As filed with the Securities and Exchange Commission on July 21, 2000
Securities Act File No. 333-
Investment Company Act File No. 811-10025
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)
Merrill Lynch Mid Cap Growth 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) 637-3863
Terry K. Glenn
Merrill Lynch Mid Cap Growth Fund, Inc.
P.O. Box 9011
Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
Copies to:
Counsel for the Fund:
Frank P. Bruno, 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 Mid Cap Growth 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
.
PROSPECTUS
Subject to Completion
Preliminary Prospectus dated July 21, 2000
[LOGO OF MERRILL LYNCH]
|
Merrill Lynch Mid Cap Growth Fund, Inc.
|
September , 2000
|
This Prospectus contains information you should know before investing, including information about risks. Please read it before you
invest and keep it for future reference.
|
|
The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
|
Table of Contents
[GRAPHIC]
[GRAPHIC]
[GRAPHIC]
[GRAPHIC]
[GRAPHIC]
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] KEY FACTS
In an effort to help you better understand the many concepts involved in making an investment decision, we have defined the highlighted terms in this prospectus in the sidebar.
Equity Securities common
stock or securities whose price is linked to the value of common stock.
Mid Cap Companies companies
whose market capitalization is similar to the market capitalization of companies in the Russell Midcap® Growth Index at the time of the Funds investment. As of July 1, 2000, the Russell Midcap® Growth Index included companies with
capitalizations between approximately $1.3 billion and $25.9 billion. The size of companies in the Russell Midcap® Growth Index changes with market conditions and the composition of the index.
Common Stock units of
ownership of a corporation.
Preferred Stock class of
capital stock that often pays dividends at a specified rate and has preference over common stock in dividend payments and liquidation of assets.
MERRILL LYNCH MID CAP GROWTH FUND AT A GLANCE
What is the Funds investment objective?
The Funds investment objective is to seek long term capital appreciation.
What are the Funds main investment strategies?
The Fund invests primarily in equity securities of mid cap companies that Fund management believes have strong earnings growth and capital
appreciation potential. Although the Fund anticipates that it will focus on common stocks, to a lesser extent, the Fund also may invest in preferred stock, convertible securities, warrants and rights to subscribe to common stock of these companies. We cannot guarantee that
the Fund will achieve its investment objective.
Fund management focuses primarily on earnings growth in determining which securities to buy and when to sell them for the Fund. The Fund is a feeder fund that
invests all of its assets in a master portfolio, the Master Mid Cap Growth Trust (the Trust), that has the same investment objective as the Fund. All investments will be made at the Trust level. This structure is sometimes called a
master/feeder structure. The Funds investment results will correspond directly to the investment results of the Trust. For simplicity, except where indicated, 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 investmentsand therefore the value of your Fund sharesmay fluctuate. These changes may occur because a
particular stock or stock market is rising or falling. Also, Fund management may select securities which underperform the stock market or other funds with similar investment objectives and investment strategies. The Fund is also subject to the risk that
the stocks that Fund management selects will underperform the stock markets, the relevant indices or other funds with similar investment objectives and investment strategies. If the value of the Funds investments goes down, you may lose money.
You should purchase shares of the Fund for diversification and not as a balanced investment program.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] KEY FACTS
Convertible Securities
corporate securities (usually preferred stock or bonds) that are exchangeable for a fixed number of other securities (usually common stock) at a set price or formula.
Warrants a security that
gives the right to buy a quantity of stock.
Who should invest?
The Fund may be an appropriate investment for you if you:
|
|
Are investing with long term goals in mind, 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 long term capital appreciation
|
|
|
Are not looking for a significant amount of current income
|
|
|
Are prepared to receive taxable distributions
|
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.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
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 include sales charges which you may pay when you buy or sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses expenses that cover the costs of operating the Fund.
Management Fee
a fee paid to the Manager for managing the Trust.
Distribution Fees
fees used to support the Funds marketing and distribution efforts, such as compensating financial consultants and other financial intermediaries, advertising and promotion.
Service (Account Maintenance) Fees fees used to compensate 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 Merrill Lynch Financial Consultant or other financial
intermediary 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 A |
|
Class B(b) |
|
Class C |
|
Class D |
|
Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering price) |
|
|
|
None |
|
None |
|
|
|
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, whichever is lower) |
|
None(d) |
|
|
|
|
|
None(d) |
|
Maximum Sales Charge (Load) imposed on
Dividend Reinvestments |
|
|
|
|
|
|
|
|
|
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): |
|
|
|
Management Fee(f) |
|
|
|
|
|
|
|
|
|
Distribution and/or Service (12b-1) Fees(g) |
|
None |
|
|
|
|
|
|
|
Other Expenses(h) (including transfer agency
fees) and Administrative Fees (i) |
|
|
|
|
|
|
|
|
|
Total Annual Fund Operating Expenses |
|
|
|
|
|
|
|
|
|
Fee Waiver and/or Expense Reimbursement(j) |
|
|
|
|
|
|
|
|
|
Net Total Operating Expenses(k) |
|
|
|
|
|
|
|
|
|
(a)
|
In addition, Merrill Lynch may charge clients a processing fee (currently $5.35) when a client buys or redeems shares. See
How to Buy, Sell, Transfer and Exchange Shares.
|
(b)
|
Class B shares automatically convert to Class D shares about eight years after you buy them and will no longer be subject to
distribution fees.
|
(c)
|
Some investors may qualify for reductions in the sales charge (load).
|
(d)
|
You may pay a deferred sales charge if you purchase $1 million or more and you redeem within one year.
|
(e)
|
The fees and expenses include the expenses of the Fund and the Funds share of expenses of the Trust.
|
(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 Fund materials. If you hold Class B or Class C shares for a long time, it may cost you more in distribution (12b-1) fees than the maximum sales charge that you would have paid if you had bought one of the other classes.
|
(h)
|
Based on estimated amounts for the current fiscal year. The Fund pays the Transfer Agent $11.00 for each Class A and Class D
shareholder account and $14.00 for each Class B and Class C
shareholder account and reimburses the Transfer Agents out-of-pocket expenses. The Fund also pays a $0.20 monthly closed account charge, which is assessed upon all accounts that close during the year. This fee begins the month following the month
the account is closed and ends at the end of the calendar year. The Manager or its affiliate provides accounting services to the Trust and the Trust reimburses the Manager or its affiliate for its costs.
|
(i)
|
Includes administrative fees, which are payable to the Administrator by the Fund, at the annual rate of 0.25%. The Administrator or
its affiliate provides accounting services to the Fund, and the Fund reimburses the Administrator or its affiliate for its costs.
|
(j)
|
The Manager has entered into a contractual arrangement with the Trust and the Fund as necessary to assure that expenses incurred by
each class of the Fund will not exceed %. This does not include Distribution and/or Service (12b-1) Fees. This arrangement has a one year term and is renewable.
|
(k)
|
The net total operating expenses reflect the Managers estimate of expenses that will actually be incurred during the
Funds current fiscal year, restated to reflect the contractual fee waiver and/or expense reimbursement currently in effect.
|
Examples:
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:
|
|
1 Year |
|
3 Years |
|
Class A |
|
$ |
|
$ |
|
Class B |
|
$ |
|
$ |
|
Class C |
|
$ |
|
$ |
|
Class D |
|
$ |
|
$ |
|
|
EXPENSES IF YOU DID NOT REDEEM YOUR SHARES: |
|
|
|
1 Year |
|
3 Years |
|
Class A |
|
$ |
|
$ |
|
Class B |
|
$ |
|
$ |
|
Class C |
|
$ |
|
$ |
|
Class D |
|
$ |
|
$ |
|
MERRILL LYNCH MID CAP GROWTH FUND, INC.
DETAILS ABOUT THE FUND [GRAPHIC]
|
ABOUT THE PORTFOLIO MANAGEMENT TEAM
|
|
The Fund is managed by members of a team of investment professionals who participate in the teams research process and stock
selection. Michael S. Hahn is primarily responsible for the day-to-day management of the Fund. Mr. Hahn has been a Senior Vice President and portfolio manager of the Fund since its inception. Mr. Hahn has been an Associate Portfolio Manager of Merrill
Lynch Investment Managers since 1999, portfolio manager and analyst for the PBHG family of mutual funds from 1996 to 1999 and an assistant portfolio manager for First Maryland Bancorp from 1994 to 1996.
|
The Funds investment objective is to seek long term capital appreciation. The Fund tries to achieve its investment objective by investing primarily in equity
securities of mid cap companies that Fund management believes have strong earnings growth and capital appreciation potential. Fund management begins its investment process by creating a universe of rapidly growing companies that possess certain growth
characteristics. That universe is continually updated. Fund management then ranks each company within its universe by using research models that focus on growth characteristics such as positive earnings surprises, upward earnings estimate revisions, and
accelerating sales and earnings growth. Finally, using its own fundamental research and a bottom-up approach to investing, Fund management evaluates the quality of each companys earnings and tries to determine whether the company can sustain or
increase its current growth trend. Fund management believes that this disciplined investment process enables it to construct a portfolio of investments with strong growth characteristics.
Although the Fund emphasizes investment in common stocks, it may also invest in other equity securities including, but not limited to, the following:
|
|
Securities convertible into common stock
|
|
|
Rights and warrants to subscribe to common stock
|
The Fund generally will invest at least 65% of its total assets in equity securities of mid cap companies. At any time, the Fund may emphasize investments in different
portions of the capitalization range of the Russell Midcap® Growth Index.
The Fund may invest up to 10% of its total assets in securities of foreign companies, including American Depositary Receipts (ADRs) and European Depositary
Receipts (EDRs) or other securities convertible into securities of foreign companies.
The Fund may also lend its portfolio securities.
The Fund may invest in investment grade, non-convertible debt securities and U.S. Government securities of any maturity although it typically will not do so to a significant
extent. The Fund may invest in excess of 35% of its total assets in cash or U.S. dollar-denominated high quality short term debt instruments for temporary defensive purposes, to maintain liquidity or when economic or market conditions are unfavorable for
profitable investing.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] DETAILS ABOUT THE FUND
|
The Fund is managed by Fund Asset Management.
|
Normally, a portion of the Funds assets will be held in these short term instruments in anticipation of investment in equities or to meet redemptions. These types of
investments typically have a lower yield than other longer-term investments and lack the capital appreciation potential of equity securities. In addition, while these investments are generally designed to limit the Funds losses, they can prevent the
Fund from achieving its investment objective.
This section contains a summary discussion of the general risks of investing in the Fund. As with any mutual fund, there can be no guarantee that the Fund will meet its
objectives, or that the Funds performance will be positive over any period of time.
Market Risk And Selection Risk As an equity fund, the Funds principal risks are market risk and selection risk. Market
risk is the risk that the U.S. or foreign equity markets will go down in value, including the possibility that the U.S. or foreign equity markets will go down sharply and unpredictably. In particular, the equity securities purchased by the Fund may be
particularly sensitive to changes in earnings or interest rate increases because they typically have higher price-earnings ratios. Selection risk is the risk that the stocks that Fund management selects will underperform the markets or other funds with
similar investment objectives and investment strategies.
The Fund also may be subject to risks associated with the following investment strategies.
Convertibles
Convertibles are generally debt securities or preferred stocks that may be converted into common stock. Convertibles typically pay current income as either interest
(debt security convertibles) or dividends (preferred stocks). A convertibles value usually reflects both the stream of current income payments and the value of the underlying common stock. The market value of a convertible performs like a regular
debt security, that is, if market interest rates rise, the value of a convertible usually falls. Since it is convertible into common stock, the convertible also has the same types of market and issuer risk as the underlying common stock.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
Warrants A warrant gives the Fund the right to buy a quantity of stock. The warrant specifies the amount of underlying stock, the purchase (or exercise) price, and
the date the warrant expires. The Fund has no obligation to exercise the warrant and buy the stock.
A warrant has value only if the Fund exercises it before it expires. If the price of the underlying stock does not rise above the exercise price before the warrant expires,
the warrant generally expires without any value and the Fund loses any amount it paid for the warrant. Thus, investments in warrants may involve substantially more risk than investments in common stock. Warrants may trade in the same markets as their
underlying stock; however, the price of the warrant does not necessarily move with the price of the underlying stock.
Initial Public Offerings
B> The Fund may purchase securities in initial public offerings (IPOs). The
prices of securities purchased in IPOs can be very volatile, due to the lack of a prior public market, the relatively small number of shares available for trading and limited investor information. Although it is difficult to predict the impact that IPOs
will have on the Funds performance, such impact is likely to lessen as the Fund increases in size.
Borrowing and Leverage Risk The Fund may borrow for temporary emergency purposes including to meet redemptions. Borrowing
may exaggerate changes in the net asset value of Fund shares and in the yield on the Funds portfolio. Borrowing will cost the Fund interest expense and other fees. The cost of borrowing may reduce the Funds return. Certain securities that the
Fund buys may create leverage including, for example, when issued securities, forward commitments, options and warrants.
Illiquid Securities The Fund may invest up to 15% of its net assets in illiquid securities that it cannot easily resell
within seven days at current value or that have contractual or legal restrictions on resale. If the Fund buys illiquid securities it may be unable to quickly resell them or may be able to sell them only at a price below current value.
Restricted Securities
Restricted securities have contractual or legal restrictions on their resale. They may include private
placement securities that the Fund buys directly from the issuer. Private placement and other restricted securities may not be listed on an exchange and may have no active trading market.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] Details About the Fund
Restricted securities may be illiquid. The Fund may be unable to sell them on short notice or may be able to sell them only at a price below current value. The Fund may get
only limited information about the issuer, so they may be less able to predict a loss. In addition, if Fund management receives material adverse nonpublic information about the issuer, the Fund will not be able to sell the security.
Rule 144A Securities
Rule 144A securities are restricted securities that can be resold to qualified institutional buyers but
not to the general public. Rule 144A securities may have an active trading market, but carry the risk that the active trading market may not continue.
Debt Securities
Debt securities, such as bonds, involve credit risk. This is the risk that the borrower will not make timely payments of principal and interest. The degree of credit
risk depends on the issuers financial condition and on the terms of the bonds. These securities are also subject to interest rate risk. This is the risk that the value of the security may fall when interest rates rise. In general, the market price
of debt securities with longer maturities will go up or down more in response to changes in interest rates than the market price of shorter term securities.
Securities Lending
Securities lending involves the risk that the borrower to which the Fund has loaned its securities may not return the securities in a timely manner or at all. As a
result, the Fund might suffer costs and delay in recovering the securities it loaned. In addition, if the Fund does not get the securities it loaned back and the value of the collateral the Fund received in return for the loaned securities falls, the Fund
could lose money.
Repurchase Agreements; Purchase And Sale Contracts The Fund may enter into certain types of repurchase agreements or purchase and sale contracts.
Under a repurchase agreement, the seller agrees to repurchase a security (typically a security issued or guaranteed by the U.S. Government) at a mutually agreed upon time and price. This insulates the Fund from changes in the market value of the security
during the period, except for currency fluctuations. A purchase and sale contract is similar to a repurchase agreement, but purchase and sale contracts provide that the purchaser receives any interest on the security paid during the period. If the seller
fails to repurchase the security in either situation and the market value declines, the Fund may lose money.
Foreign Market Risks
The Fund may invest in companies located in countries other than the United States. This may expose the
Fund to risks associated with foreign investments.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
|
|
The value of holdings traded outside the United States (and any hedging transactions in foreign currencies) will be affected by
changes in currency exchange rates
|
|
|
The costs of non-U.S. securities transactions tend to be higher than those of U.S. transactions
|
|
|
These holdings may be adversely affected by foreign government action
|
|
|
International trade barriers or economic sanctions against certain non-U.S. countries may adversely affect these holdings
|
Depositary Receipts The Fund may invest in securities of foreign issuers in the form of Depositary Receipts. American
Depositary Receipts are receipts typically issued by an American bank or trust company that show evidence of underlying securities issued by a foreign corporation. European Depositary Receipts evidence a similar ownership arrangement. The Fund may also
invest in unsponsored Depositary Receipts. The issuers of such unsponsored Depositary Receipts are not obligated to disclose material information in the United States, and therefore, there may be less information available regarding such issuers.
Derivatives
The Fund may use derivative instruments including futures, options, indexed securities, inverse securities and swaps. Derivatives are financial instruments whose
value is derived from another security, a commodity (such as gold or oil), or an index such as Standard & Poors 500 Index. Derivatives allow the Fund to increase or decrease their risk exposure more quickly and efficiently than other types of
instruments. Derivatives are volatile and involve significant risks, including:
|
Credit risk the risk that the counterparty (the party on the other side of the transaction) on a derivative transaction will be unable to honor its financial obligation to the Fund.
|
|
Currency risk the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment.
|
|
Leverage risk the risk associated with certain types of investments or trading strategies (such as borrowing money to increase the amount of investment) that relatively small market movements may result in large changes in the value of an investment.
Certain investments or trading strategies that involve
leverage can result in losses that greatly exceed the amount originally invested.
|
|
Liquidity risk the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security
is currently worth.
|
The Fund may use derivatives for hedging purposes, including anticipatory hedges. Hedging is a strategy in which the Fund uses a derivative to offset the risk that other Fund
holdings may decrease in value. While hedging can reduce losses, it can also reduce or eliminate gains if the market moves in a different manner than anticipated by the Fund or if the cost of the derivative outweighs the benefit of the hedge. Hedging also
involves the risk that changes in the value of the derivative will not match those of the holdings being hedged as expected by the Fund, in which case any losses on the holdings being hedged may not be reduced. There can be no assurance that the Fund
s hedging strategy will reduce risk or that hedging transactions will be either available or cost effective. The Fund is not required to use hedging and may choose not to do so.
Indexed and Inverse Floating Rate Securities The Fund may invest in securities whose potential returns are directly related to changes in an
underlying index or interest rate, known as indexed securities. The return on indexed securities will rise when the underlying index or interest rate rises and fall when the index or interest rate falls. The Fund may also invest in securities whose return
is inversely related to changes in an interest rate (inverse floaters). In general, income on inverse floaters will decrease when interest rates increase and increase when interest rates decrease. Investments in inverse floaters may subject the Fund to
the risks of reduced or eliminated interest payments and losses of principal. In addition, certain indexed securities and inverse floaters may increase or decrease in value at a greater rate than the underlying interest rate, which effectively leverages
the Funds investment. Indexed securities and inverse floaters are derivative securities and can be considered speculative. Indexed and inverse securities involve credit risk and certain indexed and inverse securities may involve currency risk,
leverage risk and liquidity risk.
Swap Agreements
Swap agreements involve the risk that the party with whom the Fund has entered into the swap will default on its obligation to pay the Fund and the risk that the Fund
will not be able to meet its obligations to pay the other party to the agreement.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
Standby Commitment Agreements Standby commitment agreements involve the risk that the security will lose value prior to its
delivery to the Fund. These agreements also involve the risk that if the security goes up in value, the counterparty will decide not to issue the security, in which case the Fund has lost the investment opportunity for the assets it had set aside to pay
for the security and any gain in the securitys price.
When Issued Securities, Delayed Delivery Securities and Forward Commitments When issued and delayed delivery securities and forward commitments involve the risk that the
security the Fund buys will lose value prior to its delivery to the Fund. There also is the risk that the security will not be issued or that the other party will not meet its obligation. If this occurs, the Fund both loses the investment opportunity for
the assets it has set aside to pay for the security and any gain in the securitys price.
Investment in Other Investment Companies If the Fund acquires shares of investment companies, shareholders will bear both their
proportionate share of expenses in the Fund (including management and advisory fees) and, indirectly, the expenses of those investment companies.
Portfolio Turnover
At times the Fund may purchase securities for short term profits, which may result in a high portfolio
turnover rate. A high portfolio turnover rate involves certain tax consequences and correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions, which are borne by the Fund.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the Fund, including how the Fund invests, please see the Statement of Additional Information.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] Your Account
MERRILL LYNCH SELECT PRICING
SM
SYSTEM
The Fund offers four classes of shares, each with its own sales charge and expense structure, allowing you to invest in the way that best suits your needs. Each share class
represents an ownership interest in the same investment portfolio. When you choose your class of shares you should consider the size of your investment and how long you plan to hold your shares. Your Merrill Lynch Financial Consultant can help you
determine which share class is best suited to your personal financial goals.
For example, if you select Class A or D shares, you generally pay a sales charge at the time of purchase. If you buy Class D shares, you also pay an ongoing account
maintenance fee of 0.25%. You may be eligible for a sales charge reduction or waiver.
If you select Class B or C shares, you will invest the full amount of your purchase price, but you will be subject to a distribution fee of 0.75% and an account maintenance
fee of 0.25%. Because these fees are paid out of the 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 FAM Distributors, Inc., an affiliate of Merrill Lynch.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
The table below summarizes key features of the Merrill Lynch Select Pricing
SM
System.
|
|
Class A |
|
Class B |
|
Class C |
|
Class D |
|
Availability |
|
Limited to certain
investors including:
Current Class A
shareholders
Certain affiliates of
Merrill Lynch
selected securities
dealers and other
financial
intermiediaries. |
|
Generally available
through Merrill Lynch.
Limited
availability through
selected securities
dealers and other
financial
intermediaries. |
|
Generally available
through Merrill Lynch.
Limited
availability through
selected securities
dealers and other
financial
intermediaries. |
|
Generally available
through Merrill Lynch.
Limited availability
through selected
securities dealers and
other financial
intermediaries. |
|
|
Initial Sales
Charge? |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
Deferred Sales
Charge? |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within
one year.) |
|
Yes. Payable if you
redeem within four
years of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year.) |
|
|
Account
Maintenance and
Distribution Fees? |
|
No. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
No Distribution Fee. |
|
Conversion to
Class D shares? |
|
No. |
|
Yes, automatically
after approximately
eight years. |
|
No. |
|
No. |
|
|
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] Your Account
Right of Accumulation
permits you to pay the sales charge applicable to the cost or value (whichever is higher) of all shares you own in the Merrill Lynch mutual funds that offer Select Pricing
SM
options.
Letter of Intent
permits you to pay the sales charge that would be applicable if you add up all shares of Merrill Lynch Select Pricing
SM
System funds that you agree to buy within a 13 month period. Certain restrictions apply.
Class A and D Shares Initial Sales Charge Options
If you select Class A or D shares, you will pay a sales charge at the time of purchase.
Your Investment |
|
As a % of
Offering Price |
|
As a % of
Your Investment* |
|
Dealer
Compensation
as a % of
Offering Price |
|
Less than $25,000 |
|
5.25% |
|
5.54% |
|
5.00% |
|
$25,000 but less
than $50,000 |
|
4.75% |
|
4.99% |
|
4.50% |
|
$50,000 but less
than $100,000 |
|
4.00% |
|
4.17% |
|
3.75% |
|
$100,000 but less
than $250,000 |
|
3.00% |
|
3.09% |
|
2.75% |
|
$250,000 but less
than $1,000,000 |
|
2.00% |
|
2.04% |
|
1.80% |
|
$1,000,000 and
over** |
|
0.00% |
|
0.00% |
|
0.00% |
|
*
|
Rounded to the nearest one-hundredth percent.
|
**
|
If you invest $1,000,000 or more in Class A or D shares, you may not pay an initial sales charge. In that case, the Manager
compensates the selling dealer from its own funds. However, if you redeem your shares within one year after purchase, you may be charged a deferred sales charge. This charge is 1% of the lesser of the original cost of the shares being redeemed or your
redemption proceeds.
|
No initial sales charge applies to Class A or Class D shares that you buy through reinvestment of dividends.
A reduced or waived sales charge on a purchase of Class A or D shares may apply for:
|
|
Purchases under a Right of Accumulation or Letter of Intent
|
|
|
Purchases using proceeds from the sale of certain Merrill Lynch closed-end funds under certain circumstances
|
|
|
Certain investors, including directors or trustees of Merrill Lynch mutual funds and Merrill Lynch employees
|
Only certain investors are eligible to buy Class A shares. Your Merrill Lynch Financial Consultant can help you determine whether you are eligible to buy Class A shares or to
participate in any of these programs.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
If you decide to buy shares under the initial sales charge alternative and you are eligible to buy both Class A and Class D shares, you should buy Class A since Class D
shares are subject to 0.25% account maintenance fee, while Class A shares are not.
If you redeem Class A or Class D shares and within 30 days buy new shares of the same class, you will not pay a sales charge on the new purchase amount. The amount eligible
for this Reinstatement Privilege may not exceed the amount of your redemption proceeds. To exercise the privilege, contact your Merrill Lynch Financial Consultant, or other financial intermediary or the Funds Transfer Agent at
1-800-MER-FUND.
Class B and C Shares Deferred Sales Charge Options
If you select Class B or Class C shares, you do not pay an initial sales charge at the time of purchase. However, if you redeem your Class B shares within four years after
purchase, or Class C shares within one year after purchase, you may be required to pay a deferred sales charge. You will also pay distribution fees of 0.75% and account maintenance fees of 0.25% each year under a distribution plan that 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 Merrill Lynch Financial Consultant, selected securities dealer or other financial intermediary who assists you in
purchasing Fund shares.
Class B Shares
If you redeem Class B shares within four years after purchase, you may be charged a deferred sales charge. The amount of the charge gradually decreases as you hold your
shares over time, according to the following schedule:
Years Since Purchase |
|
Sales Charge* |
|
0 1 |
|
4.00% |
|
1 2 |
|
3.00% |
|
2 3 |
|
2.00% |
|
3 4 |
|
1.00% |
|
4 and thereafter |
|
0.00% |
|
*
|
The percentage charge will apply to the lesser of the original cost of the shares being redeemed or the proceeds of your
redemption. Shares acquired through reinvestment of dividends are not subject to a deferred sales charge. Not all Merrill Lynch funds have identical deferred sales charge schedules. If you exchange your shares for shares of another Merrill Lynch fund, the
higher charge will apply.
|
17
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] Your Account
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
|
|
|
Certain retirement plan rollovers
|
|
|
Withdrawals resulting from shareholder death or disability as long as the waiver request is made within one year of 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 Merrill Lynch Systematic Withdrawal Plan of up to 10% per year of your Class B or Class C account value at
the time the plan is established
|
Your Class B shares convert automatically into Class D shares approximately eight years after purchase. Any Class B shares received through reinvestment of dividends paid on
converting shares will also convert at that time. Class D shares are subject to lower annual expenses than Class B shares. The conversion of Class B shares to Class D shares is not a taxable event for Federal income tax purposes.
Different conversion schedules apply to Class B shares of different Merrill Lynch mutual funds. For example, Class B shares of a fixed-income fund typically convert
approximately ten years after purchase compared to approximately eight years for equity funds. If you acquire your Class B shares in an exchange from another fund with a shorter conversion schedule, the 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 both the original and exchanged Class B shares in
both funds will count toward the conversion schedule. The conversion schedule may be modified in certain other cases as well.
Class C Shares
If you redeem Class C shares within one year after purchase, you may be charged a deferred sales charge of 1.00%. The charge will apply to the lesser of the original cost of
the shares being redeemed or the proceeds of your
redemption. You will not be charged a deferred sales charge when you redeem shares that you acquire through reinvestment of Fund dividends. The deferred sales charge relating to Class C shares may be reduced or waived in connection with involuntary
termination of an account in which Fund shares are held and withdrawals through the Merrill Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart on the following pages summarizes how to buy, sell, transfer and exchange shares through Merrill Lynch, a 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 1-800-MER-FUND. Because the selection of a
mutual fund involves many considerations, your Merrill Lynch Financial Consultant may help you with this decision.
Because of the high costs 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.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] Your Account
If You Want To |
|
Your Choices |
|
Information Important for You to Know |
|
Buy Shares |
|
First, select the share class
appropriate for you |
|
Refer to the Merrill Lynch Select Pricing table on page 15. 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 that it is $100 for retirement plans. |
|
|
|
|
|
(The minimums for initial investments may be waived under certain
circumstances.) |
|
|
|
Have your Merrill Lynch
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. |
|
|
|
|
|
Purchase orders placed after that time will be priced at the net
asset value determined on the next business day. The Fund may
reject any order to buy shares and may suspend the sale of shares
at any time. Merrill Lynch may charge a processing fee to confirm a
purchase. This fee is currently $5.35. |
|
|
|
Or contact the Transfer
Agent |
|
To purchase shares directly, call the Transfer Agent at 1-800-MER-
FUND and request a purchase application. Mail the completed
purchase application to the Transfer Agent at the address on the
inside back cover of this Prospectus. |
|
Add to Your
Investment |
|
Purchase additional shares |
|
The minimum investment for additional purchases is generally $50
for all accounts. |
|
|
|
|
|
(The minimum for additional purchases may be waived under
certain circumstances.) |
|
|
|
Acquire additional shares
through the automatic
dividend reinvestment plan |
|
All dividends are automatically reinvested without a sales charge. |
|
|
|
Participate in the automatic
investment plan |
|
You may invest a specific amount on a periodic basis through
certain Merrill Lynch investment or central asset accounts. |
|
Transfer Shares to
Another 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 securities dealer
that has entered into an agreement with Merrill Lynch. Certain
shareholder services may not be available for the transferred shares.
You may only purchase additional shares of funds previously owned
before the transfer. All future trading of these assets must be
coordinated by the receiving firm. |
|
|
|
Transfer to a non-
participating selected
securities dealer or other
financial intermediary |
|
You must either:
Transfer your shares to an account with the Transfer Agent; or
Sell your shares, paying any applicable deferred sales charge. |
|
MERRILL LYNCH MID CAP GROWTH FUND, INC.
If You Want To |
|
Your Choices |
|
Information Important for You to Know |
|
Sell Your Shares |
|
Have your Merrill Lynch
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 dealer prior to that days close of business
on the New York Stock Exchange (generally 4:00 p.m. Eastern time).
Any redemption request placed after that time will be priced at the
net asset value at the close of business on the next business day. |
|
|
|
|
|
Securities dealers, or other financial intermediaries including Merrill
Lynch, may charge a fee to process a redemption of shares. Merrill
Lynch currently charges a fee of $5.35. No processing fee is charged
if you redeem shares directly through the Transfer Agent. |
|
|
|
|
|
The Fund may reject an order to sell shares under certain circumstances. |
|
|
|
|
Sell through the Transfer
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 or
registered securities association. A notary public seal will not be
acceptable. If you hold stock certificates, return the certificates with
the letter. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly
completed request. If you make a redemption request before the
Fund has collected payment for the purchase of shares, the Fund or
the Transfer Agent may delay mailing your proceeds. This delay will
usually not exceed ten days. |
|
|
|
|
|
You may also sell shares held at the Transfer Agent by telephone
request if the amount being sold is less than $50,000 and if certain
other conditions are met. Contact the Transfer Agent at 1-800-MER-
FUND for details. |
|
|
Sell Shares
Systematically |
|
Participate in the Funds
Systematic Withdrawal Plan |
|
You can choose to receive systematic payments from your Fund
account either by check or through direct deposit to your bank
account on a monthly or quarterly basis. If you hold your shares in
a Merrill Lynch CMA®, CBA® or Retirement Account you can
arrange for systematic redemptions of a fixed dollar amount on a
monthly, bi-monthly, quarterly, semi-annual or annual basis, subject
to certain conditions. Under either method you must have
dividends automatically reinvested. For Class B and C shares your
total annual withdrawals cannot be more than 10% per year of the
value of your shares at the time your plan is established. The
deferred sales charge is waived for systematic redemptions. Ask
your Merrill Lynch Financial Consultant or other financial
intermediary for details. |
|
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAHIC] YOUR ACCOUNT
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 many other
Merrill Lynch mutual funds. You must have held the shares used in
the exchange for at least 15 calendar days before you can exchange
to another fund. |
|
|
|
|
|
Each class of Fund shares is generally exchangeable for shares of the
same class of another fund. If you own Class A shares and wish to
exchange into a fund in which you have no Class A shares (and are
not eligible to purchase Class A shares), you will exchange into Class
D shares. |
|
|
|
|
|
Some of the Merrill Lynch mutual funds impose a different initial or
deferred sales charge schedule. If you exchange Class A or D shares
for shares of a fund with a higher initial sales charge than you
originally paid, you will be charged the difference at the time of
exchange. If you exchange Class B shares for shares of a fund with a
different deferred sales charge schedule, the higher schedule will
apply. The time you hold Class B or C shares in both funds will count
when determining your holding period for calculating a deferred
sales charge at redemption. If you exchange Class A or D shares for
money market fund shares, you will receive Class A shares of Summit
Cash Reserves Fund. Class B or C shares of the Fund will be
exchanged for Class B shares of Summit. |
|
|
|
|
|
To exercise the exchange privilege contact your Merrill Lynch
Financial Consultant or call the Transfer Agent at 1-800-MER-FUND. |
|
|
|
|
|
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 net asset value next computed by the Fund after such acceptance. If the payment for a purchase
order is not made by a designated later time, the order will be canceled and the financial intermediary could be held liable for any losses.
The Manager, 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.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
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 the Funds shares.
Generally, Class A shares will have the highest net asset value because that class has the lowest expenses, and Class D shares will have a higher net asset value than Class B
or Class C shares. Also dividends paid on Class A and Class D shares will generally be higher than dividends paid on Class B and Class C shares because Class A and Class D shares have lower expenses.
DIVIDENDS AND TAXES
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. If your account is with Merrill Lynch and you would like to receive dividends in cash, contact your Merrill Lynch Financial Consultant. If your account is with the Transfer Agent and you would like to receive dividends in cash, contact the Transfer Agent. Although this cannot be predicted with any certainty,
the Fund anticipates that the majority of its dividends, if any, will consist of capital gains. Capital gains paid by the Fund, if any, may be taxable to you at different rates, depending, in part, on the length of time the Fund has held the assets sold.
You will pay tax on dividends from the Fund whether you receive them in cash or additional shares. If you redeem Fund shares or exchange them for shares of another fund, you
generally will be treated as having sold your
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.
Dividends ordinary income and capital gains paid to shareholders. Dividends
may be reinvested in additional Fund shares as they are paid.
23
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] Your Account
BUYING A DIVIDEND
Unless your investment is in a tax-deferred account, you may want to avoid buying shares shortly before the 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 advisor.
shares and any gain on the transaction may be subject to tax. Capital gain dividends are generally taxed at different rates than ordinary income dividends.
If you are neither a lawful permanent resident nor a citizen of the United States or if you are a foreign entity, the Funds ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies.
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 advisor about the potential tax consequences of an investment in the Fund under all applicable tax laws.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[GRAPHIC] Management of the Fund
Fund Asset Management, the Trusts Manager, manages the master portfolios investments under the overall supervision of the Board of Trustees of the Trust. The
advisory agreements between the Trust and the Manager give the Manager the responsibility for making all investment decisions for the Trust. The Manager has a sub-advisory agreement with Funds Asset Management UK, an affiliate, under which the Manager may
pay a fee for services it receives. The Trust pays the Manager a fee at the annual rate of 0.60% of the average daily net assets of the Trust. Pursuant to a separate administration agreement, the Fund pays Fund Asset Management, as Administrator, 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. Funds Asset
Management UK was organized as an investment adviser in 1986 and acts as sub-adviser to more than 50 registered investment companies. Fund Asset Management and its affiliates, including Merrill Lynch Investment Managers had approximately $555 billion in
investment company and other portfolio assets under management as of June 2000. This amount includes assets managed for Merrill Lynch 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 this 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.
Whenever the Trust holds a vote of its feeder funds, the Fund will pass the vote through to its own shareholders. Smaller feeder funds may be harmed by the actions of larger
feeder funds. For example, a larger feeder fund could have more voting power than the Fund over the operations of the master portfolio.
The Fund may withdraw from the Trust at any time and may invest all of its assets in another pooled investment vehicle or retain an investment adviser to manage the Fund
s assets directly.
MERRILL LYNCH MID CAP GROWTH FUND, INC.
[FLOW CHART]
--------------------------------
| POTENTIAL |
-----------| INVESTORS |------
| | Open an account (two options). | |
| -------------------------------- |
1 2
-----------------------------------
-------------------------- TRANSFER AGENT
MERRILL LYNCH Financial Data Services, Inc.
FINANCIAL CONSULTANT ADMINISTRATIVE OFFICES
OR SECURITIES DEALER 4800 Deer Lake Drive East
Advises shareholders Jacksonville, Florida 32246-6484
on their Fund investments.
-------------------------- MAILING ADDRESS
| P.O. BOX 45289
| Jacksonville, Florida 32232-5289
|
| Performs recordkeeping and
| reporting services.
| -----------------------------------
| |
| |
| |
--------------------------------------------------------
| DISTRIBUTOR |
| FAM Distributor, Inc. |
| P.O. Box 9081 |
| Princeton, New Jersey 08543-9081 |
| |
| Arranges for the sale of Fund shares. |
--------------------------------------------------------
|
|
---------------------------
| THE FUND |
| The Board of |
| Directors |
| oversees the Fund. |
---------------------------
/ | \
/ | \
----------------------------------- | -----------------------------------------
COUNSEL | CUSTODIAN
Brown & Wood LLP | The Bank of New York
One World Trade Center | 100 Church Street
New York, New York 10048-0557 | New York, New York 10286
|
Provides legal advice to the Fund. | Holds the Fund's assets for safekeeping.
------------------------------------ | -----------------------------------------
|
---------------------------
| |
----------------------------------- |
INDEPENDENT AUDITORS |
|
|
Audits the financial |
statements of the Fund on behalf of |
the shareholders. |
----------------------------------- |
|
|
------------------------------
MANAGER
Fund
Asset Management, L.P.
ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Plainsboro, New Jersey 08536
MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day activities.
---------------------------------------------
MERRILL LYNCH MID CAP GROWTH FUND, INC.
For More Information [GRAPHIC]
|
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 relevant 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 1-800-MER-FUND.
|
|
The Fund will send you one copy of each shareholder report and certain other mailings, regardless of the number of Fund accounts you have.
To receive separate shareholder reports for each account, call your Merrill Lynch Financial Consultant or write to the Transfer Agent at its mailing address. Include your name, address, tax identification number and Merrill Lynch brokerage or mutual fund
account number. If you have any questions, please call your Merrill Lynch Financial Consultant or the Transfer Agent at 1-800-MER-FUND.
|
|
Statement of Additional Information
|
The 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 45289, Jacksonville, Florida 32232-5289 or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund at the telephone number or address indicated above if you have any questions.
Information about the Fund (including the Statement of Additional Information) can be reviewed and copied at the 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. 20549-0102.
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 #811-10025.
Code #
©Fund Asset Management, L.P.
Prospectus
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED JULY 21, 2000
Merrill Lynch Mid Cap Growth Fund, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 Phone No. (609) 282-2800
Merrill Lynch Mid Cap Growth Fund, Inc. (the Fund) is a diversified, open-end management investment company that
seeks to provide shareholders with long term capital appreciation. The Fund will seek to achieve its investment objective by investing primarily in equity securities of mid cap companies that Fund management believes have strong earnings growth and
capital appreciation potential. There can be no assurance that the investment objective of the Fund will be realized. 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 Mid Cap Growth Trust (the Trust
) that 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.
Pursuant to the Merrill Lynch Select Pricing
SM
System, the Fund offers four classes of shares, each with a different combination of sales charges, ongoing fees and other features. The Merrill Lynch Select Pricing
SM
System permits an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. See Purchase of Shares.
This Statement of Additional Information is not a prospectus and should be read in conjunction with the Prospectus of the
Fund, dated September , 2000 (the Prospectus), which has been filed with the Securities and Exchange Commission (the Commission) and can be obtained, without charge, by calling 1-800-MER-FUND or your Merrill Lynch
Financial Consultant, or by writing to the address listed above. The Prospectus is incorporated by reference into this Statement of Additional Information, and this Statement of Additional Information is incorporated by reference into the Prospectus.
Fund Asset Management Manager
FAM Distributors, Inc. Distributor
The date of this Statement of Additional Information is September , 2000
The information in this statement of additional information is not complete and may be changed. This statement of additional information is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
TABLE OF CONTENTS
|
|
Page
|
Investment Objective and Policies |
|
2 |
European Economic and Monetary Union |
|
3 |
Growth Securities |
|
4 |
Derivatives |
|
4 |
Convertible Securities |
|
8 |
Debt Securities |
|
10 |
Warrants |
|
10 |
Other Investment Policies and Practices |
|
11 |
Investment Restrictions |
|
13 |
Portfolio Turnover |
|
16 |
Management of the Fund |
|
16 |
Directors and Officers |
|
16 |
Compensation of Directors/Trustees |
|
17 |
Management and Advisory Arrangements |
|
18 |
Administration Arrangements |
|
19 |
Code of Ethics |
|
20 |
Purchase of Shares |
|
21 |
Initial Sales Charge Alternatives Class A and Class D Shares
|
|
21 |
Reduced Initial Sales Charges |
|
22 |
Deferred Sales Charge Class B and Class C Shares |
|
24 |
Contingent Deferred Sales Charges Class B Shares |
|
25 |
Contingent Deferred Sales Charges Class C Shares |
|
26 |
Distribution Plans |
|
27 |
Limitations on the Payment of Deferred Sales Charges |
|
28 |
Redemption of Shares |
|
28 |
Redemption |
|
29 |
Repurchase |
|
30 |
Reinstatement Privilege Class A and Class D Shares |
|
30 |
Pricing of Shares |
|
30 |
Determination of Net Asset Value |
|
30 |
Portfolio Transactions and Brokerage |
|
32 |
Transactions in Portfolio Securities |
|
32 |
Shareholder Services |
|
33 |
Investment Account |
|
33 |
Exchange Privilege |
|
34 |
Automatic Investment Plans |
|
36 |
Automatic Dividend Reinvestment Plan |
|
36 |
Systematic Withdrawal Plan |
|
37 |
Dividends and Taxes |
|
38 |
Dividends |
|
38 |
Taxes |
|
38 |
Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions
|
|
40 |
Special Rules for Certain Foreign Currency Transactions |
|
40 |
Performance Data |
|
41 |
General Information |
|
43 |
Description of Shares |
|
43 |
Computation of Offering Price Per Share |
|
44 |
Independent Auditors |
|
44 |
Custodian |
|
44 |
Transfer Agent |
|
44 |
Legal Counsel |
|
44 |
Reports to Shareholders |
|
44 |
Shareholder Inquiries |
|
45 |
Additional Information |
|
45 |
Independent Auditors Report |
|
46 |
Statement of Assets and Liabilities |
|
47 |
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long term capital appreciation. The Fund tries to achieve its investment
objective by investing primarily in equity securities of mid cap companies that Fund management believes have strong earnings growth and capital appreciation potential. The Fund considers mid cap companies to be those whose market capitalization is
similar to the market capitalization of companies in the Russell Midcap® Growth Index at the time of the Funds investment. As of July 1, 2000, the Russell Midcap® Growth Index included companies with market capitalizations ranging from
approximately $1.3 billion to $25.9 billion. Fund management begins its investment process by creating a universe of rapidly growing companies that possess certain growth characteristics. That universe is continually updated. Fund management then ranks
each company within its universe by using research models that focus on growth characteristics such as positive earnings surprises, upward earnings estimate revisions, and accelerating sales and earnings growth. Finally, using its own fundamental research
and a bottom-up approach to investing, Fund management evaluates the quality of each companys earnings and tries to determine whether the company can sustain or increase its current growth trend. Fund management believes that this disciplined
investment process enables it to construct a portfolio of investments with strong growth characteristics. The Fund is classified as a diversified fund under the Investment Company Act of 1940, as amended (the Investment Company Act).
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 the Trusts investment objective and policies.
Investment emphasis is placed on equities, primarily common stock and, to a lesser extent, securities convertible into common
stock, preferred stock, warrants and rights to subscribe for common stock. The Fund generally will invest at least 65% of its total assets in equity securities of mid cap companies. After initial purchase, companies whose capitalization no longer meets
the definition of mid cap will continue to be considered to have medium market capitalizations for purposes of this policy. The Fund may invest in non-convertible debt securities rated investment grade by a nationally recognized statistical ratings
organization and U.S. Government securities, although it typically will not do so to a significant extent.
The Fund may hold assets in cash or cash equivalents and investment grade, short-term securities, including money market
securities, in such proportions as, in the opinion of Fund management, prevailing market or economic conditions warrant or for temporary defensive purposes.
The Fund may invest up to 10% of its total assets in equity securities of foreign issuers with the foregoing characteristics.
Investments in securities of foreign entities and securities denominated in foreign currencies involve risks not typically involved in domestic investment, including fluctuations in foreign exchange rates, future foreign political and economic
developments, and the possible imposition of exchange controls or other foreign or United States governmental laws or restrictions applicable to such investments. Because the Fund may invest in securities denominated or quoted in currencies other than the
U.S. dollar, changes in foreign currency exchange rates may affect the value of securities held by the Trust and the unrealized appreciation or depreciation of investments insofar as the U.S. investors are concerned. Changes in foreign currency exchange
rates relative to the U.S. dollar will affect the U.S. dollar value of the Funds assets denominated in that currency and the Funds yield on such assets. Foreign currency exchange rates are determined by forces of supply and demand in the
foreign exchange markets. These forces are, in turn, affected by international balance of payments and other economic and financial conditions, government intervention, speculation and other factors.
With respect to certain foreign countries, there may be the possibility of expropriation of assets, confiscatory taxation,
high rates of inflation, political or social instability or diplomatic developments that could affect investment in those countries. There may be less publicly available information about a foreign financial instrument than about a United States
instrument, and foreign entities may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those of United States entities. In addition, certain foreign investments may be subject to foreign withholding
taxes. Foreign financial markets, while growing in volume, have, for the most part, substantially less volume than United States markets, and securities of many foreign companies are less liquid and their prices more volatile than securities of comparable
domestic companies. The foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The ability of the Fund to make intended security purchases due to settlement problems could cause
the Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund due to subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability to the purchaser. Costs associated with transactions in foreign securities are generally higher than with transactions in United States securities. There is generally less
government supervision and regulation of exchanges, financial institutions and issuers in foreign countries than there is in the United States.
The Fund may invest in the securities of foreign issuers in the form of American Depositary Receipts (ADRs),
European Depositary Receipts (EDRs) or other securities convertible into securities of foreign issuers. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs are
receipts typically issued by an American bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. EDRs are receipts issued in Europe which evidence a similar ownership arrangement. Generally, ADRs, which are
issued in registered form, are designed for use in the United States securities markets, and EDRs, which are issued in bearer form, are designed for use in European securities markets. The Fund may invest in unsponsored ADRs. The issuers of unsponsored
ADRs are not obligated to disclose material information in the United States and, therefore, there may not be a correlation between such information and the market value of such ADRs.
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) were redenominated in the euro, and are listed, traded, and make dividend and other payments only in euros.
No assurance can be given that EMU will take effect, that 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 conversion may be taxable to Fund shareholders under foreign or, in certain limited circumstances, U.S. tax laws.
Growth Securities
As set forth in the Prospectus and this Statement of Additional Information, the investment objective of the Fund is to seek
long-term capital appreciation. The Fund tries to achieve its investment objective by investing primarily in common stocks of companies that Fund management believes have strong earnings growth and capital appreciation potential. These growth
securities may be particularly sensitive to changes in earnings or interest rate increases because they typically have higher price-earnings ratios. Moreover, the growth securities held by the Trust may never reach what Fund management believes
their full value to be and may even go down in price.
Derivatives
The Fund may use instruments referred to as Derivatives. Derivatives are financial
instruments the value of which is derived from another security, a commodity (such as gold or oil) or an index (a measure of value or rates, such as the Standard & Poors 500 Index or the prime lending rate). Derivatives allow the Fund to
increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments.
The Fund may use the following types of derivative instruments and trading strategies:
Hedging
The Fund may use Derivatives for hedging purposes. Hedging is a strategy in which a Derivative is used to offset the risk that
other Fund holdings may decrease in value. Losses on the other investment may be substantially reduced by gains on a Derivative that reacts in an opposite manner to market movements. While hedging can reduce losses, it can also reduce or eliminate gains
if the market moves in a different manner than anticipated by the Fund investing in the Derivative or if the cost of the Derivative outweighs the benefit of the hedge. Hedging also involves the risk that changes in the value of the Derivative will not
match those of the holdings being hedged as expected by the Fund, in which case any losses on the holdings being hedged may not be reduced. The Fund is not required to use hedging and may choose not do so.
Indexed and Inverse Floating Rate Securities
The Fund may invest in securities the potential return of which is based on an index. As an illustration, the Fund may invest
in a debt security that pays interest based on the current value of an interest rate index, such as the prime rate. The Fund may also invest in a debt security that returns principal at maturity based on the level of a securities index or a basket of
securities, or based on the relative changes of two indices. In addition, the Fund may invest in securities the potential return of which is based inversely on the change in an index (that is, a security the value of which will move in the opposite
direction of changes to an index). For example, the Fund may invest in securities that pay a higher rate of interest when a particular index decreases and pay a lower rate of interest (or do not fully return principal) when the value of the index
increases. If the Fund invests in such securities, it may be subject to reduced or eliminated interest payments or loss of principal in the event of an adverse movement in the relevant index or indices. Indexed and inverse securities involve credit risk,
and certain indexed and inverse securities may involve currency risk, leverage risk and liquidity risk. The Fund may invest in indexed and inverse securities for hedging purposes, and to gain exposure to the mid cap market. When used for hedging purposes,
indexed and inverse securities involve correlation risk.
Options on Securities and Securities Indices
Purchasing Put Options. The Fund may purchase put options on securities held in its portfolio or
on securities or interest rate indices which are correlated with securities held in its portfolio. When the Fund purchases
a put option in consideration for an up front payment (the option premium), the Fund acquires a right to sell to another party specified securities owned by the Fund at a specified price (the exercise price) on or before a
specified date (the expiration date), in the case of an option on securities, or to receive from another party a payment based on the amount a specified securities index declines below a specified level on or before the expiration date, in the
case of an option on a securities index. The purchase of a put option limits the Funds risk of loss in the event of a decline in the market value of the portfolio holdings underlying the put option prior to the options expiration date. If the
market value of the portfolio holdings associated with the put option increases rather than decreases, however, the Fund will lose the option premium and will consequently realize a lower return on the portfolio holdings than would have been realized
without the purchase of the put. Purchasing a put option may involve correlation risk, and may also involve liquidity and credit risk.
Purchasing Call Options. The Fund also may purchase call options on securities it intends to
purchase or securities or interest rate indices, which are correlated with the types of securities it intends to purchase. When the Fund purchases a call option in consideration for the option premium, the Fund acquires a right to purchase from another
party specified securities at the exercise price on or before the expiration date, in the case of an option on securities, or to receive from another party a payment based on the amount a specified securities index increases beyond a specified level on or
before the expiration date, in the case of an option on a securities index. The purchase of a call option may protect the Fund from having to pay more for a security as a consequence of increases in the market value for the security during a period when
the Fund is contemplating its purchase, in the case of an option on a security, or attempting to identify specific securities in which to invest in a market the Fund believes to be attractive, in the case of an option on an index (an anticipatory
hedge). In the event the Fund determines not to purchase a security underlying a call option, however, the Fund may lose the entire option premium. Purchasing a call option involves correlation risk, and may also involve liquidity and credit risk.
The Fund also is authorized to purchase put or call options in connection with closing out put or call options it has
previously sold.
Writing Call Options. The Fund may write (i.e., sell) call options on securities held in its
portfolio or securities indices the performance of which correlates with securities held in its portfolio. When the Fund writes a call option, in return for an option premium, the Fund gives another party the right to buy specified securities owned by the
Fund at the exercise price on or before the expiration date, in the case of an option on securities, or agrees to pay to another party an amount based on any gain in a specified securities index beyond a specified level on or before the expiration date,
in the case of an option on a securities index. The Fund may write call options to earn income, through the receipt of option premiums. In the event the party to which the Fund has written an option fails to exercise its rights under the option because
the value of the underlying securities is less than the exercise price, the Fund will partially offset any decline in the value of the underlying securities through the receipt of the option premium. By writing a call option, however, the Fund limits its
ability to sell the underlying securities and gives up the opportunity to profit from any increase in the value of the underlying securities beyond the exercise price, while the option remains outstanding. Writing a call option may involve correlation risk.
The Fund also is authorized to sell call or put options in connection with closing out call or put options it has previously
purchased.
Other than with respect to closing transactions, the Fund will only write call or put options that are covered. A
call or put option will be considered covered if the Fund has segregated assets with respect to such option in the manner described in Risk Factors in Derivatives below. A call option will also be considered covered if the Fund owns the
securities it would be required to deliver upon exercise of the option (or, in the case of an option on a securities index, securities which substantially correlate with the performance of such index) or owns a call option, warrant or convertible
instrument which is immediately exercisable for, or convertible into, such security.
Types of Options. The Fund may engage in transactions in options on securities or securities
indices on exchanges and in the over-the-counter (OTC) markets. In general, exchange-traded options have standardized exercise prices and expiration dates and require the parties to post margin against their obligations, and the performance of
the parties obligations in connection with such options is guaranteed by the exchange or a related
clearing corporation. OTC options have more flexible terms negotiated between the buyer and the seller, but generally do not require the parties to post margin and are subject to greater credit risk. OTC options also involve greater liquidity risk. See
Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives below.
Futures
The Fund may engage in transactions in futures and options thereon. Futures are standardized, exchange-traded contracts that
obligate a purchaser to take delivery, and a seller to make delivery, of a specific amount of an asset at a specified future date at a specified price. No price is paid upon entering into a futures contract. Rather, upon purchasing or selling a futures
contract, the Fund is required to deposit collateral (margin) equal to a percentage (generally less than 10%) of the contract value. Each day thereafter until the futures position is closed, the Fund will pay additional margin representing any
loss experienced as a result of the futures position the prior day or be entitled to a payment representing any profit experienced as a result of the futures position the prior day. Futures involve substantial leverage risk.
The sale of a futures contract limits the Funds risk of loss through a decline in the market value of portfolio holdings
correlated with the futures contract prior to the futures contracts expiration date. In the event the market value of the portfolio holdings correlated with the futures contract increases rather than decreases, however, the Fund will realize a loss
on the futures position and a lower return on the portfolio holdings than would have been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay more for securities as a consequence of increases
in the market value for such securities during a period when the Fund was attempting to identify specific securities in which to invest in a market the Fund believes to be attractive. In the event that such securities decline in value or the Fund
determines not to complete an anticipatory hedge transaction relating to a futures contract, however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to financial futures contracts (i.e., contracts for which
the underlying asset is a currency or securities or interest rate index) purchased or sold for hedging purposes (including anticipatory hedges). The Fund will further limit transactions in futures and options on futures to the extent necessary to prevent
the Fund from being deemed a commodity pool under regulations of the Commodity Futures Trading Commission.
Foreign Exchange Transactions
The Fund may engage in spot and forward foreign exchange transactions and currency swaps, purchase and sell options on
currencies and purchase and sell currency futures and related options thereon (collectively, Currency Instruments) for purposes of hedging against the decline in the value of currencies in which its portfolio holdings are denominated against
the U.S. dollar.
Forward Foreign Exchange Transactions. Forward foreign exchange transactions are OTC contracts
to purchase or sell a specified amount of a specified currency or multinational currency unit at a price and future date set at the time of the contract. Spot foreign exchange transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions only for purposes of hedging either a specific transaction or a position held by the Trust. The Fund may enter into a foreign exchange transaction for purposes of hedging a specific transaction by,
for example, purchasing a currency needed to settle a security transaction or selling a currency in which the Fund has received or anticipates receiving a dividend or distribution. The Fund may enter into a foreign exchange transaction for purposes of
hedging a position held by the Trust by selling forward a currency in which a position held by the Trust is denominated or by purchasing a currency in which the Fund anticipates acquiring a position held by the Trust in the near future. The Fund may also
hedge positions held by the Trust through currency swaps, which are transactions in which one currency is simultaneously bought for a second currency on a spot basis and sold for the second currency on a forward basis. Forward foreign exchange
transactions involve substantial currency risk, and also involve credit and liquidity risk.
Currency Futures. The Fund may also hedge against the decline in the value of a currency against
the U.S. dollar through use of currency futures or options thereon. Currency futures are similar to forward foreign exchange transactions except that futures are standardized, exchange-traded contracts. See Futures. Currency futures involve
substantial currency risk, and also involve leverage risk.
Currency Options. The Fund may also hedge against the decline in the value of a currency
against the U.S. dollar through the use of currency options. Currency options are similar to options on securities, but in consideration for an option premium the writer of a currency option is obligated to sell (in the case of a call option) or purchase
(in the case of a put option) a specified amount of a specified currency on or before the expiration date for a specified amount of another currency. The Fund may engage in transactions in options on currencies either on exchanges or OTC markets. See
Types of Options above and Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives below. Currency options involve substantial currency risk, and may also involve credit, leverage or liquidity risk.
Limitations on Currency Hedging. The Fund will not speculate in Currency Instruments.
Accordingly, the Fund will not hedge a currency in excess of the aggregate market value of the securities which it owns (including receivables for unsettled securities sales), or has committed to or anticipates purchasing, which are denominated in such
currency. The Fund may, however, hedge a currency by entering into a transaction in a Currency Instrument denominated in a currency other than the currency being hedged (a cross-hedge). The Fund will only enter into a cross-hedge if Fund Asset
Management, L.P. (the Manager) believes that (i) there is a demonstrable high correlation between the currency in which the cross-hedge is denominated and the currency being hedged, and (ii) executing a cross-hedge through the currency in
which the cross-hedge is denominated will be significantly more cost-effective or provide substantially greater liquidity than executing a similar hedging transaction by means of the currency being hedged.
Risk Factors in Hedging Foreign Currency Risks. Hedging transactions involving Currency
Instruments involve substantial risks, including correlation risk. While the Funds use of Currency Instruments to effect hedging strategies is intended to reduce the volatility of the net asset value of the Funds shares, the net asset value of
the Funds shares will fluctuate. Moreover, although Currency Instruments will be used with the intention of hedging against adverse currency movements, transactions in Currency Instruments involve the risk that anticipated currency movements will
not be accurately predicted and that the Funds hedging strategies will be ineffective. To the extent that the Fund hedges against anticipated currency movements which do not occur, the Fund may realize losses, and decreases its total return, as the
result of its hedging transactions. Furthermore, the Fund will only engage in hedging activities from time to time and may not be engaging in hedging activities when movements in currency exchange rates occur.
It may not be possible for the Fund to hedge against currency exchange rate movements, even if correctly anticipated, in the
event that (i) the currency exchange rate movement is so generally anticipated that the Fund is not able to enter into a hedging transaction at an effective price, or (ii) the currency exchange rate movement relates to a market with respect to which
Currency Instruments are not available and it is not possible to engage in effective foreign currency hedging.
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks, including:
Credit risk the risk that the counterparty (the party on the other side of the transaction) on a
derivative transaction will be unable to honor its financial obligation to the Fund.
Currency risk the risk that changes in the exchange rate between two currencies will adversely affect
the value (in U.S. dollar terms) of an investment.
Leverage risk the risk associated with certain types of investments or trading strategies (such as
borrowing money to increase the amount of investment) that relatively small market movements may result in large changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that greatly
exceed the amount originally invested.
Liquidity risk the risk that certain securities may be difficult or impossible to sell at the time
that the seller would like or at the price that the seller believes the security is currently worth.
Use of Derivatives for hedging purposes involves correlation risk. If the value of the Derivative moves more or less than the
value of the hedged instruments the Fund will experience a gain or loss that will not be completely offset by movements in the value of the hedged instruments.
The Fund intends to enter into transactions involving Derivatives only if there appears to be a liquid secondary market for
such instruments or, in the case of illiquid instruments traded in OTC transactions, such instruments satisfy the criteria set forth below under Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives. However,
there can be no assurance that, at any specific time, either a liquid secondary market will exist for a Derivative or the Fund will otherwise be able to sell such instrument at an acceptable price. It may therefore not be possible to close a position in a
Derivative without incurring substantial losses, if at all.
Certain transactions in Derivatives (such as futures transactions or sales of put options) involve substantial leverage risk
and may expose the Fund to potential losses, which exceed the amount originally invested by the Fund. When the Fund engages in such a transaction, the Fund will deposit in a segregated account at its custodian liquid securities with a value at least equal
to the Funds exposure, on a mark-to-market basis, to the transaction (as calculated pursuant to requirements of the Securities and Exchange Commission). Such segregation will ensure that the Fund has assets available to satisfy its obligations with
respect to the transaction, but will not limit the Funds exposure to loss.
Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives
Certain Derivatives traded in OTC markets, including indexed securities, swaps and OTC options, involve substantial liquidity
risk. The absence of liquidity may make it difficult or impossible for the Fund to sell such instruments promptly at an acceptable price. The absence of liquidity may also make it more difficult for the Fund to ascertain a market value for such
instruments. The Fund will therefore acquire illiquid OTC instruments (i) if the agreement pursuant to which the instrument is purchased contains a formula price at which the instrument may be terminated or sold, or (ii) for which the Manager anticipates
the Fund can receive on each business day at least two independent bids or offers, unless a quotation from only one dealer is available, in which case that dealers quotation may be used.
Because Derivatives traded in OTC markets are not guaranteed by an exchange or clearing corporation and generally do not
require payment of margin, to the extent that the Fund has unrealized gains in such instruments or has deposited collateral with its counterparty, the Fund is at risk that its counterparty will become bankrupt or otherwise fail to honor its obligations.
The Fund will attempt to minimize the risk that a counterparty will become bankrupt or otherwise fail to honor its obligations by engaging in transactions in Derivatives traded in OTC markets only with financial institutions which have substantial capital
or which have provided the Fund with a third-party guaranty or other credit enhancement.
Convertible Securities
Convertible securities entitle the holder to receive interest payments paid on corporate debt securities or the dividend
preference on a preferred stock until such time as the convertible security matures or is redeemed or until the holder elects to exercise the conversion privilege. Synthetic convertible securities may be either (i) a debt security or preferred stock that
may be convertible only under certain contingent circumstances or that may pay the holder a cash amount based on the value of shares of underlying common stock partly or wholly in lieu of a conversion right (a Cash-Settled Convertible) or (ii)
a combination of separate securities chosen by the Manager in order to create the economic characteristics of a convertible security, i.e., a fixed income security paired with a security with equity conversion features, such as an option or warrant (a
Manufactured Convertible).
The characteristics of convertible securities make them appropriate investments for an investment company seeking a high total
return from capital appreciation and investment income. These characteristics include the potential for capital appreciation as the value of the underlying common stock increases, the relatively high yield
received from dividend or interest payments as compared to common stock dividends and decreased risks of decline in value relative to the underlying common stock due to their fixed-income nature. As a result of the conversion feature, however, the
interest rate or dividend preference on a convertible security is generally less than would be the case if the securities were issued in nonconvertible form.
In analyzing convertible securities, the Manager will consider both the yield on the convertible security and the potential
capital appreciation that is offered by the underlying common stock.
Convertible securities are issued and traded in a number of securities markets. For the past several years, the principal
markets have been the United States, the Euromarket and Japan. Issuers during this period have included major corporations domiciled in the United States, Japan, France, Switzerland, Canada and the United Kingdom. Even in cases where a substantial portion
of the convertible securities held by the Fund are denominated in United States dollars, the underlying equity securities may be quoted in the currency of the country where the issuer is domiciled. With respect to convertible securities denominated in a
currency different from that of the underlying equity securities, the conversion price may be based on a fixed exchange rate established at the time the security is issued. As a result, fluctuations in the exchange rate between the currency in which the
debt security is denominated and the currency in which the share price is quoted will affect the value of the convertible security. As described below, the Fund is authorized to enter into foreign currency hedging transactions in which it may seek to
reduce the effect of such fluctuations.
Apart from currency considerations, the value of convertible securities is influenced by both the yield of nonconvertible
securities of comparable issuers and by the value of the underlying common stock. The value of a convertible security viewed without regard to its conversion feature (i.e., strictly on the basis of its yield) is sometimes referred to as its
investment value. To the extent interest rates change, the investment value of the convertible security typically will fluctuate. However, at the same time, the value of the convertible security will be influenced by its conversion value,
which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion value fluctuates directly with the price of the underlying common stock. If, because of a low price of the common stock
the conversion value is substantially below the investment value of the convertible security, the price of the convertible security is governed principally by its investment value.
To the extent the conversion value of a convertible security increases to a point that approximates or exceeds its investment
value, the price of the convertible security will be influenced principally by its conversion value. A convertible security will sell at a premium over the conversion value to the extent investors place value on the right to acquire the underlying common
stock while holding a fixed-income security. The yield and conversion premium of convertible securities issued in Japan and the Euromarket are frequently determined at levels that cause the conversion value to affect their market value more than the
securities investment value.
Holders of convertible securities generally have a claim on the assets of the issuer prior to the common stockholders but may
be subordinated to other debt securities of the same issuer. A convertible security may be subject to redemption at the option of the issuer at a price established in the charter provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by the Fund is called for redemption, the Fund will be required to redeem the security, convert it into the underlying common stock or sell it to a third party. Certain convertible debt
securities may provide a put option to the holder which entitles the holder to cause the security to be redeemed by the issuer at a premium over the stated principal amount of the debt security under certain circumstances.
As indicated above, synthetic convertible securities may include either Cash-Settled Convertibles or Manufactured
Convertibles. Cash-Settled Convertibles are instruments that are created by the issuer and have the economic characteristics of traditional convertible securities but may not actually permit conversion into the underlying equity securities in all
circumstances. As an example, a private company may issue a Cash-Settled Convertible that is convertible into common stock only if the company successfully completes a public offering of its common stock prior to maturity and otherwise pays a cash amount
to reflect any equity appreciation. Manufactured Convertibles are created by the Manager by combining separate securities that possess one of the two principal characteristics of a convertible security, i.e., fixed income (fixed income
component) or a right to
acquire equity securities (convertible component). The fixed income component is achieved by investing in nonconvertible fixed income securities, such as nonconvertible bonds, preferred stocks and money market instruments. The convertibility
component is achieved by investing in call options, warrants, LEAPS, or other securities with equity conversion features (equity features) granting the holder the right to purchase a specified quantity of the underlying stocks within a
specified period of time at a specified price or, in the case of a stock index option, the right to receive a cash payment based on the value of the underlying stock index.
A Manufactured Convertible differs from traditional convertible securities in several respects. Unlike a traditional
convertible security, which is a single security having a unitary market value, a Manufactured Convertible is comprised of two or more separate securities, each with its own market value. Therefore, the total market value of such a
Manufactured Convertible is the sum of the values of its fixed-income component and its convertibility component.
More flexibility is possible in the creation of a Manufactured Convertible than in the purchase of a traditional convertible
security. Because many corporations have not issued convertible securities, the Manager may combine a fixed income instrument and an equity feature with respect to the stock of the issuer of the fixed income instrument to create a synthetic convertible
security otherwise unavailable in the market. The Manager may also combine a fixed income instrument of an issuer with an equity feature with respect to the stock of a different issuer when the Manager believes such a Manufactured Convertible would better
promote the Funds objective than alternative investments. For example, the Manager may combine an equity feature with respect to an issuers stock with a fixed income security of a different issuer in the same industry to diversify the
Funds credit exposure, or with a U.S. Treasury instrument to create a Manufactured Convertible with a higher credit profile than a traditional convertible security issued by that issuer. A Manufactured Convertible also is a more flexible investment
in that its two components may be purchased separately and, upon purchasing the separate securities, combined to create a Manufactured Convertible. For example, the Fund may purchase a warrant for eventual inclusion in a Manufactured
Convertible while postponing the purchase of a suitable bond to pair with the warrant pending development of more favorable market conditions.
The value of a Manufactured Convertible may respond differently to certain market fluctuations than would a traditional
convertible security with similar characteristics. For example, in the event the Fund created a Manufactured Convertible by combining a short-term U.S. Treasury instrument and a call option on a stock, the Manufactured Convertible would likely outperform
a traditional convertible of similar maturity and which is convertible into that stock during periods when Treasury instruments outperform corporate fixed income securities and underperform during periods when corporate fixed-income securities outperform
Treasury instruments.
Debt Securities
Debt securities, such as bonds, involve credit risk. This is the risk that the issuer will not make
timely payments of principal and interest. The degree of credit risk depends on the issuers financial condition and on the terms of the bonds. This risk is reduced to the extent the Fund limits its debt investments to U.S. Government securities. All
debt securities, however, are subject to interest rate risk. This is the risk that the value of the security may fall when interest rates rise. In general, the market price of debt securities with longer maturities will go up or down more in response to
changes in interest rates than the market price of shorter term securities.
Warrants
The Fund may invest in warrants. Warrants are securities that permit but do not require the warrant
holder to subscribe for other securities. Buying a warrant does not make the Fund a shareholder of the underlying stock. The warrant holder has no right to dividends or votes on the underlying stock. A warrant does not carry any right to assets of the
issuer, and for this reason investment in warrants may be more speculative than other equity-based investments.
Other Investment Policies and Practices
Temporary Investments. The Fund reserves the right, as a temporary defensive measure, and
without limitation, to hold in excess of 35% of its total assets in cash or cash equivalents and investment grade, short-term securities including money market securities (Temporary Investments). Under certain adverse investment conditions,
the Fund may restrict the markets in which its assets will be invested and may increase the proportion of assets invested in Temporary Investments. Investments made for defensive purposes will be maintained only during periods in which the Manager
determines that economic or financial conditions are adverse for holding or being fully invested in equity securities. A portion of the Fund normally will be held in Temporary Investments in anticipation of investment in equity securities or to provide
for possible redemptions.
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
such 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. Privately placed securities may or may not be freely transferable under the laws of the applicable jurisdiction or due to contractual restrictions on resale. As a result of the absence of a
public trading market, privately placed securities may be 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 of Directors. The Board of Directors has adopted guidelines and delegated to the Manager the daily function of determining and monitoring liquidity of restricted
securities. The Board of Directors, however, will retain sufficient oversight and be ultimately responsible for the determinations. Since it is not possible to predict with assurance exactly how this market for restricted securities sold and offered under
Rule 144A will continue to develop, the Board 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.
When Issued Securities, Delayed Delivery Securities and Forward Commitments. The Fund may
purchase or sell securities that it is entitled to receive on a when issued basis. The Fund may also purchase or sell securities
on a delayed delivery basis. The Fund may also purchase or sell securities through a forward commitment. These transactions in involve the purchase or sale of securities by the Fund at an established price with payment and delivery taking place in the
future. The Fund enters into these transactions to obtain what is considered an advantageous price to the Fund at the time of entering into the transaction. The Fund has not established any limit on the percentage of its assets that may be committed in
connection with these transactions. When the Fund purchases securities in these transactions, the Fund segregates liquid securities in an equal to the amount of its purchase commitments.
There can be no assurance that a security purchased on a when issued basis will be issued or that a security purchased or sold
through a forward commitment will be delivered. The value of securities in these transactions on the delivery date may be more or less than the Funds purchase price. The Fund may bear the risk of a decline in the value of the security in these
transactions and may not benefit from an appreciation in the value of the security during the commitment period.
Repurchase Agreements and Purchase and Sale Contracts. The Fund may invest in securities
pursuant to repurchase agreements or purchase and sale contracts. Repurchase agreements and purchase and sale contracts may be entered into only with financial institutions which (i) have, in the opinion of Fund management, substantial capital relative to
the Funds exposure, or (ii) have provided the Fund with a third-party guaranty or other credit enhancement. Under a repurchase agreement or a purchase and sale contract, the seller agrees, upon entering into the contract with the Fund, to repurchase
the security at a mutually agreed upon time and price in a specified currency, thereby determining the yield during the term of the agreement. This results in a fixed rate of return insulated from market fluctuations during such period although it may be
affected by currency fluctuations. In the case of repurchase agreements, the price at which the trades are conducted do not reflect accrued interest on the underlying obligation; whereas, in the case of purchase and sale contracts, the prices take into
account accrued interest. Such agreements usually cover short periods, such as under one week. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. In the
case of a repurchase agreement, as a purchaser, the Fund will require the seller to provide additional collateral if the market value of the securities falls below the repurchase price at any time during the term of the repurchase agreement; the Fund does
not have the right to seek additional collateral in the case of purchase and sale contracts. In the event of default by the seller under a repurchase agreement construed to be a collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the sellers obligation to pay the repurchase price. Therefore, the Fund may suffer time delays and incur costs or possible losses in connection with the disposition of the collateral. A purchase and sale contract
differs from a repurchase agreement in that the contract arrangements stipulate that the securities are owned by the Fund. In the event of a default under such a repurchase agreement or under a purchase and sale contract, instead of the contractual fixed
rate, the rate of return to the Fund shall be dependent upon intervening fluctuations of the market value of such securities and the accrued interest on the securities. In such event, the Fund would have rights against the seller for breach of contract
with respect to any losses arising from market fluctuations following the failure of the seller to perform. While the substance of purchase and sale contracts is similar to repurchase agreements, because of the different treatment with respect to accrued
interest and additional collateral, Fund management believes that purchase and sale contracts are not repurchase agreements as such term is understood in the banking and brokerage community. The Fund may not invest more than 15% of its net assets in
repurchase agreements or purchase and sale contracts maturing in more than seven days together with all other illiquid investments.
Securities Lending. Subject to the investment restrictions set forth in the Prospectus and
herein, the Fund may, from time to time, lend securities from its portfolio to approved borrowers and receive therefor collateral in cash or securities issued or guaranteed by the United States Government. Such collateral will be maintained at all times
in an amount equal to at least 100% of the current market value of the loaned securities. The purpose of such loans is to permit the borrower to use such securities for delivery to purchasers when such borrower has sold short. If cash collateral is
received by the Fund, it is invested in short-term money market securities, and a portion of the yield received in respect of such investment is retained by the Fund. Alternatively, if securities are delivered to the Fund as collateral, the Fund and the
borrower negotiate a rate for the loaned premium to be received by the Fund for lending its portfolio securities. In either event, the total yield on the Funds portfolio is increased by loans of its portfolio securities. The Fund will have the right
to regain record ownership of loaned securities to
exercise beneficial rights such as voting rights, subscription rights and rights to dividends, interest or other distributions. Such loans are terminable at any time, and the borrower, after notice, will be required to return borrowed securities within
five business days. The Fund may pay reasonable finders, administrative and custodial fees in connection with such loans. With respect to the lending of portfolio securities, there is the risk of failure by the borrower to return the securities
involved in such transactions.
Investment in Other Investment Companies. The Fund may invest in other investment companies
whose investment objectives and policies are consistent with those of the Fund. In accordance with the Investment Company Act, the Fund may invest up to 10% of its total assets in securities of other investment companies. In addition, under the Investment
Company Act the Fund may not own more than 3% of the total outstanding voting stock of any investment company and not more than 5% of the value of the Funds total assets may be invested in the securities of any investment company. If the Fund
acquires shares in investment companies, shareholders would bear both their proportionate share of expenses in the Fund (including management and advisory fees) and, indirectly, the expenses of such investment companies (including management and advisory
fees). Investments by the Fund in wholly owned investment entities created under the laws of certain countries will not be deemed an investment in other investment companies.
Standby Commitment Agreements. The Fund may enter into standby commitment agreements. These
agreements commit the Fund, for a stated period of time, to purchase a stated amount of securities which may be issued and sold to the Fund at the option of the issuer. The price of the security is fixed at the time of the commitment. At the time of
entering into the agreement the Fund is paid a commitment fee, regardless of whether or not the security is ultimately issued. The Fund will enter into such agreements for the purpose of investing in the security underlying the commitment at a price that
is considered advantageous to the Fund. The Fund will not enter into a standby commitment with a remaining term in excess of [45] days and will limit its investment in such commitments so that the aggregate purchase price of securities subject to such commitments, together with the value of portfolio securities subject to legal restrictions on resale that affect their
marketability, will not exceed 15% of its net assets taken at the time of the commitment. The Fund segregates liquid assets in an aggregate amount equal to the purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to a standby commitment will be issued, and the value of the security,
if issued, on the delivery date may be more or less than its purchase price. Since the issuance of the security underlying the commitment is at the option of the issuer, the Fund may bear the risk of a decline in the value of such security and may not
benefit from an appreciation in the value of the security during the commitment period.
The purchase of a security subject to a standby commitment agreement and the related commitment fee will be recorded on the
date on which the security can reasonably be expected to be issued, and the value of the security thereafter will be reflected in the calculation of the Funds net asset value. The cost basis of the security will be adjusted by the amount of the
commitment fee. In the event the security is not issued, the commitment fee will be recorded as income on the expiration date of the standby commitment.
Suitability. The economic benefit of an investment in the Fund depends upon many factors beyond
the control of the Trust, the Fund, the Manager and its affiliates. 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 on, among other things, such investors investment objectives and such investors ability to accept the risks associated with investing in securities, including the risk of loss of principal.
Investment Restrictions
The Fund has adopted the following restrictions and policies relating to the investment of the Funds assets and its
activities. The fundamental restrictions 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 shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares). Unless otherwise provided, all references to the Funds assets below are in terms of
current market value. Provided that none of the following
restrictions shall prevent the Fund from investing all of its assets in shares of another registered investment company with the same investment objective (in a master/feeder structure), the Fund may not:
|
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 total assets, taken at market value at
the time of each investment, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities).
|
|
3. Make investments for the purpose of exercising control or management.
Investments by the Fund in wholly-owned investment entities created under the laws of certain countries will not be deemed the making of 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 governmental obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements, purchase and sale contracts or any similar
instruments shall not be deemed to be the making of a loan, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set
forth in the Funds Prospectus and 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 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 its Prospectus and Statement of Additional Information, as they may be amended from time to time, in connection with hedging transactions, short sales,
when-issued and forward commitment transactions and similar investment strategies.
|
|
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933, as amended (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 Funds Prospectus and this Statement of Additional Information, as they may be amended from time to time, and without registering as a commodity pool operator under the
Commodity Exchange Act.
|
The Trust has adopted investment restrictions substantially identical to the foregoing, which are fundamental policies of the
Trust and may not be changed with respect to the Trust without the approval of the holders of a majority of the interests of the Trust.
In addition, the Fund has adopted non-fundamental restrictions that may be changed by the Board of Directors of the Fund
without shareholder approval. Like the fundamental restrictions, none of the non-fundamental restrictions, including but not limited to restriction (a) below, shall prevent the Fund from investing all of its assets in shares of another registered
investment company with the same investment objective (in a master/feeder structure). Under the non-fundamental investment restrictions, the Fund may not:
|
a. Purchase securities of other investment companies, except to the
extent such purchases are 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 its shares are owned by another investment company that is part of the same group of investment companies as the Fund.
|
|
b. Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law. 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 net assets would be invested in such securities. This restriction shall not apply to
securities that mature within seven days or securities that the Directors of the Fund have otherwise determined to be liquid pursuant to applicable law. Securities purchased in accordance with Rule 144A under the Securities Act (which are restricted
securities that can be resold to qualified institutional buyers, but not to the general public) and determined to be liquid by the Board of Directors of the Fund are not subject to the limitations set forth in this investment restriction.
|
|
d. Notwithstanding fundamental investment restriction (7) above, borrow
money or pledge its assets, except that the Fund (a) may borrow from a bank as a temporary measure for extraordinary or emergency purposes or to meet redemption in amounts not exceeding 33 1/3% (taken at market value) of its total assets and pledge its
assets to secure such borrowing, (b) may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (c) may purchase securities on margin to the extent permitted by applicable law. However, at
the present time, applicable law prohibits the Fund from purchasing securities on margin. The deposit or payment by the Fund of initial or variation margin in connection with financial futures contracts or options transactions is not considered to be the
purchase of a security on margin. The purchase of securities while a borrowing is outstanding will have the effect of leveraging the Fund. Such leveraging or borrowing increases the Funds exposure to capital risk and borrowed funds are subject to
interest costs which will reduce net income. The Fund will not purchase securities while borrowing exceeds 5% of its total assets.
|
The staff of the Commission has taken the position that purchased OTC options and the assets used as cover for written OTC
options are illiquid securities. Therefore, the Fund and the Trust have adopted an investment policy pursuant to which neither the Fund nor the Trust will purchase or sell OTC options (including OTC options on futures contracts) if, as a result of such
transaction, the sum of the market value of OTC options currently outstanding that are held by the Fund or the Trust, the market value of the underlying securities covered by OTC call options currently outstanding that were sold by the Fund or the Trust
and margin deposits on the Funds or the Trusts existing OTC options on financial futures contracts exceeds 15% of the net assets of the Fund or the Trust, taken at market value, together with all other assets of the Fund or the Trust that are
illiquid or are not otherwise readily marketable. However, if the OTC option is sold by the Fund or the Trust to a primary U.S. Government securities dealer recognized by the Federal Reserve Bank of New York and if the Fund or the Trust has the
unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then the Fund or the Trust will treat as illiquid such amount of the underlying securities as is equal to the repurchase price less the amount by which
the option is in-the-money (i.e., current market value of the underlying securities minus the options strike price). The repurchase price with the primary dealers is typically a formula price that is generally based on a multiple of the
premium received for the option, plus the amount by which the option is in-the-money. This policy as to OTC options is not a fundamental policy of the Fund or the Trust and may be amended by the Board of Directors of the Fund or the Board of
Trustees of the Trust without the approval of the Funds shareholders. However, the Directors or the Trustees will not change or modify this policy prior to the change or modification by the Commission staff of its position.
In addition, as a non-fundamental policy that may be changed by the Board of Directors and to the extent required by the
Commission or its staff, the Fund will, for purposes of fundamental investment restrictions (1) and (2), treat securities issued or guaranteed by the government of any one foreign country as the obligations of a single issuer.
As another non-fundamental policy, the Fund will not invest in securities that are (a) subject to material legal restrictions
on repatriation of assets or (b) cannot be readily resold because of legal or contractual restrictions or which are not otherwise readily marketable, including repurchase agreements and purchase and sales contracts maturing in more than seven days, if,
regarding all such securities, more than 15% of its net assets, taken at market value would be invested in such securities.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) with the
Manager, the Fund and the Trust are prohibited from engaging in certain transactions involving Merrill Lynch or its affiliates except for brokerage transactions permitted under the Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act. See Portfolio Transactions and Brokerage. Without such an exemptive order the Fund and the Trust would be prohibited from engaging in portfolio transactions with
Merrill Lynch or any of its affiliates acting as principal.
Portfolio Turnover
The Fund may purchase securities for short-term trading profits. The Fund may dispose of securities without regard to the time
they have been held when such actions appear advisable to the Manager. As a result of its investment policies, the Fund may engage in a substantial number of portfolio transactions. Accordingly, while the Fund anticipates that its annual portfolio
turnover rate should not exceed 200% under normal conditions, it is impossible to predict portfolio turnover rates. 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 securities whose maturities at the time of acquisition were one year or less) by the monthly average value of the securities in the portfolio during the year. A high portfolio turnover rate involves certain tax
consequences and correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions, which are borne by the Fund.
MANAGEMENT OF THE FUND
Directors and Officers
The Directors of the Fund consist of seven individuals, five of whom are not interested persons of the Fund as
defined in the Investment Company Act. The same individuals serve as Trustees of the Trust and are sometimes referred to herein as the non-interested Directors/Trustees. The Directors of the Fund 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 and executive officers of the Fund, their ages and their principal occupations for at least
the last five years are set forth below. Unless otherwise noted, the address of each Director, executive officer and the portfolio manager is P.O. Box 9011, Princeton, New Jersey 08543-9011.
TERRY
K. GLENN
(59) President and Director(1)(2) Executive Vice President of the Manager and Merrill Lynch Investment Managers, L.P. (MLIM) (which terms as used herein include their corporate predecessors) since 1983;
Executive Vice President and Director of Princeton Services, Inc. (Princeton Services) since 1993; President of FAM Distributors, Inc. (FAMD) since 1986 and Director thereof since 1991; President of Princeton Administrators, L.P.
since 1988.
JAMES
H. BODURTHA
(56) Director(2)(3) 36 Popponesset Road, Cotuit, Massachusetts 02635. Director and Executive Vice President, The China Business Group, Inc. since 1996; Chairman and Chief Executive Officer, China Enterprise
Management Corporation from 1993 to 1996; Chairman, Berkshire Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993.
HERBERT
I. LONDON
(61) Director(2)(3) 2 Washington Square Village, New York, New York 10012. John M. Olin Professor of Humanities, New York University since 1993 and Professor thereof since 1980; President, Hudson Institute since
1997 and Trustee thereof since 1980; Dean, Gallatin Division of New York University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Director, Damon Corporation from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993; Limited Partner, Hypertech LP from 1996 to 1997.
JOSEPH
L. MAY
(71) Director(2)(3) 424 Church Street, Suite 2000, Nashville, Tennessee 37219. Attorney in private practice since 1984; President, May and Athens Hosiery Mills Division, Wayne-Gossard Corporation from 1954 to 1983;
Vice President, Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May Corporation (personal holding company) from 1972 to 1983; Director, Signal Apparel Co. from 1972 to 1989.
ANDRÉ
F. PEROLD
(48) Director(2)(3) Morgan Hall, Soldiers Field, Boston, Massachusetts 02163. Professor, Harvard Business School since 1989 and Associate Professor from 1983 to 1989; Trustee, The Common Fund since 1989; Director,
Quantec Limited from 1991 to 1999; Director, TIBCO from 1994 to 1996; Director, Genbel Securities Limited and Gensec Bank since 1999; Director, Gensec Asset Management since 2000; Director, Bulldogresearch.com since 2000.
ROBERTA
COOPER
RAMO
(57) Director(2)(3) P.O. Box 2168, 500 Fourth Street, N.W., Albuquerque, New Mexico 87103. Shareholder, Modrall, Sperling, Roehl, Harris & Sisk, P.A. since 1993; President, American Bar Association from 1995 to
1996 and Member of the Board of Governors thereof from 1994 to 1997; Partner, Poole, Kelly & Ramo, Attorneys at Law, P.C. from 1977 to 1993; Director, Coopers, Inc. since 1999; Director, United New Mexico Bank (now Wells Fargo) from 1983 to 1988;
Director, First National Bank of New Mexico (now First Security) from 1975 to 1976.
ARTHUR
ZEIKEL
(68) Director(1)(2) 300 Woodland Avenue, Westfield, New Jersey 07090. Chairman of the Manager and MLIM from 1997 to 1999 and President thereof from 1977 to 1997; Chairman of Princeton Services from 1997 to 1999,
Director thereof from 1993 to 1999 and President thereof from 1993 to 1997; Executive Vice President of Merrill Lynch & Co., Inc. (ML & Co.) from 1990 to 1999.
ROBERT
C. DOLL
, JR
. (45) Senior Vice President(1)(2) Senior Vice President of the Manager and MLIM since 1999; Senior Vice President of Princeton Services since 1999; Chief Investment Officer of OppenheimerFunds, Inc. in 1999 and
Executive Vice President thereof from 1991 to 1999.
MICHAEL
S. HAHN
(33) Senior Vice President and Portfolio Manager(1)(2) Associate Portfolio Manager of the Fund and MLIM since 1999; portfolio manager and analyst for the PBHG family of mutual funds from 1996 to 1999; assistant
portfolio manager for First Maryland Bancorp from 1994 to 1996.
DONALD
C. BURKE
(40) Vice President and Treasurer(1)(2) Senior Vice President and Treasurer of the Manager and MLAM since 1999; Senior Vice President and Treasurer of Princeton Services since 1999; Vice President of FAMD since
1999; First Vice President of MLIM from 1997 to 1999; Vice President of MLIM from 1990 to 1997; Director of Taxation of MLIM since 1990.
SUSAN
B. BAKER
(42) Secretary(1)(2) Director (Legal Advisory) of MLIM since 1999; Vice President of MLIM from 1993 to 1999; Attorney associated with MLIM since 1987.
(1)
|
Interested person, as defined in the Investment Company Act, of the Trust and the Fund.
|
(2)
|
Such Director/Trustee or officer is a trustee, director or officer of other investment companies for which the Manager, or one of
its affiliates, acts as investment adviser or manager.
|
(3)
|
Member of the Funds/Trusts Audit and Nominating Committee, which is responsible for the selection of the independent
auditors and the selection and nomination of non-interested Directors/Trustees.
|
As of June 30, 2000, the officers and Directors of the Fund as a group (11 persons) owned an aggregate of less than 1% of the
outstanding shares of common stock of ML & Co. and owned an aggregate of less than 1% of the outstanding shares of the Fund.
Compensation of Directors/Trustees
The Trust pays fees to each non-interested Director/Trustee for service to the Fund and the Trust. Each non-interested
Director/Trustee receives an aggregate annual retainer of $100,000 for his or her services to multiple investment companies advised by the Manager or its affiliate MLIM (MLIM/FAM-advised funds). The portion of the annual retainer allocated to
each MLIM/FAM-advised fund is determined quarterly based on the relative net assets of each fund. As of the date of this Statement of Additional Information, this annual retainer applies to 43 MLIM/FAM-advised funds (except that for Ms. Ramo it applies to
19 MLIM/FAM-advised funds). In addition, each non-interested Director/Trustee receives a fee per in-person board meeting attended and per in-person Audit
and Nominating Committee meeting attended. The annual per meeting fees paid to non-interested Directors/Trustees aggregate $60,000 for all MLIM/FAM-advised funds for which the Directors/Trustees serve and are allocated equally among those funds. The Trust
also reimburses the non-interested Trustees for actual out-of-pocket expenses relating to attendance at meetings. The Audit and Nominating Committee consists of all of the non-interested Directors/Trustees of the Trust.
The following table sets forth the estimated compensation to be earned by the non-interested Directors/ Trustees for the
fiscal year ending August 31, 2001 and the aggregate compensation paid to them from all investment companies advised by the Manager or its affiliate MLIM (MLIM/FAM-advised funds) to the non-affiliated Directors/Trustees for the calendar year
ended December 31, 1999.
Name
|
|
Compensation From
Fund/Trust
|
|
Pension Or
Retirement Benefits
Accrued As Part Of
Fund/Trust Expense
|
|
Estimated
Annual
Benefits Upon
Retirement
|
|
Aggregate
Compensation From
Fund/Trust And
Other MLIM/FAM-
Advised Funds(1)
|
James H. Bodurtha |
|
$2,455 |
|
None |
|
None |
|
$133,500 |
Herbert I. London |
|
$2,455 |
|
None |
|
None |
|
$133,500 |
Joseph L. May |
|
$2,455 |
|
None |
|
None |
|
$133,500 |
André F. Perold |
|
$2,455 |
|
None |
|
None |
|
$133,250 |
Roberta Cooper Ramo |
|
$4,625 |
|
None |
|
None |
|
None |
(1)
|
The Directors serve on the boards of MLIM/FAM-advised funds as follows: Mr. Bodurtha (29 registered investment companies consisting
of 43 portfolios); Mr. London (29 registered investment companies consisting of 43 portfolios); Mr. May (29 registered investment companies consisting of 43 portfolios); Mr. Perold (29 registered investment companies consisting of 43 portfolios) and Ms.
Ramo (23 registered investment companies consisting of 19 portfolios).
|
The Directors of the Fund and the Trustees of the Trust may be eligible for reduced sales charges on purchases of Class A
shares. See Reduced Initial Sales Charges Purchase Privileges of Certain Persons.
Management and Advisory Arrangements
Management Services and Management 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 management agreement with
Fund Asset Management, L.P., as Manager (the Management Agreement). As discussed in Management of the Fund Fund Asset Management in the Prospectus, the Manager receives monthly compensation at the annual rate of
0.60% of the average daily net assets of the Trust for its services to the Trust.
The Manager has also entered into a sub-advisory agreement (the Sub-Advisory Agreement) with Merrill Lynch Asset
Management U.K. Limited, which does business as Funds Asset Management UK (the Sub-Adviser), pursuant to which the Sub-Adviser provides investment advisory services to the Manager with respect to the Fund.
Securities held by the Trust may also be held by, or be appropriate investments for, other funds or investment advisory
clients for which the Manager 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 Manager or an affiliate when one or more clients of the Manager 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 Manager 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 Manager 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 Management Agreement obligates the Manager 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 Manager is also obligated to pay, or cause an
affiliate to pay, the fees of all officers and Trustees who are affiliated persons of the Manager or any affiliate. The Trust pays, or causes to be paid, all other expenses incurred in the operation of the Trust, including, among other things, taxes,
expenses for legal and auditing services, costs of printing proxies, shareholder reports, copies of the Registration Statement, charges of the custodian, any sub-custodian and the transfer agent expenses of portfolio transactions, expenses of redemption
of shares, Commission fees, expenses of registering the shares under federal, state or non-U.S. laws, fees and actual out-of-pocket expenses of Trustees who are not affiliated persons of the Manager or an affiliate of the Manager, 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 Manager or an affiliate of the Manager, and the Trust reimburses the Manager or an affiliate of the Manager for its costs in connection with such services.
Organization of the Manager. The Manager 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 Manager 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 the Sub-Adviser: 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 Management Agreement
and Sub-Advisory 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 Trustees of the Trust or by a majority of the outstanding shares of the
Trust and (b) by a majority of the Trustees who are not parties to such contract or interested persons (as defined in the Investment Company Act) of any such party. Such 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 Trust.
Administration Arrangements
The Fund has entered into an administration agreement (the Administration Agreement) with Fund Asset Management,
L.P., as administrator (the Administrator). 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 and
Directors 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 FAM Distributors, Inc. (the
Distributor), including, among other things, taxes, expenses for legal and auditing services, costs of printing proxies, shareholder reports and prospectuses and statements of additional information, charges of the custodian, any sub-custodian and
the Transfer Agent (as defined below), 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 Plans. Accounting services are provided to the Fund by the Administrator or an affiliate of the Administrator, and
the Fund reimburses the Administrator or an affiliate of 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 of the Fund or by a majority of the outstanding shares of the Fund 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. Financial Data Services, Inc. (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 of $11.00 per Class A or Class D
account and $14.00 per Class B or Class C account and is entitled to reimbursement for certain transaction charges and out-of-pocket expenses incurred by the Transfer Agent under the Transfer Agency Agreement. Additionally, a $.20 monthly closed account
charge will be assessed on all accounts that close during the calendar year. Application of this fee will commence the month following the month the account is closed. At the end of the calendar year, no further fee will be due. For purposes of the
Transfer Agency Agreement, the term account includes a shareholder account maintained directly by the Transfer Agent and any other account representing the beneficial interest of a person in the relevant share class on a recordkeeping system,
provided the recordkeeping system is maintained by a subsidiary of ML & Co.
Distribution Expenses. The Fund has entered into 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 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 Management 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 Manager and the Distributor (the Code of Ethics). The Code of Ethics significantly restricts the personal investing activities of all employees of the Manager and Distributor
and, as described below, imposes additional, more onerous, restrictions on fund investment personnel.
The Code of Ethics requires that all employees of the Manager and 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 Manager and 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 Manager. Furthermore, the Code of Ethics provides for trading blackout periods that prohibit trading by investment personnel of the Fund within seven calendar days before or after trading by the Fund in the same or equivalent security.
PURCHASE OF SHARES
Reference is made to How to Buy, Sell, Transfer and Exchange Shares in the Prospectus for certain information as
to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select Pricing
SM
System: shares of Class A and Class D are sold to investors choosing the initial sales charge alternatives and
shares of Class B and Class C are sold to investors choosing the deferred sales charge alternatives. Each Class A, Class B, Class C and Class D share of the Fund represents an identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of the ongoing account maintenance fees (also known as service fees) and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements. The contingent deferred sales charges (CDSCs), distribution fees and account maintenance fees that are imposed on Class B and Class C shares, as well as the account
maintenance fees that are imposed on Class D shares, are imposed directly against those classes and not against all assets of the Fund and, accordingly, such charges do not affect the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Fund for each class of shares are calculated in the same manner at the same time and differ only to the extent that account maintenance and distribution fees and any incremental transfer agency
costs relating to a particular class are borne exclusively by that class. Each class has different exchange privileges. See Shareholder Services Exchange Privilege.
Investors should understand that the purpose and function of the initial sales charges with respect to the Class A and Class D
shares are the same as those of the CDSCs and distribution fees with respect to the Class B and Class C shares in that the sales charges and distribution fees applicable to each class provide for the financing of the distribution of the shares of the
Fund. The distribution-related revenues paid with respect to a class will not be used to finance the distribution expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares.
The Merrill Lynch Select Pricing
SM
System is used by more than 50 registered investment companies advised by MLIM or FAM. Funds advised by MLIM or
FAM that use the Merrill Lynch Select Pricing
SM
System are referred to herein as Select Pricing Funds.
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 securities dealers prior to the close of business on the New York Stock Exchange (the NYSE) (generally 4:00 p.m., Eastern time) which includes orders received after the determination of net asset value on the previous day,
the applicable offering price will be based on the net asset value on the day the order is placed with the Distributor, provided that the orders are received by the Distributor prior to 30 minutes after the close of business on the NYSE on that day. If
the purchase orders are not received prior to 30 minutes after the close of business on the NYSE on that day, such orders shall be deemed received on the next business day. Dealers have the responsibility of submitting purchase orders to the 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 dealers or other financial intermediaries are
permitted to withhold placing orders to benefit themselves by a price change. Certain securities dealers may charge a processing fee to confirm a sale of shares to such customers. For example, the fee currently charged by Merrill Lynch is $5.35. Purchases
made directly through the Transfer Agent are not subject to the processing fee.
Initial Sales Charge Alternatives Class A and Class D Shares
Investors who prefer an initial sales charge alternative may elect to purchase Class D shares or, if an eligible investor,
Class A shares. Investors choosing the initial sales charge alternatives who are eligible to purchase Class A shares should purchase Class A shares rather than Class D shares because there is an account maintenance fee imposed on Class D shares.
Class A shares are offered to a limited group of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors who currently own Class A shares in a shareholder account are entitled to purchase additional Class A shares of the Fund in that account. In addition, Class A shares are offered at net asset value to ML & Co. and
its subsidiaries and their directors and employees, to members of the Boards of Merrill Lynch and MLIM/FAM-advised investment companies including the Fund, and to employees of certain selected dealers. Certain persons who acquired shares of certain
MLIM/FAM-advised closed-end funds in their initial offerings who wish to reinvest the net proceeds from a sale of their closed-end fund shares of common stock in shares of the Fund also may purchase Class A shares of the Fund if certain conditions are
met. In addition, Class A shares of the Fund and certain other Select Pricing Funds are offered at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. and, if certain conditions are met, to shareholders of Merrill Lynch
Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest the net proceeds from a sale of certain of their shares of common stock pursuant to a tender offer conducted by such funds in shares of the Fund and
certain other Select Pricing Funds.
The term purchase, as used in the Prospectus and this Statement of Additional Information in connection with an
investment in Class A and Class D shares of the Fund, refers to a single purchase by an individual or to concurrent purchases, which in the aggregate are at least equal to the prescribed amounts, by an individual, his or her spouse and their children
under the age of 21 years purchasing shares for his, her or their own account and to single purchases by a trustee or other fiduciary purchasing shares for a single trust estate or single fiduciary account although more than one beneficiary is involved.
The term purchase also includes purchases by any company, as that term is defined in the Investment Company Act, but does not include purchases by any such company that has not been in existence for at least six months or which has
no purpose other than the purchase of shares of the Fund or shares of other registered investment companies at a discount; provided, however, that it shall not include purchases by any group of individuals whose sole organizational nexus is that the
participants therein are credit cardholders of a company, policyholders of an insurance company, customers of either a bank or broker-dealer or clients of an investment adviser.
The Distributor may reallow discounts to selected securities dealers and other financial intermediaries and retain the balance
over such discounts. At times the Distributor may reallow the entire sales charge to such dealers. Since securities dealers and other financial intermediaries selling Class A and Class D shares of the Fund will receive a concession equal to most of the
sales charge, they may be deemed to be underwriters under the Securities Act.
Reduced Initial Sales Charges
Reductions in or exemptions from the imposition of a sales load are due to the nature of the investors and/or the reduced
sales efforts that will be needed to obtain such investments.
Reinvested Dividends. No initial sales charges are imposed upon Class A and Class D shares
issued as a result of the automatic reinvestment of dividends.
Rights of Accumulation. Reduced sales charges are applicable through a right of accumulation
under which eligible investors are permitted to purchase shares of the Fund subject to an initial sales charge at the offering price applicable to the total of (a) the public offering price of the shares then being purchased plus (b) an amount equal to
the then current net asset value or cost, whichever is higher, of the purchasers combined holdings of all classes of shares of the Fund and of any other Select Pricing Funds. For any such right of accumulation to be made available, the Distributor
must be provided at the time of purchase, by the purchaser or the purchasers 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 A or Class D shares of the Fund or any other Select Pricing 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 Manager provide plan participant record-keeping services. The Letter of Intent is not a binding
obligation to purchase any amount of Class A or Class D shares; however, its execution will result in the purchaser paying a lower sales charge at the appropriate quantity purchase level. A purchase not originally made pursuant to a Letter of Intent may
be included under a subsequent Letter of Intent executed within 90 days of such purchase if the Distributor is informed in writing of this intent within such 90-day period. The value of Class A and Class D shares of the Fund and other Select Pricing Funds
presently held, at cost or maximum offering price (whichever is higher), on the date of the first purchase under the Letter of Intent, may be included as a credit toward the completion of such Letter, but the reduced sales charge applicable to the amount
covered by such Letter will be applied only to new purchases. If the total amount of shares does not equal the amount stated in the Letter of Intent (minimum of $25,000), the investor will be notified and must pay, within 20 days of the execution of such
Letter, the difference between the sales charge on the Class A or Class D shares purchased at the reduced rate and the sales charge applicable to the shares actually purchased through the Letter. Class A or Class B shares equal to at least 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 charge on any previous purchase.
The value of any shares redeemed or otherwise disposed of by the purchaser prior to termination or completion of the Letter of
Intent will be deducted from the total purchases made under such Letter. An exchange from the Summit Cash Reserves Fund into the Fund that creates a sales charge will count toward completing a new or existing Letter of Intent from the Fund.
Purchase Privileges of Certain Persons. Directors of the Fund, Trustees of the Trust, members of
the Boards of other MLIM/FAM-advised investment companies, ML & Co. and its subsidiaries (the term subsidiaries, when used herein with respect to ML & Co., includes the Manager, MLIM and certain other entities directly or indirectly
wholly owned and controlled by ML & Co.) and their directors and employees and any trust, pension, profit-sharing or other benefit plan for such persons, may purchase Class A shares of the Fund at net asset value. 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 D shares of the Fund are offered at net asset value, without a sales charge, to an investor that has a business
relationship with a Financial Consultant who joined Merrill Lynch from another investment firm within six months prior to the date of purchase by such investor, if the following conditions are satisfied: first, the investor must advise Merrill Lynch that
it will purchase Class D shares of the Fund with proceeds from a redemption of shares of a mutual fund that was sponsored by the Financial Consultants previous firm and was subject to a sales charge either at the time of purchase or on a deferred
basis; and second, the investor must establish that such redemption had been made within 60 days prior to the investment in the Fund and the proceeds from the redemption had been maintained in the interim in cash or a money market fund.
Class D shares of the Fund are also offered at net asset value, without a sales charge, to an investor that has a business
relationship with a Merrill Lynch Financial Consultant and that has invested in a mutual fund sponsored by a non-Merrill Lynch company for which Merrill Lynch has served as a selected dealer and where Merrill Lynch has either received or given notice that
such arrangement will be terminated (notice) if the following conditions are satisfied: first, the investor must purchase Class D shares of the Fund with proceeds from a redemption of shares of such other mutual fund and the shares of such
other fund were subject to a sales charge either at the time of purchase or on a deferred basis; and, second, such purchase of Class D shares must be made within 90 days after such notice.
Class D shares of the Fund are offered at net asset value, without a sales charge, to an investor that has a business
relationship with a Merrill Lynch Financial Consultant and that has invested in a mutual fund for which Merrill Lynch has not served as a selected dealer if the following conditions are satisfied: first, the investor must
advise Merrill Lynch that it will purchase Class D shares of the Fund with proceeds from the redemption of shares of such other mutual fund and that such shares have been outstanding for a period of no less than six months; and, second, such purchase of
Class D shares must be made within 60 days after the redemption and the proceeds from the redemption must be maintained in the interim in cash or a money market fund.
Closed-End Fund Investment Option. Class A shares of the Fund and certain other Select Pricing
Funds (Eligible Class A Shares) are offered at net asset value to shareholders of certain closed-end funds advised by FAM or MLIM who purchased such closed-end fund shares prior to October 21, 1994 (the date the Merrill Lynch Select Pricing
SM
System commenced operations) and wish to reinvest the net proceeds from a sale of their closed-end fund shares are offered Class A shares, if the conditions set forth below are satisfied
.
Alternatively, closed-end fund shareholders who purchased such shares on or after October 21, 1994 and wish to reinvest the
net proceeds from a sale of their closed-end fund shares are offered Class A shares (if eligible to buy Class A shares) or Class D shares of the Fund and other Select Pricing Funds (Eligible Class D Shares), if the following conditions are
met. First, the sale of closed-end fund shares must be made through Merrill Lynch, and the net proceeds therefrom must be immediately reinvested in Eligible Class A or Eligible Class D Shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing dividends from shares of common stock acquired in such offering. Third, the closed-end fund shares must have been continuously maintained in a Merrill Lynch securities account. Fourth,
there must be a minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLIM-advised continuously offered closed-end funds may reinvest at net asset value the net proceeds
from a sale of certain shares of common stock of such funds in shares of the Fund. Upon exercise of this investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. will receive Class A shares of the Fund and shareholders of Merrill
Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. will receive Class D shares of the Fund, except that shareholders already owning Class A shares of the Fund will be eligible to purchase additional Class A shares
pursuant to this option, if such additional Class A shares will be held in the same account as the existing Class A shares and the other requirements pertaining to the reinvestment privilege are met. In order to exercise this investment option, a
shareholder of one of the above-referenced continuously offered closed-end funds (an eligible fund) must sell his or her shares of common stock of the eligible fund (the eligible shares) back to the eligible fund in connection with
a tender offer conducted by the eligible fund and reinvest the proceeds immediately in the designated class of shares of the Fund. This investment option is available only with respect to eligible shares as to which no Early Withdrawal charge or CDSC
(each as defined in the eligible funds prospectus) is applicable. Purchase orders from eligible fund shareholders wishing to exercise this investment option will be accepted only on the day that the related tender offer terminates and will be
effected at the net asset value of the designated class of the Fund on such day.
Acquisition of Certain Investment Companies. Class D shares may be offered at net asset value in
connection with the acquisition of the assets of or merger or consolidation with a personal holding company or a public or private investment company.
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 in obtaining such investments.
Purchases Through Certain Financial Intermediaries. Reduced sales charges may be applicable for
purchases of Class A or Class D shares of the Fund through certain financial advisers, selected securities dealers and other financial intermediaries that meet and adhere to standards established by the Distributor from time to time.
Deferred Sales Charge Class B and Class C Shares
Investors choosing the deferred sales charge alternatives should consider Class B shares if they intend to hold their shares
for an extended period of time and Class C shares if they are uncertain as to the length of time they intend to hold their assets in Select Pricing Funds.
Because no initial sales charges are deducted at the time of the purchase, Class B and Class C shares provide the benefit of
putting all of the 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 D shares of the Fund after a conversion period of approximately eight years, and thereafter investors will be subject to lower ongoing fees.
The public offering price of Class B and Class C shares for investors choosing the deferred sales charge alternatives is the
next determined net asset value per share without the imposition of a sales charge at the time of purchase. See Pricing of Shares Determination of Net Asset Value below.
Contingent Deferred Sales Charges Class B Shares
Class B shares that are redeemed within four years of purchase may be subject to a CDSC at the rates set forth below charged
as a percentage of the dollar amount subject thereto. In determining whether a CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest applicable rate being charged. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no CDSC will be assessed on shares
derived from reinvestment of dividends. It will be assumed that the redemption is first of shares held for over four years or shares acquired pursuant to reinvestment of dividends and then of shares held longest during the four-year period. A transfer of
shares from a 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 |
|
3.0% |
2-3 |
|
2.0% |
3-4 |
|
1.0% |
4 and thereafter |
|
None |
To provide an example, assume an investor purchased 100 shares at $10 per share (at a cost of $1,000) and in the third year
after purchase, the net asset value per share is $12 and, during such time, the investor has acquired 10 additional shares upon dividend reinvestment. If at such time the investor makes his or her first redemption of 50 shares (proceeds of $600), 10
shares will not be subject to a CDSC because of dividend reinvestment. With respect to the remaining 40 shares, the charge is applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, $400 of
the $600 redemption proceeds will be charged at a rate of 2.0% (the applicable rate in the third year after purchase).
The Class B CDSC may be waived on redemptions of shares in connection with certain post-retirement withdrawals from an
Individual Retirement Account (IRA) or other retirement plan or following the death or disability (as defined in the Internal Revenue Code of 1986, as amended) of a shareholder (including one who owns the Class B shares as joint tenant with
his or her spouse), provided the redemption is requested within one year of the death or initial determination of disability, or if later, reasonably promptly following completion of probate. The Class B CDSC also may be waived for any Class B shares that
are purchased by a Merrill Lynch rollover IRA that was funded by a rollover from a terminated 401(k) plan managed by the MLIM Private Portfolio Group and held in such account at the time of redemption. The Class B CDSC also may be waived in connection
with involuntary termination of an account in which Fund shares are held or for withdrawals through the Merrill Lynch Systematic Withdrawal Plan. See Shareholder Services Fee-Based Programs and
Systematic Withdrawal Plan.
Conversion of Class B Shares to Class D Shares. After approximately eight years (the
Conversion Period), Class B shares will be converted automatically into Class D shares of the Fund. Class D shares are subject to an ongoing account maintenance fee of 0.25% of the average daily net assets but are not subject to the distribution fee
that is borne by Class B shares. Automatic conversion of Class B shares into Class D shares will occur at least once each month (on the Conversion Date) on the basis of the relative net asset value of the shares of the two classes on the
Conversion Date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D
shares. The Conversion Date for dividend reinvestment shares will be calculated taking into account the length of time the shares underlying such dividend reinvestment shares were outstanding. If at the Conversion Date the conversion of Class B shares to
Class D shares of the Fund in a single account will result in less than $50 worth of Class B shares being left in the account, all of the Class B shares of the Fund held in the account on the Conversion Date will be converted to Class D shares of the Fund.
In general, Class B shares of equity Select Pricing Funds will convert approximately eight years after initial purchase and
Class B shares of taxable and tax-exempt fixed income Select Pricing Funds will convert approximately ten years after initial purchase. If, during the Conversion Period, a shareholder exchanges Class B shares with an eight-year Conversion Period for Class
B shares with a ten-year Conversion Period, or vice versa, the Conversion Period applicable to the Class B shares acquired in the exchange will apply and the holding period for the shares exchanged will be tacked on to the holding period for the shares
acquired. The Conversion Period also may be modified for investors that participate in certain fee-based programs. See Shareholder Services Fee-Based Programs.
Class B shareholders of the Fund exercising the exchange privilege described under Shareholder Services
Exchange Privilege will continue to be subject to the 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.
Share certificates for Class B shares of the Fund to be converted must be delivered to the Transfer Agent at least one week
prior to the Conversion Date applicable to those shares. In the event such certificates are not received by the Transfer Agent at least one week prior to the Conversion Date, the related Class B shares will convert to Class D shares on the next scheduled
Conversion Date after such certificates are delivered.
Contingent Deferred Sales Charges Class C Shares
Class C shares that are redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a percentage of the
dollar amount subject thereto. In determining whether a Class C CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. The charge will be assessed on an amount equal to
the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no Class C CDSC will be assessed on shares
derived from reinvestment of dividends. It will be assumed that the redemption is first of shares held for over one year or shares acquired pursuant to reinvestment of dividends and then of shares held longest during the one-year period. A transfer of
shares from a shareholders account to another account will be assumed to be made in the same order as a redemption. The Class C CDSC may be reduced or waived in connection with involuntary termination of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic Withdrawal Plans. See Shareholder Services Systematic Withdrawal Plan. The Class C CDSC of the Fund and certain other MLIM-advised mutual funds may be waived with respect to
Class C shares purchased by an investor with the net proceeds of a tender offer made by certain MLIM-advised closed end funds, including Merrill Lynch Senior Floating Rate Fund II, Inc. Such waiver is subject to the requirement that the tendered shares
shall have been held by the investor for a minimum of one year and to such other conditions as are set forth in the prospectus for the related closed end fund.
Class B and Class C Sales Charge Information. Merrill Lynch compensates its Financial
Consultants for selling Class B and Class C shares at the time of purchase from its own funds. Proceeds from the CDSC and the distribution fee are paid to the Distributor and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related services to the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to financial consultants for selling Class B and Class C
shares from the 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 Fees and Expenses in the Prospectus for certain information with respect to the separate
distribution plans for Class B, Class C and Class D shares of the Fund 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 Plan for each of the Class B, Class C and Class D shares provides that the Fund pays the Distributor an
account maintenance fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.25% of the average daily net assets of the Fund attributable to shares of the relevant class in order to compensate the
Distributor, Merrill Lynch, selected securities dealers or other financial intermediaries (pursuant to a sub-agreement) in connection with account maintenance activities with respect to Class B, Class C and Class D shares. Each of those classes has
exclusive voting rights with respect to the Distribution Plan adopted with respect to such class pursuant to which account maintenance and/or distribution fees are paid (except that Class B shareholders may vote upon any material changes to expenses
charged under the Class D Distribution Plan).
The Distribution Plan for each of the Class B and Class C shares provides 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,
Merrill Lynch, selected securities dealers or other financial intermediaries (pursuant to a sub-agreement) for providing shareholder and distribution services and bearing certain distribution-related expenses of the Fund, including payments to financial
consultants, selected securities dealers and other financial intermediaries for selling Class B and Class C shares of the Fund. The Distribution Plans relating to Class B and Class C shares are designed to permit an investor to purchase Class B and Class
C shares through selected securities dealers and other financial intermediaries without the assessment of an initial sales charge and at the same time permit the dealer to compensate its financial consultants, selected 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 A
and Class D shares of the Fund in that the ongoing distribution fees and deferred sales charges provide for the financing of the distribution of the 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 the Distribution Plan to the Fund and the related class of shareholders. Each Distribution Plan further provides that, so long as the Distribution Plan remains in effect, the selection and nomination of
non-interested Directors shall be committed to the discretion of the non-interested Directors then in office. In approving each Distribution Plan in accordance with Rule 12b-1, the non-interested Directors concluded that there is reasonable likelihood
that each 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
the Distribution Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Fund preserve copies of the Distribution Plan and any report made pursuant to such plan for a period of not less than six years from the date
of the 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 the Distribution Plans may be more or less than distribution-related expenses of the related class. Information with respect to the distribution-related revenues and expenses
is presented to the Directors for their consideration in connection with their deliberations as to the continuance of the Class B and Class C Distribution Plans. This information is presented annually as of December 31 of each year, on a fully
allocated accrual basis and quarterly on a direct expense and revenue/cash basis. On the fully allocated accrual basis, revenues consist of the account maintenance fees, the distribution fees, the CDSCs and certain other related
revenues, and expenses consist of financial consultant compensation, branch office and regional operation center selling and transaction processing expenses, advertising, sales promotion and marketing expenses, corporate overhead and interest expense. On
the direct expense and revenue/cash basis, revenues consist of the account maintenance fees, the distribution fees and CDSCs and the expenses consist of financial consultant compensation.
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in the Conduct Rules of the NASD imposes a limitation on certain asset-based sales charges such
as the distribution fee and the CDSC borne by the Class B and Class C shares but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges), plus
(2) interest on the unpaid balance for the respective class, computed separately, at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts received from the payment of the distribution fee and the CDSC). In connection
with the Class B shares, the Distributor has voluntarily agreed to waive interest charges on the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the maximum amount payable to the Distributor (referred to as the voluntary
maximum) in connection with the Class B shares is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving the interest charges at any time. To the extent payments would exceed the voluntary maximum, the Fund will not make
further payments of the distribution fee with respect to Class B shares and any CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstance payment in excess of the amount payable under the NASD formula will not be made.
REDEMPTION OF SHARES
Reference is made to How to Buy, Sell, Transfer and Exchange Shares in the Prospectus for certain information as
to the redemption and purchase of Fund shares.
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 Trust at such time.
The Fund has entered into a joint committed line of credit with other investment companies advised by the Manager and its
affiliates and a syndicate of banks that is intended to provide 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 without charge by tendering the shares directly
to the Funds Transfer Agent, Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. 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 delivered other than by mail should be delivered to Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice of redemption in the case of shares deposited with the Transfer
Agent may be accomplished by a written letter requesting redemption. Proper notice of redemption in the case of shares for which certificates have been issued may be accomplished by a written letter as noted above accompanied by certificates for the
shares to be redeemed. Redemption requests should not be sent to the Trust or the Fund. A redemption request in either event requires the signature(s) of all persons in whose name(s) the shares are registered, signed exactly as such name(s) appear(s) on
the Transfer 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 Exchange Act),
the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. In the event a signature guarantee is required, notarized signatures are not sufficient. In general, signature guarantees are waived on
redemptions of less than $50,000 as long as the following requirements are met: (i) all requests require the signature(s) of all persons in whose name(s) shares are recorded on the Transfer 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 1-800-MER-FUND. 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 on the account 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 will usually 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 regular close of business on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time)
and such request is received by the Fund from such dealer not later than 30 minutes after the close of business on the NYSE on the same day. Dealers have the responsibility of submitting such repurchase requests to the Funds not later than 30 minutes
after the close of business on the NYSE in order to obtain that 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 selected dealer agreements with the Distributor, however, may impose a transaction charge on the shareholder for transmitting the notice of repurchase to the Fund. Merrill Lynch, selected
securities dealers and other financial intermediaries may charge their customers a processing fee (presently, Merrill Lynch charges $5.35) to confirm a repurchase of shares to such customers. Repurchases made directly through the Transfer Agent, on
accounts held at the Transfer Agent, are not subject to the processing fee. The Fund reserves the right to reject any order for repurchase, which right of rejection might adversely affect shareholders seeking redemption through the repurchase procedure. A
shareholder whose order for repurchase is rejected by the Fund, however, may redeem shares as set forth above.
Reinstatement Privilege Class A and Class D Shares
Shareholders of the Fund who have redeemed their Class A or Class D shares have a privilege to reinstate their accounts by
purchasing Class A or Class D shares, as the case may be, of the Fund at net asset value without a sales charge up to the dollar amount redeemed. The reinstatement privilege may be exercised by sending a notice of exercise along with a check for the
amount to be reinstated to the Transfer Agent within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. Alternatively, the reinstatement privilege may be exercised through the investors Merrill
Lynch Financial Consultant within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. The reinstatement will be made at the net asset value per share next determined after the notice of reinstatement is
received and cannot exceed the amount of the redemption proceeds.
PRICING OF SHARES
Determination of Net Asset Value
Reference is made to How Shares are Priced in the Prospectus.
The net asset value of the shares of all classes of the Fund is determined once daily Monday through Friday 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 is computed by dividing the value of the securities held by the Trust on behalf of the Fund plus any cash or
other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares of the Fund outstanding at such time, rounded to the nearest cent. Expenses, including the fees
payable to the Manager and the Distributor, are accrued daily.
The per share net asset value of Class B, Class C and Class D shares generally will be lower than the per share net asset
value of Class A shares, reflecting the daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to Class B and Class C shares, and the daily expense accruals of the account maintenance fees
applicable with respect to Class D shares. Moreover, the per share net asset value of the Class B and Class C shares generally will be lower than the per share net asset value of Class D shares 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 of distributions, which will differ by approximately the amount of the expense accrual differentials between the classes.
Securities that are held in the Trust, including ADRs or EDRs, that are traded on stock exchanges are valued at the last sale
price (regular way) on the exchange on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price for long positions, and at the last available ask price
for short positions. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated by or under the authority of the Board of Trustees of the Trust as the primary market. Long positions in securities
traded in the OTC market are valued at the last available bid price in the OTC market prior to the time of valuation. Portfolio securities that are traded both in the OTC market and on a stock exchange are valued according to the broadest and most
representative market. Short positions in securities traded in the OTC market are valued at the last available ask price in the OTC market prior to the time of valuation. 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 on the last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last ask price. Options purchased by 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 after 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 Portfolio as of the time of determination on such day plus or
minus, as the case may be, the amount of any additions to or withdrawals from the 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 of the NYSE on the next determination of net asset value of the Trust.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions in Portfolio Securities
Because the Fund will invest exclusively in beneficial interests in 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 Manager 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 Manager
seeks to obtain the best net results for the Trust, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm and the firm
s risk in positioning a block of securities. While the Manager 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 Manager may consider sales of shares of the Fund as a factor in the selection of brokers or dealers to execute portfolio transactions for the Trust; however, whether or not a
particular broker or dealer sells shares of the Fund neither qualifies nor disqualifies such broker or dealer to execute transactions for the Trust.
Subject to obtaining the best net results, brokers who provide supplemental investment research to the Manager 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 Manager under the Management Agreement, and the expenses of the Manager will not necessarily be reduced as a result of the receipt of such supplemental information. If in the judgment of the Manager the
Trust will benefit from supplemental research services, the Manager is authorized to pay brokerage commissions to a broker furnishing such services that are in excess of commission that another broker may have charged for effecting the same transactions.
Certain supplemental research services may primarily benefit one or more other investment companies or other accounts for which the Manager 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 or other securities convertible into foreign
equity securities. ADRs and EDRs 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 its portfolio so as to give reasonable assurance that it will be able to obtain U.S. dollars to the extent necessary to meet anticipated redemptions. Under present conditions, it is not believed
that these considerations will have significant effect on the Trusts portfolio strategies.
The Fund may invest in certain securities traded in the OTC market and intends to deal directly with the dealers who make a
market in securities involved, except in those circumstances in which better prices and execution are available elsewhere. Under the Investment Company Act, persons affiliated with the Trust and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Trust as principal in the purchase and sale of securities unless a permissive order allowing such transactions is obtained from the Commission. Since transactions in the OTC market usually involve transactions with the
dealers acting as principal for their own accounts, the Trust will not deal with affiliated persons, including Merrill Lynch and its affiliates, in connection with such transactions. However, an affiliated person of the Trust may serve as its broker in
OTC transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with
comparable transactions. In addition, the Trust may not purchase securities during the existence of any underwriting syndicate for such securities of which Merrill Lynch is a member or in a private placement in which Merrill Lynch serves as placement
agent except pursuant to procedures approved by the Board of Trustees of the Trust that either comply with rules adopted by the Commission or with interpretations of the Commission staff. See Investment Objective and Policies
Investment Restrictions.
Section 11(a) of the Exchange Act generally prohibits members of the U.S. national securities exchanges from executing
exchange transactions for their affiliates and institutional accounts that they manage unless the member (i) has obtained prior express authorization from the account to effect such transactions, (ii) at least annually furnishes the account with a
statement setting forth the aggregate compensation received by the member in effecting such transactions, and (iii) complies with any rules the Commission has prescribed with respect to the requirements of clauses (i) and (ii). To the extent Section 11(a)
would apply to Merrill Lynch acting as a broker for the Trust in any of its portfolio transactions executed on any such securities exchange of which it is a member, appropriate consents have been obtained from the Trust and annual statements as to
aggregate compensation will be provided to the Trust. Securities may be held by, or be appropriate investments for, the Trust as well as other funds or investment advisory clients of the Manager or its affiliates.
The Board of Trustees of the Trust has considered the possibility of seeking to recapture for the benefit of the Fund
brokerage commissions and other expenses of possible portfolio transactions by conducting portfolio transactions through affiliated entities. For example, brokerage commissions received by affiliated brokers could be offset against the advisory fee paid
by the Trust on behalf of the Portfolio to the Manager. After considering all factors deemed relevant, the Board of Trustees of the Trust made a determination not to seek such recapture. The Board of Trustees of the Trust 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 Manager
or its affiliates when one or more clients of the Manager 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 Manager or an affiliate act as investment adviser, transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent that transactions on behalf of more
than one client of the Manager 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, Merrill Lynch, selected
securities dealers or other financial intermediaries. 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. Upon the transfer of shares out of a Merrill Lynch brokerage account or an account maintained with a selected securities dealer or other financial intermediary, an Investment Account in the transferring shareholders name may be
opened automatically at the Transfer Agent.
Share certificates are issued only for full shares and only upon the specific request of a shareholder who has an Investment
Account. Issuance of certificates representing all or only part of the full shares in an Investment Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders may transfer their Fund shares from Merrill Lynch, selected securities dealers or other financial intermediaries
to another securities dealer that has entered into a selected dealer agreement with Merrill Lynch. Certain shareholder services may not be available for the transferred shares. After the transfer, the shareholder may purchase additional shares of funds
owned before the transfer and all future trading of these assets must be coordinated by the new firm. If a shareholder wishes to transfer his or her shares to a securities dealer or other financial intermediary that has not entered into a selected dealer
agreement with Merrill Lynch, the shareholder must either (i) redeem his or her shares, paying any applicable CDSC or (ii) continue to maintain an Investment Account at the Transfer Agent for those shares. The shareholder also may request the new
securities dealer to maintain the shares in an account at the Transfer Agent registered in the name of the securities dealer for the benefit of the shareholder whether the securities dealer has entered into a selected dealer agreement or not.
Shareholders considering transferring a tax-deferred retirement account such as an individual retirement account, from Merrill
Lynch to another securities dealer or other financial intermediary should be aware that, if the firm to which the retirement account is to be transferred will not take delivery of shares of the Fund, a shareholder must either redeem the shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the account at the new firm, or such shareholder must continue to maintain a retirement account at a selected dealer for those shares.
Exchange Privilege
U.S. shareholders of each class of shares of the Fund have an exchange privilege with certain other Select Pricing Funds and
Summit Cash Reserves Fund (Summit), a series of Financial Institutions Series Trust, which is a Merrill Lynch-sponsored money market fund specifically designated as available for exchange by holders of Class A, Class B, Class C and Class D
shares Select Pricing Funds. Shares with a net asset value of at least $100 are required to qualify for the exchange privilege, and any shares used in an exchange must have been held by the shareholder for at least 15 days. Before effecting an exchange,
shareholders should obtain a currently effective prospectus of the fund into which the exchange is to be made. Exercise of the exchange privilege is treated as a sale of the exchanged shares and a purchase of the acquired shares for Federal income tax
purposes.
Exchanges of Class A and Class D Shares. Class A shareholders may exchange Class A shares of the
Fund for Class A shares of a second Select Pricing Fund if the shareholder holds any Class A shares of the second fund in the account in which the exchange is made at the time of the exchange or is otherwise eligible to purchase Class A shares of the
second fund. If the Class A shareholder wants to exchange Class A shares for shares of a second Select Pricing Fund, but does not hold Class A shares of the second fund in his or her account at the time of exchange and is not otherwise eligible to acquire
Class A shares of the second fund, the shareholder will receive Class D shares of the second fund as a result of the exchange. Class D shares also may be exchanged for Class A shares of a second Select Pricing Fund at any time as long as, at the time of
the exchange, the shareholder holds Class A shares of the second fund in the account in which the exchange is made or is otherwise eligible to purchase Class A shares of the second fund. Class D shares are exchangeable with shares of the same class of
other Select Pricing Funds.
Exchanges of Class A or Class D shares outstanding (outstanding Class A or Class D shares) for Class A or Class D
shares of another Select Pricing Fund, or for Class A shares of Summit (new Class A or Class D shares) are transacted on the basis of relative net asset value per Class A or Class D share, respectively, plus an amount equal to the difference,
if any, between the sales charge previously paid on the outstanding Class A or Class D shares and the sales charge payable at the time of the exchange on the new Class A or Class D shares. With respect to outstanding Class A or Class D shares as to which
previous exchanges have taken place, the sales charge previously paid shall include the aggregate of the sales charges paid with respect to such Class A or Class D shares in the initial purchase and any subsequent exchange. Class A or Class D
shares issued pursuant to dividend reinvestment are sold on a no-load basis in each of the funds offering Class A or Class D shares. For purposes of the exchange privilege, Class A and Class D shares acquired through dividend reinvestment shall be deemed
to have been sold with a sales charge equal to the sales charge previously paid on the Class A or Class D shares on which the dividend was paid. Based on this formula, Class A and Class D shares of the Fund generally may be exchanged into the Class A or
Class D shares, respectively, of the other funds with a reduced sales charge or without a sales charge.
Exchanges of Class B and Class C Shares. Certain Select Pricing Funds with Class B and Class C
shares outstanding (outstanding Class B or Class C shares) offer to exchange their Class B or Class C shares for Class B or Class C shares, respectively, of certain other Select Pricing Funds or for Class B shares of Summit (new Class B
or Class C shares) on the basis of relative net asset value per Class B or Class C share, without the payment of any CDSC that might otherwise be due on redemption of the outstanding shares. Class B shareholders of the Fund exercising the exchange
privilege will continue to be subject to the 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 shares or Class C shares. For example, an investor may exchange
Class B shares of the Fund for those of Merrill Lynch Small Cap Value Fund, Inc. (Small Cap Value Fund) after having held the Funds Class B shares for two-and-a-half years. The 2% CDSC that generally would apply to a redemption would not
apply to the exchange. Three years later the investor may decide to redeem the Class B shares of Special Value Fund and receive cash.
There will be no CDSC due on this redemption since by tacking the two-and-a-half year holding period of the Fund
Class B shares to the three year holding period for the Small Cap Value Fund Class B shares, the investor will be deemed to have held Small Cap Value Fund Class B shares for more than five years.
Exchanges for Shares of a Money Market Fund. Class A and Class D shares are exchangeable for
Class A shares of Summit and Class B and Class C shares are exchangeable for Class B shares of Summit. Class A shares of Summit have an exchange privilege back into Class A or Class D shares of Select Pricing Funds; Class B shares of Summit have an
exchange privilege back into Class B or Class C shares of Select Pricing Funds and, in the event of such an exchange, the period of time that Class B shares of Summit are held will count toward satisfaction of the holding period requirement for purposes
of reducing any CDSC and toward satisfaction of any Conversion Period with respect to Class B shares. Class B shares of Summit will be subject to a distribution fee at an annual rate of 0.75% of average daily net assets of such Class B shares. Please see
your Merrill Lynch Financial Consultant for further information.
Prior to October 12, 1998, exchanges from certain Select Pricing Funds into a money market fund were directed to certain
Merrill Lynch-sponsored money market funds other than Summit. Shareholders who exchanged Select Pricing Funds shares for such other money market funds and subsequently wish to exchange those money market fund shares for shares of the Fund will be subject
to the CDSC schedule applicable to such Fund shares, if any. The holding period for those money market fund shares will not count toward satisfaction of the holding period requirement for reduction of the CDSC imposed on such shares, if any, and, with
respect to Class B shares, toward satisfaction of the Conversion Period. However, the holding period for Class B or Class C shares of the Fund received in exchange for such money market fund shares will be aggregated with the holding period for the
fund shares originally exchanged for such money market fund shares for purposes of reducing the CDSC or satisfying the Conversion Period.
Exercise of the Exchange Privilege. To exercise the exchange privilege, a shareholder should
contact his or her Merrill Lynch Financial Consultant, who will advise the Fund of the exchange. Shareholders of the Fund, and shareholders of the other Select Pricing Funds described above with shares for which certificates have not been issued, may
exercise the exchange privilege by wire through their securities dealers or other financial intermediaries. The Fund reserves the right to require a properly completed Exchange Application.
Telephone exchange requests are also available in accounts held with the Transfer Agent for amounts up to $50,000. To request
an exchange from your account, call the Transfer Agent at 1-800-MER-FUND. The request must be from the shareholder of record. Before telephone requests will be honored, signature approval from all shareholders of record must be obtained. The shares being
exchanged must have been held for at least 15 days. Telephone requests for an exchange will not be honored in the following situations: the accountholder is deceased, the request is by an individual other than the accountholder of record, the account is
held by joint tenants who are divorced or the address on the account has changed within the last 30 days. Telephone exchanges may be refused if the caller is unable to provide: the account number, the name and address registered on the account and the
social security number registered on the account. The Fund or the Transfer Agent may temporarily suspend telephone transactions at any time.
This exchange privilege may be modified or terminated in accordance with the rules of the Commission. The Fund reserves the
right to limit the number of times an investor may exercise the exchange privilege. Certain funds may suspend the continuous offering of their shares to the general public at any time and may thereafter resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where the exchange legally may be made. It is contemplated that the exchange privilege may be applicable to other new mutual funds whose shares may be distributed by the Distributor.
Automatic Investment Plans
A shareholder may make additions to an Investment Account at any time by purchasing Class A shares (if he or she is an
eligible Class A investor) or Class B, Class C or Class D shares at the applicable public offering price. These purchases may be made either through the shareholders securities dealer or by mail directly to the Transfer Agent, acting as agent for
such securities dealer. Voluntary accumulation also can be made through a service known as the Funds Automatic Investment Plan. The Fund would be authorized, on a regular basis, to provide systematic additions to the Investment Account of such
shareholder through charges of $50 or more to the regular bank account of the shareholder by either pre-authorized checks or automated clearing house debits. Alternatively, an investor that maintains a CMA® or CBA® account may arrange to have
periodic investments made in the Fund in amounts of $100 ($1 for retirement accounts) or more through the CMA® or CBA® Automated Investment Program.
Automatic Dividend Reinvestment Plan
Unless specific instructions are given as to the method of payment, dividends will be automatically reinvested, without sales
charge, in additional full and fractional shares of the Fund. Such reinvestment will be at the net asset value of shares of the Fund as determined after the close of business on the NYSE on the monthly payment date for such dividends. No CDSC will be
imposed upon redemption of shares issued as a result of the automatic reinvestment of dividends.
Shareholders may, at any time, by written notification to Merrill Lynch if their account is maintained with Merrill Lynch, or
by written notification or by telephone (1-800-MER-FUND) to the Transfer Agent, if their account is maintained with the Transfer Agent, elect to have subsequent dividends of ordinary income and/or capital gains paid 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 determined after the close of business on the NYSE (generally,
the NYSE closes at 4:00 p.m., Eastern time) on the 24th day of each month or the 24th day of the last month of each quarter, whichever is applicable. If the NYSE is not open for business on such date, the shares will be redeemed at the net asset value
determined at the close of business on the following business day. The check for the withdrawal payment will be mailed, or the direct deposit for withdrawal payment will be made on the next business day following redemption. When a shareholder is making
systematic withdrawals, dividends and distributions on all shares in the Investment Account are reinvested automatically in Fund shares. A 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 Class C Shares. Where the systematic withdrawal plan is applied to Class B shares, upon conversion of the last Class B shares in an account to Class D shares, a shareholder must make a new election to join
the systematic withdrawal program with respect to the Class D shares. See Purchase of SharesDeferred Sales Charge AlternativesConversion of Class B Shares to Class D Shares. If an investor wishes to change the amount being
withdrawn in a systematic withdrawal plan, the investor should contact his or her Merrill Lynch Financial Consultant.
Withdrawal payments should not be considered as dividends. Each withdrawal is a taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the 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.
Alternatively, a shareholder whose shares are held within a CMA® or CBA® Account may elect to have shares redeemed on
a monthly, bimonthly, quarterly, semiannual or annual basis through the CMA® or CBA® Systematic Redemption Program. The minimum fixed dollar amount redeemable is $50. The proceeds of systematic redemptions will be posted to the shareholders
account three business days after the date the shares are redeemed. All redemptions are made at net asset value. A shareholder may elect to have his or her shares redeemed on the first, second, third or fourth Monday of each month, in the case of monthly
redemptions, or of every other month, in the case of bimonthly redemptions. For quarterly, semiannual or annual redemptions, the shareholder may select the month in which the shares are to be redeemed and may designate whether the redemption is to be made
on the first, second, third or fourth Monday of the month. If the Monday selected is not a business day, the redemption will be processed at net asset value on the next business day. The CMA® or CBA®
Systematic Redemption Program is not available if Fund shares are being purchased within the account pursuant to the Automated Investment Program. For more information on the CMA® or CBA® Systematic Redemption Program, eligible shareholders should
contact their Merrill Lynch Financial Consultant.
DIVIDENDS AND TAXES
Dividends
The Fund intends to distribute substantially all of its net investment income, if any. Dividends from such net investment
income will be paid at least annually. All net realized capital gains, if any, will be distributed to the 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 have 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 dealer may elect in writing to receive any such dividends in cash.
Dividends are taxable to shareholders, as discussed below, whether they are reinvested in shares of the Fund or received in cash. The per share dividends on Class B and Class C shares will be lower than the per share dividends on Class A and Class D
shares as a result of the account maintenance, distribution and higher transfer agency fees applicable with respect to the Class B and Class C shares; similarly, the per share dividends on Class D shares will be lower than the per share dividends on Class
A shares as a result of the account maintenance fees applicable with respect to the Class D 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, the Fund (but not its shareholders) will not be subject to Federal income tax on the part of its net ordinary income and net realized
capital gains that it distributes to Class A, Class B, Class C and Class D shareholders (together, the shareholders). The Fund intends to distribute substantially all of such income.
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 a 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 warrants, futures and options) (capital gain dividends) are taxable to shareholders as long term capital gains, regardless of the length of time the shareholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or less will be treated as long term capital loss to the extent of any capital gain dividends received by the shareholder. Distributions in excess of the 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 A, Class B, Class C and Class D shareholders according to a method (which it believes is consistent with the Commission rule permitting the issuance and sale of multiple classes of stock) that is based on the gross income
allocable to Class A, Class B, Class C and Class D shareholders during the taxable year, or such other method as the Internal Revenue Service 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 D shares. A
shareholders basis in the Class D shares acquired will be the same as such shareholders basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares
.
If a shareholder exercises an exchange privilege within 90 days of acquiring the shares, then the loss the shareholder can
recognize on the exchange will be reduced (or the gain increased) to the extent any sales charge paid on the exchanged shares reduces any sales charge the shareholder would have owed upon the purchase of the new shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of the Fund will be disallowed if such shares are acquired (whether through
the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Ordinary income dividends paid to shareholders who are non-resident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident shareholders are urged to consult
their own tax advisers concerning the applicability of the United States 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 the 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 U.S. may reduce or eliminate such taxes.
The Fund may invest up to 10% of its total assets in securities of other investment companies. If the Fund purchases shares of
an investment company (or similar investment entity) organized under foreign law, the Fund will be treated as owning shares in a passive foreign investment company (PFIC) for U.S. Federal income tax purposes. The Fund may be subject to U.S.
Federal income tax, and an additional tax in the nature of interest (the interest charge), on a portion of the distributions from such a company and on gain from the disposition of the shares of such a company (collectively referred to as
excess distributions), even if such excess distributions are paid by the Fund as a dividend to its shareholders. The Fund may be eligible to make an election with respect to certain PFICs in which it owns shares that will allow it to avoid the
taxes on excess distributions. However, such election may cause the Fund to recognize income in a particular year in excess of the distributions received from such PFICs. Alternatively, the Fund could elect to mark to market at the end of each
taxable year all shares that it holds in PFICs. If it made this election, the Fund would recognize as ordinary income any increase in the value of such shares over their adjusted basis and as ordinary loss any decrease in such value to the extent it did
not exceed prior increases. By making the mark-to-market election, the Fund could avoid imposition of the interest charge with respect to its distributions from PFICs, but in any particular year might be required to recognize income in excess of the
distributions it received from PFICs and its proceeds from dispositions of PFIC stock.
Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions
The Fund may write, purchase or sell options, futures and forward foreign exchange contracts. Options and futures contracts
that are Section 1256 contracts will be marked to market for Federal income tax purposes at the end of each taxable year, i.e., each such option or futures contract will be treated as sold for its fair market value on the last day
of the taxable year. Unless such contract is a forward foreign exchange contract, or is a non-equity option or a regulated futures contract for a non-U.S. currency for which the Fund elects to have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from Section 1256 contracts will be 60% long-term and 40% short-term capital gain or loss. Application of these rules to Section 1256 contracts held by the Fund may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above, however, will not apply to certain transactions entered into by the Fund solely to reduce the risk of changes in price or interest or currency exchange rates with respect to its
investments.
A forward foreign exchange contract that is a Section 1256 contract will be marked to market, as described above. However, the
character of gain or loss from such a contract will generally be ordinary under Code Section 988. In certain instances, the Fund may, nonetheless, elect to treat the gain or loss from certain forward foreign exchange contracts as capital. In this case,
gain or loss realized in connection with a forward foreign exchange contract that is a Section 1256 contract will be characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain straddles, may affect the taxation of the Funds sales of
securities and transactions in options, futures and forward foreign exchange contracts. Under Section 1092, the Fund may be required to postpone recognition for tax purposes of losses incurred in certain sales of securities and certain closing
transactions in options, futures and forward foreign exchange contracts.
Special Rules for Certain Foreign Currency Transactions
In general, gains from foreign currencies and from foreign currency options, foreign currency futures and forward
foreign exchange contracts relating to investments in stocks, securities or foreign currencies will be qualifying income for purposes of determining whether the Fund qualifies as a RIC. It is currently unclear, however, who will be treated as the issuer
of a foreign currency instrument or how foreign currency options, futures or forward foreign exchange contracts will be valued for purposes of the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions in a foreign currency other than the taxpayer
s functional currency (i.e., unless certain special rules apply, currencies other than the U.S. dollar). In general, foreign currency gains or losses from certain debt instruments, from certain forward contracts, from futures contracts that are not
regulated futures contracts and from unlisted options will be treated as ordinary income or loss under Code Section 988. In certain circumstances, the Fund may elect capital gain or loss treatment for such transactions. Regulated futures contracts,
as described above, will be taxed under Code Section 1256 unless application of Section 988 is elected by the Fund. In general, however, Code Section 988 gains or losses will increase or decrease the amount of the investment company taxable income of the
Fund available to be distributed to shareholders as ordinary income. Additionally, if Code Section 988 losses exceed other investment company taxable income during a taxable year, the 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 Trust and 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 the Trust is unable to obtain a favorable 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 investments 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 is based on the Funds historical performance and is not intended to indicate future performance. Average annual total return is determined separately for Class A, Class B,
Class C and Class D shares in accordance with a formula specified by the Commission.
Average annual total return quotations for the specified periods are computed by finding the average annual compounded rates
of return (based on net investment income and any realized and unrealized capital gains or losses on portfolio investments over such periods) that would equate the initial amount invested to the redeemable value of such investment at the end of each
period. Average annual total return is computed assuming all dividends and distributions are reinvested and taking into account all applicable recurring and nonrecurring expenses, including the maximum sales charge in the case of Class A and Class D
shares and the CDSC that would be applicable to a complete redemption of the investment at the end of the specified period in the case of Class B and Class C shares.
Yield quotations will be computed based on a 30-day period by dividing (a) the net income based on the yield of each security
earned during the period by (b) the average daily number of shares outstanding during the period that were entitled to receive dividends multiplied by the maximum offering price per share on the last day of the period. Tax equivalent yield quotations will
be computed by dividing (a) the part of the Funds yield that is tax-exempt by (b) one minus a stated tax rate and (c) adding the result to that part, if any, of the Funds yield that is not tax-exempt.
The Fund also may quote annual, average annual and annualized total return and aggregate total return performance data, both
as a percentage and a dollar amount based on a hypothetical $1,000 investment, for various periods other than those noted below. Such data will be computed as described above, except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and (2) the maximum applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the impact on the performance data
calculations of including or excluding
the maximum applicable sales charges, actual annual or annualized total return data generally will be lower than average annual total return data since the average rates of return reflect compounding of return; aggregate total return data generally will
be higher than average annual total return data since the aggregate rates of return reflect compounding over a longer period of time. In advertisements distributed to investors whose purchases are subject to waiver of the CDSC in the case of Class B and
Class C shares (such as investors in certain retirement plans) or to reduced sales loads in the case of Class A and Class D shares, the performance data may take into account the reduced, and not the maximum, sales charge or may not take into account the
CDSC and therefore may reflect greater total return since, due to the reduced sales charges or waiver of the CDSC, a lower amount of expenses is deducted. See Purchase of Shares. The 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.
In order to reflect the reduced sales charges in the case of Class A or Class D shares or the waiver of the CDSC in the case
of Class B or Class C shares applicable to certain investors, as described under Purchase of Shares and Redemption of Shares, respectively, the total return data quoted by the Fund in advertisements directed to such investors may
take into account the reduced, and not the maximum, sales charge or may take into account the CDSC and therefore may reflect greater total return since, due to the reduced sales charges or the waiver of sales charges, a lower amount of expenses is deducted.
The Fund expects to be classified as a mid cap growth fund by Lipper Analytical Services, Inc. (Lipper) and as a
medium growth equity fund by Morningstar Publications, Inc. (Morningstar). On occasion, the Fund may compare its performance to, among other things, the Russell Midcap® Growth Index, the Standard & Poors Mid Cap 400 Index, the
Standard & Poors 500 Index, the Value Line Composite Index, the Dow Jones Industrial Average, or to other published indices, or to data contained in publications published by Lipper, Morningstar, or to data contained in publications such as
Money Magazine, U.S. News & World Report, Business Week, Forbes Magazine, Fortune Magazine and CDA Investment Technology, Inc. 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 the Funds Morningstar risk-adjusted performance ratings assigned by Morningstar in advertising or supplemental sales literature.
The Fund may provide information designed to help investors understand how the Fund is seeking to achieve its investment
objectives. This may include information about past, current or possible economic, market, political, or other conditions, descriptive information on general principles of investing such as asset allocation, diversification and risk tolerance, discussion
of the Funds portfolio composition, investment philosophy, strategy or investment techniques, comparisons of the Funds performance or portfolio composition to that of other funds or types of investments, indices relevant to the comparison
being made, or to a hypothetical or model portfolio. The Fund may also quote various measures of volatility and benchmark correlation in advertising and other materials, and may compare these measures to those of other funds or types of investments. From
time to time the Fund may quote in advertisements or other materials other applicable measures of performance and may also make reference to awards that may be given to the Manager.
The Funds total return will vary depending on market conditions, the securities held by the Trust, the Trusts
operating expenses, the Funds operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The value of an investment in the Fund will fluctuate and an investors shares, when redeemed, may be
worth more or less than their original cost.
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 may accept 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 Trust on more attractive terms, or could experience better performance, than another feeder.
The Fund was incorporated under Maryland law on July 7, 2000. It has an authorized capital of 400,000,000 shares of Common
Stock, par value $0.10 per share, divided into four classes, designated Class A, Class B, Class C and Class D Common Stock, each of which consists 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, except that shareholders of the class bearing distribution expenses as provided above shall have exclusive voting rights with respect to matters
relating to such distribution expenditures (except that Class B shareholders may vote upon any material changes to expenses charged under the Class D Distribution Plan). Voting rights are not cumulative, so that the holders of more than 50% of the shares
voting in the election of Directors can, if they choose to do so, elect all the Directors of the Fund, in which event the holders of the remaining shares would be unable to elect any person as a Director.
Whenever the 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 fees or of a change in fundamental policies, objectives or restrictions. Except as set forth above, the Directors shall continue to
hold office and appoint successor Directors. Each issued and outstanding share is entitled to participate equally 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 issued are fully-paid and non-assessable by the Fund. Voting rights for Directors are not cumulative.
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 its shareholders and will cast its vote as instructed by the Funds shareholders.
The Manager provided the initial capital for the Fund by purchasing 10,000 shares of common stock of the Fund for $100,000.
Such shares were acquired for investment and can only be disposed of by redemption. As of the date of this Statement of Additional Information, the Manager owned 100% of the outstanding common stock of the Fund. The Manager may be deemed to control the
Fund until such time as it owns less than 25% of the outstanding shares of the Fund.
Computation of Offering Price Per Share
An illustration of the computation of the offering price for Class A, Class B, Class C and Class D shares of the Fund based on
the value of the Funds net assets and number of shares outstanding on the date of this Statement of Additional Information is as follows:
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
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 A and Class D Shares: 5.25% of Offering
Price (5.54% of net amount invested))* |
|
.55 |
|
** |
|
** |
|
.55 |
|
|
|
|
|
|
|
|
|
Offering Price |
|
$ 10.55 |
|
$ 10.00 |
|
$ 10.00 |
|
$ 10.55 |
|
|
|
|
|
|
|
|
|
*
|
Rounded to the nearest one-hundredth percent; assumes maximum sales charge is applicable.
|
**
|
Class B and Class C shares are not subject to an initial sales charge but may be subject to a CDSC on redemption. See Account
Choices Class B and Class C shares Deferred Sales Charge Options in the Prospectus and Redemption of Shares Deferred Sales Charges Class B and Class C Shares herein.
|
Independent Auditors
, has been selected as the independent auditors of the Trust and the Fund. The
independent auditors are responsible for auditing the annual financial statements of the Fund.
Custodian
The Bank of New York, 100 Church Street, New York, New York 10286, (the Custodian) acts as the custodian of the
Trusts and the Funds assets. Under its contracts 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 August 31 of each year. The Fund sends to its shareholders at least semi-annually reports
showing information related to the Trust and other information. An annual report, containing
financial statements audited by independent auditors, is sent to shareholders each year. After the end of each year, shareholders will receive Federal income tax information regarding dividends.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Fund at the address or telephone number set forth on the cover page of this
Statement of Additional Information.
Additional Information
The Prospectus and this Statement of Additional Information do not contain all the information set forth in the Registration
Statement and the exhibits relating thereto, which the Fund has filed with the Commission, Washington, D.C., under the Securities Act and the Investment Company Act, to which reference is hereby made.
Under a separate agreement, ML & Co. has granted the Fund the right to use the Merrill Lynch name and has
reserved the right to withdraw its consent to the use of such name by the Fund at any time or to grant the use of such name to any other company, and the Fund has granted ML & Co. under certain conditions, the use of any other name it might assume in
the future, with respect to any corporation organized by ML & Co.
As of the date of this Statement of Additional Information, the Manager owned 100% of the outstanding common stock of the
Fund. The Manager 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 REPORT
The Board of Directors and Shareholder,
Merrill Lynch Mid Cap Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Merrill Lynch Mid Cap Growth Fund, Inc. as of
. 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
Merrill Lynch Mid Cap Growth Fund, Inc. as of , 2000, in conformity with generally accepted accounting principles
.
Princeton, New Jersey
, 2000
MERRILL LYNCH MID CAP GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
, 2000
ASSETS: |
Cash in Bank |
|
$ |
Prepaid registration fees (Note 3) |
|
|
Prepaid offering costs (Note 3) |
|
|
|
|
|
Total assets
|
|
|
|
|
|
LIABILITIES: |
Liabilities and accrued expenses |
|
|
|
|
|
NET ASSETS |
|
$ 100,000 |
|
|
|
NET ASSETS CONSIST OF: |
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 |
Class D 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 A Based on net assets of $25,000 and 2,500 shares
outstanding |
|
$ 10.00 |
Class B Based on net assets of $25,000 and 2,500 shares
outstanding |
|
$ 10.00 |
Class C Based on net assets of $25,000 and 2,500 shares
outstanding |
|
$ 10.00 |
Class D Based on net assets of $25,000 and 2,500 shares
outstanding |
|
$ 10.00 |
|
|
|
Notes to Financial Statement.
(1)
|
Merrill Lynch Mid Cap Growth Fund, Inc. (the Fund) was organized as a Maryland corporation on July 7, 2000 and is
registered under the Investment Company Act of 1940, as amended, 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 A
shares, 2,500 Class B shares, 2,500 Class C shares and 2,500 Class D shares of Common Stock to Fund Asset Management, L.P. (the Manager). The Fund invests all of its assets in Master Mid Cap Growth Trust (the Trust).
|
(2)
|
The Trust will enter into an investment management agreement with the Manager. The Fund will enter into an administration agreement
with Fund Asset Management, L.P., as Administrator (the Administrator), and a distribution agreement with FAM Distributors, Inc. (the Distributor). (See Management of the Fund Management and Advisory
Arrangements and Administration 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 Manager,
the Administrator 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 Manager, on behalf of the Fund, will incur organization costs estimated at
$ .
|
CODE #:
PART C. OTHER INFORMATION
Item 23. Exhibits.
Exhibit
Number
|
|
|
|
|
1. |
|
|
|
Articles of Incorporation of the Registrant. |
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 Unified Distribution Agreement between the Registrant and FAM Distributors, Inc. (the
Distributor). |
6. |
|
|
|
None. |
7. |
|
|
|
Custody Agreement between the Registrant and The Bank of New York.* |
8.(a) |
|
|
|
Form of Administration Agreement between the Registrant and Fund Asset Management, L.P. |
(b) |
|
|
|
Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement
between the Registrant and Financial Data Services, Inc. |
(c) |
|
|
|
License Agreement relating to use of name between the Registrant and Merrill Lynch & Co. |
(d) |
|
|
|
Credit Agreement between the Registrant and a syndicate of banks.(b) |
9. |
|
|
|
Opinion of Brown & Wood LLP
, counsel for the Registrant.* |
10. |
|
|
|
Consent of , independent auditors for the
Registrant.* |
11. |
|
|
|
None. |
12. |
|
|
|
Certificate of Fund Asset Management, L.P.* |
13.(a) |
|
|
|
Form of Unified Class B Distribution Plan of the Registrant. |
(b) |
|
|
|
Form of Unified Class C Distribution Plan of the Registrant. |
(c) |
|
|
|
Form of Unified Class D Distribution Plan of the Registrant. |
14. |
|
|
|
Merrill Lynch Select Pricing
SM
System Plan pursuant to Rule 18f-3. |
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)
|
Incorporated by reference to Exhibit 8(b) to the Registration Statement on Form N-1A of Master Premier Growth Trust (File No.
811-09733), filed on December 21, 1999.
|
(c)
|
Incorporated by reference to Exhibit 15 to Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A of Merrill
Lynch Middle East/Africa Fund, Inc. (File No. 811-07155), filed on March 29, 2000.
|
*
|
To be filed by Amendment.
|
Item 24. Persons Controlled By Or Under Common Control With Registrant.
The Registrant owns 100% of the beneficial interests in Master Mid Cap Growth Trust (the Trust). Fund Asset
Management, L.P. (the Manager or FAM) owns 100% of the shares of common stock of the Registrant. Therefore, the Registrant and the Trust are under the common control of the Manager.
Item 25. Indemnification.
Reference is made to Article VI of the Registrants Articles of Incorporation, Article VI of the Registrants
By-Laws, Section 2-418 of the Maryland General Corporation Law and Section 9 of the Class A, Class B, Class C and Class D Distribution Agreements.
Insofar as the conditional advancing of indemnification moneys for actions based on the Investment Company Act of 1940, as
amended (the 1940 Act) may be concerned, Article VI of the 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 by receipt by 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 A, Class B, Class C and Class D Shares Distribution Agreements relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each person, if any, who controls the Distributor within the meaning of the Securities Act of 1933, as amended (the 1933 Act), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to Directors, officers and controlling
persons of the Registrant and the principal underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Director, officer, or controlling person of the
Registrant and the principal underwriter in connection with the successful defense of any action, suit or proceeding) is asserted by such Director, officer or controlling person or the principal underwriter in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.
Item 26. Business And Other Connections Of The Investment Adviser.
Fund Asset Management, L.P. (the Manager or FAM) 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 Internet Strategies Trust, Master Large Cap Series Trust, Master Premier Growth Trust, Mercury Global Holdings, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch High Yield Fund, Inc., Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Small Cap Value Fund, Inc., Merrill Lynch U.S. Government Mortgages Fund, Inc., Merrill Lynch World Income Fund, Inc., The Asset Program, Inc., and The Municipal Fund Accumulation
Program, Inc.; and for the following closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt
Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings
California Insured Fund II, 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 II, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund IV, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured Fund
IV, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield Pennsylvania Insured Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Investment Managers, L.P. (MLIM), acts as the investment adviser for the following open-end
registered investment companies: Master Global Financial Services Trust, Mercury Global Holdings, Inc., Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch
Asset Income Fund, Inc., Merrill Lynch Balanced Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global Financial Services Fund, Inc., Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global 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 Funds, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund,
Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable Series Funds, Inc., The Asset Program, 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, MLIM, Princeton Services, Inc. (Princeton
Services) and Princeton Administrators, L.P. (Princeton Administrators) is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of FAM Distributors, Inc. (FAMD) is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) and Merrill Lynch & Co., Inc. (ML & Co.) is World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281-1201. The
address of the Funds transfer agent, Financial Data Services, Inc. (FDS), is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the Manager indicating each business, profession, vocation
or employment of a substantial nature in which each such person or entity has been engaged since April 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 Manager
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
ML & Co. |
|
Limited Partner |
|
Financial Services Holding Company; Limited
Partner of MLIM |
Princeton Services |
|
General Partner |
|
General Partner of MLIM |
Jeffrey M. Peek |
|
President |
|
President of MLIM; President and Director of
Princeton Services; Executive Vice President of ML
& Co.; Managing Director and Co-Head of the
Investment Banking Division of Merrill Lynch in
1997; Senior Vice President and Director of the
Global Securities and Economics Division of Merrill
Lynch from 1995 to 1997. |
Name
|
|
Position(s) with the Manager
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
Terry K. Glenn |
|
Executive Vice President |
|
Executive Vice President of MLIM;
Executive Vice President and Director of
Princeton Services; President and Director
of FAMD; Director of FDS; President of
Princeton Administrators |
Gregory A. Bundy |
|
Chief Operating Officer and
Managing Director |
|
Chief Operating Officer and Managing
Director of MLIM; Chief Operating Officer
and Managing Director of Princeton
Services; Co-CEO of Merrill Lynch
Australia from 1997 to 1999 |
Donald C. Burke |
|
Senior Vice President,
Treasurer and Director of
Taxation |
|
Senior Vice President and Treasurer of
MLIM; Senior Vice President and
Treasurer of Princeton Services; Vice
President of FAMD; First Vice President
of MLIM from 1997 to 1999; Vice
President of MLIM from 1990 to 1997. |
Robert C. Doll, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services; Chief
Investment Officer of Oppenheimer Funds,
Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999 |
Vincent R. Giordano |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services |
Michael J. Hennewinkel |
|
Senior Vice President, Secretary
and General Counsel |
|
Senior Vice President, Secretary and
General Counsel of MLIM; Senior Vice
President of Princeton Services |
Philip L. Kirstein |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President, Secretary, General Counsel
and Director of Princeton Services |
Debra W. Landsman-Yaros |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services; Vice
President of FAMD |
Stephen M. M. Miller |
|
Senior Vice President |
|
Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services |
Joseph T. Monagle, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services |
Gregory D. Upah |
|
Senior Vice President |
|
Senior Vice President of MLIM; 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 2000, Inc., Master Focus 20 Trust, Master Internet Strategies Trust, Master Large Cap Series Trust, Master Premier Growth Trust, Mercury Global Holdings, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Balanced Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing
Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology
Fund, Inc., Merrill Lynch Global 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 Small Cap Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Inc., Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc., Merrill Lynch World Income Fund, Inc., The Asset Program, Inc.,
The Municipal Fund Accumulation Program, Inc. and Worldwide Dollar Vest 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 January 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
|
|
Positions with MLAM U.K
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
Terry K. Glenn |
|
Director and Chairman |
|
Executive Vice President of MLIM and FAM;
Executive Vice President and Director of Princeton
Services; President and Director of FAMD; President of
Princeton Administrators |
Nicholas C.D. Hall |
|
Director |
|
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 |
Donald C. Burke |
|
Treasurer |
|
Senior Vice President and Treasurer of MLIM and
FAM; Director of Taxation of MLIM; Senior Vice
President and Treasurer of Princeton Services; Vice
President of FAMD; First Vice President of MLIM
from 1997 to 1999 |
Carol Ann Langham |
|
Company Secretary |
|
None |
Debra Anne Searle |
|
Assistant Company Secretary |
|
None |
Item 27. Principal Underwriters.
(a) FAMD, acts as the principal underwriter for the Registrant and for each of the open-end registered investment
companies referred to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc. and the Municipal Fund Accumulation Program, Inc. FAMD also acts as the principal underwriter for the following closed-end registered investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., Merrill Lynch Senior Floating Rate Fund, Inc, and Merrill Lynch Senior Floating Rate Fund II, Inc. A separate division of FAMD acts as the principal underwriter of a number of other investment companies.
(b) Set forth below is information concerning each director and officer of FAMD. The principal business address of each such
person is P.O. Box 9081, Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen, Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665.
Name
|
|
Position(s) and Office(s)
with FAMD
|
|
Position(s) and Office(s)
with Registrant
|
Terry K. Glenn |
|
President and Director |
|
President and Director |
Michael G. Clark |
|
Treasurer and Director |
|
None |
Thomas J. Verage |
|
Director |
|
None |
Robert W. Crook |
|
Senior Vice President |
|
None |
Michael J. Brady |
|
Vice President |
|
None |
William M. Breen |
|
Vice President |
|
None |
Donald C. Burke |
|
Vice President |
|
Vice President and Treasurer |
James T. Fatseas |
|
Vice President |
|
None |
Debra W. Landsman-Yaros |
|
Vice President |
|
None |
Michelle T. Lau |
|
Vice President |
|
None |
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), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484).
Item 29. Management Services.
Other than as set forth under the caption Management of the FundFund Asset Management 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.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Plainsboro, and State of New Jersey, on the 21st day of July, 2000.
|
MERRILL
LYNCH
MID
CAP
GROWTH
FUND
, INC
.
|
|
(Terry K. Glenn, President)
|
Each person whose signature appears below hereby authorizes Terry K. Glenn, Donald C. Burke and Susan Baker, 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 of 1933, this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signatures
|
|
Title
|
|
Date
|
|
|
/s/ TERRY
K. GLENN
(Terry K. Glenn) |
|
President (Principal Executive
Officer) and Director |
|
July 21, 2000 |
|
|
/s/ DONALD
C. BURKE
(Donald C. Burke) |
|
Vice President and Treasurer
(Principal Financial and
Accounting Officer) |
|
July 21, 2000 |
|
|
/s/ JAMES
H. BODURTHA
(James H. Bodurtha) |
|
Director |
|
July 21, 2000 |
|
|
(Herbert I. London) |
|
Director |
|
|
|
|
/s/ JOSEPH
L. MAY
(Joseph L. May) |
|
Director |
|
July 21, 2000 |
|
|
/s/ ANDRÉ
F. PEROLD
(André F. Perold) |
|
Director |
|
July 21, 2000 |
|
|
/s/ ROBERTA
COOPER
RAMO
(Roberta Cooper Ramo) |
|
Director |
|
July 21, 2000 |
|
|
(Arthur Zeikel) |
|
Director |
|
|
Master Growth Trust has duly caused this Registration Statement of Merrill Lynch Mid Cap Growth 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 21st day of July, 2000.
|
MASTER
MID
CAP
GROWTH
TRUST
|
|
(Terry K, Glenn, President)
|
Each person whose signature appears below hereby authorizes Terry K. Glenn, Donald C. Burke and Susan Baker, 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 of 1933, this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
Signatures
|
|
Title
|
|
Date
|
|
|
/s/ TERRY
K. GLENN
(Terry K. Glenn) |
|
President (Principal Executive
Officer) and Director |
|
July 21, 2000 |
|
|
/s/ DONALD
C. BURKE
(Donald C. Burke) |
|
Vice President and Treasurer
(Principal Financial
and Accounting Officer) |
|
July 21, 2000 |
|
|
/s/ JAMES
H. BODURTHA
(James H. Bodurtha) |
|
Trustee |
|
July 21, 2000 |
|
|
(Herbert I. London) |
|
Trustee |
|
|
|
|
/s/ JOSEPH
L. MAY
(Joseph L. May) |
|
Trustee |
|
July 21, 2000 |
|
|
/s/ ANDRÉ
F. PEROLD
(André F. Perold) |
|
Trustee |
|
July 21, 2000 |
|
|
/s/ ROBERTA
COOPER
RAMO
(Roberta Cooper Ramo) |
|
Trustee |
|
July 21, 2000 |
|
|
(Arthur Zeikel) |
|
Trustee |
|
|
INDEX TO EXHIBITS
Exhibit
Number
|
|
|
|
Description
|
1 |
|
|
|
Articles of Incorporation |
|
|
2 |
|
|
|
By-Laws of the Registrant |
|
|
5 |
|
|
|
Form of Unified Distribution Agreement between the Registrant and FAM Distributors, Inc. (the
Distributor) |
|
|
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 between the Registrant and Merrill Lynch & Co. |
|
|
13(a) |
|
|
|
Form of Unified Distribution Plan of the Registrant |
|
|
(b) |
|
|
|
Form of Unified Distribution Plan of the Registrant |
|
|
(c) |
|
|
|
Form of Unified Distribution Plan of the Registrant |
|
|
14 |
|
|
|
Merrill Lynch Select Pricing
SM
System Plan pursuant to Rule 18f-3 |