As Filed with the
Securities and Exchange Commission on May 30, 2000
Securities Act
File No. 333-
Investment Company
Act File No. 811-
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
N-1A
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
x
Pre-Effective
Amendment No.
¨
Post-Effective
Amendment No.
¨
and/or
REGISTRATION
STATEMENT UNDER THE
INVESTMENT COMPANY
ACT OF 1940
x
Amendment No.
¨
(Check appropriate
box or boxes)
MERCURY SMALL CAP
VALUE 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
Mercury Small Cap
Value Fund, Inc.
P.O. Box
9011
Princeton, New
Jersey 08543-9011
(Name and address of
Agent for Service)
Copies
to:
| Counsel for the
Fund:
Brian M. Kaplowitz,
Esq.
BROWN & WOOD
LLP
One World Trade
Center
New York, New York
10048
|
|
Michael J.
Hennewinkel, Esq.
FUND ASSET
MANAGEMENT, L.P.
P.O. Box
9011
Princeton, New
Jersey 08543-9011
|
|
Approximate Date
of Proposed Public Offering:
As soon as
practicable after the effective date of the Registration
Statement.
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.
Master Small Cap
Value Trust has also executed this Registration Statement.
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 May 30, 2000
|
Mercury Small
Cap Value Fund, Inc.
|
PROSPECTUS · [
],
2000
INSERT LOGO ID
HERE
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
MERCURY SMALL CAP
VALUE FUND, INC.
[GRAPHIC] Fund
Facts
In an effort to help
you better understand the many concepts involved in making an investment
decision, we have defined the highlighted terms in this prospectus in
the sidebar.
Common
Stock — shares of ownership of a
corporation.
Small
companies — definition of
“small companies” will change over time in response to market
conditions; for the Fund, “small companies” typically have
total market capitalization, at the time of initial purchase by the
Fund, in the same range as companies in the Russell 2000 Stock Index, a
widely known small cap investment benchmark.
Emerging growth
companies — companies of any
market capitalization without a long or consistent history of earnings
but that Fund management believes have the potential to grow earnings
significantly over an extended period of time.
ABOUT THE MERCURY SMALL CAP VALUE FUND
What is the Fund’s
investment objective?
The Fund’s
investment objective is to seek long term growth of capital by investing
in a diversified portfolio of securities, primarily common stock, of
relatively small companies that the Investment Adviser believes have
special investment value and emerging growth companies regardless of
size.
What are the Fund’s
main investment strategies?
The Fund invests
primarily in common stock of small companies and emerging growth
companies that Fund management believes have special investment value.
This means Fund management will look for companies that have long-term
potential to grow in size or to become more profitable or that the stock
market may value more highly in the future. Fund management seeks to
invest in small companies that are trading at the low end of their
historical price-book value or enterprise value-sales ratios, and that
have particular qualities that affect the outlook for that company
including an attractive market niche. Fund management also seeks to
invest in emerging growth companies that occupy dominant positions in
developing industries, have strong management and demonstrate successful
product development and marketing capabilities.
The Fund is a
“feeder” fund that invests all of its assets in a
corresponding “master” portfolio of the Master Small Cap Value
Trust (the “Trust”) which has the same 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 Trust in which it invests. For simplicity, this prospectus uses the
term “Fund” to include the Trust.
What are the main risks
of investing in the Fund?
As with any
mutual fund, the value of the Fund’s
investments — and therefore the value of the Fund’s
shares — may go up or down. These changes may occur
because a particular stock market in which the Fund invests is rising or
falling. At other times, there are 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. We cannot guarantee that the
Fund will achieve its investment objective.
The Fund will
invest primarily in small and emerging growth companies. Small and
emerging growth companies may have limited product lines or markets, may
depend on a smaller number of key personnel and may be less financially
secure than larger, more established companies.
MERCURY SMALL CAP
VALUE FUND, INC.
[GRAPHIC] Fund
Facts
If a product
fails, or if management changes, or if there are other adverse
developments, the Fund’s investment in a small or emerging growth
company may lose substantial value.
Small and
emerging growth companies’ securities generally trade in lower
volumes and are subject to greater, less predictable price changes than
the securities of more established companies. Investing in small or
emerging growth companies requires a long-term view.
Who should
invest?
The Fund may be
an appropriate investment for you if you:
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Are investing
with long-term goals in mind, such as retirement or funding a
child’s education.
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Want a
professionally managed and diversified portfolio.
|
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Are willing to
accept the risk of short-term fluctuations in exchange for the
potential for long-term growth of capital.
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Are not looking
for a significant amount of current income.
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MERCURY SMALL CAP
VALUE FUND, INC.
[GRAPHIC] Fund
Facts
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.
[Discussion and Report
of Merrill Lynch Special Value Fund, Inc. Performance to be
provided]
[CHART TO
COME]
MERCURY SMALL CAP
VALUE FUND, INC.
[GRAPHIC] Fund
Facts
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.
Investment Advisory
Fee — a fee paid to the
Investment Adviser for managing the Trust.
Distribution
Fees — fees used to
support the Fund’s marketing and distribution efforts, such as
compensating financial consultants, selected securities dealers and
other financial intermediaries, advertising and promotion.
Service (Account
Maintenance) Fees — fees used to
compensate selected securities dealers and other financial
intermediaries for account maintenance activities.
Administrative
Fee — a fee paid to the
Administrator for providing administrative services to the
Fund.
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
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.
Shareholder Fees
(fees paid directly from your
investment)(a): |
|
Class I |
|
Class A |
|
Class B(b) |
|
Class C |
|
Maximum Sales Charge
(Load) imposed on
purchases (as a percentage of offering price) |
|
5.25%(c) |
|
5.25%(c) |
|
None |
|
|
None |
|
|
Maximum Deferred Sales
Charge (Load) (as a
percentage of original purchase price or redemption
proceeds, whichever is lower) |
|
None |
(d) |
|
None |
(d) |
|
4.00%(c) |
|
1.00%(c) |
|
Maximum Sales Charge
(Load) imposed on Dividend
Reinvestments |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
| Redemption
Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
| Exchange Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
|
Annual Fund
Operating Expenses (expenses that are
deducted from the Fund’s total assets)(e): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment
Advisory Fee(f) |
|
0.49 |
% |
|
0.49 |
% |
|
0.49 |
% |
|
0.49 |
% |
|
| Distribution
and/or Service (12b-1) Fees(g) |
|
None |
|
|
0.25 |
% |
|
1.00 |
% |
|
1.00 |
% |
|
| Other Expenses (h)
(including Administrative Fees(i)) |
|
0.71 |
% |
|
0.71 |
% |
|
0.71 |
% |
|
0.71 |
% |
|
| Total Annual Fund
Operating Expenses |
|
1.20 |
% |
|
1.45 |
% |
|
2.20 |
% |
|
2.20 |
% |
|
(a)
|
Certain selected securities dealers or other
financial intermediaries may charge a fee to process a purchase or
sale of shares. See “How to Buy, Sell, Transfer and Exchange
Shares.”
|
(b)
|
Class
B shares automatically convert to Class A 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)
|
For
the Fund, the fees and expenses include the expenses of both the Fund
and the Trust.
|
(f)
|
The
Trust pays the Investment Adviser a fee at the annual rate of 0.50% of
the average daily net assets for the first $1 billion; 0.475% of the
average daily net assets from $1 billion to $1.5 billion; and 0.45% of
the average daily net assets above $1.5 billion.
|
(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 a fee for each shareholder account and reimburses it
for out-of-pocket expenses. The fee ranges from $11.00 to $23.00 per
account (depending on the level of services required), but is set at
0.10% for certain accounts that participate in certain fee-based
programs. The Fund also pays a $0.20 monthly closed account charge,
which is assessed upon all accounts that close during the calendar
year. The fee
begins the month following the month the account is closed and ends
at the end of the calendar year. The Investment Adviser provides
accounting services to the Trust at its cost.
|
(i)
|
Includes administrative fees, which are payable to
the Investment Adviser by the Fund, at the annual rate of
0.25%.
|
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:
| |
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
| One year |
|
$641 |
|
$665 |
|
$623 |
|
$323 |
|
| Three years |
|
$886 |
|
$960 |
|
$988 |
|
$688 |
|
|
| Expenses if you
did not redeem your shares: |
|
| |
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
| One year |
|
$641 |
|
$665 |
|
$223 |
|
$223 |
|
| Three years |
|
$886 |
|
$960 |
|
$688 |
|
$688 |
|
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] About the
Details
About the Portfolio
Manager — Daniel V. Szemis is a
Senior Vice President and portfolio manager of the Fund. Mr. Szemis has
been a First Vice President of Merrill Lynch Asset Management since
1997. Mr. Szemis was also a Vice President of Merrill Lynch Asset
Management from 1996 to 1997.
About the Investment
Adviser —The Fund is managed by
Fund Asset Management.
The Fund tries
to choose investments for capital appreciation — that
is, investments that will increase in value. The Fund will invest a
diversified portfolio primarily consisting of equity securities of
small and emerging growth companies. The Fund will generally invest at
least 80% of its assets in equity securities of such companies. Equity
securities consist of:
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Securities
convertible into common stock
|
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Derivative
securities, such as options and futures, the values of which are
based on a common stock or group of common stocks
|
The Fund will
primarily focus on investments in common stock.
The Fund’s
management chooses investments using a fundamental, value-oriented
investment style. This means that the Fund seeks to invest in companies
that the Fund’s management believes to be undervalued. A
company’s stock is undervalued when the stock’s current price
is less than what the Fund believes a share of the company is worth. A
company’s worth can be assessed by several factors, such as
financial resources, value of tangible assets, sales and earnings
growth, rate of return on capital, product development, quality of
management, and overall business prospects. A company’s stock may
become undervalued when most investors fail to perceive the
company’s strengths in one or more of these areas. Fund management
may also determine a company is undervalued if its stock price is down
because of temporary factors from which Fund management believes the
company will recover. Additionally, management of the Fund may acquire
the securities of companies that are in a particular industry or
related industries or market segments together as a “basket”
or group in a single transaction. The Fund may subsequently sell such
“basket” as a unit or it may sell only selected securities
and continue to hold other securities acquired in the
“basket.”
Fund management
seeks to invest in small companies that:
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are trading at
the low end of their historical price-book value or enterprise
value-sales ratios
|
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have
particular qualities that affect the outlook for that company, such
as strong research capabilities, new or unusual products or
occupation of an attractive market niche
|
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have the
potential to increase earnings over an extended period of
time
|
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] About the
Details
Fund management
seeks to invest in emerging growth companies that
|
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|
occupy
dominant positions in new, developing industries or have a
significant market share in a large, fragmented industry or are
relatively undervalued in the marketplace when compared to their
favorable market potential
|
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have rapid
growth rates or above-average returns on equity
|
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demonstrate
successful product development and marketing capabilities
|
Fund management
also considers other factors, such as the level of competition in an
industry or the extent of government regulation. The Fund may also
purchase the stock of a company which has suffered a recent earnings
decline if Fund management believes that the decline is temporary or
cyclical and will not significantly affect the company’s long-term
growth.
The Fund will
invest primarily in U.S. companies that do most of their business in
the United States, but may invest a portion of its assets in foreign
companies. It is anticipated that in the immediate future, the Fund
will invest not more than 30% of its total assets in the securities of
foreign issuers.
The Fund also
may, as a temporary defensive measure, and without limitation, hold
assets in other types of securities, including non-convertible
preferred stocks and debt securities, U.S. Government and money-market
securities, including repurchase agreements or cash, in such
proportions as the investment adviser may determine. 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 not achieve the Fund’s
investment objective.
The Fund has no
stated minimum holding period for investments, and will buy or sell
securities whenever the Fund’s management sees an appropriate
opportunity.
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] About the
Details
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 for any period of time.
The
Fund’s principal risks are small cap and emerging growth
securities risk, market risk and selection risk.
Small Cap and Emerging
Growth Securities Risk
Small cap or
emerging growth companies may have limited product lines or markets.
They may be less financially secure than larger, more established
companies. They may depend on a small number of key personnel. 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.
Small cap or
emerging growth securities generally trade in lower volumes and are
subject to greater and more unpredictable price changes than larger cap
securities or the stock market as a whole. 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 one
or more markets will go down sharply and unpredictably. Selection risk
is the risk that the investments that Fund management selects will
underperform the stock markets or other funds with similar investment
objectives and investment strategies.
The Fund also
may be subject to the following risks.
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.
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] About the
Details
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. The risk that a security
will become illiquid is greater for small cap securities.
Restricted
Securities
Restricted
securities have contractual or legal restrictions on their resale. They
may 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.
Rule 144A
Securities
Rule 144A
securities are restricted securities that can be resold to qualified
institutional buyers but not to the general public. Rule 144A
securities may have an active trading market, but carry the risk that
the active trading market may not continue.
Derivatives
The Fund may use
derivative instruments including options on portfolio positions or
currencies, financial and currency futures, options on such futures and
forward foreign currency transactions. Derivatives are financial
instruments whose value is derived from another security, a commodity
(such as gold or oil) or an index such as Standard & Poor’s
500 Index. 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:
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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.
|
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] About the
Details
|
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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.
|
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|
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.
|
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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.
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.
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,
investment in foreign securities involves the following risks, which
are generally greater for investments in emerging markets.
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The economies
of some foreign markets often do not compare favorably with that of
the United States in areas such as growth of gross domestic product,
reinvestment of capital, resources and balance of payments. Some of
these economies may rely heavily on
particular industries or foreign capital. They may be more vulnerable
to adverse 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.
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Investments in
foreign markets may be adversely affected by governmental actions
such as the imposition of capital controls, nationalization of
companies or industries, expropriation of assets or the imposition of
punitive taxes.
|
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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. They could also impair the Fund’s ability to
purchase or sell foreign securities or transfer its assets or income
back into the United States, otherwise adversely affect the
Fund’s operations.
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Other foreign
market risks include fluctuations in foreign exchange rates, 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 some foreign
countries may be less extensive than those available to investors in
the United States.
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Because there
are generally fewer investors on foreign exchanges and a smaller
number of shares traded each day, it may be 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.
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Foreign
markets may have different clearance and settlement procedures. In
certain markets, settlements may be unable to keep pace with the
volume of securities transactions. If this occurs, settlement may be
delayed and the Fund’s assets may be uninvested and not earning
returns. The Fund may miss investment opportunities or be unable to
sell an investment because of these delays.
|
European Economic and
Monetary Union (“EMU”)
A number of
European countries have entered into EMU in an effort to reduce trade
barriers between themselves and eliminate fluctuations in their
currencies. EMU established a single European currency (the euro),
which was introduced
on January 1, 1999 and is expected to replace the existing national
currencies of all initial EMU participants by July 1, 2002. Certain
securities (beginning with government and corporate bonds) were
redenominated in the euro and are traded and make dividend and other
payments only in euros. Like other investment companies and business
organizations, including the companies in which the Fund invests, the
Fund could be adversely affected if the transition to the euro, or EMU
as a whole, does not proceed as planned or if a participating country
withdraws from EMU.
Emerging Markets
Risk
The risks of
foreign investments are usually much greater for emerging markets.
Investments in emerging markets may be considered speculative. Emerging
markets include those in countries defined as emerging or developing by
the World Bank, the International Finance Corporation or the United
Nations. Emerging markets are riskier because they develop unevenly and
may never fully develop. They are more likely to experience
hyperinflation and currency devaluations, which adversely affect
returns to U.S. investors. In addition, the securities markets in many
of these countries have far lower trading volumes and less liquidity
than developed markets. Since these markets are so small, they may be
more likely to suffer sharp and frequent price changes or long term
price depression due to adverse publicity, investor perceptions, or the
actions of a few large investors.
In addition,
traditional measures of investment value used in the United States,
such as price to earnings ratios, may not apply to certain small
markets.
Many emerging
markets have histories of political instability and abrupt changes in
policies. As a result their governments are more likely to take actions
that are hostile or detrimental to private enterprise or foreign
investment than those of more developed countries. Certain emerging
markets may also face other significant internal or external risks,
including the risk of war and ethnic, religious and racial conflicts.
In addition, governments in many emerging market countries participate
to a significant degree in their economics and securities markets,
which may impair investment and economic growth.
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.
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] About the
Details
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 may buy may
create leverage including, for example, options.
STATEMENT OF ADDITIONAL INFORMATION
If you would
like further information about the Fund, including how it invests,
please see the Statement of Additional Information.
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] Account
Choices
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 financial consultant can help you determine which share
class is best suited to your personal financial goals.
For example, if
you select Class I or A shares, you generally pay a sales charge at the
time of purchase. If you buy Class A 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 Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] Account
Choices
To better
understand the pricing of the Fund’s shares, we have summarized
the information below:
| |
|
Class
I |
|
Class
A |
|
Class
B |
|
Class
C |
|
| Availability? |
|
Limited to certain
investors including: |
|
Generally available
through selected |
|
Generally available
through selected |
|
Generally available
through selected |
| |
|
Ÿ Current Class I
shareholders |
|
securities dealers and
other financial |
|
securities dealers and
other financial |
|
securities dealers and
other financial |
| |
|
Ÿ Certain
Retirement
Plans |
|
intermediaries. |
|
intermediaries. |
|
intermediaries. |
| |
|
Ÿ Participants in
certain sponsored
programs |
|
|
|
|
|
|
| |
|
Ÿ Certain
affiliates of
selected securities
dealers and other
financial
intermediaries |
|
|
|
|
|
|
| |
|
Initial Sales
Charge? |
|
Yes. Payable at time of
purchase. Lower sales
charges available for
larger investments. |
|
Yes. Payable at time of
purchase. Lower sales
charges available for
certain larger
investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
| |
|
Deferred Sales
Charge? |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year.) |
|
No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
|
Yes. Payable if you
redeem within six years
of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
| |
|
Account
Maintenance and
Distribution Fees? |
|
No. |
|
0.25% Account
Maintenance Fee
No Distribution Fee |
|
0.25% Account
Maintenance Fee
0.75% Distribution Fee |
|
0.25% Account
Maintenance Fee
0.75% Distribution Fee |
| |
|
Conversion to
Class A Shares? |
|
No. |
|
No. |
|
Yes, automatically
after
approximately eight
years. |
|
No. |
| |
|
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] Account
Choices
Right of
Accumulation — permits you to
pay the sales charge that would apply to the cost or value (whichever
is higher) of all shares you own in the Mercury mutual
funds.
Letter of
Intent — permits you to
pay the sales charge that would be applicable if you add up all shares
of Mercury mutual funds that you agree to buy within a 13 month period.
Certain restrictions apply.
Class I and A
Shares — Initial Sales Charge Options
If you select
Class I or A shares, you will pay a sales charge at the time of
purchase as shown in the following table:
| Your
Investment |
|
As a % of
Offering Price |
|
As a % of
Your
Investment* |
|
Dealer
Compensation
as a % of
Offering Price |
|
| Less than
$25,000 |
|
5.25 |
% |
|
5.54 |
% |
|
5.00 |
% |
|
$25,000 but less
than $50,000 |
|
4.75 |
% |
|
4.99 |
% |
|
4.50 |
% |
|
$50,000 but less
than $100,000 |
|
4.00 |
% |
|
4.17 |
% |
|
3.75 |
% |
|
$100,000 but less
than $250,000 |
|
3.00 |
% |
|
3.09 |
% |
|
2.75 |
% |
|
$250,000 but less
than $1,000,000 |
|
2.00 |
% |
|
2.04 |
% |
|
1.80 |
% |
|
| $1,000,000 and
over** |
|
0.00 |
% |
|
0.00 |
% |
|
0.00 |
% |
|
*
|
Rounded to
the nearest one-hundredth percent.
|
**
|
If you
invest $1,000,000 or more in Class I or A shares, you may not pay an
initial sales charge. In that case, the Investment Adviser
compensates the selling dealer or other financial intermediary from
its own funds. If you redeem your shares within one year after
purchase, you may be charged a deferred sales charge. This charge is
1% of the lesser of the original cost of the shares being redeemed or
your redemption proceeds. A sales charge of 0.75% will be charged on
purchases of $1,000,000,000 or more of Class I and A shares by
certain employer-sponsored retirement or savings
plans.
|
No initial sales
charge applies to Class I or Class A shares that you buy through
reinvestment of dividends.
A reduced or
waived sales charge on a purchase of Class I or A shares may apply
for:
|
Ÿ
|
Purchases
under a Right of Accumulation or Letter of
Intent
|
|
Ÿ
|
Certain trusts
managed by banks, thrifts or trust companies including those
affiliated with the Investment Adviser or its affiliates
|
|
Ÿ
|
Certain
employer-sponsored retirement or savings plans
|
|
Ÿ
|
Certain
investors, including directors or trustees of mutual funds sponsored
by the Investment Adviser or its affiliates, employees of the
Investment Adviser and its affiliates and employees or customers of
selected securities dealers
|
|
Ÿ
|
Certain
fee-based programs of the Investment Adviser or its
affiliates
|
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] Account
Choices
|
Ÿ
|
Certain
fee-based programs of selected securities dealers and other financial
intermediaries that have an agreement with the Distributor or its
affiliates
|
|
Ÿ
|
Purchases
through certain financial advisers that meet and adhere to standards
established by the Investment Adviser or its affiliates
|
|
Ÿ
|
Purchases
through certain accounts over which the Investment Adviser or an
affiliate exercises investment discretion
|
Only certain
investors are eligible to buy Class I shares, including existing Class
I shareholders of the Fund, certain retirement plans and participants
in certain programs sponsored by the Investment Adviser or its
affiliates. Your financial consultant, selected securities dealer or
other financial intermediary can help you determine whether you are
eligible to buy Class I 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 I and Class A shares, you should buy Class I
shares since Class A shares are subject to a 0.25% account maintenance
fee, while Class I shares are not.
If you redeem
Class I or Class A 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 financial consultant, selected securities
dealer, other financial intermediary or the Fund’s Transfer Agent
at 1-888-763-2260.
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
six 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 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
charges and the distribution fees to cover the costs of marketing,
advertising and compensating the financial consultant, selected
securities dealer or other financial intermediary who assists you in
your decision in purchasing Fund shares.
MERCURY SMALL
CAP VALUE FUND, INC.
[GRAPHIC] Account
Choices
Class B
Shares
If you redeem
Class B shares within six 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:
| Years Since
Purchase |
|
Sales
Charge* |
|
| 0-1 |
|
4.00% |
|
| 1-2 |
|
4.00% |
|
| 2-3 |
|
3.00% |
|
| 3-4 |
|
3.00% |
|
| 4-5 |
|
2.00% |
|
| 5-6 |
|
1.00% |
|
| 6 and thereafter |
|
None |
|
| * 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 through reinvestment of dividends are not subject to a
deferred sales charge. Mercury funds may not all have identical
deferred sales charge schedules. In the event of an exchange for the
shares of another Mercury fund, the higher charge, if any, would
apply. |
|
| |
|
| The deferred
sales charge relating to Class B shares may be reduced or waived in
certain circumstances, such as: |
|
|
Ÿ
|
Certain
post-retirement withdrawals from an IRA or other retirement plan
if you are over 59 1
/2 years old
|
|
|
Ÿ |
Redemption
by certain eligible 401(a) and 401(k) plans and certain
retirement plan rollovers |
|
|
Ÿ |
Redemption in connection with participation in certain
fee-based programs of the Investment Adviser or its
affiliates |
|
|
Ÿ |
Redemption in connection with participation in certain
fee-based programs of selected securities dealers or other
financial intermediaries that have agreements with the
Distributor or its affiliates |
|
|
Ÿ |
Withdrawals resulting from shareholder death or
disability as long as the waiver request is made within one
year after death or disability or, if later, reasonably
promptly following completion of probate, or in connection
with involuntary termination of an account in which Fund
shares are held |
|
|
Ÿ |
Withdrawal through the Systematic Withdrawal Plan of up
to 10% per year of your Class B account value at the time the
plan is established |
MERCURY
SMALL CAP VALUE FUND, INC.
[GRAPHIC]
Account Choices
Your
Class B shares convert automatically into Class A 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 A shares are
subject to lower annual expenses than Class B shares. The
conversion of Class B shares to Class A shares is not a taxable
event for Federal income tax purposes.
Different conversion schedules may apply to Class B
shares of different Mercury mutual 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
Systematic Withdrawal Plan.
Class C
shares do not offer a conversion privilege.
MERCURY
SMALL CAP VALUE FUND, INC.
[GRAPHIC]
Account Choices
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The
chart on the following pages summarizes how to buy, sell,
transfer and exchange shares through your financial consultant,
selected securities dealer, broker, investment adviser, service
provider or other financial intermediary. You may also buy
shares through the Transfer Agent. To learn more about buying,
selling, transferring or exchanging shares through the Transfer
Agent, call 1-888-763-2260. Because the selection of a mutual
fund involves many considerations, your financial consultant,
selected securities dealer or other financial intermediary may
help you with this decision. The Fund does not issue share
certificates.
Because
of the high cost of maintaining smaller shareholder accounts,
the Fund may redeem the shares in your account (without
charging any deferred sales charge) if the net asset value of
your account falls below $500 due to redemptions you have made.
You will be notified that the value of your account is less
than $500 before the Fund makes an involuntary redemption. You
will then have 60 days to make an additional investment to
bring the value of your account to at least $500 before the
Fund takes any action. This involuntary redemption does not
apply to retirement plans or Uniform Gifts or Transfers to
Minors Act accounts (“UGMA/UTMA
accounts”).
MERCURY
SMALL CAP VALUE FUND, INC.
[GRAPHIC]
Account Choices
| If you want
to |
|
Your
choices |
|
Information
important for you to know |
|
| Buy
shares |
|
First, select
the share class
appropriate for you |
|
Please refer to
the pricing of shares table on page 16. Be sure to read
this prospectus carefully. |
|
| |
|
Next, determine
the amount of
your investment |
|
The minimum
initial investment for the Fund is $1,000 for all accounts
except: |
| |
|
|
|
Ÿ $500 for
certain fee-based programs |
| |
|
|
|
Ÿ $100 for
retirement plans |
| |
| |
|
|
|
(The minimums
for initial investments may be waived or reduced
under certain circumstances.) |
|
| |
|
Have your
financial consultant,
selected securities dealer, or
other financial intermediary
submit your purchase order |
|
The price of
your shares is based on the next calculation of net asset
value after your order is placed. Any purchase orders placed
prior to the close of business on the New York Stock
Exchange (generally, 4:00 p.m. Eastern time) will be priced at
the net asset value determined that day. However, certain
financial intermediaries may require submission of orders
prior to that time. |
| |
| |
|
|
|
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.
Certain selected securities dealers or financial intermediaries
may charge a fee to process a purchase. For example, the fee
charged by Merrill Lynch, Pierce, Fenner & Smith
Incorporated is currently $5.35. The fees charged by other
selected securities dealers or financial intermediaries may be
higher or lower. |
|
| |
|
Or contact the
Transfer Agent |
|
To purchase
shares directly, call the Transfer Agent at 1-888-763-2260
and request a purchase application. Mail the completed purchase
application to the Transfer Agent at the address on the inside
back
cover of this prospectus. |
|
Add to your
investment |
|
Purchase
additional shares |
|
The minimum
investment for additional purchases is $100 for all
accounts except: |
| |
|
|
|
Ÿ $50 for
certain fee-based programs |
| |
|
|
|
Ÿ $1 for
retirement plans |
| |
| |
|
|
|
(The minimums
for additional purchases may be waived under certain
circumstances.) |
|
| |
|
Acquire
additional shares
through the automatic dividend
reinvestment plan |
|
All dividends
are automatically reinvested without a sales
charge. |
|
| |
|
Participate in
the automatic
investment plan |
|
Ÿ You may
invest a specific amount in the Fund on a periodic basis
through your selected securities dealer or other financial
intermediary. |
| |
|
|
|
Ÿ The
current minimum for such automatic investments is $50. The
minimum may be waived or revised under certain
circumstances. |
|
Transfer shares
to
another selected
securities dealer
or other financial
intermediary |
|
Transfer to a
participating
selected securities dealer or
other financial intermediary |
|
You may
transfer your Fund shares only to another selected securities
dealer or other financial intermediary if authorized agreements
are in
place between the Distributor and the transferring securities
dealer or
financial intermediary and the Distributor and the receiving
selected
securities dealer or other financial intermediary. Certain
shareholder
services may not be available for all transferred shares. All
future
trading of these shares must be coordinated by the receiving
selected
securities dealer or other financial intermediary. |
|
MERCURY
SMALL CAP VALUE FUND, INC.
[GRAPHIC] Account
Choices
| If you want
to |
|
Your
choices |
|
Information
important for you to know |
|
| |
|
Transfer to a
non-participating |
|
You must
either: |
| |
|
selected
securities dealer or |
|
Ÿ Transfer
your shares to an account with the Transfer Agent;
or |
| |
|
other financial
intermediary |
|
Ÿ Sell your
shares, paying any applicable deferred sales
charge. |
|
| Sell your
shares |
|
Have your
financial consultant,
selected securities dealer, or
other financial intermediary
submit your sales order |
|
The price of
your shares is based on the next calculation of net asset
value after your order is placed. For your redemption request to
be
priced at the net asset value on the day of your request, you
must
submit your request to your selected securities dealer or
financial
intermediary prior to that day’s close of business on the
New York
Stock Exchange (generally, 4:00 p.m. Eastern time). However,
certain
financial intermediaries may require submission of orders prior
to that
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. |
| |
| |
|
|
|
Certain
selected securities dealers or other financial intermediaries
may charge a fee to process a sale of shares. For example, the
fee charged by Merrill Lynch, Pierce, Fenner & Smith
Incorporated is currently $5.35.
No processing fee is charged if you redeem the shares directly
through
the Transfer Agent. The fees charged by other selected securities
dealers or other financial intermediaries may be higher or
lower. |
| |
| |
|
|
|
The Fund may
reject an order to sell shares under certain
circumstances. |
|
| |
|
Sell through
the Transfer Agent |
|
You may sell
shares held at the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of this
prospectus. All shareholders on the account must sign the
letter. A
signature guarantee will generally be required but may be waived
in
certain limited circumstances. You can obtain a signature
guarantee
from a bank, securities dealer, securities broker, credit union,
savings
association, national securities exchange and registered
securities
association. A notary public seal will not be acceptable. 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. |
|
Sell shares
systematically |
|
Participate in
the Fund’s
Systematic Withdrawal Plan |
|
You can
generally arrange through your selected securities dealer or
other financial intermediary for systematic sales of shares of a
fixed
dollar amount on a monthly, bi-monthly, quarterly, semi-annual or
annual basis, subject to certain conditions. 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 the Plan is established. The deferred sales
charge is
waived for systematic sales of shares. Ask your financial
consultant,
selected securities dealer or other financial intermediary for
details. |
|
MERCURY
SMALL CAP VALUE FUND, INC.
| If you want to |
|
Your choices |
|
Information important for you
to know |
|
Exchange your
shares |
|
Select the fund
into which you
want to exchange. Be sure to
read that fund’s prospectus |
|
You can
exchange your shares of the Fund for shares of other
Mercury mutual funds or for shares of the Summit Cash
ReservesFund. You must have held the shares used in the
exchange for at least 15 calendar days before you can exchange
to another fund. |
| |
| |
|
|
|
Each class of
Fund shares is generally exchangeable for shares of the same
class of another Mercury fund. If you own Class I shares and
wish to exchange into a fund in which you have no Class I
shares (and you are not eligible to buy Class I shares), you
will exchange into Class A shares. If you own Class I or Class
A shares and wish to exchange into Summit, you will exchange
into Class A shares of Summit. Class B or Class C shares can
be exchanged for Class B shares of Summit. |
| |
| |
|
|
|
Some of the
Mercury mutual funds may impose a different initial
or deferred sales charge schedule. If you exchange Class I or
Class A shares for shares of a fund with a higher initial sales
charge than you originally paid, you may be charged the
difference at the time of exchange. If you exchange Class B or
Class C shares for shares of a fund with a different deferred
salescharge schedule, the higher schedule will apply. The time
you hold Class B or Class C shares in both funds will count
when determining your holding period for calculating a
deferred sales charge at redemption. Your time in both funds
will also count when determining the holding period for a
conversion from Class B to Class A shares. |
| |
| |
|
|
|
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. |
|
Certain
financial intermediaries may charge additional fees in
connection with transactions in Fund shares. The Fund may accept
orders from certain authorized financial intermediaries or their
designees. The Fund will be deemed to receive an order when
accepted by the intermediary or designee and the order will
receive the NAV next computed by the Fund after such acceptance.
If the payment for a purchase order is not made by a designated
later time, the order will be canceled and the financial
intermediary could be held liable for any losses.
The
Investment Adviser, the Distributor or their affiliates may make
payments out of their own resources to selected securities
dealers and other financial intermediaries for providing
services intended to result in the sale of Fund shares or for
shareholder servicing activities.
MERCURY
SMALL CAP VALUE FUND, INC.
[GRAPHIC] Account
Choices
Net Asset
Value — the market value in U.S. dollars
of the Fund’s total assets after deducting liabilities,
divided by the number of shares outstanding.
When you
buy shares, you pay the net asset value, plus any applicable
sales charge. This is the offering price. Shares are also
redeemed at their net asset value, minus any applicable deferred
sales charge. The Fund calculates its net asset value (generally
by using market quotations) each day the New York Stock Exchange
is open as of the close of business on the Exchange based on
prices at the time of closing. The Exchange generally closes at
4:00 p.m. Eastern time. The net asset value used in determining
your price is the next one calculated after your purchase or
redemption order is placed. Foreign securities owned by the 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 I shares will have the highest net asset
value because that class has the lowest expenses, and Class A
shares will have a higher net asset value than Class B or Class
C shares. Also, dividends paid on Class I and Class A shares
will generally be higher than dividends paid on Class B and
Class C shares because Class I and Class A shares have lower
expenses.
If you
participate in certain fee-based programs offered by the
Investment Adviser or an affiliate of the Investment Adviser, or
by selected securities dealers or other financial intermediaries
that have an agreement with the Distributor or its affiliates,
you may be able to buy Class I 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 generally 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 the Summit 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 A 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.
MERCURY
SMALL CAP VALUE FUND, INC.
[GRAPHIC] Account
Choices
Dividends — ordinary income and capital gains paid to
shareholders. Dividends may be reinvested in additional Fund
shares as they are paid.
“Buying a
Dividend”
Unless your
investment is in a tax-deferred account, you may want to avoid
buying shares shortly before a Fund pays a dividend. The reason?
If you buy shares when a fund has realized but not yet
distributed ordinary income or capital gains, you will pay the
full price for the shares and then receive a portion of the
price back in the form of a taxable dividend. Before investing
you may want to consult your tax adviser.
Details
about these features and the relevant charges are included in
the client agreement for each fee-based program and are
available from your financial consultant, selected securities
dealer or other financial intermediaries.
The Fund
will distribute at least annually any net investment income and
any net realized long or short term capital gains. The Fund may
also pay a special distribution at the end of the calendar year
to comply with Federal tax requirements. Dividends may be
reinvested automatically in shares of the Fund at net asset
value without a sales charge or may be taken in cash. If your
account is with a securities dealer that has an agreement with
the Fund, contact your financial consultant about which option
you would like. If your account is with the Transfer Agent, and
you would like to receive dividends in cash, contact the
Transfer Agent. Although this can not be predicted with any
certainty, the Fund anticipates that the majority of its
dividends, if any, will consist of capital gains. Capital gains
may be taxable to you at different rates depending, in part, on
how long the Fund has held the assets sold.
You will
pay tax on dividends from the Fund whether you receive them in
cash or additional shares. If you redeem Fund shares or exchange
them for shares of another fund, you generally will be treated
as having sold your shares and any gain on the transaction may
be subject to tax. Capital gain dividends are generally taxed at
different rates than ordinary income dividends.
If you
are neither a lawful permanent resident nor a citizen of the
United States or if you are a foreign entity, the Fund’s
ordinary income dividends (which include distributions of net
short-term capital gains) will generally be subject to a 30%
United States withholding tax, unless a lower treaty rate
applies.
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.
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.
MERCURY
SMALL CAP VALUE FUND, INC.
[GRAPHIC] The
Management Team
Fund
Asset Management, the Fund’s Investment Adviser, manages
the portfolio’s investments under the overall supervision
of the Board of Trustees of the 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 an investment
advisory fee at the annual rate of .50% of the average daily net
assets of the Trust for the first $1 billion; 0.475% of the net
assets from $1 billion to $1.5 billion; and 0.45% of net assets
above $1.5 billion. The Fund pays the Investment Adviser an
administrative fee at the annual rate of 0.25% of the average
daily net assets of the Fund.
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. The Asset
Management Group had approximately $550 billion in investment
company and other portfolio assets under management as of
January 2000. This amount includes assets managed for Merrill
Lynch affiliates.
See
“Fees and Expenses” under “Fund Facts” for
information about the fees paid to the Investment Adviser and
its affiliates.
The Fund
is a “feeder” fund that invests all of its assets in
the Trust. (Except where indicated, this prospectus uses the
term “Fund” to mean the feeder fund and the Trust
taken together.) Investors in the Fund will acquire an indirect
interest in the Trust.
The Trust
may accept investments from other feeder funds, and all the
feeders of the Trust 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 may also reduce certain transaction costs to the
extent that contributions to and redemptions from the master
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 Trust on more attractive terms, or could
experience better performance, than another feeder. Information
about other feeders is available by calling
1-800-MER-FUND.
MERCURY
SMALL CAP VALUE FUND, INC.
[GRAPHIC] The
Management Team
Whenever
the Trust holds a vote of its feeder funds, the Fund 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 the master
portfolio.
The Fund
may withdraw from the Trust 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.
[Discussion
and Report of Merrill Lynch Special Value Fund, Inc. Performance
to be provided]
MERCURY
SMALL CAP VALUE FUND, INC.
Fund
Mercury
Small Cap Value Fund, Inc.
P.O. Box
9011
Princeton, New Jersey 08543-9011
(888-763-2260)
Investment
Adviser
Administrative Offices:
Fund
Asset Management, L.P.
800
Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing
Address:
P.O. Box
9011
Princeton, New Jersey 08543-9011
Transfer
Agent
Financial
Data Services, Inc.
Administrative Offices
4800 Deer
Lake Drive East
Jacksonville, Florida 32246-6464
Mailing
Address:
P.O. Box
44062
Jacksonville, Florida 32232-4062
(888-763-2260)
Independent
Auditors
Distributor
Mercury
Funds Distributor,
a
division of Princeton Funds Distributor, Inc.
P.O. Box
9081
Princeton, New Jersey 08543-9081
Custodian
The Bank
of New York
90
Washington Street, 12th Floor
New York,
New York 10286
Counsel
Brown
& Wood LLP
One World
Trade Center
New York,
New York 10048-0557
MERCURY
SMALL CAP VALUE FUND, INC.
[GRAPHIC] To
Learn More
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 1-888-763-2260.
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 financial consultant or write to the Transfer Agent at
its mailing address. Include your name, address, tax
identification number and brokerage or mutual fund account
number. If you have any questions, please call your financial
consultant or the Transfer Agent at 1-888-763-2260.
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 or calling the Fund at Financial
Data Services, Inc., P.O. Box 44062, Jacksonville, Florida
32232-4062 or by calling 1-888-763-2260.
Contact
your 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
1-202-942-8090 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 electronic
request at the following E-mail address: [email protected], or
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 in this
prospectus.
Investment Company Act File
#811-
CODE
#
©
Fund Asset Management, L.P.
Mercury Small Cap Value Fund, Inc.
[TO
COME]
PROSPECTUS ·
, 2000
STATEMENT OF ADDITIONAL INFORMATION
Mercury Small Cap Value Fund, Inc.
P.O.
Box 9011, Princeton, New Jersey
08543-9011 Ÿ Phone No. (888) 763-2260
Mercury
Small Cap Value Fund, Inc. (the “Fund”) is a
diversified, open-end investment company organized as a Maryland
corporation.
The
investment objective of the Fund is to seek long-term growth of
capital by investing in a diversified portfolio of securities,
primarily common stocks, of relatively small companies that
management of the Fund believes have special investment value
and emerging growth companies regardless of size. Current income
is not a factor in management’s selection of companies in
which the Fund will invest. For more information on the
Fund’s investment objective and policies, see
“Investment Objective and Policies.”
The Fund
is a “feeder” fund that invests all of its assets in
the Master Small Cap Value Trust (the “Trust”) which
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 Trust. There can be no assurance that the Fund will achieve
its investment objective.
The Fund
offers four classes of shares, each with a different combination
of sales charges, ongoing fees and other features. These
alternatives permit 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 Fund,
dated
[
], 2000 (the
“Prospectus”), which has been filed with the
Securities and Exchange Commission (the “Commission”)
and can be obtained, without charge, by calling the Fund at
1-888-763-2260 or your 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
Mercury Funds
Distributor — Distributor
The date
of this Statement of Additional Information is
[
, 2000].
TABLE
OF CONTENTS
| |
|
Page |
| |
| Investment Objective and Policies |
|
2 |
|
Description of Certain Investments |
|
3 |
|
Investment in Foreign Issuers |
|
6 |
|
European Economic and Monetary Union |
|
6 |
|
Derivatives |
|
7 |
|
Other Investment Policies and Practices |
|
12 |
|
Investment Restrictions |
|
12 |
|
Portfolio Turnover |
|
14 |
| Management of the Fund |
|
14 |
|
Directors/Trustees and Officers |
|
14 |
|
Compensation of Directors/Trustees |
|
16 |
|
Management and Advisory Arrangements |
|
16 |
|
Administration Arrangements |
|
18 |
|
Code of Ethics |
|
19 |
| Purchase of Shares |
|
19 |
|
Initial Sales Charge Alternatives—Class I and
Class A Shares |
|
20 |
|
Reduced Initial Sales Charges |
|
21 |
|
Deferred Sales Charge Alternatives—Class B
and Class C Shares |
|
22 |
|
Distribution Plans |
|
25 |
|
Limitations on the Payment of Deferred Sales
Charges |
|
26 |
| Redemption of Shares |
|
26 |
|
Redemption |
|
27 |
|
Repurchase |
|
27 |
|
Reinstatement Privilege—Class I and Class A
Shares |
|
28 |
| Pricing
of Shares |
|
28 |
|
Determination of Net Asset Value |
|
28 |
|
Computation of Offering Price Per Share |
|
30 |
| Portfolio Transactions and Brokerage |
|
30 |
|
Transactions in Portfolio Securities |
|
30 |
| Shareholder Services |
|
32 |
|
Investment Account |
|
32 |
|
Exchange Privilege |
|
32 |
|
Fee-Based Programs |
|
34 |
|
Retirement Plans |
|
34 |
|
Automatic Investment Plans |
|
34 |
|
Automatic Dividend Reinvestment Plan |
|
35 |
|
Systematic Withdrawal Plans |
|
35 |
| Dividends and Taxes |
|
36 |
|
Dividends |
|
36 |
|
Taxes |
|
36 |
|
Tax Treatment of Options, Futures and Forward
Foreign Exchange Transactions |
|
38 |
|
Special Rules for Certain Foreign Currency
Transactions |
|
38 |
| Performance Data |
|
39 |
| General
Information |
|
40 |
|
Description of Shares |
|
40 |
|
Independent Auditors |
|
41 |
|
Custodian |
|
41 |
|
Transfer Agent |
|
41 |
|
Legal Counsel |
|
41 |
|
Reports to Shareholders |
|
41 |
|
Shareholder Inquiries |
|
42 |
|
Additional Information |
|
42 |
INVESTMENT OBJECTIVE AND POLICIES
The
investment objective of the Fund is to seek long-term growth of
capital by investing in a diversified portfolio of securities,
primarily common stock, of relatively small companies that
management of the Fund believes have special investment value
and emerging growth companies regardless of size. Current income
is not a factor in the selection of securities. The Fund is
intended to provide an opportunity for investors who are not
ordinarily in a position to perform the specialized type of
research or analysis involved in investing in small and emerging
growth companies and to invest sufficient assets in such
companies to provide wide diversification.
In
attempting to achieve its investment objective, the Fund may
employ various investment strategies. Management seeks to
identify those companies that can show significant and sustained
increases in earnings over an extended period of time. This
strategy focuses on the long-range view of a company’s
prospects, primarily through fundamental analysis of its
management, financial structure, product development, marketing
ability and other relevant factors. Management anticipates
applying such a strategy of fundamental analysis to small and
emerging growth companies.
Management also may seek to identify companies that can
show favorable investment potential through analysis of the
economy and the financial markets. This strategy focuses on the
long-range view of a company’s market valuation, primarily
through analysis of economic trends, valuation models, market
statistics and other quantitative factors applicable to specific
companies, industries or economic sectors.
While it
is the policy of the Fund generally not to engage in trading for
short-term gains, the management will effect portfolio
transactions without regard to holding period if, in its
judgment, such transactions are advisable in light of a change
in circumstances of a particular company or within a particular
industry or in general market, economic or financial
conditions.
Additionally, management of the Fund may, from time to
time, identify a number of companies that it believes share
favorable investment potential. These companies are often in a
particular industry or related industries or market segments. At
times, the Fund may acquire the securities of such companies
together as a “basket” or group in a single
transaction. The Fund may subsequently sell such
“basket” as a unit or it may sell only selected
securities and continue to hold other securities acquired in the
“basket.”
The Fund
may also acquire or dispose of “baskets” of securities
as a means of rapidly increasing or decreasing exposure to the
markets in response to the Fund’s cash flow (primarily, the
effects of net purchases or net redemptions of the Fund’s
shares). These “baskets” may be comprised of
securities selected solely because their aggregate volatility
appears to substantially correlate to the volatility of the
markets (or a portion of the markets) in which the Fund invests,
although the Fund may continue to hold particular securities
included in such a “basket” based on their favorable
investment potential.
The Fund
is a “feeder” fund that invests all of its assets in
the Trust, which 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 Trust. For simplicity, however, this
Statement of Additional Information, like the Prospectus, uses
the term “Fund” to include the Trust. There can be no
assurance that the investment objective of the Fund or the
investment objective of the Trust will be realized. The
investment objective of the Fund is a fundamental policy of the
Fund and may not be changed without the approval of a majority
of the Fund’s outstanding voting securities as defined in
the Investment Company Act of 1940, as amended (the
“Investment Company Act”). The investment objective of
the Trust is a fundamental policy of the Trust and may not be
changed without the approval of a majority of the Trust’s
outstanding voting securities as defined in the Investment
Company Act. 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’s investment objective and policies.
Management believes that while the companies in which it
invests present above-average risks, properly selected companies
of this type also 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. Because of its
focus on small cap and emerging growth equity securities, the
Fund should be considered as a vehicle for diversification and
not as complete investment program.
Description of Certain Investments
Temporary Investments. The
Fund reserves the right, as a temporary defensive measure, to
invest, without limitation, in other types of securities,
including non-convertible preferred stocks and debt securities,
U.S. Government and money market securities, including
repurchase agreements or cash (“Temporary
Investments”). Under certain adverse investment conditions,
the Fund may restrict the markets in which its assets will be
invested and may increase the proportion of assets invested in
Temporary Investments. Investments made for defensive purposes
will be maintained only during periods in which the Investment
Adviser determines that economic or financial conditions are
adverse for holding or being fully invested in equity
securities. A portion of the Fund’s assets normally would
be held in Temporary Investments in anticipation of investment
in equity securities or to provide for possible
redemptions.
Securities of Smaller or Emerging Growth
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
issuers in which the Fund will primarily 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.
Management 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 judgement 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 management
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 enterprises have promise but lack certain of the fundamental
factors necessary to prosper. Investing in small and emerging
growth 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. Management of the Fund believes that relatively
small 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 portfolio.
Equity
securities of specific small cap issuers 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.
Convertible
Securities. Convertible securities
entitle the holder to receive interest payments 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.
The
characteristics of convertible securities 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. 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 herein, 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 for the underlying 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.
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 (“restricted
securities”) under the Securities Act of 1933, as amended
(the “Securities Act”). Restricted securities may be
sold in private placement transactions between 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 of Directors 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 of
Directors has adopted guidelines and delegated to the Investment
Adviser the daily function of determining and monitoring
liquidity of restricted securities. The Board of Directors,
however, will retain sufficient oversight and be ultimately
responsible for the determinations. 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 of Directors 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.
Repurchase Agreements. As a
Temporary Investment, the Fund may invest in securities pursuant
to repurchase agreements. U.S. dollar-denominated repurchase
agreements may be entered into only with a member bank of the
Federal Reserve System or a primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the
bank or primary dealer or an affiliate thereof agrees, upon
entering into the contract, to repurchase the security at a
mutually agreed upon time and price 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. The prices at which the trades are
conducted do not reflect accrued interest on the underlying
obligations and 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. 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. 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
disposition of the collateral. In the event of a default under
such a repurchase agreement 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 security
and the accrued interest on the security. In such event, the
Fund would have rights against the seller for breach of contract
with respect to any losses arising from market fluctuations
following the failure of the seller to perform.
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, 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 and not more than 5% of the value
of the Fund’s total assets may be invested in the
securities of any investment company. If the Fund acquires
shares in investment companies, shareholders would bear 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 Funds in wholly owned investment
entities created under the laws of certain countries will not be
deemed an investment in other investment companies.
Investment in Foreign Issuers
General. It is anticipated
that, in the immediate future, not more than 30% of the
Fund’s total net assets taken at market value at the time
of their acquisition will be invested in the securities of
foreign issuers. Investment in securities of foreign issuers
involves certain risks not typically involved in domestic
investments, including fluctuations in foreign exchange rates,
future political and economic developments, different legal
systems and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. Securities
prices in different countries are subject to different economic,
financial, political and social factors. Changes in foreign
currency exchange rates will affect the value of securities in
the Fund and the unrealized appreciation or depreciation of
investments. In addition, with respect to certain foreign
countries, there is the possibility of expropriation of assets,
confiscatory taxation, difficulty in obtaining or enforcing a
court judgment, economic, political or social instability or
diplomatic developments that could affect investments in those
countries. Certain foreign investments also may be subject to
foreign withholding taxes. These risks often are heightened for
investments in smaller, emerging capital markets.
Public
Information. Securities of foreign
issuers may not be registered with the Commission, nor may the
issuers thereof be subject to the reporting requirements of such
agency. Accordingly, there may be less publicly available
information about a foreign issuer than about a U.S. issuer and
such foreign issuers may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to
those of U.S. issuers.
Trading Volume, Clearance and
Settlement. Foreign financial
markets, while generally growing in trading volume, typically
have substantially less volume than U.S. markets, and securities
of many foreign companies are less liquid and their prices more
volatile than securities of comparable domestic companies. The
foreign markets also have different clearance and settlement
procedures. Delays in settlement could result in periods when
assets of the Fund are uninvested and no return is earned
thereon. The inability to dispose of a portfolio security due to
settlement problems could result either in losses to the Fund
due to subsequent declines in the value of such portfolio
security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the
purchaser.
Government Supervision and
Regulation. There generally is less
governmental supervision and regulation of exchanges, brokers
and issuers in foreign countries than there is in the United
States. For example, there may be no comparable provisions under
certain foreign laws to insider trading and similar investor
protection securities laws that apply with respect to securities
transactions consummated in the United States. Further,
brokerage commissions and other transaction costs on foreign
securities exchanges generally are higher than in the United
States.
European Economic and Monetary Union
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) have been 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 conversions 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. This risk is known as
“Correlation Risk.”
The Fund
may use the following types of Derivative instruments and
trading strategies:
Options on Securities and
Securities Indices
Purchasing Put Options. The
Fund may purchase put options on securities held in its
portfolio or 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 upfront 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.
However, the Fund will not purchase options on securities if, as
a result of such purchase, the aggregate cost (option plus
premiums paid) of all outstanding options on securities held by
the Fund would exceed 5% of the market value of the Fund’s
total assets.
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 an
option on a securities index, securities which substantially
correlate with the performance of such index) or owns a call
option, warrant or convertible instrument which is immediately
exercisable for, or convertible into, such security.
The Fund
may not write covered options on underlying securities exceeding
50% of its net assets, taken at market value. The Fund will not
purchase options on securities (including stock index options)
if as a result of such purchase, the aggregate cost of all
outstanding options on securities held by the Fund would exceed
5% of the market value of the Fund’s total
assets.
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 about 5%)
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.
An order
has been obtained from the Commission exempting the Fund from
the provisions of Section 17(f) and Section 18(f) of the
Investment Company Act in connection with its strategy of
investing in futures contracts. Section 17(f) relates to the
custody of securities and other assets of an investment company
and may be deemed to prohibit certain arrangements between the
Fund and commodities brokers with respect to initial and
variation margin. Section 18(f) of the Investment Company Act
prohibits an open-end investment company such as the Fund from
issuing a “senior security” other than a borrowing
from a bank. The staff of the Commission has in the past
indicated that a futures contract may be a “senior
security” under the Investment Company Act.
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 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.” 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 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
decreases 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 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
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 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 Strategic Instruments traded in OTC markets only
with financial institutions which have substantial capital or
which have provided the Fund with a third-party guaranty or
other credit enhancement.
Other
Investment Policies and Practices
Securities Lending. The Fund
may lend securities with a value not exceeding 20% of its total
assets to banks, brokers and other financial institutions. In
return, the Fund receives collateral in cash or securities
issued or guaranteed by the U.S. Government which will be
maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities. During the
period of such a loan, the Fund typically receives the income on
both the loaned securities and the collateral and thereby
increases its yield. In certain circumstances, the Fund may
receive a flat fee for its loans. Such 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.
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 equity securities which
the Fund believes are undervalued, 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 undervalued equity securities, including the risk
of loss of principal.
Investment Restrictions
The Fund
has adopted a number of fundamental and non-fundamental
restrictions and policies relating to the investment of its
assets and its activities. The fundamental policies 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
means the lesser of (i) 67% of the Fund’s shares present at
a meeting at which more than 50% of the outstanding shares of
the Fund are represented or (ii) more than 50% of the
Fund’s outstanding shares). The Fund may not:
|
(1) Make any investment inconsistent with the
Fund’s classification as a diversified company under the
Investment Company Act.
|
|
(2) Invest more than 25% of its assets, taken
at market value 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).
|
|
(3) Make investments for the purpose of
exercising control or management.
|
|
(4) Purchase or sell real estate, except
that, to the extent permitted by applicable law, the Fund may
invest in securities directly or indirectly secured by real
estate or interests therein or issued by companies that invest
in real estate or interests therein.
|
|
(5) Make loans to other persons, except that
the acquisition of bonds, debentures or other corporate debt
securities and investment in government obligations,
commercial paper, pass-through instruments, certificates of
deposit, bankers’ acceptances, repurchase agreements or
any similar instruments shall not be deemed to be the making
of a loan, and except further that the Fund may lend its
portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law
and the guidelines set forth in the Prospectus and this
Statement of Additional Information, as they may be amended
from time to time.
|
|
(6) Issue senior securities to the extent
such issuance would violate applicable law.
|
|
(7)
Borrow money, except that (i) the Fund may borrow from
banks (as defined in the Investment Company Act) in amounts up
to 33 1
/3% of
its total assets (including the amount borrowed), (ii) the
Fund may, to the extent permitted by applicable law, borrow up
to an additional 5% of its total assets for temporary
purposes, (iii) the Fund may obtain such short- term credit as
may be necessary for the clearance of purchases and sales of
portfolio securities and (iv) the Fund may purchase securities
on margin to the extent permitted by applicable law. The Fund
may not pledge its assets other than to secure such borrowings
or, to the extent permitted by the Fund’s investment
policies as set forth in the 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.
|
|
(8) Underwrite securities of other issuers,
except insofar as the Fund technically may be deemed an
underwriter under the Securities Act, in selling portfolio
securities.
|
|
(9) Purchase or sell commodities or contracts
on commodities, except to the extent that the Fund may do so
in accordance with applicable law and the Fund’s
Prospectus and 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.
|
In
addition, the Fund has adopted non-fundamental investment
restrictions that may be changed by the Board of Directors
without a vote of the Fund’s shareholders. Under the
non-fundamental investment restrictions, the Fund may
not:
|
(a) Purchase securities of other investment
companies, except to the extent such purchases are 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 the Fund’s
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 that cannot be
readily resold because of legal or contractual restrictions or
that cannot otherwise be marketed, redeemed or put to the
issuer or to a third party, if at the time of acquisition more
than 15% of its net assets would be invested in such
securities. This restriction shall not apply to securities
that mature within seven days or securities that the 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 (7) above, borrow amounts in excess of 5% of its
total assets, taken at market value, and then only from banks
as a temporary measure for extraordinary or emergency
purposes.
|
Portfolio
securities of the Fund generally may not be purchased from, sold
or loaned to the Investment Adviser or its affiliates or any of
their directors, officers or employees, acting as principal,
unless pursuant to a rule or exemptive order under the
Investment Company Act.
The staff
of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are
illiquid securities. Therefore, the Fund has adopted an
investment policy pursuant to
which it will not purchase or sell OTC options 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
investment restriction (1), 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 subject to material legal restrictions on
repatriation of assets or 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, Pierce, Fenner & Smith
Incorporated (“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.
Portfolio Turnover
The rate
of portfolio turnover is not a limiting factor and, giving the
Fund’s investment policies, it is anticipated that there
may be periods when high portfolio turnover will exist. The use
of covered call options at times when the underlying securities
are appreciating in value may result in higher portfolio
turnover. The Fund pays brokerage commissions in connection with
writing call options and effecting closing purchase
transactions, as well as in connection with purchases and sales
of portfolio securities. High portfolio turnover may result in
negative tax consequences, such as an increase in capital gain
dividends. See “Distributions and Taxes—Taxes.”
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 all securities
with maturities at the time of acquisition of one year or less)
by the monthly average value of the securities in the portfolio
during the year. Although the Fund anticipates that its annual
portfolio turnover rates should not exceed 100%, the turnover
rate may vary greatly from year to year or during periods within
a year. A high rate of portfolio turnover results in
correspondingly greater brokerage commission
expenses.
MANAGEMENT OF THE FUND
Directors/Trustees and Officers
The
Directors of the Fund consist of eight individuals, six of whom
are not “interested persons” of the Fund as defined in
the Investment Company Act (the “non-interested
Directors”). 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 Fund and perform the various duties imposed on
the directors of investment companies by the Investment Company
Act.
Information about the Directors/Trustees, executive
officers and the portfolio manager of the Fund, including their
ages and their principal occupations for at least the last five
years, is set forth below. Unless otherwise noted, the address
of each Director, executive officer and the portfolio manager is
P.O. Box 9011, Princeton, New Jersey 08543-9011.
TERRY
K. GLENN
(59)—President and
Director/Trustee(1)(2)—Executive Vice President of the
Investment Adviser and Merrill Lynch Asset Management, L.P.
(“MLAM”) (which terms as used herein include their
corporate predecessors) since 1983; Executive Vice President and
Director of Princeton Services, Inc. (“Princeton
Services”) since 1993; President of Princeton Funds
Distributor, Inc. (“PFD”) since 1986 and Director
thereof since 1991; President of Princeton Administrators, L.P.
since 1988.
M.
COLYER
CRUM
(67)—Director/Trustee(2)(3)—104 Westcliff Road,
Weston, Massachusetts 02493. Currently James R. Williston
Professor of Investment Management Emeritus, Harvard Business
School; James R. Williston Professor of Investment Management,
Harvard Business School, from 1971 to 1996; Director of
Cambridge Bancorp, Inc.
LAURIE
SIMON
HODRICK
(37)—Director/Trustee(2)(3)—809 Uris Hall, 3022
Broadway, New York, New York 10027. Professor of Finance and
Economics, Graduate School of Business, Columbia University
since 1998; Associate Professor of Finance and Economics,
Graduate School of Business, Columbia University from 1996 to
1998; Associate Professor of Finance, J. L. Kellogg Graduate
School of Management, Northwestern University from 1992 to
1996.
JACK
B. SUNDERLAND
(71)—Director/Trustee(2)(3)—P.O. Box 7, West
Cornwall, Connecticut 06796. President and Director of American
Independent Oil Company, Inc. (an energy company) since 1987;
Member of Council on Foreign Relations since 1971.
STEPHEN
B. SWENSRUD
(66)—Director/Trustee(2)(3)—24 Federal Street,
Suite 400, Boston, Massachusetts 02110. Chairman of Fernwood
Advisors (investment advisor) since 1996; Principal of Fernwood
Associates (financial consultants) since 1975; Chairman of
R.P.P. Corporation (Manufacturing) since 1978; Director of
International Mobile Communications, Inc. (Telecommunications)
since 1998.
J.
THOMAS
TOUCHTON
(60)—Director/Trustee(2)(3)—Suite 3405, One Tampa
City Center, 201 North Franklin Street, Tampa, Florida 33062.
Managing Partner of The Witt Touchton Company and its
predecessor, The Witt Co. (a private investment partnership),
since 1972; Trustee Emeritus of Washington and Lee University;
Director of TECO Energy, Inc. (an electric utility holding
company).
FRED
G. WEISS
(58)—Director/Trustee(2)(3)—16410 Maddalena
Place, Del Ray Beach, Florida 33446. Managing Director of FGW
Associates since 1997; Vice President, Planning Investment, and
Development of Warner Lambert Co. from 1979 to 1997.
ARTHUR
ZEIKEL
(67)—Director/Trustee(1)(2)—300 Woodland Avenue,
Westfield, New Jersey 07090. Chairman of the Investment Adviser
and MLAM from 1997 to 1999 and President thereof from 1977 to
1997; Chairman of Princeton Services from 1997 to 1999, Director
thereof from 1993 to 1999 and President thereof from 1993 to
1997; Executive Vice President of Merrill Lynch & Co., Inc.
(“ML & Co.”) from 1990 to 1999.
DANIEL
V. SZEMIS
(40)—Senior Vice President and Portfolio
Manager(1)—First Vice President of MLAM since 1997;
Vice President of MLAM from 1996 to 1997; Portfolio Manager with
Prudential Mutual Fund Investment Management Advisors from 1990
to 1996.
DONALD
C. BURKE
(39)—Vice President and Treasurer(1)(2)—Senior
Vice President and Treasurer of the Investment Adviser and MLAM
since 1999; Senior Vice President and Treasurer of Princeton
Services since 1999; First Vice President of the Investment
Adviser from 1997 to 1999; Vice President of the Investment
Adviser from 1990 to 1997; Director of Taxation of the
Investment Adviser since 1990.
ROBERT
C. DOLL
(45)—Senior Vice President(1)(2)—Senior Vice
President of the Investment Adviser and MLAM; Senior Vice
President of Princeton Services; Chief Investment Officer of
Oppenheimer Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
THOMAS
D. JONES
, III (34)—Secretary(1)(2)—Vice President of the
Investment Adviser since 1998; attorney with the Investment
Adviser and MLAM since 1992.
(1)
|
Interested person, as defined in the Investment Company
Act, of the Trust and the Fund.
|
(2)
|
Such
Director/Trustee or officer is a director, trustee or officer
of certain 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.
|
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 Board meeting
attended. The Fund and the Trust also compensate each member of
the Audit and Nominating Committee (the “Committee”),
which consists of all of the non-interested Directors/Trustees,
at the rate of $ per year.
The Fund and the Trust reimburse each non-interested
Director/Trustee for his or her out-of-pocket expenses relating
to attendance at Board and Committee meetings.
The
following table sets forth the aggregate compensation the Fund
and the Trust expect to pay to the non-interested
Directors/Trustees for the first full fiscal year and the
aggregate compensation paid by all investment companies advised
by the Investment Adviser and its affiliates (“FAM and
Affiliate-Advised Funds”) for the calendar year ended
December 31, 1999.
Name
|
|
Position with
Fund
|
|
Aggregate
Compensation
From
Fund/Trust
|
|
Pension or
Retirement Benefits
Accrued as Part of
Fund Expense
|
|
Estimated Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation
From Fund/Trust
and FAM and
Affiliate-Advised
Funds Paid to
Directors/Trustees(1)
|
| M.
Colyer Crum |
|
Director |
|
$
|
|
None |
|
None |
|
$122,975 |
| Laurie
Simon Hodrick |
|
Director |
|
$
|
|
None |
|
None |
|
$ 53,000 |
| Jack B.
Sunderland |
|
Director |
|
$
|
|
None |
|
None |
|
$143,975 |
| Stephen
B. Swensrud |
|
Director |
|
$
|
|
None |
|
None |
|
$232,250 |
| J.
Thomas Touchton |
|
Director |
|
$
|
|
None |
|
None |
|
$142,725 |
| Fred G.
Weiss |
|
Director |
|
$
|
|
None |
|
None |
|
$122,975 |
(1)
|
In
addition to the Fund and the Trust, the Directors/Trustees
serve on other boards of Affiliate-Advised Funds as follows:
Mr. Crum (14 registered investment companies consisting of 14
portfolios); Ms. Hodrick (14 registered investment companies
consisting of 14 portfolios); Mr. Sunderland (18 registered
investment companies consisting of 33 portfolios); Mr.
Swensrud (25 registered investment companies consisting of 61
portfolios); Mr. Touchton (18 registered investment companies
consisting of 33 portfolios); and Mr. Weiss (14 registered
investment companies consisting of 14 portfolios).
|
The
Directors of the Fund and the Trustees of the Trust may be
eligible for reduced sales charges on purchases of Class I
shares. See “Reduced Initial Sales Charges—Purchase
Privileges of Certain Persons.”
Management and Advisory Arrangements
Investment Advisory Services and
Fee. The Fund invests all of its
assets in shares of the Trust. Accordingly, the Fund does not
invest directly in portfolio securities and does not require
investment advisory services. All portfolio management occurs at
the level of the Trust. The Trust has entered into an investment
advisory agreement with FAM as Investment Adviser (the
“Advisory Agreement”). Subject to the supervision of
the Trustees, the Investment Adviser is responsible for the
actual management of the Trust’s portfolio and constantly
reviews the Trust’s holdings in light of its own research
analysis and that from other relevant sources. The
responsibility for making decisions to buy, sell or hold a
particular security rests with the Investment Adviser. The
Investment Adviser performs certain of the other administrative
services and provides all office space, facilities, equipment
and necessary personnel for management of the Trust. As
discussed in “The Management Team—Management of the
Fund” in the Prospectus, the Investment Adviser receives
for its services to the Trust monthly compensation at an annual
rate of 0.50% of the average daily net assets for the first $1
billion; 0.475% of the net assets from $1 billion to $1.5
billion; and 0.45% of the Trust’s average daily net assets
above $1.5 billion (i.e., the average daily value of the
total assets of the Trust, including proceeds from the issuance
of any shares of
preferred stock, minus the sum of accrued liabilities of the Trust
and accumulated dividends on shares of outstanding preferred
stock, if any). For purposes of this calculation, average daily
net assets is determined at the end of each month on the basis
of the average net assets of the Trust for each day during the
month.
The
Investment Adviser also entered into a sub-advisory agreement
(the “Sub-Advisory Agreement”) with Merrill Lynch
Asset Management U.K. Limited (“MLAM U.K.” or the
“Sub-Adviser”) pursuant to which MLAM U.K. provides
investment advisory services to the Investment Adviser with
respect to the Trust.
Securities held by the Trust may also be held by, or be
appropriate investments for, other funds or investment advisory
clients for which the Investment Adviser or its affiliates act
as an adviser. Because of different objectives or other factors,
a particular security may be bought for one or more clients of
the Investment Adviser or an affiliate when one or more clients
of the Investment Adviser or an affiliate are selling the same
security. If purchases or sales of securities arise for
consideration at or about the same time that would involve the
Fund or other clients or funds for which the Investment Adviser
or an affiliate acts as manager, 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 an affiliate 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.
Payment of Trust Expenses. The
Advisory Agreement obligates 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 sub-adviser or of an affiliate of the Investment Adviser
or any sub-adviser. The Trust pays, or causes to be paid, all
other expenses incurred in the operation of the Trust (except to
the extent paid by Mercury Funds Distributor (“MFD”),
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
non-interested Trustees, 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. 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.
Organization of the Investment
Adviser. The Investment Adviser 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.
The
following entities may be considered “controlling
persons” of MLAM U.K.: Merrill Lynch Europe PLC (MLAM
U.K.’s parent), a subsidiary of Merrill Lynch International
Holdings, Inc., a subsidiary of Merrill Lynch International,
Inc., a subsidiary of ML & Co.
Duration and
Termination. Unless earlier
terminated as described below, the Advisory Agreement and
Sub-Advisory Agreement will each continue in effect for two
years from its effective date. Thereafter, they will remain in
effect from year to year if approved annually (a) by the Board
of Trustees of the Trust or by a majority of the outstanding
shares of the Trust and (b) by a majority of the Trustees of the
Trust who are not parties to the Advisory Agreement or
interested persons (as defined in the Investment Company Act) of
any such party. The Advisory Agreement is not assignable and
will automatically terminate in the event of its assignment. In
addition, such contract may be terminated by the vote of a
majority of the outstanding voting securities of the Trust or by
the Investment Adviser without penalty on 60 days’ written
notice to the other party.
Administration Arrangements
The Fund
has entered into an administration agreement with FAM (the
“Administrator”) as Administrator (the
“Administration Agreement”). The Administrator
receives for its services to the Fund monthly compensation at
the annual rate of 0.25% of the average daily net assets of the
Fund.
The
Administration Agreement obligates the Administrator to provide
certain administrative services to the Fund and to pay, or cause
its affiliates to pay, for maintaining its staff and personnel
and to provide office space, facilities and necessary personnel
for the Fund. The Administrator is also obligated to pay, or
cause its affiliates to pay, the fees of those officers,
Directors and Trustees who are affiliated persons of the
Administrator or any of its affiliates. The Fund pays, or causes
to be paid, 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 Financial Data Services,
Inc. (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 Administrator,
or of an affiliate of the Administrator, accounting and pricing
costs (including the daily calculation of the 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. Certain expenses will be
financed by the Fund pursuant to distribution plans in
compliance with Rule 12b-1 under the Investment Company Act. See
“Purchase of Shares—Distribution Plans.”
Accounting services are provided to the Fund by the
Administrator, and the Fund reimburses the Administrator for its
costs in connection with such services.
Duration and
Termination. Unless earlier
terminated as described below, the Administration Agreement will
remain in effect for two years from its effective date.
Thereafter, it will remain in effect from year to year if
approved annually (a) by the Board of Directors and (b) by a
majority of the Directors who are not parties to such contract
or interested persons (as defined in the Investment Company Act)
of any such party. Such contract is not assignable and may be
terminated without penalty on 60 days’ written notice at
the option of either party thereto or by the vote of the
shareholders of the Fund.
Transfer Agency Services. The
Transfer Agent, a subsidiary of ML & Co., acts as the
Fund’s Transfer Agent pursuant to a Transfer Agency,
Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement (the “Transfer Agency Agreement”). Pursuant
to the Transfer Agency Agreement, the Transfer Agent is
responsible for the issuance, transfer and redemption of shares
and the opening and maintenance of shareholder accounts.
Pursuant to the Transfer Agency Agreement, the Transfer Agent
receives a fee ranging from $11.00 to $23.00 per account
(depending on the level of services required) but is set at
0.10% for certain accounts that participate in certain fee-based
programs. The Transfer Agent 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 fees 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 a distribution agreement with the Distributor
in connection with the continuous offering of shares of the Fund
(the “Distribution Agreement”). The Distribution
Agreement obligates the Distributor to pay certain expenses in
connection with the offering of the 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 Agreement is subject to the same renewal
requirements and termination provisions as the 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 covers the Trust, the Fund, the
Investment Adviser and the Distributor (the “Code of
Ethics”). The Code of Ethics significantly restricts the
personal investing activities of all employees of the Investment
Adviser and the Distributor and, as described below, imposes
additional more onerous restrictions on fund investment
personnel.
The Code
of Ethics requires that all employees of the Investment Adviser
and the Distributor pre-clear any personal securities
investments (with limited exceptions, such as mutual funds,
high-quality short-term securities and direct obligations of the
U.S. Government). 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 and the Distributor 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 Code of Ethics provides for
trading “blackout periods” which prohibit trading by
investment personnel of the Fund within seven calendar days,
before or after, of trading by the Fund in the same or
equivalent security.
PURCHASE OF SHARES
Reference
is made to “Account Choices—How to Buy, Sell, Transfer
and Exchange Shares” in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund
issues four classes of shares: shares of Class I and Class A 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 I, Class A,
Class B and Class C share of the Fund represents an identical
interest in the investment portfolio of the Fund, and has the
same rights, except that Class A, Class B and Class C 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 A 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 relation to a particular class are borne
exclusively by that class. Class A, Class B and Class C 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 Distribution Plan for
Class A shares). 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 I and Class A 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 Fund
offers its shares at a public offering price equal to the next
determined net asset value per share plus any sales charge
applicable to the class of shares selected by the investor. The
applicable offering price for purchase orders is based upon the
net asset value of the Fund next determined after receipt of the
purchase order by the Distributor. As to purchase orders
received by selected securities dealers or other financial
intermediaries
prior to the close of business on the New York Stock Exchange (the
“NYSE”) (generally 4:00 p.m., Eastern time) which
includes orders received after the determination of net asset
value on the previous day, the applicable offering price will be
based on the net asset value on the day the order is placed with
the Distributor, provided that the orders are received by the
Distributor prior to 30 minutes after the close of business on
the NYSE on that day. If the purchase orders are not received
prior to 30 minutes after the close of business on the NYSE on
that day, such orders shall be deemed received on the next
business day. Selected securities dealers or other financial
intermediaries have the responsibility of submitting purchase
orders to the Fund not later than 30 minutes after the close of
business on the NYSE in order to purchase shares at that
day’s offering price.
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 selected securities dealers or other
financial intermediaries are permitted to withhold placing
orders to benefit themselves by a price change. Certain selected
securities dealers or other financial intermediaries may charge
a processing fee to confirm a sale of shares. 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 I and
Class A Shares
Investors
who prefer an initial sales charge alternative may elect to
purchase Class A shares or, if an eligible investor, Class I
shares.
Investors
choosing the initial sales charge alternative who are eligible
to purchase Class I shares should purchase Class I shares rather
than Class A shares, because there is an account maintenance fee
imposed on Class A shares.
The term
“purchase,” as used in the Prospectus and this
Statement of Additional Information in connection with an
investment in Class I and Class A 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, 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.
Class I
shares are offered to a limited group of investors and also will
be issued upon reinvestment of dividends on outstanding Class I
shares. Investors who currently own Class I shares of the Fund
in a shareholder account are entitled to purchase additional
Class I shares of the Fund in that account. Certain
employer-sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class I shares at net asset
value provided such plans meet the required minimum number of
eligible employees or required amount of assets advised by the
Investment Adviser or any of its affiliates. Also eligible to
purchase Class I shares at net asset value are participants in
certain investment programs including certain managed accounts
for which a trust institution, thrift or bank trust department
provides discretionary trustee services, certain collective
investment trusts for which a trust institution, thrift, or bank
trust department serves as trustee, certain purchases made in
connection with certain fee-based programs and certain purchases
made through certain financial advisers that meet and adhere to
standards established by Mercury. Class I shares are available
at net asset value to corporate warranty insurance reserve fund
programs and U.S. branches of foreign banking institutions,
provided that the participant has $3 million or more initially
invested in Affiliate-Advised investment companies. In addition,
Class I shares are offered at net asset value to ML & Co.
and its subsidiaries and their directors and employees, to
members of the Boards of investment companies advised by FAM or
its affiliates, including the Fund, and to employees of certain
selected securities dealers or other financial intermediaries.
Class I shares may also be offered
at net asset value to certain accounts over which the Investment
Adviser or an affiliate exercises investment discretion.
Investors qualifying for significantly reduced initial sales
charges may find the initial sales charge alternative
particularly attractive, because similar sales charge reductions
are not available with respect to the deferred sales charges
imposed in connection with purchases of Class B or Class C
shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time also may elect to purchase Class I or Class A
shares, because over time the accumulated ongoing account
maintenance and distribution fees on Class B or Class C shares
may exceed the initial sales charges, and, in the case of Class
A shares, the account maintenance fee. Although some investors
who previously purchased Class I shares may no longer be
eligible to purchase Class I shares of other Affiliate-Advised
funds, those previously purchased Class I shares, together with
Class A, Class B and Class C share holdings, will count toward a
right of accumulation which may qualify the investor for a
reduced initial sales charge on new initial sales charge
purchases. In addition, the ongoing Class B and Class C account
maintenance and distribution fees will cause Class B and Class C
shares to have higher expense ratios, pay lower dividends and
have lower total returns than the initial sales charge shares.
The ongoing Class A account maintenance fees will cause Class A
shares to have a higher expense ratio, pay lower dividends and
have a lower total return than Class I shares.
The
Distributor may reallow discounts to selected securities dealers
or other financial intermediaries and retain the balance over
such discounts. At times the Distributor may reallow the entire
sales charge to such selected securities dealers or other
financial intermediaries. Since selected securities dealers or
other financial intermediaries selling Class I and Class A
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 I and Class A
shares issued as a result of the automatic reinvestment of
dividends.
Right
of Accumulation. Reduced sales
charges are applicable through a right of accumulation under
which eligible investors are permitted to purchase shares of the
Fund subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price 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 other Mercury mutual funds. For any such right
of accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or the
purchaser’s selected securities dealer or other financial
intermediary, 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 I
or Class A shares of the Fund or any other Mercury 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 I or Class A 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 I and Class A shares of the Fund and of other Mercury
mutual 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 I or Class A shares purchased at
the reduced rate and the sales charge applicable to the shares
actually purchased through the Letter. Class I or Class A 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 (“Summit”)
into the Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the
Fund.
Employer-Sponsored Retirement or Savings Plans and Certain
Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class I or Class A shares at net asset
value, based on the number of employees or number of employees
eligible to participate in the plan and/or the aggregate amount
invested by the plan in specified investments. Certain other
plans may purchase Class B shares with a waiver of the CDSC upon
redemption, based on similar criteria. Such Class B shares will
convert into Class A shares approximately ten years after the
plan purchases the first share of any Mercury mutual fund.
Minimum purchase requirements may be waived or varied for such
plans. For additional information regarding purchases by
employer-sponsored retirement or savings plans and certain other
arrangements, call your plan administrator or your selected
securities dealer or other financial intermediary.
Managed Trusts. Class I shares
are offered at net asset value to certain trusts to which trust
institutions, thrifts, and bank trust departments provide
discretionary trustee services.
Purchase Privileges of Certain
Persons. Members of the Board of
Directors of the Fund and Trustees of the Trust and of other
investment companies advised by the Investment Adviser or its
affiliates, directors and employees of ML & Co. and its
subsidiaries (the term “subsidiaries,” when used
herein with respect to ML & Co., includes the Investment
Adviser, MLAM, Mercury Asset Management International, Ltd. and
certain other entities directly or indirectly wholly owned and
controlled by ML & Co.), employees of certain selected
securities dealers, and any trust, pension, profit-sharing or
other benefit plan for such persons, may purchase Class I shares
of the Fund at net asset value. The Fund realizes economies of
scale and reduction of sales-related expenses by virtue of the
familiarity of these persons with the Fund. Employees and
directors or trustees wishing to purchase shares of the Fund
must satisfy the Fund’s suitability standards.
Class I
and Class A shares are also offered at net asset value to
certain accounts over which the Investment Adviser or an
affiliate exercises investment discretion.
Acquisition of Certain Investment
Companies. Class A 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.
Purchases Through Certain Financial
Intermediaries. Reduced sales charges
may be applicable for purchases of Class I or Class A shares of
the Fund through certain financial advisers, selected securities
dealers and other financial intermediaries that meet and adhere
to standards established by the Investment Adviser from time to
time.
Deferred Sales Charge Alternatives—Class B and
Class C Shares
Investors
choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an
extended period of time and Class C shares if they are uncertain
as to the length of time they intend to hold their assets in
Mercury mutual 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 A shares
of the Fund after a conversion period of approximately eight
years, and thereafter investors will be subject to lower ongoing
fees.
The
public offering price of Class B and Class C shares for
investors choosing the deferred sales charge alternatives is the
next determined net asset value per share without the imposition
of a sales charge at the time of purchase. See “Pricing of
Shares—Determination of Net Asset Value”
below.
Class B
shares that are redeemed within four years of purchase may be
subject to a CDSC at the rates set forth below charged as a
percentage of the dollar amount subject thereto. In determining
whether a CDSC is applicable to a redemption, the calculation
will be determined in the manner that results in the lowest
applicable rate being charged. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the
cost of the shares being redeemed. Accordingly, no CDSC will be
imposed on increases in net asset value above the initial
purchase price. In addition, no CDSC will be assessed on shares
derived from reinvestment of dividends. It will be assumed that
the redemption is first of shares held for over six years or
shares acquired pursuant to reinvestment of dividends and then
of shares held longest during the six-year period. A transfer of
shares from a shareholder’s account to another account will
be assumed to be made in the same order as a
redemption.
The
following table sets forth the Class B CDSC:
Year
Since Purchase Payment Made
|
|
CDSC as a Percentage
of Dollar Amount
Subject to Charge
|
| 0-1 |
|
4.0% |
| 1-2 |
|
4.0% |
| 2-3 |
|
3.0% |
| 3-4 |
|
3.0% |
| 4-5 |
|
2.0% |
| 5-6 |
|
1.0% |
| 6 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 3.0%
(the applicable rate in the third year after
purchase).
As
discussed in the Prospectus under “Account
Choices—Pricing of Shares—Class B and C
Shares—Deferred Sales Charge Options,” while Class B
shares redeemed within six years of purchase are subject to a
CDSC under most circumstances, the charge may be reduced or
waived in certain instances. These include certain
post-retirement withdrawals from an individual retirement
account (“IRA”) or other retirement plan or redemption
of Class B shares in certain circumstances following the death
of a Class B shareholder. In the case of such withdrawal, the
reduction or waiver applies to: (a) any partial or complete
redemption in connection with a distribution following
retirement under a tax-deferred retirement plan on attaining age
591/2 in the case of an IRA or other retirement plan, or part of
a series of equal periodic payments (not less frequently than
annually) made for life (or life expectancy) or any redemption
resulting from the tax-free return of an excess contribution to
an IRA (certain legal documentation may be required at the time
of liquidation establishing eligibility for qualified
distribution); or (b) any partial or complete redemption
following the death or disability (as defined in the Internal
Revenue Code of 1986, as amended (the “Code”)) of a
Class B shareholder (including one who owns the Class B shares
as joint tenant with his or her spouse), provided the redemption
is requested within one year of the death
or initial determination of disability, or if later, reasonably
promptly following completion of probate or in connection with
involuntary termination of an account in which Fund shares are
held (certain legal documentation may be required at the time of
liquidation establishing eligibility for qualified
distribution).
The
charge may also be reduced or waived in other instances, such
as: (a) redemptions by certain eligible 401(a) and 401(k) plans
and certain retirement plan rollovers; (b) redemptions in
connection with participation in certain fee-based programs of
the Investment Adviser or its affiliates; (c) redemptions in
connection with participation in certain fee-based programs of
selected securities dealers and other financial intermediaries
that have agreements with the Investment Adviser; or (d)
withdrawals through the Systematic Withdrawal Plan of up to 10%
per year of your account value at the time the plan is
established. See “Shareholder Services—Fee-Based
Programs” and “—Systematic Withdrawal
Plan.”
Conversion of Class B Shares to Class A
Shares. After approximately eight
years (the “Conversion Period”), Class B shares of the
Fund will be converted automatically into Class A shares of the
Fund. Class A 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 A 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 A 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 A
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 A 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 A
shares of the Fund.
The
Conversion Period 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.
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 Systematic Withdrawal Plans. See
“Shareholder Services—Systematic Withdrawal
Plan.”
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 National Association of
Securities Dealers, Inc. (the “NASD”) asset-based
sales charge rule. See “Limitations on the Payment of
Deferred Sales Charges” below.
Distribution Plans
Reference
is made to “Account Choices—Pricing of Shares” in
the Prospectus for certain information with respect to separate
distribution plans for Class A, Class B, and Class C shares
pursuant to Rule 12b-1 under the Investment Company Act (each a
“Distribution Plan”) with respect to the account
maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.
The
Distribution Plans for each of the Class A, Class B and Class C
shares provide that the Fund pays the Distributor an account
maintenance fee relating to the shares of the relevant class,
accrued daily and paid monthly, at the annual rate of 0.25% of
the average daily net assets of the Fund attributable to shares
of the relevant class in order to compensate the Distributor and
selected securities dealers or other financial intermediaries
(pursuant to sub-agreements) in connection with account
maintenance activities with respect to Class A, Class B and
Class C 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 A Distribution Plan).
The
Distribution Plans for each of the 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
selected securities dealers or other financial intermediaries
(pursuant to sub-agreements) for providing shareholder and
distribution services, and bearing certain distribution-related
expenses of the Fund, including payments to securities dealers
and other financial intermediaries 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 securities dealers
and other financial intermediaries without the assessment of an
initial sales charge and at the same time permit the Distributor
to compensate securities dealers and other financial
intermediaries 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 I and Class A
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 Plan 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. 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 circumstances payment in excess
of the amount payable under the NASD formula will not be
made.
REDEMPTION OF SHARES
Reference
is made to “Account Choices—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 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 Fund
is not reasonably practicable, and for such other periods as the
Commission may by order permit for the protection of
shareholders of the Fund.
The value
of shares 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.
The Trust
has entered into a joint committed line of credit with other
investment companies advised by the Investment Adviser and its
affiliates and a syndicate of banks that is intended to provide
the Trust and the Fund with a temporary source of cash to be
used to meet redemption requests from Fund shareholders in
extraordinary or emergency circumstances.
Redemption
A
shareholder wishing to redeem shares held with the Transfer
Agent may do so 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. Redemption requests
should not be sent to the Fund. The 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
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.
A
shareholder may also redeem shares held with the Transfer Agent
by telephone request. To request a redemption from your account,
call the Transfer Agent at 1-888-763-2260. The request must be
made by the shareholder of record and be for an amount less than
$50,000. Before telephone requests will be honored, signature
approval from all shareholders of record on the account must be
obtained. The shares being redeemed must have been held for at
least 15 days. Telephone redemption requests will not be honored
in the following situations: the accountholder is deceased, the
proceeds are to be sent to someone other than the shareholder of
record, funds are to be wired to the client’s bank account,
a systematic withdrawal plan is in effect, the request is by an
individual other than the accountholder of record, the account
is held by joint tenants who are divorced, the address has
changed within the last 30 days or share certificates have been
issued on the account.
Since
this account feature involves a risk of loss from unauthorized
or fraudulent transactions, the Transfer Agent will take certain
precautions to protect your account from fraud. Telephone
redemption may be refused if the caller is unable to provide:
the account number, the name and address registered on the
account and the social security number registered on the
account. The Fund or the Transfer Agent may temporarily suspend
telephone transactions at any time.
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 such Fund
shares, which usually will not exceed 10 days. In the event that
a shareholder account held directly with the Transfer Agent
contains a fractional share balance, such fractional share
balance will be automatically redeemed by the Fund.
Repurchase
The Fund
also will repurchase its shares through a shareholder’s
listed selected securities dealer or other financial
intermediary. 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 selected securities dealer or
other financial intermediary 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 selected
securities dealer or other financial intermediary not later than
30 minutes after the close of business on the NYSE on the same
day.
Selected
securities dealers and other financial intermediaries have the
responsibility of submitting such repurchase requests to the
Fund 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
agreements with the Distributor, however, may impose a
transaction charge on the shareholder for transmitting the
notice of repurchase to the Fund. Certain selected securities
dealers and other financial intermediaries may charge a
processing fee to confirm a repurchase of shares. For example,
the fee currently charged by Merrill Lynch is $5.35. Fees
charged by other selected securities dealers may be higher or
lower. Repurchases made 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 I and Class A
Shares
Shareholders of the Fund who have redeemed their Class I
and Class A shares have a privilege to reinstate their accounts
by purchasing Class I or Class A shares, as the case may be, 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 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 “Account Choices—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 as of the close of
business on the NYSE on each day the NYSE is open for trading
based on prices at the time of closing. The NYSE generally
closes at 4:00 p.m., Eastern time. 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 of the Fund is computed by dividing the value of the
securities held by the Fund plus any cash or other assets
(including interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the total
number of shares outstanding at such time, rounded to the
nearest cent. Expenses, including the fees payable to the
Administrator and Distributor are accrued daily.
The
principal assets of the Fund will normally be its interest in
the underlying Trust, which will be valued at its net asset
value. Net asset value of the Trust is computed by dividing the
value of the securities held by the Trust plus any cash or other
assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by
the total number of shares outstanding at such time. Expenses,
including the investment advisory fees are accrued
daily.
The per share
net asset value of Class A, Class B and Class C shares generally
will be lower than the per share net asset value of Class I
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 A 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 A 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 which will differ by approximately the amount of the
expense accrual differentials between the classes.
Portfolio
securities, including ADRs, EDRs or GDRs, that are traded on
stock exchanges are valued at the last sale price (regular way)
on the exchange on which such securities are traded as of the
close of business on the day the securities are being valued or,
lacking any sales, at the last available bid price for long
positions, and at the last available ask price for short
positions. In cases where securities are traded on more than one
exchange, the securities are valued on the exchange designated
by or under the authority of the Board of Trustees as the
primary market. Long positions in securities traded in the OTC
market are valued at the last available bid price in the OTC
market prior to the time of valuation. Short positions in
securities traded in the OTC market are valued at the last
available ask price in the OTC market prior to the time of
valuation. 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 Trust writes
an option, the amount of the premium received is recorded on the
books of the Trust 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 Trust are valued at their last sale
price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last bid price. Other
investments, including financial futures contracts and related
options, are stated at market value. Securities and assets for
which market quotations are not readily available are valued 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 of the Trust.
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
Trust on each day the NYSE is open for trading. The value of
each investor’s (including the Fund’s) interest in the
Trust will be determined as of the close of business on the NYSE
by multiplying the net asset value of the Trust by the
percentage, effective for that day, that represents that
investor’s share of the aggregate interests in the Trust.
The close of business on the NYSE is generally 4:00 p.m.,
Eastern time. Any additions or withdrawals to be effected on
that day will then be effected. The investor’s percentage
of the aggregate beneficial interests in the Trust 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 Trust 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 Trust effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Trust 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 Trust by all investors in the Trust. The
percentage so determined will then be applied to determine the
value of the investor’s interest in the Trust after the
close of business on the NYSE on the next determination of net
asset value of the Trust.
Computation of Offering Price Per Share
An
illustration of the computation of the offering price for Class
I, Class A, Class B and Class C 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:
| |
|
Class I
|
|
Class A
|
|
Class B
|
|
Class C
|
| Net
Assets |
|
$25,000 |
|
$25,000 |
|
$25,000 |
|
$25,000 |
| |
|
|
|
|
|
|
|
|
| Number
of Shares Outstanding |
|
2,500 |
|
2,500 |
|
2,500 |
|
2,500 |
| |
|
|
|
|
|
|
|
|
Net
Asset Value Per Share (net assets divided by number
of shares outstanding) |
|
$ 10.00 |
|
$ 10.00 |
|
$ 10.00 |
|
$ 10.00 |
| |
|
|
|
|
|
|
|
|
Sales
Charge (for Class I and Class A Shares; 5.25% of
Offering Price; (5.54% of net
amount invested))* |
|
.55 |
|
.55 |
|
** |
|
** |
| |
|
|
|
|
|
|
|
|
| Offering Price |
|
$ 10.55 |
|
$ 10.55 |
|
$ 10.00 |
|
$ 10.00 |
| |
|
|
|
|
|
|
|
|
* 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 “Purchase
of Shares—Deferred Sales Charge Alternatives—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 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 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 Fund shares 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 Agreement 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
commissions 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 Trust
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 or an affiliate is a member or
in a private placement in which Merrill Lynch or an affiliate
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 or its affiliates 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 Trust 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 to the Investment Adviser. After considering
all factors deemed relevant, the Board of Trustees made a
determination not to seek such recapture. The Trustees 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 acts 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
Fund by calling the telephone number on the cover page hereof,
or from the Distributor or your selected securities dealer or
other financial intermediary. Certain of these services are
available only to U.S. investors.
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. The Fund does not issue share
certificates.
Shareholders considering transferring their Class I or
Class A shares from a selected securities dealer to another
brokerage firm or financial institution should be aware that, if
the firm to which the Class I or Class A shares are to be
transferred will not take delivery of shares of the Fund, a
shareholder either must redeem the Class I or Class A shares so
that the cash proceeds can be transferred to the account at the
new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class I or
Class A shares.
Shareholders interested in transferring their Class B or
Class C shares from a selected securities dealer or other
financial intermediary and who do not wish to have an Investment
Account maintained for such shares at the Transfer Agent may
request their new brokerage firm to maintain such shares in an
account registered in the name of the brokerage firm for the
benefit of the shareholder at the Transfer Agent.
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.
Shareholders considering transferring a tax-deferred
retirement account, such as an individual retirement account,
from a selected securities dealer or other financial
intermediary to another brokerage firm or financial institution
should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of shares of
the Fund, a shareholder must either redeem the shares (paying
any applicable CDSC) so that the cash proceeds can be
transferred to the account at the new firm, or such shareholder
must continue to maintain a retirement account at a selected
securities dealer or other financial intermediary for those
shares.
Exchange Privilege
U.S.
shareholders of each class of shares of the Fund have an
exchange privilege with certain other Mercury mutual funds and
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 I,
Class A, Class B and Class C shares. 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 I and Class A
Shares. Under the Fund’s pricing
system, Class I shareholders may exchange Class I shares of the
Fund for Class I shares of a second Mercury mutual fund. If the
Class I shareholder wants to exchange Class I shares for shares
of a second Mercury mutual fund, but does not hold Class I
shares of the second fund in his or her account at the time of
exchange and is not otherwise eligible to acquire Class I shares
of the second fund, the shareholder will receive Class A shares
of the second fund as a result of the exchange. Class A shares
also may be exchanged for Class I shares of a second Mercury
mutual fund at any time as long as, at the time of the exchange,
the shareholder is eligible to acquire Class I shares of any
Mercury mutual fund.
Exchanges
of Class I or Class A shares outstanding (“outstanding
Class I or Class A shares”) for Class I or Class A shares
of another Mercury mutual fund, or for Class A shares of Summit
(“new Class I or Class A shares”) are transacted on
the basis of relative net asset value per Class I or Class A
share, respectively, plus an amount equal to the difference, if
any, between the sales charge previously paid on the outstanding
Class I or Class A shares and the sales charge payable at the
time of the exchange on the new Class I or Class A shares. With
respect to outstanding Class I or Class A 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 I or Class A shares in
the initial purchase and any subsequent exchange. Class I or
Class A shares issued pursuant to dividend reinvestment are sold
on a no-load basis. For purposes of the exchange privilege,
Class I and Class A shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales
charge equal to the sales charge previously paid on the Class I
or Class A shares on which the dividend was paid. Based on this
formula, Class I and Class A shares of the Fund generally may be
exchanged into the Class I and Class A shares, respectively, of
the other funds with a reduced or without a sales
charge.
Exchanges of Class B and Class C
Shares. In addition, the 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
another Mercury mutual fund 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 another Mercury fund (“new Mercury Fund”)
after having held the Fund’s Class B shares for
two-and-a-half years. The 3% CDSC that generally would apply to
a redemption would not apply to the exchange. Four years later
the investor may decide to redeem the Class B shares of new
Mercury 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 four
year holding period for the new Mercury Fund Class B shares, the
investor will be deemed to have held the new Mercury Fund Class
B shares for more than six years.
Exchanges for Shares of a Money Market
Fund. Class I and Class A 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 I or
Class A shares of Affiliate-Advised Funds; Class B shares of
Summit have an exchange privilege back into Class B or Class C
shares of Affiliate-Advised 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
financial consultant for further information.
Prior to October
12, 1998, exchanges from other Affiliate-Advised Funds into a
money market fund were directed to certain Affiliate-Advised
money market funds other than Summit. Shareholders who exchanged
Affiliate-Advised Fund 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 financial
consultant, who will advise the relevant Fund of the exchange.
Shareholders of the Fund and shareholders of the other funds
described above with shares for which certificates have not been
issued may exercise the exchange privilege by wire through their
selected securities dealers or other financial intermediaries.
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
fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a
“Program”), may permit the purchase of Class I shares
at net asset value. Under specified circumstances, participants
in certain Programs may deposit other classes of shares, which
will be exchanged for Class I 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,
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 certain
specific Programs offered through particular selected securities
dealers or other financial intermediaries (including charges and
limitations on transferability applicable to shares that may be
held in such Programs) is available in each such Program’s
client agreement and from the Transfer Agent at
1-888-763-2260.
Retirement Plans
The
minimum initial purchase to establish a retirement plan is $100.
Dividends received in retirement plans are exempt from Federal
taxation until distributed from the plans. Different tax rules
apply to Roth IRA plans and educational savings plans. Investors
considering 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 I shares (if he or she is an eligible
Class I investor) or Class A, Class B or Class C 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. You may also
add to your account by automatically investing a specific amount
in the Fund on a periodic basis through your selected securities
dealer or other financial intermediary. The current minimum for
such automatic additional investments is $100. This minimum may
be waived or revised under certain circumstances.
Automatic Dividend Reinvestment Plan
Shareholders may, at any time, by written notification to
their selected securities dealer or other financial intermediary
if their account is maintained with a selected securities dealer
or other financial intermediary, or by written notification or
by telephone (1-888-763-2260) 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 record 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 of
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
after the close of business on the NYSE 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 A shares, a shareholder must make a new election to join
the systematic withdrawal program with respect to the Class A
shares. If an investor wishes to change the amount being
withdrawn in a systematic withdrawal plan the investor should
contact his or her 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.
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
securities dealer or other financial intermediary 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 I and Class A 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 A
shares will be lower than the per share dividends on Class I
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 I, Class A, Class B
and Class C shareholders (together, the
“shareholders”). The Fund intends to distribute
substantially all of such income.
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.
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 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 deduction
among the Class I, Class A, Class B and Class C 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 I, Class A, Class B and Class C shareholders during the
taxable year, or such other method 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.
No gain
or loss will be recognized by Class B shareholders on the
conversion of their Class B shares into Class A shares. A
shareholder’s basis in the Class A 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 A 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.
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. Non-resident 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.
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.
Alternatively, the Fund could elect to “mark to
market” at the end of each taxable year all shares that it
holds in PFICs. If it made this election, the Fund would
recognize as ordinary income any increase in the value of such
shares over their adjusted basis and as ordinary loss any
decrease in such value to the extent it did
not exceed prior increases. By making the mark-to-market election,
the Fund could avoid imposition of the interest charge with
respect to its distributions from PFICs, but in any particular
year might be required to recognize income in excess of the
distributions it received from PFICs and its proceeds from
dispositions of PFIC stock.
Tax
Treatment of Options, Futures and Forward Foreign Exchange
Transactions
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, futures and forward foreign
exchange contracts. 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, futures and forward foreign exchange
contracts.
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.
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.
The Fund
will apply for a private letter ruling from the IRS, to the
effect that, because the Trust is classified as a partnership
for tax purposes, the Fund will be entitled to look to the
underlying assets of the Trust 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/or the Trust is unable to obtain a private letter
ruling from the IRS 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 Trust and to retain an
investment adviser to manage the Fund’s assets in
accordance with the investment policies applicable to the Fund.
See “Investment Objective and Policies.”
PERFORMANCE DATA
From time
to time the Fund may include its average annual total return and
other total return data in advertisements or information
furnished to present or prospective shareholders. Total return
figures are based on the Fund’s historical performance and
are not intended to indicate future performance. Average annual
total return is determined separately for Class I, Class A,
Class B and Class C 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 I and
Class A shares and the CDSC that would be applicable to a
complete redemption of the investment at the end of the
specified period as in the case of Class B and Class C shares
and the maximum sales charge in the case of Class I and Class A
shares. Dividends paid by the Fund with respect to all shares,
to the extent any dividends are paid, will be calculated in the
same manner, at the same time, on the same day and will be in
the same amount, except that account maintenance and the
distribution charges and any incremental transfer agency cost
relating to each class of shares will be borne exclusively by
that class. The Fund will include performance data for all
classes of shares in any advertisement or information including
performance data of the Fund.
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. 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.
[Discussion and Report of Merrill Lynch Special Value Fund,
Inc. Performance to be provided]
In order
to reflect the reduced sales charges in the case of Class I or
Class A 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, among other things, the Standard &
Poor’s 500 Index, the Value Line Composite Index, the Dow
Jones Industrial Average, or other published indices, or to data
contained in publications such as Lipper Analytical Services,
Inc., Morningstar Publications, Inc. (“Morningstar”),
other competing universes, and CDA Investment Technology, Inc.,
Money Magazine, U.S. News & World Report, Business Week,
Forbes Magazine, and Fortune Magazine. 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. As
with other performance data, performance comparisons should not
be considered indicative of the Fund’s relative performance
for any future period. From time to time, the Fund may include
its Morningstar risk-adjusted performance rating in
advertisements or supplemental sales literature. The Fund may
from time to time quote in advertisements or other materials
other applicable measures of performance and may also make
reference to awards that may be given to the Investment
Adviser.
GENERAL INFORMATION
Description of Shares
The Fund
is a “feeder” fund that invests in the Trust.
Investors in the Fund will acquire an indirect interest in the
Trust. The Trust accepts investments from other feeder funds,
and all of the feeders of the Trust bear the Trust’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 Trust 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 Trust on more attractive terms, or could experience better
performance, than another feeder.
The Fund
is a Maryland corporation incorporated on May 1, 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 I, Class A, Class B and Class C shares 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 A 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 Trust holds a vote of its feeder funds, the Fund 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 the Trust. The Fund may withdraw
from the Trust 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 or
distribution fees or of a change in fundamental policies, or its
investment objective 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
is organized as a Delaware Business Trust. Whenever the Fund is
requested to vote on any matter relating to the Trust, 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 will provide the initial capital for the Fund
by purchasing 10,000 shares of common stock of the Fund for
$100,000. Such shares were acquired for investment and can only
be disposed of by redemption. As of the date of this Statement
of Additional Information, the Investment Adviser owned 100% of
the outstanding common stock of the 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 Fund.
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 Bank
of New York, 90 Washington Street, 12th Floor, New York, New
York 10286 acts as custodian of the Trust’s assets and the
Fund’s assets (the “Custodian”). Under its
contract with the Trust and the Fund, the Custodian is
authorized to establish separate accounts in foreign currencies
and to cause foreign securities owned by the Trust and the Fund
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
and the Fund’s cash and securities, handling the receipt
and delivery of securities and collecting interest and dividends
on the Trust’s and 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
fiscal year of the Fund ends on March 31 of each year. 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.
INDEPENDENT AUDITORS’ REPORT
To the
Board of Directors and Shareholder,
Mercury Small Cap Value Fund,
Inc.:
We have
audited the accompanying statement of assets and liabilities of
Mercury Small Cap Value 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, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of
Mercury Small Cap Value Fund, Inc. as of
[
, 2000], in conformity with generally accepted
accounting principles.
, 2000
MERCURY SMALL CAP VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
[
,
2000]
| ASSETS: |
|
|
|
Cash (Note 1) |
|
$100,000 |
|
Prepaid registration fees (Note 3) |
|
183,195 |
|
Prepaid offering costs (Note 3) |
|
99,700 |
| |
|
|
|
Total Assets |
|
$382,895 |
| |
|
|
|
| LIABILITIES: |
|
|
|
Liabilities and accrued expenses |
|
$282,895 |
| |
|
|
|
| NET
ASSETS: |
|
$100,000 |
| |
|
|
|
| NET
ASSETS CONSIST OF: |
|
|
|
Class I Shares of Common Stock, $.10 par value,
100,000,000 shares authorized |
|
$ 250 |
|
Class A Shares of Common Stock, $.10 par value,
100,000,000 shares authorized |
|
$ 250 |
|
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized |
|
$ 250 |
|
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized |
|
$ 250 |
|
Paid-in Capital in excess of par |
|
$ 99,000 |
| |
|
|
|
| NET
ASSETS: |
|
$100,000 |
| |
|
|
|
| NET
ASSET VALUE: |
|
|
|
Class I—Based on net assets of $25,000 and
2,500 shares outstanding |
|
$ 10.00 |
| |
|
|
|
Class A—Based on net assets of $25,000 and
2,500 shares outstanding |
|
$ 10.00 |
| |
|
|
|
Class B—Based on net assets of $25,000 and
2,500 shares outstanding |
|
$ 10.00 |
| |
|
|
|
Class C—Based on net assets of $25,000 and
2,500 shares outstanding |
|
$ 10.00 |
| |
|
|
Notes to
Financial Statement.
(1)
|
Mercury
Small Cap Value Fund, Inc. (the “Fund”) was
organized as a Maryland corporation on May 1, 2000. The Fund
is registered under the Investment Company Act as a
diversified 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
I shares, 2,500 Class A shares, 2,500 Class B shares and 2,500
Class C shares of Common Stock to Fund Asset Management, L.P.
(the “Investment Adviser”). The Fund invests all of
its assets in Master Small Cap Value Trust (the
“Trust”).
|
(2)
|
The
Trust will enter into an Investment Advisory agreement with
the Investment Adviser. The Fund will enter into a
distribution agreement with Mercury 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
trustees of the Trust and certain officers and/or directors of
the Fund are officers and/or directors of the Investment
Adviser and the Distributor.
|
(3)
|
Prepaid
registration fees are charged to income as the related shares
are issued. Prepaid offering costs consist of legal and
printing fees related to preparing the initial registration
statement, and will be amortized over a 12 month period
beginning with the commencement of operations of the Fund. The
Investment Adviser, on behalf of the Fund, will incur
organization costs estimated at $45,000.
|
INDEPENDENT AUDITORS’ REPORT
To the
Board of Trustees and Shareholder,
Master Small Cap Value
Trust:
We have
audited the accompanying statement of assets and liabilities of
Master Small Cap Value Trust as of
, 2000. This financial
statement is the responsibility of the Trust’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
opinions.
In our
opinion, such statement of assets and liabilities presents
fairly, in all material respects, the financial position of
Master Small Cap Value Trust as of
, 2000, in conformity with generally accepted
accounting principles.
, 2000
MASTER SMALL CAP VALUE TRUST
STATEMENT OF ASSETS AND LIABILITIES
, 2000
| ASSETS: |
|
|
|
Cash |
|
$100,100 |
|
Prepaid offering costs (Note 3) |
|
20,000 |
| |
|
|
|
Total Assets |
|
$120,100 |
| |
|
|
| Less
liabilities and accrued expenses |
|
20,000 |
| |
|
|
| Net
Assets applicable to investors’ interest in the Fund
(Note 1) |
|
$100,100 |
| |
|
|
Notes to
Financial Statement
(1)
|
Master
Small Cap Value Trust (the “Trust”) was organized as
a Delaware business trust on May 2, 2000. Mercury Small Cap
Value Fund, Inc. (the “Fund”) invests all of its
assets in the Trust. To date, the Trust has not had any
transactions other than those relating to organizational
matters, an indirect $100,000 capital contribution to the
Trust by Fund Asset Management, L.P. (the “Investment
Adviser”) through the Fund and a $100 partnership
contribution to the Fund by Princeton Funds Distributor, Inc.
(the “Distributor”).
|
(2)
|
The
Trust will enter into an investment advisory agreement (the
“Investment Advisory Agreement”) with the Investment
Adviser. (See “Investment Advisory Services and Fee”
in Part B of this Registration Statement.) Certain officers
and/or Trustees of the Trust are officers and/or directors of
the Investment Adviser and the Distributor.
|
(3)
|
Prepaid
offering costs consist of legal 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 Trust. The Investment Adviser, on behalf of the Trust,
will incur organization costs estimated at
$25,000.
|
CODE #: [
-
-
]
PART
C. OTHER INFORMATION
Item
23. Exhibits.
Exhibit
Number
|
| 1(a) |
|
— Articles of Incorporation, dated May 1,
2000. |
| |
|
| (b) |
|
— Amendment to the Articles of Incorporation,
dated May 4, 2000. |
| |
|
| 2 |
|
— By-Laws of the Registrant. |
| |
|
| 3 |
|
— 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 |
|
— Form of Distribution Agreement between the
Registrant and Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.
(the “Distributor”) (including Form of Selected
Dealers
Agreement).(b) |
| |
|
| 6 |
|
— None. |
| |
|
| 7 |
|
— Form of Custody Agreement between the
Registrant and The Bank of New York.(b) |
| |
|
| 8(a) |
|
— Form of Administration Agreement between
the Registrant and Fund Asset Management, L.P. |
| |
|
| (b) |
|
— Form of Transfer Agency, Dividend
Disbursing Agency and Shareholder Servicing Agency
Agreement between the Registrant
and Financial Data Services, Inc. |
| |
|
| (c) |
|
— Form of License Agreement relating to use
of name among Mercury Asset Management International
Ltd., Mercury Asset Management
Group Ltd. and the Registrant. |
| |
|
| 9 |
|
— Opinion of Brown & Wood LLP,
counsel for the Registrant.(b) |
| |
|
| 10 |
|
— Consent of independent auditors for the
Registrant.(b) |
| |
|
| 11 |
|
— None. |
| |
|
| 12 |
|
— Certificate of Fund Asset Management,
L.P.(b) |
| |
|
| 13(a) |
|
— Form of Class A Distribution Plan of the
Registrant and Class A Distribution Plan
Sub-Agreement. |
| |
|
| (b) |
|
— Form of Class B Distribution Plan of the
Registrant and Class B Distribution Plan
Sub-Agreement. |
| |
|
| (c) |
|
— Form of Class C Distribution Plan of the
Registrant and Class C Distribution Plan
Sub-Agreement. |
| |
|
| 14 |
|
— 18f-3 Plan. |
| |
|
| 15 |
|
— Code of Ethics. (c) |
(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, and Article XIV of the
Registrant’s By-Laws filed as Exhibit (2) to this
Registration Statement.
|
(b)
|
To be
filed by amendment.
|
(c)
|
Incorporated by reference to Exhibit 15 to
Post-Effective Amendment No. 8 to the Registration Statement
on Form N-1A of Merrill Lynch Middle East/Africa Fund, Inc.
(File No. 811-07155) filed on March 29, 2000.
|
Item
24. Persons Controlled by or under
Common Control with Registrant.
Fund
Asset Management, L.P. (the “Investment Adviser” or
“FAM”) will own 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 Registrant’s By-Laws, Section
2-418 of the Maryland General Corporation Law and Section 9 of
the Class I, Class A, Class B and Class C 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 from
receipt of the advance, or (c) a majority of a quorum of the
Registrant’s disinterested non-party Directors, or an
independent legal counsel in a written opinion, shall determine,
based upon a review of readily available facts, that 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 I, Class A, Class B and Class C 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.
Fund
Asset Management, L.P. 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 Focus Twenty Trust,
Master Large Cap Series Trust, Master Premier Growth Trust,
Mercury Internet Strategies Fund, Inc., 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 Large Cap
Series Funds, 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 Premier Growth 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 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, Inc., MuniHoldings
Florida Insured Fund, 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, Inc., 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., MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan
Insured Fund, Inc., 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”), 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 Concentrated 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 Euro Fund, 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 Small Cap 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 Fund, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc.,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series
Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, 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., and 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 of 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”), of Mercury Funds
Distributor (“MFD”) 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 June 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. Doll, Giordano
and Monagle are officers of one or more of such
companies.
Name
|
|
Position(s) with
the Investment Adviser
|
|
Other Substantial Business, Profession,
Vocation or Employment
|
| 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. Bundy |
|
Chief
Operating Officer and
Managing Director |
|
Chief
Operating Officer and Managing Director of
MLAM; Chief Operating Officer and Managing
Director of Princeton Services; Co-CEO of Merrill
Lynch Australia from 1997 to 1999 |
|
| Donald
C. Burke |
|
Senior
Vice President and
Treasurer |
|
Senior
Vice President, Treasurer and 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 |
|
| Michael
G. Clarke |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services; Treasurer and
Director of PFD; First Vice President of MLAM
from 1997 to 1999; Vice President of MLAM from
1996 to 1997 |
|
| Robert
C. Doll |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services; Chief Investment
Officer of Oppenheimer 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,
Secretary and General
Counsel |
|
Senior
Vice President, Secretary and General
Counsel of MLAM; Senior Vice President of
Princeton Services |
Name
|
|
Position(s) with
the Investment Adviser
|
|
Other Substantial Business, Profession,
Vocation or Employment
|
| Philip
L. Kirstein |
|
Senior
Vice President,
Secretary and General
Counsel |
|
Senior
Vice President, Secretary and General
Counsel of MLAM; Senior Vice President of
Princeton Services |
|
| Debra
W. Landsman-Yaros |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services; Vice President
of PFD |
|
| 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 |
|
| Gregory
D. Upah |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services |
|
| 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., Master Focus Twenty Trust,
Master Large Cap Series Trust, Master Premier Growth Trust,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Assets
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 Corporate High Yield 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 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 the
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. |
|
Name
|
|
Position(s) with
MLAM U.K.
|
|
Other Substantial Business, Profession,
Vocation or Employment
|
| Terry
K. Glenn |
|
Director and Chairman |
|
Executive Vice President of MLAM and FAM;
Executive Vice President and Director of
Princeton Services; President and Director of
PFD; President of Princeton Administrators |
Name
|
|
Position(s) with
MLAM U.K.
|
|
Other Substantial Business, Profession,
Vocation or Employment
|
| Nicholas C.D. Hall |
|
President |
|
Director Mercury Asset Management Ltd. and the
Institutional Liquidity Fund PLC; First Vice
President and General Counsel for Merrill Lynch
Mercury Asset Management |
|
| James
T. Stratford |
|
Alternate Director |
|
Director of Mercury Asset Management Group
Ltd.; Head of Compliance, Merrill Lynch
Mercury Asset Management |
|
| 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 |
|
| Carol
Ann Langham |
|
Company
Secretary |
|
None |
|
| Debra
Anne Searle |
|
Assistant Company Secretary |
|
None |
|
|
| Item
27. Principal
Underwriters. |
|
| MFD, a
division of PFD, acts as the principal underwriter for the
Registrant and for each of the following open-end investment
companies: Mercury Global Balanced Fund of Mercury Asset
Management Funds, Inc.; Mercury Gold and Mining Fund of
Mercury Asset Management Funds, Inc.; Mercury International
Fund of Mercury Asset Management Funds, Inc.; Mercury Large
Cap Series Funds, Inc.; Mercury U.S. Large Cap Fund of Mercury
Asset Management Funds, Inc.; Mercury U.S. Small Cap Growth
Fund of Mercury Asset Management Funds, Inc.; Mercury
Pan-European Growth Fund of Mercury Asset Management Funds,
Inc.; Summit Cash Reserves Fund of Financial Institutions
Series Trust; Mercury V.I. U.S. Large Cap Fund of Mercury
Asset Management V.I. Funds, Inc. A separate division of PFD
acts as the principal underwriter of other investment
companies. |
|
| 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. |
|
| Name |
|
Position(s) and
Office(s) with PFD
|
|
Position(s) and Office(s)
with Registrant
|
|
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 |
(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 08536-9011), 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 Team”
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.
(a)
Registrant undertakes to suspend the offering of the
common shares covered hereby until it amends its prospectus
contained herein if (1) subsequent to the effective date of this
Registration Statement, its net asset value per common share
declines more than 10% from its net asset value per common share
as of the effective date of this Registration Statement, or (2)
its net asset value per common share increases to an amount
greater than its net proceeds as stated in the prospectus
contained herein.
(b)
Registrant undertakes that:
|
(1) For purposes of determining any liability
under the 1933 Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 497(h)
under the 1933 Act shall be deemed to be part of this
Registration Statement as of the time it was declared
effective.
|
|
(2) For the purpose of determining any
liability under the 1933 Act, each post-effective amendment
that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act and the Investment
Company Act, 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 30th day of May, 2000.
|
MERCURY
SMALL CAP VALUE FUND, INC.
|
|
Terry K. Glenn, President
|
Each
person whose signature appears below hereby authorizes Terry K.
Glenn, Donald C. Burke and Thomas D. Jones, III, or any of them,
as attorney-in-fact, to sign on his or her behalf, individually
and in each capacity stated below, any amendment to this
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, this Registration
Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature
|
|
Title
|
|
Date
|
| |
|
/S
/ TERRY
K. GLENN
Terry K. Glenn |
|
President (Principal Executive
Officer) and Director |
|
May 30,
2000 |
| |
|
/S
/ DONALD
C. BURKE
Donald C. Burke |
|
Vice
President and Treasurer
(Principal Financial and
Accounting Officer) |
|
May 30,
2000 |
| |
|
/S
/ M. COLYER
CRUM
M.
Colyer Crum |
|
Director |
|
May 30,
2000 |
| |
|
/S
/ LAURIE
SIMON
HODRICK
Laurie Simon Hodrick |
|
Director |
|
May 30,
2000 |
| |
|
/S
/ JACK
B. SUNDERLAND
Jack
B. Sunderland |
|
Director |
|
May 30,
2000 |
| |
|
/S
/ STEPHEN
B. SWENSRUD
Stephen B. Swensrud |
|
Director |
|
May 30,
2000 |
| |
|
/S
/ J. THOMAS
TOUCHTON
J.
Thomas Touchton |
|
Director |
|
May 30,
2000 |
| |
|
/S
/ FRED
G. WEISS
Fred
G. Weiss |
|
Director |
|
May 30,
2000 |
| |
|
/S
/ ARTHUR
ZEIKEL
Arthur Zeikel |
|
Director |
|
May 30,
2000 |
| |
SIGNATURES
Master
Small Cap Value Trust has duly caused this Registration
Statement of Mercury Small Cap Value Fund, Inc. to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
Township of Plainsboro, and State of New Jersey, on the 30th day
of May, 2000.
|
MASTER
SMALL CAP VALUE TRUST
|
|
Terry K. Glenn, President
|
Each
person whose signature appears below hereby authorizes Terry K.
Glenn, Donald C. Burke and Thomas D. Jones, III, or any of them,
as attorney-in-fact, to sign on his or her behalf, individually
and in each capacity stated below, any amendment to this
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, this Registration
Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature
|
|
Title
|
|
Date
|
| |
|
/S
/ TERRY
K. GLENN
Terry K. Glenn |
|
President (Principal Executive
Officer) and Trustee |
|
May 30,
2000 |
| |
|
/S
/ DONALD
C. BURKE
Donald C. Burke |
|
Vice
President and Treasurer
(Principal Financial and
Accounting Officer) |
|
May 30,
2000 |
| |
|
/S
/ M. COLYER
CRUM
M.
Colyer Crum |
|
Trustee |
|
May 30,
2000 |
| |
|
/S
/ LAURIE
SIMON
HODRICK
Laurie Simon Hodrick |
|
Trustee |
|
May 30,
2000 |
| |
|
/S
/ JACK
B. SUNDERLAND
Jack
B. Sunderland |
|
Trustee |
|
May 30,
2000 |
| |
|
/S
/ STEPHEN
B. SWENSRUD
Stephen B. Swensrud |
|
Trustee |
|
May 30,
2000 |
| |
|
/S
/ J. THOMAS
TOUCHTON
J.
Thomas Touchton |
|
Trustee |
|
May 30,
2000 |
| |
|
/S
/ FRED
G. WEISS
Fred
G. Weiss |
|
Trustee |
|
May 30,
2000 |
| |
|
/S
/ ARTHUR
ZEIKEL
Arthur Zeikel |
|
Trustee |
|
May 30,
2000 |
| |
INDEX
TO EXHIBITS
Exhibit
Number
|
|
|
|
|
| 1 |
(a) |
|
— |
|
Articles of Incorporation, dated May 1, 2000 |
|
| |
(b) |
|
— |
|
Amendment to the Articles of Incorporation, dated May
4, 2000 |
|
| 2 |
|
|
— |
|
By-Law |
|
| 8 |
(a) |
|
— |
|
Form of
Administration Agreement |
|
| |
(b) |
|
— |
|
Form of
Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency
Agreement |
|
| |
(c) |
|
— |
|
Form of
License Agreement |
|
| 13 |
(a) |
|
— |
|
Form of
Class A Distribution Plan and Class A Distribution Plan
Sub-Agreement |
|
| |
(b) |
|
— |
|
Form of
Class B Distribution Plan and Class B Distribution Plan
Sub-Agreement |
|
| |
(c) |
|
— |
|
Form of
Class C Distribution Plan and Class C Distribution Plan
Sub-Agreement |
|
| 14 |
|
|
— |
|
18f-3
Plan |
