The rate of portfolio turnover is not a limiting factor and, given the Fund’s investment policies, it is anticipated that
there may be periods when high portfolio turnover will exist. The use of covered call options at times when the underlying securities are appreciating in value may result in higher portfolio turnover. The Fund
pays brokerage commissions in connection with writing call options and effecting closing purchase transactions, as well as in connection with purchases and sales of
portfolio securities. The portfolio turnover rate is calculated by dividing the lesser of the Fund’s annual sales or purchases of portfolio securities (exclusive of purchases or sales of U.S. Government securities and all other securities with
maturities at the time of acquisition of one year or less) by the monthly average value of the securities in the portfolio during the year. A high portfolio turnover may result in negative tax consequences, such as an increase in capital gain dividends.
High portfolio turnover may also involve correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions, which are borne directly by the Fund.
Directors/Trustees and Officers
The Directors of the Fund consist of eight individuals, six of whom are not “interested persons” of the Fund as
defined in the Investment Company Act (the “non-interested Directors”). The same individuals serve as Trustees of the Trust and are sometimes referred to herein as the “non-interested Directors/Trustees.” The Directors are responsible
for the overall supervision of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the Investment Company Act.
Information about the Directors/Trustees, executive officers and the portfolio manager of the Fund, including their ages and
their principal occupations for at least the last five years, is set forth below. Unless otherwise noted, the address of each Director, executive officer and the portfolio manager is P.O. Box 9011, Princeton, New Jersey 08543-9011.
TERRY
K. GLENN
(60)—President and Director/Trustee(1)(2)—Executive Vice President of the Investment Adviser and Merrill Lynch Investment Managers L.P. (“MLIM”) (which terms as used herein include their corporate predecessors) since 1983;
Executive Vice President and Director of Princeton Services, Inc. (“Princeton Services”) since 1993; President of FAM Distributors, Inc. (“FAMD” or the “Distributor”) since 1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.
M. COLYER
CRUM
(68)—Director/Trustee(2)(3)—104 Westcliff Road, Weston, Massachusetts 02193. James R. Williston Professor of Investment Management Emeritus, Harvard Business School since 1996; James R. Williston Professor of Investment Management,
Harvard Business School, from 1971 to 1996; Director of Cambridge Bancorp.
LAURIE
SIMON
HODRICK
(38)—Director/Trustee(2)(3)—809 Uris Hall, 3022 Broadway, New York, New York 10027. Professor of Finance and Economics, Graduate School of Business, Columbia University since 1998; Associate Professor of Finance and Economics, Graduate
School of Business, Columbia University from 1996 to 1998; Associate Professor of Finance, J. L. Kellogg Graduate School of Management, Northwestern University from 1992 to 1996.
JACK
B. SUNDERLAND
(72)—Director/Trustee(2)(3)—P.O. Box 7, West Cornwall, Connecticut 06796. President and Director of American Independent Oil Company, Inc. (an energy company) since 1987; Member of Council on Foreign Relations since 1971.
STEPHEN
B. SWENSRUD
(67)—Director/Trustee(2)(3)—88 Broad Street, 2nd Floor, Boston, Massachusetts 02110. Chairman of Fernwood Advisors (investment advisor) since 1996; Principal of Fernwood Associates (financial consultants) since 1975; Chairman of R.P.P.
Corporation (Manufacturing) since 1978; Director of International Mobile Communications, Inc. (Telecommunications) since 1998.
J. THOMAS
TOUCHTON
(61)—Director/Trustee(2)(3)—Suite 3405, One Tampa City Center, 201 North Franklin Street, Tampa, Florida 33062. Managing Partner of The Witt Touchton Company and its predecessor, The Witt Co. (a private investment partnership), since 1972;
Trustee Emeritus of Washington and Lee University; Director of TECO Energy, Inc. (an electric utility holding company).
FRED
G. WEISS
(59)—Director/Trustee(2)(3)—16450 Maddalena Place, Delray Beach, Florida 33446. Managing Director of FGW Associates since 1997; Vice President, Planning Investment, and Development of
Warner Lambert Co. from 1979 to 1997; Director of Watson Pharmaceutical, Inc. (a pharmaceutical company) since 2000; Director of the Michael J. Fox Foundation for Parkinson’s Research; Director of Laboratories Phoenix USA, Inc (a private drug
delivery company); and Director of Kann Institute for Medical Careers, Inc. (a private medical education company).
ARTHUR
ZEIKEL
(68)—Director/Trustee(1)(2)—300 Woodland Avenue, Westfield, New Jersey 07090. Chairman of the Investment Adviser and MLIM from 1997 to 1999 and President thereof from 1977 to 1997; Chairman of Princeton Services from 1997 to 1999,
Director thereof from 1993 to 1999 and President thereof from 1993 to 1997; Executive Vice President of Merrill Lynch & Co. Inc. (“ML & Co.”) from 1990 to 1999.
KEVIN
RENDINO
(34)—Senior Vice President and Portfolio Manager(1)—First Vice President of MLIM since 1997; Vice President of MLIM from 1993 to 1997; and Portfolio Manager of MLIM since 1999.
DONALD
C. BURKE
(40)—Vice President and Treasurer(1)(2)—Senior Vice President and Treasurer of the Investment Adviser and MLIM since 1999; Senior Vice President and Treasurer of Princeton Services since 1999; Vice President of FAMD since 1999; First Vice
President of MLIM from 1997 to 1999; Vice President of MLIM from 1990 to 1997; Director of Taxation of MLIM since 1990.
THOMAS
D. JONES
, III (35)—Secretary(1)(2)—Director (Legal Advisory) of MLIM since 2000; Vice President of MLIM from 1998 to 2000; attorney with the Investment Adviser and MLIM since 1992.
(1)
|
Interested person, as defined in the Investment Company Act, of the Trust and the Fund.
|
(2)
|
Such Director/Trustee or officer is a director, trustee or officer of certain other investment companies for which FAM or MLIM acts
as the investment adviser or manager.
|
(3)
|
Member of the Fund’s and the Trust’s 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 October 1, 2000, the Directors/Trustees and officers of the Fund and the Trust as a group (11 persons) owned an
aggregate of less than 1% of the outstanding shares of the Trust and the Fund. At such date, Mr. Zeikel, a Director/Trustee of the Trust and the Fund, Mr. Glenn, a Director/Trustee and officer of the Trust and the Fund, and the other officers of the Trust
and the Fund owned an aggregate of less than 1% of the outstanding shares of common stock of ML & Co.
Compensation of Directors/Trustees
The Fund and the Trust pay each non-interested Director/Trustee, for service to the Fund and the Trust, a combined fee of
$3,500 per year plus $500 per Board meeting attended. The Fund and the Trust also compensate each member of the Audit and Nominating Committee (the “Committee”), which consists of all of the non-interested Directors/Trustees, at the rate of
$2,500 per year. The Chairman of the Committee receives an additional fee of $1,000 per year. The Fund and the Trust reimburse each non-interested Director/Trustee for his or her out-of-pocket expenses relating to attendance at Board and Committee meetings.
The following table shows the compensation earned by the non-interested Directors/Trustees for the fiscal year ended June 30,
2000, and the aggregate compensation paid to them from all registered investment companies advised by the Investment Adviser and its affiliate, MLIM (“MLIM/FAM advised funds”), for the calendar year ended December 31, 1999.
Name
|
|
Position with
Fund/Trust
|
|
Compensation
From Fund(1)
|
|
Pension or
Retirement Benefits
Accrued as Part of
Fund Expense
|
|
Estimated Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation From
Fund/ Trust and
Other MLIM/FAM
Advised Funds(2)
|
| M. Colyer Crum |
|
Director/Trustee |
|
$9,000 |
|
None |
|
None |
|
$122,975 |
Laurie Simon
Hodrick(3) |
|
Director/Trustee |
|
$7,500 |
|
None |
|
None |
|
$ 53,000 |
| Jack B. Sunderland |
|
Director/Trustee |
|
$8,000 |
|
None |
|
None |
|
$143,975 |
| Stephen B. Swensrud |
|
Trustee |
|
N/A |
|
None |
|
None |
|
$232,250 |
| J. Thomas Touchton |
|
Director/Trustee |
|
$8,000 |
|
None |
|
None |
|
$142,725 |
| Fred G. Weiss |
|
Director/Trustee |
|
$8,000 |
|
None |
|
None |
|
$122,975 |
(1)
|
During the indicated period, the individuals were compensated solely as Directors of the Fund.
|
(2)
|
The Directors/Trustees serve on the boards of MLIM/FAM advised funds as follows: Mr. Crum (25 registered investment companies
consisting of 60 portfolios); Ms. Hodrick (25 registered investment companies consisting of 60 portfolios); Mr. Sunderland (25 registered investment companies consisting of 60 portfolios); Mr. Swensrud (40 registered investment companies consisting of 80
portfolios); Mr. Touchton (25 registered investment companies consisting of 60 portfolios); and Mr. Weiss (25 registered investment companies consisting of 60 portfolios).
|
(3)
|
Ms. Hodrick was elected a Director of the Fund and certain other MLIM/FAM advised funds on November 4, 1999.
|
(4)
|
Mr. Swensrud was elected a Director of the Fund on July 17, 2000.
|
The Directors of the Fund and the Trustees of the Trust may purchase Class A shares of the Fund at net asset value. See “
Purchase of Shares—Initial Sales Charge Alternatives—Class A and Class D Shares—Reduced Initial Sales Charges—Purchase Privilege of Certain Persons.”
Management and Advisory Arrangements
Prior Management Arrangements. Prior to the conversion to a “master/feeder” structure,
all management and administrative services were provided directly at the Fund level and were paid pursuant to the Fund’s investment advisory contract at a fee rate of 0.60% of the average daily net assets of the Fund for the first $100 million; 0.50%
of the average daily net assets from $100 million to $200 million; and 0.40% of the average daily net assets above $200 million. For the fiscal year ended June 30, 2000 the Investment Adviser received a fee equal to 0.40% of the Fund’s average daily
net assets. The services provided to the Fund included all those described below in “Present Investment Advisory Services and Fee,” “Payment of Trust Expenses” and “Administration Arrangements.”
The table below sets forth information about the total fees paid by the Fund to FAM for the periods indicated.
Period
|
|
Investment
Advisory Fee
|
| Fiscal year ended June 30, 2000 |
|
$45,982,909 |
| Fiscal year ended June 30, 1999 |
|
$49,616,814 |
| Fiscal year ended June 30, 1998 |
|
$47,100,812 |
Present Investment Advisory Services and Fees. The Fund invests its assets in shares of the
Trust. Accordingly, the Fund does not invest directly in portfolio securities and does not require investment advisory services. All portfolio management occurs at the level of the Trust. The Trust has entered into an investment advisory agreement with
FAM as Investment Adviser (the “Advisory Agreement”). Subject to the supervision of the Trustees, the Investment Adviser is responsible for the actual management of the Trust’s portfolio and constantly reviews the Trust’s holdings in
light of its own research analysis and that from other relevant sources. The responsibility for making decisions to buy, sell or hold a particular security rests with the Investment Adviser. The Investment Adviser performs certain of the other
administrative services and provides all the office space, facilities, equipment and necessary personnel for management of the Trust. As discussed in “Management of the Fund—Fund Asset Management” in the Prospectus, the Investment Adviser
receives for its services to the Trust monthly compensation at an annual rate of 0.60% of the Trust’s average daily net assets for the first $100 million; 0.50% of the Trust’s average daily net assets from $100 million to $200 million; and 0.40%
of the Trust’s average daily net assets above $200 million, (i.e., the average daily value of the total assets of the Trust, minus the sum of accrued liabilities of the Trust). For purposes of this calculation, average daily net assets is determined at the end of each month on the basis of the average net
assets of the Trust for each day during the month.
Securities held by the Trust may also be held by, or be appropriate investments for, other funds or investment advisory
clients for which the Investment Adviser or its affiliates act as an adviser. Because of different objectives or other factors, a particular security may be bought for one or more clients of the Investment Adviser or an affiliate when one or more clients
of the Investment Adviser or an affiliate are selling the same security. If purchases or sales of securities arise for consideration at or about the same time that would involve the Fund or other clients or funds for which the Investment Adviser or an
affiliate act as manager, transactions in such
securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of the Investment Adviser or an affiliate during the same period may
increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
Payment of Trust Expenses. The Advisory Agreement obligates the Investment Adviser to provide
investment advisory services and to pay, or cause an affiliate to pay, for maintaining its staff and personnel and to provide office space, facilities and necessary personnel for the Trust. The Investment Adviser is also obligated to pay, or cause an
affiliate to pay, the fees of all officers, Trustees, and Directors who are affiliated persons of the Investment Adviser or any sub-adviser or of an affiliate of the Investment Adviser or any sub-adviser. The Trust pays, or causes to be paid, all other
expenses incurred in the operation of the Trust (except to the extent paid by the Distributor), including, among other things, taxes, expenses for legal and auditing services, costs of printing proxies, shareholder reports, copies of the Registration
Statement, charges of the custodian, any sub-custodian and the transfer agent, expenses of portfolio transactions, expenses of redemption of shares, Commission fees, expenses of registering the shares under Federal, state or non-U.S. laws, fees and actual
out-of-pocket expenses of non-interested Trustees; accounting and pricing costs (including the daily calculation of net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Trust.
Organization of the Investment Adviser. The Investment Adviser is a limited partnership, the
partners of which are ML & Co., a financial services holding company and the parent of Merrill Lynch, and Princeton Services. ML & Co. and Princeton Services are “controlling persons” of the Investment Adviser as defined under the
Investment Company Act because of their ownership of its voting securities and their power to exercise a controlling influence over its management or policies.
The following entities may be considered “controlling persons” of Merrill Lynch Asset Management U.K. Limited (“
MLAM U.K.”): Merrill Lynch Europe PLC (MLAM U.K.’s parent), a subsidiary of Merrill Lynch International Holdings, Inc., a subsidiary of Merrill Lynch International, Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described below, the Advisory Agreement
and Sub-Advisory Agreement will each continue in effect for two years from its effective date. Thereafter, they will remain in effect from year to year if approved annually (a) by the Board of Trustees of the Trust or by a majority of the outstanding
shares of the Trust and (b) by a majority of the Trustees of the Trust who are not parties to the Advisory Agreement or interested persons (as defined in the Investment Company Act) of any such party. The Advisory Agreement is not assignable and will
automatically terminate in the event of its assignment. In addition, such contract may be terminated by the vote of a majority of the outstanding voting securities of the Trust or by the Investment Adviser without penalty on 60 days’ written notice
to the other party.
Administration Arrangements
The Fund has entered into an administration agreement with FAM (the “Administrator”) as administrator (the “
Administration Agreement”). By the terms of the Administration Agreement, the Administrator may receive for its services monthly compensation at the annual rate of 0.25% of the average daily net assets of the Fund, but only if, among other things,
the Administration Agreement is first amended by the Fund’s Board of Directors to permit such compensation.
The Administration Agreement obligates the Administrator to provide certain administrative services to the Fund and to pay, or
cause its affiliates to pay, for maintaining its staff and personnel and to provide office space, facilities and necessary personnel for the Fund. The Administrator is also obligated to pay, or cause its affiliates to pay, the fees of those officers,
Directors and Trustees who are affiliated persons of the Administrator or any of its affiliates. The Fund pays, or causes to be paid, all other expenses incurred in the operation of the Fund (except to the extent paid by the Distributor), including, among
other things, taxes, expenses for legal and auditing services, costs of printing proxies, shareholder reports and prospectuses and statements of additional information, charges of the custodian, any sub-custodian and Financial Data Services, Inc. (the
“Transfer Agent”), expenses of portfolio transactions, expenses of redemption of shares, Commission fees, expenses of registering the shares under Federal, state or non-U.S. laws, fees and actual out-of-pocket expenses of Directors who are not
affiliated
persons of the Administrator, or of an affiliate of the Administrator, accounting and pricing costs (including the daily calculation of the net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and other expenses properly payable by the Fund. The Distributor will pay certain of the expenses of the Fund incurred in connection with the continuous offering of its shares. Certain expenses will be financed by the Fund pursuant to
distribution plans in compliance with Rule 12b-1 under the Investment Company Act. See “Purchase of Shares—Distribution Plans.” Accounting services are provided to the Fund by the Administrator, and the Fund reimburses the Administrator for
its costs in connection with such services.
Duration and Termination. Unless earlier terminated as described below, the Administration
Agreement will remain in effect for two years from its effective date. Thereafter it will remain in effect from year to year if approved annually (a) by the Board of Directors and (b) by a majority of the Directors who are not parties to such contract or
interested persons (as defined in the Investment Company Act) of any such party. Such contract is not assignable and may be terminated without penalty on 60 days’ written notice at the option of either party thereto or by the vote of the shareholders
of the Fund.
Transfer Agency Services. The Transfer Agent, a subsidiary of ML & Co., acts as the
Fund’s Transfer Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement (the “Transfer Agency Agreement”). Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee 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
which close during the calendar year. Application of this fee will commence the month following the month the account is closed. At the end of the calendar year, no further fees will be due. For purposes of the Transfer Agency Agreement, the term “
account” includes a shareholder account maintained directly by the Transfer Agent and any other account representing the beneficial interest of a person in the relevant share class on a recordkeeping system, provided the recordkeeping system is
maintained by a subsidiary of ML & Co.
Distribution Expenses. The Fund has entered into a distribution agreement with the Distributor
in connection with the continuous offering of shares of the Fund (the “Distribution Agreement”). The Distribution Agreement obligates the Distributor to pay certain expenses in connection with the offering of the shares of the Fund. After the
prospectuses, statements of additional information and periodic reports have been prepared, set in type and mailed to shareholders, the Distributor pays for the printing and distribution of copies thereof used in connection with the offering to dealers
and investors. The Distributor also pays for other supplementary sales literature and advertising costs. The Distribution Agreement is subject to the same renewal requirements and termination provisions as the Advisory Agreement described above.
The Board of Trustees of the Trust and the Board of Directors of the Fund each have approved a Code of Ethics under Rule 17j-1
of the Investment Company Act that covers the Trust, the Fund, the Investment Adviser and the Distributor. The Code of Ethics establishes procedures for personal investing and restricts certain transactions. Employees subject to the Code of Ethics may
invest in securities for their personal investment accounts, including securities that may be purchased or held by the Trust.
Reference is made to “Your Account—How to Buy, Sell, Transfer and Exchange Shares” in the Prospectus for
certain information as to the purchase of Fund shares.
The Fund offers four classes of shares under the Merrill Lynch Select 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 or Class D share of the Fund represents an identical interest in 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 the Investment Adviser or MLIM. Funds
advised by the Investment Adviser or MLIM that utilize 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 and other financial intermediaries have the responsibility of submitting
purchase orders to the Fund not later than 30 minutes after the close of business on the NYSE in order to purchase shares at that day’s offering price.
The Fund or the Distributor may suspend the continuous offering of the Fund’s shares of any class at any time in response
to conditions in the securities markets or otherwise and may thereafter resume such offering from time to time. Any order may be rejected by the Fund or the Distributor. Neither the Distributor nor the dealers or other financial intermediaries are
permitted to withhold placing orders to benefit themselves by a price change. Merrill Lynch may charge its customers a processing fee (presently $5.35) to confirm a sale of shares to such customers. 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 alternative 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. Investors
qualifying for significantly reduced initial sales charges may find the initial sales charge alternative particularly attractive because similar sales charge reductions are not available with respect to the deferred sales charges imposed in connection
with purchases of Class B or Class C shares. Investors not qualifying for reduced initial sales charges who expect to maintain their investment for an extended period of time also may elect to purchase Class A or Class D shares, because over time the
accumulated ongoing account maintenance and distribution fees on Class B or Class C shares may exceed the initial sales charges, and, in the case of Class D shares, the account maintenance fee. Although some investors who previously purchased Class A
shares may no longer be eligible to purchase Class A shares of other Select Pricing Funds, those previously purchased Class A shares, together with Class B, Class C and Class D share holdings, will count toward a right of accumulation which may qualify
the investor for a reduced initial sales charge on new initial sales charge purchases. In addition, the ongoing Class B and Class C account maintenance and distribution fees will cause Class B and Class C shares to have higher expense ratios, pay lower
dividends and have lower total returns than the initial sales charge shares. The ongoing Class D account maintenance fees will cause Class D shares to have a higher expense ratio, pay lower dividends and have a lower total return than Class A shares.
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.
Eligible Class A Investors
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 an account, including participants in the Merrill Lynch Blueprint
SM
Program, are entitled to purchase additional Class A shares of the Fund in that account. Certain em
ployer-sponsored retirement or savings plans, including eligible 401(k) plans, may purchase Class A shares at net asset value provided such plans meet the required minimum number of eligible employees or required amount of assets advised by the Investment
Adviser or any of its affiliates. Class A shares are available at net asset value to corporate warranty insurance reserve fund programs and U.S. branches of foreign banking institutions, provided that the program or the bank has $3 million or more
initially invested in Select Pricing Funds. Also eligible to purchase Class A shares at net asset value are participants in certain investment programs including TMA
SM
Managed Trusts to which Merrill Lynch Trust Company provides discretionary trustee services, collective investment
trusts for which Merrill Lynch Trust Company serves as trustee and certain purchases made in connection with certain fee-based programs. In addition, Class A shares are offered at net asset value to ML & Co. and its subsidiaries and their directors
and employees and to members of the Boards of MLIM/FAM advised investment companies including the Fund. Certain persons who acquired shares of certain MLIM/FAM advised closed-end funds 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.
Class A and Class D Sales Charge Information
| Class A Shares |
|
For the Fiscal Year
Ended June 30,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received on
Redemption of
Load-Waived Shares
|
| 2000 |
|
$ 227,746 |
|
$ 22,619 |
|
$ 205,127 |
|
$1,354 |
| 1999 |
|
$ 346,322 |
|
$ 25,518 |
|
$ 320,804 |
|
$ 0 |
| 1998 |
|
$ 690,640 |
|
$ 50,429 |
|
$ 640,211 |
|
$ 0 |
|
| Class D Shares |
|
For the Fiscal Year
Ended June 30,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received on
Redemption of
Load-Waived Shares
|
| 2000 |
|
$ 948,750 |
|
$ 62,128 |
|
$ 886,622 |
|
$5,631 |
| 1999 |
|
$1,022,708 |
|
$ 66,060 |
|
$ 956,648 |
|
$4,174 |
| 1998 |
|
$2,320,585 |
|
$152,493 |
|
$2,168,092 |
|
$ 0 |
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 selected 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 in obtaining 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.
Right of Accumulation. Reduced sales charges are applicable through a right of accumulation
under which eligible investors are permitted to purchase shares of the Fund subject to an initial sales charge at the offering price applicable to the total of (a) the public offering price of the shares then being purchased plus (b) an amount equal to
the then current net asset value or cost, whichever is higher, of the purchaser’s combined holdings of all classes of shares of the Fund and of any other Select Pricing Funds. For any such right of accumulation to be made available, the Distributor
must be provided at the time of purchase, by the purchaser or the purchaser’s selected securities dealer or other financial intermediary, with sufficient information to permit confirmation of qualification. Acceptance of the purchase order is subject
to such confirmation. The right of accumulation may be amended or terminated at any time. Shares held in the name of a nominee or custodian under pension, profit-sharing or other employee benefit plans may not be combined with other shares to qualify for
the right of accumulation.
Letter of Intent. Reduced sales charges are applicable to purchases aggregating $25,000 or more
of the Class A or Class D shares of the Fund or any Select Pricing Funds made within a 13-month period starting with the first purchase pursuant to a Letter of Intent. The Letter of Intent is available only to investors whose accounts are established and
maintained at the Fund’s Transfer Agent. The Letter of Intent is not available to employee benefit plans for which Merrill Lynch provides 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 of 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 D 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 the further reduced percentage sales charge that would be applicable to a single purchase equal to the total dollar value of the Class A or Class D shares then being purchased under such Letter, 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.
Merrill Lynch Blueprint
SM
Program. Class D shares of the Fund are offered to participants in the
Merrill Lynch Blueprint
SM
Program (“Blueprint”). In addition, participants in Blueprint who own Class A shares of the Fund may
purchase additional Class A shares of the Fund through Blueprint. Blueprint is directed to small investors, group IRAs and participants in certain affinity groups such as credit unions and trade associations. Investors placing orders to purchase Class A
or Class D shares of the Fund through Blueprint will acquire the Class A or Class D shares at net asset value plus a sales charge calculated in accordance with the Blueprint sales charge schedule (i.e., up to $300 at 4.25%, from $300.01 to $5,000 at 3.25%
plus $3.00, and $5,000.01 or more at the standard sales charge rates disclosed in the Prospectus). In addition, Class A or Class D shares of the Fund are being offered at net asset value plus a sales charge of .50% of 1% for corporate or group IRA
programs placing orders to purchase their Class A or Class D shares through Blueprint. Services, including the exchange privilege, available to Class A or Class D investors through Blueprint, however, may differ from those available to other investors in
Class A or Class D shares.
Class A and Class D shares are offered at net asset value to Blueprint participants through the Merrill Lynch Directed IRA
Rollover Program (the “IRA Rollover Program”) available from Merrill Lynch Business Financial Services, a business unit of Merrill Lynch. The IRA Rollover Program is available to custodian rollover assets from employer-sponsored retirement and
savings plans whose trustee and/or plan sponsor has entered into a Merrill Lynch Directed IRA Rollover Program Service Agreement.
Orders for purchases and redemptions of Class A or Class D shares of the Fund may be grouped for execution purposes which, in
some circumstances, may involve the execution of such orders two business days following the day such orders are placed. The minimum initial purchase price is $100, with a $50 minimum for subsequent purchases through Blueprint. There are no minimum
initial or subsequent purchase requirements for participants who are part of an automatic investment plan. Additional information concerning purchases through Blueprint, including any annual fees and transaction charges, is available from Merrill Lynch,
Pierce, Fenner & Smith Incorporated, The Blueprint
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Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA
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Managed Trusts. Class A shares are offered at net asset value to TMA
SM
Managed Trusts to which Merrill Lynch Trust Company provides discretionary trustee services.
Employee Access
SM
Accounts. Provided applicable threshold requirements are met, either
Class A or Class D shares are offered at net asset value to Employee Access
SM
Accounts available through authorized employers. The initial minimum investment for such accounts is $500, except
that the initial minimum investment for shares purchased for such accounts pursuant to the Automatic Investment Program is $50.
Employer-Sponsored Retirement or Savings Plans and Certain Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other arrangements may purchase Class A or Class D shares at net asset value, based on the number of employees or number of employees eligible to participate in the plan, the aggregate amount
invested by the plan in specified investments and/or the services provided by Merrill Lynch to
the plan. Additional information regarding purchases by employer-sponsored retirement or savings plans and certain other arrangements is available toll-free from Merrill Lynch Business Financial Services at (800) 237-7777.
Purchase Privilege of Certain Persons. Members of the Board of Directors of the Fund and
Trustees of the Trust and of other investment companies advised by the Investment Adviser or its affiliates, directors and employees of ML & Co. and its subsidiaries (the term “subsidiaries,” when used herein with respect to ML & Co.,
includes MLIM, FAM and certain other entities directly or indirectly wholly owned and controlled by ML & Co.) 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 Fund’s 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 Consultant’s previous firm and was subject to a sales charge either at the time of purchase or on a deferred
basis; and, second, the investor must establish that such redemption had been made within 60 days prior to the investment in the Fund and the proceeds from the redemption had been maintained in the interim in cash or a money market fund.
Class D shares of the Fund are also offered at net asset value, without a sales charge, to an investor that has a business
relationship with a Merrill Lynch Financial Consultant and that has invested in a mutual fund sponsored by a non-Merrill Lynch company for which Merrill Lynch has served as a selected dealer and where Merrill Lynch has either received or given notice that
such arrangement will be terminated (“notice”) if the following conditions are satisfied: first, the investor must purchase Class D shares of the Fund with proceeds from a redemption of shares of such other mutual fund and the shares of such
other fund were subject to a sales charge either at the time of purchase or on a deferred basis; and, second, such purchase of Class D shares must be made within 90 days after such notice.
Class D shares of the Fund are offered at net asset value, without a sales charge, to an investor that has a business
relationship with a Merrill Lynch Financial Consultant and that has invested in a mutual fund for which Merrill Lynch has not served as a selected dealer if the following conditions are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from the redemption of shares of such other mutual fund and that such shares have been outstanding for a period of no less than six months; and, second, such purchase of Class D shares must be made within
60 days after the redemption and the proceeds from the redemption must be maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. Class D shares may be offered at the net asset
value in connection with the acquisition of the assets of or merger or consolidation with a personal holding company or a public or private investment company.
Purchases Through Certain Financial Intermediaries. Reduced sales charges may be applicable for
purchases of Class 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 Investment Adviser or an affiliate from time to time.
Deferred Sales Charge Alternatives — Class B and Class C Shares
Investors choosing the deferred sales charge alternatives should consider Class B shares if they intend to hold their shares
for an extended period of time and Class C shares if they are uncertain as to the length of time they intend to hold their assets in Select Pricing Funds.
Because no initial sales charges are deducted at the time of the purchase, Class B and Class C shares provide the benefit of
putting all of the investor’s dollars to work from the time the investment is made. The deferred sales charge alternatives may be particularly appealing to investors that do not qualify for the reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account maintenance fees and distribution fees; however, the ongoing account maintenance and distribution fees potentially may be offset to the extent any return is realized on the additional
funds initially invested in Class B or Class C shares. In addition, Class B shares will be converted into Class D shares of the Fund after a conversion period of approximately eight years, and thereafter investors will be subject to lower ongoing fees.
The public offering price of Class B and Class C shares for investors choosing the deferred sales charge alternatives is the
next determined net asset value per share without the imposition of a sales charge at the time of purchase. See “Pricing of Shares—Determination of Net Asset Value” below.
Contingent Deferred Sales Charges — Class B Shares
Class B shares that are redeemed within four years of purchase may be subject to a CDSC at the rates set forth below charged
as a percentage of the dollar amount subject thereto. In determining whether a CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest applicable rate being charged. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no CDSC will be assessed on shares
derived from reinvestment of dividends. It will be assumed that the redemption is first of shares held for over four years or shares acquired pursuant to reinvestment of dividends and then of shares held longest during the four-year period. A transfer of
shares from a shareholder’s account to another account will be assumed to be made in the same order as a redemption.
The following table sets forth the Class B CDSC:
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 on redemptions of shares by
certain eligible 401(a) and 401(k) plans in connection with group plans placing orders through the Merrill Lynch Blueprint
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Program. The CDSC may also be waived for any Class B shares that are purchased by eligible 401(k) or eligible
401(a) plans that are rolled over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and held in such account at the time of redemption. The Class B CDSC may be waived for any Class B shares that were acquired and held at the time of the
redemption in an Employee Access
SM
Account available through employers providing eligible 401(k) plans. The Class B CDSC may also 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 may also be
waived or its terms
may be modified in connection with certain fee-based programs. The Class B CDSC may also be waived in connection with involuntary termination of an account in which Fund shares are held or for withdrawals through the Merrill Lynch Systematic Withdrawal
Plan. See “Shareholder Services—Fee-Based Programs” and “Systematic Withdrawal Plan.”
Employer-Sponsored Retirement or Savings Plans and Certain Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other arrangements may purchase Class B shares with a waiver of the CDSC upon redemption, based on the number of employees or number of employees eligible to participate in the plan, the aggregate
amount invested by the plan in specified investments and/or the services provided by Merrill Lynch to the plan. Such Class B shares will convert into Class D shares approximately ten years after the plan purchases the first share of any Select Pricing
Fund. Minimum purchase requirements may be waived or varied for such plans. Additional information regarding purchases by employer-sponsored retirement or savings plans and certain other arrangements is available toll-free from Merrill Lynch Business
Financial Services at (800) 237-7777.
Merrill Lynch Blueprint
SM
Program. Class B shares are offered to certain participants in Blueprint.
Blueprint is directed to small investors, group IRAs and participants in certain affinity groups such as trade associations and credit unions. Class B Shares of the Fund are offered through Blueprint only to members of certain affinity groups. The CDSC is
waived in connection with purchase orders placed through Blueprint by members of such affinity groups. Services, including the exchange privilege, available to Class B investors through Blueprint, however, may differ from those available to other Class B
investors. Orders for purchases and redemptions of Class B shares of the Fund will be grouped for execution purposes which, in some circumstances, may involve the execution of such orders two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for subsequent purchases through Blueprint. There is no minimum initial or subsequent purchase requirement for investors who are part of a Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any annual fees or transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Conversion of Class B Shares to Class D Shares. After approximately eight years (the “
Conversion Period”), Class B shares 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 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 Fund’s CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares acquired as a result of the exchange.
Share certificates for Class B shares of the Fund to be converted must be delivered to the Transfer Agent at 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 shareholder’s account to another account will be assumed to be made in the same order as a redemption. The Class C CDSC may be waived in connection with involuntary termination of an account in which Fund shares are held and withdrawals
through the Merrill Lynch Systematic Withdrawal Plans. See “Shareholder Services—Systematic Withdrawal Plan.”
Class B and Class C Sales Charge Information
| Class B Shares* |
|
For the Fiscal Year
Ended June 30,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
| 2000 |
|
$5,763,029 |
|
$5,763,029 |
| 1999 |
|
$6,107,531 |
|
$6,107,531 |
| 1998 |
|
$3,035,154 |
|
$3,035,154 |
|
|
* Additional Class B CDSCs payable to the Distributor may have been waived or converted to a contingent obligation in connection with a shareholder’s participation in certain fee-based programs. |
|
| Class C Shares |
|
For the Fiscal Year
Ended June 30,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
| 2000 |
|
$ 147,381 |
|
$ 147,381 |
| 1999 |
|
$ 193,976 |
|
$ 193,976 |
| 1998 |
|
$ 111,981 |
|
$ 111,981 |
Merrill Lynch compensates its Financial Consultants for selling Class B and Class C shares at the time of purchase from its
own funds. Proceeds from the CDSC and the distribution fee are paid to the Distributor and are used in whole or in part by the Distributor to defray the expenses of dealers (including Merrill Lynch) related to providing distribution-related services to
the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to financial consultants for selling Class B and Class C shares from the dealer’s own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the Fund to sell the Class B and Class C shares without a sales charge being deducted at the time of purchase. See “Distribution Plans” below. Imposition of the CDSC and the distribution fee on Class B
and Class C shares is limited by the National Association of Securities Dealers, Inc. (the “NASD”) asset-based sales charge rule. See “Limitations on the Payment of Deferred Sales Charges” below.
Closed-End Fund ReInvestment Option
Class A shares of the Fund (“Eligible Class A Shares”) are offered at net asset value to holders of the
common stock 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 such shares in Eligible Class A
Shares, if the conditions set forth below are satisfied. Alternatively, holders of the common stock of closed-end funds who purchased such shares on or after October 21, 1994 and wish to reinvest the net proceeds from a sale of those shares may purchase
Class A shares (if eligible to buy Class A shares) or Class D shares of the Fund (“Eligible Class D Shares”) at net asset value, 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 that Fund’s initial public offering represent 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.
Subject to the conditions set forth below, shares of the Fund are offered at net asset value to holders of the common stock of
certain MLIM/FAM advised continuously offered closed-end funds who wish to reinvest the net proceeds from a sale of such shares. Upon exercise of this reinvestment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. will receive Class A
shares of the Fund, shareholders of Merrill Lynch Senior Floating Rate Fund II, Inc. will receive Class C 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 of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund, Inc. who already own Class A shares of the Fund may 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 option is available only with respect to eligible shares as to which no Early Withdrawal Charge or CDSC (each as
defined in the eligible fund’s prospectus) is applicable. Purchase orders from eligible fund shareholders wishing to exercise this reinvestment 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 shares of the Fund on such day. The Class C CDSC may be waived upon redemption of Class C shares purchased by an investor pursuant to this closed-end fund investment option. Such waiver is subject to the
requirement that the investors have held the tendered shares for a minimum of one year and to such other conditions as are set forth in the prospectus for the related closed-end fund.
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 pursuant to Rule 12b-1 under the Investment Company Act (each a “Distribution Plan”) with respect to the account maintenance and/or distribution fees paid by the Fund to the Distributor
with respect to such classes.
The Distribution Plans for each of the Class B, Class C and Class D shares provide that the Fund pays the Distributor an
account maintenance fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.25% of the average daily net assets of the Fund attributable to shares of the relevant class in order to compensate the
Distributor, Merrill Lynch and 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 Plans for each of the Class B and Class C shares provide that the Fund also pays the Distributor a
distribution fee relating to the shares of the relevant class, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets of the Fund attributable to the shares of the relevant class in order to compensate the Distributor,
Merrill Lynch and 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 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 in connection with the sale of the Class B and Class C
shares.
The Fund’s Distribution Plans are subject to the provisions of Rule 12b-1 under the Investment Company Act. In their
consideration of each Distribution Plan, the Directors must consider all factors they deem relevant, including information as to the benefits of the Distribution Plan to the Fund and each 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 Plans, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Fund preserve copies of the Distribution Plans 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. 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 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, 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, distribution fees and CDSCs and the expenses consist of financial consultant compensation.
As of December 31, 1999, the fully allocated accrual revenues incurred by the Distributor and Merrill Lynch for the period
since the commencement of operations of Class B shares exceeded the fully allocated accrual expenses by approximately $23,332,000 (0.54% of Class B net assets at that date). As of June 30, 2000, direct cash revenues for the period since the commencement
of operations of Class B shares exceeded direct cash expenses by $213,880,291 (6.46% of Class B net assets at that date). As of December 31, 1999, the fully allocated accrual revenues received by the Distributor and Merrill Lynch for the period since the
commencement of operations of Class C shares exceeded the fully allocated accrual expenses by approximately $693,000 (0.14% of Class C net assets at that date). As of June 30, 2000, direct cash revenues for the period since the commencement of operations
of Class C shares exceeded direct cash expenses by $12,980,941 (3.14% of Class C net assets at that date).
For the fiscal year ended June 30, 2000, the Fund paid the Distributor $41,246,049 pursuant to the Class B Distribution Plan
(based on average daily net assets subject to such Class B Distribution Plan of approximately
$4.1 billion), all of which was paid to Merrill Lynch for providing account maintenance and distribution-related activities and services in connection with Class B shares.
For the fiscal year ended June 30, 2000, the Fund paid the Distributor $4,769,630 pursuant to the Class C Distribution Plan (based on average daily net assets subject to such Class C Distribution Plan of approximately $479.6 million), all of which was
paid to Merrill Lynch for providing account maintenance and distribution-related activities and services in connection with Class C shares. For the fiscal year ended June 30, 2000, the Fund paid the Distributor $4,663,337 pursuant to the Class D
Distribution Plan (based on average daily net assets subject to such Class D Distribution Plan of approximately $1.9 billion), all of which was paid to Merrill Lynch for providing account maintenance activities in connection with Class D shares.
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in the Conduct Rules of the NASD imposes a limitation on certain asset-based sales charges such
as the distribution fee and the CDSC borne by the Class B and Class C shares but not the account maintenance fee. The maximum sales charge rule is applied separately to each class. As applicable to the Fund, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of Class B shares and Class C shares, computed separately (defined to exclude shares issued pursuant to dividend reinvestments and exchanges), plus
(2) interest on the unpaid balance for the respective class, computed separately, at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts received from the payment of the distribution fee and the CDSC). In connection
with the Class B shares, the Distributor has voluntarily agreed to waive interest charges on the unpaid balance in excess of 0.50% of eligible gross sales. Consequently, the maximum amount payable to the Distributor (referred to as the “voluntary
maximum”) in connection with the Class B shares is 6.75% of eligible gross sales. The Distributor retains the right to stop waiving the interest charges at any time. To the extent payments would exceed the voluntary maximum, the Fund will not make
further payments of the distribution fee with respect to Class B shares and any CDSCs will be paid to the Fund rather than to the Distributor; however, the Fund will continue to make payments of the account maintenance fee. In certain circumstances the
amount payable pursuant to the voluntary maximum may exceed the amount payable under the NASD formula. In such circumstances payment in excess of the amount payable under the NASD formula will not be made.
The following table sets forth comparative information as of June 30, 1999 with respect to the Class B and Class C shares of
the Fund indicating the maximum allowable payments that can be made under the NASD maximum sales charge rule and, with respect to the Class B shares, the Distributor’s voluntary maximum.
| |
|
Data Calculated as of June 30, 2000
|
| |
|
(in thousands) |
| |
|
Eligible
Gross
Sales(1)
|
|
Allowable
Aggregate
Sales
Charge(2)
|
|
Allowable
Interest on
Unpaid
Balance(3)
|
|
Maximum
Amount
Payable
|
|
Amounts
Previously
Paid to
Distributor(4)
|
|
Aggregate
Unpaid
Balance
|
|
Annual
Distribution
Fee at
Current Net
Asset
Level(5)
|
Class B Shares for the period
October 21, 1988
(commencement of operations)
to June 30, 2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Under NASD Rule as Adopted |
|
$5,662,969 |
|
$355,346 |
|
$116,625 |
|
$471,971 |
|
$241,270 |
|
$230,700 |
|
$24,836 |
Under Distributor’s Voluntary
Waiver |
|
$5,662,969 |
|
$355,346 |
|
$26,904 |
|
$382,250 |
|
$241,270 |
|
$140,980 |
|
$24,836 |
| |
|
Class C Shares, for the period
October 21, 1994
(commencement of operations)
to June 30, 2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Under NASD Rule as Adopted |
|
$ 679,495 |
|
$43,389 |
|
$10,902 |
|
$54,291 |
|
$14,516 |
|
$39,775 |
|
$3,100 |
(1)
|
Purchase price of all eligible Class B or Class C shares sold during the periods indicated other than shares acquired through
dividend reinvestment and the exchange privilege.
|
(2)
|
Includes amounts attributable to exchanges from Summit Cash Reserves Fund (“Summit”) which are not reflected in Eligible
Gross Sales. Shares of Summit can only be purchased by exchange from another fund (the “redeemed fund”). Upon such an exchange, the maximum allowable sales charge payment to the redeemed fund is reduced in accordance with the amount of the
redemption. This amount is then added to the maximum allowable sales charge payment with respect to Summit. Upon an exchange out of Summit, the remaining balance of this amount is deducted from the maximum allowable sales charge payment to Summit and
added to the maximum allowable sales charge payment to the fund into which the exchange is made.
|
(3)
|
Interest is computed on a monthly basis based upon the prime rate, as reported in The Wall Street Journal, plus 1.0%, as permitted
under the NASD Rule.
|
(4)
|
Consists of CDSC payments, distribution fee payments and accruals. See “What are the Fund’s fees and expenses?” in
the Prospectus. This figure may include CDSCs that were deferred when a shareholder redeemed shares prior to the expiration of the applicable CDSC period and invested the proceeds, without the imposition of a sales charge, in Class A shares in conjunction
with the shareholder’s participation in the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA
SM
) Program (the “MFA Program”). The CDSC is booked as a contingent obligation that may be payable if the
shareholder terminates participation in the MFA Program.
|
(5)
|
Provided to illustrate the extent to which the current level of distribution fee payments (not including any CDSC payments) is
amortizing the unpaid balance. No assurance can be given that payments of the distribution fee will reach either the voluntary maximum (with respect to Class B shares) or the NASD maximum (with respect to Class B and Class C shares).
|
Reference is made to “Your Account—How to Buy, Sell, Transfer and Exchange Shares” in the Prospectus.
The Fund is required to redeem for cash all shares of the Fund upon receipt of a written request in proper form. The
redemption price is the net asset value per share next determined after the initial receipt of proper notice of redemption. Except for any CDSC that may be applicable, there will be no charge for redemption if the redemption request is sent directly to
the Transfer Agent. Shareholders liquidating their holdings will receive upon redemption all dividends reinvested through the date of redemption.
The right to redeem shares or to receive payment with respect to any such redemption may be suspended for more than seven days
only for any period during which trading on the New York Stock Exchange (the “NYSE”) is restricted as determined by the Commission or 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 at the time of redemption may be more or less than the shareholder’s cost, depending in part on the
market value of the securities held by the Fund at such time.
The Trust has entered into a joint committed line of credit with other investment companies advised by the Investment Adviser
and its affiliates and a syndicate of banks that is intended to provide the Trust and the Fund with a temporary source of cash to be used to meet redemption requests from Fund shareholders in extraordinary or emergency circumstances.
A shareholder wishing to redeem shares held with the Transfer Agent may do so without charge by tendering the shares directly
to the Fund’s Transfer Agent at Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered other than by mail should be delivered to Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484. Proper notice of redemption in the case of shares deposited with the Transfer Agent may be accomplished by a written letter requesting redemption. Proper notice of redemption in the case of shares for which certificates
have been issued may be accomplished by a written letter as noted above accompanied by certificates for the shares to be redeemed. Redemption requests should not be sent to the Fund. The redemption request in either event requires the signature(s) of all
persons in whose name(s) the shares are registered, signed exactly as such name(s) appear(s) on the Transfer Agent’s register. The signature(s) on the redemption request may require a guarantee by an “eligible guarantor institution” as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. In the event a signature guarantee is required, notarized signatures are
not sufficient. In general, signature guarantees are waived on redemptions of less than $50,000 as long as the following requirements are met: (i) all requests require the signature(s) of all persons whose name(s) shares are recorded on the Transfer
Agent’s register; (ii) all checks must be mailed to the stencil address of record on the Transfer Agent’s register and (iii) the stencil address must not have changed within 30 days. Certain rules may apply regarding certain account types such
as but not limited to UGMA/UTMA accounts, Joint Tenancies With Rights of Survivorship, contra broker transactions, and institutional accounts. In certain instances, the Transfer Agent may require additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or administrator, or certificates of corporate authority.
A shareholder may also redeem shares held with the Transfer Agent by telephone request. To request a redemption from your
account, call the Transfer Agent at 1-800-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 client’s bank account, a systematic withdrawal plan is in effect, the request is by an individual other than the accountholder of record, the account is held by joint tenants who are divorced, the
address 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 it has assured itself that 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 not usually 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.
The Fund also will repurchase Fund shares through a shareholder’s listed selected securities dealer or other financial
intermediary. The Fund normally will accept orders to repurchase Fund 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 selected securities dealer or other financial intermediary 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 Fund not later than 30 minutes after the close of business on the NYSE, in order to obtain that day’s closing price.
The foregoing repurchase arrangements are for the convenience of shareholders and do not involve a charge by the Fund (other
than any applicable CDSC). Securities firms that do not have 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, another
selected securities dealer or other financial intermediary may charge its customers a processing fee (presently $5.35) to confirm a repurchase of shares to such customers. Repurchases made directly through the Transfer Agent on accounts held at the
Transfer Agent are not subject to the processing fee. The Fund reserves the right to reject any order for repurchase, which right of rejection might adversely affect shareholders seeking redemption through the repurchase procedure. However, a shareholder
whose order for repurchase is rejected by the Fund may redeem Fund shares as set forth above.
Reinstatement Privilege — Class A and Class D Shares
Shareholders who have redeemed their Class A or Class D shares of the Fund have a privilege to reinstate their accounts by
purchasing Class A or Class D shares, as the case may be, of the Fund at net asset value without a sales charge up to the dollar amount redeemed. The reinstatement privilege may be exercised by sending a notice of exercise along with a check for the
amount to be reinstated to the Transfer Agent within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. Alternatively, the reinstatement
privilege may be exercised through the investor’s Merrill Lynch Financial Consultant within 30 days after the date the request for redemption was accepted by the Transfer Agent or the Distributor. The reinstatement will be made at the net asset value
per share next determined after the notice of reinstatement is received and cannot exceed the amount of the redemption proceeds.
Determination of Net Asset Value
Reference is made to “Your Account—How Shares are Priced” in the Prospectus.
The net asset value of the shares of all classes of the Fund is determined once daily Monday through Friday as of the close of
business on the NYSE on each day the NYSE is open for trading based on prices at the time of closing. The NYSE generally closes at 4:00 p.m., Eastern time. Any assets or liabilities initially expressed in terms of non-U.S. dollar currencies are translated
into U.S. dollars at the prevailing market rates as quoted by one or more banks or dealers on the day of valuation. The NYSE is not open for trading on New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The principal asset of the Fund will normally be its interest in the underlying Trust. The value of that interest is based on
the net assets of the Trust, which are comprised of the value of the securities held by the Trust plus any cash or other assets (including interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses of the
Trust). Expenses of the Trust, including the investment advisory fees, are accrued daily. Net asset value of the Fund is the Fund’s proportionate interest in the net assets of the Trust plus any cash or other assets minus all liabilities (including
accrued expenses) of the Fund divided by the total number of shares outstanding of the Fund at such time, rounded to the nearest cent. Expenses, including the fees payable to the Administrator and Distributor, are accrued daily.
The per share net asset value of Class B, Class C and Class D shares generally will be lower than the per share net asset
value of Class A shares, reflecting the daily expense accruals of the account maintenance, distribution and higher transfer agency fees applicable with respect to Class B and Class C shares, and the daily expense accruals of the account maintenance fees
applicable with respect to the Class D shares; moreover, the per share net asset value of the Class B and Class C shares of the Fund generally will be lower than the per share net asset value of Class D shares of the Fund reflecting the daily expense
accruals of the distribution fees and higher transfer agency fees applicable with respect to Class B and Class C shares of the Fund. It is expected, however, that the per share net asset value of the four classes of the Fund will tend to converge
(although not necessarily meet) immediately after the payment of dividends, which will differ by approximately the amount of the expense accrual differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the last sale price on the exchange on which such
securities are traded as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price for long positions, and at the last available ask price for short positions. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange designated by or under the authority of the Board of Trustees of the Trust as the primary market. Long positions in securities traded in the over-the-counter (“OTC”)
market are valued at the last available bid price in the OTC market prior to the time of valuation. Short positions in securities traded in the OTC market are valued at the last available ask price in the OTC market prior to the time of valuation.
Portfolio securities that are traded both in the OTC market and on a stock exchange are valued according to the broadest and most representative market. When the Trust writes an option, the amount of the premium received is recorded on the books of the
Trust as an asset and an equivalent liability. The amount of the liability is subsequently valued to reflect the current market value of the option written, based upon the last sale price in the case of exchange-traded options or, in the case of options
traded in the OTC market, the last ask price. Options purchased by the Trust are valued at their last sale price in the case of exchange-traded options or, in the case of options traded in the OTC market, the last bid price. Other
investments, including financial futures contracts and related options, are stated at market value. Securities and assets for which market quotations are not readily available are stated at fair value as determined in good faith by or under the direction
of the Board of Trustees of the Trust. Such valuations and procedures will be reviewed periodically by the Board of Trustees of the Trust.
Generally, trading in non-U.S. securities, as well as U.S. Government securities and money market instruments, is
substantially completed each day at various times prior to the close of business on the NYSE. The values of such securities used in computing the net asset value of the Fund’s shares are determined as of such times. Foreign currency exchange rates
are also generally determined prior to the close of business on the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of business on the NYSE
that may not be reflected in the computation of the Fund’s net asset value.
Each investor in the Trust may add to or reduce its investment in the Trust on each day the NYSE is open for trading. The
value of each investor’s (including the Fund’s) interest in the Trust will be determined as of the close of business on the NYSE by multiplying the net asset value of the Trust by the percentage, effective for that day, that represents that
investor’s share of the aggregate interests in the Trust. The close of business on the NYSE is generally 4:00 p.m., Eastern Time. Any additions or withdrawals to be effected on that day will then be effected. The investor’s percentage of the
aggregate beneficial interests in the Trust will then be recomputed as the percentage equal to the fraction (i) the numerator of which is the value of such investor’s investment in the Trust as of the time of determination on such day plus or minus,
as the case may be, the amount of any additions to or withdrawals from the investor’s investment in the Trust effected on such day, and (ii) the denominator of which is the aggregate net asset value of the Trust as of such time on such day plus or
minus, as the case may be, the amount of the net additions to or withdrawals from the aggregate investments in the Trust by all investors in the Trust. The percentage so determined will then be applied to determine the value of the investor’s
interest in the Trust after the close of business on the NYSE on the next determination of net asset value of the Trust.
Computation of Offering Price Per Share
An illustration of the computation of the offering price for Class A, Class B, Class C and Class D shares of the Fund based on
the value of the Fund’s net assets and number of shares outstanding on June 30, 2000 is set forth below.
| |
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
| Net Assets |
|
$4,426,635,080 |
|
$3,305,961,055 |
|
$413,239,981 |
|
$1,764,540,956 |
| |
|
|
|
|
|
|
|
|
| Number of Shares Outstanding |
|
119,242,595 |
|
90,989,493 |
|
11,516,392 |
|
47,707,813 |
| |
|
|
|
|
|
|
|
|
Net Asset Value Per Share (net assets
divided by number of shares
outstanding) |
|
37.12 |
|
36.33 |
|
35.88 |
|
36.99 |
Sales Charge (for Class A and Class D
shares: 5.25% of offering price; 5.54% of
net asset value per share)* |
|
2.06 |
|
** |
|
** |
|
2.05 |
| |
|
|
|
|
|
|
|
|
| Offering Price |
|
$ 39.18 |
|
$ 36.33 |
|
$ 35.88 |
|
$ 39.04 |
| |
|
|
|
|
|
|
|
|
*
|
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 of shares. See
“Purchase of Shares—Deferred Sales Charge Alternatives—Class B and Class C Shares” herein.
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions in Portfolio Securities
Because the Fund will invest exclusively in shares of the Trust, it is expected that all transactions in portfolio securities
will be entered into by the Trust. Subject to policies established by the Board of Trustees of the Trust, the Investment Adviser is primarily responsible for the execution of the Trust’s portfolio transactions and the allocation of brokerage. The
Trust has no obligation to deal with any broker or group of brokers in the execution of transactions in portfolio securities and does not use any particular broker or dealer. In executing transactions with brokers and dealers, the Investment Adviser seeks
to obtain the best net results for the Trust, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm and the firm’s
risk in positioning a block of securities. While the Investment Adviser generally seeks reasonably competitive commission rates, the Trust does not necessarily pay the lowest spread or commission available. In addition, consistent with the Conduct Rules
of the NASD and policies established by the Board of Trustees of the Trust, the Investment Adviser may consider sales of Fund shares as a factor in the selection of brokers or dealers to execute portfolio transactions for the Trust; however, whether or
not a particular broker or dealer sells shares of the Fund neither qualifies nor disqualifies such broker or dealer to execute transactions for the Trust.
Subject to obtaining the best net results, brokers who provide supplemental investment research services to the Investment
Adviser may receive orders for transactions by the Trust. Such supplemental research services ordinarily consist of assessments and analyses of the business or prospects of a company, industry or economic sector. Information so received will be in
addition to and not in lieu of the services required to be performed by the Investment Adviser under the Investment Advisory Agreement, and the expenses of the Investment Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information. If in the judgment of the Investment Adviser the Trust will benefit from supplemental research services, the Investment Adviser is authorized to pay brokerage commissions to a broker furnishing such services that are in excess of
commissions that another broker may have charged for effecting the same transactions. Certain supplemental research services may primarily benefit one or more other investment companies or other accounts for which the Investment Adviser exercises
investment discretion. Conversely, the Trust may be the primary beneficiary of the supplemental research services received as a result of portfolio transactions effected for such other accounts or investment companies.
The Trust anticipates that its brokerage transactions involving securities of issuers domiciled in countries other than the
United States generally will be conducted primarily on the principal stock exchanges of such countries. Brokerage commissions and other transaction costs on foreign stock exchange transactions generally are higher than in the United States, although the
Trust will endeavor to achieve the best net results in effecting its portfolio transactions. There generally is less government supervision and regulation of foreign stock exchanges and brokers than in the United States.
Foreign equity securities may be held by the Trust in the form of ADRs, EDRs, GDRs or other securities convertible into
foreign equity securities. ADRs, EDRs and GDRs may be listed on stock exchanges, or traded in over-the-counter markets in the United States or Europe, as the case may be. ADRs, like other securities traded in the United States, will be subject to
negotiated commission rates. The Trust’s ability and decisions to purchase or sell portfolio securities of foreign issuers may be affected by laws or regulations relating to the convertibility and repatriation of assets. Because the shares of the
Fund are redeemable on a daily basis in U.S. dollars, the Trust intends to manage the portfolio so as to give reasonable assurance that it will be able to obtain U.S. dollars to the extent necessary to meet anticipated redemptions. Under present
conditions, it is not believed that these considerations will have significant effect on the Trust’s portfolio strategies.
Information about the brokerage commissions paid by the Fund (prior to its change to a “master/feeder” structure),
including commissions paid to Merrill Lynch, is set forth in the following table:
Fiscal Year Ended June 30,
|
|
Brokerage
Commissions Paid
|
|
Commissions Paid
to Merrill Lynch
|
| 2000 |
|
$10,858,060 |
|
$870,372 |
| 1999 |
|
$ 4,235,940 |
|
$194,500 |
| 1998 |
|
$ 3,777,402 |
|
$ 33,000 |
For the fiscal year ended June 30, 2000, the brokerage commissions paid to Merrill Lynch represented 8.02% of the aggregate
brokerage commissions paid and involved 8.53% of the Fund’s dollar amount of transactions involving payment of brokerage commissions.
The Trust may invest in certain securities traded in the OTC market and intends to deal directly with the dealers who make a
market in securities involved, except in those circumstances in which better prices and execution are available elsewhere. Under the Investment Company Act, persons affiliated with the Trust and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Trust as principal in the purchase and sale of securities unless a permissive order allowing such transactions is obtained from the Commission. Since transactions in the OTC market usually involve transactions with the
dealers acting as principal for their own accounts, the Trust will not deal with affiliated persons, including Merrill Lynch and its affiliates, in connection with such transactions. However, an affiliated person of the Trust may serve as its broker in
OTC transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with
comparable transactions. In addition, the Trust may not purchase securities during the existence of any underwriting syndicate for such securities of which Merrill Lynch or an affiliate is a member or in a private placement in which Merrill Lynch or an
affiliate serves as placement agent except pursuant to procedures approved by the Board of Trustees of the Trust that either comply with rules adopted by the Commission or with interpretations of the Commission staff. See “Investment Objective and
Policies—Investment Restrictions.”
Section 11(a) of the Exchange Act generally prohibits members of the United States 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
the aggregate compensation received by the member in effecting such transactions, and (iii) complies with any rules the Commission has prescribed with respect to the requirements of clauses (i) and (ii). To the extent Section 11(a) would apply to Merrill
Lynch or its affiliate acting as a broker for the Trust in any of its portfolio transactions executed on any such securities exchange of which it is a member, appropriate consents have been obtained from the Trust and annual statements as to aggregate
compensation will be provided to the Trust. Securities may be held by, or be appropriate investments for, the Trust as well as other funds or investment advisory clients of the Investment Adviser or its affiliates.
The Board of Trustees of the Trust has considered the possibility of seeking to recapture for the benefit of the Trust
brokerage commissions and other expenses of possible portfolio transactions by conducting portfolio transactions through affiliated entities. For example, brokerage commissions received by affiliated brokers could be offset against the advisory fee paid
by the Trust to the Investment Adviser. After considering all factors deemed relevant, the Board of Trustees made a determination not to seek such recapture. The Trustees will reconsider this matter from time to time.
Because of different objectives or other factors, a particular security may be bought for one or more clients of the
Investment Adviser or its affiliates when one or more clients of the Investment Adviser or 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 Trust or
other clients or funds for which the Investment Adviser or an affiliate acts as investment adviser transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Investment Adviser or 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.
The Fund offers a number of shareholder services and investment plans described below that are designed to facilitate
investment in shares of the Fund. Full details as to each of such services, copies of the various plans and instructions as to how to participate in the various services or plans, or how to change options with respect thereto, can be obtained from the
Fund, by calling the telephone number on the cover page hereof, or from the Distributor, or Merrill Lynch, selected securities dealer or other financial intermediary. Certain of these services are available only to U.S. investors and certain of these
services are not available to investors who place orders for the Fund’s shares through the Merrill Lynch Blueprint
SM
Program.
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 will also show any other activity in the account since the preceding
statement. Shareholders will also 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. A shareholder may also maintain an account through Merrill Lynch, another selected securities dealer or other financial intermediary. Upon the transfer of
shares out of a Merrill Lynch, another selected securities dealer or other financial intermediary brokerage account, an Investment Account in the transferring shareholder’s name may be opened automatically at the Transfer Agent.
Share certificates are issued only for full shares and only upon the specific request of a shareholder who has an Investment
Account. Issuance of certificates representing all or only part of the full shares in an Investment Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders may transfer their Fund shares from Merrill Lynch, another selected securities dealer or other financial
intermediary to another securities dealer or other financial intermediary 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 may also request the new securities dealer or other financial intermediary to maintain the shares in an account at the Transfer Agent registered in the name of the securities dealer or other financial intermediary for the benefit
of the shareholder whether the securities dealer or other financial intermediary 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 Merrill Lynch for those shares.
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 for exchange by holders of Class A, Class B, Class C and Class D shares of Select
Pricing Funds. Shares with a net asset value of at least $100 are required to qualify for the exchange privilege and any shares utilized 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 the 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 other Select Pricing Funds 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 or 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 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 or Class C
shares outstanding (“outstanding Class B or Class C shares”) offer to exchange their Class B or Class C shares for Class B or Class C shares, respectively, of certain other Select Pricing Funds or for Class B shares of Summit (“new Class B
or Class C shares”) on the basis of relative net asset value per Class B or Class C share, without the payment of any CDSC that might otherwise be due on redemption of the outstanding shares. Class B shareholders of the Fund exercising the exchange
privilege will continue to be subject to the Fund’s CDSC schedule if such schedule is higher than the CDSC schedule relating to the new Class B shares acquired through use of the exchange privilege. In addition, Class B shares of the Fund acquired
through use of the exchange privilege will be subject to the Fund’s CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares of the fund from which the exchange has been 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 or Class C shares is “tacked” to the holding period of the new Class B or Class C shares. For example, an investor may
exchange Class B shares of the Fund for those of Merrill Lynch Global Resources Trust (formerly known as Merrill Lynch Natural Resources Trust) after having held the Fund’s Class B shares for two and a half years. The 2% CDSC that generally would
apply to a redemption would not apply to the exchange. Three years later the investor may decide to redeem the Class B shares of Merrill Lynch Global Resources Trust and receive cash. There will be no CDSC due on this redemption, since by “
tacking” the two-and-a-half-year holding period of Fund Class B shares to the three-year holding period for the Merrill Lynch Global Resources Trust Class B shares, the investor will be deemed to have held the new Merrill Lynch Global Resources Trust
Class B shares for more than five years.
Exchanges for Shares of a Money Market Fund. Class A and Class D shares are exchangeable for
Class A shares of Summit and Class B and Class C shares are exchangeable for Class B shares of Summit. Class A shares of Summit have an exchange privilege back into Class A or Class D shares of Select Pricing Funds; Class B shares of Summit have an
exchange privilege back into Class B or Class C shares of Select Pricing Funds and, in the event of such an exchange, the period of time that Class B shares of Summit are held will count toward satisfaction of the holding period requirement for purposes
of reducing any CDSC and toward satisfaction of any Conversion Period with respect to Class B shares. Class B shares of Summit will be subject to a distribution fee at an annual rate of 0.75% of average daily net assets of such Class B shares. This
exchange privilege does not apply with respect to certain Merrill Lynch fee-based programs for which alternative exchange arrangements may exist. Please see your Merrill Lynch Financial Consultant for further information.
Prior to October 12, 1998, exchanges from the Fund and other Select Pricing Funds into a money market fund were directed to
certain Merrill Lynch sponsored money market funds other than Summit. Shareholders who exchanged Select Pricing Fund shares for shares of 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 the 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.
Exchanges by Participants in the MFA Program. The exchange privilege is modified with respect to
certain retirement plans which participate in the MFA Program. Such retirement plans may exchange Class B, Class C or Class D shares that have been held for at least one year for Class A shares of the same fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA Program, i.e., no CDSC will apply. The one year holding period does not apply to shares acquired through reinvestment of dividends. Upon termination of participation in the MFA Program, Class A
shares will be re-exchanged for the class of shares originally held. For purposes of computing any CDSC that may be payable upon redemption of Class B or Class C shares so reacquired, or the Conversion Period for Class B shares so reacquired, the holding
period for the Class A shares will be “tacked” to the holding period for the Class B or Class C shares originally held. The Fund’s exchange privilege is also modified with respect to purchases of Class A and Class D shares by non-retirement
plan investors under the MFA Program. First, the initial allocation of assets is made under the MFA Program. Then, any subsequent exchange under the MFA Program of Class A or Class D shares of a Select Pricing Fund for Class A or Class D shares of the
Fund will be made solely on the basis of the relative net asset values of the shares being exchanged. Therefore, there will not be a charge for any difference between the sales charge previously paid on the shares of the other Select Pricing Fund and the
sales charge payable on the shares of the Fund being acquired in the exchange under the MFA Program.
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 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. This exchange privilege may be modified or terminated in accordance with the
rules of the Commission.
Telephone exchange requests are also available in accounts held with the Transfer Agent for amounts up to $50,000. To request
an exchange from your account, call the Transfer Agent at 1-800-MER-FUND. The request must be from the shareholder of record. Before telephone requests will be honored, signature approval from all shareholders of record must be obtained. The shares being
exchanged must have been held for at least 15 days. Telephone requests for an exchange will not be honored in the following situations: the accountholder is deceased, the request is by an individual other than the accountholder of record, the account is
held by joint tenants who are divorced or the address on the account has changed within the last 30 days. Telephone exchanges may be refused if the caller is unable to provide: the account number, the name and address registered on the account and the
social security number registered on the account. The Fund or the Transfer Agent may temporarily suspend telephone transactions at any time.
This exchange privilege may be modified or terminated in accordance with the rules of the Commission. The Fund reserves the
right to limit the number of times an investor may exercise the exchange privilege. Certain funds may suspend the continuous offering of their shares to the general public at any time and may thereafter resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where the exchange legally may be made. It is contemplated that the exchange privilege may be applicable to other new mutual funds whose shares may be distributed by the Distributor.
Certain Merrill Lynch and other financial intermediary fee-based programs, including pricing alternatives for securities
transactions (each referred to in this paragraph as a “Program”), may permit the purchase of Class A shares at net asset value. Under specified circumstances, participants in certain Programs may deposit other classes of shares which will be
exchanged for Class A shares. Initial or deferred sales charges otherwise due in
connection with such exchanges may be waived or modified, as may the Conversion Period applicable to the deposited shares. Termination of participation in a Program may result in the redemption of shares held therein or the automatic exchange thereof to
another class at net asset value, which may be shares of a money market fund. In addition, upon termination of participation in a Program, shares that have been held for less than specified periods within such Program may be subject to a fee based upon
the current value of such shares. These Programs also generally prohibit such shares from being transferred to another account at Merrill Lynch and other financial intermediary, to another broker-dealer or to the Transfer Agent. Except in limited
circumstances (which may also involve an exchange as described above), such shares must be redeemed and another class of shares purchased (which may involve the imposition of initial or deferred sales charges and distribution and account maintenance fees)
in order for the investment not to be subject to Program fees. Additional information regarding a specific Program (including charges and limitations on transferability applicable to shares that may be held in such Program) is available in such
Program’s client agreement and from the Transfer Agent at 1-800-MER-FUND (1-(800)-637-3863).
Retirement and Education Savings Plans
Individual retirement accounts and other retirement plans and education savings plans are available from Merrill Lynch. Under
these plans, investments may be made in the Fund and certain of the other mutual funds sponsored by Merrill Lynch as well as in other securities. There may be fees associated with investing through these plans and an annual fee for each account.
Information with respect to these plans is available on request from Merrill Lynch.
Dividends received in each of the plans referred to above are exempt from Federal taxation until distributed from the plans.
Different tax rules apply to Roth IRA plans and education savings plans. Investors considering participation in any retirement or education savings plan should review specific tax laws relating thereto and should consult their attorneys or tax advisers
with respect to the establishment and maintenance of any such plan.
Automatic Investment Plans
A shareholder may make additions to an Investment Account at any time by purchasing Class A shares (if he or she is an
eligible Class A investor) or Class B, Class C or Class D shares at the applicable public offering price. These purchases may be made either through the shareholder’s securities dealer, or by mail directly to the Transfer Agent, acting as agent for
such securities dealer. Voluntary accumulation also can be made through a service known as the Fund’s Automatic Investment Plan. The Fund would be authorized, on a regular basis, to provide systematic additions to the Investment Account of such
shareholder through charges of $50 or more to the regular bank account of the shareholder by either pre-authorized checks or automated clearing house debits. Alternatively, an investor that maintains a CMA® or CBA® Account may arrange to have
periodic investments made in the Fund in amounts of $100 ($1 or more 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 determined as of 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, paid in cash, rather than reinvested in shares of the Fund or vice versa (provided
that, in the event that a payment on an account maintained at the Transfer Agent would amount to $10.00 or less, a shareholder will not receive such payment in cash and such payment will automatically be reinvested in additional shares). Commencing ten
days after the receipt by the
Transfer Agent of such notice, those instructions will be effected. The Fund is not responsible for any failure of delivery to the shareholder’s address of record and no interest will accrue on amounts represented by uncashed dividend checks. Cash
payments can also be directly deposited to the shareholder’s bank account.
Systematic Withdrawal Plan
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 that have acquired shares of the Fund having a value, based on cost or the current offering
price, of $5,000 or more, and monthly withdrawals are available for shareholders with shares having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from those on deposit in the shareholder’s account
to provide the withdrawal payment specified by the shareholder. The shareholder may specify the dollar amount and the class of shares to be redeemed. Redemptions will be made at net asset value determined as of the close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) on the 24th day of each month or the 24th day of the last month of each quarter, whichever is applicable. If the NYSE is not open for business on such date, the shares will be redeemed as of the
close of business on the NYSE on the following business day. The check for the withdrawal payment will be mailed or the direct deposit will be made on the next business day following redemption. When a shareholder is making systematic withdrawals,
dividends on all shares in the Investment Account are reinvested automatically in Fund shares. A shareholder’s Systematic Withdrawal Plan may be terminated at any time, without charge or penalty, by the shareholder, the Fund, the Transfer Agent or
the Distributor.
With respect to redemptions of Class B or Class C shares pursuant to a systematic withdrawal plan, the maximum number of Class
B or Class C shares that can be redeemed from an account annually shall not exceed 10% of the value of shares of such class in that account at the time the election to join the systematic withdrawal plan was made. Any CDSC that otherwise might be due on
such redemption of Class B or Class C shares will be waived. Shares redeemed pursuant to a systematic withdrawal plan will be redeemed in the same order as Class B or Class C shares are otherwise redeemed. See “Purchase of Shares—Deferred Sales
Charge Alternatives—Class B and 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, the Systematic Withdrawal Plan will be applied
thereafter to Class D shares if the shareholder so elects. If an investor wishes to change the amount being withdrawn in a systematic withdrawal plan the investor should contact his or her Merrill Lynch Financial Consultant.
Withdrawal payments should not be considered as dividends. Each withdrawal is a taxable event. If periodic withdrawals
continuously exceed reinvested dividends, the shareholder’s original investment may be reduced correspondingly. Purchases of additional shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and
tax liabilities. The Fund will not knowingly accept purchase orders for shares of the Fund from investors that maintain a Systematic Withdrawal Plan unless such purchase is equal to at least one year’s scheduled withdrawals or $1,200, whichever is
greater. Automatic 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® or Retirement 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
shareholder’s account three business days after the date the shares are redeemed. All redemptions are made at net asset value. A shareholder may elect to have his or her shares redeemed on the first, second, third or fourth Monday of each month, in
the case of monthly redemptions, or of every other month, in the case of bimonthly redemptions. For quarterly, semiannual or annual redemptions, the shareholder may select the month in which the shares are to be redeemed and may designate whether the
redemption is to be made on the first, second, third or fourth Monday of the month. If the Monday selected is not a business day, the redemption will be processed at net asset value on the next business day. The CMA® 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.
The Fund intends to distribute substantially all of its net investment income, if any. Dividends from such net investment
income will be paid at least annually. All net realized capital gains, if any, will be distributed to the Fund’s shareholders at least annually. From time to time, the Fund may declare a special distribution at or about the end of the calendar year
in order to comply with Federal tax requirements that certain percentages of its ordinary income and capital gains be distributed during the year. If in any fiscal year, the Fund has net income from certain foreign currency transactions, such income will
be distributed at least annually.
See “Shareholder Services — Automatic Dividend Reinvestment Plan” for information concerning the
manner in which dividends may be reinvested automatically in shares of the Fund. A shareholder whose account is maintained at the Transfer Agent or whose account is maintained through Merrill Lynch, selected securities dealer or other financial
intermediary may elect in writing to receive any such dividends in cash. Dividends are taxable to shareholders, as discussed below, whether they are reinvested in shares of the Fund or received in cash. The per share dividends on Class B and Class C
shares will be lower than the per share dividends on Class 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 Shares — Determination of Net Asset
Value.”
The Fund intends to continue 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 it 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 an October 31 year end, plus certain undistributed amounts from previous years. While the Fund intends to distribute its income
and capital gains in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund’s taxable income and capital gains will be distributed to avoid entirely the imposition of the tax.
In such event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income or from an excess of net short-term capital gains over net long-term
capital losses (together referred to hereafter as “ordinary income dividends”) are taxable to shareholders as ordinary income. Distributions made from an excess of net long-term capital gains over net short-term capital losses (including gains
or losses from certain transactions in options) (“capital gain dividends”) are taxable to shareholders as long-term capital gains, regardless of the length of time the shareholder has owned Fund shares. Any loss upon the sale or exchange of Fund
shares held for six months or less will be treated as long-term capital loss to the extent of any capital gain dividends received by the shareholder. Distributions in excess of the Fund’s earnings and profits will first reduce the adjusted tax basis
of a holder’s shares and, after such adjusted tax basis is reduced to zero, will constitute capital gains to such holder (assuming the shares are held as a capital asset). Certain categories of capital gains are taxable at different rates. Generally
not later than 60 days after the close of its taxable year, the Fund will provide its shareholders with a written notice designating the amount of any capital gain dividends as well as any amount of capital gain dividends in the different categories of
capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in additional shares of the Fund. A portion of the
Fund’s ordinary income dividends may be eligible for the dividends received deduction allowed to corporations under the Code, if certain requirements are met. For this purpose, the Fund will allocate dividends
eligible for the dividends received deduction among the Class 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
shareholder’s basis in the Class D shares acquired will be the same as such shareholder’s basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares
.
If a shareholder exercises an exchange privilege within 90 days of acquiring the shares, then the loss the shareholder can
recognize on the exchange will be reduced (or the gain increased) to the extent any sales charge paid to the Fund 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 other Fund 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 nonresident aliens or foreign entities will be subject to a 30% U.S.
withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident shareholders are urged to consult
their own tax advisers concerning the applicability of the U.S. withholding tax.
Under certain provisions of the Code, some shareholders may be subject to a 31% withholding tax on ordinary income dividends,
capital gain dividends and redemption payments (“backup withholding”). Generally, shareholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Fund or who, to the Fund’s
knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or eliminate such taxes.
Excluding its investment in the Trust, 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 excess distributions from PFICs, but in any particular year might be
required to recognize income in excess of the distributions it received from PFICs.
Tax Treatment of Options Transactions
The Fund may write covered options with respect to securities held in its portfolio. In general, unless an election is
available to the Fund or an exception applies, such options that are “Section 1256 contracts” will be “marked to market” for Federal income tax purposes at the end of each taxable year, i.e., each such option contract will be treated as sold for its fair market value on the last day of the taxable year and, any gain or loss attributable to Section 1256 contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund may alter the timing and character of distributions to shareholders. The mark-to-market rules outlined above, however, will not apply to certain transactions entered into by the Fund
solely to reduce the risk of changes in price or interest or currency exchange rates with respect to its investments.
Code Section 1092, which applies to certain “straddles,” may affect the taxation of the Fund’s sales of
securities and transactions in options. Under Section 1092, the Fund may be required to postpone recognition for tax purposes of losses incurred in certain sales of securities and certain closing transactions in options.
Special Rules for Certain Foreign Currency Transactions
In general, gains from “foreign currencies” and from foreign currency options relating to investments in stocks,
securities or foreign currencies will be qualifying income for purposes of determining whether the Fund qualifies as a RIC. It is currently unclear, however, who will be treated as the issuer of a foreign currency instrument or how foreign currency
options will be valued for purposes of the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions in a foreign currency other than the taxpayer’
s functional currency (i.e., unless certain special rules apply, currencies other than the U.S. dollar). In general, foreign currency gains or losses from certain debt instruments, from certain forward contracts, from futures contracts that are not “regulated
futures contracts” and from unlisted options will be treated as ordinary income or loss under Code Section 988. In certain circumstances, the Fund may elect capital gain or loss treatment for such transactions. In general, however, Code Section 988
gains or losses will increase or decrease the amount of the Fund’s investment company taxable income available to be distributed to shareholders as ordinary income. Additionally, if Code Section 988 losses exceed other investment company taxable
income 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 shareholder’s Fund shares and resulting in a capital gain for any shareholder who received a distribution greater than such shareholder’s basis in Fund shares (assuming the shares were
held as a capital asset). These rules and the mark-to-market rules described above, however, will not apply to certain transactions entered into by the Fund solely to reduce the risk of currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently
in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and local taxes.
Certain states exempt from state income taxation dividends paid by RICs that are derived from interest on U.S. Government
obligations. State law varies as to whether dividend income attributable to U.S. Government obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding specific questions as to Federal, foreign, state or local
taxes. Foreign investors should consider applicable foreign taxes in their evaluation of an investment in the Fund.
The Fund has applied for a private letter ruling from the IRS, to the effect that, because the Trust is classified as a
partnership for tax purposes, the Fund will be entitled to look to the underlying assets of the Trust in which it has invested for purposes of satisfying various requirements of the Code applicable to RICs. If any of the facts upon which such ruling is
premised change in any material respect (e.g., if the Trust were required to register its interests under the Securities Act) and/or the Trust is unable to obtain a 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 Fund’s investment from the Trust and to retain an investment adviser to manage the Fund’s assets in accordance with the investment policies
applicable to the Fund. See “Investment Objective and Policies.”
From time to time the Fund may include its average annual total return and other total return data in advertisements or
information furnished to present or prospective shareholders. Total return figures are based on the Fund’s historical performance and are not intended to indicate future performance. Average annual total return is determined separately for Class A,
Class B, Class C and Class D shares in accordance with formulas 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 as in the case of Class B and Class C shares and the maximum sales charge in the case of Class A and D shares. Dividends paid by the
Fund with respect to all shares, to the extent any dividends are paid, will be calculated in the same manner at the same time on the same day and will be in the same amount, except that account maintenance and distribution charges and any incremental
transfer agency costs relating to each class of shares will be borne exclusively by that class. The Fund will include performance data for all classes of shares of the Fund in any advertisement or information including performance data of the Fund.
The Fund also may quote annual, average annual and annualized total return and aggregate total return performance data, both
as a percentage and as a dollar amount based on a hypothetical $1,000 investment, for various periods other than those noted below. Such data will be computed as described above, except that (1) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and (2) the maximum applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the impact on the performance data
calculations of including or excluding the maximum applicable sales charges, actual annual or annualized total return data generally will be lower than average annual total return data since the average rates of return reflect compounding of return;
aggregate total return data generally will be higher than average annual total return data since the aggregate rates of return reflect compounding over a longer period of time.
Set forth below is total return information for the Class A, Class B, Class C and Class D shares of the Fund for the periods
indicated, all of which are prior to the Fund’s change to a “master/feeder” structure.
| |
|
Class A
Shares
|
|
Class B
Shares
|
Period
|
|
Expressed
as a
percentage
based on a
hypothetical
$1,000
investment
|
|
Expressed
as a
percentage
based on a
hypothetical
$1,000
investment
|
| |
|
Average Annual Total Return
(including maximum applicable
sales charges) |
| One Year Ended June 30, 2000 |
|
(10.92 |
)% |
|
(10.31 |
)% |
| Five Years Ended June 30, 2000 |
|
14.40 |
% |
|
14.47 |
% |
| Ten Years Ended June 30, 2000 |
|
13.78 |
% |
|
13.24 |
% |
|
| |
|
Class C
Shares
|
|
Class D
Shares
|
| |
|
Expressed
as a
percentage
based on a
hypothetical
$1,000
investment
|
|
Expressed
as a
percentage
based on a
hypothetical
$1,000
investment
|
Period
|
| |
|
Average Annual Total Return
(including maximum applicable
sales charges) |
| One Year Ended June 30, 2000 |
|
(7.79 |
)% |
|
(11.12 |
)% |
| Five Years Ended June 30, 2000 |
|
14.45 |
% |
|
14.12 |
% |
| Inception (October 21, 1994) to June 30, 2000 |
|
15.49 |
% |
|
15.30 |
% |
Total return figures are based on the Fund’s historical performance and are not intended to indicate future performance.
The Fund’s total return will vary depending on market conditions, the securities comprising the Fund’s portfolio, the Fund’s operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The
value of an investment in the Fund will fluctuate and an investor’s shares, when redeemed, may be worth more or less than their original cost.
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,” 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 not take into account the CDSC, and therefore may reflect greater total return since, due to the reduced sales charges or the waiver of CDSCs, a lower amount of expenses may be deducted.
On occasion, the Fund may compare its performance to various indices including the Standard & Poor’s 500 Index, the
Dow Jones Industrial Average, or performance data published by Lipper Analytical Services, Inc., Morningstar Publications, Inc., (“Morningstar”) CDA Investment Technology, Inc., Money Magazine, U.S. News & World Report, Business Week, Forbes Magazine, Fortune Magazine or other industry publications. When comparing its performance to a market index, the Fund may refer to various statistical measures derived from the
historic performance of the Fund and the index, such as standard deviation and beta. In addition, from time to time, the Fund may include its Morningstar risk-adjusted performance ratings in advertisements or supplemental sales literature. The Fund may
provide information designed to help investors understand how the Fund is seeking to achieve its investment objectives. This may include information about past, current or possible economic, market, political, or other conditions, descriptive information
on general principles of investing such as asset allocation, diversification and risk tolerance, discussion of the Fund’s portfolio composition, investment philosophy, strategy or investment techniques, comparisons of the Fund’s 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. As with other performance data, performance comparisons should not be considered indicative of the Fund’s relative performance for any future period.
The Fund is a “feeder” fund that invests in the Trust. Investors in the Fund have an indirect interest in the Trust.
The Trust accepts investments from other feeder funds, and all of the feeders of the Trust bear the Trust’s expenses in proportion to their assets. This structure may enable the Fund to reduce costs through economies of scale. A larger investment
portfolio also may reduce certain transaction costs to the extent that contributions to and redemptions from the Trust from different feeders may offset each other and produce a lower net cash flow. However, each feeder can set its own transaction
minimums, fund-specific expenses, and other conditions. This means that one feeder could offer access to the same Trust on more attractive terms, or could experience better performance, than another feeder.
The Fund is a Maryland corporation incorporated on March 22, 1977. As of the date of this Statement of Additional Information,
the Fund has an authorized capital of 1,200,000,000 shares of Common Stock, par value $0.10 per share. The Fund is divided into four classes, designated Class A, Class B, Class C and Class D Common Stock. Class A and Class B each consists of 400,000,000
shares, and Class C and Class D each consists of 200,000,000 shares. Shares of Class A, Class B, Class C and Class D Common Stock represent interests in the same assets of the Fund and have identical voting dividend, liquidation and other rights and the
same terms and conditions except that the Class B, Class C and Class D shares bear certain expenses related to the account maintenance and/or distribution of such shares and have exclusive voting rights with respect to matters relating to such account
maintenance and/or distribution expenditures. The Board of Directors of the Fund may classify and reclassify the shares of the Fund into additional classes of Common Stock at a future date.
Shareholders are entitled to one vote for each full share held and fractional votes for fractional shares held in the election
of Directors and any other matter submitted to a shareholder vote. The Fund does not intend to hold meetings of shareholders in any year in which the Investment Company Act does not require shareholders to act up on any of the following matters: (i)
election of Directors; (ii) approval of an investment advisory agreement; (iii) approval of a distribution agreement; and (iv) ratification of selection of independent auditors. Voting rights for Directors are not cumulative. Shares issued are fully paid
and non-assessable and have no preemptive rights. Redemption and conversion rights are discussed elsewhere herein and in the Prospectus. Each share of Class A, Class B, Class C and Class D Common Stock is entitled to participate equally in dividends and
distributions declared by the Fund and in the net assets of the Fund upon liquidation or dissolution after satisfaction of outstanding liabilities. Stock certificates are issued by the Transfer Agent only on specific request. Certificates for fractional
shares are not issued in any case.
Whenever the Trust holds a vote of its feeder funds, the Fund will pass the vote through to its own shareholders. Smaller
feeder funds may be harmed by the actions of larger feeder funds. For example, a larger feeder fund could have more voting power than the Fund over the operations of the Trust. The Fund may withdraw from the Trust at any time and may invest all of its
assets in another pooled investment vehicle or retain an investment adviser to manage the Fund’s assets directly.
There normally will be no meeting of shareholders for the purpose of electing Directors unless and until such time as less
than a majority of the Directors holding office have been elected by the shareholders, at which time the Directors then in office will call a shareholders’ meeting for the election of Directors. Shareholders may, in accordance with the terms of the
Articles of Incorporation, cause a meeting of shareholders to be held for the purpose of voting on the removal of Directors. Also, the Fund will be required to call a special meeting of shareholders in accordance with the requirements of the Investment
Company Act to seek approval of new management and advisory arrangements, of a material increase in account maintenance or distribution fees or of a
change in fundamental policies, or its investment objective or restrictions. Except as set forth above, the Directors of the Fund shall continue to hold office and appoint successor Directors. Each issued and outstanding share of the Fund is entitled to
participate equally with other shares of the Fund in dividends and distributions declared and in net assets upon liquidation or dissolution remaining after satisfaction of outstanding liabilities, except for any expenses which may be attributable to only
one class. Shares that are issued will be fully-paid and non-assessable by the Fund.
The Trust is organized as a Delaware business trust. Whenever the Fund is requested to vote on any matter relating to the
Trust, the Fund will hold a meeting of the Fund’s shareholders and will cast its vote as instructed by the Fund’s shareholders.
Deloitte & Touche LLP
, Princeton Forrestal Village, 116-300 Village Boulevard, Princeton, New Jersey 08540-6400, has been selected as the independent auditors of the Fund and the Trust. The independent auditors are responsible for auditing the annual financial statements of
the Fund and the Trust.
The Bank of New York, 100 Church Street, New York, New York 10286 acts as custodian of the Fund’s assets (the “
Custodian”). Under its contract with the Fund, the Custodian is authorized, among other things, to establish separate accounts in foreign currencies and to cause foreign securities owned by the Fund to be held in its offices outside of the United
States and with certain foreign banks and securities depositories. The Custodian is responsible for safeguarding and controlling the Fund’s cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on
the Fund’s investments.
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484, acts as the Fund’s Transfer
Agent. The Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening, maintenance and servicing of shareholder accounts. See “How to Buy, Sell, Transfer and Exchange Shares — Through the Transfer
Agent” in the Prospectus.
Brown & Wood LLP
, One World Trade Center, New York, New York 10048-0557, is counsel for the Trust and the Fund.
The fiscal year of the Fund and the Trust ends on June 30 of each year. The Fund and the Trust send to their shareholders, at
least semi-annually, reports showing the Trust’s portfolio and other information. An annual report, containing financial statements audited by independent auditors, is sent to shareholders each year. After the end of each year, shareholders will
receive Federal income tax information regarding dividends.
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.
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 Securities and Exchange 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.
To the knowledge of the Fund, the following entities owned beneficially 5% or more of a class of the Fund’s shares as of
October 1, 2000:
Name
|
|
Address
|
|
Percent and Class
|
| MERRILL LYNCH TRUST COMPANY |
|
P.O. Box 30532
New Brunswick, NJ 08989 |
|
53.73% Class A
20.72% Class D |
| |
|
MERRILL LYNCH TRUST COMPANY TRUSTEE
FBO MLSIP INVESTMENT ACCOUNT |
|
P.O. Box 30532
New Brunswick, NJ 08989 |
|
9.35% Class A |
| |
|
MERRILL LYNCH TRUST COMPANY TRUSTEE
FBO CHRYSLER SALARIED EMPLOYEES’
SAVINGS PLAN |
|
265 Davidson Ave. #4
Somerset, NJ 08873 |
|
5.57% Class A |
The Fund’s audited financial statements are incorporated in this Statement of Additional Information by reference to its 2000 annual report to shareholders. You may
request a copy of the annual report at no charge by calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business day. The Trust’s Statement of Assets and Liabilities follows.
INDEPENDENT AUDITORS’ REPORT
To the Board of Trustees and Investors,
Master Basic Value Trust:
We have audited the accompanying statement of assets and liabilities of Master Basic Value Trust (the “Trust”) as of September 26, 2000. This financial statement is
the responsibility of the Trust’s management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all material respects, the financial position of Master Basic Value Trust as of September 26,
2000, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
September 27, 2000
MASTER BASIC VALUE TRUST
STATEMENT OF ASSETS AND LIABILITIES
September 26, 2000
| ASSETS: |
| Cash |
|
$100,100 |
| Prepaid offering costs (Note 3) |
|
20,000 |
| |
|
|
| Total Assets |
|
120,100 |
| |
|
|
| Less liabilities and accrued expenses |
|
20,000 |
| |
|
|
| Net Assets applicable to investors’ interest in the Fund (Note 1) |
|
$100,100 |
| |
|
|
Notes to Financial Statement
(1)
|
Master Basic Value Trust (the “Trust”) was organized as a Delaware business trust on May 2, 2000. Merrill Lynch Basic
Value Fund, Inc. and Mercury Basic Value Fund, Inc. will invest their assets in the Trust. To date, the Trust has not had any transactions other than those relating to organizational matters, a $100,000 capital contribution to the Trust by Merrill Lynch
Basic Value Fund, Inc. and a $100 partnership contribution to the Trust by FAM Distributors, Inc. (the “Distributor”).
|
(2)
|
The Trust will enter into an investment advisory agreement (the “Advisory Agreement”) with Fund Asset Management, L.P.
(the “Investment Adviser”). Certain officers and/or trustees of the Trust are officers and/or directors of the Investment Adviser and the Distributor.
|
(3)
|
Prepaid offering costs consist of legal fees related to preparing the initial registration statement, and will be amortized over a
12 month period beginning with the commencement of operations of the Trust. The Investment Adviser, on behalf of the Trust, will incur organization costs estimated at $25,000.
|
Code #10124-10-00
PART C. OTHER INFORMATION
Item 23. Exhibits.
Exhibit
Number
|
| 1 |
|
(a) |
|
— |
|
Articles of Incorporation of the Registrant, dated March 22, 1977.(a) |
| |
|
(b) |
|
— |
|
Articles of Amendment, dated October 3, 1988, to the Articles of Incorporation of the Registrant.(a) |
| |
|
(c) |
|
— |
|
Articles Supplementary, dated October 3, 1988, to the Articles of Incorporation of the Registrant.(b) |
| |
|
(d) |
|
— |
|
Articles Supplementary, dated November 15, 1991, to the Articles of Incorporation of the
Registrant.(b) |
| |
|
(e) |
|
— |
|
Articles of Amendment, dated October 17, 1994, to the Articles of Incorporation of the Registrant.(a) |
| |
|
(f) |
|
— |
|
Articles Supplementary, dated October 17, 1994, to the Articles of Incorporation of the Registrant.(a) |
| |
|
(g) |
|
— |
|
Articles Supplementary, dated March 17, 1995, to the Articles of Incorporation of the Registrant.(a) |
| |
|
(h) |
|
— |
|
Articles Supplementary, dated September 16, 1996, to the Articles of Incorporation of the
Registrant.(c) |
| |
|
(i) |
|
— |
|
Articles of Amendment, dated July 31, 2000 to the Articles of Incorporation of the Registrant. |
| 2 |
|
|
|
— |
|
By-Laws of the Registrant.(d) |
| 3 |
|
|
|
— |
|
Portions of the Articles of Incorporation, as amended and supplemented, and By-Laws of the
Registrant defining the rights of holders of shares of common stock of the Registrant.(e) |
| 4 |
|
|
|
— |
|
Not Applicable. |
| 5 |
|
|
|
— |
|
Form of Distribution Agreement between the Registrant and FAM Distributors, Inc.(f) |
| 6 |
|
|
|
— |
|
None. |
| 7 |
|
|
|
— |
|
Not Applicable. |
| 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.(a) |
| |
|
(c) |
|
— |
|
Credit Agreement between the Registrant and a syndicate of banks.(g) |
| 9 |
|
|
|
— |
|
Opinion and Consent of Brown & Wood LLP
, counsel to the Registrant.(b) |
| 10 |
|
|
|
— |
|
Consent of Deloitte & Touche LLP
, independent auditors for the Registrant. |
| 11 |
|
|
|
— |
|
None. |
| 12 |
|
|
|
— |
|
None. |
| 13 |
|
(a) |
|
— |
|
Form of Amended and Restated Class B Distribution Plan of the Registrant and Class B Distribution
Plan Sub-Agreement.(h) |
| |
|
(b) |
|
— |
|
Form of Amended and Restated Class C Distribution Plan of the Registrant and Class C Distribution
Plan Sub-Agreement.(h) |
| |
|
(c) |
|
— |
|
Form of Amended and Restated Class D Distribution Plan of the Registrant and Class D Distribution
Plan Sub-Agreement.(h) |
| 14 |
|
|
|
— |
|
Merrill Lynch Select Pricing
SM
System Plan pursuant to Rule 18f-3.(i) |
| 15 |
|
|
|
— |
|
Code of Ethics.(j) |
(a)
|
Filed on October 25, 1995 as an exhibit to Post-Effective Amendment No. 24 to the Registrant’s Registration Statement on Form
N-1A under the Securities Act of 1933, as amended (File No. 2-58521) (the “Registration Statement”).
|
(b)
|
Filed on October 19, 1999 as an exhibit to Post-Effective Amendment No. 28 to the Registrant’s Registration Statement.
|
(c)
|
Filed on October 28, 1996 as an exhibit to Post-Effective Amendment No. 25 to the Registrant’s Registration Statement.
|
(d)
|
Filed on September 7, 1994 as an exhibit to Post-Effective Amendment No. 22 to the Registrant’s Registration Statement.
|
(e)
|
Reference is made to Article III, Article V, Article VI (sections 2, 3, 4 and 5), Article VII, Article VIII, and Article X of the
Registrant’s Articles of Incorporation, as amended and supplemented, filed as Exhibit (1) to the Registration Statement; and to Article II, Article III (sections 1, 3, 5, 6 and 17), Article VI, Article VII, Article XII, Article XIII, Article XIV and
Article XV of the Registrant’s By-Laws, filed as Exhibit (2) to the Registration Statement.
|
(f)
|
Incorporated by reference to Exhibit 5 to Post-Effective Amendment No. 38 to the Registration Statement on Form N-1A of Merrill
Lynch Balanced Capital Fund, Inc. (File No. 2-49007) filed on June 30, 2000.
|
(g)
|
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.
|
(h)
|
Incorporated by reference to Exhibit 13 to Post-Effective Amendment No. 38 to the Registration Statement on Form N-1A of Merrill
Lynch Balanced Capital Fund, Inc. (File No. 811-2405) filed on June 30, 2000.
|
(i)
|
Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A under the
Securities Act of 1933, as amended, filed on January 25, 1996, relating to shares of Merrill Lynch New York Municipal Bond Fund, a series of Merrill Lynch Multi-State Municipal Series Trust (File No. 2-99473).
|
(j)
|
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. 33-55843), filed on March 29, 2000.
|
Item 24. Persons Controlled by or Under Common Control with Registrant.
The Registrant is not controlled by or under common control with any other person.
Item 25. Indemnification.
Reference is made to Article VI of the Registrant’s Articles of Incorporation, Article VI of the Registrant’s
By-Laws, Section 2-418 of the Maryland General Corporation Law and Section 9 of the Distribution Agreement.
Insofar as the conditional advancing of indemnification monies for actions based on the Investment Company Act of 1940, as
amended (the “1940 Act”) may be concerned, Article VI of the Registrant’s By-Laws provides that such payments will be made only on the following conditions: (i) advances may be made only on receipt of a written affirmation of such
person’s good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to repay any such advance if it is ultimately determined that the standard of conduct has not been met; and (ii) (a) such
promise must be secured by a security for the undertaking in form and amount acceptable to the Registrant, (b) the Registrant is insured against losses arising by receipt of the advance, or (c) a majority of a quorum of the Registrant’s disinterested
non-party Directors, or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts, that at the time the advance is proposed to be made, there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to indemnification.
In Section 9 of the Distribution Agreement 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 Investment Adviser.
Fund Asset Management, L.P. (“FAM” or the “Investment Adviser”) acts as the investment adviser for the
following open-end registered investment companies: CBA Money Fund, CMA Government Securities Fund,
CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc., Financial Institutions Series
Trust, Master Basic Value Trust, Master Focus Twenty Trust, Master Internet Strategies Trust, Master Large Cap Series Trust, Master Premier Growth Trust, Master Small Cap Value Trust, Master U.S. High Yield Trust, Mercury Basic Value Fund, Inc., Mercury
Global Holdings Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch U.S. High Yield Fund, Inc., Merrill Lynch Focus Value Fund, Inc., Merrill Lynch Funds for Institutions Series, Merrill
Lynch Large Cap Series Funds, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch U.S. Government Mortgage Fund Inc., Merrill Lynch
World Income Fund, Inc., The Asset Program, Inc. and The Municipal Fund Accumulation Program, Inc.; and for the following closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II,
Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced
Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc., MuniHoldings California Insured Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund V, MuniHoldings Insured Fund,
Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund IV, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured Fund
IV, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Fund, Inc., MuniYield Pennsylvania
Insured Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Investment Managers, L.P. (“MLIM”), an affiliate of the Investment Adviser, acts as the investment
adviser for the following open-end registered investment companies: Master Global Financial Services Trust, Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Balanced Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Markets Debt Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Index Funds, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term
Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utilities and Telecommunications Fund, Inc., Merrill Lynch Variable Series Funds, Inc., The
Asset Program, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLIM); and for the following closed-end registered investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Senior Floating Rate
Fund, Inc. and Merrill Lynch Senior Floating Rate Fund II, Inc. MLIM also acts as sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity Portfolio, two investment portfolios of EQ Advisors Trust.
The address of each of these registered investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that
the address of Merrill Lynch Funds for Institutions Series and Merrill Lynch Intermediate Government Bond Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The address of FAM, MLIM, Princeton Services, Inc. (“Princeton
Services”) and Princeton Administrators, L.P. (“Princeton
Administrators”) is also P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of FAM Distributors, Inc. (“FAMD”) is P.O. Box 9081, Princeton, New
Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) and Merrill Lynch & Co., Inc. (“ML & Co.”) is World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281-1201. The address of the Fund’s transfer agent, Financial Data Services, Inc. (“FDS”), is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the Investment Adviser indicating each business,
profession, vocation or employment of a substantial nature in which each such person or entity has been engaged since July 1, 1998 for his, her or its own account or in the capacity of director, officer, partner or trustee. In addition, Mr. Glenn is
President and Mr. Burke is Vice President and Treasurer of all or substantially all of the investment companies described in the first two paragraphs of this Item 26, and Messrs. Doll, Giordano and Monagle are officers of one or more of such companies.
Name
|
|
Position(s) with the
Investment Adviser
|
|
Other Substantial
Business, Profession, Vocation or Employment
|
| ML & Co. |
|
Limited Partner |
|
Financial Services Holding Company;
Limited Partner of MLIM |
| Princeton Services |
|
General Partner |
|
General Partner of MLIM |
| Jeffrey M. Peek |
|
President |
|
President of MLIM; President and Director
of Princeton Services; Executive Vice
President of ML & Co.; Managing Director
and Co-Head of the Investment Banking
Division of Merrill Lynch in 1997; Senior
Vice President and Director of the Global
Securities and Economics Division of
Merrill Lynch from 1995 to 1997 |
| Terry K. Glenn |
|
Executive Vice President |
|
Executive Vice President of MLIM;
Executive Vice President and Director of
Princeton Services; President and Director
of FAMD; Director of FDS; President of
Princeton Administrators |
| Gregory A. Bundy |
|
Chief Operating Officer
and Managing Director |
|
Chief Operating Officer and Managing
Director of MLIM; Chief Operating Officer
and Managing Director of Princeton
Services; Co-CEO of Merrill Lynch
Australia from 1997 to 1999 |
| Donald C. Burke |
|
Senior Vice President,
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 |
| Michael G. Clark |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services;
Treasurer and Director of FAMD; First
Vice President of MLIM from 1997 to
1999; Vice President of MLIM from 1996
to 1997 |
| Robert C. Doll, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services; Chief
Investment Officer of OppenheimerFunds,
Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999 |
Name
|
|
Position(s) with the
Investment Adviser
|
|
Other Substantial
Business, Profession, Vocation or Employment
|
| 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 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
MLIM; Senior Vice President of Princeton
Services |
| Joseph T. Monagle, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services |
| Gregory D. Upah |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior
Vice President of Princeton Services |
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 Twenty 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 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 Strategic Dividend Fund, 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 DollarVest Fund, Inc. The address of each of these registered investment companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of MLAM U.K. is 33 King
William Street, London EC4R 9AS, England.
Set forth below is a list of each executive officer and director of MLAM U.K. indicating each business, profession, vocation
or employment of a substantial nature in which each such person has been engaged since July 1, 1998, for his or her own account or in the capacity of director, officer, partner or trustee. In addition, Messrs. Glenn and Burke are officers of one or more
of the registered investment companies listed in the first two paragraphs of this Item 26.
Name
|
|
Positions With MLAM U.K.
|
|
Other Substantial
Business, Profession, Vocation or Employment
|
| Terry K. Glenn |
|
Director and Chairman |
|
Executive Vice President of FAM and
MLIM; Executive Vice President and
Director of Princeton Services; President and
Director of FAMD; President of Princeton
Administrators |
| Nicholas C.D. Hall |
|
President |
|
Director of Mercury Asset Management Ltd.
and the Institutional Liquidity Fund PLC;
First Vice President and General Counsel for
Merrill Lynch Mercury Asset Management |
| James T. Stratford |
|
Alternate Director |
|
Director of Mercury Asset Management
Group Ltd.; Head of Compliance, Merrill
Lynch Mercury Asset Management |
| 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, Master Focus Twenty Trust, Master Global
Financial Services Trust, Master Internet Strategies Trust, Master Large Cap Series Trust, Master Premier Growth Trust, Master Small Cap Value Trust, Master U.S. High Yield Trust, The Corporate Fund Accumulation Program, Inc. and The Municipal Fund
Accumulation Program, Inc. and for each of the following additional open-end registered investment companies: Mercury Focus Twenty Fund, Inc., Mercury Global Balanced Fund of Mercury Funds, Inc., Mercury Global Financial Services Fund, Mercury Gold and
Mining Fund of Mercury Funds, Inc., Mercury International Fund of Mercury Funds, Inc., Mercury Internet Strategies Fund, Inc., Mercury large Cap Series Fund, Inc., Mercury Pan-European Growth Fund of Mercury Funds, Inc., Mercury Premier Growth Fund, Inc.,
Mercury Small Cap Value Fund, Inc., Mercury U.S. High Yield Fund, Inc., Summit Cash Reserves Fund of Financial Institutions Series Trust, Mercury V.I. U.S. Large Cap Fund of Mercury Asset Management V.I. Funds, Inc., Merrill Lynch Focus Twenty Fund, Inc.,
Merrill Lynch Global Financial Services Fund, Inc., Merrill Lynch Internet Strategies Fund, Inc., Merrill Lynch Large Cap Series Fund, Inc., Merrill Lynch Premier Growth Fund, Inc. and Merrill Lynch Small Cap Value Fund, Inc. FAMD also acts as the
principal underwriter for the following closed-end registered investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Senior
Floating Rate Fund II, Inc. and Merrill Lynch U.S. High Yield Fund, Inc.
(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 |
| William Wasel |
|
Vice President |
|
None |
| Robert Harris |
|
Secretary |
|
None |
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the rules thereunder
are maintained at the offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey 08536-9011), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484).
Item 29. Management Services.
Other than as set forth under the caption “Management of the Fund—Fund Asset Management” in the Prospectus
constituting Part A of the Registration Statement and under “Management of the Fund—Management and Advisory Arrangements” and “—Administration Arrangements” in the Statement of Additional Information constituting Part B of
the Registration Statement, the Registrant is not a party to any management-related service contract.
Item 30. Undertakings.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant has duly caused
registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Plainsboro, and the State of New Jersey, on the 10th day of October, 2000.
|
MERRILL
LYNCH
BASIC
VALUE
FUND
, INC
.
|
|
Vice President and Treasurer
|
Pursuant to the requirements of the Securities Act of 1933, this Post Effective Amendment to the Registration Statement has
been signed below by the following persons in the capacities and on the date(s) indicated.
Signature
|
|
Title
|
|
Date
|
|
|
TERRY
K. GLENN
*
(Terry K. Glenn) |
|
President and Director
(Principal Executive Officer) |
|
|
|
|
DONALD
C. BURKE
*
(Donald C. Burke) |
|
Vice President and Treasurer
(Principal Financial and
Accounting Officer) |
|
|
|
|
M. COLYER
CRUM
*
(M. Colyer Crum) |
|
Director |
|
|
|
|
LAURIE
SIMON
HODRICK
*
(Laurie Simon Hodrick) |
|
Director |
|
|
|
|
JACK
B. SUNDERLAND
*
(Jack B. Sunderland) |
|
Director |
|
|
|
|
J. THOMAS
TOUCHTON
*
(J. Thomas Touchton) |
|
Director |
|
|
|
|
FRED
G. WEISS
*
(Fred G. Weiss) |
|
Director |
|
|
|
|
ARTHUR
ZEIKEL
*
(Arthur Zeikel) |
|
Director |
|
|
|
|
/s/ DONALD
C. BURKE
*By:
(Donald C. Burke, Attorney-in-Fact) |
|
|
|
October 10, 2000 |
POWER OF ATTORNEY
The undersigned, the Directors/Trustees and the Officers of each of the registered investment companies listed below, hereby
authorize Terry K. Glenn, Donald C. Burke and Joseph T. Mongale, Jr. or any of them, as attorney-in-fact, to sign on his behalf in the capacities indicated any Registration Statement or amendment thereto (including post-effective amendments) for each of
the following registered investment companies and to file the same, with all exhibits thereto, with the Securities and Exchange Commission; Merrill Lynch Basic Value Fund, Inc.; Merrill Lynch Disciplined Equity Fund, Inc.; Merrill Lynch Global Resources
Trust; Merrill Lynch Global Growth Fund, Inc.; Merrill Lynch Small Cap Value Fund, Inc.; MuniYield Florida Insured Fund; MuniYield Pennsylvania Insured Fund; MuniYield New Jersey Insured Fund, Inc.; MuniYield Michigan Insured Fund, Inc.
Dated: August 1, 2000
/S
/ STEPHEN
B. SWENSRUD
Stephen B. Swensrud
(Director/Trustee)
|
|
|
SIGNATURES
Master Basic Value Trust has duly caused this Registration Statement of Merrill Lynch Basic Value Fund, Inc. to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Township of Plainsboro, and State of New Jersey, on the 10th day of October, 2000.
|
|
| By:
|
/s/ TERRY
K. GLENN
Terry K. Glenn,
President
|
Each person whose signature appears below hereby authorizes Terry K. Glenn, Donald C. Burke and Thomas D. Jones, III, or any
of them, as attorney-in-fact, to sign on his or her behalf, individually and in each capacity stated below, any amendment to this Registration Statement (including post-effective amendments) and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature
|
|
Title
|
|
Date
|
|
|
/s/ TERRY
K. GLENN
(Terry K. Glenn) |
|
President (Principal Executive
Officer) and Trustee |
|
October 10, 2000 |
|
|
/s/ DONALD
C. BURKE
(Donald C. Burke) |
|
Vice President and Treasurer
(Principal Financial and
Accounting Officer) |
|
October 10, 2000 |
|
|
/s/ M. COLYER
CRUM
(M. Colyer Crum) |
|
Trustee |
|
October 10, 2000 |
|
|
/s/ LAURIE
SIMON
HODRICK
(Laurie Simon Hodrick) |
|
Trustee |
|
October 10, 2000 |
|
|
/s/ JACK
B. SUNDERLAND
(Jack B. Sunderland) |
|
Trustee |
|
October 10, 2000 |
|
|
/s/ STEPHEN
B. SWENSRUD
(Stephen B. Swensrud) |
|
Trustee |
|
October 10, 2000 |
|
|
/s/ J. THOMAS
TOUCHTON
(J. Thomas Touchton) |
|
Trustee |
|
October 10, 2000 |
|
|
/s/ FRED
G. WEISS
(Fred G. Weiss) |
|
Trustee |
|
October 10, 2000 |
|
|
/s/ ARTHUR
ZEIKEL
(Arthur Zeikel) |
|
Trustee |
|
October 10, 2000 |
EXHIBIT INDEX
Exhibit
Number
|
|
Description
|
| 1(i) |
|
Articles of Amendment, dated July 31, 2000, to the Articles of Incorporation of the Registrant. |
| 8(a) |
|
Form of Administration Agreement between the Registrant and Fund Asset Management, L.P. |
| 10 |
|
Consent of Deloitte & Touche LLP, independent auditors for the Registrant. |
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