As filed with the Securities and Exchange Commission on September 29, 2000
Securities Act File No. 333-38060
Investment Company Act File No. 811-09957
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |
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Pre-Effective Amendment No. 1 |
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Post-Effective Amendment No. |
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and/or |
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REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 |
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x |
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Amendment No. 1 |
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(Check appropriate box or boxes)
MERCURY BASIC VALUE FUND, INC.
(Exact name of Registrant as specified in charter)
800 Scudders Mill Road, Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)
Registrants Telephone Number, including Area Code: (888) 763-2260
TERRY K. GLENN
Mercury Basic 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
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Michael J. Hennewinkel, Esq.
FUND ASSET MANAGEMENT, L.P.
P.O. Box 9011
Princeton, New Jersey 08543-9011
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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 Basic Value Trust has also executed this Registration Statement.
PROSPECTUS ·
October , 2000
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Mercury Basic Value Fund, Inc.
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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 BASIC 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.
Price/Earnings Ratio price of a stock divided by its earnings per share.
Common Stock units of ownership of a corporation.
ABOUT THE MERCURY BASIC VALUE FUND
What is the Funds investment objective?
The Funds investment objective is to seek capital appreciation and, secondarily, income by investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value.
What are the Funds main investment strategies?
The Fund is a feeder fund that invests its assets in the Master Basic 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 Funds investment results will correspond directly to the investment results of the Trust. For simplicity, this prospectus uses
the term Fund to include the Trust.
The Fund invests primarily in stocks that its management believes are undervalued, which means that their prices are less than Fund management believes they are worth. Fund
management places particular emphasis on companies with below average price/earnings ratios that may pay above average dividends. The Fund purchases primarily common stocks of U.S. companies in trying to meet its goals. The Fund focuses on companies with
market capitalizations of over $5 billion. The Fund may also invest up to 25% of its total assets, taken at market value at the time of acquisition, in securities issued by foreign companies.
What are the main risks of investing in the Fund?
As with any mutual fund, the value of the Funds investments and therefore the value of your Fund shares may fluctuate. These changes
may occur because a particular stock or stock market in which the Fund invests is rising or falling. Also, Fund management may select securities that underperform the stock market or other funds with similar investment objectives and investment
strategies. If the value of the Funds investments goes down, you may lose money. We cannot guarantee that the Fund will achieve its investment objective.
MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] Fund Facts
Who should invest?
The Fund may be an appropriate investment for you if you:
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Are investing with long-term goals, such as retirement or funding a childs education.
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Want a professionally managed and diversified portfolio.
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Are willing to accept the risk that the value of your investment may decline in order to seek capital appreciation.
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Are not looking for a significant amount of current income.
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MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] Fund Facts
The Fund recently commenced operations and does not have a performance record. The Fund will be a feeder fund of the Trust. The Fund and the Trusts other feeder fund
have identical investment objectives and policies and utilize the same portfolio management personnel.
The bar chart and table shown below are based upon performance of the other feeder fund which is the predecessor of the recently organized Trust. The bar chart and table
provide an indication of the risks of investing in the Trust, which are identical to the risks of investing in the Fund. The bar chart shows changes in performance of the Trust and its predecessor for Class B shares for each of the past ten calendar
years. Sales charges are not reflected in the bar chart. The bar chart also does not reflect the estimated annual operating expenses of the Fund. If sales charges and the estimated annual operating expenses were reflected, returns would be less than those
shown. The table compares the average annual total returns for each class of the Funds shares for the periods shown with those of the S&P 500 Index. The average annual total returns of the Funds shares are based on the performance of the
Trust and its predecessor, adjusted for the sales charges shown in the fee table. How the Trust and its predecessor performed in the past is not necessarily an indication of how the Trust or the Fund will perform in the future.
[GRAPH]
1990 -13.92%
1991 25.91%
1992 9.24%
1993 20.93%
1994 0.88%
1995 31.60%
1996 16.58%
1997 28.20%
1998 10.51%
1999 9.97%
During the ten-year period shown in the bar chart, the highest return for a quarter was 15.87% (quarter ended March 31, 1991) and the lowest return for a quarter was -14.32% (quarter ended September 30, 1990). The year-to-date return as of June 30, 2000 was -3.20%.
MERCURY BASIC 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 the Fund may charge:
Expenses paid directly by the shareholder:
Shareholder Fees these fees include sales charges which you may pay when you buy or sell
shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses expenses that cover the costs of operating the Fund.
Management Fees fees paid to the Investment Adviser for managing the Trust.
Distribution Fees fees used to support the Funds 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 Fees fees paid to the Administrator for providing administrative services
to the Fund.
Average Annual Total
Returns (as of the
calendar year ended
December 31, 1999) |
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Past
One Year |
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Past
Five Years |
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Past Ten Years/
Since Inception |
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Mercury Basic Value Fund* Class I |
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5.23% |
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18.96% |
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13.73% |
S&P 500 Index** |
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21.04% |
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28.54% |
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18.20% |
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Mercury Basic Value Fund* Class A |
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5.00% |
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18.66% |
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17.53% |
S&P 500 Index** |
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21.04% |
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28.54% |
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27.19% |
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Mercury Basic Value Fund* Class B |
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5.97% |
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18.83% |
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13.19% |
S&P 500 Index** |
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21.04% |
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28.54% |
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18.20% |
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Merrill Lynch Fund* Class C |
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8.97% |
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19.02% |
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17.84% |
S&P 500 Index** |
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21.04% |
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28.54% |
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27.19% |
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*
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The performance is that of the Trust and its predecessor adjusted for the sales charges of each class of shares of the Fund. If the
performance was also adjusted to reflect the expenses of the Fund, the returns might be lower.
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**
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The S&P 500® is the Standard & Poors Composite Index of 500 Stocks, a widely recognized, unmanaged index of
common stock prices. Past performance is not predictive of future performance.
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Inception date is October 21, 1994.
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Since October 21, 1994.
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The Fund offers four different classes of shares. Although your money will be invested the same way no matter which class of shares you buy, there are differences among the
fees and expenses associated with each class. Not everyone is eligible to buy every class. After determining which classes you are eligible to buy, decide which class best suits your needs. Your 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): |
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Class I |
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Class A |
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Class B(b) |
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Class C |
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Maximum Sales Charge (Load) imposed on purchases (as a
percentage of offering price) |
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5.25 |
%(c) |
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5.25 |
%(c) |
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None |
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None |
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Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, whichever is
lower) |
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None |
(d) |
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None |
(d) |
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4.00 |
%(c) |
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1.00%(c) |
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Maximum Sales Charge (Load) imposed on Dividend
Reinvestments |
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None |
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None |
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None |
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None |
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Redemption Fee |
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None |
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None |
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None |
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None |
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Exchange Fee |
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None |
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None |
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None |
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None |
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Annual Fund Operating Expenses (expenses that are
deducted from the Funds total assets)(e): |
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Management Fees(f) |
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0.40 |
% |
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0.40 |
% |
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0.40 |
% |
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0.40% |
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Distribution and/or Service (12b-1) Fees(g) |
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None |
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0.25 |
% |
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1.00 |
% |
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1.00% |
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Other Expenses(h) (including Administrative Fees(i)) |
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0.52 |
% |
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0.52 |
% |
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0.52 |
% |
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0.52% |
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Total Annual Fund Operating Expenses |
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0.92 |
% |
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1.17 |
% |
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1.92 |
% |
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1.92% |
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MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] Fund Facts
(a)
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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.
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(b)
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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.
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(c)
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Some investors may qualify for reductions in the sales charge (load).
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(d)
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You may pay a deferred sales charge if you purchase $1 million or more and you redeem within one year.
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(e)
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Fees and expenses shown in the table and the example that follows include both the expenses of the Fund and the Fund
s share of expenses of the Trust.
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(f)
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The Trust pays the Investment Adviser a fee at the annual rate of 0.60% of the average daily net assets of the Trust for
the first $100 million; 0.50% of the average daily net assets from $100 million to $200 million; and 0.40% of the average daily net assets above $200 million.
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(g)
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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 over 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.
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(h)
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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.
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(i)
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Includes administrative fees, which are payable to the Investment Adviser by the Fund, at the annual rate of 0.25%.
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Example:
These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the Fund for the time periods indicated, that your investment has a 5% return each year, that you pay the sales charges, if
any, that apply to the particular class and that the Funds operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
Expenses if you did redeem your shares:
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Class I |
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Class A |
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Class B |
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Class C |
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One year |
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$614 |
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$638 |
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$595 |
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$295 |
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Three years |
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$803 |
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$877 |
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$903 |
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$603 |
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Expenses if you did not redeem your shares: |
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Class I |
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Class A |
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Class B |
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Class C |
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One year |
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$614 |
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$638 |
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$195 |
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$195 |
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Three years |
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$803 |
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$877 |
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$603 |
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$603 |
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MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] About the Details
About the Portfolio Manager Kevin Rendino is the portfolio manager and Senior Vice President of
the Fund. Mr. Rendino has been a First Vice President of Merrill Lynch Investment Managers since 1997 and a Vice President from 1993 to 1997.
About the Investment Adviser The Fund is managed by Fund Asset Management.
Weak Research Ratings
rating that is below a buy or hold recommendation.
The Funds main goal is growth of capital. The Fund also seeks income, but its investments emphasize growth of capital more than income. The Fund tries to achieve its
goals by investing in a diversified portfolio consisting primarily of common stocks. In selecting securities, Fund management emphasizes stocks that it believes are undervalued. Fund management places particular emphasis on companies with below-average
price/earnings ratios that may pay above-average dividends. 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.
The Fund follows a basic contrary opinion, out-of-favor investment style. Fund management believes that favorable changes in market prices are more likely to occur when:
Stocks are out of favor
Company earnings are depressed
Price/earnings ratios are relatively low
Investment expectations are limited
There is no general interest in a security
or industry
On the other hand, Fund management believes that negative developments are more likely to occur when:
Investment expectations are generally high
Stock prices are advancing or have
advanced rapidly
Price/earnings ratios have been inflated
An industry or security continues to
become popular among investors
In other words, Fund management believes that stocks with relatively high price/earnings ratios are more vulnerable to price declines from unexpected adverse developments. At
the same time, stocks with relatively low price/earnings ratios are more likely to benefit from favorable but generally unanticipated events. Thus, the Fund may invest a large part of its net assets in stocks that have weak research ratings.
The Fund may sell a security if, for example, the stock price increases to the high end of the range of its historical price-book value ratio or if the Fund determines that
the issuer no longer meets the criteria Fund management has established for the purchase of such securities or if Fund management thinks there is a more attractive investment opportunity in the same category.
MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] About the Details
The Fund may also invest up to 25% of its total assets in the securities of foreign companies. The Fund concentrates its foreign exposure on established companies in
established countries. Although it may invest in such countries from time to time, the Fund does not speculate on emerging markets or underdeveloped countries. Although it is not a principal strategy, the Fund may also lend its securities and may buy
securities that are convertible into common stock. The Fund will normally invest a portion of its assets in short-term debt securities, such as commercial paper. As a temporary measure for defensive purposes, the Fund may invest more heavily in these
securities, without limitation. The Fund may also increase its investment in these securities when Fund management is unable to find enough attractive long term investments, to reduce exposure to equities when management believes it is advisable to do so,
or to meet redemptions. Investments in short term debt securities can be sold easily and have limited risk of loss but may limit the Funds ability to achieve its investment objective.
The Fund may use many different investment strategies and it has certain investment restrictions, all of which are explained in the Funds Statement of Additional
Information.
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 Funds performance will be positive over any period of time.
The Funds principal risks are market risk and selection risk.
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 securities 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.
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 securities
traded on foreign markets have often (though not always) performed differently than securities in the United States. However, such investments involve special risks not present in U.S. investments that can increase the chances
involves the following risks, which are generally greater for investments in emerging markets:
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The economies of certain foreign markets often do not compare favorably with the economy of the United States in respect to such
matters as growth of gross national product, reinvestment of capital, resources and balance of payments position. Certain of these economies may rely heavily on particular industries or foreign capital and 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 Funds ability to purchase or sell foreign securities or transfer its assets or income back into the United States, or otherwise
adversely affect the Funds operations.
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Other foreign market risks include foreign exchange controls, difficulties in pricing securities, defaults on foreign government
securities, difficulties in enforcing favorable legal judgments in foreign courts and political and social instability. Legal remedies available to investors in 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 securities 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 Funds 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
.
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MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] About the Details
Certain Risks of Holding Fund Assets Outside the United States
The Fund generally holds its foreign securities and cash in foreign banks and securities depositories. Some foreign banks and securities depositories may be recently
organized or new to the foreign custody business. In addition, there may be limited or no regulatory oversight over their operations. Also, the laws of certain countries may put limits on the Funds ability to recover its assets if a foreign bank,
depository or issuer of a security, or any of their agents, goes bankrupt. In addition, it is often more expensive for the Fund to buy, sell and hold securities in certain foreign markets than in the United States. The increased expense of investing in
foreign markets reduces the amount the Fund can earn on its investments and typically results in a higher operating expense ratio for the Fund than investment companies invested only in the United States.
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)
have been 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.
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 Funds portfolio. Borrowing will cost the Fund interest expense and other fees. The cost of borrowing may reduce the Funds return. Certain securities that the Fund buys 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 BASIC 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.
Certain financial intermediaries may charge additional fees in connection with transactions in Fund shares. 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.
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 Funds assets on an ongoing basis, over time these fees increase the cost of your investment and may cost you more than paying other types of sales charges. In addition, you may be subject to a
deferred sales charge when you sell Class B or C shares.
The Funds shares are distributed by FAM Distributors, Inc.
MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] Account Choices
To better understand the pricing of the Funds shares, we have summarized the information below:
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Class I |
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Class A |
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Class B |
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Class C |
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Availability? |
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Limited to certain
investors including: |
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Generally available
through selected |
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Generally available
through selected |
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Generally available
through selected |
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Current Class I
shareholders |
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securities dealers and
other financial |
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securities dealers and
other financial |
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securities dealers and
other financial |
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Certain Retirement
Plans |
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intermediaries. |
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intermediaries. |
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intermediaries. |
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Participants in
certain sponsored
programs |
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Certain affiliates of
selected securities
dealers and other
financial
intermediaries. |
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Initial Sales
Charge? |
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Yes. Payable at time of
purchase. Lower sales
charges available for
larger investments. |
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Yes. Payable at time of
purchase. Lower sales
charges available for
larger investments. |
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No. Entire purchase
price is invested in
shares of the Fund. |
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No. Entire purchase
price is invested in
shares of the Fund. |
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|
Deferred Sales
Charge? |
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No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
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No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
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Yes. Payable if you
redeem within six years
of purchase. |
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Yes. Payable if you
redeem within one
year of purchase. |
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Account
Maintenance and
Distribution Fees? |
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No. |
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0.25% Account
Maintenance Fee
No Distribution Fee |
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0.25% Account
Maintenance Fee
0.75% Distribution Fee |
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0.25% Account
Maintenance Fee
0.75% Distribution Fee |
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Conversion to
Class A Shares? |
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No. |
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No. |
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Yes, automatically after
approximately eight
years. |
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No. |
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MERCURY BASIC 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% |
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5.54% |
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5.00% |
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$25,000 but less
than $50,000 |
|
4.75% |
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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. However, if you redeem your shares within one year after purchase, you may be charged a deferred sales charge. This charge is 1% of the lesser of the
original cost of the shares being redeemed or your redemption proceeds. A sales charge of 0.75% will be charged on purchases of $1,000,000 or more of Class 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:
|
|
Purchases under a Right of Accumulation or Letter of Intent
|
|
|
Certain trusts managed by banks, thrifts or trust companies including those affiliated with the Investment Adviser or its affiliates
|
|
|
Certain employer-sponsored retirement or savings plans
|
|
|
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
|
|
|
Certain fee-based programs of the Investment Adviser or its affiliates
|
MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] Account Choices
|
|
Certain fee-based programs of selected securities dealers and other financial intermediaries that have an agreement with the
Distributor or its affiliates
|
|
|
Purchases through certain financial advisers that meet and adhere to standards established by the Investment Adviser or its affiliate
s
|
|
|
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 Funds 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 Funds assets on an ongoing basis, over time these fees increase the cost of your investment and may cost you more than paying other types of sales charges. The Distributor uses the money that it
receives from the deferred sales charge and the distribution fees to cover the costs of marketing, advertising and compensating the financial consultant, selected securities dealer or other financial intermediary who assists you in your decision in
purchasing Fund shares.
MERCURY BASIC 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:
Year 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:
|
|
Certain post-retirement withdrawals from an IRA or other retirement plan if you are over 59 1
/2 years old
|
|
|
Redemption by certain eligible 401(a) and 401(k) plans and certain retirement plan rollovers
|
|
|
Redemption in connection with participation in certain fee-based programs of the Investment Adviser or its affiliates
|
|
|
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
|
|
|
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
|
|
|
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 BASIC 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 Funds 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 funds 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 BASIC 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 BASIC 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 12. 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: |
|
|
|
|
$500 for certain fee-based programs. |
|
|
|
|
$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. |
|
|
|
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: |
|
|
|
|
$50 for certain fee-based programs. |
|
|
|
|
$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 |
|
You may invest 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 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 BASIC 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 |
|
Transfer your shares to an account with the Transfer Agent; or |
|
|
other financial intermediary |
|
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 days 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. |
|
|
|
|
|
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. |
|
|
|
|
|
You may also sell shares held at the Transfer Agent by telephone request
if the amount being sold is less than $50,000 and if certain other
conditions are met. Contact the Transfer Agent at 1-888-763-2260 for
details. |
|
Sell shares
systematically |
|
Participate in the Funds
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 BASIC VALUE FUND, INC.
[GRAPHIC] Account Choices
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 funds prospectus |
|
You can exchange your shares of the Fund for shares of other
Mercury mutual funds or for shares of the Summit Cash Reserves
Fund. 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 sales
charge 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. |
|
|
|
|
|
To exercise the exchange privilege contact your financial
consultant, selected securities dealer or other financial
intermediary or call the Transfer Agent at 1-888-763-2260. |
|
|
|
|
|
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. |
|
MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] Account Choices
Net Asset Value the market value in U.S. dollars of the Funds 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 share 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 Funds net asset value may change on days when you will not be able to purchase or redeem 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 net asset value 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.
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.
MERCURY BASIC 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.
If you leave one of these programs, your shares may be redeemed or automatically exchanged into another class of the Funds 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.
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 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 gains 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 Funds 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.
MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] Account Choices
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.
[GRAPHIC] The Management Team
Fund Asset Management, the Trusts Investment Adviser, manages the portfolios 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 Trust. The Trust pays the Investment Adviser an investment advisory fee at the annual rate of 0.60% of the average daily net assets of the Trust for the first $100
million; 0.50% of the average daily net assets from $100 million to $200 million; and 0.40% of the average daily net assets above $200 million. 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 and its affiliates had approximately $591 billion in investment company and other portfolio assets under management as of August 2000.
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 portfolios 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 BASIC 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.
MERCURY BASIC VALUE FUND, INC.
[This page intentionally left blank]
[This page intentionally left blank]
[This page intentionally left blank]
Fund
Mercury Basic 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 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
(1-888-763-2260)
Independent Auditors
Deloitte & Touche LLP
Princeton Forrestal Village
116-300 Village Boulevard
Princeton, New Jersey 08540-6400
Distributor
FAM Distributors, Inc.
P.O. Box 9081
Princeton, New Jersey 08543-9081
Custodian
The Bank of New York
100 Church Street
New York, New York 10286
Counsel
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
MERCURY BASIC VALUE FUND, INC.
[GRAPHIC] To Learn More
Additional information about the Funds investments will be available in the Funds annual and semi-annual reports to shareholders. In the Funds annual report
you will find a discussion of the market conditions and investment strategies that significantly affected the Funds 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 Funds Statement of Additional Information contains further information about the Fund and is incorporated by reference (legally considered to be part of this
prospectus). You may request a free copy by writing the Fund at Financial Data Services, Inc., P.O. Box 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 SECs 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 SECs 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 #811-09957
Code # 10-00
©Fund Asset Management, L.P.
Mercury Basic Value Fund, Inc.
PROSPECTUS · October
, 2000
STATEMENT OF ADDITIONAL INFORMATION
Mercury Basic Value Fund, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 Phone No. (888) 763-2260
Mercury Basic 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 capital appreciation and, secondarily, income by investing in securities,
primarily equities, that management of the Fund believes are undervalued and therefore represent basic investment value. The Fund seeks to achieve its investment objective by seeking special opportunities in securities that are selling at a discount,
either from book value or historical price/earnings ratios, or seem capable of recovering from temporarily out-of-favor conditions. Particular emphasis is placed on securities that provide an above-average dividend return and sell at a below-average
price/earnings ratio. For more information on the Funds investment objective and policies, see Investment Objective and Policies.
The Fund is a feeder fund that invests all of its assets in the Master Basic Value Trust (the Trust),
which has the same investment objective as the Fund. All investments will be made at the Trust level. The Funds 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 October , 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
FAM Distributors, Inc. Distributor
The date of this Statement of Additional Information is October , 2000.
TABLE OF CONTENTS
|
|
Page |
Investment Objective and Policies
|
|
2 |
Convertible Securities |
|
2 |
Foreign Investment Risks |
|
3 |
European Economic and Monetary Union |
|
4 |
Other Investment Policies, Practices and Risk Factors |
|
5 |
Investment Restrictions |
|
7 |
Portfolio Turnover |
|
8 |
Management of the Fund
|
|
9 |
Directors/Trustees and Officers |
|
9 |
Compensation of Directors/Trustees |
|
10 |
Management and Advisory Arrangements |
|
10 |
Administation Arrangements |
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11 |
Code of Ethics |
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12 |
Purchase of Shares
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13 |
Initial Sales Charge AlternativesClass I and Class A Shares |
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Reduced Initial Sales Charges |
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15 |
Deferred Sales Charge AlternativesClass B and Class C Shares |
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16 |
Distribution Plans |
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18 |
Limitations on the Payment of Deferred Sales Charges |
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19 |
Redemption of Shares
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20 |
Redemption |
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20 |
Repurchase |
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21 |
Reinstatement PrivilegeClass I and Class A Shares |
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21 |
Pricing of Shares
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22 |
Determination of Net Asset Value |
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22 |
Computation of Offering Price Per Share |
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23 |
Portfolio Transactions and Brokerage
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24 |
Transactions in Portfolio Securities |
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24 |
Shareholder Services
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Investment Account |
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25 |
Exchange Privilege |
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26 |
Fee-Based Programs |
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28 |
Retirement Plans |
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28 |
Automatic Investment Plans |
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28 |
Automatic Dividend Reinvestment Plan |
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29 |
Systematic Withdrawal Plans |
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29 |
Dividends and Taxes
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Dividends |
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Taxes |
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30 |
Tax Treatment of Options Transactions |
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32 |
Special Rules for Certain Foreign Currency Transactions |
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32 |
Performance Data
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33 |
General Information
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35 |
Description of Shares |
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35 |
Independent Auditors |
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36 |
Custodian |
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36 |
Transfer Agent |
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36 |
Legal Counsel |
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36 |
Reports to Shareholders |
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36 |
Shareholder Inquiries |
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36 |
Additional Information |
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36 |
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek capital appreciation and, secondarily, income by investing in securities,
primarily equities, that management of the Fund believes are undervalued and therefore represent basic investment value. The Fund seeks special opportunities in securities that are selling at a discount, either from book value or historical price-earnings
ratios, or seem capable of recovering from temporarily out-of-favor conditions. Particular emphasis is placed on securities that provide an above-average dividend return and sell at a below-average price/earnings ratio. There can be no assurance that the
objective of the Fund 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 the holders of a majority of the Funds outstanding voting securities, as defined in the
Investment Company Act of 1940, as amended (the Investment Company Act). Reference is made to How the Fund Invests and Investment Risks in the Prospectus.
The investment strategy of the Fund is based on the belief that the pricing mechanism of the securities market lacks total
efficiency and has a tendency to inflate prices of securities in favorable market climates and depress prices of securities in unfavorable climates. Based on this premise, management believes that favorable changes in market prices are more likely to
begin when securities are out of favor, earnings are depressed, price/earnings ratios are relatively low, investment expectations are limited, and there is no real general interest in the particular security or industry involved. On the other hand,
management believes that negative developments are more likely to occur when investment expectations are generally high, stock prices are advancing or have advanced rapidly, price-earnings ratios have been inflated, and the industry or issue continues to
gain new investment acceptance on an accelerated basis. In other words, management believes that market prices of securities with relatively high price-earnings ratios are more susceptible to unexpected adverse developments while securities with
relatively low price-earnings ratios are more favorably positioned to benefit from favorable, but generally unanticipated, events. This investment policy departs from traditional philosophy. Management of the Fund believes that the market risk involved in
this policy is moderated somewhat by an emphasis on securities with above-average dividend returns.
The Fund is a feeder fund that invests 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 Funds 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. It also uses the term Board of Directors to include the Board of Trustees. 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 Funds outstanding voting
securities as defined in the Investment Company Act.
Investment emphasis is on equities, primarily common stocks and, to a lesser extent, securities convertible into common stock.
The Fund also may invest in preferred stocks and non-convertible debt securities and utilize covered call options with respect to portfolio securities as described below. It reserves the right as a defensive measure to hold other types of securities,
including U.S. Government and money market securities, repurchase agreements or cash, in such proportions as, in the opinion of management, prevailing market or economic conditions warrant.
Fund Asset Management, L.P. (the Investment Adviser or FAM), the Funds investment adviser, is
responsible for the management of the Funds portfolio and makes portfolio decisions based on its own research information supplemented by research information provided by other sources. The basic orientation of the Funds investment policies is
such that at times a large portion of its common stock holdings may carry less than favorable research ratings from research analysts. The Investment Adviser makes extensive use of investment research information provided by unaffiliated brokers and
dealers and of the securities research, economic research and computer applications facilities provided by Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch).
Convertible Securities
Convertible securities entitle the holder to receive interest payments paid on corporate debt securities or the dividend
preference on a preferred stock until such time as the convertible security matures or is redeemed or until the holder elects to exercise the conversion privilege.
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 relative
to its credit quality and the potential capital appreciation that is offered by the underlying common stock, among other things.
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.
Apart from currency considerations, the value of convertible securities is influenced by both the yield of nonconvertible
securities of comparable issuers and by the value of the underlying common stock. The value of a convertible security viewed without regard to its conversion feature (i.e., strictly on the basis of its yield) is sometimes referred to as its investment value. To the extent interest rates change, the investment value of the convertible security typically will fluctuate. However, at the same time, the
value of the convertible security will be influenced by its conversion value, which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price of the common stock the conversion value is substantially below the investment value of the convertible security, the price of the convertible security is governed principally by its
investment value.
To the extent the conversion value of a convertible security increases to a point that approximates or exceeds its investment
value, the price of the convertible security will be influenced principally by its conversion value. A convertible security will sell at a premium over the conversion value to the extent investors place value on the right to acquire the underlying common
stock while holding a fixed-income security.
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.
Foreign Investment Risks
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 securities traded on foreign markets have often (though not always) performed differently than securities in the United States. However, such investments involve
special risks not present in U.S. investments that can increase the chances that the Fund will lose money. In particular, the Fund is subject to the risk that because there are generally fewer investors on foreign exchanges and a smaller number of shares
traded each day, it may make it difficult for the Fund to buy and sell
securities on those exchanges. In addition, prices of foreign securities may fluctuate more than prices of securities traded in the United States.
Foreign Economy Risk. The economies of certain foreign markets often do not compare favorably
with that of the United States with respect to such issues as growth of gross national product, reinvestment of capital, resources, and balance of payments position. Certain such economies may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic sanctions against a particular country or countries, changes in international trading patterns, trade barriers, and other protectionist or retaliatory measures. Investments in
foreign markets may also be adversely affected by governmental actions such as the imposition of capital controls, nationalization of companies or industries, expropriation of assets, or the imposition of punitive taxes. In addition, the governments of
certain countries may prohibit or impose substantial restrictions on foreign investing in their capital markets or in certain industries. Any of these actions could severely affect security prices, impair the Funds ability to purchase or sell
foreign securities or transfer the Funds assets or income back into the United States, or otherwise adversely affect the Funds operations. Other foreign market risks include foreign exchange controls, difficulties in pricing securities,
defaults on foreign government securities, difficulties in enforcing favorable legal judgments in foreign courts, and political and social instability. Legal remedies available to investors in certain foreign countries may be less extensive than those
available to investors in the United States or other foreign countries.
Currency Risk and Exchange Risk. Securities in which the Fund invests may be denominated or
quoted in currencies other than the U.S. dollar. Changes in foreign currency exchange rates will affect the value of the Funds portfolio. Generally, when the U.S. dollar rises in value against a foreign currency, a security denominated in that
currency loses value because the currency is worth fewer U.S. dollars. Conversely, when the U.S. dollar decreases in value against a foreign currency, a security denominated in that currency gains value because the currency is worth more U.S. dollars.
This risk, generally known as currency risk, means that a stronger U.S. dollar will reduce returns for U.S. investors while a weak U.S. dollar will increase those returns.
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 countrys national currency, particularly if the withdrawing
country is a major economic power. Such developments could have an adverse impact on the Funds 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.
Governmental Supervision and Regulation/Accounting Standards. Many foreign governments
supervise and regulate stock exchanges, brokers and the sale of securities less than the United States does. Some countries may not have laws to protect investors the way that the U.S. securities laws do. For example, some foreign countries may have no
laws or rules against insider trading. Insider trading occurs when a person buys or sells a companys securities based on non-public information about that company. Accounting standards in other countries are not necessarily the same as in the United
States. If the accounting standards in another country do not require as much detail as U.S. accounting standards, it may be harder for Fund management to completely and accurately determine a companys financial condition. Also, brokerage
commissions and other costs of buying or selling securities often are higher in foreign countries than they are in the United States. This reduces the amount the Fund can earn on its investments.
Certain Risks of Holding Fund Assets Outside the United States. The Fund generally holds its
foreign securities and cash in foreign banks and securities depositories. Some foreign banks and securities depositories may be recently organized or new to the foreign custody business. In addition, there may be limited or no regulatory oversight over
their operations. Also, the laws of certain countries may put limits on the Funds ability to recover its assets if a foreign bank or depository or issuer of a security or any of their agents goes bankrupt. In addition, it is often more expensive for
the Fund to buy, sell and hold securities in certain foreign markets than it is in the U.S. The increased expense of investing in foreign markets reduces the amount the Fund can earn on its investments and typically results in a higher operating expense
ratio for the Fund than investment companies invested only in the U.S.
Settlement Risk. Settlement and clearance procedures in certain foreign markets differ
significantly from those in the United States. Foreign settlement procedures and trade regulations also may involve certain risks (such as delays in payment for or delivery of securities) not typically generated by the settlement of U.S. investments.
Communications between the United States and emerging market countries may be unreliable, increasing the risk of delayed settlements or losses of security certificates. Settlements in certain foreign countries at times have not kept pace with the number
of securities transactions; these problems may make it difficult for the Fund to carry out transactions. If the Fund cannot settle or is delayed in settling a purchase of securities, it may miss attractive investment opportunities and certain of its
assets may be uninvested with no return earned thereon for some period. If the Fund cannot settle or is delayed in settling a sale of securities, it may lose money if the value of the security then declines or, if it has contracted to sell the security to
another party, the Fund could be liable to that party for any losses incurred.
Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to foreign withholding taxes.
Other Investment Policies, Practices and Risk Factors
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 finders, 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.
Writing Options. The Fund may write (i.e., sell) call options on securities held in its
portfolio and may enter into closing purchase transactions with respect to such options. A call option will be considered covered if the Fund owns the securities it would be required to deliver upon exercise of the option or owns a call option, warrant or
convertible instrument which is immediately exercisable for, or convertible into, such security. 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. 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, which is the risk that changes in the value of a call option the Fund has written may experience a gain or loss which will not be completely offset by movements in the value of the portfolio securities underlying
the call option, in which case any losses on the holdings being hedged may not be reduced.
The Fund may not write covered options on underlying securities exceeding 15% of its total assets, taken at market value.
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 Funds 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 Funds 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. Restricted securities have contractual or legal
restrictions on their resale and include private placement securities that the Fund may buy directly from the issuer. 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. 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 Funds 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 Funds 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 Funds 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 assume to develop, the Board of Directors will carefully monitor the Funds 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.
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 investors investment objectives and such investors 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 Funds outstanding voting securities (which for this purpose and under the Investment Company Act means
the lesser of (i) 67% of the Funds 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 Funds outstanding shares).
Under the fundamental investment restrictions, provided that none of the following restrictions shall prevent the Fund from
investing all of its assets in shares of another registered investment company with the same investment objective (in a master/feeder structure), the Fund may not:
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(1) Make any investment inconsistent with the Funds classification
as a diversified company under the Investment Company Act.
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(2) Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities).
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(3) Make investments for the purpose of exercising control or management.
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(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.
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(5) Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in 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.
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(6) Issue senior securities to the extent such issuance would violate
applicable law.
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(7) Borrow money, except that (i) 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 Funds 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.
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(8) Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act in selling portfolio securities.
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(9) Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and the 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.
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The Trust has adopted investment restrictions substantially identical to the foregoing, which are fundamental policies of the
Trust and may not be changed without the approval of the holders of a majority of the interests of the Trust.
In addition, the Fund has adopted non-fundamental restrictions that may be changed by the Board of Directors without
shareholder approval. Like the fundamental restrictions, none of the non-fundamental restrictions, including but not limited to restriction (a) below, shall prevent the Fund from investing all of its assets in shares of another registered investment
company with the same investment objective (in a master/feeder structure). Under the non-fundamental investment restrictions, the Fund may not:
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(a) Purchase securities of other investment companies, except to the
extent permitted by applicable law. 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 Funds shares are owned by another investment company that is part of the same group of investment companies as the Fund.
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(b) Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. The Fund currently does not intend to engage in short sales, except short sales against the box.
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(c) Invest in securities that cannot be readily resold because of legal
or contractual restrictions or that cannot otherwise be marketed, redeemed or put to the issuer or a third party, if at the time of acquisition more than 15% of its total 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 Funds Board of Directors are not subject to the limitations set forth in this investment restriction.
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(d) Notwithstanding fundamental investment restriction (7) above, borrow
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.
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The Trust has adopted investment restrictions substantially identical to the foregoing, which are non-fundamental policies of
the Trust and may be changed by the Trustees of the Trust.
Because of the affiliation of Merrill Lynch with the Investment Adviser, the Fund and the Trust are prohibited from engaging
in certain transactions involving Merrill Lynch or its affiliates except for brokerage transactions permitted under the Investment Company Act involving only usual and customary commissions or transactions pursuant to an exemptive order under the
Investment Company Act. See Portfolio Transactions and Brokerage. Without such an exemptive order the 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, given the Funds 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. The portfolio turnover rate is calculated by dividing the lesser of the Funds annual sales or purchases of
portfolio securities (exclusive of purchases or sales of U.S. Government securities and all other 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. A
high portfolio turnover may result in negative tax consequences, such as an increase in capital gain dividends. High portfolio turnover may also involve correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions,
which are borne directly by 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
(60)President and Director/Trustee(1)(2)Executive Vice President of the Investment Adviser and Merrill Lynch Investment Managers, L.P. (MLIM) (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 FAM Distributors, Inc. (FAMD or the Distributor) since 1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.
M. COLYER
CRUM
(68)Director/Trustee(2)(3)104 Westcliff Road, Weston, Massachusetts 02193. James R. Williston Professor of Investment Management Emeritus, Harvard Business School since 1996; James R. Williston Professor of Investment Management,
Harvard Business School, from 1971 to 1996; Director of Cambridge Bancorp.
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
(72)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
(67)Director/Trustee(2)(3)88 Broad Street, 2nd Floor, 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
(61)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)16450 Maddalena Place, Delray Beach, Florida 33446. Managing Director of FGW Associates since 1997; Vice President, Planning Investment, and Development of Warner Lambert Co. from 1979 to 1997; Director of
Watson Pharmaceutical, Inc. (a pharmaceutical company) since 2000; Director of the Michael J. Fox Foundation for Parkinsons Research; Director of Laboratories Phoenix USA, Inc. (a private drug delivery company); and Director of Kann Institute for
Medical Careers, Inc. (a private medical education company).
ARTHUR
ZEIKEL
(68)Director/Trustee(1)(2)300 Woodland Avenue, Westfield, New Jersey 07090. Chairman of the Investment Adviser and MLIM from 1997 to 1999 and President thereof from 1977 to 1997; Chairman of Princeton Services, Inc. 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.
KEVIN
RENDINO
(33)Senior Vice President and Portfolio Manager(1)First Vice President of MLIM since 1997; Vice President of MLIM from 1993 to 1997; and Portfolio Manager of MLIM since 1999.
DONALD
C. BURKE
(40)Vice President and Treasurer(1)(2)Senior Vice President and Treasurer of the Investment Adviser and MLIM since 1999; Senior Vice President and Treasurer of Princeton Services since 1999; Vice President of FAMD since 1999; First Vice
President of MLIM from 1997 to 1999; Vice President of MLIM from 1990 to 1997; Director of Taxation of MLIM since 1990.
THOMAS
D. JONES
, III (35)Secretary(1)(2)Director (Legal Advisory) of MLIM since 2000; Vice President of MLIM from 1998 to 2000; attorney with the Investment Adviser and MLIM 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 FAM or MLIM acts
as investment adviser or manager.
|
(3)
|
Member of the Funds and the Trusts Audit and Nominating Committee, which is responsible for the selection of the
independent auditors and the selection and nomination of non-interested Directors/Trustees.
|
Compensation of Directors/Trustees
The Fund and the Trust pay each non-interested Director/Trustee, for service to the Fund and the Trust, a combined fee of
$3,500 per year plus $500 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
$2,500 per year. The Chairman of the Committee receives an additional fee of $1,000 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 (MLIM/FAM advised funds) for the calendar year ended December 31, 1999.
Name
|
|
Position with
Fund/Trust
|
|
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 Other
MLIM/FAM
Advised Funds(1)
|
M. Colyer Crum |
|
Director/Trustee |
|
$8,000 |
|
None |
|
None |
|
$122,975 |
Laurie Simon Hodrick |
|
Director/Trustee |
|
$8,000 |
|
None |
|
None |
|
$ 53,000 |
Jack B. Sunderland |
|
Director/Trustee |
|
$8,000 |
|
None |
|
None |
|
$143,975 |
Stephen B. Swensrud |
|
Director/Trustee |
|
$8,000 |
|
None |
|
None |
|
$232,250 |
J. Thomas Touchton |
|
Director/Trustee |
|
$8,000 |
|
None |
|
None |
|
$142,725 |
Fred G. Weiss |
|
Director/Trustee |
|
$9,000 |
|
None |
|
None |
|
$122,975 |
(1)
|
The Directors/Trustees serve on the boards of MLIM/FAM advised funds as follows: Mr. Crum (25 registered investment companies
consisting of 60 portfolios); Ms. Hodrick (25 registered investment companies consisting of 60 portfolios); Mr. Sunderland (25 registered investment companies consisting of 60 portfolios); Mr. Swensrud (40 registered investment companies consisting of 80
portfolios); Mr. Touchton (25 registered investment companies consisting of 60 portfolios); and Mr. Weiss (25 registered investment companies consisting of 60 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 ChargesPurchase Privileges of Certain Persons.
Management and Advisory Arrangements
Investment Advisory Services and Fees. The Fund invests 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 Trusts portfolio and constantly reviews the Trusts 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 TeamManagement
of the Fund in the Prospectus, the Investment Adviser receives for its services to the Trust a monthly fee at an annual rate of 0.60% of the average daily net assets of the Trust
for the first $100 million; 0.50% of the average daily net assets from $100 million to $200 million; and 0.40% of the average daily net assets above $200 million. 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.
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 the Distributor), including, among other things, taxes, expenses for accounting services (including printing), 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.
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.
Duration and Termination. Unless earlier terminated as described below, the Advisory Agreement
will 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 SharesDistribution Plan. 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
Funds 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 approved 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 establishes procedures for personal investing and restricts certain transactions. Employees subject to the Code of Ethics may
invest in securities for their personal investment accounts, including securities that may be purchased or held by the Trust.
Reference is made to Account ChoicesHow 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 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 relating 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 ServicesExchange 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 days offering price.
The Fund or the Distributor may suspend the continuous offering of the Funds 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. Purchases made directly through
the Transfer Agent are not subject to the processing fee.
Initial Sales Charge AlternativesClass 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 an 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 or the bank has $3 million or more initially
invested in MLIM/FAM 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 purchasers 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 purchasers 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 Funds 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 MLIM, FAM 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 Funds 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 or an affiliate from time to time.
Deferred Sales Charge AlternativesClass 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 investors 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 SharesDetermination 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 shareholders 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 ChoicesPricing of SharesClass B and C SharesDeferred
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 59 1
/2 in the case of an IRA or other retirement
plan, or part of a series of equal periodic payments (not less frequently than annually) made for life (or life expectancy) or any redemption resulting from the tax-free return of an excess contribution to an IRA (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 ServicesFee-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
ServicesFee-Based Programs.
Class B shareholders of the Fund exercising the exchange privilege described under Shareholder ServicesExchange
Privilege will continue to be subject to the Funds 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 shareholders 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 ServicesSystematic 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 dealers 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 ChoicesPricing 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 financial consultants, selected 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 selected 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 Funds Class B and Class C shares.
The Funds Distribution Plans are subject to the provisions of Rule 12b-1 under the Investment Company Act. In their
consideration of each Distribution Plan, the Directors must consider all factors they deem relevant, including information as to the benefits of each Distribution Plan to the 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 a 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.
Reference is made to Account ChoicesHow 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 shareholders 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
Funds Transfer Agent, Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered other than by mail should be delivered to Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville,
Florida 32246-6484. Proper notice of redemption in the case of shares deposited with the Transfer Agent may be accomplished by a written letter requesting redemption. 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 Agents 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 Agents register; (ii) all checks must be mailed to the stencil address of record on the Transfer Agents 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 clients 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 shareholders 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 days 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. 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 PrivilegeClass 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 of the Fund, as the case may be, at the 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 investors financial consultant within 30 days after the date the request for redemption was accepted by the
Transfer Agent or the Distributor. The reinstatement will be made at the net asset value per share next determined after the notice of reinstatement is received and cannot exceed the amount of the redemption proceeds.
Determination of Net Asset Value
Reference is made to Account ChoicesHow 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 Years 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 asset 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 that are traded on stock exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price for long positions, and at the last available ask price for short positions. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange designated by or under the authority of the Board of Trustees 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 Funds 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 Funds 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 investors (including the Funds) 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
investors 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 investors 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 investors 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 investors 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 investors
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 Funds 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 SharesDeferred Sales Charge AlternativesClass 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 Trusts 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 firms
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 Trusts 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 Trusts 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 PoliciesInvestment 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.
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 Funds 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 or 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 Funds 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 Funds 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 Funds 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 Funds 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. 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.
Telephone exchange requests are also available in accounts held with the Transfer Agent for amounts up to $50,000. To request
an exchange from your account, call the Transfer Agent at 1-800-MER-FUND. The request must be from the shareholder of record. Before telephone requests will be honored, signature approval from all shareholders of record must be obtained. The shares being
exchanged must have been held for at least 15 days. Telephone requests for an exchange will not be honored in the following situations: the accountholder is deceased, the request is by an individual other than the accountholder of record, the account is
held by joint tenants who are divorced or the address on the account has changed within the last 30 days. Telephone exchanges 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.
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 Programs 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 shareholders 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 shareholders address of record and no interest will accrue on amounts represented by uncashed dividend checks. Cash payments can also be directly deposited to the
shareholders 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 shareholders 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 determined 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 as of 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 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 shareholders 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 SharesDeferred
Sales Charge AlternativesClass 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 shareholders 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 years 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
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 Funds 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 ServicesAutomatic 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 SharesDetermination 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 Funds 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 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 Funds earnings and profits will first reduce the adjusted tax basis
of a holders 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
Funds 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
shareholders basis in the Class A shares acquired will be the same as such shareholders 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 Funds
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 distribution 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 distribution 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 reorganize as ordinary income any increases 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 excess distributions from PFICs, but in any particular year might be required to recognize income in excess of the
distribution it received from PFICs.
Tax Treatment of Options Transactions
The Fund may write covered options with respect to securities held in its portfolio. In general, unless an election is
available to the Fund or an exception applies, such options 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 contract will be treated
as sold for its fair market value on the last day of the taxable year) and any gain or loss attributable to Section 1256 contracts will be 60% long term and 40% short term capital gain or loss. Application of these rules to Section 1256 contracts held by
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.
Code Section 1092, which applies to certain straddles, may affect the taxation of the Funds sales of
securities and transactions in options. 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.
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 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. In general, however, Code
Section 988 gains or losses will increase or decrease the amount of the Funds 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 shareholders Fund shares and resulting in a capital gain for any shareholder who received a distribution greater than such shareholders 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 has received a private letter ruling from the IRS, to the effect that, because the Trust is classified as a
partnership for tax purposes, the Fund is 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) 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 Funds investment from the Trust and to retain an investment adviser to manage the Funds assets in accordance with the investment policies applicable to the Fund. See Investment Objective and Policies.
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 Funds 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 costs 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 recently commenced operations and does not have a performance record. The Fund will be a feeder fund of the Trust.
The Fund and the Trusts other feeder fund have identical investment objectives and policies and utilize the same portfolio management personnel.
Set forth below is total return information for the Funds shares based on the performance of the Trust and its
predecessor, adjusted for the Funds sales charges, for the periods indicated.
|
|
Class I
Shares
|
|
Class B
Shares
|
Period
|
|
Expressed
as a
percentage
based on a
hypothetical
$1,000
investment
|
|
Expressed
as a
percentage
based on a
hypothetical
$1,000
investment
|
|
|
Average Annual Total Return
(including maximum applicable
sales charges) |
One Year Ended June 30, 2000 |
|
(10.92 |
)% |
|
(10.31 |
)% |
Five Years Ended June 30, 2000 |
|
14.40 |
% |
|
14.22 |
% |
Ten Years Ended June 30, 2000 |
|
13.78 |
% |
|
13.24 |
% |
|
|
|
Class C
Shares
|
|
Class A
Shares
|
Period
|
|
Expressed
as a
percentage
based on a
hypothetical
$1,000
investment
|
|
Expressed
as a
percentage
based on a
hypothetical
$1,000
investment
|
|
|
Average Annual Total Return
(including maximum applicable
sales charges) |
One Year Ended June 30, 2000 |
|
(7.79 |
)% |
|
(11.12 |
)% |
Five Years Ended June 30, 2000 |
|
14.45 |
% |
|
14.12 |
% |
Inception (October 21, 1994) to June 30, 2000 |
|
15.49 |
% |
|
15.30 |
% |
Total return figures are based on the historical performance of the Trust and its predecessor and are not intended to indicate
future performance of the Fund. The Funds total return will vary depending on market conditions, the securities comprising the Funds portfolio, the Funds operating expenses and the amount of realized and unrealized net capital gains or
losses during the period. The value of an investment in the Fund will fluctuate and an investors shares, when redeemed, may be worth more or less than their original cost.
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 &
Poors 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, 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 Funds relative performance for any future
period. In addition, from time to time, the Fund may include its Morningstar risk-adjusted performance rating in advertisements or supplemental sales literature. The Fund may provide information designed to help investors understand how the Fund is
seeking to achieve its investment objectives. This may include information about past, current or possible economic, market, political, or other conditions, descriptive information on general principles of investing such as asset allocation,
diversification and risk tolerance, discussion of the Funds portfolio composition, investment philosophy, strategy or investment techniques, comparisons of the Funds performance or portfolio composition to that of other funds or types of
investments, indices relevant to the comparison being made, or to a hypothetical or model portfolio. The Fund may also quote various measures of volatility and benchmark correlation in advertising and other materials, and may compare these measures to
those of other funds or types of investments.
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 Trusts 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 under the name Mercury Value Fund, Inc. The Fund changed its
name to Mercury Basic Value Fund, Inc. on May 4, 2000. As of the date of this Statement of Additional Information, the Fund 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 Funds 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 Funds shareholders and will cast its vote as instructed by the Funds shareholders.
The Investment Adviser provided 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
Deloitte & Touche LLP, Princeton Forrestal Village, 116-300 Village Boulevard, Princeton, New Jersey 08540-6400, 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 and the Trust.
Custodian
The Bank of New York, 100 Church Street, New York, New York 10286 acts as custodian of the Trusts assets and the
Funds 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 Trusts and the Funds cash and securities, handling the receipt and delivery of
securities and collecting interest and dividends on the Trusts and the Funds investments.
Transfer Agent
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484, which is a wholly owned subsidiary
of ML & Co., acts as the Funds Transfer Agent pursuant to a transfer agency, dividend disbursing agency and shareholder servicing agency agreement (the Transfer Agency Agreement). The Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening, maintenance and servicing of shareholder accounts.
Legal Counsel
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is counsel for the Trust and the Fund.
Reports to Shareholders
The fiscal year of the Fund and the Trust ends on June 30 of each year. The Fund and the Trust send to their shareholders at
least semi-annually reports showing the Trusts 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.
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.
Under a separate agreement, Mercury Asset Management International Ltd. and Mercury Asset Management Group Ltd. have granted
the Fund the right to use the Mercury or Mercury Asset Management names and have reserved the right to withdraw their consent to the use of such names by the Fund at any time or to grant the use of such name to any other company.
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholder,
Mercury Basic Value Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Mercury Basic Value Fund, Inc. (the Fund) as of August 30, 2000. This financial statement
is the responsibility of the Funds management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 Basic Value Fund, Inc., as of August 30,
2000, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
September 7, 2000
MERCURY BASIC VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
August 30, 2000
ASSETS: |
|
|
Cash (Note 1) |
|
$100,000 |
Prepaid registration fees (Note 3) |
|
183,195 |
Prepaid offering costs (Note 3) |
|
164,913 |
|
|
|
Total Assets
|
|
448,108 |
|
|
|
|
LIABILITIES: |
Liabilities and accrued expenses |
|
348,108 |
|
|
|
|
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 IBased on net assets of $25,000 and 2,500 shares outstanding
|
|
$ 10.00 |
|
|
|
Class ABased on net assets of $25,000 and 2,500 shares outstanding
|
|
$ 10.00 |
|
|
|
Class BBased on net assets of $25,000 and 2,500 shares outstanding
|
|
$ 10.00 |
|
|
|
Class CBased on net assets of $25,000 and 2,500 shares outstanding
|
|
$ 10.00 |
|
|
|
Notes to Financial Statement.
(1)
|
Mercury Basic 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 will invest substantially all of its assets in Master Basic Value Trust (the Trust).
|
(2)
|
The Trust will enter into an Investment Advisory Agreement with the Investment Adviser. The Fund will enter into an Administration
Agreement with Fund Asset Management, L.P. as Administrator (the Administrator) and a Distribution Agreement with FAM Distributors, Inc. (the Distributor). 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, the Administrator and the Distributor.
|
(3)
|
Prepaid offering costs consist of registration fees and 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.
|
Item 22. Financial Statements
INDEPENDENT AUDITORS REPORT
To the Board of Trustees and Investors,
Master Basic Value Trust:
We have audited the accompanying statement of assets and liabilities of Master Basic Value Trust (the Trust) as of September 26, 2000. This financial statement is
the responsibility of the Trusts management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 Master Basic Value Trust as of September 26,
2000, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
September 27, 2000
MASTER BASIC VALUE TRUST
STATEMENT OF ASSETS AND LIABILITIES
September 26, 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 Basic Value Trust (the Trust) was organized as a Delaware business trust on May 2, 2000. Merrill Lynch Basic
Value Fund, Inc. and Mercury Basic Value Fund, Inc. will invest their assets in the Trust. To date, the Trust has not had any transactions other than those relating to organizational matters, a $100,000 capital contribution to the Trust by Merrill Lynch
Basic Value Fund, Inc. and a $100 partnership contribution to the Trust by FAM Distributors, Inc. (the Distributor).
|
(2)
|
The Trust will enter into an investment advisory agreement (the Advisory Agreement) with Fund Asset Management, L.P.
(the Investment Adviser). Certain officers and/or Trustees of the Trust are officers and/or directors of the Investment Adviser.
|
(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 #: [ -10-00]
PART C. OTHER INFORMATION
Item 23. Exhibits.
Exhibit
Number
|
1 |
|
(a) |
|
|
|
Articles of Incorporation, dated May 1, 2000.(a) |
|
|
|
|
(b) |
|
|
|
Amendment to the Articles of Incorporation, dated May 4, 2000.(a) |
|
|
2 |
|
|
|
|
|
By-Laws of the Registrant.(a) |
|
|
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.(b) |
|
|
4 |
|
|
|
|
|
Not Applicable. |
|
|
5 |
|
|
|
|
|
Form of Distribution Agreement between the Registrant and FAM Distributors, Inc. (the
Distributor).(c) |
|
|
6 |
|
|
|
|
|
None. |
|
|
7 |
|
|
|
|
|
Not Applicable |
|
|
8 |
|
(a) |
|
|
|
Form of Administration Agreement between the Registrant and Fund Asset Management, L.P.(a) |
|
|
|
|
(b) |
|
|
|
Form of Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement between the Registrant and Financial Data Services, Inc.(a) |
|
|
|
|
(c) |
|
|
|
Form of License Agreement relating to use of name among Mercury Asset Management International
Ltd., Mercury Asset Management Group Ltd. and the Registrant.(a) |
|
|
|
|
(d) |
|
|
|
Credit Agreement between the Registrant and a syndicate of banks.(d) |
|
|
9 |
|
|
|
|
|
Opinion of Brown & Wood LLP, counsel for the Registrant.(e) |
|
|
10 |
|
|
|
|
|
Consent of Deloitte & Touche LLP, independent auditors for the Registrant. |
|
|
11 |
|
|
|
|
|
None. |
|
|
12 |
|
|
|
|
|
Certificate of Fund Asset Management, L.P.(e) |
|
|
13 |
|
(a) |
|
|
|
Form of Class A Distribution Plan of the Registrant.(a) |
|
|
|
|
(b) |
|
|
|
Form of Class B Distribution Plan of the Registrant.(a) |
|
|
|
|
(c) |
|
|
|
Form of Class C Distribution Plan of the Registrant.(a) |
|
|
14 |
|
|
|
|
|
18f-3 Plan.(a) |
|
|
15 |
|
|
|
|
|
Code of Ethics.(f) |
(a)
|
Filed on May 30, 2000 as an Exhibit to the Registrants Registration Statement on Form N-1A under the Securities Act of 1933,
as amended (File 333-38060) (the Registration Statement).
|
(b)
|
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 Registrants 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 Registrants By-Laws filed
as Exhibit (2) to the Registration Statement.
|
(c)
|
Incorporated by reference to Exhibit 5 to Post-Effective Amendment No. 38 to the Registration Statement on Form N-1A of Merrill
Lynch Balanced Capital Fund, Inc. (File No. 2-49007) filed on June 30, 2000.
|
(d)
|
Incorporated by reference to Exhibit 8(b) to the Registration Statement on Form N-1A of Master Premier Growth Trust (File No.
811-09733), filed on December 21, 1999.
|
(e)
|
To be filed by amendment.
|
(f)
|
Incorporated by reference to Exhibit 15 to Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A of Merrill
Lynch MiddleEast/Africa Fund, Inc. (File No. 33-55843), filed on March 29, 2000.
|
Item 24. Persons Controlled by or under Common Control with Registrant.
The Registrant will own beneficial interests in the Trust. Fund Asset Management, L.P. (the Investment Adviser or
FAM) owns 100% of the shares of common stock of the Registrant. Therefore, the Registrant and the Trust are under the common control of the Investment Adviser.
Item 25. Indemnification.
Reference is made to Article VI of the Registrants Articles of Incorporation, Article VI of Registrants 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 Registrants 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
persons 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 Registrants
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. (FAM or the Investment Adviser) acts as the investment adviser for the
following open-end registered investment companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., Financial
Institutions Series Trust, Master Basic Value Trust, Master Focus Twenty Trust, Master Internet Strategies Trust, Master Large Cap Series Trust, Master Premier Growth Trust, Master Small Cap Value Trust, Master U.S. High Yield Trust, Mercury Global
Holdings Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Focus Value Fund, Inc., Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal Series
Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch U.S. Government Mortgage Fund, Merrill Lynch U.S. High Yield Fund, Inc., Merrill Lynch World Income Fund, Inc., The Asset Program, 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 V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund V, MuniHoldings Insured Fund,
Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund IV,
Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured Fund IV, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, 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 Fund, Inc., MuniYield Pennsylvania Insured Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Investment Managers, L.P. (MLIM), an affiliate of the Investment Adviser, acts as the investment
adviser for the following open-end registered investment companies: Master Global Financial Services Trust, Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Balanced Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Markets Debt 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 Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Index Funds, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch 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 Utilities and Telecommunications Fund, Inc., Merrill Lynch Variable Series Funds, Inc., The
Asset Program, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLIM); 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. MLIM 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, MLIM, 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 FAM Distributors, Inc. (FAMD) 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 Funds 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 July 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 MLIM |
|
|
Princeton Services |
|
General Partner |
|
General Partner of MLIM |
|
|
Jeffrey M. Peek |
|
President |
|
President of MLIM; 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; Senior
Vice President of the Global Securities and
Economics Division of Merrill Lynch from
1995 to 1997 |
|
|
Terry K. Glenn |
|
Executive Vice President |
|
Executive Vice President of MLIM;
Executive Vice President and Director of
Princeton Services; President and Director of
FAMD; Director of FDS; President of
Princeton Administrators |
|
|
Gregory A. Bundy |
|
Chief Operating Officer and
Managing Director |
|
Chief Operating Officer and Managing
Director of MLIM; 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 MLIM; Senior Vice President
and Treasurer of Princeton Services; Vice
President of FAMD; First Vice President of
MLIM from 1997 to 1999; Vice President of
MLIM from 1990 to 1997 |
|
|
Michael G. Clark |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services; Treasurer
and Director of FAMD; First Vice President
of MLIM from 1997 to 1999; Vice President
of MLIM from 1996 to 1997 |
|
|
Robert C. Doll, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services; Chief
Investment Officer of OppenheimerFunds,
Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999 |
|
|
Vincent R. Giordano |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services |
|
|
Michael J. Hennewinkel |
|
Senior Vice President,
Secretary and General
Counsel |
|
Senior Vice President, Secretary and General
Counsel of MLIM; Senior Vice President of
Princeton Services |
|
|
Philip L. Kirstein |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President, Secretary, General Counsel and
Director of Princeton Services |
|
|
Debra W. Landsman-Yaros |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services; Vice
President of FAMD |
Name
|
|
Position(s) with
the Investment Adviser
|
|
Other Substantial Business, Profession,
Vocation or Employment
|
Stephen M. M. Miller |
|
Senior Vice President |
|
Executive Vice President of Princeton
Administrators; Senior Vice President of
MLIM; Senior Vice President of Princeton
Services |
|
|
Joseph T. Monagle, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services |
|
|
Gregory D. Upah |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services |
Item 27. Principal Underwriters.
FAMD acts as the principal underwriter for the Registrant and for each of the open-end registered investment companies
referred to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, Master Focus Twenty Trust, Master Global Financial
Services Trust, Master Internet Strategies Trust, Master Large Cap Series Trust, Master Premier Growth Trust, Master Small Cap Value Trust, Master U.S. High Yield Trust, The Corporate Fund Accumulation Program, Inc. and The Municipal Fund Accumulation
Program, Inc. and for each of the following additional open-end registered investment companies: Mercury Focus Twenty Fund, Inc., Mercury Global Balanced Fund of Mercury Funds, Inc., Mercury Global Financial Services Fund Inc., Mercury Gold and Mining
Fund of Mercury Funds, Inc., Mercury International Fund of Mercury Funds, Inc., Mercury Internet Strategies Fund, Inc., Mercury Large Cap Series Fund, Inc., Mercury Pan-European Growth Fund of Mercury Funds, Inc., Mercury Premier Growth Fund, Inc.,
Mercury Small Cap Value Fund, Inc., Mercury U.S. High Yield Fund, 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., Merrill Lynch Focus Twenty Fund, Inc.,
Merrill Lynch Global Financial Services Fund, Inc., Merrill Lynch Internet Strategies Fund, Inc., Merrill Lynch Large Cap Series Fund, Inc. and Merrill Lynch Premier Growth Fund, Inc. FAMD also acts as the principal underwriter for the following
closed-end registered investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Senior Floating Rate Fund II, Inc., Merrill Lynch
Small Cap Value Fund, Inc. and Merrill Lynch U.S. High Yield Fund, Inc.
Set forth below is information concerning each director and officer of FAMD. 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 FAMD
|
|
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 |
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 FundManagement and Advisory Arrangements and Administration 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 29th day of September, 2000.
|
MERCURY BASIC VALUE FUND, INC.
|
|
Terry K. Glenn, President
|
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
|
|
|
TERRY
K. GLENN
*
Terry K. Glenn |
|
President (Principal Executive
Officer) and Director |
|
|
|
|
DONALD
C. BURKE
*
Donald C. Burke |
|
Vice President and Treasurer
(Principal Financial and
Accounting Officer) |
|
|
|
|
M. COLYER
CRUM
*
M. Colyer Crum |
|
Director |
|
|
|
|
LAURIE
SIMON
HODRICK
*
Laurie Simon Hodrick |
|
Director |
|
|
|
|
JACK
B. SUNDERLAND
*
Jack B. Sunderland |
|
Director |
|
|
|
|
STEPHEN
B. SWENSRUD
*
Stephen B. Swensrud |
|
Director |
|
|
|
|
J. THOMAS
TOUCHTON
*
J. Thomas Touchton |
|
Director |
|
|
|
|
FRED
G. WEISS
*
Fred G. Weiss |
|
Director |
|
|
|
|
ARTHUR
ZEIKEL
*
Arthur Zeikel |
|
Director |
|
|
|
|
*By: /S
/ TERRY
K. GLENN
(Terry K. Glenn, Attorney-in-Fact) |
|
|
|
September 29, 2000 |
|
SIGNATURES
Master Basic Value Trust has duly caused this Registration Statement of Mercury Basic 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 29th day of September, 2000.
|
Terry K. Glenn, President
|
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
|
|
|
TERRY
K. GLENN
*
Terry K. Glenn |
|
President (Principal Executive
Officer) and Trustee |
|
|
|
|
DONALD
C. BURKE
*
Donald C. Burke |
|
Vice President and Treasurer
(Principal Financial and
Accounting Officer) |
|
|
|
|
M. COLYER
CRUM
*
M. Colyer Crum |
|
Trustee |
|
|
|
|
LAURIE
SIMON
HODRICK
*
Laurie Simon Hodrick |
|
Trustee |
|
|
|
|
JACK
B. SUNDERLAND
*
Jack B. Sunderland |
|
Trustee |
|
|
|
|
STEPHEN
B. SWENSRUD
*
Stephen B. Swensrud |
|
Trustee |
|
|
|
|
J. THOMAS
TOUCHTON
*
J. Thomas Touchton |
|
Trustee |
|
|
|
|
FRED
G. WEISS
*
Fred G. Weiss |
|
Trustee |
|
|
|
|
ARTHUR
ZEIKEL
*
Arthur Zeikel |
|
Trustee |
|
|
|
|
*By: /S
/ TERRY
K. GLENN
(Terry K. Glenn, Attorney-in-Fact) |
|
|
|
September 29, 2000 |
|
INDEX TO EXHIBITS
Exhibit
Number
|
|
|
10 |
|
Consent of Deloitte & Touche LLP
, independent auditors for the Registrant. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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