As filed with the
Securities and Exchange Commission on May 30, 2000
Securities Act
File No. 333-
Investment Company
Act File No. 811-
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
N-1A
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
x
Pre-Effective
Amendment No.
¨
Post-Effective
Amendment No.
¨
and/or
REGISTRATION
STATEMENT UNDER THE
INVESTMENT COMPANY
ACT OF 1940
x
Amendment No.
¨
(Check appropriate
box or boxes)
MERCURY 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
|
|
Michael J.
Hennewinkel, Esq.
FUND ASSET
MANAGEMENT, L.P.
P.O. Box
9011
Princeton, New
Jersey 08543-9011
|
|
Approximate Date
of Proposed Public Offering:
As soon as
practicable after the effective date of the Registration
Statement.
Title of
Securities Being Registered: Shares of Common
Stock, par value $.10 per share.
The Registrant hereby
amends this Registration Statement on such date or dates as may be necessary
to delay its effective date until the Registrant shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
Master Basic Value
Trust has also executed this Registration Statement.
The information in this
prospectus is not complete and may be changed. We may not use this
prospectus to sell securities until the registration statement containing
this prospectus, which has been filed with the Securities and Exchange
Commission, is effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO
COMPLETION
PRELIMINARY PROSPECTUS
DATED May 30, 2000
PROSPECTUS · [
],
2000
|
Mercury Basic
Value Fund, Inc.
|
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 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 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.
The Fund is a
feeder fund that invests all of its assets in a
corresponding master portfolio of 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 in which it invests. For simplicity, this prospectus uses
the term Fund to include the Trust.
What are the main risks
of investing in the Fund?
As with any
mutual fund, the value of the Funds
investments and therefore the value of your Fund
shares may go up or down. These changes may occur
because a particular stock market in which the Fund invests is rising
or falling. At other times, there are specific factors that may affect
the value of a particular investment. Since foreign markets may differ
significantly from U.S. markets in terms of both economic conditions
and government regulation, investments in foreign securities involve
special risks. 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:
|
|
Are investing
with long-term goals, such as retirement or funding a childs
education.
|
|
|
Want a
professionally managed and diversified portfolio.
|
|
|
Are willing to
accept the risk that the value of your investment may decline in
order to seek capital appreciation.
|
|
|
Are not
looking for a significant amount of current income.
|
MERCURY BASIC
VALUE FUND, INC.
[GRAPHIC] Fund
Facts
This prospectus
does not include a Risk/Return Bar Chart because, as of the date of
this prospectus, the Fund has not yet commenced operations.
[Discussion and
Report of Merrill Lynch Basic Value Fund, Inc. Performance to be
provided]
[Chart to
come]
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 all mutual funds may
charge:
Expenses paid
directly by the shareholder:
Shareholder
Fees these fees
include sales charges which you may pay when you buy or sell shares of
the Fund.
Expenses paid
indirectly by the shareholder:
Annual Fund Operating
Expenses expenses
that cover the costs of operating the Fund.
Investment Advisory
Fee a fee paid
to the Investment Adviser for managing the Trust.
Distribution
Fees fees used
to support the 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
Fee a fee paid
to the Administrator for providing administrative services to the
Fund.
The Fund offers
four different classes of shares. Although your money will be invested
the same way no matter which class of shares you buy, there are
differences among the fees and expenses associated with each class. Not
everyone is eligible to buy every class. After determining which
classes you are eligible to buy, decide which class best suits your
needs. Your financial consultant can help you with this
decision.
This table
shows the different fees and expenses that you may pay if you buy and
hold the different classes of shares of the Fund. Future expenses may
be greater or less than those indicated below.
Shareholder Fees
(fees paid directly from your
investment)(a): |
|
Class I |
|
Class A |
|
Class B(b) |
|
Class C |
|
Maximum Sales Charge
(Load) imposed on purchases (as a
percentage of offering price) |
|
5.25 |
%(c) |
|
5.25 |
%(c) |
|
None |
|
|
None |
|
Maximum Deferred Sales
Charge (Load) (as a percentage of
original purchase price or redemption proceeds, whichever is
lower) |
|
None |
(d) |
|
None |
(d) |
|
4.00 |
%(c) |
|
1.00%(c) |
|
Maximum Sales Charge
(Load) imposed on Dividend
Reinvestments |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
Redemption
Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
Exchange
Fee |
|
None |
|
|
None |
|
|
None |
|
|
None |
|
Annual Fund
Operating Expenses (expenses that are
deducted from the Funds total assets)(e): |
|
Investment
Advisory Fee(f) |
|
.40 |
% |
|
.40 |
% |
|
.40 |
% |
|
.40% |
|
Distribution
and/or Service (12b-1) Fees(g) |
|
None |
|
|
0.25 |
% |
|
1.00 |
%
|
|
1.00% |
|
Other Expenses(h)
(including Administrative Fees(i)) |
|
0.52 |
% |
|
0.52 |
% |
|
0.52 |
% |
|
0.52% |
|
Total Annual Fund
Operating Expenses |
|
.92 |
% |
|
1.17 |
% |
|
1.92 |
% |
|
1.92% |
|
(a)
|
Certain selected securities dealers or other
financial intermediaries may charge a fee to process a purchase or
sale of shares. See How to Buy, Sell, Transfer and Exchange
Shares.
|
(b)
|
Class B shares automatically convert to Class A
shares about eight years after you buy them and will no longer be
subject to distribution fees.
|
(c)
|
Some
investors may qualify for reductions in the sales charge
(load).
|
(d)
|
You
may pay a deferred sales charge if you purchase $1 million or more
and you redeem within one year.
|
(e)
|
For
the Fund, the fees and expenses include the expenses of both the Fund
and the Trust.
|
(f)
|
The
Trust pays the Investment Adviser a fee at the annual rate of 0.60%
of the average daily net assets 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.
|
(g)
|
The
Fund calls the Service Fee an Account Maintenance Fee.
Account Maintenance Fee is the term used elsewhere in this prospectus
and in all other materials. If you hold Class B or C shares for a
long time, it may cost you more in distribution (12b-1) fees than the
maximum sales charge that you would have paid if you had bought one
of the other classes.
|
(h)
|
Based on estimated amounts for the current fiscal
year. The Fund pays the Transfer Agent a fee for each shareholder
account and reimburses it for out-of-pocket expenses. The fee ranges
from $11.00 to $23.00 per account (depending on the level of services
required), but is set at 0.10% for
certain accounts that participate in certain fee-based programs. The
Fund also pays a $0.20 monthly closed account charge, which is
assessed upon all accounts that close during the calendar year. The
fee begins the month following the month the account is closed and
ends at the end of the calendar year. The Investment Adviser provides
accounting services to the Trust at its cost.
|
(i)
|
Includes administrative fees, which are payable to
the Investment Adviser by the Fund, at the annual rate of
0.25%.
|
Example:
These examples
are intended to help you compare the cost of investing in the Fund with
the cost of investing in other mutual funds.
These examples
assume that you invest $10,000 in the Fund for the time periods
indicated, that your investment has a 5% return each year, that you pay
the sales charges, if any, that apply to the particular class and that
the Funds operating expenses remain the same. This assumption is
not meant to indicate you will receive a 5% annual rate of return. Your
annual return may be more or less than the 5% used in these examples.
Although your actual costs may be higher or lower, based on these
assumptions, your costs would be:
Expenses if you
did redeem your shares:
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
year |
|
$614 |
|
$638 |
|
$595 |
|
$295 |
|
Three years |
|
$803 |
|
$877 |
|
$903 |
|
$603 |
|
|
Expenses if
you did not redeem your shares: |
|
|
|
Class I |
|
Class A |
|
Class B |
|
Class C |
|
One
year |
|
$614 |
|
$638 |
|
$195 |
|
$195 |
|
Three years |
|
$803 |
|
$877 |
|
$603 |
|
$603 |
|
MERCURY BASIC
VALUE FUND, INC.
[GRAPHIC] About the
Details
About the Portfolio
Management Team Kevin
Rendino is the portfolio manager and Senior Vice President of the
Fund. Mr. Rendino has been a First Vice President of Merrill Lynch
Asset Management since 1997 and a Vice President from 1993 to
1997.
About the Investment
Adviser The Fund is
managed by Fund Asset Management.
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 that Fund management
believes the company will recover from.
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
also invest up to 25% of its total assets in the securities of foreign
companies. 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 earn only limited
returns.
The Fund may
use as 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 investments that Fund management selects will
underperform the stock markets or other funds with similar investment
objectives and investment strategies.
The Fund
also may be subject to the following risks.
Foreign Market
Risk
Since the Fund
may invest in foreign securities, it offers the potential for more
diversification than an investment only in the United States. This is
because stocks traded on foreign markets have often (though not
always) performed differently than stocks in the United States.
However, such investments involve special risks not present in U.S.
investments that can increase the chances that the Fund will lose
money. In particular, investment in foreign securities involves the
following risks, which are generally greater for investments in
emerging markets:
|
|
The economies
of some foreign markets often do not compare favorably with that of
the United States in areas such as growth of
gross domestic product, reinvestment of capital, resources and balance
of payments. Some of these economies may rely heavily on particular
industries or foreign capital. They may be more vulnerable to
adverse diplomatic developments, the imposition of economic
sanctions against a particular country or countries, changes in
international trading patterns, trade barriers and other
protectionist or retaliatory measures.
|
|
|
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.
|
|
|
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.
|
|
|
Other foreign
market risks include fluctuations in foreign exchange rates, foreign
exchange controls, difficulties in pricing securities, defaults on
foreign government securities, difficulties in enforcing favorable
legal judgments in foreign courts and political and social
instability. Legal remedies available to investors in some foreign
countries may be less extensive than those available to investors in
the United States.
|
|
|
Because there
are generally fewer investors on foreign exchanges and a smaller
number of shares traded each day, it may be difficult for the Fund
to buy and sell securities on those exchanges. In addition, prices
of foreign securities may go up and down more than prices of
securities traded in the United States.
|
|
|
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.
|
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 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.
European Economic and
Monetary Union (EMU)
A number of
European countries have entered into EMU in an effort to reduce trade
barriers between themselves and eliminate fluctuations in their
currencies. EMU established a single European currency (the euro),
which was introduced on January 1, 1999 and is expected to replace the
existing national currencies of all initial EMU participants by July
1, 2002. Certain securities (beginning with government and corporate
bonds) were redenominated in the euro and are traded and make dividend
and other payments only in euros. Like other investment companies and
business organizations, including the companies in which the Fund
invests, the Fund could be adversely affected if the transition to
euro, or EMU as a whole, does not proceed as planned or if a
participating country withdraws from EMU.
Borrowing and
Leverage
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.
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
an initial sales charge. In addition, you may be subject to a deferred
sales charge when you sell Class B or C shares.
The Funds
shares are distributed by Mercury Funds Distributor, a division of
Princeton Funds Distributor, Inc.
MERCURY BASIC
VALUE FUND, INC.
[GRAPHIC] Account
Choices
To better
understand the pricing of the Funds shares, we have summarized
the information below:
|
|
Class
I |
|
Class
A |
|
Class
B |
|
Class
C |
|
Availability? |
|
Limited to certain
investors including: |
|
Generally available
through selected |
|
Generally available
through selected |
|
Generally available
through selected |
|
|
Current Class I
shareholders |
|
securities dealers and
other financial |
|
securities dealers and
other financial |
|
securities dealers and
other financial |
|
|
Certain
Retirement
Plans |
|
intermediaries. |
|
intermediaries. |
|
intermediaries. |
|
|
Participants in
certain sponsored
programs |
|
|
|
|
|
|
|
|
Certain
affiliates of
selected securities
dealers and other
financial
intermediaries. |
|
|
|
|
|
|
|
|
Initial Sales
Charge? |
|
Yes. Payable at time
of
purchase. Lower sales
charges available for
larger investments. |
|
Yes. Payable at time
of
purchase. Lower sales
charges available for
certain larger
investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
|
Deferred Sales
Charge? |
|
No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
|
No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
|
Yes. Payable if you
redeem within six years
of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
|
|
Account
Maintenance and
Distribution Fees? |
|
No. |
|
0.25% Account
Maintenance Fee No
Distribution Fee |
|
0.25% Account
Maintenance Fee
0.75% Distribution Fee |
|
0.25% Account
Maintenance Fee
0.75% Distribution Fee |
|
|
Conversion to
Class A Shares? |
|
No. |
|
No. |
|
Yes, automatically
after
approximately eight
years. |
|
No. |
|
MERCURY 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% |
|
5.54% |
|
5.00% |
|
$25,000 but less
than $50,000 |
|
4.75% |
|
4.99% |
|
4.50% |
|
$50,000 but less
than $100,000 |
|
4.00% |
|
4.17% |
|
3.75% |
|
$100,000 but less
than $250,000 |
|
3.00% |
|
3.09% |
|
2.75% |
|
$250,000 but less
than $1,000,000 |
|
2.00% |
|
2.04% |
|
1.80% |
|
$1,000,000 and
over** |
|
0.00% |
|
0.00% |
|
0.00% |
|
*
|
Rounded to the nearest one-hundredth
percent.
|
**
|
If
you invest $1,000,000 or more in Class I or A shares, you may not
pay an initial sales charge. In that case, the Investment Adviser
compensates the selling dealer or other financial intermediary from
its own funds. If you redeem your shares within one year after
purchase, you may be charged a deferred sales charge. This charge is
1% of the lesser of the original cost of the shares being redeemed
or your redemption proceeds. A sales charge of 0.75% will be charged
on purchases of $1,000,000,000 or more of Class I and A shares by
certain employer-sponsored retirement or savings
plans.
|
No initial
sales charge applies to Class I or Class A shares that you buy through
reinvestment of dividends.
A reduced or
waived sales charge on a purchase of Class I or A shares may apply
for:
|
|
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 affiliates
|
|
|
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 an initial sales
charge. The Distributor uses the money that it receives from the
deferred sales charge and the distribution fees to cover the costs of
marketing, advertising and compensating the 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 13. 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. For example, the fee charged by
Merrill Lynch, Pierce, Fenner & Smith Incorporated is currently
$5.35. The fees charged by other selected securities dealers or
financial intermediaries may be higher or lower. |
|
|
|
Or contact the
Transfer Agent |
|
To purchase shares
directly, call the Transfer Agent at 1-888-763-2260
and request a purchase application. Mail the completed purchase
application to the Transfer Agent at the address on the inside back
cover of this prospectus. |
|
Add to your
investment |
|
Purchase additional
shares |
|
The minimum
investment for additional purchases is $100 for all
accounts except: |
|
|
|
|
$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. For example, the fee charged by
Merrill Lynch, Pierce, Fenner & Smith Incorporated is currently
$5.35. No processing fee is charged if you redeem the shares
directly through the Transfer Agent. The fees charged by other
selected securities dealers or other financial intermediaries may be
higher or lower. |
|
|
|
|
|
The Fund may reject
an order to sell shares under certain circumstances. |
|
|
|
Sell through the
Transfer Agent |
|
You may sell shares
held at the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of this
prospectus. All shareholders on the account must sign the letter. A
signature guarantee will generally be required but may be waived in
certain limited circumstances. You can obtain a signature guarantee
from a bank, securities dealer, securities broker, credit union,
savings
association, national securities exchange and registered securities
association. A notary public seal will not be acceptable. The Transfer
Agent will normally mail redemption proceeds within seven days
following receipt of a properly completed request. If you make a
redemption request before the Fund has collected payment for the
purchase of shares, the Fund or the Transfer Agent may delay mailing
your proceeds. This delay usually will not exceed ten days. |
|
Sell shares
systematically |
|
Participate in the
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. |
|
|
|
|
|
Although there is
currently no limit on the number of exchanges
that you can make, the exchange privilege may be modified or
terminated at any time in the future. |
|
Certain
financial intermediaries may charge additional fees in connection with
transactions in Fund shares. The Fund may accept orders from certain
authorized financial intermediaries or their designees. The Fund will
be deemed to receive an order when accepted by the intermediary or
designee and the order will receive the NAV next computed by the Fund
after such acceptance. If the payment for a purchase order is not made
by a designated later time, the order will be canceled and the
financial intermediary could be held liable for any
losses.
The Investment
Adviser, the Distributor or their affiliates may make payments out of
their own resources to selected securities dealers and other financial
intermediaries for providing services intended to result in the sale
of Fund shares or for shareholder servicing activities.
MERCURY 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 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.
Generally,
Class I shares will have the highest net asset value because that
class has the lowest expenses, and Class A shares will have a higher
net asset value than Class B or Class C shares. Also, dividends paid
on Class I and Class A shares will generally be higher than dividends
paid on Class B and Class C shares because Class I and Class A shares
have lower expenses.
If you
participate in certain fee-based programs offered by the Investment
Adviser or an affiliate of the Investment Adviser, or by selected
securities dealers or other financial intermediaries that have an
agreement with the Distributor or its affiliates, you may be able to
buy Class I shares at net asset value, including by exchanges from
other share classes. Sales charges on the shares being exchanged may
be reduced or waived under certain circumstances.
You generally
cannot transfer shares held through a fee-based program into another
account. Instead, you generally will have to redeem your shares held
through the program and purchase shares of another class, which may be
subject to distribution and account maintenance fees. This may be a
taxable event and you will pay any applicable sales
charges.
If you leave
one of these programs, your shares may be redeemed or automatically
exchanged into another class of the 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.
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.
Details about
these features and the relevant charges are included in the client
agreement for each fee-based program and are available from your
financial consultant, selected securities dealer or other financial
intermediaries.
The Fund will
distribute at least annually any net investment income and any net
realized long or short term capital gains. The Fund may also pay a
special distribution at the end of the calendar year to comply with
Federal tax requirements. Dividends may be reinvested automatically in
shares of the Fund at net asset value without a sales charge or may be
taken in cash. If your account is with a securities dealer that has an
agreement with the Fund, contact your financial consultant about which
option you would like. If your account is with the Transfer Agent, and
you would like to receive dividends in cash, contact the Transfer
Agent. Although this can not be predicted with any certainty, the Fund
anticipates that the majority of its dividends, if any, will consist
of capital gains. Capital gains may be taxable to you at different
rates depending, in part, on how long the Fund has held the assets
sold.
You will pay
tax on dividends from the Fund whether you receive them in cash or
additional shares. If you redeem Fund shares or exchange them for
shares of another fund, 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.
By law, the
Fund must withhold 31% of your dividends and redemption proceeds if
you have not provided a taxpayer identification number or social
security number or if the number you have provided is
incorrect.
This section
summarizes some of the consequences under current Federal tax law of
an investment in the Fund. It is not a substitute for personal tax
advice. Consult your personal tax adviser about the potential tax
consequences of an investment in the Fund under all applicable tax
laws.
MERCURY BASIC
VALUE FUND, INC.
[GRAPHIC] The
Management Team
Fund Asset
Management, the Funds 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 Fund. The
Investment Adviser has a sub-advisory agreement with Merrill Lynch
Asset Management U.K. Limited, an affiliate, under which the
Investment Adviser may pay a fee for services it receives. The Trust
pays the Investment Adviser an investment advisory fee at the annual
rate of 0.60% of the average daily net assets of the Trust for the
first $100 million; 0.50% of 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 is part of the Asset Management Group
of ML & Co. The Asset Management Group had approximately $550
billion in investment company and other portfolio assets under
management as of January 2000. This amount includes assets managed for
Merrill Lynch affiliates.
See Fees
and Expenses under Fund Facts for information about
the fees paid to the Investment Adviser and its
affiliates.
The Fund is a
feeder fund that invests all of its assets in the Trust.
(Except where indicated, this prospectus uses the term
Fund to mean the feeder fund and the Trust taken
together.) Investors in the Fund will acquire an indirect interest in
the Trust.
The Trust may
accept investments from other feeder funds, and all the feeders of the
Trust bear the 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 Funds assets directly.
[Discussion and
Report of Merrill Lynch Basic Value Fund, Inc. Performance to be
provided]
MERCURY BASIC
VALUE FUND, INC.
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 32246-6464
Mailing
Address:
P.O. Box
44062
Jacksonville,
Florida 32232-4062
(888-763-2260)
Independent
Auditors
Distributor
Mercury Funds
Distributor,
a division of
Princeton Funds Distributor, Inc.
P.O. Box
9081
Princeton, New
Jersey 08543-9081
Custodian
The Bank of New
York
90 Washington
Street, 12th Floor
New York, New
York 10286
Counsel
Brown &
Wood LLP
One World Trade
Center
New York, New
York 10048-0557
MERCURY 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-[ ]
Code #
- -
©Fund
Asset Management, L.P.
Mercury
Basic Value Fund, Inc.
PROSPECTUS · [
],
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
[
], 2000 (the
Prospectus), which has been filed with the Securities and
Exchange Commission (the Commission) and can be obtained,
without charge, by calling the Fund at 1-888-763-2260 or your
financial consultant, or by writing to the address listed above. The
Prospectus is incorporated by reference into this Statement of
Additional Information, and this Statement of Additional Information
is incorporated by reference into the Prospectus.
Fund Asset
Management Investment Adviser
Mercury
Funds Distributor Distributor
The date of
this Statement of Additional Information is
[
, 2000].
TABLE OF
CONTENTS
|
|
Page |
Investment
Objective and Policies |
|
2 |
Convertible Securities |
|
3 |
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 |
|
8 |
Directors/Trustees and Officers |
|
8 |
Compensation of Directors/Trustees |
|
10 |
Management and Advisory Arrangements |
|
10 |
Administation Arrangements |
|
11 |
Code of Ethics |
|
12 |
Purchase of
Shares |
|
13 |
Initial Sales Charge AlternativesClass I and Class A
Shares |
|
14 |
Reduced Initial Sales Charges |
|
15 |
Deferred Sales Charge AlternativesClass B and Class C
Shares |
|
16 |
Distribution Plans |
|
18 |
Limitations on the Payment of Deferred Sales
Charges |
|
20 |
Redemption of
Shares |
|
20 |
Redemption |
|
20 |
Repurchase |
|
21 |
Reinstatement PrivilegeClass I and Class A
Shares |
|
22 |
Pricing of
Shares |
|
22 |
Determination of Net Asset Value |
|
22 |
Computation of Offering Price Per Share |
|
24 |
Portfolio
Transactions and Brokerage |
|
24 |
Transactions in Portfolio Securities |
|
24 |
Shareholder
Services |
|
26 |
Investment Account |
|
26 |
Exchange Privilege |
|
26 |
Fee-Based Programs |
|
28 |
Retirement Plans |
|
28 |
Automatic Investment Plans |
|
28 |
Automatic Dividend Reinvestment Plan |
|
29 |
Systematic Withdrawal Plans |
|
29 |
Dividends and
Taxes |
|
30 |
Dividends |
|
30 |
Taxes |
|
30 |
Tax Treatment of Options Transactions |
|
31 |
Special Rules for Certain Foreign Currency
Transactions |
|
32 |
Performance
Data |
|
33 |
General
Information |
|
34 |
Description of Shares |
|
34 |
Independent Auditors |
|
35 |
Custodian |
|
35 |
Transfer Agent |
|
35 |
Legal Counsel |
|
35 |
Reports to Shareholders |
|
35 |
Shareholder Inquiries |
|
35 |
Additional Information |
|
35 |
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 all of its assets in the Trust,
which has the same investment objective as the Fund. All investments
will be made at the Trust level. This structure is sometimes called a
master/feeder structure. The 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. 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. The investment objective of the Trust is a
fundamental policy of the Trust and may not be changed without the
approval of a majority of the Trusts outstanding voting
securities as defined in the Investment Company Act. Reference is made
to the discussion under How the Fund Invests and
Investment Risks in the Prospectus for information with
respect to the Fund and its Trusts investment objective and
policies.
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 and the potential capital
appreciation that is offered by the underlying common
stock.
Convertible
securities are issued and traded in a number of securities markets.
Even in cases where a substantial portion of the convertible
securities held by the Fund are denominated in United States dollars,
the underlying equity securities may be quoted in the currency of the
country where the issuer is domiciled. With respect to convertible
securities denominated in a currency different from that of the
underlying equity securities, the conversion price may be based on a
fixed exchange rate established at the time the security is issued. As
a result, fluctuations in the exchange rate between the currency in
which the debt security is denominated and the currency in which the
share price is quoted will affect the value of the convertible
security.
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). The Fund may not:
|
(1)
Make any investment inconsistent with the Funds
classification as a diversified company under the Investment Company
Act.
|
|
(2)
Invest more than 25% of its assets, taken at market
value, in the securities of issuers in any particular industry
(excluding the U.S. Government and its agencies and
instrumentalities).
|
|
(3)
Make investments for the purpose of exercising control
or management.
|
|
(4)
Purchase or sell real estate, except that, to the
extent permitted by applicable law, the Fund may invest in
securities directly or indirectly secured by real estate or
interests therein or issued by companies that invest in real estate
or interests therein.
|
|
(5)
Make loans to other persons, except that the acquisition
of bonds, debentures or other corporate debt securities and
investment in government obligations, commercial paper, pass-through
instruments, certificates of deposit, bankers acceptances,
repurchase agreements or any similar instruments shall not be deemed
to be the making of a loan, and except further that the Fund may
lend its portfolio securities, provided that the lending of
portfolio securities may be made only in accordance with applicable
law and the guidelines set forth in the Prospectus and this
Statement of Additional Information, as they may be amended from
time to time.
|
|
(6)
Issue senior securities to the extent such issuance
would violate applicable law.
|
|
(7)
Borrow money, except that (i) the Fund may borrow from
banks (as defined in the Investment Company Act) in amounts up to
33 1
/3% of its
total assets (including the amount borrowed), (ii) the Fund may, to
the extent permitted by applicable law, borrow up to an additional
5% of its total assets for temporary purposes, (iii) the Fund may
obtain such short-term credit as may be necessary for the clearance
of purchases and sales of portfolio securities and (iv) the Fund may
purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the 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.
|
|
(8)
Underwrite securities of other issuers except insofar as
the Fund technically may be deemed an underwriter under the
Securities Act in selling portfolio securities.
|
|
(9)
Purchase or sell commodities or contracts on
commodities, except to the extent that the Fund may do so in
accordance with applicable law and the Prospectus and this Statement
of Additional Information, as they may be amended from time to time,
and without registering as a commodity pool operator under the
Commodity Exchange Act.
|
In addition, the Fund
has adopted non-fundamental investment restrictions that may be
changed by the Board of Directors without a vote of the Funds
shareholders. Under the non-fundamental investment restrictions, the
Fund may not:
|
(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.
|
|
(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.
|
|
(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.
|
|
(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.
|
Because of the
affiliation of Merrill Lynch with the Investment Adviser, the Fund is
prohibited from engaging in certain transactions involving Merrill
Lynch or its affiliates except for brokerage transactions permitted
under the Investment Company Act involving only usual and customary
commissions or transactions pursuant to an exemptive order under the
Investment Company Act. See Portfolio Transactions and
Brokerage. Without such an exemptive order the Fund would be
prohibited from engaging in portfolio transactions with Merrill Lynch
or any of its affiliates acting as principal.
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. High portfolio turnover may also
result in negative tax consequences, such as an increase in capital
gain dividends. See Distributions and TaxesTaxes.
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 all securities with maturities at
the time of acquisition of one year or less) by the monthly average
value of the securities in the portfolio during the year. Although the
Fund anticipates that its annual portfolio turnover rates should not
exceed 100%, the turnover rate may vary greatly from year to year or
during periods within a year. A high rate of portfolio turnover
results in correspondingly greater brokerage commission
expenses.
MANAGEMENT
OF THE FUND
Directors/Trustees and Officers
The Directors
of the Fund consist of eight individuals, six of whom are not
interested persons of the Fund as defined in the
Investment Company Act (the non-interested Directors). The
same individuals serve as Trustees of the Trust and are sometimes
referred to herein as the non-interested
Directors/Trustees. The Directors are responsible for the
overall supervision of the operations of the Fund and perform the
various duties imposed on the directors of investment companies by the
Investment Company Act.
Information about the
Directors/Trustees, executive officers and the portfolio manager of
the Fund, including their ages and their principal occupations for at
least the last five years, is set forth below. Unless otherwise noted,
the address of each Director, executive officer and the portfolio
manager is P.O. Box 9011, Princeton, New Jersey
08543-9011.
TERRY
K. GLENN
(59)President and Director/Trustee(1)(2)Executive
Vice President of the Investment Adviser and Merrill Lynch Asset
Management, L.P. (MLAM) (which terms as used herein
include their corporate predecessors) since 1983; Executive Vice
President and Director of Princeton Services, Inc. (Princeton
Services) since 1993; President of Princeton Funds Distributor,
Inc. (PFD) since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P. since 1988.
M.
COLYER
CRUM
(67)Director/Trustee(2)(3)104 Westcliff Road, Weston,
Massachusetts 02493. Currently James R. Williston Professor of
Investment Management Emeritus, Harvard Business School; James R.
Williston Professor of Investment Management, Harvard Business School,
from 1971 to 1996; Director of Cambridge Bancorp, Inc.
LAURIE
SIMON
HODRICK
(37)Director/Trustee(2)(3)809 Uris Hall, 3022
Broadway, New York, New York 10027. Professor of Finance and
Economics, Graduate School of Business, Columbia University since
1998; Associate Professor of Finance and Economics, Graduate School of
Business, Columbia University from 1996 to 1998; Associate Professor
of Finance, J. L. Kellogg Graduate School of Management, Northwestern
University from 1992 to 1996.
JACK
B. SUNDERLAND
(71)Director/Trustee(2)(3)P.O. Box 7, West Cornwall,
Connecticut 06796. President and Director of American Independent Oil
Company, Inc. (an energy company) since 1987; Member of Council on
Foreign Relations since 1971.
STEPHEN
B. SWENSRUD
(66)Director/Trustee(2)(3)24 Federal Street, Suite
400, Boston, Massachusetts 02110. Chairman of Fernwood Advisors
(investment advisor) since 1996; Principal of Fernwood Associates
(financial consultants) since 1975; Chairman of R.P.P. Corporation
(Manufacturing) since 1978; Director of International Mobile
Communications, Inc. (Telecommunications) since 1998.
J.
THOMAS
TOUCHTON
(60)Director/Trustee(2)(3)Suite 3405, One Tampa City
Center, 201 North Franklin Street, Tampa, Florida 33062. Managing
Partner of The Witt Touchton Company and its predecessor, The Witt Co.
(a private investment partnership), since 1972; Trustee Emeritus of
Washington and Lee University; Director of TECO Energy, Inc. (an
electric utility holding company).
FRED
G. WEISS
(58)Director/Trustee(2)(3)16410 Maddalena Place,
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.
ARTHUR
ZEIKEL
(67)Director/Trustee(1)(2)300 Woodland Avenue,
Westfield, New Jersey 07090. Chairman of the Investment Adviser and
MLAM from 1997 to 1999 and President thereof from 1977 to 1997;
Chairman of Princeton Services, 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 MLAM since 1997; Vice
President from 1993 to 1997.
DONALD
C. BURKE
(39)Vice President and Treasurer(1)(2)Senior Vice
President and Treasurer of the Investment Adviser and MLAM since 1999;
Senior Vice President and Treasurer of Princeton Services since 1999;
First Vice President of MLAM from 1997 to 1999; Vice President of MLAM
from 1990 to 1997; Director of Taxation of MLAM since
1990.
ROBERT
C. DOLL
(45)Senior Vice President(1)(2)Senior Vice President
of the Investment Adviser and MLAM; Senior Vice President of Princeton
Services; Chief Investment Officer of Oppenheimer Funds, Inc. in 1999
and Executive Vice President thereof from 1991 to 1999.
THOMAS
D. JONES
, III (34)Secretary(1)(2)Vice President of MLAM since
1998; attorney with the Investment Adviser and MLAM since
1992.
(1)
|
Interested
person, as defined in the Investment Company Act, of the Trust and
the Fund.
|
(2)
|
Such Director
or officer is a director, trustee or officer of certain other
investment companies for which the Investment Adviser or one of its
affiliates acts as investment adviser or manager.
|
(3)
|
Member of the
Funds Audit and Nominating Committee, which is responsible for
the selection of the independent auditors and the selection and
nomination of non-interested Directors.
|
Compensation of Directors/Trustees
The Fund and
the Trust pay each non-interested Director/Trustee, for service to the
Fund and the Trust, a fee of
$ per year plus
$ per Board meeting
attended. The Fund and the Trust also compensate each member of the
Audit and Nominating Committee (the Committee), which
consists of all of the non-interested Directors/Trustees, at the rate
of $ per year. The
Fund and the Trust reimburse each non-interested Director/Trustee for
his out-of-pocket expenses relating to attendance at Board and
Committee meetings.
The following
table sets forth the aggregate compensation the Fund and the Trust
expect to pay to the non-interested Directors/Trustees for the first
full fiscal year and the aggregate compensation paid by all investment
companies advised by the Investment Adviser and its affiliates
(FAM and Affiliate-Advised funds) for the calendar year
ended December 31, 1999.
Name
|
|
Position
with
Fund
|
|
Aggregate
Compensation
From
Fund/Trust
|
|
Pension or
Retirement Benefits
Accrued as Part of
Fund Expense
|
|
Estimated
Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation
From Fund/Trust
and FAM and
Affiliate-Advised
Funds Paid to
Directors/Trustees(1)
|
M. Colyer
Crum |
|
Director |
|
$
|
|
None |
|
None |
|
$122,975 |
Laurie Simon
Hodrick |
|
Director |
|
$
|
|
None |
|
None |
|
$ 53,000 |
Jack B.
Sunderland |
|
Director |
|
$
|
|
None |
|
None |
|
$143,975 |
Stephen B.
Swensrud |
|
Director |
|
$
|
|
None |
|
None |
|
$232,250 |
J. Thomas
Touchton |
|
Director |
|
$
|
|
None |
|
None |
|
$142,725 |
Fred G.
Weiss |
|
Director |
|
$
|
|
None |
|
None |
|
$122,975 |
(1)
|
In addition
to the Fund and the Trust, the Directors/Trustees serve on other
boards of Affiliate-Advised Funds as follows: Mr. Crum (14
registered investment companies consisting of 14 portfolios); Ms.
Hodrick (14 registered investment companies consisting of 14
portfolios); Mr. Sunderland (18 registered investment companies
consisting of 33 portfolios); Mr. Swensrud (25 registered investment
companies consisting of 61 portfolios); Mr. Touchton (18 registered
investment companies consisting of 33 portfolios); and Mr. Weiss (14
registered investment companies consisting of 14
portfolios).
|
The Directors
of the Fund and the Trustees of the Trust may be eligible for reduced
sales charges on purchases of Class I shares. See Reduced
Initial Sales ChargesPurchase Privileges of Certain
Persons.
Management
and Advisory Arrangements
Investment
Advisory Services and Fee. The Fund invests
all of its assets in shares of the Trust. Accordingly, the Fund does
not invest directly in portfolio securities and does not require
investment advisory services. All portfolio management occurs at the
level of the Trust. The Trust has entered into an investment advisory
agreement with FAM as Investment Adviser (the Advisory
Agreement). Subject to the supervision of the Trustees, the
Investment Adviser is responsible for the actual management of the
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 for the first $100 million; 0.50% of net assets from $100
million to $200 million; and 0.40% of the Trusts average daily
net assets above $200 million (i.e., the average daily value of
the total assets of the Trust, including proceeds from the issuance of
any shares of preferred stock, minus the sum of accrued liabilities of
the Trust and accumulated dividends on shares of outstanding preferred
stock, if any). For purposes of this calculation, average daily net
assets is determined at the end of each month on the basis of the
average net assets of the Trust for each day during the
month.
The Investment
Adviser also entered into a sub-advisory agreement (the
Sub-Advisory Agreement) with Merrill Lynch Asset
Management U.K. Limited (MLAM U.K. or the
Sub-Adviser) pursuant to which MLAM U.K. provides
investment advisory services to the Investment Adviser with respect to
the Trust.
Securities held by the
Trust may also be held by, or be appropriate investments for, other
funds or investment advisory clients for which the Investment Adviser
or its affiliates act as an adviser. Because of different objectives
or other factors, a particular security may be bought for one or more
clients of the Investment Adviser or an affiliate when one or more
clients of the Investment Adviser or an affiliate are selling the same
security. If purchases or sales of securities arise for consideration
at or about the same time that would involve the Fund or other clients
or funds for which the Investment Adviser or an affiliate acts as
manager, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed
equitable to all. To the extent that transactions on behalf of more
than one client of the Investment Adviser or an affiliate during the
same period may increase the demand for securities being purchased or
the supply of securities being sold, there may be an adverse effect on
price.
Payment of
Trust Expenses. The Advisory Agreement
obligates the Investment Adviser to provide investment advisory
services and to pay, or cause an affiliate to pay, for maintaining its
staff and personnel and to provide office space, facilities and
necessary personnel for the Trust. The Investment Adviser is also
obligated to pay, or cause an affiliate to pay, the fees of all
officers, Trustees, and Directors who are affiliated persons of the
Investment Adviser or any sub-adviser or of an affiliate of the
Investment Adviser or any sub-adviser. The Trust pays, or causes to be
paid, all other expenses incurred in the operation of the Trust
(except to the extent paid by Mercury Funds Distributor
(MFD), a division of PFD (the Distributor)),
including, among other things, taxes, expenses for legal and auditing
services, costs of printing proxies, shareholder reports, copies of
the Registration Statement, charges of the custodian, any
sub-custodian and the transfer agent, expenses of portfolio
transactions, expenses of redemption of shares, Commission fees,
expenses of registering the shares under Federal, state or non-U.S.
laws, fees and actual out-of-pocket expenses of non-interested
Trustees, accounting and pricing costs (including the daily
calculation of net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and
other expenses properly payable by the Trust. Accounting services are
provided to the Trust by the Investment Adviser or an affiliate of the
Investment Adviser, and the Trust reimburses the Investment Adviser or
an affiliate of the Investment Adviser for its costs in connection
with such services.
Organization
of the Investment Adviser. The Investment
Adviser is a limited partnership, the partners of which are ML &
Co., a financial services holding company and the parent of Merrill
Lynch and Princeton Services. ML & Co. and Princeton Services are
controlling persons of the Investment Adviser as defined
under the Investment Company Act because of their ownership of its
voting securities and their power to exercise a controlling influence
over its management or policies.
The following
entities may be considered controlling persons of MLAM
U.K.: Merrill Lynch Europe PLC (MLAM U.K.s parent), a subsidiary
of Merrill Lynch International Holdings, Inc., a subsidiary of Merrill
Lynch International, Inc., a subsidiary of ML & Co.
Duration and
Termination. Unless earlier terminated as
described below, the Advisory Agreement and Sub-Advisory Agreement
will each continue in effect for two years from its effective date.
Thereafter, they will remain in effect from year to year if approved
annually (a) by the Board of Trustees of the Trust or by a majority of
the outstanding shares of the Trust and (b) by a majority of the
Trustees of the Trust who are not parties to the Advisory Agreement or
interested persons (as defined in the Investment Company Act) of any
such party. The Advisory Agreement is not assignable and will
automatically terminate in the event of its assignment. In addition,
such contract may be terminated by the vote of a majority of the
outstanding voting securities of the Trust or by the Investment
Adviser without penalty on 60 days written notice to the other
party.
Administration Arrangements
The Fund has
entered into an administration agreement with FAM (the
Administrator) as Administrator (the Administration
Agreement). The Administrator receives for its services to the
Fund monthly compensation at the annual rate of 0.25% of the average
daily net assets of the Fund.
The
Administration Agreement obligates the Administrator to provide
certain administrative services to the Fund and to pay, or cause its
affiliates to pay, for maintaining its staff and personnel and to
provide office space,
facilities and necessary personnel for the Fund. The Administrator is
also obligated to pay, or cause its affiliates to pay, the fees of
those officers, Directors and Trustees who are affiliated persons of
the Administrator or any of its affiliates. The Fund pays, or causes
to be paid, all other expenses incurred in the operation of the Fund
(except to the extent paid by the Distributor), including, among other
things, taxes, expenses for legal and auditing services, costs of
printing proxies, shareholder reports and prospectuses and statements
of additional information, charges of the custodian, any sub-custodian
and Financial Data Services, Inc. (the Transfer Agent),
expenses of portfolio transactions, expenses of redemption of shares,
Commission fees, expenses of registering the shares under Federal,
state or non-U.S. laws, fees and actual out-of-pocket expenses of
Directors who are not affiliated persons of the Administrator, or of
an affiliate of the Administrator, accounting and pricing costs
(including the daily calculation of the net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by the
Fund. The Distributor will pay certain of the expenses of the Fund
incurred in connection with the continuous offering of its shares.
Certain expenses will be financed by the Fund pursuant to distribution
plans in compliance with Rule 12b-1 under the Investment Company Act.
See Purchase of 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
adopted a Code of Ethics under Rule 17j-1 of the Investment Company
Act that covers the Trust, the Fund, the Investment Adviser and the
Distributor (the Code of Ethics). The Code of Ethics
significantly restricts the personal investing activities of all
employees of the Investment Adviser and the Distributor and, as
described below, imposes additional more onerous restrictions on fund
investment personnel.
The Code of Ethics
requires that all employees of the Investment Adviser and the
Distributor pre-clear any personal securities investments (with
limited exceptions, such as mutual funds, high-quality short-term
securities and direct obligations of the U.S. Government). The
pre-clearance requirement and associated procedures are designed to
identify any substantive prohibition or limitation applicable to the
proposed investment. The substantive restrictions applicable to all
employees of the Investment Adviser and the Distributor include a ban
on acquiring any securities in a hot initial public
offering and a prohibition from profiting on short-term trading in
securities. In addition, no employee may purchase or sell any security
that at the time is being purchased or sold (as the case may be), or
to the knowledge of the employee is being considered for purchase or
sale, by any fund advised by the Investment Adviser. Furthermore, the
Code of Ethics provides for trading blackout periods which
prohibit trading by investment personnel of the Fund within seven
calendar days, before or after, of trading by the Fund in the same or
equivalent security.
PURCHASE OF
SHARES
Reference is
made to Account 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 investment
portfolio of the Fund, and has the same rights, except that Class A,
Class B and Class C shares bear the expenses of the ongoing account
maintenance fees (also known as service fees) and Class B and Class C
shares bear the expenses of the ongoing distribution fees and the
additional incremental transfer agency costs resulting from the
deferred sales charge arrangements. The contingent deferred sales
charges (CDSCs), distribution fees and account maintenance
fees that are imposed on Class B and Class C shares, as well as the
account maintenance fees that are imposed on Class A shares, are
imposed directly against those classes and not against all assets of
the Fund, and, accordingly, such charges do not affect the net asset
value of any other class or have any impact on investors choosing
another sales charge option. Dividends paid by the Fund for each class
of shares are calculated in the same manner at the same time and
differ only to the extent that account maintenance and distribution
fees and any incremental transfer agency costs relation to a
particular class are borne exclusively by that class. Class A, Class B
and Class C shares each have exclusive voting rights with respect to
the Rule 12b-1 distribution plan adopted with respect to such class
pursuant to which the account maintenance and/or distribution fees are
paid (except that Class B shareholders may vote upon any material
changes to expenses charged under the Distribution Plan for Class A
shares). Each class has different exchange privileges. See
Shareholder 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. For example, the fee currently charged by
Merrill Lynch is $5.35. Purchases made directly through the Transfer
Agent are not subject to the processing fee.
Initial
Sales Charge 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 a
shareholder account are entitled to purchase additional Class I shares
of the Fund in that account. Certain employer-sponsored retirement or
savings plans, including eligible 401(k) plans, may purchase Class I
shares at net asset value provided such plans meet the required
minimum number of eligible employees or required amount of assets
advised by the Investment Adviser or any of its affiliates. Also
eligible to purchase Class I shares at net asset value are
participants in certain investment programs including certain managed
accounts for which a trust institution, thrift or bank trust
department provides discretionary trustee services, certain collective
investment trusts for which a trust institution, thrift, or bank trust
department serves as trustee, certain purchases made in connection
with certain fee-based programs and certain purchases made through
certain financial advisers that meet and adhere to standards
established by Mercury. Class I shares are available at net asset
value to corporate warranty insurance reserve fund programs and U.S.
branches of foreign banking institutions, provided that the
participant has $3 million or more initially invested in
Affiliate-Advised investment companies. In addition, Class I shares
are offered at net asset value to ML & Co. and its subsidiaries
and their directors and employees, to members of the Boards of
investment companies advised by FAM or its affiliates, including the
Fund, and to employees of certain selected securities dealers or other
financial intermediaries. Class I shares may also be offered at net
asset value to certain accounts over which the Investment Adviser or
an affiliate exercises investment discretion. Investors qualifying for
significantly reduced initial sales charges may find the initial sales
charge alternative particularly attractive, because similar sales
charge reductions are not available with respect to the deferred sales
charges imposed in connection with purchases of Class B or Class C
shares. Investors not qualifying for reduced initial sales charges who
expect to maintain their investment for an extended period of time
also may elect to purchase Class I or Class A shares, because over
time the accumulated ongoing account maintenance and distribution fees
on Class B or Class C shares may exceed the initial sales charges,
and, in the case of Class A shares, the account maintenance fee.
Although some investors who previously purchased Class I shares may no
longer be eligible to purchase Class I shares of other
Affiliate-Advised funds, those previously purchased Class I shares,
together with Class A, Class B and Class C share holdings, will count
toward a right of accumulation which may qualify the investor for a
reduced initial sales charge on new initial sales charge purchases. In
addition, the
ongoing Class B and Class C account maintenance and distribution fees
will cause Class B and Class C shares to have higher expense ratios,
pay lower dividends and have lower total returns than the initial
sales charge shares. The ongoing Class A account maintenance fees will
cause Class A shares to have a higher expense ratio, pay lower
dividends and have a lower total return than Class I
shares.
The Distributor
may reallow discounts to selected securities dealers or other
financial intermediaries and retain the balance over such discounts.
At times the Distributor may reallow the entire sales charge to such
selected securities dealers or other financial intermediaries. Since
selected securities dealers or other financial intermediaries selling
Class I and Class A shares of the Fund will receive a concession equal
to most of the sales charge, they may be deemed to be underwriters
under the Securities Act.
Reduced
Initial Sales Charges
Reductions in
or exemptions from the imposition of a sales load are due to the
nature of the investors and/or the reduced sales efforts that will be
needed to obtain such investments.
Reinvested
Dividends. No initial sales charges are
imposed upon Class I and Class A shares issued as a result of the
automatic reinvestment of dividends.
Right of
Accumulation. Reduced sales charges are
applicable through a right of accumulation under which eligible
investors are permitted to purchase shares of the Fund subject to an
initial sales charge at the offering price applicable to the total of
(a) the public offering price of the shares then being purchased plus
(b) an amount equal to the then current net asset value or cost,
whichever is higher, of the 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 the Investment Adviser, MLAM,
Mercury Asset Management International, Ltd. and certain other
entities directly or indirectly wholly owned and controlled by ML
& Co.), employees of certain selected securities dealers, and any
trust, pension, profit-sharing or other benefit plan for such persons,
may purchase Class I shares of the Fund at net asset value. The Fund
realizes economies of scale and reduction of sales-related expenses by
virtue of the familiarity of these persons with the Fund. Employees
and directors or trustees wishing to purchase shares of the Fund must
satisfy the 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 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
securities dealers and other financial intermediaries for selling
Class B and Class C shares of the Fund. The Distribution Plans
relating to Class B and Class C shares are designed to permit an
investor to purchase Class B and Class C shares through securities
dealers and other financial intermediaries without the assessment of
an initial sales charge and at the same time permit the Distributor to
compensate securities dealers and other financial intermediaries in
connection with the sale of the Class B and Class C shares. In this
regard, the purpose and function of the ongoing distribution fees and
the CDSC are the same as those of the initial sales charge with
respect to the Class I and Class A shares of the Fund in that the
ongoing distribution fees and deferred sales charges provide for the
financing of the distribution of the 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.
REDEMPTION
OF SHARES
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. For example, the fee
currently charged by Merrill Lynch is $5.35. Fees charged by other
selected securities dealers may be higher or lower. Repurchases made
through the Transfer Agent, on accounts held at the Transfer Agent,
are not subject to the processing fee. The Fund reserves the right to
reject any order for repurchase, which right of rejection might
adversely affect shareholders seeking redemption through the
repurchase procedure. A shareholder whose order for repurchase is
rejected by the Fund, however, may redeem Fund shares as set forth
above.
Reinstatement 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.
PRICING OF
SHARES
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
assets of the Fund will normally be its interest in the underlying
Trust, which will be valued at its net asset value. Net asset value of
the Trust is computed by dividing the value of the securities held by
the Trust plus any cash or other assets (including interest and
dividends accrued but not yet received) minus all liabilities
(including accrued expenses) by the total number of shares outstanding
at such time. Expenses, including the investment advisory fees are
accrued daily.
The per share
net asset value of Class A, Class B and Class C shares generally will
be lower than the per share net asset value of Class I shares,
reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect
to Class B and Class C shares, and the daily expense accruals of the
account maintenance fees applicable with respect to Class A shares.
Moreover, the per share net asset value of the Class B and Class C
shares of the Fund generally will be lower than the per share net
asset value of Class A shares of the Fund, reflecting the daily
expense accruals of the distribution fees and higher transfer agency
fees applicable with respect to Class B and Class C shares of the
Fund. It is expected, however, that the per share net asset value of
the four classes of the Fund will tend to converge (although not
necessarily meet) immediately after the payment of dividends which
will differ by approximately the amount of the expense accrual
differentials between the classes.
Portfolio securities,
including ADRs, EDRs or GDRs, that are traded on stock exchanges are
valued at the last sale price (regular way) on the exchange on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available ask
price for short positions. In cases where securities are traded on
more than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Trustees as the
primary market. Long positions in securities traded in the OTC market
are valued at the last available bid price in the OTC market prior to
the time of valuation. Short positions in securities traded in the OTC
market are valued at the last available ask price in the OTC market
prior to the time of valuation. Portfolio securities that are traded
both in the OTC market and on a stock exchange are valued according to
the broadest and most representative market. When the Trust writes an
option, the amount of the premium received is recorded on the books of
the Trust as an asset and an equivalent liability. The amount of the
liability is subsequently valued to reflect the current market value
of the option written, based upon the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC
market, the last ask price. Options purchased by the Trust are valued
at their last sale price in the case of exchange-traded options or, in
the case of options traded in the OTC market, the last bid price.
Other investments, including financial futures contracts and related
options, are stated at market value. Securities and assets for which
market quotations are not readily available are valued at fair value
as determined in good faith by or under the direction of the Board of
Trustees of the Trust. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust.
Generally,
trading in non-U.S. securities, as well as U.S. Government securities
and money market instruments, is substantially completed each day at
various times prior to the close of business on the NYSE. The values
of such securities used in computing the net asset value of the
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.
SHAREHOLDER
SERVICES
The Fund offers
a number of shareholder services described below that are designed to
facilitate investment in its shares. Full details as to each such
service and copies of the various plans or how to change options with
respect thereto, can be obtained from the Fund by calling the
telephone number on the cover page hereof, or from the Distributor or
your selected securities dealer or other financial intermediary.
Certain of these services are available only to U.S.
investors.
Investment
Account
Each
shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly,
from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment
of dividends. The statements also will show any other activity in the
account since the preceding statement. Shareholders also will receive
separate confirmations for each purchase or sale transaction other
than automatic investment purchases and the reinvestment of dividends.
A shareholder with an account held at the Transfer Agent may make
additions to his or her Investment Account at any time by mailing a
check directly to the Transfer Agent. The Fund does not issue share
certificates.
Shareholders
considering transferring their Class I or Class A shares from a
selected securities dealer to another brokerage firm or financial
institution should be aware that, if the firm to which the Class I or
Class A shares are to be transferred will not take delivery of shares
of the Fund, a shareholder either must redeem the Class I or Class A
shares so that the cash proceeds can be transferred to the account at
the new firm or such shareholder must continue to maintain an
Investment Account at the Transfer Agent for those Class I or Class A
shares.
Shareholders
interested in transferring their Class B or Class C shares from a
selected securities dealer or other financial intermediary and who do
not wish to have an Investment Account maintained for such shares at
the Transfer Agent may request their new brokerage firm to maintain
such shares in an account registered in the name of the brokerage firm
for the benefit of the shareholder at the Transfer Agent.
Certain
shareholder services may not be available for the transferred shares.
After the transfer, the shareholder may purchase additional shares of
funds owned before the transfer, and all future trading of these
assets must be coordinated by the new firm.
Shareholders
considering transferring a tax-deferred retirement account, such as an
individual retirement account, from a selected securities dealer or
other financial intermediary to another brokerage firm or financial
institution should be aware that, if the firm to which the retirement
account is to be transferred will not take delivery of shares of the
Fund, a shareholder must either redeem the shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the
account at the new firm, or such shareholder must continue to maintain
a retirement account at a selected securities dealer or other
financial intermediary for those shares.
Exchange
Privilege
U.S.
shareholders of each class of shares of the Fund have an exchange
privilege with certain other Mercury mutual funds and Summit, a series
of Financial Institutions Series Trust, which is a Merrill
Lynch-sponsored money market fund specifically designated as available
for exchange by holders of Class I, Class A, Class B and Class C
shares. Shares with a net asset value of at least $100 are required to
qualify for the exchange privilege and any shares used in an exchange
must have been held by the shareholder for at least 15 days. Before
effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to
be made. Exercise of the exchange privilege is treated as a sale of the
exchanged shares and a purchase of the acquired shares for Federal
income tax purposes.
Exchanges of
Class I and Class A Shares. Under the
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.
Exercise of
the Exchange Privilege. To exercise the
exchange privilege, a shareholder should contact his or her financial
consultant, who will advise the relevant Fund of the exchange.
Shareholders of the Fund and shareholders of the other funds described
above with shares for which certificates have not been issued may
exercise the exchange privilege by wire through their selected
securities dealers or other financial intermediaries. The Fund
reserves the right to require a properly completed Exchange
Application. This exchange privilege may be modified or terminated in
accordance with the rules of the Commission. The Fund reserves the
right to limit the number of times an investor may exercise the
exchange privilege. Certain funds may suspend the continuous offering
of their shares to the general public at any time and may thereafter
resume such offering from time to time. The exchange privilege is
available only to U.S. shareholders in states where the exchange
legally may be made. It is contemplated that the exchange privilege
may be applicable to other new mutual funds whose shares may be
distributed by the Distributor.
Fee-Based
Programs
Certain
fee-based programs, including pricing alternatives for securities
transactions (each referred to in this paragraph as a
Program), may permit the purchase of Class I shares at net
asset value. Under specified circumstances, participants in certain
Programs may deposit other classes of shares, which will be exchanged
for Class I shares. Initial or deferred sales charges otherwise due in
connection with such exchanges may be waived or modified, as may the
Conversion Period applicable to the deposited shares. Termination of
participation in certain Programs may result in the redemption of
shares held therein or the automatic exchange thereof to another class
at net asset value. In addition, upon termination of participation in
a Program, shares that have been held for less than specified periods
within such Program may be subject to a fee based on the current value
of such shares. These Programs also generally prohibit such shares
from being transferred to another account, to another broker-dealer or
to the Transfer Agent. Except in limited circumstances (which may also
involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the
imposition of initial or deferred sales charges and distribution and
account maintenance fees) in order for the investment not to be
subject to Program fees. Additional information regarding certain
specific Programs offered through particular selected securities
dealers or other financial intermediaries (including charges and
limitations on transferability applicable to shares that may be held
in such Programs) is available in each such 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 as of the close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) on the 24th
day of each month or the 24th day of the last month of each quarter,
whichever is applicable. If the NYSE is not open for business on such
date, the shares will be redeemed at the net asset value determined
after the close of business on the NYSE on the following business day.
The check for the withdrawal payment will be mailed, or the direct
deposit for withdrawal payment will be made, on the next business day
following redemption. When a shareholder is making systematic
withdrawals, dividends on all shares in the Investment Account are
reinvested automatically in Fund shares. A 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
AND TAXES
Dividends
The Fund
intends to distribute substantially all of its net investment income,
if any. Dividends from such net investment income will be paid at
least annually. All net realized capital gains, if any, will be
distributed to the 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 futures
and options) (capital gain dividends) are taxable to
shareholders as long-term capital gains, regardless of the length of
time the shareholder has owned Fund shares. Any loss upon the sale or
exchange of Fund shares held for six months or less will be treated as
long-term capital loss to the extent of any capital gain dividends
received by the shareholder. Distributions in excess of the
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.
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 taxpayers functional currency
(i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from
certain debt instruments, from certain forward contracts, from futures
contracts that are not regulated futures contracts and
from unlisted options will be treated as ordinary income or loss under
Code Section 988. In certain circumstances, the Fund may elect capital
gain or loss treatment for such transactions. Regulated futures
contracts, as described above, will be taxed under Code Section 1256
unless application of Section 988 is elected by the Fund. In general,
however, Code Section 988 gains or losses will increase or decrease
the amount of the 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 will
apply for a private letter ruling from the IRS, to the effect that,
because the Trust is classified as a partnership for tax purposes, the
Fund will be entitled to look to the underlying assets of the Trust in
which it has invested for purposes of satisfying various requirements
of the Code applicable to RICs. If any of the facts upon which such
ruling is premised change in any material respect (e.g., if the Trust
were required to register its interests under the Securities Act)
and/or the Trust is unable to obtain a private letter ruling from the
IRS then the Board of Directors of the Fund will determine, in its
discretion, the appropriate course of action for the Fund. One
possible course of action would be to withdraw the 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.
PERFORMANCE
DATA
From time to
time the Fund may include its average annual total return and other
total return data in advertisements or information furnished to
present or prospective shareholders. Total return figures are based on
the 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 Funds total return
may be expressed either as a percentage or as a dollar amount in order
to illustrate such total return on a hypothetical $1,000 investment in
the Fund at the beginning of each specified period.
[Discussion
and Report of Merrill Lynch Basic Value Fund, Inc. Performance to be
provided]
In order to
reflect the reduced sales charges in the case of Class I or Class A
shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under
Purchase of Shares and Redemption of Shares,
respectively, the total return data quoted by the Fund in
advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may take into account
the CDSC and therefore may reflect greater total return since, due to
the reduced sales charges or the waiver of sales charges, a lower
amount of expenses is deducted.
On occasion,
the Fund may compare its performance to various indices including,
among other things, the Standard & 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. From time to
time, the Fund may include its Morningstar risk-adjusted performance
rating in advertisements or supplemental sales literature. The Fund
may from time to time quote in advertisements or other materials other
applicable measures of performance and may also make reference to
awards that may be given to the Investment Adviser.
GENERAL
INFORMATION
Description
of Shares
The Fund is a
feeder fund that invests in the Trust. Investors in the
Fund will acquire an indirect interest in the Trust. The Trust accepts
investments from other feeder funds, and all of the feeders of the
Trust bear the 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. It has an authorized
capital of 400,000,000 shares of Common Stock, par value $.10 per
share. The Fund is divided into four classes. Class I, Class A, Class
B and Class C shares each consist of 100,000,000 shares.
Shareholders
are entitled to one vote for each full share held and fractional votes
for fractional shares held in the election of Directors (to the extent
hereinafter provided) and on other matters submitted to the vote of
shareholders. All classes vote together as a single class, except that
shareholders of the class bearing distribution expenses as provided
above shall have exclusive voting rights with respect to matters
relating to such distribution expenditures (except that Class B
shareholders may vote upon any material changes to expenses charged
under the Class A Distribution Plan). Voting rights are not
cumulative, so that the holders of more than 50% of the shares voting
in the election of Directors can, if they choose to do so, elect all
the Directors of the Fund, in which event the holders of the remaining
shares would be unable to elect any person as a Director.
Whenever the
Trust holds a vote of its feeder funds, the Fund will pass the vote
through to its own shareholders. Smaller feeder funds may be harmed by
the actions of larger feeder funds. For example, a larger feeder fund
could have more voting power than the Fund over the operations of the
Trust. The Fund may withdraw from the Trust at any time and may invest
all of its assets in another pooled investment vehicle or retain an
investment adviser to manage the 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
will provide the initial capital for the Fund by purchasing 10,000
shares of common stock of the Fund for $100,000. Such shares were
acquired for investment and can only be disposed of by redemption. As
of the date of this Statement of Additional Information, the
Investment Adviser owned 100% of the outstanding common stock of the
Fund. The Investment Adviser may be deemed to control the Fund until
such time as it owns less than 25% of the outstanding shares of the
Fund.
Independent
Auditors
has been
selected as the independent auditors of the Fund and the Trust. The
independent auditors are responsible for auditing the annual financial
statements of the Fund.
Custodian
The Bank of New
York, 90 Washington Street, 12th Floor, New York, New York 10286 acts
as custodian of the 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 ends on June 30 of each year. The Fund sends to its
shareholders at least semi-annually reports showing the Funds
portfolio and other information. An annual report containing financial
statements audited by independent auditors is sent to shareholders
each year. After the end of each year, shareholders will receive
Federal income tax information regarding dividends and capital gains
distributions.
Shareholder
Inquiries
Shareholder
inquiries may be addressed to the Fund at the address or telephone
number set forth on the cover page of this Statement of Additional
Information.
Additional
Information
The Prospectus
and this Statement of Additional Information do not contain all the
information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Commission,
Washington, D.C., under the Securities Act and the Investment Company
Act, to which reference is hereby made.
INDEPENDENT
AUDITORS REPORT
To the Board of
Directors and Shareholder,
Mercury Basic Value Fund, Inc.:
We have audited
the accompanying statement of assets and liabilities of Mercury Basic
Value Fund, Inc. as of
[
, 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 generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our
opinion.
In our opinion,
such statement of assets and liabilities presents fairly, in all
material respects, the financial position of Mercury Basic Value Fund,
Inc. as of
[
, 2000],
in conformity with generally accepted accounting
principles.
[
,
2000]
MERCURY
BASIC VALUE FUND, INC.
STATEMENT OF
ASSETS AND LIABILITIES
[
,
2000]
ASSETS: |
|
|
Cash (Note 1) |
|
$100,000 |
Prepaid registration fees (Note 3) |
|
183,195 |
Prepaid offering costs (Note 3) |
|
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 invests 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 a distribution agreement with
Mercury Funds Distributor, a division of Princeton Funds
Distributor, Inc. (the Distributor). (See
Management of the FundManagement and Advisory
Arrangements in the Statement of Additional Information.)
Certain officers and/or trustees of the Trust and certain officers
and/or directors of the Fund are officers and/or directors of the
Investment Adviser and the Distributor.
|
(3)
|
Prepaid
registration fees are charged to income as the related shares are
issued. Prepaid offering costs consist of legal and printing fees
related to preparing the initial registration statement, and will be
amortized over a 12 month period beginning with the commencement of
operations of the Fund. The Investment Adviser, on behalf of the
Fund, will incur organization costs estimated at
$45,000.
|
Item
22. Financial Statements
INDEPENDENT
AUDITORS REPORT
To the Board of
Trustees and Shareholder,
Master Basic Value Trust:
We have audited
the accompanying statement of assets and liabilities of Master Basic
Value Trust as of
, 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 generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our
opinions.
In our opinion,
such statement of assets and liabilities presents fairly, in all
material respects, the financial position of Master Basic Value Trust
as of
, 2000, in
conformity with generally accepted accounting principles.
,
2000
MASTER
BASIC VALUE TRUST
STATEMENT OF
ASSETS AND LIABILITIES
[
, 2000]
ASSETS: |
|
|
Cash |
|
$100,100 |
|
|
|
Prepaid offering costs (Note 3) |
|
20,000 |
|
|
|
Total Assets |
|
$120,100 |
|
|
|
Less
liabilities and accrued expenses |
|
20,000 |
|
|
|
Net Assets
applicable to investors interest in the Fund (Note
1) |
|
$100,100 |
|
|
|
Notes to
Financial Statement.
(1)
|
Master Basic
Value Trust (the Trust) was organized as a Delaware
business trust on May 2, 2000. Mercury Basic Value Fund, Inc. (the
Fund) invests all of its assets in the Trust. To date,
the Trust has not had any transactions other than those relating to
organizational matters, an indirect $100,000 capital contribution to
the Trust by Fund Asset Management, L.P. (the Investment
Adviser) through the Fund and a $100 partnership contribution
to the Fund by Princeton Funds Distributor, Inc. (the
Distributor).
|
(2)
|
The Trust
will enter into an investment advisory agreement (the Advisory
Agreement) with the Investment Adviser (See Investment
Advisory Services and Fee in Part B of this Registration
Statement.) Certain officers and/or Trustees of the Trust are
officers and/or directors of the Investment Adviser and the
Distributor.
|
(3)
|
Prepaid
offering costs consist of legal fees related to preparing the
initial registration statement, and will be amortized over a 12
month period beginning with the commencement of operations of the
Trust. The Investment Adviser, on behalf of the Trust, will incur
organization costs estimated at $25,000.
|
CODE #:
[
-
-
]
PART
C. OTHER INFORMATION
Item
23. Exhibits.
Exhibit
Number
|
1(a) |
|
|
|
Articles of
Incorporation, dated May 1, 2000. |
|
|
(b) |
|
|
|
Amendment to
the Articles of Incorporation, dated May 4, 2000. |
|
|
2 |
|
|
|
By-Laws of
the Registrant. |
|
|
3 |
|
|
|
Portions
of the Articles of Incorporation and By-Laws of the Registrant
defining the rights of holders
of shares of common stock of the Registrant.(a) |
|
|
4 |
|
|
|
Not
Applicable. |
|
|
5 |
|
|
|
Form of
Distribution Agreement between the Registrant and Mercury Funds
Distributor, a division of
Princeton Funds Distributor, Inc. (the Distributor)
(including Form of Selected Dealers
Agreement).(b) |
|
|
6 |
|
|
|
None. |
|
|
7 |
|
|
|
Form of
Custody Agreement between the Registrant and The Bank of New
York.(b) |
|
|
8(a) |
|
|
|
Form of
Administration Agreement between the Registrant and Fund Asset
Management, L.P. |
|
|
(b) |
|
|
|
Form of
Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency
Agreement between the Registrant and Financial Data Services,
Inc. |
|
|
(c) |
|
|
|
Form of
License Agreement relating to use of name among Mercury Asset
Management International
Ltd., Mercury Asset Management Group Ltd. and the
Registrant. |
|
|
9 |
|
|
|
Opinion
of Brown & Wood LLP,
counsel for the Registrant.(b) |
|
|
10 |
|
|
|
Consent
of independent auditors for the Registrant.(b) |
|
|
11 |
|
|
|
None. |
|
|
12 |
|
|
|
Certificate of Fund Asset Management,
L.P.(b) |
|
|
13(a) |
|
|
|
Form of
Class A Distribution Plan of the Registrant and Class A
Distribution Plan Sub-Agreement. |
|
|
(b) |
|
|
|
Form of
Class B Distribution Plan of the Registrant and Class B
Distribution Plan Sub-Agreement. |
|
|
(c) |
|
|
|
Form of
Class C Distribution Plan of the Registrant and Class C
Distribution Plan Sub-Agreement. |
|
|
14 |
|
|
|
18f-3
Plan. |
|
|
15 |
|
|
|
Code of
Ethics.(c) |
(a)
|
Reference is made to Article II, Article IV, Article V
(sections 2, 3, 4, 6, 7 and 8), Article VI, Article VII and
Article IX of the 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 this
Registration Statement.
|
(b)
|
To be
filed by amendment.
|
(c)
|
Incorporated by reference to Exhibit 15 to
Post-Effective Amendment No. 8 to the Registration Statement
on Form N-1A of Merrill Lynch MiddleEast/Africa Fund, Inc.
(File No. 811-07155), filed on March 29, 2000.
|
Item
24. Persons Controlled by or under
Common Control with Registrant.
Fund
Asset Management, L.P. (the Investment Adviser or
FAM) will own 100% of the shares of common stock of
the Registrant. Therefore, the Registrant and the Trust are
under the common control of the Investment Adviser.
Item
25.
Indemnification.
Reference
is made to Article VI of the 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. acts as the investment adviser for the
following open-end registered investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA
Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, The Corporate Fund Accumulation Program, Inc.,
Financial Institutions Series Trust, Master Focus Twenty Trust,
Master Large Cap Series Trust, Master Premier Growth Trust,
Mercury Internet Strategies Fund, Inc., Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch California Municipal Series
Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Corporate High Yield Fund, Inc., Merrill Lynch Emerging Tigers
Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Large Cap
Series Funds, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill
Lynch Phoenix Fund, Inc., Merrill Lynch Premier Growth Fund,
Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch
World Income Fund, Inc., and The Municipal Fund Accumulation
Program, Inc.; and for the following closed-end registered
investment companies: Apex Municipal Fund, Inc., Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt
Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy
Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc.,
MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings
California Insured Fund II, Inc., MuniHoldings California
Insured Fund III, Inc., MuniHoldings California Insured Fund IV,
Inc., MuniHoldings California Insured Fund V, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund V,
MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II,
Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Insured
Fund IV, Inc., MuniHoldings Michigan Insured Fund, Inc.,
MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund, Inc.,
MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund III, Inc., MuniHoldings New Jersey Insured
Fund IV, Inc., MuniHoldings New York Fund, Inc., MuniHoldings
New York Insured Fund, Inc., MuniHoldings New York Insured Fund
II, Inc., MuniHoldings New York Insured Fund III, Inc.,
MuniHoldings New York Insured Fund IV, Inc., MuniInsured Fund,
Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest
Florida Fund, MuniVest Michigan Insured Fund, Inc., MuniYield
Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund
II, Inc., MuniYield Florida Fund, MuniYield Florida Insured
Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund,
Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania
Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc. and Worldwide
DollarVest Fund, Inc.
Merrill
Lynch Asset Management, L.P. (MLAM), acts as the
investment adviser for the following open-end registered
investment companies: Master Global Financial Services Trust,
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill
Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill
Lynch Asset Income Fund, Inc., Merrill Lynch Concentrated Fund,
Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined
Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch Euro Fund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
Bond Fund for Investment and Retirement, Merrill Lynch Global
Financial Services Fund, Inc., Merrill Lynch Global Growth Fund,
Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global
Resources Trust, Merrill Lynch Global Small Cap Fund, Inc.,
Merrill Lynch Global Technology Fund, Inc., Merrill Lynch Global
Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc.,
Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch Index Fund, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc.,
Merrill Lynch Retirement Series Trust, Merrill Lynch Series
Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves,
Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch
Variable Series Funds, Inc. and Hotchkis and Wiley Funds
(advised by Hotchkis and Wiley, a division of MLAM); and for the
following closed-end registered investment companies: Merrill
Lynch High Income Municipal Bond Fund, Inc. and Merrill Lynch
Senior Floating Rate Fund, Inc., and Merrill Lynch Senior
Floating Rate Fund II, Inc. MLAM also acts as sub-adviser to
Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic
Value Equity Portfolio, two investment portfolios of EQ Advisors
Trust.
The
address of each of these registered investment companies is P.O.
Box 9011, Princeton, New Jersey 08543-9011, except that the
address of Merrill Lynch Funds for Institutions Series and
Merrill Lynch Intermediate Government Bond Fund is One Financial
Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of FAM, MLAM, Princeton Services, Inc. (Princeton
Services) and Princeton Administrators, L.P.
(Princeton Administrators) is also P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of Princeton Funds
Distributor, Inc. (PFD), of Mercury Funds
Distributor (MFD) and of Merrill Lynch Funds
Distributor (MLFD) is P.O. Box 9081, Princeton, New
Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner
& Smith Incorporated (Merrill Lynch) and Merrill
Lynch & Co., Inc. (ML & Co.) is World
Financial Center, North Tower, 250 Vesey Street, New York, New
York 10281-1201. The address of the 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 June 1, 1998 for
his, her or its own account or in the capacity of director,
officer, partner or trustee. In addition Mr. Glenn is President
and Mr. Burke is Vice President and Treasurer of all or
substantially all of the investment companies described in the
first two paragraphs of this Item 26, and Messrs. Doll, Giordano
and Monagle are officers of one or more of such
companies.
Name
|
|
Position(s) with
the Investment Adviser
|
|
Other Substantial Business, Profession,
Vocation or Employment
|
ML
& Co. |
|
Limited
Partner |
|
Financial Services Holding Company;
Limited Partner of MLAM |
|
|
Princeton Services |
|
General
Partner |
|
General
Partner of MLAM |
|
|
Jeffrey
M. Peek |
|
President |
|
President of MLAM; President and Director
of Princeton Services; Executive Vice
President of ML & Co.; Managing Director
and Co-Head of the Investment Banking
Division of Merrill Lynch in 1997 |
|
|
Terry
K. Glenn |
|
Executive Vice President |
|
Executive Vice President of MLAM;
Executive Vice President and Director of
Princeton Services; President and Director of
PFD; Director of FDS; President of Princeton
Administrators |
|
|
Gregory
A. Bundy |
|
Chief
Operating Officer and
Managing Director |
|
Chief
Operating Officer and Managing
Director of MLAM; Chief Operating Officer
and Managing Director of Princeton
Services; Co-CEO of Merrill Lynch Australia
from 1997 to 1999 |
|
|
Donald
C. Burke |
|
Senior
Vice President and
Treasurer |
|
Senior
Vice President, Treasurer and Director
of Taxation of MLAM; Senior Vice President
and Treasurer of Princeton Services; Vice
President of PFD; First Vice President of
MLAM from 1997 to 1999; Vice President of
MLAM from 1990 to 1997 |
|
|
Michael
G. Clark |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior
Vice President of Princeton Services;
Treasurer and Director of PFD; First Vice
President of MLAM from 1997 to 1999; Vice
President of MLAM from 1996 to 1997 |
|
|
Robert
C. Doll |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior
Vice President of Princeton Services; Chief
Investment Officer of Oppenheimer Funds,
Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999 |
|
|
Linda
L. Federici |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior
Vice President of Princeton Services |
|
|
Vincent
R. Giordano |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior
Vice President of Princeton Services |
|
|
Michael
J. Hennewinkel |
|
Senior
Vice President,
Secretary and General
Counsel |
|
Senior
Vice President, Secretary and General
Counsel of MLAM; Senior Vice President of
Princeton Services |
|
|
Philip
L. Kirstein |
|
Senior
Vice President,
Secretary and General
Counsel |
|
Senior
Vice President, Secretary and General
Counsel of MLAM; Senior Vice President of
Princeton Services |
|
|
Debra
W. Landsman-Yaros |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior
Vice President of Princeton Services; Vice
President of PFD |
|
|
Stephen
M. M. Miller |
|
Senior
Vice President |
|
Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services |
Name
|
|
Position(s) with
the Investment Adviser
|
|
Other Substantial Business, Profession,
Vocation or Employment
|
Joseph
T. Monagle, Jr. |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services Gregory D.
Upah |
|
|
Gregory
D. Upah |
|
Senior
Vice President |
|
Senior
Vice President of MLAM; Senior Vice
President of Princeton Services |
Merrill
Lynch Asset Management U.K. Limited (MLAM U.K.) acts
as sub-adviser for the following registered investment
companies: The Corporate Fund Accumulation Program, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II,
Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III,
Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., Master Focus Twenty Trust, Master Large Cap
Series Trust, Master Premier Growth Trust, Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder Program,
Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset
Income Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch Capital Fund, Inc., Merrill Lynch Consults International
Portfolio, Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield
Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch
Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund,
Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Growth Fund, Inc., Merrill Lynch Global Holdings, Inc.,
Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global
Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Pacific
Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Real
Estate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill
Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Senior
Floating Rate Fund II Inc., Merrill Lynch Short-Term Global
Income Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Utility
Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc.,
Merrill Lynch World Income Fund, Inc., The Municipal Fund
Accumulation Program, Inc. and Worldwide DollarVest Fund, Inc.
The address of each of the registered investment companies is
P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of
MLAM U.K. is 33 King William Street, London EC4R 9AS,
England.
Set forth
below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or
employment of a substantial nature in which each such person has
been engaged since July 1, 1998, for his or her own account or
in the capacity of director, officer, partner or trustee. In
addition, Messrs. Glenn and Burke are officers of one or more of
the registered investment companies listed in the first two
paragraphs of this Item 26.
Name
|
|
Position(s) with MLAM U.K.
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
Terry
K. Glenn |
|
Director and Chairman |
|
Executive Vice President of MLAM and FAM;
Executive Vice President and Director of Princeton
Services; President and Director of PFD; President
of Princeton Administrators |
|
|
Nicholas C.D. Hall |
|
President |
|
Director of Mercury Asset Management Ltd. and
the Institutional Liquidity Fund PLC; First Vice
President and General Counsel for Merrill Lynch
Mercury Asset Management |
|
|
James
T. Stratford |
|
Alternate Director |
|
Director of Mercury Asset Management Group
Ltd.; Head of Compliance, Merrill Lynch Mercury
Asset Management |
Name
|
|
Position(s) with MLAM U.K.
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
Donald
C. Burke |
|
Treasurer |
|
Senior
Vice President and Treasurer of MLAM
and FAM; Director of Taxation of MLAM;
Senior Vice President and Treasurer of Princeton
Services; Vice President of PFD; First Vice
President of MLAM from 1997 to 1999; Vice
President of MLAM from 1990 to 1997 |
|
|
Carol
Ann Langham |
|
Company
Secretary |
|
None |
|
|
Debra
Anne Searle |
|
Assistant Company Secretary |
|
None |
Item
27. Principal
Underwriters.
MFD, a
division of PFD, acts as the principal underwriter for the
Registrant and for each of the following open-end investment
companies: Mercury Global Balanced Fund of Mercury Asset
Management Funds, Inc.; Mercury Gold and Mining Fund of Mercury
Asset Management Funds, Inc.; Mercury International Fund of
Mercury Asset Management Funds, Inc.; Mercury Large Cap Series
Funds, Inc.; Mercury U.S. Large Cap Fund of Mercury Asset
Management Funds, Inc.; Mercury U.S. Small Cap Growth Fund of
Mercury Asset Management Funds, Inc.; Mercury Pan-European
Growth Fund of Mercury Asset Management Funds, Inc.; Summit Cash
Reserves Fund of Financial Institutions Series Trust; Mercury
V.I. U.S. Large Cap Fund of Mercury Asset Management V.I. Funds,
Inc. A separate division of PFD acts as the principal
underwriter of other investment companies.
Set forth
below is information concerning each director and officer of
PFD. The principal business address of each such person is P.O.
Box 9081, Princeton, New Jersey 08543-9081, except that the
address of Messrs. Breen, Crook, Fatseas and Wasel is One
Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665.
Name
|
|
Position(s) and
Office(s) with PFD
|
|
Position(s) and Office(s)
with Registrant
|
Terry
K. Glenn |
|
President and Director |
|
President and Director |
Michael
G. Clark |
|
Treasurer and Director |
|
None |
Thomas
J. Verage |
|
Director |
|
None |
Robert
W. Crook |
|
Senior
Vice President |
|
None |
Michael
J. Brady |
|
Vice
President |
|
None |
William
M. Breen |
|
Vice
President |
|
None |
Donald
C. Burke |
|
Vice
President |
|
Vice
President and Treasurer |
James
T. Fatseas |
|
Vice
President |
|
None |
Debra
W. Landsman-Yaros |
|
Vice
President |
|
None |
Michelle T. Lau |
|
Vice
President |
|
None |
Salvatore Venezia |
|
Vice
President |
|
None |
William
Wasel |
|
Vice
President |
|
None |
Robert
Harris |
|
Secretary |
|
None |
(c) Not
applicable.
Item
28. Location of Accounts and
Records.
All
accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are
maintained at the offices of the Registrant (800 Scudders Mill
Road, Plainsboro, New Jersey 08536-9011), and its transfer
agent, Financial Data Services, Inc. (4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484).
Item
29. Management
Services.
Other
than as set forth under the caption Management Team
in the Prospectus constituting Part A of the Registration
Statement and under Management of the FundManagement
and Advisory Arrangements in the Statement of Additional
Information constituting Part B of the Registration Statement,
the Registrant is not a party to any management-related service
contract.
Item
30. Undertakings.
(a)
Registrant undertakes to suspend the offering of the
common shares covered hereby until it amends its prospectus
contained herein if (1) subsequent to the effective date of this
Registration Statement, its net asset value per common share
declines more than 10% from its net asset value per common share
as of the effective date of this Registration Statement, or (2)
its net asset value per common share increases to an amount
greater than its net proceeds as stated in the prospectus
contained herein.
(b)
Registrant undertakes that:
|
(1) For purposes of determining any liability
under the 1933 Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 497(h)
under the 1933 Act shall be deemed to be part of this
Registration Statement as of the time it was declared
effective.
|
|
(2) For the purpose of determining any
liability under the 1933 Act, each post-effective amendment
that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act and the Investment
Company Act, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Plainsboro, and
State of New Jersey, on the day 30th of May, 2000.
|
MERCURY
BASIC VALUE FUND, INC.
|
|
Terry K. Glenn, President
|
Each
person whose signature appears below hereby authorizes Terry K.
Glenn, Donald C. Burke and Thomas D. Jones, III, or any of them,
as attorney-in-fact, to sign on his or her behalf, individually
and in each capacity stated below, any amendment to this
Registration Statement (including post-effective amendments) and
to file the same, with all exhibits thereto, with the Securities
and Exchange Commission.
Pursuant
to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature
|
|
Title
|
|
Date
|
|
|
/S
/ TERRY
K. GLENN
Terry K. Glenn |
|
President (Principal Executive
Officer) and Director |
|
May 30,
2000 |
|
|
/S
/ DONALD
C. BURKE
Donald C. Burke |
|
Vice
President and Treasurer
(Principal Financial and
Accounting Officer) |
|
May 30,
2000 |
|
|
/S
/ M. COLYER
CRUM
M.
Colyer Crum |
|
Director |
|
May 30,
2000 |
|
|
/S
/ LAURIE
SIMON
HODRICK
Laurie Simon Hodrick |
|
Director |
|
May 30,
2000 |
|
|
/S
/ JACK
B. SUNDERLAND
Jack
B. Sunderland |
|
Director |
|
May 30,
2000 |
|
|
/S
/ STEPHEN
B. SWENSRUD
Stephen B. Swensrud |
|
Director |
|
May 30,
2000 |
|
|
/S
/ J. THOMAS
TOUCHTON
J.
Thomas Touchton |
|
Director |
|
May 30,
2000 |
|
|
/S
/ FRED
G. WEISS
Fred
G. Weiss |
|
Director |
|
May 30,
2000 |
|
|
/S
/ ARTHUR
ZEIKEL
Arthur Zeikel |
|
Director |
|
May 30,
2000 |
|
SIGNATURES
Master
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 30th day of May,
2000.
|
Terry K. Glenn, President
|
Each
person whose signature appears below hereby authorizes Terry K.
Glenn, Donald C. Burke and Thomas D. Jones, III, or any of them,
as attorney-in-fact, to sign on his or her behalf, individually
and in each capacity stated below, any amendment to this
Registration Statement (including post-effective amendments) and
to file the same, with all exhibits thereto, with the Securities
and Exchange Commission.
Pursuant
to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature
|
|
Title
|
|
Date
|
|
|
/S
/ TERRY
K. GLENN
Terry K. Glenn |
|
President (Principal Executive
Officer) and Trustee |
|
May 30,
2000 |
|
|
/S
/ DONALD
C. BURKE
Donald C. Burke |
|
Vice
President and Treasurer
(Principal Financial and
Accounting Officer) |
|
May 30,
2000 |
|
|
/S
/ M. COLYER
CRUM
M.
Colyer Crum |
|
Trustee |
|
May 30,
2000 |
|
|
/S
/ LAURIE
SIMON
HODRICK
Laurie Simon Hodrick |
|
Trustee |
|
May 30,
2000 |
|
|
/S
/ JACK
B. SUNDERLAND
Jack
B. Sunderland |
|
Trustee |
|
May 30,
2000 |
|
|
/S
/ STEPHEN
B. SWENSRUD
Stephen B. Swensrud |
|
Trustee |
|
May 30,
2000 |
|
|
/S
/ J. THOMAS
TOUCHTON
J.
Thomas Touchton |
|
Trustee |
|
May 30,
2000 |
|
|
/S
/ FRED
G. WEISS
Fred
G. Weiss |
|
Trustee |
|
May 30,
2000 |
|
|
/S
/ ARTHUR
ZEIKEL
Arthur Zeikel |
|
Trustee |
|
May 30,
2000 |
|
INDEX
TO EXHIBITS
Exhibit
Number
|
|
|
1(a) |
|
Articles of Incorporation, dated May 1,
2000 |
|
(b) |
|
Amendment to the Articles of Incorporation, dated
May 4, 2000 |
|
2 |
|
By-Law |
|
8(a) |
|
Form of Administration Agreement |
|
(b) |
|
Form of Transfer Agency, Dividend Disbursing
Agency and Shareholder Servicing Agency Agreement |
|
(c) |
|
Form of License Agreement |
|
13(a) |
|
Form of Class A Distribution Plan and Class A
Distribution Plan Sub-Agreement |
|
(b) |
|
Form of Class B Distribution Plan and Class B
Distribution Plan Sub-Agreement |
|
(c) |
|
Form of Class C Distribution Plan and Class C
Distribution Plan Sub-Agreement |
|
14 |
|
18f-3 Plan |