As filed with the Securities and Exchange Commission on January 14 , 2000
Securities Act File No. _________
Investment Company Act File No. _________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
Registration Statement under the Securities Act of 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
Registration Statement under the
Investment Company Act of 1940 [ ]
Amendment No. [ ]
(Check appropriate box or boxes)
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MERRILL LYNCH INTERNET STRATEGIES FUND, INC.
(Exact name of Registrant as specified in charter)
800 Scudders Mill Road, Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (888) 763-2260
Terry K. Glenn
Merrill Lynch Internet Strategies Fund, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
Copies to:
Counsel for the Fund: Michael J. Hennewinkel, Esq.
Laurin Blumenthal Kleiman, Esq. Fund Asset Management, L.P.
Brown & Wood LLP P.O. Box 9011
One World Trade Center Princeton, New Jersey 08543-9011
New York, New York 10048
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of the Registration Statement.
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Title of Securities Being Registered: Shares of Common Stock, par value
$.10 per share.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Master Internet Strategies Trust has also executed this Registration
Statement.
New Version
The information in this prospectus is not complete and may be changed. We may
not use this prospectus to sell securities until the registration statement
containing this prospectus, which has been filed with the Securities and
Exchange Commission, is effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 14, 2000
Merrill Lynch Internet Strategies Fund, Inc.
Prospectus
______________________,2000
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.
TABLE OF CONTENTS
KEY FACTS PAGE
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Merrill Lynch Internet Strategies Fund at a Glance...........................3
Risk/Return Bar Chart........................................................5
Fees and Expenses............................................................6
DETAILS ABOUT THE FUND
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How the Fund Invests.........................................................8
Investment Risks.............................................................10
YOUR ACCOUNT
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Merrill Lynch Select PricingSM System.......................................19
How to Buy, Sell, Transfer and Exchange Shares..............................24
Participation in Merrill Lynch Fee-Based Programs...........................29
MANAGEMENT OF THE FUND
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Fund Asset Management.......................................................31
Master/Feeder Structure.....................................................31
FOR MORE INFORMATION
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Shareholder Reports.................................................Back Cover
Statement of Additional Information.................................Back Cover
KEY FACTS
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MERRILL LYNCH INTERNET STRATEGIES FUND AT A GLANCE
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In an effort to help you better understand What is the Fund's investment objective?
the many concepts involved in making an
investment decision, we have defined the The Fund's investment objective is to seek long term growth of capital
highlighted terms in this prospectus in the through investment primarily in equity securities of issuers that the
sidebar. Investment Adviser believes will use the Internet as a component of their
business strategy.
Internet -- the worldwide network of What are the Fund's main investment strategies?
computers designed to facilitate
electronic exchange of information. The Fund will invest primarily in common stocks of Internet and Internet
related companies that are developing new or innovative products, services or
Common Stock -- units of ownership of a processes that the Investment Adviser believes are likely to produce
corporation. earnings growth. To a lesser extent, the Fund also may invest in preferred
stock, convertible securities, warrants and rights to subscribe to common
Internet company -- an issuer that engages stock of these companies. We cannot guarantee that the Fund will achieve
in research, design, development, its investment objective.
manufacturing or distribution of products
or services used to facilitate use of the The Fund may invest without limitation in issuers located around the
Internet, including an issuer focusing on world. The Fund may invest in companies of any size.
applications to be used in connection with
the World Wide Web. The Fund is a "feeder" fund that invests all of its assets in a corres-
ponding "master" portfolio (each, a "Portfolio") of the Master Internet
Internet related company -- an issuer that uses Strategies Trust ("the Trust") that has the same objective as the Fund.
or is developing an Internet strategy that the All investments will be made at the Trust level. This structure is
Investment Adviser believes will significantly sometimes called a "master/feeder" structure. The Fund's investment
benefit the issuer by improving the company's results will correspond directly to the investment results of the
customer base, cost efficiencies, competitive Portfolio in which it invests. For simplicity, this Prospectus uses the
advantage and/or business prospects. term "Fund" to include the Portfolio in which the Fund invests.
What are the main risks of investing in the Fund?
Preferred Stock -- class of capital stock
that often pays dividends at a specified As with any mutual fund, the value of the Fund's investments--and therefore
rate and has preference over common stock the value of Fund shares--may fluctuate. These changes may occur because a
in dividend payments and liquidation of particular stock market is rising or falling. At other times, there are
assets. specific factors that may affect the value of a particular investment. If
the value of the Fund's investments goes down, you may lose money.
Convertible Securities -- corporate securities
(usually preferred stock or Although Internet and Internet related companies comprise a relatively
bonds) that are exchangeable for a fixed new industry, equity securities issued by these companies historically have
number of securities (usually common been extremely volatile. While volatility may create investment
stock) at a set price or formula. opportunities, it also increases the risk that the securities may lose
value. Because the Fund invests primarily in securities issued by
Warrant -- a security that gives the right Internet and Internet related companies, there is a risk that the Fund
to buy a quantity of stock. will perform poorly during a downturn in either market sector. An
investment in the Fund is subject to the risks associated with equity
securities issued by Internet and Internet related companies. These risks
include rapidly changing technology, the continuous introduction into the
marketplace of increasingly diverse and innovative applications of that
technology, the relatively high risk of obsolescence of both hardware and
software and extensive existing and proposed government regulation. These
factors make the Fund more vulnerable to price changes of stocks of Internet
and Internet related companies, which are extremely volatile, than a more
broadly diversified mutual fund.
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The Fund may invest a substantial portion of its assets in non-U.S. securities.
Foreign investing involves special risks, including foreign currency risk and
the possibility of substantial volatility due to adverse political, economic or
other developments. Foreign securities also may be less liquid and harder to
value than U.S. securities. These risks are greater for investments in emerging
markets.
The Fund may invest in smaller companies that the Investment Adviser believes
have potential for capital appreciation. The securities of such companies share
the risks common to small-capitalization emerging growth securities including
limited product lines or markets. Smaller companies may be less financially
secure than larger, more established companies, may depend on a smaller number
of key personnel and may trade in lower volumes than larger, more established
companies.
The Fund is a non-diversified fund, which means that it may invest more of its
assets in fewer companies than if it were a diversified fund. By concentrating
in a smaller number of investments, the Fund's risk is increased because each
investment has a greater effect on the Fund's performance.
Who should invest?
The Fund may be an appropriate investment for you if you:
o Are investing with long term goals, such as retirement or funding a child's
education.
o Want a professionally managed portfolio.
o Are looking to invest in a portfolio comprised primarily of equity
securities of Internet and Internet related companies and are willing to
accept the risks associated with investment in those industries.
o Are willing to accept the extraordinarily high volatility (both up and
down) that is commonplace in equity securities of Internet and Internet
related companies.
o Are willing to accept the risk that the value of your investment may
decline in exchange for potentially higher long term capital appreciation.
o Are willing to accept the risks of foreign investing in order to seek long
term capital appreciation. Are not looking for a significant amount of
current income.
RISK/RETURN BAR CHART
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This Prospectus does not include a Risk/Return Bar Chart because, as of the date
of this Prospectus, the Fund has not yet commenced operations.
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 the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses -- expenses that cover the costs of operating the
Fund.
Management Fee -- a fee paid to the Investment Adviser for managing the Fund.
Distribution Fees -- fees used to support the 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.
FEES AND EXPENSES
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The 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 the Fund. Future expenses may be greater
or less than those indicated below.
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Shareholder Fees (Fees paid directly from your investment)(a): Class A Class B(b) Class C Class D
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Maximum Sales Charge (Load) imposed on 5.25%(c) None None 5.25%(c)
purchases (as a percentage of offering price)
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Maximum Deferred Sales Charge (Load) (as a percentage None(d) 4.0%(c) 1.0%(c) None(d)
of original purchase price or redemption proceeds,
whichever is lower)
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Maximum Sales Charge (Load) imposed on Dividend None None None None
Reinvestments
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Redemption Fee None None None None
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Exchange Fee None None None None
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Annual Fund Operating Expenses (Expenses that are
deducted from the Fund's total assets)(e):
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Management Fee(f) 1.00% 1.00% 1.00% 1.00%
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Distribution and/or Service (12b-1) Fees(g) None 1.00% 1.00% 0.25%
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Other Expenses (including transfer agency fees)(h)
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Total Annual Fund Operating Expenses
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(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) The fees and expenses include the expenses of both the Fund and the Portfolio in which it invests.
(f) Paid by the Portfolio. The Investment Adviser provides accounting services to the Portfolio at its cost.
(g) The Fund calls the "Service Fee" an "Account Maintenance Fee." Account Maintenance Fee is the term used elsewhere
in this Prospectus and in all other materials. If you hold Class B or 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. The 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. The Fund pays a 0.10% fee for certain accounts that participate in the
Merrill Lynch Mutual Fund Advisor program. The 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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Example:
These examples are intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the 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:
EXPENSES IF YOU DID REDEEM YOUR SHARES:*
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1 Year 3 Years
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Class A $ $
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Class B $ $
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Class C $ $
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Class D $ $
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EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:*
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1 Year 3 Years
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Class A $ $
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Class B $ $
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Class C $ $
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Class D $ $
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*The expenses include the expenses of both the Fund and the Portfolio in which
it invests.
DETAILS ABOUT THE FUND
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HOW THE FUND INVESTS
ABOUT THE PORTFOLIO MANAGEMENT TEAM ----------------------------------------------------------------------------
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The Fund will invest worldwide in a portfolio consisting primarily of equity
The Fund is managed by members of a team of securities of issuers that the Investment Adviser believes will use the
investment professionals who participate in Internet as a component of their business strategy.
the team's research process and stock
selection. The senior investment The Fund will invest in Internet companies that engage in the research,
professionals in this group include Paul G. design, development, manufacturing or distribution of products and services
Meeks, Rob Zidar and Dawn Simon. Paul G. used to facilitate use of the Internet, including issuers focusing on
Meeks is primarily responsible for the applications to be used in connection with the World Wide Web. These
day-to-day management of the Fund. companies may produce, market or distribute products or services designed to
secure, enhance, store, process, record, reproduce, distribute or retrieve
ABOUT THE INVESTMENT ADVISER information over the Internet.
The Funds are managed by Fund Asset The Fund also will invest in Internet related companies that currently use
Management. or are developing various other Internet applications--such as electronic
commerce, e-mail and Intranet communications--as an integral part of their
World Wide Web -- a widely used method for business strategies. For example:
accessing the Internet. The World Wide Web is
a graphical interface publishing medium that o Many wholesale and retail companies are making increasing use of the
may contain text, graphics, interactive Internet to sell their products and services. Among these companies are
feedback mechanisms and cross linking issuers that specialize in retail sales, securities brokerage and travel
functions. arrangements.
Intranet--a system that uses Internet o Certain issuers make substantial use of e-mail to market their goods or
technology to share information with a services. Companies that have access to multiple e-mail lists are able to
company's or organization's internal computer target potential clients in a more efficient and more personalized way
network. than via more general advertising efforts. A company that uses e-mail
over more conventional methods of communication also saves postage and
telephone charges, and one e-mail may instantaneously reach many
thousands of recipients.
o Similarly, issuers with access to Intranets can market more efficiently
by targeting specific groups of users who, by virtue of their affiliation
with a particular Intranet, have demonstrated certain needs or interests
relevant to the goods or services the issuer has to offer.
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The Fund may invest in Internet and Internet related companies that are not yet
profitable, but that the Investment Adviser believes are likely to produce
earnings or revenue growth or operating efficiencies through the development of
new or innovative products, services or processes.
The Fund will invest in equity securities, primarily common stock. Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
common stock issued by Internet and Internet related companies and therefore the
Fund will be concentrated in this group of industries. Although the Fund
emphasizes investment in common stock, it also may invest in other equity
securities including, but not limited to, the following:
o Securities convertible into common stock
o Preferred stock
o Warrants and rights to subscribe to common stock
The Fund may invest without limitation in issuers located around the world. The
Fund may invest in companies of any size.
Securities of foreign companies may be in the form of American Depositary
Receipts, European Depositary Receipts, Global Depositary Receipts or other
securities convertible into equities of foreign companies.
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Short sale - a transaction in which the Fund The Fund may make short sales of securities, either as a hedge against
sells a security it does not own in potential declines in value of a portfolio security or to realize
anticipation of a decline in the market price appreciation when a security that the Fund does not own declines in value.
of that security. When the Fund makes a short sale, it borrows the security sold short and
delivers it to the broker-dealer through which it made the short sale, as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to turn over any payments received on such borrowed
securities to the lender of the securities.
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The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. Government
securities or other liquid securities similar to those borrowed. With respect to
uncovered short positions, the Fund will also be required to deposit similar
collateral with its custodian to the extent, if any, necessary so that the value
of both collateral deposits in the aggregate is at all times equal to at least
100% of the current market value of the security sold short. Depending on
arrangements made with the broker-dealer from which it borrowed the security
regarding payment over of any payments received by the Fund on such security,
the Fund may not receive any payments (including interest) on its collateral
deposited with such broker-dealer.
The Fund will not make a short sale if, after giving effect to such sale, the
market value of all securities sold short exceeds 33 1/3% of the value of its
total assets or the Fund's aggregate short sales of a particular class of
securities exceeds 33 1/3% of the outstanding securities of that class.
The Fund may also make short sales "against the box" without being subject to
such limitations. In this type of short sale, at the time of the sale, the Fund
owns or has the immediate and unconditional right to acquire the identical
security at no additional cost.
The Fund may borrow money from banks in amounts up to 33 1/3% of the Fund's
total assets temporarily for extraordinary or emergency purposes, including to
meet redemptions or to settle securities transactions.
The Fund may invest up to 15% of its net assets in illiquid securities that it
cannot easily resell. These securities may include securities for which there is
no readily available market and certain asset backed and receivable backed
securities. Other possibly illiquid securities in which the Fund may invest are
securities that have contractual or legal restrictions on resale, known as
restricted securities, including Rule 144A securities that can be resold to
qualified institutional buyers but not to the general public.
The Fund may use derivative instruments such as indexed securities, options,
futures, options on futures and currency transactions to gain exposure to equity
markets or to hedge its portfolio against interest rate and currency risks.
Derivatives are financial instruments whose value is derived from another
security, a commodity (such as oil or gold), or an index such as the Standard &
Poor's 500 Index.
The Fund may, as a temporary defensive measure, and without limitation, hold
assets in cash or cash equivalents and investment grade, short term securities
including money market instruments denominated in U.S. dollars or foreign
currencies. Normally a portion of the Fund's assets would be held in these
securities in anticipation of investment in equities or to meet redemptions.
Short term investments and temporary defensive positions can be easily sold and
have limited risk of loss but may limit the Fund's ability to meet its
investment objective.
INVESTMENT RISKS
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This section contains a summary discussion of the general risks of investing in
the Fund. As with any fund, there can be no guarantee that the Fund will meet
its objective, or that the Fund's performance will be positive over any period
of time.
Sector Risk--Sector risk is the risk that the Fund's focus on the
securities of Internet and Internet related companies will expose the Fund to
the price movements in one industry more than a more broadly diversified mutual
fund. Because the Fund invests primarily in a limited number of market sectors,
there is a risk that the Fund will perform poorly during a downturn in either
market sector. An investment in the Fund is subject to the risks associated with
equity securities issued by Internet and Internet related companies, as noted.
The Fund should not be considered a balanced investment program by itself.
Internet and Internet Related Company Risk--Although Internet and Internet
related companies comprise a relatively new industry, equity securities issued
by these companies historically have been extremely volatile. While volatility
may create investment opportunities, it also increases the risk that the
securities may lose value. Many factors may affect the value of an Internet or
Internet related company. These factors include the ability of a company to keep
pace with rapidly changing technology and a geometrically expanding consumer
base. Competition among Internet and Internet related companies is intense, and
profit margins can be small or nonexistent. In fact, many Internet and Internet
related companies operate at substantial losses with no prospect for profit in
the foreseeable future. For these reasons, the Fund and its investments may be
considered speculative.
The Fund may invest in smaller companies that the Investment Adviser believes
have potential for capital appreciation. These companies may have short
operating histories and may not be publicly traded. The securities of such
companies share the characteristics common to small-cap and emerging growth
securities including limited product lines or markets. Such securities may be
less financially secure than larger or more established companies, may depend on
a small number of key personnel and, if publicly traded, may trade in lower
volumes than larger or more established companies. Internet related companies
that establish a presence on the World Wide Web often face the challenge of
maintaining personnel and systems adequate to respond efficiently to Internet
demand. As a result, Internet and Internet related companies may be subject to
more abrupt and erratic price movements than the stock market as a whole.
The Fund may invest in Internet or Internet related companies that are not yet
profitable, but that the Investment Adviser believes are likely to produce
earnings or revenue growth or operating efficiencies through the development of
new or innovative products, services or processes.
Internet and Internet related companies are strongly affected by worldwide
scientific or technological developments. As a result, their products may
rapidly become obsolete. Such companies are often subject to governmental
regulation and may therefore be adversely affected by government policies.
Small Cap and Emerging Growth Securities Risk -- In addition to the risks listed
above with respect to Internet and Internet related companies, small cap or
emerging growth companies are subject to the risk that if a product fails, or if
management changes, or there are other adverse developments, the Fund's
investment in a small cap or emerging growth company may lose substantial value.
Investing in small caps and emerging growth securities requires a long term
view.
Market and Selection Risk -- Market risk is the risk that the stock market in
one or more countries in which the Fund invests will go down in value, including
the possibility that the market will go down sharply and unpredictably.
Selection risk is the risk that the investments that the Investment Adviser
selects will underperform the stock market or other funds with similar
investment objectives and investment strategies.
Foreign Market Risk -- Since the Fund may invest in foreign securities, it
offers the potential for more diversification than an investment only in the
United States. This is because stocks traded on foreign markets have often
(though not always) performed differently than stocks in the United States.
However, such investments involve special risks not present in U.S. investments
that can increase the chances that the Fund will lose money. In particular, the
Fund is subject to the risk that because there are generally fewer investors on
foreign exchanges and a smaller number of securities traded each day, it may
make it difficult for the Fund to buy and sell securities on those exchanges. In
addition, prices of foreign securities may go up and down more than prices of
securities traded in the United States.
Foreign Economy Risk -- The economies of certain foreign markets often do not
compare favorably with the economy of the United States with respect to such
issues as growth of gross national product, reinvestment of capital, resources
and balance of payments position. Certain such economies may rely heavily on
particular industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular country
or countries, changes in international trading patterns, trade barriers and
other protectionist or retaliatory measures. Investments in foreign markets may
also be adversely affected by government actions such as the imposition of
capital controls, nationalization of companies or industries, expropriation of
assets or the imposition of punitive taxes. In addition, the governments of
certain countries may prohibit or impose substantial restrictions on foreign
investing in their capital markets or in certain industries. Any of these
actions could severely affect security prices, impair the Fund's ability to
purchase or sell foreign securities or transfer the Fund's assets or income back
into the United States, or otherwise adversely affect the Fund's operations.
Other foreign market risks include foreign exchange controls, difficulties in
pricing securities, defaults on foreign government securities, difficulties in
enforcing favorable legal judgments in foreign courts, and political and social
instability. Legal remedies available to investors in certain foreign countries
may be less extensive than those available to investors in the United States or
other foreign countries.
Currency Risk -- Securities in which the Fund invests are usually denominated or
quoted in currencies other than the U. S. dollar. Changes in foreign currency
exchange rates affect the value of the Fund's portfolio. Generally, when the U.
S. dollar rises in value against a foreign currency, a security denominated in
the currency loses value because the currency is worth fewer U.S. dollars.
Conversely, when the U.S. dollar decreases in value against a foreign currency,
a security denominated in that currency gains value because the currency is
worth more U.S. dollars. That risk, generally known as "currency risk," means
that a strong U.S. dollar will reduce returns for U.S. investors while a weak
U.S. dollar will increase those returns.
Governmental Supervision and Regulation/Accounting Standards -- Many foreign
governments supervise and regulate stock exchanges, brokers and the sale of
securities less than the United States does. Some countries may not have laws to
protect investors the way that the U.S. securities laws do. For example, some
foreign countries may have no laws or rules against insider trading. Insider
trading occurs when a person buys or sells a company's securities based on
nonpublic information about that company. Accounting standards in other
countries are not necessarily the same as in the United States. If the
accounting standards in another country do not require as much detail as U.S.
accounting standards, it may be harder for the Investment Adviser to completely
and accurately determine a company's financial condition. Also, brokerage
commissions and other costs of buying or selling securities often are higher in
foreign countries than they are in the United States. This reduces the amount
the Fund can earn on its investments.
Certain Risks of Holding Fund Assets Outside the United States -- The Fund
generally holds its foreign securities and cash in foreign banks and securities
depositories. Some foreign banks and securities depositories may be recently
organized or new to the foreign custody business. In addition, there may be
limited or no regulatory oversight over their operations. Also, the laws of
certain countries may put limits on the Fund's ability to recover its assets if
a foreign bank, depository or issuer of a security, or any of their agents, goes
bankrupt. In addition, it is often more expensive for the Fund to buy, sell and
hold securities in certain foreign markets than in the United States. The
increased expense of investing in foreign markets reduces the amount the Fund
can earn on its investments and typically results in a higher operating expense
ratio for the Fund than investment companies invested only in the United States.
Settlement Risk -- Settlement and clearance procedures in certain foreign
markets differ significantly from those in the United States. Foreign settlement
procedures and trade regulations also may involve certain risks (such as delays
in payment for or delivery of securities) not typically generated by the
settlement of United States investments. Communications between the United
States and emerging market countries may be unreliable, increasing the risk of
delayed settlements or losses of security certificates. Settlements in certain
foreign countries at times have not kept pace with the number of securities
transactions; these problems may make it difficult for the Fund to carry out
transactions. If the Fund cannot settle or is delayed in settling a purchase of
securities, it may miss attractive investment opportunities and certain of its
assets may be uninvested with no return earned thereon for some period. If the
Fund cannot settle or is delayed in settling a sale of securities, it may lose
money if the value of the security then declines or, if it has contracted to
sell the security to another party, the Fund could be liable to that party for
any losses incurred.
European Economic and Monetary Union ("EMU") Certain European countries have
entered into EMU in an effort to, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations among these
countries. EMU established a single common European currency (the "euro") that
was introduced on January 1, 1999 and is expected to replace the existing
national currencies of all EMU participants by July 1, 2002. Certain securities
(beginning with government and corporate bonds) were redenominated in the euro,
and are listed, trade and make dividend and other payments only in euros.
Although EMU is generally expected to have a beneficial effect, it could
negatively affect the Fund in a number of situations, including as follows:
o If the transaction to euro, or EMU as a whole, does not proceed as planned,
the Fund's investments could be adversely affected. For example, sharp
currency fluctuations, exchange rate volatility and other disruptions of
the markets could occur.
o Withdrawal from EMU by a participating country could also have a negative
effect on the Fund's investments, for example if securities redenominated
in euros are transferred back into that country's national currency.
Borrowing and Leverage Risk -- The Fund may borrow for temporary emergency
purposes including to meet redemptions. Borrowing may exaggerate changes in the
net asset value of Fund shares and in the yield on the Fund's portfolio.
Borrowing will cost the Fund interest expense and other fees. The cost of
borrowing may reduce the Fund's return. Certain securities that the Fund buys
may create leverage including, for example, when issued securities, forward
commitments, options and warrants.
Securities Lending -- The Fund may lend securities to financial institutions
which provide government securities as collateral. Securities lending involves
the risk that the borrower may fail to return the securities in a timely manner
or at all. As a result, the Fund may lose money and there may be a delay in
recovering the loaned securities. The Fund could also lose money if it does not
recover the securities and the value of the collateral falls. These events could
trigger adverse tax consequences to the Fund.
Risks associated with certain types of securities in which the Fund may invest
include:
Convertibles -- 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.
Illiquid Securities -- The Fund may invest up to 15% of its net assets in
illiquid securities that it cannot easily resell within seven days at current
value or that have contractual or legal restrictions on resale. If the Fund buys
illiquid securities it may be unable to quickly resell them or may be able to
sell them only at a price below current value.
Restricted Securities -- Restricted securities have contractual or legal
restrictions on their resale. They include private placement securities that the
Fund buys directly from the issuer. Private placement and other restricted
securities may not be listed on an exchange and may have no active trading
market.
Restricted securities may be illiquid. The Fund may be unable to sell them on
short notice or may be able to sell them only at a price below current value.
The Fund may get only limited information about the issuer, so it may be less
able to predict a loss. In addition, if the Investment Adviser receives material
adverse nonpublic information about the issuer, the Fund will not be able to
sell the security.
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 the Fund.
Derivatives -- The Fund may use derivative instruments including indexed
securities, options, futures, options on futures and currency
transactions. Derivatives allow the Fund to increase or decrease its
risk exposure more quickly and efficiently than other types of
instruments. Derivatives are volatile and involve significant risks,
including:
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 (such as borrowing money to increase the amount of
investments) 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.
The Fund may use derivatives for hedging purposes, including anticipatory
hedges, and to gain exposure to equity markets. Hedging is a strategy in which
the 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 the Fund's hedging strategy will reduce risk or that hedging
transactions will be either available or cost effective. The Fund is not
required to use hedging and may choose not to do so.
Indexed Securities--The Fund may invest in securities whose potential returns
are directly related to changes in an underlying index or interest rate, known
as indexed securities. The return on indexed securities will rise when the
underlying index or interest rate rises and fall when the index or interest rate
falls. In addition, certain indexed securities may increase or decrease in value
at a greater rate than the underlying interest rate, which effectively leverages
the Fund's investment. Indexed securities are derivative securities and can be
considered speculative. Indexed securities involve credit risk and certain
indexed securities may involve currency risk, leverage risk and liquidity risk.
Standby Commitment Agreements -- Standby commitment agreements involve the risk
that the security will lose value prior to its delivery to the Fund. These
agreements also involve the risk that if the security goes up in value, the
counterparty will decide not to issue the security, in which case the Fund has
lost the investment opportunity for the assets it had set aside to pay for the
security and any gain in the security's price.
When Issued Securities, Delayed Delivery Securities and Forward Commitments --
When issued and delayed delivery securities and forward commitments involve the
risk that the security the Fund buys will lose value prior to its delivery to
the Fund. 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.
Depositary Receipts -- The Fund may invest in securities of foreign issuers in
the form of Depositary Receipts or other securities that are convertible into
securities of foreign issuers. American Depositary Receipts are receipts
typically issued by an American bank or trust company that show evidence of
underlying securities issued by a foreign corporation. European Depositary
Receipts and Global Depositary Receipts each evidence a similar ownership
arrangement. The Fund may also invest in unsponsored Depositary Receipts. The
issuers of such unsponsored Depositary Receipts are not obligated to disclose
material information in the United States and therefore, there may be less
information available regarding such issuers.
Repurchase Agreements; Purchase and Sale Contracts -- The Fund may enter into
certain types of repurchase agreements or purchase and sale contracts. Under a
repurchase agreement, the seller agrees to repurchase a security (typically a
security issued or guaranteed by the U.S. Government) at a mutually agreed upon
time and price. This insulates the Fund from changes in the market value of the
security during the period, except for currency fluctuations. A purchase and
sale contract is similar to a repurchase agreement, but purchase and sale
contracts provide that the purchaser receives any interest on the security paid
during the period. If the seller fails to repurchase the security in either
situation and the market value declines, the Fund may lose money.
Warrants -- A warrant gives the Fund the right to buy a quantity of stock. The
warrant specifies the amount of underlying stock, the purchase (or "exercise")
price, and the date the warrant expires. The Fund has no obligation to exercise
the warrant and buy the stock. A warrant has value only if the Fund exercises
it before it expires. If the price of the underlying stock does not rise above
the exercise price before the warrant expires, the warrant generally expires
without any value and the Fund loses any amount it paid for the warrant. Thus,
investments in warrants may involve substantially more risk than investments in
common stock. Warrants may trade in the same markets as their underlying stock;
however, the price of the warrant does not necessarily move with the price of
the underlying stock.
STATEMENT OF ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
If you would like further information about the Fund, including how the Fund
invests, please see the Statement of Additional Information.
YOUR ACCOUNT
MERRILL LYNCH SELECT PRICINGSM SYSTEM
- -------------------------------------------------------------------------------
The 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 the 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 Fund's shares are distributed by Merrill Lynch Funds Distributor,
a division of Princeton Funds Distributor, Inc., an affiliate of Merrill Lynch.
The table below summarizes key features of the Merrill Lynch Select PricingSM
System.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Availability Limited to certain Generally available Generally available Generally available
investors including: through Merrill Lynch. through Merrill Lynch. through Merrill Lynch.
o Current Class A Limited availability Limited availability Limited availability
shareholders through other securities through other through other securities
o Certain Retirement dealers. securities dealers. dealers.
Plans
o Participants in certain
Merrill Lynch-sponsored
programs
o Certain affiliates of
Merrill Lynch
- ------------------------------------------------------------------------------------------------------------------------------------
Initial Sales Charge? Yes. Payable at time No. Entire purchase No. Entire purchase Yes. Payable at time of
of purchase. Lower price is invested in price is invested in purchase. Lower sales
sales charges available shares of the Fund. shares of the Fund. charges available for
for larger investments. larger investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred Sales Charge? No. (May be charged Yes. Payable if you Yes. Payable if you No. (May be charged for
for purchases over $1 redeem within four years redeem within one year purchases over $1
million that are of purchase. of purchase. million that are
redeemed within one redeemed within one
year.) year.)
- ------------------------------------------------------------------------------------------------------------------------------------
Account Maintenance and No. 0.25% Account 0.25% Account 0.25% Account
Distribution Fees? Maintenance Fee Maintenance Fee Maintenance Fee
0.75% Distribution Fee. 0.75% Distribution Fee. No Distribution Fee.
- ------------------------------------------------------------------------------------------------------------------------------------
Conversion to Class D No. Yes, automatically after No. No.
Shares? approximately eight
years.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
Dealer
Compensation
As a % of As a % of as a % of
Your Investment Offering Price Your Investment* Offering Price
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------
Less than $25,000 5.25% 5.54% 5.00%
-----------------------------------------------------------------------------
$25,000 but less than 4.75% 4.99% 4.50%
$50,000
----------------------------------------------------------------------------
$50,000 but less than 4.00% 4.17% 3.75%
$100,000
----------------------------------------------------------------------------
$100,000 but less than 3.00% 3.09% 2.75%
$250,000
----------------------------------------------------------------------------
$250,000 but less than 2.00% 2.04% 1.80%
$1,000,000
----------------------------------------------------------------------------
$1,000,000 and over** 0.00% 0.00% 0.00%
----------------------------------------------------------------------------
Right of Accumulation -- permits *Rounded to the nearest one-hundredth percent.
you to pay the sales charge that **If you invest $1,000,000 or more in Class A or D shares, you may not pay
would apply to the cost or value an initial sales charge. However, if you redeem your shares within one year
(whichever is higher) of after purchase, you may be charged a deferred sales charge. This charge is
all shares you own in the 1% of the lesser of the original cost of the shares being redeemed or your
Merrill Lynch mutual funds that redemption proceeds. A sales charge of 0.75% will be charged on purchases
offer Select Pricing options. of $1,000,000 or more of Class A and D shares by certain employer sponsored
retirement or savings plans.
Letter of Intent-- permits you
to pay the sales charge that No initial sales charge applies to Class A or Class D shares that you buy
would be applicable if you add through reinvestment of dividends.
up all shares of Merrill Lynch
Select PricingSM System funds A reduced or waived sales charge on a purchase of Class A or D shares may
that you agree to buy within a apply for:
13 month period. Certain o apply for: Purchases under a Right of Accumulation or Letter of Intent.
restrictions apply. o Merrill Lynch BlueprintSM Program participants.
o TMASM Managed Trusts.
o Certain Merrill Lynch investment or central asset accounts.
o Certain employer-sponsored retirement or savings plans.
o Purchases using proceeds from the sale of certain Merrill Lynch closed-
end funds under certain circumstances.
o Certain investors, including directors or trustees of Merrill Lynch
mutual funds and Merrill Lynch employees.
o Certain Merrill Lynch fee-based programs.
</TABLE>
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 Fund's 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 the Fund has adopted under Rule 12b-1. Because these fees are paid
out of the 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. 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:
Year 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:
o Certain post-retirement withdrawals from an IRA or other retirement plan
if you are over 59 1/2 years old.
o Redemption by certain eligible 401(a) and 401(k) plans, certain related
accounts, group plans participating in the Merrill Lynch BlueprintSM
Program and certain retirement plan rollovers.
o Redemption in connection with participation in certain Merrill Lynch fee-
based programs.
o 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.
o 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.
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 Fund's eight year
conversion schedule will apply. If you exchange your Class B shares in the 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.
<PAGE>
<TABLE>
<CAPTION>
If You Want To Your Choices Information Important For You to Know
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buy shares First, select the share Please refer to the Merrill Lynch Select Pricing table on page 20. Be sure to
class appropriate for you read this prospectus carefully.
---------------------------------------------------------------------------------------------------------------
Next, determine the amount The minimum initial investment for the Fund is $1,000 for all accounts except:
of your investment except:
o $250 for certain Merrill Lynch fee-based programs
o $100 for retirement plans
(The minimums for initial investments may be waived under certain
circumstances.)
---------------------------------------------------------------------------------------------------------------
Have your Merrill Lynch The price of your shares is based on the next calculation of net asset value
Financial Consultant or after your order is placed. Any purchase orders placed prior to the close of
securities dealer submit business on the New York Stock Exchange (generally, 4:00 p.m. Eastern time)
your purchase order 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 Fund 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 Purchase additional shares The minimum investment for additional purchases is generally $50 except that
Investment 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 All dividends are automatically reinvested without a sales charge.
through the automatic
dividend reinvestment plan
---------------------------------------------------------------------------------------------------------------
Participate in the automatic You may invest a specific amount on a periodic basis through certain Merrill
investment plan Lynch investment or central asset accounts.
- ------------------------------------------------------------------------------------------------------------------------------------
Transfer Shares To Transfer to a participating You may transfer your Fund shares only to another securities dealer that has
Another Securities securities dealer entered into an agreement with Merrill Lynch. Certain shareholder services may
Dealer 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 You must either:
non-participating securities o Transfer your shares to an account with the Transfer Agent; or
dealer o Sell your shares, paying any applicable CDSC.
-----------------------------------------------------------------------------------------------------------------------------------
Sell Your Shares Have your Merrill Lynch The price of your shares is based on the next calculation of net asset value
Financial Consultant or after your order is placed. For your redemption request to be priced at the
securities dealer submit your net asset value on the day of your request, you must submit your request to
sales order 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 Fund may reject an order to sell shares under certain circumstances.
---------------------------------------------------------------------------------------------------------------
Sell through the Transfer You may sell shares held at the Transfer Agent by writing to the Transfer
Agent 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 and loan 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 the 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.
- ------------------------------------------------------------------------------------------------------------------------------------
Sell Shares Participate in the Fund's You can choose to receive systematic payments from your Fund account either by
Systematically Systematic Withdrawal Plan 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(R), CBA(R) 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 Select the fund into which you ou can exchange your shares of the Fund for shares of many other Merrill
Shares want to exchange. Be sure Lynch mutual funds. You must have held the shares used in the exchange
to read that fund's for at least 15 calendar days before you can exchange to another fund.
prospectus
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 the 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.
HOW SHARES ARE PRICED
------------------------------------------------------------------------------
Net Asset Value -- When you buy shares, you pay the net asset value, plus any applicable sales
the market value of charge. This is the offering price. Shares are also redeemed at their net
the Fund's total asset value, minus any applicable deferred sales charge. The Fund calculates
assets after its net asset value (generally by using market quotations) each day the New
deducting liabilities, York Stock Exchange is open after the close of business on the Exchange (the
divided by the number of Exchange generally closes at 4:00 p.m. Eastern time). The net asset value
shares outstanding. used in determining your price is the next one calculated after your purchase
or redemption order is placed. Foreign securities owned by the Fund may trade
on weekends or other days when the Fund does not price its shares. As a
result, the Fund's 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 the 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.
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
------------------------------------------------------------------------------
Dividends -- ordinary The Fund will distribute at least annually any net investment income and any
income and capital gains net realized long or short-term capital gains. The Fund may also pay a special
paid to shareholders. distribution at the end of the calendar year to comply with Federal tax
Dividends may be reinvested requirements. Dividends may be reinvested automatically in shares of the Fund
in additional Fund shares at net asset value without a sales charge or may be taken in cash. If your
as they are paid. account is with a securities dealer that has an agreement with the Fund,
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.
"BUYING A DIVIDEND" You will pay tax on dividends from the Fund whether you receive them in cash
Unless your investment is in a or additional shares. If you redeem Fund shares or exchange them for shares
tax-deferred account, you may of another fund, any gain on the transaction may be subject to tax. Capital
want to avoid buying shares gain dividends are generally taxed at different rates than ordinary income
shortly before the Fund pays a dividends.
dividend. The reason? If you
buy shares when a fund has If you are neither a lawful permanent resident nor a citizen of the U.S. or
realized but not yet if you are a foreign entity, the Fund's ordinary income dividends (which
distributed income or capital include distributions of ordinary net short-term capital gains) will
gains, you will pay the full generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate
price for the shares and applies.
then receive a portion of
the price back in the Dividends and interest received by the Funds may give rise to withholding and
form of a taxable dividend. other taxes imposed by foreign countries. Tax conventions between certain
Before investing you may want countries and the United States may reduce or eliminate such taxes. You may be
to consult your tax adviser. able to claim a credit to or take a deduction for foreign taxes paid by the
fund if certain requirements are met.
By law, the 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.
This section summarizes some of the consequences under current Federal tax
law of an investment in the Fund. It is not a substitute for personal tax
advice. Consult your personal tax adviser about the potential tax
consequences of an investment in the Fund under all applicable tax laws.
MANAGEMENT OF THE FUND
FUND ASSET MANAGEMENT
----------------------------------------------------------------------------
Fund Asset Management, the Fund's Investment Adviser, manages the
Portfolio's investments under the overall supervision of the Board of
Trustees of the Master Internet Strategies Trust. The Investment Adviser
has the responsibility for making all investment decisions for the Fund.
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 1.0% 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. Fund Asset Management is part of the Asset Management Group of ML
& Co., which had approximately $____ billion in investment company and other
portfolio assets under management as of December, 1999. This amount includes
assets managed for Merrill Lynch affiliates.
MASTER/FEEDER STRUCTURE
----------------------------------------------------------------------------
The Fund is a "feeder" fund that invests in a corresponding "master"
portfolio of the Master Internet Strategies Trust. (Except where indicated,
this prospectus uses the term "Fund" to mean the feeder fund and its
Portfolio taken together.) Investors in the Fund will acquire an indirect
interest in the corresponding Portfolio.
The Portfolio may accept investments from other feeder funds, and all the
feeders of the Trust bear the related Portfolio's expenses in proportion to
their assets. This structure may enable the Fund 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.
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 the
Fund over the operations of its Portfolio.
The 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 Fund's 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 Fund and its investments
could be negatively affected.
</TABLE>
<PAGE>
GRAPHICS OMITTED
<PAGE>
FOR MORE INFORMATION
Shareholder Reports
Additional information about the Fund's investments will be available in the
Fund's 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 the Fund's performance during its last
fiscal year. You may obtain these reports at no cost by calling 1-800-MER-FUND.
The 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 Fund's Statement of Additional Information contains further information
about the Fund and is incorporated by reference (legally considered to be part
of this Prospectus). You may request a free copy by writing the Fund 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 Fund at the telephone
number or address indicated above, if you have any questions.
Information about the Fund (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- .
Code # -_____
c Fund Asset Management, L.P.
PROSPECTUS
MERRILL LYNCH INTERNET STRATEGIES FUND, INC.
, 2000
The information in this statement of additional information is not complete and
may be changed. This statement of additional information is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Subject to Completion
Preliminary Statement of Additional Information dated January 14, 2000
MERRILL LYNCH INTERNET STRATEGIES FUND, INC.
P.O. Box 9011, Princeton, New Jersey 08543-9011 o Phone No. (609) 282-2800
----------------
Merrill Lynch Internet Strategies Fund, Inc. (the "Fund") is a
non-diversified, open-end management investment company organized as a
Maryland corporation.
The main objective of the Fund is to provide shareholders with long term
growth of capital through investment primarily in equity securities of issuers
that the Investment Adviser believes will use the Internet as a component of
their business strategy. The Fund seeks to achieve its investment objective by
identifying Internet and Internet related companies that are using or developing
new or innovative products, services or processes that the Investment Adviser
believes are likely to produce earnings growth.
The Fund is a "feeder" fund that invests all of its assets in a
corresponding "master" portfolio (the "Portfolio") of the Master Internet
Strategies Trust (the "Trust") that has the same investment objective as the
Fund. All investments will be made at the Trust level. The Fund's investment
results will correspond directly to the investment results of the Portfolio in
which it invests. There can be no assurance that the Fund will achieve its
objective.
Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes is
most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"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 ____________, 2000
(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 ___________ __, 2000.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT OBJECTIVES AND POLICIES...........................................2
Depositary Receipts....................................................3
Description of Certain Investments.....................................4
European Economic and Monetary Union ("EMU")...........................6
Derivatives............................................................6
Convertible Securities................................................13
Other Investment Policies and Practices...............................16
Investment Restrictions...............................................19
Portfolio Turnover....................................................23
MANAGEMENT OF THE FUND......................................................23
Directors and Officers................................................23
Compensation of Directors/Trustees....................................24
Management and Advisory Arrangements..................................25
Code of Ethics........................................................27
PURCHASE OF SHARES..........................................................27
Initial Sales Charge Alternatives -- Class A and Class D Shares.......28
Reduced Initial Sales Charges.........................................29
Deferred Sales Charges -- Class B and Class C Shares..................33
Contingent Deferred Sales Charges -- Class B Shares...................34
Contingent Deferred Sales Charges -- Class C Shares...................36
Distribution Plans....................................................37
Limitations on the Payment of Deferred Sales Charges..................39
REDEMPTION OF SHARES........................................................39
Redemption............................................................40
Repurchase............................................................40
Reinstatement Privilege -- Class A and Class D Shares.................41
PRICING OF SHARES...........................................................41
Determination of Net Asset Value......................................41
Computation of Offering Price Per Share...............................43
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................43
SHAREHOLDER SERVICES........................................................46
Investment Account....................................................46
Exchange Privilege....................................................47
Fee-Based Programs....................................................49
Retirement and Educational Savings Plans..............................49
Automatic Investment Plans............................................50
Automatic Dividend Reinvestment Plan..................................50
Systematic Withdrawal Plans...........................................51
DIVIDENDS AND TAXES.........................................................52
Dividends.............................................................52
Tax Treatment of Options and Futures Transactions.....................55
Special Rules for Certain Foreign Currency Transactions...............56
PERFORMANCE DATA............................................................57
GENERAL INFORMATION.........................................................58
Description of Shares..............................................58
Independent Auditors...............................................60
Custodian..........................................................60
Transfer Agent.....................................................60
Legal Counsel......................................................60
Reports to Shareholders............................................60
Shareholder Inquiries..............................................60
Additional Information.............................................61
INDEPENDENT AUDITORS' REPORT................................................62
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to seek long term growth of capital
through investment primarily in equity securities of issuers that the Investment
Adviser believes will use the Internet as a component of their business
strategy. The Fund seeks to achieve its investment objective by identifying
issuers that engage in research, design, development, manufacturing or
distribution of products or services used to facilitate use of the Internet,
including issuers focusing on applications to be used in connection with the
World Wide Web ("Internet companies") and issuers that use or are developing an
internet strategy that the Investment Adviser believes will significantly
benefit the issuers by improving its customer base, cost efficiencies,
competitive advantage, and/or business prospects ("Internet related companies").
The Fund may invest in Internet companies and Internet related companies that
are not yet profitable but that the Investment Adviser believes are likely to
produce earnings or revenue growth or operating efficiencies through the
development of new or innovative products, services or processes.
The 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. The 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 the Fund invests. Reference is made to the discussion under
"How the Fund Invests" and "Investment Risks" in the Prospectus for information
with respect to the Fund and its Trust portfolio's investment objective and
policies. There can be no guarantee that the Fund's investment objectives will
be achieved.
As described in the Prospectus, when selecting investments for the Fund,
the Investment Adviser seeks to identify Internet and Internet related companies
that are developing new or innovative products, services or processes that the
Investment Adviser believes are likely to produce earnings or revenue growth or
operating efficiencies. Specifically, Internet companies may produce, market or
distribute products or services designed to secure, enhance, store, process,
record, reproduce, retrieve or distribute information over the Internet. Many of
these issuers focus on applications that utilize the World Wide Web (the "Web").
The Web is a widely used graphical interface publishing medium that may contain
text, graphics, interactive feedback mechanisms and cross linking functions. The
Fund also invests in Internet related companies that currently use or intend to
use various other Internet applications--such as electronic commerce, e-mail and
Intranet communications systems (systems that use Internet technology to share
information within a company's internal computer network) --as integral parts of
their business strategies.
The Fund will invest in equity securities, primarily common stock. Under
normal market conditions, at least 65% of the Fund's total assets will be
invested in common stock issued by Internet and Internet related companies. The
Fund may also invest in other equity securities including, but not limited to,
securities convertible into common stock, preferred stock, rights and warrants
to subscribe to common stock.
The Fund's focus on the securities of Internet and Internet related
companies heightens its exposure to price movements in one industry more
significantly than a more broadly diversified mutual fund. Because the Fund
invests primarily in one industry, there is a risk that the Fund will perform
poorly during a downturn in that industry. Internet and Internet related
companies are also strongly affected by worldwide scientific or technological
developments. As a result, their products may rapidly become obsolete. Such
companies are also often subject to governmental regulation and may therefore be
adversely affected by government policies. For more information on the risks of
Internet and Internet related companies, see "Details About the Fund--Investment
Risks" in the Prospectus.
The Fund may invest without limitation in issuers located around the world.
The securities markets of many countries at times in the past have moved
relatively independently of one another due to different economic, financial,
political and social factors. When such lack of correlation, or negative
correlation, in movements of these securities markets occurs, it may reduce risk
for the Fund's portfolio as a whole. This negative correlation also may offset
unrealized gains the Fund has derived from movements in a particular market. To
the extent the various markets move independently, total portfolio volatility is
reduced when the various markets are combined into a single portfolio. Of
course, movements in the various securities markets may be offset by changes in
foreign currency exchange rates. Exchange rates frequently move independently of
securities markets in a particular country. As a result, gains in a particular
securities market may be affected by changes in exchange rates. While there are
no prescribed limits on geographic asset distribution, based upon the public
market values in the world equity markets and anticipated technological
innovations, it is presently contemplated that the Fund may have significant
investments in U.S. based issuers. The Fund may invest in companies of any size.
The Fund's ability and decisions to purchase or sell portfolio securities
may be affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on a daily
basis on each day the Fund determines its net asset value in U.S. dollars, the
Fund intends to manage its portfolio so as to give reasonable assurance that it
will be able to obtain U.S. dollars to the extent necessary to meet anticipated
redemptions. Under present conditions, the Investment Adviser does not believe
that these considerations will have any significant effect on the Fund's
portfolio strategy, although there can be no assurance in this regard.
Depositary Receipts
The Fund may invest in the securities of foreign issuers in the form of
Depositary Receipts, or other securities convertible into securities of foreign
issuers. Depositary Receipts may not necessarily be denominated in the same
currency as the securities into which they may be converted. American Depositary
Receipts ("ADRs") are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. European Depositary Receipts ("EDRs") are receipts issued in Europe
which evidence a similar ownership arrangement. Global Depositary Receipts
("GDRs") are receipts issued throughout the world that evidence a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets, and EDRs, in bearer form, are designed for use
in European securities markets. GDRs are tradable both in the U.S. and Europe
and are designed for use throughout the world. The Fund may invest in
unsponsored Depositary Receipts. The issuers of unsponsored Depositary Receipts
are not obligated to disclose material information in the United States and,
therefore, there may not be a correlation between such information and the
market value of the Depositary Receipts.
Description of Certain Investments
Securities of Smaller or Emerging Growth Companies. Many Internet and
Internet related companies are small capitalization or emerging growth
companies. Because the Fund emphasizes investment in Internet and Internet
related companies, an investment in the Fund involves greater risk than is
customarily associated with funds that invest in more established companies. The
securities of smaller or emerging growth companies may be subject to more abrupt
or erratic market movements than larger, more established companies or the
market average in general. These companies may have limited product lines,
markets or financial resources, or they may be dependent on a limited management
group. Because of these factors, the Fund believes that its shares may be
suitable for investment by persons who can invest without concern for current
income and who are in a financial position to assume above-average investment
risk in search of above-average long-term reward. It is not intended as a
complete investment program but is designed for those long-term investors who
are prepared to experience above-average fluctuations in net asset value.
While the smaller issuers in which the Fund will invest may offer greater
opportunities for capital appreciation than large cap issuers, investments in
smaller or emerging growth companies may involve greater risks and thus may be
considered speculative. The Investment Adviser believes that properly selected
companies of this type have the potential to increase their earnings or market
valuation at a rate substantially in excess of the general growth of the
economy. Full development of these companies and trends frequently takes time
and, for this reason, the Fund should be considered as a long-term investment
and not as a vehicle for seeking short-term profits.
The securities in which the Fund invests will often be traded only in the
over-the-counter market or on a regional securities exchange and may not be
traded every day or in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Fund of portfolio securities to
meet redemptions or otherwise may require the Fund to sell these securities at a
discount from market prices or during periods when in management's judgment such
disposition is not desirable or to make many small sales over a lengthy period
of time.
While the process of selection and continuous supervision by the Investment
Adviser does not, of course, guarantee successful investment results, it does
provide access to an asset class not available to the average individual due to
the time and cost involved. Careful initial selection is particularly important
in this area as many new Internet and Internet related companies have promise
but lack certain of the fundamental factors necessary to prosper. Investing in
these companies requires specialized research and analysis. In addition, many
investors cannot invest sufficient assets in such companies to provide wide
diversification.
Small companies are generally little known to most individual investors
although some may be dominant in their respective industries. The Investment
Adviser believes that relatively small Internet and Internet related companies
will continue to have the opportunity to develop into significant business
enterprises. The Fund may invest in securities of small issuers in the
relatively early stages of business development which have a new technology, a
unique or proprietary product or service or a favorable market position. Such
companies may not be counted upon to develop into major industrial companies,
but management believes that eventual recognition of their special value
characteristics by the investment community can provide above-average long-term
growth to the Fund.
Equity securities of specific Internet and Internet related companies may
present different opportunities for long-term capital appreciation during
varying portions of economic or securities markets cycles, as well as during
varying stages of their business development. The market valuation of small cap
issuers tends to fluctuate during economic or market cycles, presenting
attractive investment opportunities at various points during these cycles.
Smaller companies, due to the size and kinds of markets that they serve,
may be less susceptible than large companies to intervention from the Federal
government by means of price controls, regulations or litigation.
Short Sales. The Fund may make short sales of securities, either as a hedge
against potential declines in value of a portfolio security or to realize
appreciation when a security that the Fund does not own declines in value. When
the Fund makes a short sale, it borrows the security sold short and delivers it
to the broker-dealer through which it made the short sale, as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities and is often obligated to turn
over any payments received on such borrowed securities to the lender of the
securities.
The Fund secures its obligation to replace the borrowed security by
depositing collateral with the broker-dealer, usually in cash, U.S. Government
securities or other liquid securities similar to those borrowed. With respect to
uncovered short positions, the Fund is required to deposit similar collateral
with its custodian, if necessary, to the extent that the value of both
collateral deposits in the aggregate is at all times equal to at least 100% of
the current market value of the security sold short. Depending on arrangements
made with the broker-dealer from which the Fund borrowed the security, regarding
payment over of any payments received by the Fund on such security, the Fund may
not receive any payments (including interest) on its collateral deposited with
such broker-dealer.
The Fund may also make short sales "against the box" without being subject
to such limitations. In this type of short sale, at the time of the sale, the
Fund owns or has the immediate and unconditional right to acquire the identical
security at no additional cost.
The Fund will not make a short sale if, after giving effect to such sale,
the market value of all securities sold short exceeds 33 1/3% of the value of
its total assets or the Fund's aggregate short sales of a particular class of
securities exceeds 33 1/3% of the outstanding securities of that class.
European Economic and Monetary Union ("EMU")
For a number of years, certain European countries have been seeking
economic unification that would, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations among these
European countries. The Treaty on European Union (the "Maastricht Treaty") set
out a framework for the European Economic and Monetary Union ("EMU") among the
countries that comprise the European Union ("EU"). EMU established a single
common European currency (the "euro") that was introduced on January 1, 1999 and
is expected to replace the existing national currencies of all EMU participants
by July 1, 2002. EMU took effect for the initial EMU participants on January 1,
1999. Certain securities issued in participating EU countries (beginning with
government and corporate bonds) were redenominated in the euro, and are listed,
traded, and make dividend and other payments only in euros.
No assurance can be given that EMU will take full effect, that all the
changes planned for the EU can be successfully implemented, or that these
changes will result in the economic and monetary unity and stability intended.
There is a possibility that EMU will not be completed, or will be completed but
then partially or completely unwound. Because any participating country may opt
out of EMU within the first three years, it is also possible that a significant
participant could choose to abandon EMU, which could diminish its credibility
and influence. Any of these occurrences could have adverse effects on the
markets of both participating and non-participating countries, including sharp
appreciation or depreciation of participants' national currencies and a
significant increase in exchange rate volatility, a resurgence in economic
protectionism, an undermining of confidence in the European markets, an
undermining of European economic stability, the collapse or slowdown of the
drive toward European economic unity, and/or reversion of the attempts to lower
government debt and inflation rates that were introduced in anticipation of EMU.
Also, withdrawal from EMU by an initial participant could cause disruption of
the financial markets as securities redenominated in euros are transferred back
into that country's national currency, particularly if the withdrawing country
is a major economic power. Such developments could have an adverse impact on the
Fund's investments in Europe generally or in specific countries participating in
EMU. Gains or losses from euro conversion may be taxable to Fund shareholders
under foreign or, in certain limited circumstances, U.S. tax laws.
Derivatives
The Fund 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 Standard & Poor's 500 Index or the prime lending rate). Derivatives allow
the 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. The 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 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.
The Fund may use the following types of derivative instruments and trading
strategies:
Indexed Securities
The Fund may invest in securities the potential return of which is based on
an index. As an illustration, the 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. The Fund may also 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. In addition, the Fund may invest
in securities the potential return of which is based inversely on the change in
an index (that is, a security the value of which will move in the opposite
direction of changes to an index). For example, the Fund may invest in
securities that pay a higher rate of interest when a particular index decreases
and pay a lower rate of interest (or do not fully return principal) when the
value of the index increases. If the Fund invests in such securities, it may be
subject to reduced or eliminated interest payments or loss of principal in the
event of an adverse movement in the relevant index or indices. Indexed and
inverse securities involve credit risk, and certain indexed securities may
involve leverage risk, liquidity risk, and currency risk. The Fund may invest in
indexed and inverse securities for hedging purposes only. When used for hedging
purposes, indexed securities involve correlation risk.
Options on Securities and Securities Indices
Purchasing Put Options. The 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 the Fund purchases a put
option, in consideration for an up front payment (the "option premium") the 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 the
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. The Fund may also 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 the
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 the 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.
The Fund is also authorized to purchase put or call options in connection
with closing out put or call options it has previously sold.
Writing Call Options. The 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 the 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. The Fund may write call options to earn income, through the
receipt of option premiums. In the event the party to which the 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, the 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.
Writing Put Options. The Fund may also write put options on securities or
securities indices. When the Fund writes a put option, in return for an option
premium the Fund gives another party the right to sell to the Fund a specified
security at the exercise price on or before the expiration date, in the case of
an option on a security, or agrees to pay to another party an amount based on
any decline in a specified securities index below a specified level on or before
the expiration date, in the case of an option on a securities index. The Fund
may write put options to earn income, through the receipt of option premiums. In
the event the party to which the Fund has written an option fails to exercise
its rights under the option because the value of the underlying securities is
greater than the exercise price, the Fund will profit by the amount of the
option premium. By writing a put option, however, the Fund will be obligated to
purchase the underlying security at a price that may be higher than the market
value of the security at the time of exercise as long as the put option is
outstanding, in the case of an option on a security, or make a cash payment
reflecting any decline in the index, in the case of an option on an index.
Accordingly, when the Fund writes a put option it is exposed to a risk of loss
in the event the value of the underlying securities falls below the exercise
price, which loss potentially may substantially exceed the amount of option
premium received by the Fund for writing the put option. The Fund will write a
put option on a security or a securities index only if the Fund would be willing
to purchase the security at the exercise price for investment purposes (in the
case of an option on a security) or is writing the put in connection with
trading strategies involving combinations of options -- for example, the sale
and purchase of options with identical expiration dates on the same security or
index but different exercise prices (a technique called a "spread"). Writing a
put option may involve substantial leverage risk.
The Fund is also 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, the 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 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
The Fund may engage in transactions in futures and options thereon. Futures
are standardized, exchange-traded contracts which 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 the
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 the 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 the 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.
Foreign Exchange Transactions
The Fund may engage in spot and forward foreign exchange transactions and
currency swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively, "Currency
Instruments") for purposes of hedging against the decline in the value of
currencies in which its portfolio holdings are denominated against the U.S.
dollar.
Forward Foreign Exchange Transactions. Forward foreign exchange
transactions are OTC contracts to purchase or sell a specified amount of a
specified currency or multinational currency unit at a price and future date set
at the time of the contract. Spot foreign exchange transactions are similar but
require current, rather than future, settlement. The Fund will enter into
foreign exchange transactions only for purposes of hedging either a specific
transaction or a portfolio position. The Fund may enter into a forward foreign
exchange transaction for purposes of hedging a specific transaction by, for
example, purchasing a currency needed to settle a security transaction or
selling a currency in which the Fund has received or anticipates receiving a
dividend or distribution. The Fund may enter into a foreign exchange transaction
for purposes of hedging a portfolio position by selling forward a currency in
which a portfolio position of the Fund is denominated or by purchasing a
currency in which the Fund anticipates acquiring a portfolio position in the
near future. The Fund may also hedge portfolio positions through currency swaps,
which are transactions in which one currency is simultaneously bought for a
second currency on a spot basis and sold for the second currency on a forward
basis. Forward foreign exchange transactions involve substantial currency risk,
and also involve credit and liquidity risk.
Currency Futures. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through use of currency futures or options
thereon. Currency futures are similar to forward foreign exchange transactions
except that futures are standardized, exchange-traded contracts. See "Futures"
above. Currency futures involve substantial currency risk, and also involve
leverage risk.
Currency Options. The Fund may also hedge against the decline in the value
of a currency against the U.S. dollar through the use of currency options.
Currency options are similar to options on securities, but in consideration for
an option premium the writer of a currency option is obligated to sell (in the
case of a call option) or purchase (in the case of a put option) a specified
amount of a specified currency on or before the expiration date for a specified
amount of another currency. The Fund may engage in transactions in options on
currencies either on exchanges or OTC markets. See "Types of Options" above and
"Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC
Derivatives" below. Currency options involve substantial currency risk, and may
also involve credit, leverage or liquidity risk.
Limitations on Currency Hedging. The Fund will not speculate in Currency
Instruments. Accordingly, the Fund will not hedge a currency in excess of the
aggregate market value of the securities which it owns (including receivables
for unsettled securities sales), or has committed to or anticipates purchasing,
which are denominated in such currency. The Fund may, however, hedge a currency
by entering into a transaction in a Currency Instrument denominated in a
currency other than the currency being hedged (a "cross-hedge"). The Fund will
only enter into a cross-hedge if the Investment Adviser believes that (i) there
is a demonstrable high correlation between the currency in which the cross-hedge
is denominated and the currency being hedged, and (ii) executing a cross-hedge
through the currency in which the cross-hedge is denominated will be
significantly more cost-effective or provide substantially greater liquidity
than executing a similar hedging transaction by means of the currency being
hedged.
Risk Factors in Hedging Foreign Currency Risks. Hedging transactions
involving Currency Instruments involve substantial risks, including correlation
risk. While the Fund's use of Currency Instruments to effect hedging strategies
is intended to reduce the volatility of the net asset value of the Fund's
shares, the net asset value of the Fund's shares will fluctuate. Moreover,
although Currency Instruments will be used with the intention of hedging against
adverse currency movements, transactions in Currency Instruments involve the
risk that anticipated currency movements will not be accurately predicted and
that the Fund's hedging strategies will be ineffective. To the extent that the
Fund hedges against anticipated currency movements which do not occur, the Fund
may realize losses, and decrease its total return, as the result of its hedging
transactions. Furthermore, the Fund will only engage in hedging activities from
time to time and may not be engaging in hedging activities when movements in
currency exchange rates occur.
It may not be possible for the Fund to hedge against currency exchange rate
movements, even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not able to
enter into a hedging transaction at an effective price, or (ii) the currency
exchange rate movement relates to a market with respect to which Currency
Instruments are not available (such as certain developing markets) and it is not
possible to engage in effective foreign currency hedging.
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks, including:
Credit risk -- the risk that the counterparty on a Derivative transaction
will be unable to honor its financial obligation to the Fund.
Currency risk -- the risk that changes in the exchange rate between two
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 (such as borrowing money to increase the amount of
investments) 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 will experience a gain or loss which will not be completely
offset by movements in the value of the hedged instruments.
The Fund intends 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 the Fund to
potential losses, which exceed the amount originally invested by the Fund. When
the 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 the Fund to sell such
instruments promptly at an acceptable price. The absence of liquidity may also
make it more difficult for the 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 the 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. The 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.
Convertible Securities
Convertible securities entitle the holder to receive interest payments paid
on corporate debt securities or the dividend preference on a preferred stock
until such time as the convertible security matures or is redeemed or until the
holder elects to exercise the conversion privilege. A synthetic convertible
security may be either (i) a debt security or preferred stock that may be
convertible only under certain contingent circumstances or that may pay the
holder a cash amount based on the value of shares of underlying common stock
partly or wholly in lieu of a conversion right (a "Cash-Settled Convertible") or
(ii) a combination of separate securities chosen by the Investment Adviser in
order to create the economic characteristics of a convertible security, i.e., a
fixed income security paired with a security with equity conversion features,
such as an option or warrant (a "Manufactured Convertible").
The characteristics of convertible securities make them appropriate
investments for an investment company seeking a high total return from capital
appreciation and investment income. These characteristics include the potential
for capital appreciation as the value of the underlying common stock increases,
the relatively high yield received from dividend or interest payments as
compared to common stock dividends and decreased risks of decline in value
relative to the underlying common stock due to their fixed-income nature. As a
result of the conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than would be the case if
the securities were issued in nonconvertible form.
In analyzing convertible securities, the Investment Adviser will consider
both the yield on the convertible security and the potential capital
appreciation that is offered by the underlying common stock.
Convertible securities are issued and traded in a number of securities
markets. For the past several years, the principal markets have been the United
States, the Euromarket and Japan. Issuers during this period have included major
corporations domiciled in the United States, Japan, France, Switzerland, Canada
and the United Kingdom. Even in cases where a substantial portion of the
convertible securities held by the Fund are denominated in United States
dollars, the underlying equity securities may be quoted in the currency of the
country where the issuer is domiciled. With respect to convertible securities
denominated in a currency different from that of the underlying equity
securities, the conversion price may be based on a fixed exchange rate
established at the time the security is issued. As a result, fluctuations in the
exchange rate between the currency in which the debt security is denominated and
the currency in which the share price is quoted will affect the value of the
convertible security. As described below, the Fund is authorized to enter into
foreign currency hedging transactions in which it may seek to reduce the effect
of such fluctuations.
Apart from currency considerations, the value of convertible securities is
influenced by both the yield of nonconvertible securities of comparable issuers
and by the value of the underlying common stock. The value of a convertible
security viewed without regard to its conversion feature (i.e., strictly on the
basis of its yield) is sometimes referred to as its "investment value." To the
extent interest rates change, the investment value of the convertible security
typically will fluctuate. However, at the same time, the value of the
convertible security will be influenced by its "conversion value," which is the
market value of the underlying common stock that would be obtained if the
convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price of the
common stock the conversion value is substantially below the investment value of
the convertible security, the price of the convertible security is governed
principally by its investment value.
To the extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion value. A
convertible security will sell at a premium over the conversion value to the
extent investors place value on the right to acquire the underlying common stock
while holding a fixed-income security. The yield and conversion premium of
convertible securities issued in Japan and the Euromarket are frequently
determined at levels that cause the conversion value to affect their market
value more than the securities' investment value.
Holders of convertible securities generally have a claim on the assets of
the issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may be subject to
redemption at the option of the issuer at a price established in the charter
provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by the Fund is
called for redemption, the Fund will be required to redeem the security, convert
it into the underlying common stock or sell it to a third party. Certain
convertible debt securities may provide a put option to the holder which
entitles the holder to cause the security to be redeemed by the issuer at a
premium over the stated principal amount of the debt security under certain
circumstances. As indicated above, synthetic convertible securities may include
either Cash-Settled Convertibles or Manufactured Convertibles. Cash-Settled
Convertibles are instruments that are created by the issuer and have the
economic characteristics of traditional convertible securities but may not
actually permit conversion into the underlying equity securities in all
circumstances. As an example, a private company may issue a Cash-Settled
Convertible that is convertible into common stock only if the company
successfully completes a public offering of its common stock prior to maturity
and otherwise pays a cash amount to reflect any equity appreciation.
Manufactured Convertibles are created by the Investment Adviser by combining
separate securities that possess one of the two principal characteristics of a
convertible security, i.e., fixed income ("fixed income component") or a right
to acquire equity securities ("convertible component"). The fixed income
component is achieved by investing in nonconvertible fixed income securities,
such as nonconvertible bonds, preferred stocks and money market instruments. The
convertibility component is achieved by investing in call options, warrants,
LEAPS, or other securities with equity conversion features ("equity features")
granting the holder the right to purchase a specified quantity of the underlying
stocks within a specified period of time at a specified price or, in the case of
a stock index option, the right to receive a cash payment based on the value of
the underlying stock index.
A Manufactured Convertible differs from traditional convertible securities
in several respects. Unlike a traditional convertible security, which is a
single security having a unitary market value, a Manufactured Convertible is
comprised of two or more separate securities, each with its own market value.
Therefore, the total "market value" of such a Manufactured Convertible is the
sum of the values of its fixed-income component and its convertibility
component.
More flexibility is possible in the creation of a Manufactured Convertible
than in the purchase of a traditional convertible security. Because many
corporations have not issued convertible securities, the Investment Adviser may
combine a fixed income instrument and an equity feature with respect to the
stock of the issuer of the fixed income instrument to create a synthetic
convertible security otherwise unavailable in the market. The Investment Adviser
may also combine a fixed income instrument of an issuer with an equity feature
with respect to the stock of a different issuer when the Investment Adviser
believes such a Manufactured Convertible would better promote the Fund's
objective than alternative investments. For example, the Investment Adviser may
combine an equity feature with respect to an issuer's stock with a fixed income
security of a different issuer in the same industry to diversify the Fund's
credit exposure, or with a U.S. Treasury instrument to create a Manufactured
Convertible with a higher credit profile than a traditional convertible security
issued by that issuer. A Manufactured Convertible also is a more flexible
investment in that its two components may be purchased separately and, upon
purchasing the separate securities, "combined" to create a Manufactured
Convertible. For example, the Fund may purchase a warrant for eventual inclusion
in a Manufactured Convertible while postponing the purchase of a suitable bond
to pair with the warrant pending development of more favorable market
conditions.
The value of a Manufactured Convertible may respond differently to certain
market fluctuations than would a traditional convertible security with similar
characteristics. For example, in the event the Fund created a Manufactured
Convertible by combining a short-term U.S. Treasury instrument and a call option
on a stock, the Manufactured Convertible would likely outperform a traditional
convertible of similar maturity and which is convertible into that stock during
periods when Treasury instruments outperform corporate fixed income securities
and underperform during periods when corporate fixed-income securities
outperform Treasury instruments.
Investment in Other Investment Companies. The Fund may invest in other
investment companies whose investment objectives and policies are consistent
with those of the Fund. In accordance with the Investment Company Act of 1940
(the "Investment Company Act"), the Fund may invest up to 10% of its total
assets in securities of other investment companies. In addition, under the
Investment Company Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company. If the Fund acquires shares
in investment companies, shareholders would bear both their proportionate share
of expenses in the Fund (including management and advisory fees) and,
indirectly, the expenses of such investment companies (including management and
advisory fees). Investments by the Fund in wholly owned investment entities
created under the laws of certain countries will not be deemed an investment in
other investment companies.
Other Investment Policies and Practices
Warrants. Buying a warrant does not make the 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.
Temporary Investments. The Fund may, as a temporary defensive measure, and
without limitation, hold assets in cash or cash equivalents and investment
grade, short term securities including money market instruments denominated in
U.S. dollars or foreign currencies. Normally a portion of the Fund's assets
would be held in these securities in anticipation of investment in equities or
to meet redemptions. Short term investments and temporary defensive positions
can be easily sold and have limited risk of loss but may limit the Fund's
ability to meet its investment objective.
Illiquid or Restricted Securities. The 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 the Fund's assets in
illiquid securities may restrict the ability of the Fund to dispose of its
investments 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 the Fund's operations require cash, such as
when the Fund redeems shares or pays dividends, and could result in the Fund
borrowing to meet short term cash requirements or incurring capital losses on
the sale of illiquid investments.
The Fund may invest in securities that are not registered ("restricted
securities") under the Securities Act of 1933, (the "Securities Act").
Restricted securities may be sold in private placement transactions between the
issuers and their purchasers and may be neither listed on an exchange nor traded
in other established markets. In many cases, privately placed securities 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 less liquid and more
difficult to value than publicly traded securities. To the extent that privately
placed securities may be resold in privately negotiated transactions, the prices
realized from the sales, due to illiquidity, could be less than those originally
paid by the Fund or less than their fair market value. 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 the
Fund are required to be registered under the securities laws of one or more
jurisdictions before being resold, the Fund may be required to bear the expenses
of registration. Certain of the 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
Fund may obtain access to material nonpublic information which may restrict the
Fund's ability to conduct portfolio transactions in such securities.
144A Securities. The Fund may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The 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 Fund's 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 Fund's investments in these securities. This investment practice
could have the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers become for a time uninterested in
purchasing these securities.
When Issued Securities, Delayed Delivery Securities and Forward
Commitments. The Fund may purchase or sell securities that it is entitled to
receive on a when issued basis. The Fund may also purchase or sell securities on
a delayed delivery basis. The Fund may also purchase or sell securities through
a forward commitment. These transactions involve the purchase or sale of
securities by the Fund at an established price with payment and delivery taking
place in the future. The 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 Fund has not established any limit on the percentage of its assets that
may be committed in connection with these transactions. When the Fund purchases
securities in these transactions, the Fund segregates 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 that 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 the Fund's purchase price. The 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.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest
in securities pursuant to repurchase agreements or purchase and sale contracts.
Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions which (i) have, in the opinion of the Investment
Adviser, substantial capital relative to the Fund's exposure, or (ii) have
provided the Fund with a third-party guaranty or other credit enhancement. Under
a repurchase agreement or a purchase and sale contract, the seller agrees, upon
entering into the contract with the Fund, to repurchase the security at a
mutually agreed-upon time and price in a specified currency, thereby determining
the yield during the term of the agreement. This results in a fixed rate of
return insulated from market fluctuations during such period although it may be
affected by currency fluctuations. In the case of repurchase agreements, the
price at which the trades are conducted do not reflect accrued interest on the
underlying obligation; whereas, in the case of purchase and sale contracts, the
prices take into account accrued interest. Such agreements usually cover short
periods, such as under one week. Repurchase agreements may be construed to be
collateralized loans by the purchaser to the seller secured by the securities
transferred to the purchaser. In the case of a repurchase agreement, as a
purchaser, the Fund will require the seller to provide additional collateral if
the market value of the securities falls below the repurchase price at any time
during the term of the repurchase agreement; the Fund does not have the right to
seek additional collateral in the case of purchase and sale contracts. In the
event of default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the 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. A purchase and sale
contract differs from a repurchase agreement in that the contract arrangements
stipulate that the securities are owned by the Fund. In the event of a default
under such a repurchase agreement or under a purchase and sale contract, instead
of the contractual fixed rate, the rate of return to the Fund shall be dependent
upon intervening fluctuations of the market value of such securities and the
accrued interest on the securities. In such event, the Fund would have rights
against the seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to perform. While
the substance of purchase and sale contracts is similar to repurchase
agreements, because of the different treatment with respect to accrued interest
and additional collateral, the Investment Adviser believes that purchase and
sale contracts are not repurchase agreements as such term is understood in the
banking and brokerage community. The Fund may not invest more than 15% of its
net assets in repurchase agreements or purchase and sale contracts maturing in
more than seven days together with all other illiquid investments.
Securities Lending. The 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.
This limitation is a fundamental policy and it may not be changed without the
approval of the holders of a majority of the Fund's outstanding voting
securities, as defined in the Investment Company Act. The Fund receives
securities as collateral for the loaned securities and the Fund and the borrower
negotiate a rate for the loan premium to be received by the Fund for the loaned
securities, which increases the Fund's yield. The 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. The
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, the 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.
Standby Commitment Agreements. The Fund may enter into standby commitment
agreements. These agreements commit the Fund, for a stated period of time, to
purchase a stated amount of securities which may be issued and sold to the 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 the Fund is paid a
commitment fee, regardless of whether or not the security is ultimately issued.
The 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 the Fund. The 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. The Fund segregates liquid assets
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, the 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 the 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.
Suitability. The economic benefit of an investment in the Fund depends upon
many factors beyond the control of the Fund, the Investment Adviser and its
affiliates. Because of its emphasis on stocks of Internet and Internet related
companies and foreign securities, the 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 the Fund will depend upon,
among other things, such investor's investment objectives and such investor's
ability to accept the risks associated with investing in foreign securities,
including the risk of loss of principal.
Investment Restrictions
The Fund has adopted a number of fundamental and non-fundamental investment
policies and restrictions. The fundamental policies and restrictions set forth
below may not be changed without the approval of the holders of a majority of
the Fund's outstanding voting securities (which for this purpose and under the
Investment Company Act of 1940, as amended (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
the Fund below are in terms of current market value. The Fund may not:
(1) Invest more than 25% of its total assets, taken at market value at the
time of each investment, in the securities of issuers in any particular
industry (excluding the U.S. Government and its agencies and
instrumentalities).
(2) Make investments for the purpose of exercising control or management.
Investments by the Fund in wholly-owned investment entities created
under the laws of certain countries will not be deemed to be the making
of investments for the purpose of exercising control or management.
(3) Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities directly or
indirectly secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein.
(4) Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in
government obligations, commercial paper, pass-through instruments,
certificates of deposit, bankers acceptances, repurchase agreements,
purchase and sale contracts or any similar instruments shall not be
deemed to be the making of a loan, and except further that the Fund may
lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law and the
guidelines set forth in the Fund's Prospectus and this Statement of
Additional Information, as they may be amended from time to time.
(5) Issue senior securities to the extent such issuance would violate
applicable law.
(6) Borrow money, except that the Fund (i) 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) may borrow up to an
additional 5% of its total assets for temporary purposes, (iii) may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities and (iv) may purchase
securities on margin to the extent permitted by applicable law. The
Fund may not pledge its assets other than to secure such borrowings or,
to the extent permitted by the Fund's investment policies as set forth
in its Prospectus and this 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.
(7) Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act in
selling portfolio securities.
(8) Purchase or sell commodities or contracts on commodities, except to the
extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and this 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.
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 the Portfolio without the approval of the holders of a
majority of the interests of the Portfolio.
In addition, the Fund has adopted non-fundamental restrictions that may be
changed by the Board of Directors without shareholder approval. Under the
non-fundamental investment restrictions, which may be changed by the Board of
Directors without shareholder approval, the Fund may not:
a. Purchase securities of other investment companies except to the extent
permitted by applicable law. Applicable law currently allows the Fund to
purchase the securities of other investment companies if immediately thereafter,
not more than (i) 3% of the total outstanding voting stock of such company is
owned by the Fund; (ii) 5% of the Fund's total assets, taken at market value,
would be invested in any one such company; (iii) 10% of the Fund's total assets,
taken at market value, would be invested in such securities; and (iv) the Fund,
together with other investment companies having the same investment adviser and
companies controlled by such companies, owns not more than 10% of the total
outstanding stock of any one closed-end investment company. Investments by the
Fund in wholly-owned investment entities created under the laws of certain
countries will not be deemed an investment in other investment companies. As a
matter of policy, however, the 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 its shares are owned by another investment company that
is part of the same group of investment companies as the Fund.
b. Make short sales of securities or maintain a short position, except to
the extent permitted by applicable law.
c. Invest in securities which cannot be readily resold because of legal or
contractual restrictions or which cannot otherwise be marketed, redeemed or put
to the issuer of 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 which mature within seven days or securities which the Board
of Directors of the Fund has otherwise determined to be liquid pursuant to
applicable law. Securities purchased in accordance with Rule 144A under the
Securities Act and determined to be liquid by the Board of Directors are not
subject to the limitations set forth in this investment restriction.
d. Notwithstanding fundamental investment restriction (6) 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 redemptions
in amounts not exceeding 33 1/3% (taken at market value) of its total assets and
pledge its assets to secure such borrowings, (b) may obtain such short-term
credit as may be necessary for the clearance of 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 Fund
from purchasing securities on margin. The deposit or payment by the 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 borrowings are outstanding will have
the effect of leveraging the Fund. Such leveraging or borrowing increases the
Fund's exposure to capital risk and borrowed funds are subject to interest costs
which will reduce net income. The Fund will not purchase securities while
borrowings exceed 5% of its total assets.
The staff of the Commission has taken the position that purchased
over-the-counter ("OTC") options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Fund has adopted an investment
policy pursuant to which it will not purchase or sell OTC options if, as a
result of any such transaction, the sum of the market value of OTC options
currently outstanding that are held by the Fund, the market value of the
underlying securities covered by OTC call options currently outstanding that
were sold by the Fund and margin deposits on the Fund's existing OTC options on
financial futures contracts exceeds 15% of the net assets of the Fund, taken at
market value, together with all other assets of the Fund that are illiquid or
are not otherwise readily marketable. However, if the OTC option is sold by the
Fund to a primary U.S. Government securities dealer recognized by the Federal
Reserve Bank of New York and if the Fund has the unconditional contractual right
to repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities as is equal
to the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying securities minus the option's
strike price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium received for
the option, plus the amount by which the option is "in-the-money." This policy
as to OTC options is not a fundamental policy of the Fund and may be amended by
the Board of Directors of the Fund without the approval of the Fund's
shareholders. However, the Fund will not change or modify this policy prior to
the change or modification by the Commission staff of its position.
In addition, as a non-fundamental policy which may be changed by the Board
of Directors and to the extent required by the Commission or its staff, the 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.
As another non-fundamental policy, the Fund will not invest in securities
that are (a) subject to material legal restrictions on repatriation of assets or
(b) cannot be readily resold because of legal or contractual restrictions or
which are not otherwise readily marketable, including repurchase agreements and
purchase and sale contracts maturing in more than seven days, if, regarding all
such securities, more than 15% of its net assets, taken at market value would be
invested in such securities.
Because of the affiliation of Merrill Lynch with the Investment Adviser,
the Fund is 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
Fund would be prohibited from engaging in portfolio transactions with Merrill
Lynch or any of its affiliates acting as principal.
Non-Diversified Status
The Fund is classified as non-diversified within the meaning of the
Investment Company Act, which means that the Fund is not limited by such Act in
the proportion of assets that it may invest in securities of a single issuer.
The Fund's investments will be limited, however, in order to qualify for the
special tax treatment afforded regulated investment companies under the Code.
See "Dividends and Taxes -- Taxes." To qualify, the Fund will comply with
certain requirements, including limiting its investments so that at the close of
each quarter of the taxable year (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a single issuer
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer, and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer. Foreign government securities
(unlike U.S. Government securities) are not exempt from the diversification
requirements of the Code and the securities of each foreign government issuer
are considered to be obligations of a single issuer. A fund which elects to be
classified as "diversified" under the Investment Company Act must satisfy the
foregoing 5% and 10% requirements with respect to 75% of its total assets. To
the extent that the Fund assumes large positions in the securities of a small
number of issuers, the Fund's net asset value may fluctuate to a greater extent
than that of a diversified investment company as a result of changes in the
financial condition or in the market's assessment of the issuers, and the Fund
may be more susceptible to any single economic, political or regulatory
occurrence than a diversified investment company.
Portfolio Turnover
Generally, the Fund does not purchase securities for short-term trading
profits. However, the 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, the Fund may engage in a substantial number of portfolio transactions.
Accordingly, while the 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 the 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
directly by the Fund. See "Dividends and Taxes."
MANAGEMENT OF THE FUND
Directors and Officers
The Directors of the Fund consist of individuals, of whom
are not "interested persons" of the Fund 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 Fund, their
ages and their principal occupations for at least the last five years are set
forth below. Unless otherwise noted, the address of each executive officer and
Director is P.O. Box 9011, Princeton, New Jersey 08543-9011.
[To Be Completed By Amendment.]
- ------------
(1) Interested person, as defined in the Investment Company Act, of the
Trust and the Fund.
(2) 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.
(3) Member of the Fund's Audit and Nominating Committee, which is
responsible for the selection of the independent auditors and the
selection and nomination of non-interested Directors.
As of ______ __, 2000, the officers and Directors of the Fund as a group (
persons) owned an aggregate of less than 1% of the outstanding shares of common
stock of Merrill Lynch & Co., Inc. ("ML & Co.") and owned an aggregate of less
than 1% of the outstanding shares of the Fund.
Compensation of Directors/Trustees
The Fund and the Trust pay each non-interested Director/Trustee, for
service to the Fund and the Trust, a fee of $ per year plus $ per in-person
meeting attended, together with such individual's actual out-of-pocket expenses
relating to attendance at meetings. The Fund and the Trust also compensate
members of the Audit and Nominating Committee, which consists of all of the
non-affiliated Directors/Trustees, at the rate of $ annually for service to the
Fund 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 ________, 2000
and the aggregate compensation paid to them from all investment companies
advised by the Investment Adviser or its affiliate MLAM ("MLAM/FAM-advised
funds") to the non-affiliated Directors/Trustees for the calendar year ended
December 31, 1999.
<TABLE>
<CAPTION>
Aggregate
Pension or Compensation from
Retirement Fund/Trust
Benefits Accrued Estimted Annual and Other
Position with Compensation from as Part of Fund/ Benefits upon MLAM/FAM-Advised
Name Fund/Trust Fund/Trust Trust Expense Retirement Funds(1)
- ---- ---------- ---------- ------------- ---------- ---------
<S> <C> <C>
$ $
$ $
$ $
$ $
$ $
</TABLE>
- -----------
(1) In addition to the Fund and the Trust, the Directors/Trustees serve on
other boards of MLAM/FAM advised-funds as follows:
The Directors of the Fund 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. The Fund invests all of its assets in
shares of the corresponding Portfolio of the Trust. Accordingly, the Fund does
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 the 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 the Portfolio monthly
compensation at the annual rate of 1.00% of the average daily net assets of the
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 Fund. The following entities may be considered "controlling
persons" of MLAM U.K.: Merrill Lynch Europe PLC (MLAM U.K.'s parent), 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 the 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 the Portfolio. The Distributor will pay certain of the expenses of
the Fund incurred in connection with the continuous offering of its shares.
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 Fund Expenses. The Fund pays, or causes an affiliate to pay, all
other expenses incurred in the operation of the 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 Fund. The Distributor will pay
certain of the expenses of the Fund incurred in connection with the continuous
offering of its shares. Accounting services are provided to the Fund by the
Investment Adviser, and the Fund 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 their effective
dates. 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 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 Portfolio without penalty on 60 days' written notice at the
option of either party thereto or by the vote of the shareholders of the
Portfolio.
Transfer Agency Services. Financial Data Services, Inc. (the "Transfer
Agent"), a subsidiary of ML & Co., acts as the Fund's Transfer Agent with
respect to the Fund pursuant to a Transfer Agency, Dividend Disbursing Agency
and Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening and maintenance
of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer
Agent receives a fee of $11.00 per Class A 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 Agreement. 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 Agreement, 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 Fund has entered into separate distribution
agreements with the Distributor in connection with the continuous offering of
each class of shares of the Fund (the "Distribution Agreements"). The
Distribution Agreements obligate the Distributor to pay certain expenses in
connection with the offering of each class of shares of the Fund. After the
prospectuses, statements of additional information and periodic reports have
been prepared, set in type and mailed to 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 Fund
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 Fund within
periods of trading by the Fund in the same (or equivalent) security (15 or 30
days depending upon the transaction).
PURCHASE OF SHARES
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.
The Fund offers four classes of shares under the Merrill Lynch Select
PricingSM System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives and shares of Class B and Class C
are sold to investors choosing the deferred sales charge alternatives. Each
Class A, Class B, Class C and Class D share of the Fund represents an identical
interest in the investment portfolio of the Fund, and has the same rights,
except that Class B, Class C and Class D shares bear the expenses of the ongoing
account maintenance fees (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 Fund,
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 the 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 relating to a
particular class are borne exclusively by that class. Class B, Class C and Class
D shares each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which 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 the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
The Merrill Lynch Select PricingSM 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 PricingSM System are referred to
herein as "Select Pricing Funds."
The Fund or the Distributor may suspend the continuous offering of the
Fund's shares of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Any order may be rejected by the 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 BlueprintSM Program, are entitled to
purchase additional Class A shares of the 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 provided and
U.S. branches of foreign banking institutions that the program 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 TMASM 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 Fund, 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 the Fund also may purchase
Class A shares of the Fund if certain conditions are met. In addition, Class A
shares of the 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 the Fund, refers to a single purchase by an individual or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his 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 the Fund or shares of other
registered investment companies at a discount; provided, however, that it shall
not include purchases by any group of individuals whose sole organizational
nexus is that the participants therein are credit cardholders of a company,
policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. Since securities dealers selling Class A and Class
D shares of the Fund will receive a concession equal to most of the sales
charge, they may be deemed to be underwriters under the Securities Act.
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 the Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the shares then
being purchased plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of the purchaser's combined holdings of all classes
of shares of the Fund and of any other 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 the 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 the 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 the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the Fund.
Merrill Lynch BlueprintSM Program. Class D shares of the Fund are offered
to participants in the Merrill Lynch BlueprintSM Program ("Blueprint"). In
addition, participants in Blueprint who own Class A shares of the 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 the 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 the
Fund may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day such
orders are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMASM Managed Trusts. Class A shares are offered at net asset value to
TMASM Managed Trusts to which Merrill Lynch Trust Company provides discretionary
trustee services.
Employee AccessSM Accounts. Provided applicable threshold requirements are
met, either Class A or Class D shares are offered at net asset value to Employee
AccessSM 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 Fund 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 the Fund
at net asset value.
Class D shares of the 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 the 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 the Fund and
the proceeds from the redemption had been maintained in the interim in cash or a
money market fund.
Class D shares of the Fund are also offered at net asset value, without 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 the 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 the 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 the 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 the 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 PricingSM 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 the 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 the 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
the 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 the Fund, except that shareholders already owning Class A shares of the 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 the 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 the 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.
Contingent Deferred Sales Charges -- Class B Shares
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:
CDSC as a Percentage
of Dollar amount
Year Since Purchase Payment Made 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 AccessSM 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 BlueprintSM Program. Class B shares are offered to certain
participants in Blueprint. Blueprint is directed to small investors, group IRAs
and participants in certain affinity groups such as trade associations and
credit unions. Class B shares of the Fund are offered through Blueprint only to
members of certain affinity groups. The CDSC is waived in connection with
purchase orders placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint, however, may differ
from those available to other investors in Class B shares. Orders for purchases
and redemptions of Class B shares of the 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 BlueprintSM 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 the Fund will be converted
automatically into Class D shares of the Fund. Class D shares are subject to an
ongoing account maintenance fee of 0.25% of the average daily net assets of the
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 the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the Fund
held in the account on the Conversion Date will be converted to Class D shares
of the Fund.
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 the Fund exercising the exchange privilege
described under "Shareholder Services - Exchange Privilege" will continue to be
subject to the Fund's CDSC schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares acquired as a result of the exchange.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at lease 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.
Contingent Deferred Sales Charges -- Class C Shares
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 the 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 the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to financial
consultants for selling Class B and Class C shares from the dealer's own funds.
The combination of the CDSC and the ongoing distribution fee facilitates the
ability of the Fund to sell the Class B and Class C shares without a sales
charge being deducted at the time of purchase. 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 Plans for each of the Class B, Class C and Class D shares
provides that the Fund pays the Distributor an account maintenance fee relating
to the shares of the relevant class, accrued daily and paid monthly, at the
annual rate of 0.25% of the average daily net assets of the Fund attributable to
shares of the relevant class in order to compensate the Distributor and Merrill
Lynch (pursuant to a sub-agreement) in connection with account maintenance
activities 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 the Fund
also pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing shareholder and distribution
services and bearing certain distribution-related expenses of the Fund,
including payments to financial consultants for selling Class B and Class C
shares of the Fund. The Distribution Plans relating to Class B and Class C
shares are designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at the
same time permit the dealer to compensate its financial consultants in
connection with the sale of the Class B and Class C shares. In this regard, the
purpose and function of the ongoing distribution fees and the CDSC are the same
as those of the initial sales charge with respect to the Class A and Class D
shares of the Fund in that the ongoing distribution fees and deferred sales
charges provide for the financing of the distribution of the Fund's Class B and
Class C shares.
The Fund's 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 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 the Fund and its
related class of shareholders. Each Distribution Plan can be terminated at any
time, without penalty, by the vote of a majority of the non-interested Directors
or by the vote of the holders of a majority of the outstanding related class of
voting securities of the Fund. A Distribution Plan cannot be amended to increase
materially the amount to be spent by the Fund without the approval of the
related class of shareholders, and all material amendments are required to be
approved by the vote of 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 the 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 the Fund, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the Fund to (1)
6.25% of eligible gross sales of Class B shares and Class C shares, computed
separately (defined to exclude shares issued pursuant to dividend reinvestments
and exchanges), plus (2) interest on the unpaid balance for the respective
class, computed separately, at the prime rate plus 1% (the unpaid balance being
the maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares, the
Distributor has voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently, the maximum
amount payable to the Distributor (referred to as the "voluntary maximum") in
connection with the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee with respect to Class B shares and
any CDSCs will be paid to the Fund rather than to the Distributor; however, the
Fund will continue to make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary maximum may exceed
the amount payable under the NASD formula. In such circumstance payment in
excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
Reference is made to "How to Buy, Sell, Transfer and Exchange Shares" in
the Prospectus.
The Fund is required to redeem for cash all shares of the Fund upon receipt
of a written request in proper form. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of
redemption. Except for any 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 New York Stock Exchange (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 the 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 the 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 Fund's 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 Fund or the Trust. 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 the Fund may be requested to redeem shares for which it
has not yet received good payment (e.g., cash, Federal funds or certified check
drawn on a U.S. bank). The 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 the
Fund shares, which will not usually exceed 10 days.
Repurchase
The Fund also will repurchase its shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase shares by
wire or telephone from dealers for their customers at the net asset value next
computed after 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 the 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 the 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. The
Fund reserves the right to reject any order for repurchase, which right of
rejection might adversely affect shareholders seeking redemption through the
repurchase procedure. A shareholder whose order for repurchase is rejected by
the Fund, however, may redeem Fund shares as set forth above.
Reinstatement Privilege -- Class A and Class D Shares
Shareholders of the Fund who have redeemed their Class A and Class D shares
of the Fund have a privilege to reinstate their accounts by purchasing Class A
or Class D shares, as the case may be, of the Fund at net asset value without a
sales charge up to the dollar amount redeemed. The reinstatement privilege may
be exercised by sending a notice of exercise along with a check for the amount
to be reinstated to the Transfer Agent within 30 days after the date the request
for redemption was accepted by the Transfer Agent or the Distributor.
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.
PRICING OF SHARES
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 the Fund is determined
once daily Monday through Friday after the close of business on the NYSE on each
day the NYSE is open for trading. The NYSE generally closes at 4:00 p.m.,
Eastern time. The Fund also will determine its net asset value on any day in
which there is sufficient trading in the Portfolio's portfolio securities that
the net asset value might be affected materially, but only if on any such day
the 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
the Portfolio on behalf of the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares 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 the Fund generally will be lower than
the per share net asset value of Class D shares of the 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 the Fund. It is
expected, however, that the per share net asset value of the four classes of the
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 that are held by the Trust and that are traded on
stock exchanges are valued at the last sale price 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 or yield
equivalent obtained from one or more dealers or pricing services approved by
the Board of Trustees of the Trust. Short positions in securities traded in the
OTC market are valued at the last available ask. 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. When the Portfolio writes an
option, the amount of the premium received is recorded on the books of the
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 upon 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 the 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. The value of swaps, including interest rate swaps,
caps and floors, will be determined by obtaining dealer quotations. Other
investments, including financial futures contracts and related options, are
stated at market value. Obligations with remaining maturities of 60 days or
less are valued at amortized cost unless the Investment Adviser believes that
this method no longer produces fair valuations. Repurchase agreements will be
valued at cost plus accrued interest. 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 the 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 the 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 the 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. 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 the Fund based on the projected value of the
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:
<TABLE>
<CAPTION>
Class A Class B Class C Class D
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Assets.................................. $ $ $ $
============== =============== =============== ===========
Number of Shares Outstanding................ ============== =============== =============== ===========
Net Asset Value Per Share (net assets divided
by number of shares outstanding............ $ $ $ $
Sales Charge (for Class A and Class D Shares:
5.25% of Offering Price (5.54% of net amount
invested))* ** **
-------------- --------------- --------------- -----------
Offering Price.............................. $ $ $ $
============== =============== =============== ===========
</TABLE>
- ------------------
* 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 the Fund will invest exclusively in shares of the 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 the 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 the 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 the Fund
are redeemable on a daily basis in U.S. dollars, the Trust intends to manage the
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.
The 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 Fund brokerage commissions and other
expenses of possible portfolio transactions by conducting portfolio transactions
through affiliated entities. For example, brokerage commissions received by
affiliated brokers could be offset against the advisory fee paid by the 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.
SHAREHOLDER SERVICES
The 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
BlueprintSM 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 the 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 the 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 the 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 the 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 the Fund exercising the exchange privilege will continue to be subject to the
Fund's CDSC schedule if such schedule is higher than the CDSC schedule relating
to the new Class B shares acquired through use of the exchange privilege. In
addition, Class B shares of the Fund acquired through use of the exchange
privilege will be subject to the Fund's CDSC schedule if such schedule is higher
than the CDSC schedule relating to the Class B shares of the fund from which the
exchange 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 the
Fund for those of Merrill Lynch Special Value Fund, Inc. ("Special Value Fund")
after having held the 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 the
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 Fund 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 the 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 the 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 the 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. The Fund reserves the right to require a
properly completed Exchange Application. This exchange privilege may be modified
or terminated in accordance with the rules of the Commission. The Fund reserves
the right to limit the number of times an investor may exercise the exchange
privilege. Certain funds may suspend the continuous offering of their shares to
the general public at any time and may thereafter resume such offering from time
to time. The exchange privilege is available only to U.S. shareholders in states
where the exchange legally may be made. 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 the Fund and certain of the other mutual funds sponsored by Merrill
Lynch as well as in other securities. Merrill Lynch may charge an initial
establishment fee and an annual fee for each account. 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
Fund's Automatic Investment Plan. The 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(R) or CBA(R) account may arrange
to have periodic investments made in the Fund in amounts of $100 ($1 for
retirement accounts) or more through the CMA(R) or CBA(R) Automated Investment
Program.
Automatic Dividend Reinvestment Plan
Dividends paid by the Funds may be taken in cash or automatically
reinvested in shares of a fund at net asset value without a sales change. You
should consult with your financial consultant about which option you would like.
If you choose the reinvestment option, dividends paid with respect to the Fund's
shares will be automatically reinvested, without sales charge, in additional
full and fractional shares of the 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 the Fund in cash, rather
than reinvested in shares of the 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 Fund is 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 the Fund having a value, based on cost or the current offering price,
of $5,000 or more, and monthly withdrawals are available for shareholders with
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 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, the 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.
The Fund will not knowingly accept purchase orders for shares of the Fund from
investors who maintain a systematic withdrawal plan unless such purchase is
equal to at least one year's scheduled withdrawals or $1,200, whichever is
greater. Periodic investments may not be made into an Investment Account in
which the shareholder has elected to make systematic withdrawals.
Alternatively, a shareholder whose shares are held within a CMA(R) or
CBA(R) Account may elect to have shares redeemed on a monthly, bimonthly,
quarterly, semiannual or annual basis through the CMA(R) or CBA(R) 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(R) or CBA(R) Systematic Redemption Program is not available if Fund shares
are being purchased within the account pursuant to the Automated Investment
Program. For more information on the CMA(R) or CBA(R) Systematic Redemption
Program, eligible shareholders should contact their Merrill Lynch Financial
Consultant.
DIVIDENDS AND TAXES
Dividends
The 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 the
Fund's shareholders at least annually. From time to time, the Fund may declare a
special distribution at or about the end of the calendar year in order to comply
with Federal tax requirements that certain percentages of its ordinary income
and capital gains be distributed during the year. If in any fiscal year, the
Fund has 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 the 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 the 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
The 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 the 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"). The Fund intends to distribute substantially all of such
income.
Dividends paid by the 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 the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset). Certain categories of
capital gains are taxable at different rates. Generally not later than 60 days
after the close of its taxable year, the 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 the Fund. A portion of the Fund's ordinary income dividends
may be eligible for the dividends received deduction allowed to corporations
under the Code, if certain requirements are met. For this purpose, the Fund will
allocate dividends eligible for the dividends received 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
the 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 the 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 the 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 the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Shareholders may be able to claim United States foreign tax credits with
respect to such taxes, subject to certain conditions and limitations contained
in the Code. For example, certain retirement accounts cannot claim foreign tax
credits on investments in foreign securities held in the Fund. In addition,
recent legislation permits a foreign tax credit to be claimed with respect to
withholding tax on a dividend paid by the Fund only if the shareholder meets
certain holding period requirements. The Fund also must meet these holding
period requirements, and if the Fund fails to do so, it will not be able to
"pass through" to shareholders the ability to claim a credit or a deduction for
the related foreign taxes paid by the Fund. If the Fund satisfies the holding
period requirements and more than 50% in value of its total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible, and intends, to file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to include
their proportionate shares of such withholding taxes in their United States
income tax returns as gross income, treat such proportionate shares as taxes
paid by them, and deduct such proportionate shares in computing their taxable
incomes or, alternatively, use them as foreign tax credits against their United
States income taxes. No deductions for foreign taxes, moreover, may be claimed
by noncorporate shareholders who do not itemize deductions. A shareholder that
is a nonresident alien individual or a foreign corporation may be subject to
United States withholding tax on the income resulting from the Fund's election
described in this paragraph but may not be able to claim a credit or deduction
against such United States tax for the foreign taxes treated as having been
paid by such shareholder. The Fund will report annually to its shareholders the
amount per share of such withholding taxes and other information needed to
claim the foreign tax credit. For this purpose, the Fund will allocate foreign
taxes and foreign source income among the Class A, Class B, Class C and Class D
shareholders according to a method similar to that described above for the
allocation of dividends eligible for the dividends received deduction.
The Fund may invest up to 10% of its total assets in securities of other
investment companies. If the Fund purchases shares of an investment company (or
similar investment entity) organized under foreign law, the Fund will be treated
as owning shares in a passive foreign investment company ("PFIC") for U.S.
Federal income tax purposes. The Fund may be subject to U.S. Federal income tax,
and an additional tax in the nature of interest (the "interest charge"), on a
portion of the distributions from such a company and on gain from the
disposition of the shares of such a company (collectively referred to as "excess
distributions"), even if such excess distributions are paid by the Fund as a
dividend to its shareholders. The Fund may be eligible to make an election with
respect to certain PFICs in which it owns shares that will allow it to avoid the
taxes on excess distributions. However, such election may cause the Fund to
recognize income in a particular year in excess of the distributions received
from such PFICs.
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 the 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 the 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 the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirements.
Tax Treatment of Options, Futures and Forward Foreign Exchange Contracts
The Fund may write, purchase or sell options and futures and forward foreign
exchange contracts. Options and futures contracts that are "Section 1256
Contracts" will be "marked to market" for Federal income tax purposes at the end
of each taxable year (i.e., each such option or futures contract will be treated
as sold for its fair market value on the last day of the taxable year). Unless
such contract is a forward foreign exchange contract, or is a non-equity option
or a regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code section
988 (as described below), gain or loss from Section 1256 contracts will be 60%
long term and 40% short term capital gain or loss. Application of these rules to
Section 1256 contracts held by the 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 the Fund solely to reduce
the risk of changes in price or interest or currency exchange rates with respect
to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be
marked to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988. The Fund
may, nonetheless, elect to treat the gain or loss from certain forward foreign
exchange contracts as capital. In this case, gain or loss realized in connection
with a forward foreign exchange contract that is a Section 1256 contract will be
characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options and
futures. Under Section 1092, the 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 the Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options or futures will be
valued for purposes of the RIC diversification requirements applicable to the
Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments, from
certain forward contracts, from futures contracts that are not "regulated
futures contracts" and from unlisted options will be treated as ordinary income
or loss under Code Section 988. In certain circumstances, the Fund may elect
capital gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income of the 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 the Fund solely to reduce the
risk of currency fluctuations with respect to its investments.
Prior to commencement of operations, the Fund shall have received a private
letter ruling from the IRS or an opinion of counsel, to the effect that, because
the Portfolio is classified as a partnership for tax purposes, the 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 or an option of counsel indicating that the Portfolio will
continue to be classified as a partnership, then the Board of Directors of the
Fund will determine, in its discretion, the appropriate course of action for the
Fund. One possible course of action would be to withdraw the Fund's investment
from the 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
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return is based on the 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.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum applicable
sales charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally will be
higher than average annual total return data since the aggregate rates of return
reflect compounding over a longer period of time. 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." The 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 the
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, the Fund may compare its performance to various indices
including various Internet and broader technology indices, or to performance
data published by Lipper Analytical Services, Inc., Morningstar Publications,
Inc. ("Morningstar"), CDA Investment Technology, Inc., Money Magazine, U.S. New
& World Report, Business Week, Forbes Magazine, Fortune Magazine or other
industry publications. When comparing its performance to a market index, the
Fund may refer to various statistical measures derived from the historic
performance of the Fund and the index, such as standard deviation and beta. In
addition, from time to time, the Fund may include the Fund's Morningstar
risk-adjusted performance ratings in advertisements or supplemental sales
literature. As with other performance data, performance comparisons should not
be considered indicative of the Fund's relative performance for any future
period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
the Fund's operating expenses and the amount of realized and unrealized net
capital gains or losses during the period. The value of an investment in the
Fund will fluctuate and an investor's shares, when redeemed, by be worth more or
less than their original cost.
GENERAL INFORMATION
Description of Shares
The Fund is a "feeder" fund that invests in a corresponding Portfolio.
Investors in the Fund will acquire an indirect interest in the corresponding
Portfolio. The 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 Fund 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 Fund is a Maryland corporation incorporated on January 7, 2000. It has
an authorized capital of 400,000,000 shares of Common Stock, par value $.10 per
share. The Fund is divided into four classes. Class A, Class B, Class C and
Class D each consist of 100,000,000 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 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 Fund, in which event the holders of the remaining
shares would be unable to elect any person as a Director.
Whenever the 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 the Fund over the
operations of its Portfolio. The 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 Fund 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 the Fund shall continue to hold office and appoint successor
Directors. Each issued and outstanding share of the Fund is entitled to
participate equally with other shares of the Fund 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 Fund.
The Trust consists of one Portfolio and is organized as a Delaware Business
Trust. Whenever the Fund is requested to vote on any matter relating to its
Portfolio, the Fund will hold a meeting of the Fund's shareholders and will cast
its vote as instructed by the Fund's shareholders.
The Investment Adviser provided the initial capital for the Fund by
purchasing ______ shares of common stock of the Fund for $_________. 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 Fund. The Investment Adviser
may be deemed to control the Fund until such time as it owns less than 25% of
the outstanding shares of the Investment Adviser.
Independent Auditors
___________________________, has been selected as the independent auditors
of the Fund and the Trust. The independent auditors are responsible for auditing
the annual financial statements of the Fund.
Custodian
___________________________ (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 Fund's 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
Fund's 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 Fund.
Reports to Shareholders
The Fund sends to its shareholders at least semi-annually reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent auditors, is sent to shareholders
each year. After the end of each year, shareholders will receive Federal income
tax information regarding dividends and capital gains distributions.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Fund 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 Fund has filed with the Commission, Washington,
D.C., under the Securities Act and the Investment Company Act, to which
reference is hereby made.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder,
Merrill Lynch Internet Strategies Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Merrill Lynch Internet Strategies Fund, Inc. as of , 2000. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities presents fairly, in
all material respects, the financial position of Merrill Lynch Internet
Strategies Fund, Inc. as of , 2000, in conformity with generally accepted
accounting principles.
, 2000
<PAGE>
MERRILL LYNCH INTERNET STRATEGIES FUND, INC.
Statement of Assets and Liabilities
, 2000
<TABLE>
<CAPTION>
Assets:
<S> <C>
Cash in Bank......................................................................................... $100,000
Prepaid registration fees and offering costs (Note 3)................................................ ________
Total Assets.........................................................................................
Liabilities-- accrued expenses....................................................................... ________
Net Assets (equivalent to $0.10 per share on 2,500 Class A shares of Common Stock (par value
$0.10), 2,500 Class B shares of Common Stock (par value $0.10), 2,500 Class C shares of
Common Stock (par value $0.10) and 2,500 Class D shares of Common Stock (par value $0.10)
outstanding with 400,000,000 shares authorized) (Note 1).......................................... $100,000
========
</TABLE>
- ---------------
(1) Merrill Lynch Internet Strategies Fund, Inc.(the "Fund") was organized as a
Maryland corporation on January 7, 2000. The Fund is registered under the
Investment Company Act of 1940 as an open-end management investment
company. To date, the Fund has not had any transactions other than those
relating to organizational matters and the sale of 2,500 Class A shares,
2,500 Class B shares, 2,500 Class C shares and 2,500 Class D shares of
Common Stock to Fund Asset Management, L.P. (the "Investment Adviser").
(2) The Fund has entered into a Investment Adviser agreement (the "Investment
Advisory Agreement") with the Investment Adviser, and distribution
agreements (the "Distribution Agreements") with Merrill Lynch Funds
Distributor, a division of Princeton Funds Distributor, Inc. (the
"Distributor"). (See "Management of the Fund -- 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) The Investment Adviser, on behalf of the Fund, will incur organization
costs estimated at $ . 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. Prepaid registration fees are charged to income as
the related shares are issued.
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
1(a) -- Articles of Incorporation of the Registrant, dated January 7, 2000.
1(b) -- Articles of Amendment to the Articles of Incorporation of the Registrant, dated January 14, 2000.
2 -- By-Laws of the Registrant.
3(a) -- Portions of the Articles of Incorporation and By-Laws of the Registrant defining the rights of
holders of shares of common stock of the Registrant.(a)
4 -- Not Applicable.
5(a) -- Form of Class A Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor, a division of Princeton Funds Distributor, Inc. (the "Distributor") (including Form
of Selected Dealers Agreement).(c)
(b) -- Form of Class B Distribution Agreement between the Registrant and the Distributor.(c)
(c) -- Form of Class C Distribution Agreement between the Registrant and the Distributor.(c)
(d) -- Form of Class D Distribution Agreement between the Registrant and the Distributor.(c)
6 -- None.
7 -- Custody Agreement between the Registrant and .(c)
8(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between
the Registrant and Financial Data Services, Inc.(c)
(b) -- License Agreement between Merrill Lynch & Co., Inc. and Registrant relating to Registrant's use
of Merrill Lynch name.(c)
(c) -- Credit Agreement between the Registrant and a syndicate of banks.(d)
9 -- Opinion of Brown & Wood LLP, counsel for the Registrant.(c)
10 -- Consent of , independent auditors for the Registrant.(c)
11 -- None.
12 -- Certificate of Fund Asset Management, L.P.(c)
13(a) -- Form of Class B Distribution Plan of the Registrant and Class B Distribution Plan
Sub-Agreement.(c)
(b) -- Form of Class C Distribution Plan of the Registrant and Class C Distribution Plan
Sub-Agreement.(c)
(c) -- Form of Class D Distribution Plan of the Registrant and Class D Distribution Plan
Sub-Agreement.(c)
14 -- Not applicable.
15 -- Merrill Lynch Select PricingSM System Plan pursuant to Rule 18f-3.(b)
</TABLE>
- ---------------
(a) Reference is made to Article II, Article IV, Article V (sections 2, 3, 4,
6, 7 and 8), Article VI, Article VII and Article IX of the Registrant's
Articles of Incorporation, filed as Exhibit (1), to this Registration
Statement, and to Article II, Article III (sections 1, 3, 5, 6 and 17),
Article VI, Article VII, Article XII, Article XIII and Article XIV of the
Registrant's By-Laws filed as Exhibit (2) to the Registration Statement.
(b) Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A of Merrill Lynch New York Municipal
Bond Fund of Merrill Lynch Multi-State Municipal Series Trust filed on
January 25, 1996.
(c) To be filed by amendment.
(d) Incorporated by reference to Exhibit 8(b) to the Registration Statement on
Form N-1A of Master Premier Growth Trust, File No. 811-09733), filed
December 21, 1999.
Item 24. Persons controlled by or under common control with registrant.
The Registrant owns 100% of the beneficial interests in Master Internet
Strategies Trust. Fund Asset Management, L.P. (the "Investment Adviser" or
"FAM") owns 100% of the shares of common stock of the Registrant. Therefore,
the Registrant and the Trust are under the common control of the Investment
Adviser.
Item 25. Indemnification.
Reference is made to Article VI of the Registrant's Articles of
Incorporation, Article VI of the Registrant's By-Laws, Section 2-418 of the
Maryland General Corporation Law and Section 9 of the Class A, Class B, Class C
and Class D Distribution Agreements.
Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940, as amended (the "1940 Act") may be
concerned, Article VI of the Registrant's By-Laws provides that such payments
will be made only on the following conditions: (i) advances may be made only on
receipt of a written affirmation of such person's good faith belief that the
standard of conduct necessary for indemnification has been met and a written
undertaking to repay any such advance if it is ultimately determined that the
standard of conduct has not been met; and (ii) (a) such promise must be secured
by a security for the undertaking in form and amount acceptable to the
Registrant, (b) the Registrant is insured against losses arising by receipt by
the advance, or (c) a majority of a quorum of the Registrant's disinterested
non-party Directors, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that at the time the
advance is proposed to be made, there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
In Section 9 of the Class A, Class B, Class C and Class D Shares
Distribution Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act of 1933, as
amended (the "1933 Act"), against certain types of civil liabilities arising in
connection with the Registration Statement or Prospectus and Statement of
Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Directors, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser.
The Investment Adviser acts as the investment adviser for the following
open-end registered investment companies: CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc., Financial Institutions Series Trust, Master Large Cap Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High
Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
Federal Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., and The Municipal Fund Accumulation
Program, Inc.; and for the following closed-end registered investment
companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt
Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III,
Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000,
Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings California Insured
Fund II, Inc., MuniHoldings California Insured Fund III, Inc., MuniHoldings
California Insured Fund IV, Inc., MuniHoldings California Insured Fund V,
MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III, MuniHoldings Florida Insured Fund IV,
MuniHoldings Florida Insured Fund V, MuniHoldings Insured Fund, Inc.,
MuniHoldings Insured Fund II, Inc., MuniHoldings Insured Fund III, Inc.,
MuniHoldings Insured Fund IV, Inc., MuniHoldings Michigan Insured Fund, Inc.,
MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New Jersey Insured
Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund III, Inc., MuniHoldings New Jersey Insured Fund IV,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund, Inc.,
MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York Insured Fund
III, Inc., MuniHoldings New York Insured Fund IV, Inc., MuniHoldings
Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund,
Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund II, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan
Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York
Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc. and
Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the
Investment Adviser, acts as the investment adviser for the following open-end
registered investment companies: Master Global Financial Services Trust,
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund,
Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Financial Services Fund, Inc., Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund,
Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund,
Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill
Lynch Index Funds, Inc., Merrill Lynch Intermediate Government Bond Fund,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series
Trust, Merrill Lynch Series Fund, Inc., Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch, Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch
Utility Income Fund, Inc., and Merrill Lynch Variable Series Funds, Inc., and
Hotchkis and Wiley funds (advised by Hotchkis and Wiley, a division of MLAM);
and for the following closed-end registered investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc., and Merrill Lynch Senior Floating Rate
Fund, Inc., Merrill Lynch Senior Floating Rate Fund II, Inc., MLAM also acts as
sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios as EQ Advisors Trust.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of FAM, MLAM, Princeton Services, Inc. ("Princeton Services") and
Princeton Administrators, L.P. ("Princeton Administrators") is also P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of Princeton Funds
Distributor, Inc. ("PFD") and of Merrill Lynch Funds Distributor ("MLFD") is
P.O. Box 9081, Princeton, New Jersey 08543-9081. The address of Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill Lynch & Co.,
Inc. ("ML & Co.") is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281-1201. The address of the Fund's transfer agent, Financial
Data Services, Inc. ("FDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged
since January 1, 1998 for his, her or its own account or in the capacity of
director, officer, partner or trustee. In addition Mr. Glenn is President and
Mr. Burke is Vice President and Treasurer of all or substantially all of the
investment companies described in the first two paragraphs of this Item 26, and
Messrs. Giordano and Monagle are officers of one or more of such companies.
<TABLE>
<CAPTION>
Position(s) with Other Substantial Business,
Name the Investment Adviser Profession, Vocation or Employment
<S> <C> <C>
ML & Co............................................ Limited Partner Financial Services Holding Company;
Limited Partner of MLAM
Princeton Services................................. General Partner General Partner of MLAM
Jeffrey M. Peek.................................... President President of MLAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.; Managing Director and Co-Head
of the Investment Banking Division
of Merrill Lynch (in 1997).
Terry K. Glenn..................................... Executive Vice President Executive Vice President of MLAM;
Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
Director of FDS; President of
Princeton Administrators
Gregory A. Gundy................................... Chief Operating Officer Chief Operating Officer and Managing
Managing Director Director of MLAM, Chief Operating Officer
and Managing Director of Princeton Services;
Co-CEO of Merrill Lynch Australia from 1997-1999.
Donald C. Burke.................................... Senior Vice President Senior Vice President, Treasurer and Director of
and Treasurer Taxation of MLAM; Senior Vice
President and Treasurer of Princeton
Services; Vice President of PFD; First
Vice President of MLAM from 1997 to 1999;
Vice President of from 1990 to 1997
Michael G. Clark................................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services; Treasurer and Director of
PFD; First Vice President MLAM from 1997 to
1999; Vice President of MLAM from 1996 to 1997
Robert C. Doll, Jr................................. Senior Vice President Senior Vice President of MLAM; Senior Vice
Vice President of Princeton Services; Chief
Investment Adviser of Openheimber Funds, Inc.
in 1999 and Executive Vice President thereof
from 1991 to 1999.
Linda L. Federici.................................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Vincent R. Giordano................................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Michael J. Hennewinkel............................. Senior Vice President, Senior Vice President, Secretary and
Secretary and General General Counsel of MLAM; Senior Vice
Counsel President of Princeton Services
Philip L. Kirstein................................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President, General
Counsel, Director and Secretary of
Princeton Services
Debra W. Landsman-Yaros............................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services; Vice President of PFDs
Stephen M. M. Miller............................... Senior Vice President Executive Vice President of
Princeton Administrators; Senior
Vice President of Princeton Services
Joseph T. Monagle, Jr.............................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Brian A. Murdock................................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services;
Gregory D. Upah.................................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
</TABLE>
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as
sub-adviser for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate
High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies
Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc.,
Income Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder Program,
Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund,
Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Consults International Portfolio, Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch
Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Series Fund,
Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Senior
Floating Rate Fund II, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds,
Inc., Merrill Lynch World Income Fund, Inc., The Municipal Fund Accumulation
Program, Inc. and Worldwide DollarVest Fund, Inc. The address of each of these
registered investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of MLAM U.K. is 33 King William Street, London EC4R
9AS, England.
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since July 1,
1998, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Glenn and Burke are officers of one or
more of the registered investment companies listed in the first two paragraphs
of this Item 26:
<TABLE>
<CAPTION>
Other Substantial Business,
Name Position(s) with MLAM U.K. Profession, Vocation or Employment
- ---- -------------------------- -------------------------------------
<S> <C> <C>
Terry K. Glenn.................................. Director and Chairman President of MLAM and
FAM; Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
President of Princeton Administrators, L.P.
Nicholas C.D. Hall.............................. President Director of Merrill Lynch Europe
PLC; General Counsel of Merrill
Lynch International Private Banking
Group
Donald C. Burke................................. Treasurer Senior Vice President and Treasurer
of MLAM and FAM; Director of
Taxation of MLAM; Senior Vice
President and Treasurer of Princeton
Services; Vice President of PFD;
First Vice President of MLAM from
1997 to 1999; Vice President of MLAM
from 1990 to 1997
Carl Ann Langham................................ Company Secretary None
Debra Anne Searle............................... Assistant Company Secretary None
</TABLE>
Item 27. Principal Underwriters.
(a) MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies referred
to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc. and The Municipal Fund Accumulation Program, Inc.; MLFD also acts as the
principal underwriter for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
A separate division of PFD acts as the principal underwriter of a number of
other investment companies.
(b) Set forth below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen,
Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
<TABLE>
<CAPTION>
Position(s) and Office(s) Position(s) and Office(s)
Name with PFD with Registrant
- ---- ------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn President and Director President and Director
Michael G. Clark Treasurer and Director None
Thomas J. Verage Director None
Robert W. Crook Senior Vice President None
Michael J. Brady Vice President None
William M. Breen Vice President None
Donald C. Burke Vice President Vice President and Treasurer
James T. Fatseas Vice President None
Debra W. Landsman-Yaros Vice President None
Michelle T. Lau Vice President None
Salvatore Venezia Vice President None
William Wasel Vice President None
Robert Harris Secretary None
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained at the
offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey
08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484).
Item 29. Management Services.
Other than as set forth under the caption "Management of the Fund --
Merrill Lynch Asset Management" in the Prospectus constituting Part A of the
Registration Statement and under "Management of the Fund -- Management and
Advisory Arrangements" in the Statement of Additional Information constituting
Part B of the Registration Statement, the Registrant is not a party to any
management-related service contract.
Item 30. Undertakings.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Township of Plainsboro, and State of New Jersey, on the
14th day of January, 2000.
MERRILL LYNCH INTERNET STRATEGIES
FUND, INC.
(Registrant)
By:/s/ Susan B. Baker
---------------------------------
(Susan B. Baker, President)
Each person whose signature appears below hereby authorizes Susan B. Baker,
Phillip S. Gillespie or William E. Zitelli, or any of them, as attorney-in-fact,
to sign on his or her behalf, individually and in each capacity stated below,
any amendments to the Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the Securities
and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
--------------- ---------- -------
<S> <C> <C>
President and Director January 14, 2000
(Principal Executive Officer)
/s/Susan B. Baker
- -----------------------------------------
(Susan B. Baker)
Treasurer and Director January 14, 2000
(Principal Financial and Accounting Officer)
/s/Phillip S. Gillespie
- -----------------------------------------
(Phillip S. Gillespie)
Director January 14, 2000
- -----------------------------------------
(William E. Zitelli)
</TABLE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
1(a) Articles of Incoproraiton of the Registrant.
(b) Articles of Amendment of the Registrant.
2 By-laws of the Registrant.
Exhibit 1(a)
ARTICLES OF INCORPORATION
OF
MERCURY E-COMMERCE FUND, INC.
THE UNDERSIGNED, Caroline Dooley whose post office address is One World
Trade Center, New York, New York 10048-0557, being at least eighteen years of
age, does hereby act as an incorporator, under and by virtue of the General
Laws of the State of Maryland authorizing the formation of corporations and
with the intention of forming a corporation.
Article I.
----------
NAME
----
The name of the corporation is MERCURY E-COMMERCE FUND, INC. (the
"Corporation").
Article II.
----------
Purposes and Powers
-------------------
The purpose or purposes for which the Corporation is formed, the powers,
rights and privileges that the Corporation shall be authorized to exercise and
enjoy, and the business or objects to be transacted, carried on and promoted
by it are as follows:
(1) To conduct and carry on the business of an investment company of the
management type.
(2) To hold, invest and reinvest its assets in securities, and in
connection therewith, without limiting the foregoing, to hold part or all of
its assets (a) in cash and/or (b) in shares of another corporation known in
the investment company industry as a master fund in a master/feeder structure,
which corporation holds securities and other assets for investment purposes
(the "Master Fund").
(3) To issue and sell shares of its own capital stock in such
amounts and on such terms and conditions, for such purposes and for such
amount or kind of consideration now or hereafter permitted by the General Laws
of the State of Maryland and by these Articles of Incorporation, as its Board
of Directors may determine.
(4) To exchange, classify, reclassify, change the designation of,
convert, rename, redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its issued or unissued capital
stock, in any manner and to the extent now or hereafter permitted by the
General Laws of the State of Maryland and by these Articles of Incorporation.
(5) To transfer all or substantially all the assets of the
Corporation or the assets of any classes or series of the Corporation to the
Master Fund, in exchange for shares in the Master Fund or for such other
consideration as permitted by the General Laws of the State of Maryland and
the Investment Company Act of 1940, as amended (all without the vote or
consent of the stockholders of the Corporation), and all such actions,
regardless of the frequency with which they are pursued, shall be deemed in
furtherance of the ordinary, usual and customary business of the Corporation.
(6) To do any and all such further acts or things and to exercise
any and all such further powers or rights as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment, carrying
out or attainment of all or any of the foregoing purposes or objects.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by
the General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
Article III.
------------
Principal Office and Resident Agent
-----------------------------------
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Corporation Trust Incorporated, 300 East Lombard
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a corporation
of this State, and the post office address of the resident agent is 300 East
Lombard Street, Baltimore, Maryland 21202.
Article IV.
-----------
Capital Stock
-------------
(1) The total number of shares of capital stock which the
Corporation shall have authority to issue is Four Hundred Million
(400,000,000) shares, of the par value of Ten Cents ($.10) per share, and of
the aggregate par value of Forty Million Dollars ($40,000,000). The capital
stock initially is classified into four classes, consisting of One Hundred
Million (100,000,000) shares of Class I Common Stock, One Hundred Million
(100,000,000) shares of Class A Common Stock, One Hundred Million
(100,000,000) shares of Class B Common Stock and One Hundred Million
(100,000,000) shares of Class C Common Stock.
(2) The Board of Directors may classify and reclassify any
unissued shares of capital stock into one or more additional or other classes
or series as may be established from time to time by setting or changing in
any one or more respects the designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock
and pursuant to such classification or reclassification to increase or
decrease the number of authorized shares of any existing class or series.
(3) The Board of Directors may vary among all of the holders of a
particular class or series (a) the length of time shares must be held prior to
conversion into shares of another class or series (the "Holding Period(s)"),
(b) the manner in which the time for such Holding Period(s) is determined and
(c) the class or series into which the particular class or series is being
converted; provided, however, that with respect to holders of the
Corporation's shares issued on or after the date of the Corporation's first
effective prospectus which sets forth Holding Period(s), the Holding
Periods(s), the manner in which the time for such Holding Period(s) is
determined and the class or series into which the particular class or series
is being converted shall be disclosed in the Corporation's prospectus or
statement of additional information in effect at the time such shares, which
are the subject of the conversion, were issued.
(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class or series of capital stock shall
be entitled to dividends and distributions in such amounts and at such times
as may be determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series of capital
stock may vary among such classes and series. Dividends on a class or series
may be declared or paid only out of the net assets of that class or series.
Expenses related to the distribution of, and other identified expenses that
should properly be allocated to, the shares of a particular class or series of
capital stock may be charged to and borne solely by such class or series and
the bearing of expenses solely by a class or series of capital stock may be
appropriately reflected (in a manner determined by the Board of Directors) and
cause differences in the net asset value attributable to, and the dividend,
redemption and liquidation rights of, the shares of each class or series of
capital stock.
(5) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article II, Sections (2),
(4) and (5) hereof and including any Articles Supplementary creating any class
or series of capital stock, on each matter submitted to a vote of
stockholders, each holder of a share of capital stock of the Corporation shall
be entitled to one vote for each share standing in such holder's name on the
books of the Corporation, irrespective of the class or series thereof, and all
shares of all classes and series shall vote together as a single class;
provided, however, that (a) as to any matter with respect to which a separate
vote of any class or series is required by the Investment Company Act of 1940,
as amended, and in effect from time to time, or any rules, regulations or
orders issued thereunder, or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall apply in lieu
of a general vote of all classes and series as described above, (b) in the
event that the separate vote requirements referred to in subparagraph (a)
above apply with respect to one or more classes or series, then, subject to
subparagraph (c) below, the shares of all other classes and series not
entitled to a separate class vote shall vote as a single class, (c) as to any
matter which does not affect the interest of a particular class or series,
such class or series shall not be entitled to any vote and only the holders of
shares of the affected classes and series, if any, shall be entitled to vote
and (d) the shares of capital stock of the Corporation shall have no voting
rights in connection with the transfer of all or substantially all the assets
of the Corporation or the assets of any classes or series of the Corporation
to the Master Fund in exchange for shares in such Master Fund or for such
other consideration as permitted by Maryland General Corporation Law and the
Investment Company Act of 1940, as amended.
(6) Notwithstanding any provision of the Maryland General Corporation Law
requiring a greater proportion than a majority of the votes of all classes or
series of capital stock of the Corporation (or of any class or series entitled
to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized (subject to the requirements of
the Investment Company Act of 1940, as amended, and in effect from time to
time, and any rules, regulations and orders issued thereunder) to take such
action upon the concurrence of a majority of the votes entitled to be cast by
holders of capital stock of the Corporation (or a majority of the votes
entitled to be cast by holders of a class or series entitled to vote thereon
as a separate class or series).
(7) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of each
class or series of capital stock of the Corporation shall be entitled, after
payment or provision for payment of the debts and other liabilities of the
Corporation, to share ratably in the remaining net assets of the Corporation
applicable to that class or series.
(8) Any fractional shares shall carry proportionately all of the rights
of a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
(9) The presence in person or by proxy of the holders of shares entitled
to cast one-third of the votes entitled to be cast shall constitute a quorum
at any meeting of stockholders, except with respect to any matter which
requires approval by a separate vote of one or more classes or series of
stock, in which case the presence in person or by proxy of the holders of
shares entitled to cast one-third of the votes entitled to be cast by each
class or series entitled to vote as a separate class shall constitute a
quorum.
(10) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of the charter and the By-Laws of the
Corporation. As used in the charter of the Corporation, the terms "charter"
and "Articles of Incorporation" shall mean and include the Articles of
Incorporation of the Corporation as amended, supplemented and restated from
time to time by Articles of Amendment, Articles Supplementary, Articles of
Restatement or otherwise.
Article V.
----------
Provisions for Defining, Limiting and
Regulating Certain Powers of the Corporation
and of the Directors and Stockholders
-------------------------------------
(1) The initial number of directors of the Corporation shall be
three, which number may be increased or decreased pursuant to the By-Laws of
the Corporation but shall never be less than the minimum number permitted by
the General Laws of the State of Maryland. The names of the directors who
shall act until the first annual meeting or until their successors are duly
elected and qualify are:
Susan B. Baker
Phillip S. Gillespie
William E. Zitelli
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock of any
class or series, whether now or hereafter authorized, for such consideration
as the Board of Directors may deem advisable, subject to such limitations as
may be set forth in these Articles of Incorporation or in the By-Laws of the
Corporation or in the General Laws of the State of Maryland.
(3) No holder of stock of the Corporation shall, as such holder, have any
right to purchase or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it may issue or
sell (whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the Corporation
acquired by it after the issue thereof, or otherwise) other than such right,
if any, as the Board of Directors, in its discretion, may determine.
(4) Each director and each officer of the Corporation shall be
indemnified and advanced expenses by the Corporation to the full extent
permitted by the General Laws of the State of Maryland, subject to the
requirements of the Investment Company Act of 1940, as amended. No amendment
of these Articles of Incorporation or repeal of any provision hereof shall
limit or eliminate the benefits provided to directors and officers under this
provision in connection with any act or omission that occurred prior to such
amendment or repeal.
(5) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940,
as amended, no director or officer of the Corporation shall be personally
liable to the Corporation or its security holders for money damages. No
amendment of these Articles of Incorporation or repeal of any provision hereof
shall limit or eliminate the benefits provided to directors and officers under
this provision in connection with any act or omission that occurred prior to
such amendment or repeal.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to make, alter or repeal from
time to time any of the By-Laws of the Corporation except any particular
By-Law which is specified as not subject to alteration or repeal by the Board
of Directors, subject to the requirements of the Investment Company Act of
1940, as amended.
(7) The Board of Directors of the Corporation from time to time may
change the Corporation's name, without the vote or consent of the stockholders
of the Corporation, in any manner and to the extent now or hereafter permitted
by the General Laws of the State of Maryland and by these Articles of
Incorporation.
(8) Notwithstanding any other provision of these Articles of
Incorporation or the By-Laws of the Corporation, or the General Laws of the
State of Maryland, the transfer of all or substantially all of the assets of
the Corporation or the assets of any classes or series of the Corporation to
the Master Fund shall be deemed to be in the ordinary course of business of
the Corporation, and the Board of Directors of the Corporation is vested with
the sole power, to the exclusion of the stockholders, upon the affirmative
vote of the majority of the entire Board of Directors, to transfer all or
substantially all the assets of the Corporation or the assets of any classes
or series of the Corporation to the Master Fund in exchange for shares in such
Master Fund or for such other consideration as permitted by the General Laws
of the State of Maryland and the Investment Company Act of 1940, as amended.
Article VI.
-----------
Redemption
----------
(1) Each holder of shares of capital stock of the Corporation shall be
entitled to require the Corporation to redeem all or any part of the shares of
capital stock of the Corporation standing in the name of such holder on the
books of the Corporation, and all shares of capital stock issued by the
Corporation shall be subject to redemption by the Corporation, at the
redemption price of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in accordance with the
provisions hereof, subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption of shares of capital stock of
the Corporation or postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemption price of shares
of capital stock of the Corporation shall be the net asset value thereof as
determined by the Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such redemption fee or
liquidation fee, contingent deferred sales charge or other charge or fee
(which fees and charges may vary within and among the classes and series of
capital stock), if any, as may be approved by the Board of Directors of the
Corporation. Payment of the redemption price shall be made by the Corporation
at such time and in such manner as may be determined from time to time by the
Board of Directors of the Corporation.
(2) The Corporation shall, to the extent permitted by applicable law,
have the right at any time to redeem the shares owned by any holder of capital
stock of the Corporation (i) if the redemption is, in the opinion of the Board
of Directors, desirable in order to prevent the Corporation from being deemed
a "personal holding company" within the meaning of the Internal Revenue Code
of 1986, as amended, or (ii) if the value of the shares in the account
maintained by the Corporation or its transfer agent for any class of stock for
the stockholder is below an amount determined from time to time by the Board
of Directors (the "Minimum Account Balance") and the stockholder has been
given written notice of the redemption as required by the General Laws of the
State of Maryland and has failed to make additional purchases of shares in an
amount sufficient to bring the value in his account to at least the Minimum
Account Balance before the redemption is effected by the Corporation.
(3) Payment of the redemption price by the Corporation may be made either
in cash or in securities or other assets at the time owned by the Corporation
or partly in cash and partly in securities or other assets at the time owned
by the Corporation.
Article VII.
------------
Determination Binding
---------------------
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to
the direction of the Board of Directors, as to the amount of assets,
obligations or liabilities of the Corporation, as to the amount of net income
of the Corporation from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created, shall have been paid or
discharged or shall be then or thereafter required to be paid or discharged),
as to the price of any security owned by the Corporation or as to any other
matters relating to the issuance, sale, redemption or other acquisition or
disposition of securities or shares of capital stock of the Corporation, and
any reasonable determination made in good faith by the Board of Directors as
to whether any transaction constitutes a purchase of securities on "margin," a
sale of securities "short," or an underwriting or the sale of, or a
participation in any underwriting or selling group in connection with the
public distribution of, any securities, shall be final and conclusive, and
shall be binding upon the Corporation and all holders of its capital stock,
past, present and future, and shares of the capital stock of the Corporation
are issued and sold on the condition and understanding, evidenced by the
purchase of shares of capital stock or acceptance of share certificates, that
any and all such determinations shall be binding as aforesaid. No provision of
these Articles of Incorporation shall be effective to (a) require a waiver of
compliance with any provision of the Securities Act of 1933, as amended, or
the Investment Company Act of 1940, as amended, or of any valid rule,
regulation or order of the Securities and Exchange Commission thereunder or
(b) protect or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Article VIII.
-------------
Perpetual Existence
-------------------
The duration of the Corporation shall be perpetual.
Article IX.
-----------
Amendment
---------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, in any manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's rights, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, the undersigned incorporator of Mercury E-Commerce
Fund, Inc. hereby executes these Articles of Incorporation and acknowledges
the same to be her act.
Dated this 7th day of January, 2000.
/s/ Caroline Dooley
-------------------
Caroline Dooley
Exhibit 1(b)
MERRILL LYNCH E-COMMERCE FUND, INC.
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
MERRILL LYNCH E-COMMERCE FUND, INC., a Maryland corporation (the
"Corporation"), does hereby certify to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by deleting
Article I thereof in its entirety and inserting the following in lieu thereof:
"Article I.
----------
Name
----
The name of the corporation is MERRILL LYNCH INTERNET STRATEGIES FUND,
INC. (the "Corporation")."
SECOND: Pursuant to Section 2-607 of the Maryland General Corporation
Law, these Articles of Amendment amend the provisions of the Articles of
Incorporation of the Corporation.
THIRD: These Articles of Amendment have been approved by a majority of
the entire Board of Directors of the Corporation, there being no stock
outstanding or subscribed for at the time of approval.
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
FIFTH: Except as amended hereby, the Corporation's charter shall remain
in full force and effect.
The undersigned President acknowledges these Articles of Amendment to be
the corporate act of the Corporation and as to all matters or facts required
to be verified under oath, the undersigned President acknowledges that to the
best of his knowledge, information and belief, the matters and facts set forth
in these Articles of Amendment with respect to the authorization and approval
of the amendment of the Corporation's charter are true in all material
respects, and that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, MERRILL LYNCH E-COMMERCE FUND, INC. has caused these
Articles of Amendment to be signed in its name and on its behalf by its
President and attested to by its Secretary as of the 14th day of January,
2000.
Merrill Lynch E-Commerce Fund, Inc.
(a Maryland corporation)
By: /s/ Susan B. Baker
--------------------------------------
Susan B. Baker, President and Director
ATTEST:
/s/ Phillip S. Gillespie
- -------------------------------
Phillip S. Gillespie, Secretary
Exhibit 2
BY-LAWS
OF
MERRILL LYNCH INTERNET STRATEGIES FUND, INC.
Article I
---------
Offices
-------
Section 1.01. Principal Office. The principal office of Merrill Lynch
Internet Strategies Fund, Inc. (the "Corporation") shall be
in the City of Baltimore, State of Maryland.
Section 1.02. Principal Executive Office. The principal executive office
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 1.03. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors from time to time may determine.
Article II
----------
Meetings of Stockholders
------------------------
Section 2.01. Annual Meeting. The Corporation shall not be required
to hold an annual meeting of its stockholders in any year in which the
election of directors is not required to be acted upon under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). In the event
that the Corporation shall be required to hold an annual meeting of
stockholders to elect directors by the Investment Company Act, such meeting
shall be held no later than 120 days after the occurrence of the event
requiring the meeting. Any stockholders' meeting held in accordance with this
Section for all purposes shall constitute the annual meeting of stockholders
for the year in which the meeting is held.
Section 2.02. Special Meetings. Special meetings of the
stockholders, unless otherwise provided by law, may be called for any purpose
or purposes by a majority of the Board of Directors, the President, or upon
the written request of the holders of at least a majority of the outstanding
shares of capital stock of the Corporation entitled to vote at such meeting if
they comply with Section 2-502(b) or (c) of the Maryland General Corporation
Law.
Section 2.03. Place of Meetings. Meetings of the stockholders shall be
held at such place as the Board of Directors from time to time may determine.
Section 2.04. Notice of Meetings; Waiver of Notice. Notice of the
place, date and time of the holding of each stockholders' meeting and, if the
meeting is a special meeting, the purpose or purposes of the special meeting,
shall be given personally or by mail or transmitted to the stockholder by
electronic mail to any electronic mail address of the stockholder or by any
other electronic means, not less than 10 nor more than 90 days before the date
of such meeting, to each stockholder entitled to vote at such meeting and to
each other stockholder entitled to notice of the meeting. Notice by mail shall
be deemed to be duly given when deposited in the United States mail addressed
to the stockholder at his or her address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who,
either before or after the meeting, shall submit a signed waiver of notice
which is filed with the records of the meeting. When a meeting is adjourned to
another time and place, unless the Board of Directors, after the adjournment,
shall fix a new record date for an adjourned meeting, or unless the
adjournment is for more than 120 days after the original record date, notice
of such adjourned meeting need not be given if the time and place to which the
meeting shall be adjourned were announced at the meeting at which the
adjournment is taken.
Section 2.05. Quorum. The presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes entitled to be cast
shall constitute a quorum at any meeting of stockholders, except with respect
to any matter which requires approval by a separate vote of one or more
classes or series of stock, in which case the presence in person or by proxy
of the holders of shares entitled to cast one-third of the votes entitled to
be cast by each class or series entitled to vote as a separate class or series
shall constitute a quorum. In the absence of a quorum no business may be
transacted, except that the holders of a majority of the shares of stock
present in person or by proxy and entitled to vote may adjourn the meeting
from time to time, without notice other than announcement thereat except as
otherwise required by these By-Laws, until the holders of the requisite amount
of shares of stock shall be so present. At any such adjourned meeting at which
a quorum may be present any business may be transacted which might have been
transacted at the meeting as originally called. The absence from any meeting,
in person or by proxy, of holders of the number of shares of stock of the
Corporation in excess of a majority thereof which may be required by the laws
of the State of Maryland, the Investment Company Act, or other applicable
statute, the Articles of Incorporation, as amended (the "Charter"), or these
By-Laws, for action upon any given matter shall not prevent action at such
meeting upon any other matter or matters which properly may come before the
meeting, if there shall be present thereat, in person or by proxy, holders of
the number of shares of stock of the Corporation required for action in
respect of such other matter or matters.
Section 2.06. Organization. At each meeting of the stockholders,
the Chairman of the Board (if one has been designated by the Board), or in his
or her absence or inability to act, the President, or in the absence or
inability to act of the Chairman of the Board and the President, a Vice
President, shall act as chairman of the meeting. The Secretary, or in his or
her absence or inability to act, any person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes thereof.
Section 2.07. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
Section 2.08. Business at Annual Meeting. No business may be
transacted at any meeting of stockholders, other than business that is either
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before any meeting by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of
the notice provided for in Article II, Section 2.04 of these By-Laws and on
the record date for the determination of stockholders entitled to vote at any
such meeting of stockholders as determined in accordance with Article II,
Section 2.11 hereof and (ii) who complies with the notice procedures set forth
in this Section 2.08.
In addition to any other applicable requirements, for business to be
properly brought before a meeting by a stockholder, such stockholder must have
given timely notice thereof in proper written form to the Secretary of the
Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the
Corporation (a) with respect to the Corporation's first annual meeting of
stockholders, not later than the close of business on the tenth (10th)
calendar day following the day on which public disclosure of the date on which
the first annual meeting shall be held is first made (provided that such
annual meeting shall be held within ninety (90) calendar days of such public
disclosure of the date); and (b) thereafter, not less than sixty (60) calendar
days nor more than ninety (90) calendar days prior to the anniversary date of
the immediately preceding annual meeting of stockholders; provided, however,
that in the event that the annual meeting is called for a date that is not
within thirty (30) calendar days before or sixty (60) calendar days after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the later of the sixtieth
(60th) calendar day prior to such annual meeting or the fifteenth (15th)
calendar day following the day on which notice of the date of the annual
meeting was mailed or public disclosure of the date of the annual meeting was
made, whichever first occurs. For purposes of this Section 2.08, the date of a
public disclosure shall include, but not be limited to, the date on which such
disclosure is made in a press release reported by the Dow Jones News Services,
the Associated Press or any comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Sections 13, 14 or 15(d) (or the rules and regulations thereunder)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
pursuant to Section 30 (or the rules and regulations thereunder) of the
Investment Company Act.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by such stockholder, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of
such stockholder in such business and (v) a representation that such
stockholder intends to appear in person or by proxy at the annual meeting to
bring such business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 8, provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 8 shall be deemed to preclude discussion
by any stockholder of any such business. If the chairman of a meeting
determines that business was not properly brought before the meeting in
accordance with the foregoing procedures, the chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 2.09. Nomination of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation, except as may be otherwise provided
in the Charter with respect to the right, if any, of holders of preferred
stock of the Corporation to nominate and elect a specified number of directors
in certain circumstances. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders, or at any special
meeting of stockholders called for the purpose of electing directors, (a) by
or at the direction of the Board of Directors (or any duly authorized
committee thereof) or (b) by any stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 2.10 and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 9.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the
Corporation (a) with respect to the Corporation's first annual meeting of
stockholders, not later than the close of business on the tenth (10th)
calendar day following the day on which public disclosure of the date on which
the first annual meeting shall be held is first made (provided that such
annual meeting shall be held within ninety (90) calendar days of such public
disclosure of the date); (b) thereafter, in the case of an annual meeting, not
less than sixty (60) calendar days nor more than ninety (90) calendar days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) calendar days before or sixty
(60) calendar days after such anniversary date, notice by the stockholder in
order to be timely must be so received not later than the close of business on
the later of the sixtieth (60th) calendar day prior to such annual meeting or
the fifteenth (15th) calendar day following the day on which notice of the
date of the annual meeting was mailed or public disclosure of the date of the
annual meeting was made, whichever first occurs; and (c) in the case of a
special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the fifteenth (15th) day following the
day on which notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever first
occurs. For purposes of this Section 9, the date of a public disclosure shall
include, but not be limited to, the date on which such disclosure is made in a
press release reported by the Dow Jones News Services, the Associated Press or
any comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Sections
13, 14 or 15(d) (or the rules and regulations thereunder) of the Exchange Act
or pursuant to Section 30 (or the rules and regulations thereunder) of the
Investment Company Act.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice (i) the name and
record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any
other person or persons (including their names) pursuant to which the
nomination(s) are to be made by such stockholder, (iv) a representation that
such stockholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (v) any other information
relating to such stockholder that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of
the Exchange Act and the rules and regulations promulgated thereunder. Such
notice must be accompanied by a written consent of each proposed nominee to
being named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
2.09. If the chairman of the meeting determines that a nomination was not made
in accordance with the foregoing procedures, the chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall
be disregarded.
Section 2.10. Voting. Except as otherwise provided by statute or by
the Charter, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to
one vote for every share of such stock standing in his or her name on the
record of stockholders of the Corporation as of the record date determined
pursuant to Section 2.11 of this Article or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth day before the
meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her as proxy by signing
a writing authorizing another person to act as proxy. Such signing may be
accomplished by the stockholder or the stockholder's authorized agent signing
the writing or causing the stockholder's signature to be affixed to the
writing by any reasonable means, including facsimile signature. A stockholder
may authorize another person to act as proxy by transmitting, or authorizing
the transmission of, an authorization for the person to act as proxy to (i)
the person authorized to act as proxy or (ii) any other person authorized to
receive the proxy authorization on behalf of the person authorized to act as
the proxy, including a proxy solicitation firm or proxy support service
organization. The authorization referred to in the preceding sentences may be
transmitted by U.S. mail, courier service, personal delivery, a telegram,
cablegram, datagram, electronic mail, or any other electronic or telephonic
means and a copy, facsimile telecommunication, or other reliable reproduction
of the writing or transmission authorized in this paragraph may be substituted
for the original writing or transmission for any purpose for which the
original writing or transmission could be used.
No proxy shall be valid after the expiration of eleven months from the
date thereof, unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the stockholder executing it, except in those
cases where such proxy states that it is irrevocable and where an irrevocable
proxy is permitted by law. Except as otherwise provided by statute, the
Charter or these By-Laws, any corporate action to be taken by vote of the
stockholders (other than the election of directors, which shall be by a
plurality of votes cast) shall be authorized by a majority of the total votes
cast at a meeting of stockholders by the holders of shares present in person
or represented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute
or by these By-Laws, or determined by the chairman of the meeting to be
advisable, any such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his or her proxy, if
there be such proxy, and shall state the number of shares voted.
Section 2.11. Fixing of Record Date. The Board of Directors may set
a record date for the purpose of determining stockholders entitled to vote at
any meeting of the stockholders. The record date, which may not be prior to
the close of business on the day the record date is fixed, shall be not more
than 90 days nor less than 10 days before the date of the meeting of the
stockholders. All persons who were holders of record of shares at such time,
and not others, shall be entitled to vote at such meeting and any adjournment
thereof.
Section 2.12. Inspectors. The Board, in advance of any meeting of
stockholders, may appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may appoint
inspectors. Each inspector, before entering upon the discharge of his or her
duties, may be required to take and sign an oath to execute faithfully the
duties of inspector at such meeting with strict impartiality and according to
the best of his or her ability. The inspectors may be empowered to determine
the number of shares outstanding and the voting powers of each, the number of
shares represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness
to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall
execute a certificate of any fact found by them. No director or candidate for
the office of director shall act as inspector of an election of directors.
Inspectors need not be stockholders.
Section 2.13. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or by the Charter, any action required to be
taken at any meeting of stockholders, or any action which may be taken at any
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if the following are filed with the records of
stockholders meetings: (i) a unanimous written consent which sets forth the
action and is signed by each stockholder entitled to vote on the matter and
(ii) a written waiver of any right to dissent signed by each stockholder
entitled to notice of the meeting but not entitled to vote thereat.
Article III
-----------
Board of Directors
------------------
Section 3.01. General Powers. Except as otherwise provided in the
Charter, the business and affairs of the Corporation shall be managed under
the direction of the Board of Directors. All powers of the Corporation may be
exercised by or under authority of the Board of Directors except as conferred
on or reserved to the stockholders by law or by the Charter or these By-Laws.
Section 3.02. Number of Directors. The number of directors shall be
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the entire Board of Directors; provided, however, that in no event
shall the number of directors be less than the minimum permitted by the
General Law of the State of Maryland nor more than fifteen. Any vacancy
created by an increase in Directors may be filled in accordance with Section 6
of this Article III. No reduction in the number of directors shall have the
effect of removing any director from office prior to the expiration of his or
her term unless such director is specifically removed pursuant to Section 5 of
this Article III at the time of such decrease. Directors need not be
stockholders.
Section 3.03. Election and Term of Directors. Directors shall be
elected annually at a meeting of stockholders held for that purpose; provided,
however, that if no meeting of the stockholders of the Corporation is required
to be held in a particular year pursuant to Section 1 of Article II of these
By-Laws, directors shall be elected at the next meeting held. The term of
office of each director shall be from the time of his or her election and
qualification until the election of directors next succeeding his or her
election and until his or her successor shall have been elected and shall have
qualified, or until his or her death, or until he or she shall have resigned
or until December 31 of the year in which he or she shall have reached 72
years of age, or until he or she shall have been removed as hereinafter
provided in these By-Laws, or as otherwise provided by statute or by the
Charter.
Section 3.04. Resignation. A director of the Corporation may resign
at any time by giving written notice of his or her resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately
upon its receipt; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.05. Removal of Directors. Any director of the Corporation may
be removed (with or without cause) by the stockholders by a vote of a majority
of the votes entitled to be cast for the election of directors.
Section 3.06. Vacancies. Any vacancies in the Board, whether
arising from death, resignation, removal, an increase in the number of
directors or any other cause, may be filled by a vote of the majority of the
Board of Directors then in office even though such majority is less than a
quorum, provided that no vacancies shall be filled by action of the remaining
directors, if after the filling of said vacancy or vacancies, less than
two-thirds of the directors then holding office shall have been elected by the
stockholders of the Corporation. In the event that at any time there is a
vacancy in any office of a director which vacancy may not be filled by the
remaining directors, a special meeting of the stockholders shall be held as
promptly as possible and in any event within 60 days, for the purpose of
filling said vacancy or vacancies.
Section 3.07. Place of Meetings. Meetings of the Board may be held at
such place as the Board from time to time may determine or as shall be
specified in the notice of such meeting.
Section 3.08. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 3.09. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 3.10. Telephone Meetings. Members of the Board of Directors
or of any committee thereof may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Subject to
the provisions of the Investment Company Act participation in a meeting by
these means constitutes presence in person at the meeting.
Section 3.11. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least 24 hours before the time
at which such meeting is to be held, or by first-class mail, postage prepaid,
addressed to him or her at his or her residence or usual place of business, at
least three days before the day on which such meeting is to be held.
Section 3.12. Waiver of Notice of Meetings. Notice of any special
meeting need not be given to any director who, either before or after the
meeting, shall sign a written waiver of notice which is filed with the records
of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver or notice of any
meeting need not state the purposes of such meeting.
Section 3.13. Quorum and Voting. One-third, but not less than two
(unless there is only one Director), of the members of the entire Board shall
be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and except as
otherwise expressly required by statute, the Charter, these By-Laws, the
Investment Company Act, or other applicable statute, the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board. In the absence of a quorum at any meeting of the Board, a
majority of the directors present thereat may adjourn such meeting to another
time and place until a quorum shall be present thereat. Notice of the time and
place of any such adjourned meeting shall be given to the directors who were
not present at the time of the adjournment and, unless such time and place
were announced at the meeting at which the adjournment was taken, to the other
directors. At any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as
originally called.
Section 3.14. Organization. The Board, by resolution adopted by a
majority of the entire Board, may designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his or her
absence or inability to act, another director chosen by a majority of the
directors present, shall act as chairman of the meeting and preside thereat.
The Secretary (or, in his or her absence or inability to act, any person
appointed by the Chairman) shall act as secretary of the meeting and keep the
minutes thereof.
Section 3.15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writings
or writing are filed with the minutes of the proceedings of the Board or
committee.
Section 3.16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the
Board.
Section 3.17. Investment Policies. It shall be the duty of the
Board of Directors to direct that the purchase, sale, retention and disposal
of portfolio securities and the other investment practices of the Corporation
at all times are consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the Prospectus of the Corporation included in the Registration Statement of
the Corporation, as recited in the current Prospectus and Statement of
Additional Information of the Corporation, as filed from time to time with the
Securities and Exchange Commission, and as required by the Investment Company
Act. The Board, however, may delegate the duty of management of the assets and
the administration of its day-to-day operations to an individual or corporate
management company and/or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors and/or the
stockholders of the Corporation in accordance with the provisions of the
Investment Company Act.
Article IV
----------
Committees
----------
Section 4.01. Executive Committee. The Board, by resolution adopted
by a majority of the entire board, may designate an Executive Committee
consisting of two or more of the directors of the Corporation, which committee
shall have and may exercise all of the powers and authority of the Board with
respect to all matters other than:
(a) the submission to stockholders of any action requiring authorization
of stockholders pursuant to statute or the Charter;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the Board
or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act, or the taking of any other action required to be taken by the
Board of Directors by the Investment Company Act;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and, except to the extent permitted by
law, the issuance of capital stock of the Corporation; and
(h) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings and
shall report such minutes to the Board. All such proceedings shall be subject
to revision or alteration by the Board; provided, however, that third parties
shall not be prejudiced by such revision or alteration.
Section 4.02. Other Committees of the Board. The Board of Directors
from time to time, by resolution adopted by a majority of the whole Board, may
designate one or more other committees of the Board, each such committee to
consist of one or more directors and to have such powers and duties as the
Board of Directors, by resolution, may prescribe.
Section 4.03. General. One-third, but not less than two (unless
there is only one member), of the members of any committee shall be present in
person at any meeting of such committee in order to constitute a quorum for
the transaction of business at such meeting, and the act of a majority present
shall be the act of such committee. The Board may designate a chairman of any
committee and such chairman or any two members of any committee may fix the
time and place of its meetings unless the Board shall otherwise provide. In
the absence or disqualification of any member of any committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or she or they constitute a quorum, unanimously may appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. The Board shall have the power at any
time to change the membership of any committee, to fill all vacancies, to
designate alternate members to replace any absent or disqualified member, or
to dissolve any such committee. Nothing herein shall be deemed to prevent the
Board from appointing one or more committees consisting in whole or in part of
persons who are not directors of the Corporation; provided, however, that no
such committee shall have or may exercise any authority or power of the Board
in the management of the business or affairs of the Corporation, except as may
be prescribed by the Board.
Article V
---------
Officers, Agents and Employees
------------------------------
Section 5.01. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect
or appoint one or more Vice Presidents and also may appoint such other
officers, agents and employees as it may deem necessary or proper. Any two or
more offices may be held by the same person, except the offices of President
and Vice President, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity. Such officers shall be elected by the
Board of Directors each year at a meeting of the Board of Directors, each to
hold office for the ensuing year and until his or her successor shall have
been duly elected and shall have qualified, or until his or her death, or
until he or she shall have resigned, or have been removed, as hereinafter
provided in these By-Laws. The Board from time to time may elect such officers
(including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) and such agents, as may be
necessary or desirable for the business of the Corporation. The President also
shall have the power to appoint such assistant officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) as may be necessary or appropriate to facilitate the
management of the Corporation's affairs. Such officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed
by the Board or by the appointing authority.
Section 5.02. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of resignation to the Board, the
Chairman of the Board, President or the Secretary. Any such resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall
be necessary to make it effective.
Section 5.03. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 5.04. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the
manner prescribed in these By-Laws for the regular election or appointment to
such office.
Section 5.05. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her
control.
Section 5.06. Bonds or Other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his or her duties, in such amount and
with such surety or sureties as the Board may require.
Section 5.07. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he or she shall preside at all meetings of the stockholders
and of the Board of Directors. He or she shall have, subject to the control of
the Board of Directors, general charge of the business and affairs of the
Corporation. He or she may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he or she may
delegate these powers.
Section 5.08. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President from time
to time may prescribe.
Section 5.09. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all of the
funds and securities of the Corporation, except those which the Corporation
has placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934, as amended) pursuant to a written agreement designating such bank or
trust company or member of a national securities exchange as custodian of the
property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit of
the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment of
its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the Board or the President.
Section 5.10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all stock certificates of the Corporation
(unless the seal of the Corporation on such certificates shall be a facsimile,
as hereinafter provided) and affix and attest the seal to all other documents
to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
(e) in general, perform all of the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
or her by the Board or the President.
Section 5.11. Delegation of Duties. In case of the absence of any
officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or
any of them, of such officer upon any other officer or upon any director.
Article VI
----------
Indemnification
---------------
Section 6.01. General Indemnification. Each officer and director of
the Corporation shall be indemnified by the Corporation to the full extent
permitted under the Maryland General Corporation Law, except that such
indemnity shall not protect any such person against any liability to the
Corporation or any stockholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his or her office, the decision by the Corporation to indemnify
such person must be based upon the reasonable determination of independent
legal counsel or the vote of a majority of a quorum of the directors who are
neither "interested persons," as defined in Section 2(a)(19) of the Investment
Company Act, nor parties to the proceeding ("non-party independent
directors"), after review of the facts, that such officer or director is not
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him or her in
connection with proceedings to which he or she is a party in the manner and to
the full extent permitted under the Maryland General Corporation Law without a
preliminary determination as to his or her ultimate entitlement to
indemnification (except as set forth below); provided, however, that the
person seeking indemnification shall provide to the Corporation a written
affirmation of his or her good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person
seeking indemnification shall provide a security in form and amount acceptable
to the Corporation for his or her undertaking; (b) the Corporation is insured
against losses arising by reason of the advance; (c) a majority of a quorum of
non-party independent directors, or independent legal counsel in a written
opinion, shall determine, based on a review of facts readily available to the
Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his or her
activities as officer or director of the Corporation. The Corporation,
however, may not purchase insurance on behalf of any officer or director of
the Corporation that protects or purports to protect such person from
liability to the Corporation or to its stockholders to which such officer or
director would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
The Corporation may indemnify, make advances or purchase insurance to the
extent provided in this Article VI on behalf of an employee or agent who is
not an officer or director of the Corporation.
Section 6.02. Other Rights. The indemnification provided by this
Article VI shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may
be entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or
officer of the Corporation in his or her official capacity and as to action by
such person in another capacity while holding such office or position, and
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
person.
Article VII
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Capital Stock
-------------
Section 7.01. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him or her, provided,
however, that certificates for fractional shares will not be delivered in any
case. The certificates representing shares of stock shall be signed by or in
the name of the Corporation by the Chairman, President or a Vice President and
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation. Any or all of the
signatures or the seal on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate shall be issued,
it may be issued by the Corporation with the same effect as if such officer,
transfer agent or registrar were still in office at the date of issue.
Section 7.02. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all of the business and transactions of the
Corporation.
Section 7.03.Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his or her attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary or with a
transfer agent or transfer clerk, and on surrender of the certificate or
certificates, if issued, for such shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes thereon.
Except as otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person in whose name any share or shares
stand on the record of stockholders as the owner of such share or shares for
all purposes, including, without limitation, the rights to receive dividends
or other distributions, and to vote as such owner, and the Corporation shall
not be bound to recognize any equitable or legal claim to or interest in any
such share or shares on the part of any other person.
Section 7.04. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to
bear the signature or signatures of any of them.
Section 7.05. Lost, Destroyed or Mutilated Certificates. The holder of
any certificates representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have been
mutilated, and the Board, in its discretion, may require such owner or his or
her legal representatives to give to the Corporation a bond in such sum,
limited or unlimited, and in such form and with such surety or sureties, as
the Board in its absolute discretion shall determine, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board, in
its absolute discretion, may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of Maryland.
Section 7.06. Fixing of a Record Date for Dividends and Distributions.
The Board may fix, in advance, a date not more than 90 days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
Section 7.07. Information to Stockholders and Others. Any stockholder of
the Corporation or his or her agent may inspect and copy during usual business
hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs, and voting trust agreements on
file at its principal office.
Article VIII
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Seal
----
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors, the
name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner
reproduced.
Article IX
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Fiscal Year
-----------
The Board of Directors shall have the power from time to time to fix the
fiscal year of the Corporation by a duly adopted resolution.
Article X
---------
Depositories and Custodians
---------------------------
Section 10.01. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of
the Corporation from time to time may determine.
Section 10.02. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the Investment Company Act, and the general rules and
regulations thereunder.
Article XI
----------
Execution of Instruments
------------------------
Section 11.01. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as
the Board of Directors from time to time shall designate by resolution.
Section 11.02. Sale or Transfer of Securities. Stock certificates,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of
subject to any limits imposed by these By-Laws and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation
or sold, transferred or otherwise disposed of, may be transferred from the
name of the Corporation by the signature of the President or a Vice President
or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.
Article XII
-----------
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and, if required by the provisions of the Investment Company Act,
ratified by the stockholders.
Article XIII
------------
Annual Statement
----------------
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the stockholders based upon each such examination shall be mailed to
each stockholder of the Corporation of record on such date with respect to
each report as may be determined by the Board, at his or her address as the
same appears on the books of the Corporation. Such annual statement shall also
be available at any annual meeting of stockholders and shall be placed on file
at the Corporation's principal office in the State of Maryland, and if no
annual meeting is held pursuant to Article II, Section 1, such annual
statement of affairs shall be placed on file at the Corporation's principal
office within 120 days after the end of the Corporation's fiscal year. Each
such report shall show the assets and liabilities of the Corporation as of the
close of the annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then invested. Such
report also shall show the Corporation's income and expenses for the period
from the end of the Corporation's preceding fiscal year to the close of the
annual or quarterly period covered by the report and any other information
required by the Investment Company Act, and shall set forth such other matters
as the Board or such firm of independent public accountants shall determine.
Article XIV
-----------
Amendments
----------
These By-Laws or any of them may be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors. The stockholders
shall have no power to make, amend, alter or repeal By-Laws.
