class C shares and 12,500 Class
D shares of Common Stock to Fund Asset Management, L.P. (
“FAM”). The Fund invests all of its assets in the
Master Large Cap Core Portfolio (the “Portfolio”) of
the Master Large Cap Series Trust (the “Trust
”).
|
(2)
|
The Trust, on behalf of the Portfolio, has
entered into an investment advisory agreement with FAM (the
“Investment Adviser”) and distribution agreements
with Merrill Lynch Funds Distributor (the “Distributor
”), a division of Princeton Funds Distributor, Inc. (See
“Management of the Funds—Management and Advisory
Arrangements” in the Statement of Additional
Information.) Certain officers and/or directors of the Fund
are officers and/or directors of the Investment Adviser and
the Distributor.
|
(3)
|
Prepaid registration fees are charged to income
as the related shares are issued. Prepaid offering costs
consist of legal and printing fees related to preparing the
initial registration statement, and will be amortized over a
12 month period beginning with the commencement of operations
of the Fund. The Investment Adviser, on behalf of the Fund,
will incur organization costs estimated at
$10,000.
|
CODE #: 19077-1299
