As filed with the Securities and Exchange Commission on July 28, 2000
Securities Act File No. 2-60836
Investment Company Act File No. 811-2809
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 27
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
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(Check appropriate box or boxes)
Merrill Lynch Small Cap Value Fund, Inc.*
(Exact Name of Registrant as Specified in Charter)
800 Scudders Mill Road, Plainsboro, New Jersey 08536
(Address of Principal Executive Offices)
Registrants telephone number, including Area Code (609) 282-2800
Terry K. Glenn
Merrill Lynch Small Cap Value Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
Copies to:
Counsel for the Fund
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
Attention: Thomas R. Smith, Jr., Esq.
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Michael J. Hennewinkel, Esq.
FUND ASSET MANAGEMENT
P.O. Box 9011
Princeton, New Jersey 08543-9011
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It is proposed that this filing will become effective (check appropriate box)
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immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485.
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If appropriate, check the following box:
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This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
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Title of Securities Being Registered: Common Stock, par value $.10 per share.
* Formerly, Merrill Lynch Special Value Fund, Inc.
Prospectus
[LOGO] Merrill Lynch
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Merrill Lynch Small Cap Value Fund, Inc.
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[July 28, 2000]
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This Prospectus contains information you should know before investing, including information about risks. Please read it before you
invest and keep it for future reference.
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The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
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Table of Contents
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
[LOGO] Key Facts
In an effort to help you better understand the many concepts involved in making an investment decision, we have defined highlighted terms in this prospectus in the sidebar.
Common Stock shares of
ownership of a corporation.
Small companies Definition
of small companies will change over time in response to market conditions; for the Fund, small companies typically have total market capitalization, at the time of initial purchase by the Fund, in the same range as companies in the
Russell 2000 Stock Index, a widely known small cap investment benchmark. As of June 30, 2000, the largest company in the index had an approximate market capitalization of $1.6 billion and the average market capitalization is approximately $580 million.
The size of the companies in the Russell 2000 Stock Index changes with market condition and the composition of the index.
Emerging growth companies
companies of any market capitalization without a long or consistent history of earnings but that Fund management believes have the potential to grow earnings significantly over an extended period of time.
Enterprise value-sales ratio
the ratio of a companys market value (calculated with reference to the aggregate market value of its outstanding shares plus the amount of debt outstanding minus cash) to its total sales. Generally, a low enterprise value-sales ratio is one
indication that the company may be undervalued.
THE MERRILL LYNCH SMALL CAP VALUE FUND AT A GLANCE
What is the Funds investment objective?
The investment objective of the Fund is to seek long term growth of capital by investing in a diversified portfolio of securities, primarily common stock, of
relatively small companies that management of the Fund believes have special investment value and emerging growth companies regardless of size.
What are the Funds main investment strategies?
The Fund invests primarily in common stock of small companies and emerging growth companies that Fund management believes have special investment value. This means Fund
management will look for companies that have long-term potential to grow in size or to become more profitable or that the stock market may value more highly in the future. Fund management seeks to invest in small companies that are trading at the low end
of their historical price-book value or enterprise value-sales ratios, and particular qualities that affect the outlook for that company including an attractive market niche. Fund management also seeks to invest in emerging growth companies that occupy dominant positions in
developing industries, have strong management and demonstrate successful product development and marketing capabilities. We cannot guarantee that the Fund will achieve its objective.
What are the main risks of investing in the Fund?
As with any mutual fund, the value of the Funds investments and therefore the value of the Funds shares may fluctuate. These changes may occur
because a particular stock or stock market in which the Fund invests is rising or falling. Also, Fund management may select securities that underperform the stock market or other funds with similar investment objectives and investment strategies. If the
value of the Funds investments goes down, you may lose money.
The Fund will invest primarily in small and emerging growth companies. Small and emerging growth companies may have limited product lines or markets, may depend on a smaller
number of key personnel and may be less financially secure than larger, more established companies. If a product fails, or if management changes, or if there are other adverse developments, the Funds investment in a small or emerging growth company
may lose substantial value.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
3
[LOGO] Key Facts
Small and emerging growth companies securities generally trade in lower volumes and are subject to greater, less predictable price changes than the securities of more
established companies. Investing in small or emerging growth companies requires a long term view.
Who should invest?
The Fund may be an appropriate investment for you if you:
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Are investing with long term goals in mind, such as retirement or funding a childs education.
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Want a professionally managed and diversified portfolio.
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Are willing to accept the risk of short term fluctuations in exchange for the potential for long term growth of capital.
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Are not looking for a significant amount of current income.
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MERRILL LYNCH SMALL CAP VALUE FUND, INC.
4
[LOGO] Key Facts
The bar chart and table shown below provide an indication of the risks of investing in the Fund. The bar chart shows changes in the Funds performance for Class B shares for
each of the past ten calendar years. Sales charges are not reflected in the bar chart. If these amounts were reflected, returns would be less than those shown. The table compares the average annual total returns for each class of the Funds shares
for the periods shown with those of the Russell 2000 Index. How the Fund performed in the past is not necessarily an indication of how the Fund will perform in the future.
[BAR CHART]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-28.26% 53.32% 15.84% 13.07% 2.79% 21.12% 22.57% 23.97% -6.55% 31.93%
During the ten-year period shown in the bar chart, the highest return for a quarter was 29.92% (quarter ended March 31, 1991) and the lowest return for a quarter was -26.00% (quarter ended September 30, 1998). The Funds year-to-date return as of June 30, 2000 was 16.34%.
Average Annual Total Returns
(for the calendar year ended
December 31, 1999) |
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Past
One Year |
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Past Five
Years |
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Past Ten
Years/Since
Inception |
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Merrill Lynch Small Cap Value
Fund* Class A |
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26.32% |
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17.75 |
% |
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13.44% |
Russell 2000 Index** |
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21.26% |
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16.68 |
% |
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13.39% |
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Merrill Lynch Small Cap Value
Fund* Class B |
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27.93% |
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17.81 |
% |
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12.88% |
Russell 2000 Index** |
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21.26% |
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16.68 |
% |
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13.39% |
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Merrill Lynch Small Cap Value
Fund* Class C |
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30.89% |
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17.79 |
% |
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16.81% |
Russell 2000 Index** |
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21.26% |
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16.68 |
% |
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15.87% |
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Merrill Lynch Small Cap Value
Fund* Class D |
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25.97% |
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17.46 |
% |
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16.52% |
Russell 2000 Index** |
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21.26% |
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16.68 |
% |
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15.87% |
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**
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This unmanaged index is comprised of approximately 2,000 smaller-capitalization common stocks from various industrial sectors. Past
performance is not predictive of future performance.
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Inception date is October 21, 1994.
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Since October 21, 1994.
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MERRILL LYNCH SMALL CAP VALUE FUND, INC.
5
[LOGO] Key Facts
UNDERSTANDING EXPENSES
Fund investors pay various fees and expenses, either directly or indirectly. Listed below are some of the main types of expenses, which the Fund may charge:
Expenses paid directly by the shareholder:
Shareholder Fees these
include sales charges which you may pay when you buy or sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses
expenses that cover the costs of operating the Fund.
Management Fees fees paid
to the Investment Adviser for managing the Fund.
Distribution Fees fees used
to support the Funds marketing and distribution efforts, such as compensating Financial Consultants and other financial intermediaries, advertising and promotion.
Service (Account Maintenance) Fees
fees used to compensate securities dealers and other financial intermediaries for account maintenance activities.
The Fund offers four different classes of shares. Although your money will be invested the same way no matter which class of shares you buy, there are differences among the
fees and expenses associated with each class. Not everyone is eligible to buy every class. After determining which classes you are eligible to buy, decide which class best suits your needs. Your Merrill Lynch Financial Consultant can help you with this
decision.
This table shows the different fees and expenses that you may pay if you buy and hold the different classes of shares of the Fund. Future expenses may be greater or less than
those indicated below.
Shareholder Fees (fees paid directly
from your investment)(a): |
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Class A |
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Class B(b) |
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Class C |
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Class D |
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Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering price) |
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5.25%(c) |
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None |
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None |
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5.25%(c) |
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Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, whichever is lower) |
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None(d) |
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4.0%(c) |
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1.0%(c) |
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None(d) |
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Maximum Sales Charge (Load) imposed on
Dividend Reinvestments |
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None |
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None |
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None |
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None |
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Redemption Fee |
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None |
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None |
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None |
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None |
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Exchange Fee |
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None |
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None |
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None |
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None |
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Annual Fund Operating Expenses (expenses
that are deducted from your investment): |
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Management Fee(e) |
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0.75% |
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0.75% |
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0.75% |
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0.75% |
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Distribution and/or Service (12b-1) Fees(f) |
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None |
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1.00% |
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1.00% |
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0.25% |
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Other Expenses (including transfer agency
fees)(g) |
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0.33% |
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0.36% |
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0.37% |
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0.33% |
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Total Annual Fund Operating Expenses |
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1.08% |
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2.11% |
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2.12% |
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1.33% |
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(a)
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In addition, Merrill Lynch may charge clients a processing fee (currently $5.35) when a client buys or sells shares. See How
to Buy, Sell, Transfer and Exchange Shares.
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(b)
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Class B shares automatically convert to Class D shares about eight years after you buy them and will no longer be subject to
distribution fees.
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(c)
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Some investors may qualify for reductions in the sales charge (load).
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(d)
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You may pay a deferred sales charge if you purchase $1 million or more and you redeem within one year.
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(e)
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The Fund pays the Investment Adviser a fee at the annual rate of 0.75% of the average daily net assets of the Fund for the first $1
billion; 0.725% of the average daily net assets from $1 billion to $1.5 billion; and 0.70% of the average daily net assets above $1.5 billion. For the fiscal year ended March 31, 2000 the Investment Adviser received a fee equal to 0.75% of the Funds
average daily net assets.
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(f)
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The Fund calls the Service Fee an Account Maintenance Fee. Account Maintenance Fee is the term used in this
Prospectus and in all other Fund materials. If you hold Class B or Class C shares for a long time, it may cost you more in distribution (12b-1) fees than the maximum sales charge that you would have paid if you had bought one of the other classes.
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(g)
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The Fund pays the Transfer Agent $11.00 for each Class A and Class D shareholder account and $14.00 for each Class B and Class C
shareholder account and reimburses the Transfer Agents
(Footnotes continued from previous page)
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out-of-pocket expenses. The Fund also pays a $0.20 monthly closed account charge, which is assessed upon all accounts that close
during the year. This fee begins the month following the month the account is closed and ends at the end of the calendar year. For the fiscal year ended March 31, 2000, the Fund paid the Transfer Agent fees totaling $2,598,064. The Investment Adviser
provides accounting services to the Fund at its cost. For the fiscal year ended March 31, 2000, the Fund reimbursed the Investment Adviser $119,537 for these services.
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Examples:
These examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in the Fund for the time periods indicated, that your investment has a 5% return each year, that you pay the sales charges, if
any, that apply to the particular class and that the Funds operating expenses remain the same. This assumption is not meant to indicate you will receive a 5% annual rate of return. Your annual return may be more or less than the 5% used in this
example. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
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1 Year |
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3 Years |
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5 Years |
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10 Years |
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Class A |
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$629 |
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$850 |
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$1,089 |
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$1,773 |
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Class B |
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$614 |
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$861 |
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$1,134 |
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$2,250 |
* |
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Class C |
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$315 |
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$664 |
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$1,139 |
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$2,452 |
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Class D |
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$653 |
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$924 |
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$1,216 |
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$2,042 |
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EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
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1 Year |
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3 Years |
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5 Years |
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10 Years |
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Class A |
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$629 |
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$850 |
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$1,089 |
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$1,773 |
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Class B |
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$214 |
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$661 |
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$1,134 |
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$2,250 |
* |
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Class C |
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$215 |
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$664 |
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$1,139 |
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$2,452 |
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Class D |
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$653 |
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$924 |
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$1,216 |
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$2,042 |
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*
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Assumes conversion to Class D shares approximately eight years after purchase. See note (b) to the Fees and Expenses table above.
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MERRILL LYNCH SMALL CAP VALUE FUND, INC.
7
[LOGO] Details About the Fund
ABOUT THE
PORTFOLIO MANAGER
Daniel V. Szemis is a Senior Vice President and portfolio manager of the Fund. Mr. Szemis has been a First Vice President of Merrill Lynch Investment Managers since 1997 and was a
Vice President of Merrill Lynch Investment Managers from 1996 to 1997.
ABOUT THE INVESTMENT ADVISER
The Fund is managed by Fund Asset Management.
The Fund tries to choose investments for capital appreciation that is, investments that will increase in value. The Fund will invest in a diversified
portfolio primarily consisting of common stock of small and emerging growth companies. The Fund will, under normal circumstances, invest at least 65% of its assets in equity securities of small companies and will generally invest at least 80% of its
assets in equity securities of small and emerging growth companies. Equity securities consist of:
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Securities convertible into common stock
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Derivative securities, such as options and futures, the values of which are based on a common stock or group of common stocks
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The Funds management chooses investments using a fundamental, value-oriented investment style. This means that the Fund seeks to invest in companies that the Fund
s management believes to be undervalued. A companys stock is undervalued when the stocks current price is less than what the Fund believes a share of the company is worth. A companys worth can be assessed by several factors, such as
financial resources, value of tangible assets, sales and earnings growth, rate of return on capital, product development, quality of management, and overall business prospects. A companys stock may become undervalued when most investors fail to
perceive the companys strengths in one or more of these areas. Fund management may also determine a company is undervalued if its stock price is down because of temporary factors from which Fund management believes the company will recover.
Additionally, management of the Fund may acquire the securities of companies that are in a particular industry or related industries or market segments together as a basket or group in a single transaction. The Fund may subsequently sell such
basket as a unit or it may sell only selected securities and continue to hold other securities acquired in the basket.
The Fund may sell a security if, for example, the stock price increases to the high end of the range of its historical price-book value ratio or if the Fund determines that
the issuer no longer meets the criteria Fund management has established for the purchase of such securities or if Fund management thinks there is a more attractive opportunity in the same category.
Fund management seeks to invest in small companies that:
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are trading at the low end of their historical price-book value or enterprise value-sales ratios
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MERRILL LYNCH SMALL CAP VALUE FUND, INC.
8
Volatility the
frequency and amount of changes in a securitys value.
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have particular qualities that affect the outlook for that company, such as strong research capabilities, new or unusual products
or occupation of an attractive market niche
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have the potential to increase earnings over an extended period of time
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Fund management seeks to invest in emerging growth companies that:
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occupy dominant positions in new, developing industries or have a significant market share in a large, fragmented industry or are
relatively undervalued in the marketplace when compared to their favorable market potential
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have rapid growth rates or above-average returns on equity
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demonstrate successful product development and marketing capabilities
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Fund management also considers other factors, such as the level of competition in an industry or the extent of government regulation. The Fund may also purchase the stock of
a company which has suffered a recent earnings decline if Fund management believes that the decline is temporary or cyclical and will not significantly affect the companys long term growth.
The Fund will invest primarily in U.S. companies that do most of their business in the United States, but may invest a portion of its assets in foreign companies although
this is not a principal investment strategy. It is anticipated that in the immediate future, the Fund will invest not more than 30% of its total assets in the securities of foreign issuers.
Small and emerging growth companies may have limited product lines or markets, may depend on a smaller number of key personnel and may be less financially secure than larger,
more established companies. In addition, small and emerging growth companies securities generally trade in lower volumes and are subject to greater, less predictable price changes than the securities of more established companies. Because of these
factors, the Fund is not intended as a complete investment program but is designated for long term investors seeking to diversify their investments and who are prepared to experience above-average volatility.
The Fund may, as a temporary defensive measure, and without limitation, hold assets in other types of securities, including non-convertible preferred stocks and debt
securities, U.S. Government and money market securities, including repurchase agreements or cash, in such proportions as the investment adviser may determine. Normally, a portion of the Funds assets
would be held in these securities in anticipation of investment in equities or to meet redemptions. Short term investments and temporary defensive positions can be easily sold and have limited risk of loss but may not achieve the Funds investment
objective.
The Fund has no stated minimum holding period for investments, and will buy or sell securities whenever the Funds management sees an appropriate opportunity.
This section contains a summary discussion of the general risks of investing in the Fund. As with any fund, there can be no guarantee that the Fund will meet its goals or
that the Funds performance will be positive for any period of time.
The Funds principal risks are small cap and emerging growth risk, market risk and selection risk.
Small Cap and Emerging Growth Securities Risk Small cap or emerging growth companies may have limited product lines or markets. They may be less financially secure than larger, more established companies. They
may depend on a small number of key personnel. If a product fails, or if management changes, or there are other adverse developments, the Funds investment in a small cap or emerging growth company may lose substantial value.
The securities of small cap and emerging growth companies generally trade in lower volumes and are subject to greater and less predictable price changes than the securities
of larger, more established companies. Investing in smaller and emerging growth companies requires a long term view.
Market and Selection Risk
Market risk is the risk that the stock market in one or more countries in which the Fund invests
will go down in value, including the possibility that one or more markets will go down sharply and unpredictably. Selection risk is the risk that the securities that Fund management selects will underperform the stock market or other funds with similar
investment objectives and investment strategies.
The Fund also may be subject to the following risks:
Convertibles Convertibles are generally debt securities or preferred stocks that may be converted into common stock. Convertibles typically pay current income as either interest (debt security convertibles) or dividends (preferred stocks). A
convertibles value usually reflects both the stream of current income payments and the value of the underlying common stock. The market
value of a convertible performs like a regular debt security, that is, if market interest rates rise, the value of a convertible usually falls. Since it is convertible into common
stock, the convertible also has the same types of market and issuer risk as the underlying common stock.
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid securities that it cannot easily resell within seven days at current value or that have contractual or legal restrictions on resale. If the Fund buys illiquid securities it may
be unable to quickly resell them or may be able to sell them only at a price below current value. The risk that a security will become illiquid is greater for small cap securities.
Restricted Securities
Restricted securities have contractual or legal
restrictions on their resale. They may include private placement securities that the Fund buys directly from the issuer. Private placement and other restricted securities may not be listed on an exchange and may have no active
trading market.
Restricted securities may be illiquid. The Fund may be unable to sell them on short notice or may be able to sell them only at a price below current value. The Fund may get
only limited information about the issuer, so it may be less able to predict a loss. In addition, if Fund management receives material adverse non-public information about the issuer, the Fund will not be able to sell the security.
Rule 144A Securities
Rule 144A securities are restricted securities that can be resold to qualified institutional buyers but not to the general public. Rule 144A securities may have an active trading market, but carry the risk that the active trading market
may not continue.
Derivatives The Fund may use derivative instruments including options on portfolio positions or currencies, financial and currency futures, options on such futures and forward
foreign currency transactions. Derivatives are financial instruments whose value is derived from another security, a commodity (such as gold or oil) or an index such as Standard & Poors 500 Index. Derivatives allow the Fund to increase or
decrease its risk exposure more quickly and efficiently than other types of instruments. Derivatives are volatile and involve significant risks, including:
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Credit risk the risk that the counterparty (the party on the other side of the transaction) on a derivative
transaction will be unable to honor its financial obligation to the Fund.
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MERRILL LYNCH SMALL CAP VALUE FUND, INC.
11
[LOGO] Details About the Fund
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Currency risk the risk that changes in the exchange rate between currencies will adversely affect the value (in U.S. dollar terms) of an investment.
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Leverage risk the risk associated with certain types of investments or trading strategies (such as borrowing money to increase the amount of investments) that
relatively small market movements may result in large changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested.
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Liquidity risk the risk that certain securities may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the
security is currently worth.
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The Fund may use derivatives for hedging purposes, including anticipatory hedges. Hedging is a strategy in which the Fund uses a derivative to offset the risk that other Fund
holdings may decrease in value. While hedging can reduce losses, it can also reduce or eliminate gains if the market moves in a different manner than anticipated by the Fund or if the cost of the derivative outweighs the benefit of the hedge. Hedging also
involves the risk that changes in the value of the derivative will not match those of the holdings being hedged as expected by the Fund, in which case any losses on the holdings being hedged may not be reduced.
There can be no assurance that the Funds hedging strategy will reduce risk or that hedging transactions will be either available or cost effective. The Fund is not
required to use hedging and may choose not to do so.
Foreign Market Risk Since the Fund may invest in foreign securities, it offers the potential for more
diversification than an investment only in the United States. This is because securities traded on foreign markets have often (though not always) performed differently than stocks in the United States. However, such investments involve special risks not
present in U.S. investments that can increase the chances that the Fund will lose money. In particular, investment in foreign securities involves the following risks, which are generally greater for investments in emerging markets.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
12
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The economies of some foreign markets often do not compare favorably with the economy of the United States with respect to such
issues as growth of gross national product, reinvestment of capital, resources and balance of payments position. Certain of these economies may rely heavily on particular industries or foreign capital and are more vulnerable to diplomatic developments,
the imposition of economic sanctions against a particular country or countries, changes in international trading patterns, trade barriers and other protectionist or retaliatory measures.
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Investments in foreign markets may be adversely affected by governmental actions such as the imposition of capital controls,
nationalization of companies or industries, expropriation of assets or the imposition of punitive taxes.
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The governments of certain countries may prohibit or impose substantial restrictions on foreign investing in their capital markets
or in certain industries. Any of these actions could severely affect security prices. They could also impair the Funds ability to purchase or sell foreign securities or transfer its assets or income back into the United States, or otherwise
adversely affect the Funds operations.
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Other foreign market risks include foreign exchange controls, difficulties in pricing securities, defaults on foreign government
securities, difficulties in enforcing favorable legal judgments in foreign courts and political and social instability. Legal remedies available to investors in some foreign countries may be less extensive than those available to investors in the United
States or other foreign countries.
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Because there are generally fewer investors on foreign exchanges and a smaller number of shares traded each day, it may be
difficult for the Fund to buy and sell securities on those exchanges. In addition, prices of foreign securities may go up and down more than prices of securities traded in the United States.
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Foreign markets may have different clearance and settlement procedures. In certain markets, settlements may be unable to keep pace
with the volume of securities transactions. If this occurs, settlement may be delayed and the Funds assets may be uninvested and not earning returns. The Fund may miss investment opportunities or be unable to sell an investment because of these delays
.
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MERRILL LYNCH SMALL CAP VALUE FUND, INC.
13
[LOGO] Details About the Fund
European Economic and Monetary Union (EMU) A number of European countries entered into EMU in an effort to reduce trade barriers between themselves and eliminate fluctuations in their currencies. EMU
established a single European currency (the euro), which was introduced on January 1, 1999 and is expected to replace the existing national currencies of all initial EMU participants by July 1, 2002. Certain securities (beginning with government and
corporate bonds) have been redenominated in the euro. These securities will trade and make dividend and other payments only in euros. Like other investment companies and business organizations, including the companies in which the Fund invests, the Fund
could be adversely affected if the transition to the euro, or EMU as a whole, does not proceed as planned or if a participating country withdraws from EMU.
Emerging Markets Risk
The risks of foreign investments are usually much greater for emerging markets. Investments in emerging markets may be considered speculative. Emerging markets include those in countries defined as emerging or developing by the World
Bank, the International Finance Corporation or the United Nations. Emerging markets are riskier because they develop unevenly and may never fully develop. They are more likely to experience hyperinflation and currency devaluations, which adversely affect
returns to U.S. investors. In addition, the securities markets in many of these countries have far lower trading volumes and less liquidity than developed markets. Since these markets are so small, they may be more likely to suffer sharp and frequent
price changes or long term price depression because of adverse publicity, investor perceptions, or the actions of a few large investors.
In addition, traditional measures of investment value used in the United States, such as price to earnings ratios, may not apply to certain small markets.
Many emerging markets have histories of political instability and abrupt changes in policies. As a result their governments are more likely to take actions that are hostile
or detrimental to private enterprise or foreign investment than those of more developed countries. Certain emerging markets may also face other significant internal or external risks, including the risk of war, and ethnic, religious and racial conflicts.
In addition, governments in many emerging market countries participate to a significant degree in their economics and securities markets, which may impair investment and economic growth.
Securities Lending
The Fund may lend securities to financial institutions that provide government securities as collateral. Securities lending involves
the risk that the borrower may fail to return the securities in a timely manner or at all. As a result, the Fund may lose money and there may be a delay in recovering the loaned
securities. The Fund could also lose money if it does not recover the securities and the value of the collateral falls. These events could trigger adverse tax consequences to the Fund.
Borrowing and Leverage Risk
The Fund may borrow for temporary emergency purposes including to meet redemptions. Borrowing may exaggerate changes in the net asset value of Fund shares and in the yield
on the Funds portfolio. Borrowing will cost the Fund interest expense and other fees. The cost of borrowing may reduce the Funds return. Certain securities that the Fund may buy may create leverage including, for example, futures and options.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the Fund, including how it invests, please see the Statement of Additional Information.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
15
[LOGO] Your Account
MERRILL LYNCH SELECT PRICING
SM
SYSTEM
The Fund offers four share classes, each with its own sales charge and expense structure, allowing you to invest in the way that best suits your needs. Each share class
represents an ownership interest in the same investment portfolio. When you choose your class of shares you should consider the size of your investment and how long you plan to hold your shares. Your Merrill Lynch Financial Consultant can help you
determine which share class is best suited to your personal financial goals.
For example, if you select Class A or D shares, you generally pay a sales charge at the time of purchase. If you buy Class D shares, you also pay an ongoing account
maintenance fee of 0.25%. You may be eligible for a sales charge reduction or waiver.
If you select Class B or C shares, you will invest the full amount of your purchase price, but you will be subject to a distribution fee of 0.75% and an account maintenance
fee of 0.25%. Because these fees are paid out of the Funds assets on an ongoing basis, over time these fees increase the cost of your investment and may cost you more than paying other types of sales charges. In addition, you may be subject to a
deferred sales charge when you sell Class B or C shares.
The Funds shares are distributed by FAM Distributors, Inc., an affiliate of Merrill Lynch.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
16
The table below summarizes key features of the Merrill Lynch Select Pricing
SM
System.
|
|
Class A |
|
Class B |
|
Class C |
|
Class D |
|
Availability |
|
Limited to certain
investors including:
Current Class A
shareholders
Certain Retirement
Plans
Participants in
certain Merrill Lynch-
sponsored programs
Certain affiliates of
Merrill Lynch
selected securities
dealers and other
financial
intermediaries. |
|
Generally available
through Merrill Lynch.
Limited
availability through
selected securities
dealers and other
financial
intermediaries. |
|
Generally available
through Merrill Lynch.
Limited
availability through
selected securities
dealers and other
financial
intermediaries. |
|
Generally available
through Merrill Lynch.
Limited availability
through selected
securities dealers and
other financial
intermediaries. |
|
|
Initial Sales
Charge? |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
Deferred Sales
Charge? |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within
one year.) |
|
Yes. Payable if you
redeem within four
years of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year.) |
|
|
Account
Maintenance and
Distribution Fees? |
|
No. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
No Distribution Fee. |
|
Conversion to
Class D shares? |
|
No. |
|
Yes, automatically
after approximately
eight years. |
|
No. |
|
No. |
|
|
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
17
[LOGO] Your Account
Class A and Class D Shares Initial Sales Charge Options
If you select Class A or Class D shares, you will pay a sales charge at the time of purchase.
Your Investment |
|
As a % of
Offering Price |
|
As a % of
Your Investment* |
|
Dealer
Compensation
as a % of
Offering Price |
|
Less than $25,000 |
|
5.25% |
|
5.54% |
|
5.00% |
|
$25,000 but less
than $50,000 |
|
4.75% |
|
4.99% |
|
4.50% |
|
$50,000 but less
than $100,000 |
|
4.00% |
|
4.17% |
|
3.75% |
|
$100,000 but less
than $250,000 |
|
3.00% |
|
3.09% |
|
2.75% |
|
$250,000 but less
than $1,000,000 |
|
2.00% |
|
2.04% |
|
1.80% |
|
$1,000,000 and
over** |
|
0.00% |
|
0.00% |
|
0.00% |
|
*
|
Rounded to the nearest one-hundredth percent.
|
**
|
If you invest $1,000,000 or more in Class A or Class D shares, you may not pay an initial sales charge. In that case, the
Investment Adviser compensates the selling dealer from its own funds. However, if you redeem your shares within one year after purchase, you may be charged a deferred sales charge. This charge is 1% of the lesser of the original cost of the shares being
redeemed or your redemption proceeds. A sales charge of 0.75% will be charged on purchases of $1,000,000 or more of Class A or Class D shares by certain employer- sponsored retirement or savings plans.
|
No initial sales charge applies to Class A or Class D shares that you buy through reinvestment of dividends.
A reduced or waived sales charge on a purchase of Class A or Class D shares may apply for:
|
Purchases under a Right of Accumulation or Letter of Intent
|
|
Merrill Lynch Blueprint
SM
Program participants
|
|
Certain Merrill Lynch investment or central asset accounts
|
|
Certain employer-sponsored retirement or savings plans
|
Right of Accumulation
permits you to pay the sales charge that would apply to the cost or value (whichever is higher) of all shares you own in the Merrill Lynch mutual funds that offer Select Pricing options.
Letter of Intent
permits you to pay the sales charge that would be applicable if you add up all shares of Merrill Lynch Select Pricing
SM
System funds that you agree to buy within a 13 month period. Certain restrictions apply.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
|
|
Purchases using proceeds from the sale of certain Merrill Lynch closed-end funds under certain circumstances
|
|
|
Certain investors, including directors or trustees of Merrill Lynch mutual funds and Merrill Lynch employees
|
|
|
Certain fee-based programs of Merrill Lynch and other financial intermediaries that have agreements with the Distributor or its
affiliates
|
Only certain investors are eligible to buy Class A shares. Your Merrill Lynch Financial Consultant can help you determine whether you are eligible to buy Class A shares or to
participate in any of these programs.
If you decide to buy shares under the initial sales charge alternative and you are eligible to buy both Class A and Class D shares, you should buy Class A since Class D
shares are subject to a 0.25% account maintenance fee, while Class A shares are not.
If you redeem Class A or Class D shares and within 30 days buy new shares of the same class, you will not pay a sales charge on the new purchase amount. The amount eligible
for this Reinstatement Privilege may not exceed the amount of your redemption proceeds. To exercise the privilege, contact your Merrill Lynch Financial Consultant, selected securities dealer or other financial intermediary or the Funds
Transfer Agent at 1-800-MER-FUND.
Class B and Class C Shares Deferred Sales Charge Options
If you select Class B or Class C shares, you do not pay an initial sales charge at the time of purchase. However, if you redeem your Class B shares within four years after
purchase or your Class C shares within one year after purchase, you may be required to pay a deferred sales charge. You will also pay distribution fees of 0.75% and account maintenance fees of 0.25% each year under distribution plans that the Fund has
adopted under Rule 12b-1. Because these fees are paid out of the Funds assets on an ongoing basis, over time these fees increase the cost of your investment and may cost you more than paying other types of sales charges. The Distributor uses the
money that it receives from the deferred sales charges and the distribution fees to cover the costs of marketing, advertising and compensating the Merrill Lynch Financial Consultant, selected securities dealer or other financial intermediary who assists
you in purchasing Fund shares.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
[LOGO] Your Account
Class B Shares
If you redeem Class B shares within four years after purchase, you may be charged a deferred sales charge. The amount of the charge gradually decreases as you hold your
shares over time, according to the following schedule:
Years Since Purchase |
|
Sales Charge* |
|
0 1 |
|
4.00% |
|
1 2 |
|
3.00% |
|
2 3 |
|
2.00% |
|
3 4 |
|
1.00% |
|
4 and thereafter |
|
0.00% |
|
*
|
The percentage charge will apply to the lesser of the original cost of the shares being redeemed or the proceeds of your
redemption. Shares acquired through reinvestment of dividends are not subject to a deferred sales charge. Not all Merrill Lynch funds have identical deferred sales charge schedules. If you exchange your shares for shares of another fund, the higher charge
will apply.
|
The deferred sales charge relating to Class B shares may be reduced or waived in certain circumstances, such as:
|
|
Certain post-retirement withdrawals from an IRA or other retirement plan if you are over 59 1
/2 years old
|
|
|
Redemption by certain eligible 401(a) and 401(k) plans, certain related accounts, certain group plans participating in the Merrill
Lynch Blueprint
SM
Program and certain retirement plan rollovers
|
|
|
Redemption in connection with participation in certain fee-based programs of Merrill Lynch or other financial intermediaries that
have agreements with the Distributor or its affiliates
|
|
|
Withdrawals resulting from shareholder death or disability as long as the waiver request is made within one year of death or
disability or, if later, reasonably promptly following completion of probate, or in connection with involuntary termination of an account in which Fund shares are held
|
|
|
Withdrawals through the Merrill Lynch Systematic Withdrawal Plan of up to 10% per year of your Class B account value at the time
the plan is established
|
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
20
Your Class B shares convert automatically into Class D shares approximately eight years after purchase. Any Class B shares received through reinvestment of dividends paid on
converting shares will also convert at that time. Class D shares are subject to lower annual expenses than Class B shares. The conversion of Class B to Class D shares is not a taxable event for Federal income tax purposes.
Different conversion schedules apply to Class B shares of different Merrill Lynch mutual funds. For example, Class B shares of a fixed income fund typically convert
approximately ten years after purchase compared to approximately eight years for equity funds. If you acquire your Class B shares in an exchange from another fund with a shorter conversion schedule, the Funds eight year conversion schedule will
apply. If you exchange your Class B shares in the Fund for Class B shares of a fund with a longer conversion schedule, the other funds conversion schedule will apply. The length of time that you hold both the original and exchanged Class B shares in
both funds will count toward the conversion schedule. The conversion schedule may be modified in certain other cases as well.
Class C Shares
If you redeem Class C shares within one year after purchase, you may be charged a deferred sales charge of 1.00%. The charge will apply to the lesser of the original cost of
the shares being redeemed or the proceeds of your redemption. You will not be charged a deferred sales charge when you redeem shares that you acquire through reinvestment of Fund dividends. The deferred sales charge relative to Class C shares may be
reduced or waived in connection with involuntary termination of an account in which Fund shares are held and withdrawals through the Merrill Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
21
[LOGO] Your Account
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart on the following pages summarizes how to buy, sell, transfer and exchange shares through Merrill Lynch, a selected securities dealer, broker, investment adviser,
service provider or other financial intermediary. You may also buy shares through the Transfer Agent. To learn more about buying, selling, transferring or exchanging shares through the Transfer Agent, call 1-800-MER-FUND. Because the selection of a mutual
fund involves many considerations, your Merrill Lynch Financial Consultant may help you with this decision.
Because of the high costs of maintaining smaller shareholder accounts, the Fund may redeem the shares in your account (without charging any deferred sales charge) if the net
asset value of your account falls below $500 due to redemptions you have made. You will be notified that the value of your account is less than $500 before the Fund makes an involuntary redemption. You will then have 60 days to make an additional
investment to bring the value of your account to at least $500 before the Fund takes any action. This involuntary redemption does not apply to retirement plans or Uniform Gifts or Transfers to Minors Act accounts (UGMA/UTMA accounts).
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
22
If You Want To |
|
Your Choices |
|
Information Important for You to Know |
|
Buy Shares |
|
First, select the share class
appropriate for you |
|
Refer to the Merrill Lynch Select Pricing table on page 17. Be sure
to read this Prospectus carefully. |
|
|
|
Next, determine the
amount of your investment |
|
The minimum initial investment for the Fund is $1,000 for all
accounts except:
$250 for certain Merrill Lynch fee-based programs.
$100 for retirement plans. |
|
|
|
|
|
(The minimums for initial investments may be waived under certain
circumstances.) |
|
|
|
Have your Merrill Lynch
Financial Consultant or
securities dealer submit
your purchase order |
|
The price of your shares is based on the next calculation of net
asset value after your order is placed. Any purchase orders placed
prior to the close of business on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) will be priced at the net asset
value determined that day. |
|
|
|
|
|
Purchase orders placed after that time will be priced at the net
asset value determined on the next business day. The Fund may
reject any order to buy shares and may suspend the sale of shares
at any time. Certain selected securities dealers or financial
intermediaries, including Merrill Lynch may charge a processing fee
to confirm a purchase. This fee is currently $5.35. |
|
|
|
Or contact the Transfer
Agent |
|
To purchase shares directly, call the Transfer Agent at 1-800-MER-
FUND and request a purchase application. Mail the completed
purchase application to the Transfer Agent at the address on the
inside back cover of this Prospectus. |
|
Add to Your
Investment |
|
Purchase additional shares |
|
The minimum investment for additional purchases is generally $50
except that retirement plans have a minimum additional purchase
of $1 and certain programs, such as automatic investment plans,
may have higher minimums. |
|
|
|
|
|
(The minimums for additional purchases may be waived under
certain circumstances.) |
|
|
|
Acquire additional shares
through the automatic
dividend reinvestment plan |
|
All dividends are automatically reinvested without a sales charge. |
|
|
|
Participate in the automatic
investment plan |
|
You may invest a specific amount on a periodic basis through
certain Merrill Lynch investment or central asset accounts. |
|
Transfer Shares to
Another Securities
Dealer |
|
Transfer to a participating
selected securities dealer or
other financial intermediary |
|
You may transfer your Fund shares only to another securities dealer
or other financial intermediary that has entered into an agreement
with Merrill Lynch. Certain shareholder services may not be
available for the transferred shares. You may only purchase
additional shares of funds previously owned before the transfer. All
future trading of these assets must be coordinated by the receiving
firm. |
|
|
|
Transfer to a non-
participating selected
securities dealer or other
financial intermediary |
|
You must either:
Transfer your shares to an account with the Transfer Agent; or
Sell your shares paying any applicable CDSC. |
|
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
23
[LOGO] Your Account
If You Want To |
|
Your Choices |
|
Information Important for You to Know |
|
Sell Your Shares |
|
Have your Merrill Lynch
Financial Consultant,
selected securities dealer or
financial intermediary
submit your sales order |
|
The price of your shares is based on the next calculation of net
asset value after your order is placed. For your redemption request
to be priced at the net asset value on the day of your request, you
must submit your request to your dealer prior to that days close of
business on the New York Stock Exchange (generally 4:00 p.m.
Eastern time). Any redemption request placed after that time will
be priced at the net asset value at the close of business on the next
business day. |
|
|
|
|
|
Selected securities dealers, or other financial intermediaries
including Merrill Lynch, may charge a fee to process a redemption
of shares. Merrill Lynch currently charges a fee of $5.35. No
processing fee is charged if you redeem shares directly through the
Transfer Agent. |
|
|
|
|
|
The Fund may reject an order to sell shares under certain
circumstances. |
|
|
|
|
Sell through the Transfer
Agent |
|
You may sell shares held at the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of this
prospectus. All shareholders on the account must sign the letter. A
signature guarantee will generally be required but may be waived
in certain limited circumstances. You can obtain a signature
guarantee from a bank, securities dealer, securities broker, credit
union, savings association, national securities exchange or
registered securities association. A notary public seal will not be
acceptable. If you hold stock certificates, return the certificates with
the letter. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly
completed request. If you make a redemption request before the
Fund has collected payment for the purchase of shares, the Fund or
the Transfer Agent may delay mailing your proceeds. This delay will
usually not exceed ten days. |
|
|
|
|
|
You may also sell shares held at the Transfer Agent by telephone
request if the amount being sold is less than $50,000 and if certain
other conditions are met. Contact the Transfer Agent at 1-800-MER-
FUND for details. |
|
|
Sell Shares
Systematically |
|
Participate in the Funds
Systematic Withdrawal Plan |
|
You can choose to receive systematic payments from your Fund
account either by check or through direct deposit to your bank
account on a monthly or quarterly basis. If you hold your Fund
shares in a Merrill Lynch CMA®, CBA® or Retirement Account you
can arrange for systematic redemptions of a fixed dollar amount on
a monthly, bi-monthly, quarterly, semi-annual or annual basis,
subject to certain conditions. Under either method you must have
dividends automatically reinvested. For Class B and C shares your
total annual withdrawals cannot be more than 10% per year of the
value of your shares at the time your plan is established. The
deferred sales charge is waived for systematic redemptions. Ask
your Merrill Lynch Financial Consultant or other financial
intermediary for details. |
|
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
24
If You Want To |
|
Your Choices |
|
Information Important for You to Know |
|
Exchange Your
Shares |
|
Select the fund into which
you want to exchange. Be
sure to read that funds
prospectus |
|
You can exchange your shares of the Fund for shares of many other
Merrill Lynch mutual funds. You must have held the shares used in
the exchange for at least 15 calendar days before you can exchange
to another fund. |
|
|
|
|
|
Each class of Fund shares is generally exchangeable for shares of the
same class of another fund. If you own Class A shares and wish to
exchange into a fund in which you have no Class A shares (and are
not eligible to purchase Class A shares), you will exchange into
Class D shares. |
|
|
|
|
|
Some of the Merrill Lynch mutual funds impose a different initial or
deferred sales charge schedule. If you exchange Class A or D shares
for shares of a fund with a higher initial sales charge than you
originally paid, you will be charged the difference at the time of
exchange. If you exchange Class B shares for shares of a fund with a
different deferred sales charge schedule, the higher schedule will
apply. The time you hold Class B or C shares in both funds will count
when determining your holding period for calculating a deferred
sales charge at redemption. If you exchange Class A or D shares for
money market fund shares, you will receive Class A shares of Summit
Cash Reserves Fund. Class B or C shares of the Fund will be
exchanged for Class B shares of Summit. |
|
|
|
|
|
To exercise the exchange privilege contact your Merrill Lynch
Financial Consultant, selected securities dealer or other financial
intermediary or call the Transfer Agent at 1-800-MER-FUND. |
|
|
|
|
|
Although there is currently no limit on the number of exchanges
that you can make, the exchange privilege may be modified or
terminated at any time in the future. |
|
|
Certain financial intermediaries may charge additional fees in connection with transactions in Fund shares. The Fund may accept orders from certain authorized financial
intermediaries or their designees. The Fund will be deemed to receive an order when accepted by the intermediary or designee and the order will receive the net asset value next computed by the Fund after such acceptance. If the payment for a purchase
order is not made by a designated later time, the order will be canceled and the financial intermediary could be held liable for any losses.
The Investment Adviser, the Distributor or their affiliates may make payments out of their own resources to selected securities dealers and other financial intermediaries for
providing services intended to result in the sale of Fund shares or for shareholder servicing activities.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
25
[LOGO] Your Account
Net Asset Value the market value of the Funds total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
When you buy shares, you pay the net asset value, plus any applicable sales charge. This is the offering price. Shares are also redeemed at their net asset
value, minus any applicable deferred sales charge. The Fund calculates its net asset value (generally by using market quotations) each day the New York Stock Exchange is open, as of the close of business on the Exchange based on prices at the time of
closing. The Exchange generally closes at 4:00 p.m. Eastern time. The net asset value used in determining your share price is the next one calculated after your purchase or redemption order is placed. Foreign securities owned by the Fund may trade on
weekends or other days when the Fund does not price its shares. As a result, the Funds net asset value may change on days when you will not be able to purchase or redeem the Funds shares.
Generally, Class A shares will have the highest net asset value because that class has the lowest expenses, and Class D shares will have a higher net asset value than Class B
or Class C shares. Also dividends paid on Class A and Class D shares will generally be higher than dividends paid on Class B and Class C shares because Class A and Class D shares have lower expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
If you participate in certain fee-based programs offered by Merrill Lynch or other financial intermediaries, you may be able to buy Class A shares at net asset value,
including by exchanges from other share classes. Sales charges on the shares being exchanged may be reduced or waived under certain circumstances.
You generally cannot transfer shares held through a fee-based program into another account. Instead, you will have to redeem your shares held through the program and purchase
shares of another class, which may be subject to distribution and account maintenance fees. This may be a taxable event and you will pay any applicable sales charges.
If you leave one of these programs, your shares may be redeemed or automatically exchanged into another class of Fund shares or into a money market fund. The class you
receive may be the class you originally owned when you entered the program, or in certain cases, a different class. If the
exchange is into Class B shares, the period before conversion to Class D shares may be modified. Any redemption or exchange will be at net asset value. However, if you participate in the program for less than a specified period, you may be charged a fee
in accordance with the terms of the program.
Details about these features and the relevant charges are included in the client agreement for each fee-based program and are available from your Merrill Lynch Financial
Consultant, selected securities dealer or other financial intermediary.
DIVIDENDS AND TAXES
The Fund will distribute at least annually any net investment income and any net realized long term capital gains. The Fund may also pay a special distribution at the end of
the calendar year to comply with Federal tax requirements. If your account is with Merrill Lynch and you would like to receive dividends in cash, contact your Merrill Lynch Financial Consultant. If your account is with the Transfer Agent and you would like to receive dividends in cash, contact the Transfer Agent. Capital gains may be taxable to you at different
rates depending, in part, on how long the Fund has held the assets sold.
You will pay tax on dividends from the Fund whether you receive them in cash or additional shares. If you redeem Fund shares or exchange them for shares of another fund, you
generally will be treated as having sold your shares and any gain on the transaction may be subject to tax. Capital gain dividends are generally taxed at different rates than ordinary income dividends.
If you are neither a lawful permanent resident nor a citizen of the U.S. or if you are a foreign entity, the Funds ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
27
[LOGO] Your Account
BUYING A DIVIDEND
Unless your investment is in a tax deferred account, you may want to avoid buying shares shortly before the Fund pays a dividend. The reason? If you buy shares when a fund has
realized but not yet distributed income or capital gains, you will pay the full price for the shares and then receive a portion of the price back in the form of a taxable dividend. Before investing you may want to consult your tax adviser.
Dividends and interest received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes.
By law, the Fund must withhold 31% of your dividends and redemption proceeds if you have not provided a taxpayer identification number or social security number or if the
number you have provided is incorrect.
This section summarizes some of the consequences under current Federal tax law of an investment in the Fund. It is not a substitute for personal tax advice. Consult your
personal tax adviser about the potential tax consequences of an investment in the Fund under all applicable tax laws.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
28
[LOGO] Management of the Fund
Fund Asset Management, the Funds Investment Adviser, manages the Funds investments and its business operations under the overall supervision of the Funds
Board of Directors. The Investment Adviser has the responsibility for making all investment decisions for the Fund. The Investment Adviser has a sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited, an affiliate, under which the
Investment Adviser may pay a fee for services it receives. The Fund pays the Investment Adviser a fee at the annual rate of 0.75% of the average daily net assets of the Fund for the first $1 billion; 0.725% of the average daily net assets from $1 billion
to $1.5 billion; and 0.70% of the average daily net assets above $1.5 billion. For the fiscal year ended March 31, 2000 the Investment Adviser received a fee equal to 0.75% of the Funds average daily net assets.
Fund Asset Management was organized as an investment adviser in 1977 and offers investment advisory services to more than 50 registered investment companies. Fund Asset
Management and its affiliates (including Merrill Lynch Investment Managers) had approximately $554 billion in investment company and other portfolio assets under management as of June 2000. This amount includes assets managed for Merrill Lynch affiliates.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
29
[LOGO] Management of the Fund
The Financial Highlights table is intended to help you understand the Funds financial performance for the periods shown. Certain information reflects financial results
for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends). This information has been audited by Deloitte & Touche LLP, whose report, along with the Funds financial statements, is included in the Funds annual report to
shareholders, which is available upon request.
|
|
Class A
|
|
Class B
|
Increase (Decrease) in |
|
For the Year Ended March 31,
|
|
For the Year Ended March 31,
|
Net Asset Value: |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
Per Share Operating Performance: |
|
Net asset value, beginning of year |
|
$ 16.27 |
|
|
$ 22.03 |
|
|
$ 17.59 |
|
|
$ 17.77 |
|
|
$ 15.63 |
|
|
$ 15.37 |
|
|
$ 21.03 |
|
|
$ 16.91 |
|
|
$ 17.21 |
|
|
$ 15.16 |
|
|
Investment income (loss) net |
|
(.02 |
) |
|
(.02 |
) |
|
(.03 |
) |
|
.06 |
|
|
.24 |
|
|
(.21 |
) |
|
(.20 |
) |
|
(.23 |
) |
|
(.12 |
) |
|
.07 |
|
|
Realized and unrealized gain (loss) on
investments net |
|
8.84 |
|
|
(4.66 |
) |
|
7.20 |
|
|
3.01 |
|
|
2.72 |
|
|
8.35 |
|
|
(4.43 |
) |
|
6.90 |
|
|
2.90 |
|
|
2.64 |
|
|
Total from investment operations |
|
8.82 |
|
|
(4.68 |
) |
|
7.17 |
|
|
3.07 |
|
|
2.96 |
|
|
8.14 |
|
|
(4.63 |
) |
|
6.67 |
|
|
2.78 |
|
|
2.71 |
|
|
Less dividends and distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income net |
|
|
|
|
|
|
|
|
|
|
(.06 |
) |
|
(.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(.07 |
) |
Realized gain on investments net |
|
(2.22 |
) |
|
(1.08 |
) |
|
(2.73 |
) |
|
(3.19 |
) |
|
(.59 |
) |
|
(1.92 |
) |
|
(1.03 |
) |
|
(2.55 |
) |
|
(3.08 |
) |
|
(.59 |
) |
|
Total dividends and distributions |
|
(2.22 |
) |
|
(1.08 |
) |
|
(2.73 |
) |
|
(3.25 |
) |
|
(.82 |
) |
|
(1.92 |
) |
|
(1.03 |
) |
|
(2.55 |
) |
|
(3.08 |
) |
|
(.66 |
) |
|
Net asset value, end of year |
|
$ 22.87 |
|
|
$ 16.27 |
|
|
$ 22.03 |
|
|
$ 17.59 |
|
|
$ 17.77 |
|
|
$ 21.59 |
|
|
$15.37 |
|
|
$ 21.03 |
|
|
$ 16.91 |
|
|
$ 17.21 |
|
|
Total Investment Return:* |
|
Based on net asset value per share |
|
57.29 |
% |
|
(22.17 |
%) |
|
43.18 |
% |
|
17.62 |
% |
|
19.56 |
% |
|
55.72 |
% |
|
(22.96 |
%) |
|
41.72 |
% |
|
16.44 |
% |
|
18.37 |
% |
|
Ratios to Average Net Assets: |
|
Expenses |
|
1.08 |
% |
|
1.08 |
% |
|
1.02 |
% |
|
1.10 |
% |
|
1.12 |
% |
|
2.11 |
% |
|
2.10 |
% |
|
2.05 |
% |
|
2.13 |
% |
|
2.15 |
% |
|
Investment income (loss) net |
|
(.12 |
)% |
|
(.10 |
%) |
|
(.13 |
%) |
|
.34 |
% |
|
1.43 |
% |
|
(1.14 |
)% |
|
(1.12 |
%) |
|
(1.16 |
%) |
|
(.68 |
%) |
|
.44 |
% |
|
Supplemental Data: |
|
Net assets, end of year (in thousands) |
|
$491,855 |
|
|
$276,957 |
|
|
$396,198 |
|
|
$ 223,492 |
|
|
$181,297 |
|
|
$511,780 |
|
|
$378,610 |
|
|
$611,364 |
|
|
$337,716 |
|
|
$310,174 |
|
|
Portfolio turnover |
|
89.18 |
% |
|
57.82 |
% |
|
67.02 |
% |
|
97.87 |
% |
|
60.37 |
% |
|
89.18 |
% |
|
57.82 |
% |
|
67.02 |
% |
|
97.87 |
% |
|
60.37 |
% |
|
*
|
Total investment returns exclude the effects of sales charges.
|
|
Based on average shares outstanding.
|
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
30
FINANCIAL HIGHLIGHTS (concluded)
|
|
Class C
|
|
Class D
|
Increase (Decrease) in |
|
For the Year Ended March 31,
|
|
For the Year Ended March 31,
|
Net Asset Value: |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
Per Share Operating Performance: |
|
Net asset value, beginning of year |
|
$ 15.21 |
|
|
$ 20.83 |
|
|
$ 16.77 |
|
|
$ 17.10 |
|
|
$ 15.10 |
|
|
$ 16.19 |
|
|
$ 21.97 |
|
|
$ 17.56 |
|
|
$ 17.74 |
|
|
$ 15.61 |
|
|
Investment income (loss) net |
|
(.21 |
) |
|
(.20 |
) |
|
(.23 |
) |
|
(.13 |
) |
|
.06 |
|
|
(.07 |
) |
|
(.06 |
) |
|
(.08 |
) |
|
.01 |
|
|
.19 |
|
|
Realized and unrealized gain (loss) on
investments net |
|
8.25 |
|
|
(4.38 |
) |
|
6.84 |
|
|
2.89 |
|
|
2.63 |
|
|
8.82 |
|
|
(4.65 |
) |
|
7.18 |
|
|
3.02 |
|
|
2.73 |
|
|
Total from investment operations |
|
8.04 |
|
|
(4.58 |
) |
|
6.61 |
|
|
2.76 |
|
|
2.69 |
|
|
8.75 |
|
|
(4.71 |
) |
|
7.10 |
|
|
3.03 |
|
|
2.92 |
|
|
Less dividends and distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income net |
|
|
|
|
|
|
|
|
|
|
|
|
|
(.10 |
) |
|
|
|
|
|
|
|
|
|
|
(.04 |
) |
|
(.20 |
) |
Realized gain on investments net |
|
(1.93 |
) |
|
(1.04 |
) |
|
(2.55 |
) |
|
(3.09 |
) |
|
(.59 |
) |
|
(2.14 |
) |
|
(1.07 |
) |
|
(2.69 |
) |
|
(3.17 |
) |
|
(.59 |
) |
|
Total dividends and distributions |
|
(1.93 |
) |
|
(1.04 |
) |
|
(2.55 |
) |
|
(3.09 |
) |
|
(.69 |
) |
|
(2.14 |
) |
|
(1.07 |
) |
|
(2.69 |
) |
|
(3.21 |
) |
|
(.79 |
) |
|
Net asset value, end of year |
|
$ 21.32 |
|
|
$ 15.21 |
|
|
$ 20.83 |
|
|
$ 16.77 |
|
|
$ 17.10 |
|
|
$ 22.80 |
|
|
$ 16.19 |
|
|
$ 21.97 |
|
|
$ 17.56 |
|
|
$ 17.74 |
|
|
Total Investment Return:* |
|
Based on net asset value per share |
|
55.64 |
% |
|
(22.99 |
%) |
|
41.74 |
% |
|
16.39 |
% |
|
18.34 |
% |
|
56.98 |
% |
|
(22.37 |
%) |
|
42.80 |
% |
|
17.38 |
% |
|
19.26 |
% |
|
Ratios to Average Net Assets: |
|
Expenses |
|
2.12 |
% |
|
2.12 |
% |
|
2.06 |
% |
|
2.14 |
% |
|
2.16 |
% |
|
1.33 |
% |
|
1.33 |
% |
|
1.27 |
% |
|
1.35 |
% |
|
1.37 |
% |
|
Investment income (loss) net |
|
(1.16) |
% |
|
(1.14 |
%) |
|
(1.17 |
%) |
|
(.70 |
%) |
|
.36 |
% |
|
(.37) |
% |
|
(.35 |
%) |
|
(.39 |
%) |
|
.07 |
% |
|
1.15 |
% |
|
Supplemental Data: |
|
Net assets, end of year (in thousands) |
|
$67,390 |
|
|
$38,249 |
|
|
$70,159 |
|
|
$31,182 |
|
|
$26,920 |
|
|
$151,650 |
|
|
$82,279 |
|
|
$114,183 |
|
|
$40,173 |
|
|
$24,795 |
|
|
Portfolio turnover |
|
89.18 |
% |
|
57.82 |
% |
|
67.02 |
% |
|
97.87 |
% |
|
60.37 |
% |
|
89.18 |
% |
|
57.82 |
% |
|
67.02 |
% |
|
97.87 |
% |
|
60.37 |
% |
|
*
|
Total investment returns exclude the effects of sales charges.
|
|
Based on average shares outstanding.
|
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
31
------------------------------
| POTENITAL |
---------------| INVESTORS |--------
| |Open an account (two options).| |
| ------------------------------ |
| |
- -
1 2
- -
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT Financial Data Services,Inc.
SECURITIES DEALER ADMINSTRATIVE OFFICES
Advises shareholders on 4800 Deer Lake Drive East
their Fund investments. Jacksonville, Florida 32246-6484
|
| MAILING ADDRESS
| P.O. BOX 45289
| Jacksonville, Florida 32232-5289
| Performs recordingkeeping and
| reporting services.
| |
| |
----------------------- DISTRIBUTOR ------------------
FAM Distributors, Inc.
P.O Box 9081
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
|
|
|
COUNSEL THE FUND CUSTODIAN
Brown & Wood LLP The Board of The Bank of New York
One World Trade Center ------- Directors ------- 100 Church Street
New York, New York 10048-0557 oversees New York, New York 10286
Provides legal advice to the the Fund. Holds the Fund's assets
Fund. for safekeeping.
| |
| |
| |
INDEPENDENT AUDITORS INVESTMENT ADVISER
Deloitte & Touche LLP Fund
Princeton Forrestal Village Asset Managment
116-300 Village Boulevard ADMINISTRATIVE OFFICES
Princeton, New Jersey 08540-6400 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Audits the financial
statements of the Fund on MAILING ADDRESS
behalf of the shareholders. P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's day-to-day activites.
MERRILL LYNCH SMAILL CAP VALUE FUND INC.
MERRILL LYNCH SMALL CAP VALUE FUND, INC.
For More Information [LOGO]
|
Additional information about the Funds investments is available in the Funds annual and semi-annual reports to shareholders. In
the Funds annual report you will find a discussion of the market conditions and investment strategies that significantly affected the Funds performance during its last fiscal year. You may obtain these reports at no cost by calling
1-800-MER-FUND.
|
|
The Fund will send you one copy of each shareholder report and certain other mailings, regardless of the number of Fund accounts you have.
To receive separate shareholder reports for each account, call your Merrill Lynch Financial Consultant or write to the Transfer Agent at its mailing address. Include your name, address, tax identification number and Merrill Lynch brokerage or mutual fund
account number. If you have any questions, please call your Merrill Lynch Financial Consultant or the Transfer Agent at 1-800-MER-FUND.
|
|
Statement of Additional Information
|
|
The Funds Statement of Additional Information contains further information about the Fund and is incorporated by reference (legally
considered to be part of this prospectus). You may request a free copy by writing the Fund at Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida 32232-5289 or by calling 1-800-MER-FUND.
|
Contact your Merrill Lynch Financial Consultant or the Fund, at the telephone number or address indicated above, if you have any questions.
Information about the Fund (including the Statement of Additional Information) can be reviewed and copied at the SECs Public Reference Room in Washington, D.C. Call
1-202-942-8090 for information on the operation of the public reference room. This information is also available on the SECs Internet site at http://www.sec.gov and copies may be obtained upon payment of a duplicating fee by electronic request at
the following E-mail address: [email protected] or by writing the Public Reference Section of the SEC, Washington, D.C. 20549-0102.
You should rely only on the information contained in this Prospectus. No one is authorized to provide you with information that is different from information contained in
this Prospectus.
Investment Company Act file #811-2809
Code #10055-07-00
©
Fund Asset Management, L.P.
Prospectus
[MERRILL LYNCH LOGO APPEARS HERE]
|
Small Cap Value Fund, Inc.
|
[July 28, 2000]
STATEMENT OF ADDITIONAL INFORMATION
Merrill Lynch Small Cap Value Fund, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011 Phone No. (609) 282-2800
Merrill Lynch Small Cap Value Fund, Inc. (the Fund) is a diversified, open-end investment company that seeks
long-term growth of capital by investing in a diversified portfolio of securities, primarily common stocks, of relatively small companies that management of the Fund believes have special investment value and emerging growth companies regardless of size.
Current income is not a factor in managements selection of companies in which the Fund will invest.
Pursuant to the Merrill Lynch Select Pricing
SM
System, the Fund offers four classes of shares, each with a different combination of sales charges, ongoing fees and other features. The Merrill Lynch Select Pricing
SM
System permits an investor to choose the method of purchasing shares that the investor believes is most beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. See Purchase of Shares.
This Statement of Additional Information of the Fund is not a prospectus and should be read in conjunction with the Prospectus
of the Fund, dated July 28, 2000 (the Prospectus), which has been filed with the Securities and Exchange Commission (the Commission) and can be obtained, without charge, by calling (800) MER-FUND or by writing the Fund at the above
address. The Prospectus is incorporated by reference into this Statement of Additional Information, and this Statement of Additional Information is incorporated by reference into the Prospectus. The Funds 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. Eastern time on
any business day.
Fund Asset Management Investment Adviser
FAM Distributors, Inc. Distributor
The date of this Statement of Additional Information is July 28, 2000.
TABLE OF CONTENTS
|
|
Page
|
Investment Objective and Policies |
|
2 |
Description of Certain Investments |
|
2 |
Investment in Foreign Issuers |
|
6 |
Derivatives |
|
7 |
Other Investment Policies and Practices |
|
12 |
Investment Restrictions |
|
12 |
Portfolio Turnover |
|
14 |
Management of the Fund |
|
15 |
Directors and Officers |
|
15 |
Compensation of Directors |
|
16 |
Management and Advisory Arrangements |
|
17 |
Code of Ethics |
|
18 |
Purchase of Shares |
|
19 |
Initial Sales Charge Alternatives Class A and Class D Shares |
|
19 |
Deferred Sales Charge Alternatives Class B and Class C Shares |
|
24 |
Distribution Plans |
|
27 |
Limitations on the Payment of Deferred Sales Charges |
|
29 |
Redemption of Shares |
|
30 |
Redemption |
|
30 |
Repurchase |
|
31 |
Reinstatement Privilege Class A and Class D Shares |
|
31 |
Pricing of Shares |
|
32 |
Determination of Net Asset Value |
|
32 |
Computation of Offering Price Per Share |
|
33 |
Portfolio Transactions and Brokerage |
|
33 |
Shareholder Services |
|
35 |
Investment Account |
|
35 |
Exchange Privilege |
|
36 |
Fee-Based Programs |
|
38 |
Retirement and Education Savings Plans |
|
38 |
Automatic Investment Plans |
|
39 |
Automatic Dividend Reinvestment Plan |
|
39 |
Systematic Withdrawal Plan |
|
39 |
Dividends and Taxes |
|
40 |
Dividends |
|
40 |
Taxes |
|
41 |
Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions |
|
42 |
Special Rules for Certain Foreign Currency Transactions |
|
43 |
Performance Data |
|
44 |
General Information |
|
45 |
Description of Shares |
|
45 |
Independent Auditors |
|
46 |
Custodian |
|
46 |
Transfer Agent |
|
46 |
Legal Counsel |
|
46 |
Reports to Shareholders |
|
46 |
Shareholder Inquiries |
|
46 |
Additional Information |
|
46 |
Financial Statements |
|
47 |
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term growth of capital by investing in a diversified portfolio of
securities, primarily common stock, of relatively small companies that management of the Fund believes have special investment value and emerging growth companies regardless of size. Current income is not a factor in the selection of securities. The Fund
is intended to provide an opportunity for investors who are not ordinarily in a position to perform the specialized type of research or analysis involved in investing in small and emerging growth companies and to invest sufficient assets in such companies
to provide wide diversification.
In attempting to achieve its investment objective, the Fund may employ various investment strategies. Management seeks to
identify those companies that can show significant and sustained increases in earnings over an extended period of time. This strategy focuses on the long-range view of a companys prospects, primarily through fundamental analysis of its management,
financial structure, product development, marketing ability and other relevant factors. Management anticipates applying such a strategy of fundamental analysis to small and emerging growth companies.
Management also may seek to identify companies that can show favorable investment potential through analysis of the economy
and the financial markets. This strategy focuses on the long-range view of a companys market valuation, primarily through analysis of economic trends, valuation models, market statistics and other quantitative factors applicable to specific
companies, industries or economic sectors.
While it is the policy of the Fund generally not to engage in trading for short-term gains, the management will effect
portfolio transactions without regard to holding period if, in its judgment, such transactions are advisable in light of a change in circumstances of a particular company or within a particular industry or in general market, economic or financial conditions
.
Additionally, management of the Fund may, from time to time, identify a number of companies that it believes share favorable
investment potential. These companies are often in a particular industry or related industries or market segments. At times, the Fund may acquire the securities of such companies together as a basket or group in a single transaction. The Fund
may subsequently sell such basket as a unit or it may sell only selected securities and continue to hold other securities acquired in the basket.
The Fund may also acquire or dispose of baskets of securities as a means of rapidly increasing or decreasing
exposure to the markets in response to the Funds cash flow (primarily, the effects of net purchases or net redemptions of the Funds shares). These baskets may be comprised of securities selected solely because their aggregate
volatility appears to substantially correlate to the volatility of the markets (or a portion of the markets) in which the Fund invests, although the Fund may continue to hold particular securities included in such a basket based on their
favorable investment potential.
Management believes that while the companies in which it invests present above-average risks, properly selected companies of
this type also have the potential to increase their earnings or market valuation at a rate substantially in excess of the general growth of the economy. Full development of these companies and trends frequently takes time and, for this reason, the Fund
should be considered as a long-term investment and not as a vehicle for seeking short-term profits. Because of its focus on small cap and emerging growth equity securities, the Fund should be considered as a vehicle for diversification and not as a
complete investment program.
Description of Certain Investments
Temporary Investments. The Fund reserves the right, as a temporary defensive measure, to invest,
without limitation, in other types of securities, including non-convertible preferred stocks and debt securities, U.S. Government and money market securities, including repurchase agreements or cash (Temporary Investments). Under certain
adverse investment conditions, the Fund may restrict the markets in which its assets will be invested and may increase the proportion of assets invested in Temporary Investments. Investments made for defensive purposes will be maintained only during
periods in which the Investment Adviser determines that economic or financial conditions are adverse for holding or being fully invested in equity securities. A portion of the Funds
assets normally would be held in Temporary Investments in anticipation of investment in equity securities or to provide for possible redemptions.
Securities of Small or Emerging Growth Companies. An investment in the Fund involves greater
risk than is customarily associated with funds that invest in more established companies. The securities of smaller or emerging growth companies may be subject to more abrupt or erratic market movements than larger, more established companies or the
market average in general. These companies may have limited product lines, markets or financial resources, or they may be dependent on a limited management group. Because of these factors, the Fund believes that its shares may be suitable for investment
by persons who can invest without concern for current income and who are in a financial position to assume above-average investment risk in search of above-average long-term reward. It is not intended as a complete investment program but is designed for
those long-term investors who are prepared to experience above-average fluctuations in net asset value.
While the issuers in which the Fund will primarily invest may offer greater opportunities for capital appreciation than large
cap issuers, investments in smaller or emerging growth companies may involve greater risks and thus may be considered speculative. Management believes that properly selected companies of this type have the potential to increase their earnings or market
valuation at a rate substantially in excess of the general growth of the economy. Full development of these companies and trends frequently takes time and, for this reason, the Fund should be considered as a long-term investment and not as a vehicle for
seeking short-term profits.
The securities in which the Fund invests will often be traded only in the over-the counter market or on a regional securities
exchange and may not be traded every day or in the volume typical of trading on a national securities exchange. As a result, the disposition by the Fund of portfolio securities to meet redemptions or otherwise may require the Fund to sell these securities
at a discount from market prices or during periods when in managements judgement such disposition is not desirable or to make many small sales over a lengthy period of time.
While the process of selection and continuous supervision by management does not, of course, guarantee successful investment
results, it does provide access to an asset class not available to the average individual due to the time and cost involved. Careful initial selection is particularly important in this area as many new enterprises have promise but lack certain of the
fundamental factors necessary to prosper. Investing in small and emerging growth companies requires specialized research and analysis. In addition, many investors cannot invest sufficient assets in such companies to provide wide diversification.
Small companies are generally little known to most individual investors although some may be dominant in their respective
industries. Management of the Fund believes that relatively small companies will continue to have the opportunity to develop into significant business enterprises. The Fund may invest in securities of small issuers in the relatively early stages of
business development which have a new technology, a unique or proprietary product or service, or a favorable market position. Such companies may not be counted upon to develop into major industrial companies, but management believes that eventual
recognition of their special value characteristics by the investment community can provide above-average long-term growth to the portfolio.
Equity securities of specific small cap issuers may present different opportunities for long-term capital appreciation during
varying portions of economic or securities markets cycles, as well as during varying stages of their business development. The market valuation of small cap issuers tends to fluctuate during economic or market cycles, presenting attractive investment
opportunities at various points during these cycles.
Smaller companies, due to the size and kinds of markets that they serve, may be less susceptible than large companies to
intervention from the Federal government by means of price controls, regulations or litigation.
Convertible Securities. Convertible securities entitle the holder to receive interest payments
paid on corporate debt securities or the dividend preference on a preferred stock until such time as the convertible security matures or is redeemed or until the holder elects to exercise the conversion privilege.
The characteristics of convertible securities include the potential for capital appreciation as the value of the underlying
common stock increases, the relatively high yield received from dividend or interest payments as compared to common stock dividends and decreased risks of decline in value relative to the underlying common
stock due to their fixed-income nature. As a result of the conversion feature, however, the interest rate or dividend preference on a convertible security is generally less than would be the case if the securities were issued in nonconvertible form.
In analyzing convertible securities, the Investment Adviser will consider both the yield on the convertible security relative
to its credit quality and the potential capital appreciation that is offered by the underlying common stock, among other things.
Convertible securities are issued and traded in a number of securities markets. Even in cases where a substantial portion of
the convertible securities held by the Fund are denominated in United States dollars, the underlying equity securities may be quoted in the currency of the country where the issuer is domiciled. With respect to convertible securities denominated in a
currency different from that of the underlying equity securities, the conversion price may be based on a fixed exchange rate established at the time the security is issued. As a result, fluctuations in the exchange rate between the currency in which the
debt security is denominated and the currency in which the share price is quoted will affect the value of the convertible security. As described herein, the Fund is authorized to enter into foreign currency hedging transactions in which it may seek to
reduce the effect of such fluctuations.
Apart from currency considerations, the value of convertible securities is influenced by both the yield of nonconvertible
securities of comparable issuers and by the value of the underlying common stock. The value of a convertible security viewed without regard to its conversion feature (i.e., strictly on the basis of its yield) is sometimes referred to as its investment value. To the extent interest rates change, the investment value of the convertible security typically will fluctuate. However, at the same time, the
value of the convertible security will be influenced by its conversion value, which is the market value of the underlying common stock that would be obtained if the convertible security were converted. Conversion value fluctuates directly with
the price of the underlying common stock. If, because of a low price of the common stock the conversion value is substantially below the investment value of the convertible security, the price of the convertible security is governed principally by its
investment value.
To the extent the conversion value of a convertible security increases to a point that approximates or exceeds its investment
value, the price of the convertible security will be influenced principally by its conversion value. A convertible security will sell at a premium over the conversion value to the extent investors place value on the right to acquire the underlying common
stock while holding a fixed-income security. The yield and conversion premium of convertible securities issued in Japan and the Euromarket are frequently determined at levels that cause the conversion value to affect their market value more than the
securities investment value.
Holders of convertible securities generally have a claim on the assets of the issuer prior to the common stockholders but may
be subordinated to other debt securities of the same issuer. A convertible security may be subject to redemption at the option of the issuer at a price established in the charter provision, indenture or other governing instrument pursuant to which the
convertible security was issued. If a convertible security held by the Fund is called for redemption, the Fund will be required to redeem the security, convert it into the underlying common stock or sell it to a third party. Certain convertible debt
securities may provide a put option to the holder which entitles the holder to cause the security to be redeemed by the issuer at a premium over the stated principal amount of the debt security under certain circumstances.
Illiquid or Restricted Securities. The Fund may invest up to 15% of its net assets in securities
that lack an established secondary trading market or otherwise are considered illiquid. Liquidity of a security relates to the ability to dispose easily of the security and the price to be obtained upon disposition of the security, which may be less than
would be obtained for a comparable more liquid security. Illiquid securities may trade at a discount from comparable, more liquid investments. Investment of the Funds assets in illiquid securities may restrict the ability of the Fund to dispose of
its investments in a timely fashion and for a fair price as well as its ability to take advantage of market opportunities. The risks associated with illiquidity will be particularly acute where the Funds operations require cash, such as when the
Fund redeems shares or pays dividends, and could result in the Fund borrowing to meet short-term cash requirements or incurring capital losses on the sale of illiquid investments.
The Fund may invest in securities that are not registered (restricted securities) under the Securities Act of
1933, as amended (the Securities Act). Restricted securities may be sold in private placement transactions
between the issuers and their purchasers and may be neither listed on an exchange nor traded in other established markets. In many cases, privately placed securities may not be freely transferable under the laws of the applicable jurisdiction or due to
contractual restrictions on resale. As a result of the absence of a public trading market, privately placed securities may be less liquid and more difficult to value than publicly traded securities. To the extent that privately placed securities may be
resold in privately negotiated transactions, the prices realized from the sales, due to illiquidity, could be less than those originally paid by the Fund or less than their fair market value. In addition, issuers whose securities are not publicly traded
may not be subject to the disclosure and other investor protection requirements that may be applicable if their securities were publicly traded. If any privately placed securities held by the Fund are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear the expenses of registration. Certain of the Funds investments in private placements may consist of direct investments and may include investments in smaller,
less-seasoned issuers, which may involve greater risks. These issuers may have limited product lines, markets or financial resources, or they may be dependent on a limited management group. In making investments in such securities, the Fund may obtain
access to material nonpublic information which may restrict the Funds ability to conduct portfolio transactions in such securities.
144A Securities. The Fund may purchase restricted securities that can be offered and sold to
qualified institutional buyers under Rule 144A under the Securities Act. The Board has determined to treat as liquid Rule 144A securities that are either freely tradable in their primary markets offshore or have been determined to be liquid in
accordance with the policies and procedures adopted by the Funds Board. The Board has adopted guidelines and delegated to the Investment Adviser the daily function of determining and monitoring liquidity of restricted securities. The Board, however,
will retain sufficient oversight and be ultimately responsible for the determinations. Since it is not possible to predict with assurance exactly how this market for restricted securities sold and offered under Rule 144A will continue to develop, the
Board will carefully monitor the Funds investments in these securities. This investment practice could have the effect of increasing the level of illiquidity in the Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these securities.
Repurchase Agreements. As a Temporary Investment, the Fund may invest in securities pursuant to
repurchase agreements. U.S. dollar-denominated repurchase agreements may be entered into only with a member bank of the Federal Reserve System or a primary dealer in U.S. Government securities or an affiliate thereof. Under such agreements, the bank or
primary dealer or an affiliate thereof agrees, upon entering into the contract, to repurchase the security at a mutually agreed upon time and price in a specified currency, thereby determining the yield during the term of the agreement. This results in a
fixed rate of return insulated from market fluctuations during such period although it may be affected by currency fluctuations. The prices at which the trades are conducted do not reflect accrued interest on the underlying obligations and such agreements
usually cover short periods, such as under one week. Repurchase agreements may be construed to be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. As a purchaser, the Fund will require the seller
to provide additional collateral if the market value of the securities falls below the repurchase price at any time during the term of the repurchase agreement. In the event of default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the Fund but only constitute collateral for the sellers obligation to pay the repurchase price. Therefore, the Fund may suffer time delays and incur costs or possible losses in
connection with disposition of the collateral. In the event of a default under such a repurchase agreement instead of the contractual fixed rate, the rate of return to the Fund shall be dependent upon intervening fluctuations of the market value of such
security and the accrued interest on the security. In such event, the Fund would have rights against the seller for breach of contract with respect to any losses arising from market fluctuations following the failure of the seller to perform.
Investment in Other Investment Companies. The Fund may invest in other investment companies
whose investment objectives and policies are consistent with those of the Fund. In accordance with the Investment Company Act, the Fund may invest up to 10% of its total assets in securities of other investment companies. In addition, under the Investment
Company Act the Fund may not own more than 3% of the total outstanding voting stock of any investment company and not more than 5% of the value of the Funds total assets may be invested in the securities of any investment company. If the Fund
acquires shares in investment companies, shareholders
would bear both their proportionate share of expenses in the Fund (including management and advisory fees) and, indirectly, the expenses of such investment companies (including management and advisory fees). Investments by the Fund in wholly owned
investment entities created under the laws of certain countries will not be deemed an investment in other investment companies.
Investment in Foreign Issuers
General. It is anticipated that, in the immediate future, not more than 30% of the Funds
total net assets taken at market value at the time of their acquisition will be invested in the securities of foreign issuers. Investment in securities of foreign issuers involves certain risks not typically involved in domestic investments, including
fluctuations in foreign exchange rates, future political and economic developments, different legal systems and the possible imposition of exchange controls or other foreign governmental laws or restrictions. Securities prices in different countries are
subject to different economic, financial, political and social factors. Changes in foreign currency exchange rates will affect the value of securities in the Fund and the unrealized appreciation or depreciation of investments. In addition, with respect to
certain foreign countries, there is the possibility of expropriation of assets, confiscatory taxation, difficulty in obtaining or enforcing a court judgment, economic, political or social instability or diplomatic developments that could affect
investments in those countries. Certain foreign investments also may be subject to foreign withholding taxes. These risks often are heightened for investments in smaller, emerging capital markets.
Public Information. Securities of foreign issuers may not be registered with the Commission, nor
may the issuers thereof be subject to the reporting requirements of such agency. Accordingly, there may be less publicly available information about a foreign issuer than about a U.S. issuer and such foreign issuers may not be subject to accounting,
auditing and financial reporting standards and requirements comparable to those of U.S issuers.
Trading Volume, Clearance and Settlement. Foreign financial markets, while generally growing in
trading volume, typically have substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices more volatile than securities of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures. Delays in settlement could result in periods when assets of the Fund are uninvested and no return is earned thereon. The inability to dispose of a portfolio security due to settlement problems could result either in
losses to the Fund due to subsequent declines in the value of such portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible liability to the purchaser.
Government Supervision and Regulation. There generally is less governmental supervision and
regulation of exchanges, brokers and issuers in foreign countries than there is in the United States. For example, there may be no comparable provisions under certain foreign laws to insider trading and similar investor protection securities laws that
apply with respect to securities transactions consummated in the United States. Further, brokerage commissions and other transaction costs on foreign securities exchanges generally are higher than in the United States.
European Economic and Monetary Union. For a number of years, certain European countries have
been seeking economic unification that would, among other things, reduce barriers between countries, increase competition among companies, reduce government subsidies in certain industries, and reduce or eliminate currency fluctuations among these
European countries. The Treaty on European Union (the Maastricht Treaty) set out a framework for the European Economic and Monetary Union (EMU) among the countries that comprise the European Union (EU). EMU established
a single common European currency (the euro) that was introduced on January 1, 1999 and is expected to replace the existing national currencies of all EMU participants by July 1, 2002. EMU took effect for the initial EMU participants as of
January 1, 1999. Certain securities issued in participating EU countries (beginning with government and corporate bonds) have been redenominated in the euro, and are listed, traded and make dividend and other payments only in euros.
No assurance can be given that EMU will take full effect, that all the changes planned for the EU can be successfully
implemented, or that these changes will result in the economic and monetary unity and stability
intended. There is a possibility that EMU will not be completed, or will be completed but then partially or completely unwound. Because any participating country may opt out of EMU within the first three years, it is also possible that a significant
participant could choose to abandon EMU, which could diminish its credibility and influence. Any of these occurrences could have adverse effects on the markets of both participating and non-participating countries, including sharp appreciation or
depreciation of participants national currencies and a significant increase in exchange rate volatility, a resurgence in economic protectionism, an undermining of confidence in the European markets, an undermining of European economic stability, the
collapse or slowdown of the drive toward European economic unity, and/or reversion of the attempts to lower government debt and inflation rates that were introduced in anticipation of EMU. Also, withdrawal from EMU by an initial participant could cause
disruption of the financial markets as securities redenominated in euros are transferred back into that countrys national currency, particularly if the withdrawing country is a major economic power. Such developments could have an adverse impact on
the Funds investments in Europe generally or in specific countries participating in EMU. Gains or losses from euro conversions may be taxable to Fund shareholders under foreign or, in certain limited circumstances, U.S. tax laws.
Derivatives
The Fund may use instruments referred to as Derivatives. Derivatives are financial instruments the value of which
is derived from another security, a commodity (such as gold or oil) or an index ( a measure of value or rates, such as the Standard & Poors 500 Index or the prime lending rate). Derivatives allow the Fund to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments.
Hedging. The Fund may use Derivatives for hedging purposes. Hedging is a strategy in which a
Derivative is used to offset the risk that other Fund holdings may decrease in value. Losses on the other investment may be substantially reduced by gains on a Derivative that reacts in an opposite manner to market movements. While hedging can reduce
losses, it can also reduce or eliminate gains if the market moves in a different manner than anticipated by the Fund or if the cost of the Derivative outweighs the benefit of the hedge. Hedging also involves the risk that changes in the value of the
Derivative will not match those of the holdings being hedged as expected by the Fund, in which case any losses on the holdings being hedged may not be reduced.
The Fund may use the following types of Derivative instruments and trading strategies:
Options on Securities and Securities Indices
Purchasing Put Options. The Fund may purchase put options on securities held in its portfolio or
on securities or interest rate indices which are correlated with securities held in its portfolio. When the Fund purchases a put option, in consideration for an upfront payment (the option premium) the Fund acquires a right to sell to another
party specified securities owned by the Fund at a specified price (the exercise price) on or before a specified date (the expiration date), in the case of an option on securities, or to receive from another party a payment based on
the amount a specified securities index declines below a specified level on or before the expiration date, in the case of an option on a securities index. The purchase of a put option limits the Funds risk of loss in the event of a decline in the
market value of the portfolio holdings underlying the put option prior to the options expiration date. If the market value of the portfolio holdings associated with the put option increases rather than decreases, however, the Fund will lose the
option premium and will consequently realize a lower return on the portfolio holdings than would have been realized without the purchase of the put. Purchasing a put option may involve correlation risk, and may also involve liquidity and credit risk.
Purchasing Call Options. The Fund may also purchase call options on securities it intends to
purchase or securities or interest rate indices, which are correlated with the types of securities it intends to purchase. When the Fund purchases a call option, in consideration for the option premium the Fund acquires a right to purchase from another
party specified securities at the exercise price on or before the expiration date, in the case of an option on
securities, or to receive from another party a payment based on the amount a specified securities index increases beyond a specified level on or before the expiration date, in the case of an option on a securities index. The purchase of a call option may
protect the Fund from having to pay more for a security as a consequence of increases in the market value for the security during a period when the Fund is contemplating its purchase, in the case of an option on a security, or attempting to identify
specific securities in which to invest in a market the Fund believes to be attractive, in the case of an option on an index (an anticipatory hedge). In the event the Fund determines not to purchase a security underlying a call option, however,
the Fund may lose the entire option premium. Purchasing a call option involves correlation risk, and may also involve liquidity and credit risk.
The Fund is also authorized to purchase put or call options in connection with closing out put or call options it has
previously sold. However, the Fund will not purchase options on securities if, as a result of such purchase, the aggregate cost (option plus premiums paid) of all outstanding options on securities held by the Fund would exceed 5% of the market value of
the Funds total assets.
Writing Call Options. The Fund may write (i.e., sell) call options on securities held in
its portfolio or securities indices the performance of which correlates with securities held in its portfolio. When the Fund writes a call option, in return for an option premium the Fund gives another party the right to buy specified securities owned by
the Fund at the exercise price on or before the expiration date, in the case of an option on securities, or agrees to pay to another party an amount based on any gain in a specified securities index beyond a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write call options to earn income, through the receipt of option premiums. In the event the party to which the Fund has written an option fails to exercise its rights under the option
because the value of the underlying securities is less than the exercise price, the Fund will partially offset any decline in the value of the underlying securities through the receipt of the option premium. By writing a call option, however, the Fund
limits its ability to sell the underlying securities, and gives up the opportunity to profit from any increase in the value of the underlying securities beyond the exercise price, while the option remains outstanding. Writing a call option may involve
correlation risk.
Writing Put Options. The Fund may also write put options on securities or securities indices.
When the Fund writes a put option, in return for an option premium the Fund gives another party the right to sell to the Fund a specified security at the exercise price on or before the expiration date, in the case of an option on a security, or agrees to
pay to another party an amount based on any decline in a specified securities index below a specified level on or before the expiration date, in the case of an option on a securities index. The Fund may write put options to earn income, through the
receipt of option premiums. In the event the party to which the Fund has written an option fails to exercise its rights under the option because the value of the underlying securities is greater than the exercise price, the Fund will profit by the amount
of the option premium. By writing a put option, however, the Fund will be obligated to purchase the underlying security at a price that may be higher than the market value of the security at the time of exercise as long as the put option is outstanding,
in the case of an option on a security, or make a cash payment reflecting any decline in the index, in the case of an option on an index. Accordingly, when the Fund writes a put option it is exposed to a risk of loss in the event the value of the
underlying securities falls below the exercise price, which loss potentially may substantially exceed the amount of option premium received by the Fund for writing the put option. The Fund will write a put option on a security or a securities index only
if the Fund would be willing to purchase the security at the exercise price for investment purposes (in the case of an option on a security) or is writing the put in connection with trading strategies involving combinations of optionsfor example,
the sale and purchase of options with identical expiration dates on the same security or index but different exercise prices (a technique called a spread). Writing a put option may involve substantial leverage risk.
The Fund is also authorized to sell call or put options in connection with closing out call or put options it has previously
purchased.
Other than with respect to closing transactions, the Fund will only write call or put options that are covered. A
call or put option will be considered covered if the Fund has segregated assets with respect to such option in the manner described in Risk Factors in Derivatives below. A call option will also be considered covered if the Fund owns the
securities it would be required to deliver upon exercise of the option (or, in the case
of an option on a securities index, securities which substantially correlate with the performance of such index) or owns a call option, warrant or convertible instrument which is immediately exercisable for, or convertible into, such security.
The Fund may not write covered options on underlying securities exceeding 50% of its net assets, taken at market value. The
Fund will not purchase options on securities (including stock index options) if as a result of such purchase, the aggregate cost of all outstanding options on securities held by the Fund would exceed 5% of the market value of the Funds total assets.
Types of Options. The Fund may engage in transactions in options on securities or securities
indices on exchanges and in the over-the-counter (OTC) markets. In general, exchange-traded options have standardized exercise prices and expiration dates and require the parties to post margin against their obligations, and the performance of
the parties obligations in connection with such options is guaranteed by the exchange or a related clearing corporation. OTC options have more flexible terms negotiated between the buyer and the seller, but generally do not require the parties to
post margin and are subject to greater credit risk. OTC options also involve greater liquidity risk. See Additional Risk Factors of OTC Transactions; Limitation on the Use of OTC Derivatives below.
Futures
The Fund may engage in transactions in futures and options thereon. Futures are standardized, exchange-traded contracts which
obligate a purchaser to take delivery, and a seller to make delivery, of a specific amount of an asset at a specified future date at a specified price. No price is paid upon entering into a futures contract. Rather, upon purchasing or selling a futures
contract the Fund is required to deposit collateral (margin) equal to a percentage (generally about 5%) of the contract value. Each day thereafter until the futures position is closed, the Fund will pay additional margin representing any loss
experienced as a result of the futures position the prior day or be entitled to a payment representing any profit experienced as a result of the futures position the prior day. Futures involve substantial leverage risk.
The sale of a futures contract limits the Funds risk of loss through a decline in the market value of portfolio holdings
correlated with the futures contract prior to the futures contracts expiration date. In the event the market value of the portfolio holdings correlated with the futures contract increases rather than decreases, however, the Fund will realize a loss
on the futures position and a lower return on the portfolio holdings than would have been realized without the purchase of the futures contract.
The purchase of a futures contract may protect the Fund from having to pay more for securities as a consequence of increases
in the market value for such securities during a period when the Fund was attempting to identify specific securities in which to invest in a market the Fund believes to be attractive. In the event that such securities decline in value or the Fund
determines not to complete an anticipatory hedge transaction relating to a futures contract, however, the Fund may realize a loss relating to the futures position.
The Fund will limit transactions in futures and options on futures to financial futures contracts (i.e., contracts for
which the underlying asset is a currency or securities or interest rate index) purchased or sold for hedging purposes (including anticipatory hedges). The Fund will further limit transactions in futures and options on futures to the extent necessary to
prevent the Fund from being deemed a commodity pool under regulations of the Commodity Futures Trading Commission.
An order has been obtained from the Commission exempting the Fund from the provisions of Section 17(f) and Section 18(f) of
the Investment Company Act of 1940, as amended (the Investment Company Act) in connection with its strategy of investing in futures contracts. Section 17(f) relates to the custody of securities and other assets of an investment company and may
be deemed to prohibit certain arrangements between the Fund and commodities brokers with respect to initial and variation margin. Section 18(f) of the Investment Company Act prohibits an open-end investment company such as the Fund from issuing a
senior security other than a borrowing from a bank. The staff of the Commission has in the past indicated that a futures contract may be a senior security under the Investment Company Act.
Foreign Exchange Transactions
The Fund may engage in spot and forward foreign exchange transactions and currency swaps, purchase and sell options on
currencies and purchase and sell currency futures and related options thereon (collectively, Currency Instruments) for purposes of hedging against the decline in the value of currencies in which its portfolio holdings are denominated against
the U.S. dollar.
Forward Foreign Exchange Transactions. Forward foreign exchange transactions are OTC contracts
to purchase or sell a specified amount of a specified currency or multinational currency unit at a price and future date set at the time of the contract. Spot foreign exchange transactions are similar but require current, rather than future, settlement.
The Fund will enter into foreign exchange transactions only for purposes of hedging either a specific transaction or a portfolio position. The Fund may enter into a foreign exchange transaction for purposes of hedging a specific transaction by, for
example, purchasing a currency needed to settle a security transaction or selling a currency in which the Fund has received or anticipates receiving a dividend or distribution. The Fund may enter into a foreign exchange transaction for purposes of hedging
a portfolio position by selling forward a currency in which a portfolio position of the Fund is denominated or by purchasing a currency in which the Fund anticipates acquiring a portfolio position in the near future. The Fund may also hedge portfolio
positions through currency swaps, which are transactions in which one currency is simultaneously bought for a second currency on a spot basis and sold for the second currency on a forward basis. Forward foreign exchange transactions involve substantial
currency risk, and also involve credit and liquidity risk.
Currency Futures. The Fund may also hedge against the decline in the value of a currency against
the U.S. dollar through use of currency futures or options thereon. Currency futures are similar to forward foreign exchange transactions except that futures are standardized, exchange-traded contracts. See Futures. Currency futures involve
substantial currency risk, and also involve leverage risk.
Currency Options. The Fund may also hedge against the decline in the value of a currency against
the U.S. dollar through the use of currency options. Currency options are similar to options on securities, but in consideration for an option premium the writer of a currency option is obligated to sell (in the case of a call option) or purchase (in the
case of a put option) a specified amount of a specified currency on or before the expiration date for a specified amount of another currency. The Fund may engage in transactions in options on currencies either on exchanges or OTC markets. See Types
of Options above and Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives below. Currency options involve substantial currency risk, and may also involve credit, leverage or liquidity risk.
Limitations on Currency Hedging. The Fund will not speculate in Currency Instruments.
Accordingly, the Fund will not hedge a currency in excess of the aggregate market value of the securities which it owns (including receivables for unsettled securities sales), or has committed to or anticipates purchasing, which are denominated in such
currency. The Fund may, however, hedge a currency by entering into a transaction in a Currency Instrument denominated in a currency other than the currency being hedged (a cross-hedge). The Fund will only enter into a cross-hedge if the
Investment Adviser believes that (i) there is a demonstrable high correlation between the currency in which the cross-hedge is denominated and the currency being hedged, and (ii) executing a cross-hedge through the currency in which the cross-hedge is
denominated will be significantly more cost-effective or provide substantially greater liquidity than executing a similar hedging transaction by means of the currency being hedged.
Risk Factors in Hedging Foreign Currency Risks. Hedging transactions involving Currency
Instruments involve substantial risks, including correlation risk. While the Funds use of Currency Instruments to effect hedging strategies is intended to reduce the volatility of the net asset value of the Funds shares, the net asset value of
the Funds shares will fluctuate. Moreover, although Currency Instruments will be used with the intention of hedging against adverse currency movements, transactions in Currency Instruments involve the risk that anticipated currency movements will
not be accurately predicted and that the Funds hedging strategies will be ineffective. To the extent that the Fund hedges against anticipated currency movements which do not occur, the Fund may realize losses, and decrease its total return, as the
result of its hedging transactions. Furthermore, the Fund will only engage in hedging activities from time to time and may not be engaging in hedging activities when movements in currency exchange rates occur.
It may not be possible for the Fund to hedge against currency exchange rate movements, even if correctly anticipated, in the
event that (i) the currency exchange rate movement is so generally anticipated that the Fund is not able to enter into a hedging transaction at an effective price, or (ii) the currency exchange rate movement relates to a market with respect to which
Currency Instruments are not available and it is not possible to engage in effective foreign currency hedging.
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks, including:
Credit Risk the risk that the counterparty on a Derivative transaction will be unable to honor its
financial obligation to the Fund.
Currency Risk the risk that changes in the exchange rate between two currencies will adversely affect
the value (in U.S. dollar terms) of an investment.
Leverage Risk the risk associated with certain types of investments or trading strategies (such as
borrowing money to increase the amount of investments) that relatively small market movements may result in large changes in the value of an investment. Certain investments or trading strategies that involve leverage can result in losses that greatly
exceed the amount originally invested.
Liquidity Risk the risk that certain securities may be difficult or impossible to sell at the time
that the seller would like or at the price that the seller believes the security is currently worth.
Use of Derivatives for hedging purposes involves correlation risk. If the value of the Derivative moves more or less than the
value of the hedged instruments the Fund will experience a gain or loss which will not be completely offset by movements in the value of the hedged instruments.
The Fund intends to enter into transactions involving Derivatives only if there appears to be a liquid secondary market for
such instruments or, in the case of illiquid instruments traded in OTC transactions, such instruments satisfy the criteria set forth below under Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives. However,
there can be no assurance that, at any specific time, either a liquid secondary market will exist for a Derivative or the Fund will otherwise be able to sell such instrument at an acceptable price. It may therefore not be possible to close a position in a
Derivative without incurring substantial losses, if at all.
Certain transactions in Derivatives (such as futures transactions or sales of put options) involve substantial leverage risk
and may expose the Fund to potential losses, which exceed the amount originally invested by the Fund. When the Fund engages in such a transaction, the Fund will deposit in a segregated account at its custodian liquid securities with a value at least equal
to the Funds exposure, on a mark-to-market basis, to the transaction (as calculated pursuant to requirements of the Commission). Such segregation will ensure that the Fund has assets available to satisfy its obligations with respect to the
transaction, but will not limit the Funds exposure to loss.
Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives
Certain Derivatives traded in OTC markets, including OTC options, involve substantial liquidity risk. The absence of liquidity
may make it difficult or impossible for the Fund to sell such instruments promptly at an acceptable price. The absence of liquidity may also make it more difficult for the Fund to ascertain a market value for such instruments. The Fund will therefore
acquire illiquid OTC instruments (i) if the agreement pursuant to which the instrument is purchased contains a formula price at which the instrument may be terminated or sold, or (ii) for which the Investment Adviser anticipates the Fund can receive on
each business day at least two independent bids or offers, unless a quotation from only one dealer is available, in which case that dealers quotation may be used.
Because Derivatives traded in OTC markets are not guaranteed by an exchange or clearing corporation and generally do not
require payment of margin, to the extent that the Fund has unrealized gains in such instruments
or has deposited collateral with its counterparty the Fund is at risk that its counterparty will become bankrupt or otherwise fail to honor its obligations. The Fund will
attempt to minimize the risk that a counterparty will become bankrupt or otherwise fail to honor its obligations by engaging in transactions in Derivatives traded in OTC markets only with financial institutions which have substantial capital or which have
provided the Fund with a third-party guaranty or other credit enhancement.
Other Investment Policies and Practices
Securities Lending. The Fund may lend securities with a value not exceeding 20% of its total
assets to banks, brokers and other financial institutions. In return, the Fund receives collateral in cash or securities issued or guaranteed by the U.S. Government which will be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. During the period of such a loan, the Fund typically receives the income on both the loaned securities and the collateral and thereby increases its yield. In certain circumstances, the Fund may receive a flat fee for
its loans. Such loans are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Fund may pay reasonable finders, administrative and custodial fees in connection with its
loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Fund could experience delays and costs in gaining access to the collateral and could suffer a loss to the
extent the value of the collateral falls below the market value of the borrowed securities.
Suitability. The economic benefit of an investment in the Fund depends upon many factors beyond
the control of the Fund, the Investment Adviser and its affiliates. Because of its emphasis on foreign securities, the Fund should be considered a vehicle for diversification and not as a balanced investment program. The suitability for any particular
investor of a purchase of shares in the Fund will depend upon, among other things, such investors investment objectives and such investors ability to accept the risks associated with investing in foreign securities, including the risk of loss
of principal.
Investment Restrictions
The Fund has adopted a number of fundamental and non-fundamental investment restrictions and policies relating to the
investment of its assets and its activities. The fundamental policies set forth below may not be changed without the approval of the holders of a majority of the Funds outstanding voting securities (which for this purpose and under the Investment
Company Act of 1940, as amended (the Investment Company Act) means the lesser of (i) 67% of the Funds shares present at a meeting at which more than 50% of the outstanding shares of the Fund are represented or (ii) more than 50% of the
Funds outstanding shares). The Fund may not:
|
(1) Make any investment inconsistent with the Funds classification
as a diversified company under the Investment Company Act.
|
|
(2) Invest more than 25% of its assets, taken at market value at the
time of each investment, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities).
|
|
(3) Make investments for the purpose of exercising control or management.
|
|
(4) Purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein.
|
|
(5) Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments shall not be deemed to
be the making of a loan, and except further that the Fund may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set forth in the Prospectus and this
Statement of Additional Information, as they may be amended from time to time.
|
|
(6) Issue senior securities to the extent such issuance would violate
applicable law.
|
|
(7) Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1
/3% of its total assets (including the amount
borrowed), (ii) the Fund may, to the extent permitted by applicable law, borrow up to an additional 5% of its total assets for temporary purposes, (iii) the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities and (iv) the Fund may purchase securities on margin to the extent permitted by applicable law. The Fund may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Funds investment
policies as set forth in the Prospectus and this Statement of Additional Information, as they may be amended from time to time, in connection with hedging transactions, short sales, when-issued and forward commitment transactions and similar investment
strategies.
|
|
(8) Underwrite securities of other issuers, except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933, as amended (the Securities Act), in selling portfolio securities.
|
|
(9) Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and the Funds Prospectus and Statement of Additional Information, as they may be amended from time to time, and without registering as a commodity pool operator under the Commodity
Exchange Act.
|
Under the non-fundamental investment restrictions, which may be changed by the Board of Directors without shareholder
approval, the Fund may not:
|
(a) Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. Applicable law currently allows the Fund to purchase the securities of other investment companies if immediately thereafter not more than (i) 3% of the total outstanding voting stock of such company
is owned by the Fund, (ii) 5% of the Funds total assets, taken at market value, would be invested in any one such company, (iii) 10% of the Funds total assets, taken at market value, would be invested in such securities, and (iv) the Fund,
together with other investment companies having the same investment adviser and companies controlled by such companies, owns not more than 10% of the total outstanding stock of any one closed-end investment company. Investments by the Fund in wholly-owned
investment entities created under the laws of certain countries will not be deemed an investment in other investment companies. As a matter of policy, however, the Fund will not purchase shares of any registered open-end investment company or registered
unit investment trust, in reliance on Section 12(d)(1)(F) or (G) (the fund of funds provisions) of the Investment Company Act at any time the Funds shares are owned by another investment company that is part of the same group of
investment companies as the Fund.
|
|
(b) Make short sales of securities or maintain a short position, except
to the extent permitted by applicable law.
|
|
(c) Invest in securities that cannot be readily resold because of legal
or contractual restrictions or that cannot otherwise be marketed, redeemed or put to the issuer or to a third party, if at the time of acquisition more than 15% of its net assets would be invested in such securities. This restriction shall not apply to
securities that mature within seven days or securities that the Board of Directors of the Fund has otherwise determined to be liquid pursuant to applicable law. Securities purchased in accordance with Rule 144A under the Securities Act and determined to
be liquid by the Board of Directors are not subject to the limitations set forth in this investment restriction.
|
|
(d) Notwithstanding fundamental investment restriction (7) above, borrow
amounts in excess of 5% of its total assets, taken at market value, and then only from banks as a temporary measure for extraordinary or emergency purposes.
|
Portfolio securities of the Fund generally may not be purchased from, sold or loaned to the Investment Adviser or its
affiliates or any of their directors, officers or employees, acting as principal, unless pursuant to a rule or exemptive order under the Investment Company Act.
The Funds investments will be limited in order to allow the Fund to qualify as a regulated investment company
for purposes of the Code. See Dividends and TaxesTaxes. To qualify, among other requirements, the Fund will limit its investments so that, at the close of each quarter of the taxable year, (i) not more than 25% of the market value of
the Funds total assets will be invested in the securities of a single issuer, and (ii) with respect to 50% of the market value of its total assets, not more than 5% of the market value of its total assets will be invested in the securities of a
single issuer and the Fund will not own more than 10% of the outstanding voting securities of a single issuer. These tax-related limitations may be changed by the Directors of the Fund to the extent necessary to comply with changes to the Federal tax
requirements. The Fund is diversified under the Investment Company Act and must satisfy the foregoing 5% and 10% requirements with respect to 75% of its total assets.
In addition, as a non-fundamental policy which may be changed by the Board of Directors and to the extent required by the
Commission or its staff, the Fund will, for purposes of investment restriction (1), treat securities issued or guaranteed by the government of any one foreign country as the obligations of a single issuer.
As another non-fundamental policy, the Fund will not invest in securities that (a) are subject to material legal restrictions
on repatriation of assets or (b) cannot be readily resold because of legal or contractual restrictions or which are not otherwise readily marketable, including repurchase agreements and purchase and sale contracts maturing in more than seven days, if,
regarding all such securities, more than 15% of its net assets, taken at market value, would be invested in such securities.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) with the
Investment Adviser, the Fund is prohibited from engaging in certain transactions involving Merrill Lynch or its affiliates except for brokerage transactions permitted under the Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company Act. See Portfolio Transactions and Brokerage. Without such exemptive order, the Fund is prohibited from engaging in portfolio transactions with Merrill Lynch or its
affiliates acting as principal.
Portfolio Turnover
The Investment Adviser will effect portfolio transactions without regard to the time the securities have been held, if, in its
judgment, such transactions are advisable in light of a change in circumstances of a particular company or within a particular industry or in general market, financial or economic conditions. As a result of its investment policies, the Fund may engage in
a substantial number of portfolio transactions and the Funds portfolio turnover rate may vary greatly from year to year or during periods within a year. The portfolio turnover rate is calculated by dividing the lesser of the Funds annual sales
or purchases of portfolio securities (exclusive of purchases or sales of U.S. Government securities and all other securities whose maturities at the time of acquisition were one year or less) by the monthly average value of the securities in the portfolio
during the year. A high portfolio turnover 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.
MANAGEMENT OF THE FUND
Directors 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 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, executive officers and the portfolio manager of the Fund, including their ages and their principal occupations for at least the last five years, is set forth below. Unless otherwise noted, the
address of each Director, executive officer and the portfolio manager is P.O. Box 9011, Princeton, New Jersey 08543-9011.
TERRY
K. GLENN
(59) President and Director(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; President of FAM Distributors, Inc. (FAMD) since 1986 and Director thereof since 1991; Executive Vice President and Director of Princeton Services, Inc. (Princeton Services) since 1993; President of Princeton
Administrators, L.P. since 1988.
M. COLYER
CRUM
(68) Director(2)(3) 104 Westcliff Road, Weston, Massachusetts 02193. Currently James R. Williston Professor of Investment Management Emeritus, Harvard Business School since 1996; James R. Williston Professor of
Investment Management, Harvard Business School, from 1971 to 1996; Director of Cambridge Bancorp.
LAURIE
SIMON
HODRICK
(37) Director(2)(3) 809 Uris Hall, 3022 Broadway, New York, New York 10027. Professor of Finance and Economics, Graduate School of Business, Columbia University since 1998; Associate Professor of Finance and
Economics, Graduate School of Business, Columbia University from 1996 to 1998; Associate Professor of Finance, J.L. Kellogg Graduate School of Management, Northwestern University from 1992 to 1996.
JACK
B. SUNDERLAND
(71) Director(2)(3) P.O. Box 7, West Cornwall, Connecticut 06796. President and Director of American Independent Oil Company, Inc. (an energy company) since 1987; Member of Council on Foreign Relations since 1971.
STEPHEN
B. SWENSRUD
(66) Director(2)(3) 24 Federal Street, Suite 400, Boston, Massachusetts 02110. Chairman of Fernwood Advisors (investment advisor) since 1996; Principal of Fernwood Associates (financial consultants) since 1975;
Chairman of R.P.P. Corporation (Manufacturing) since 1978; Director of International Mobile Communications, Inc. (Telecommunications) since 1998.
J. THOMAS
TOUCHTON
(61) Director(2)(3) Suite 3405, One Tampa City Center, 201 North Franklin Street, Tampa, Florida 33602. Managing Partner of The Witt-Touchton Company and its predecessor, The Witt Co. (a private investment
partnership) since 1972; Trustee Emeritus of Washington and Lee University; Director of TECO Energy, Inc. (an electric utility holding company).
FRED
G. WEISS
(58) Director(2)(3) 16450 Maddalena Place, Delray Beach, Florida 33446. Managing Director of FGW Associates since 1997; Director of Watson Pharmaceutical, Inc. (a pharmaceutical company) since 2000; Director of the
Michael J. Fox Foundation for Parkinsons Research; Director of Laboratories Phoenix USA, Inc. (a private drug delivery company); and Director of Kann Institute for Medical Careers, Inc. (a private medical education company).
ARTHUR
ZEIKEL
(68) Director(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.
DANIEL
V. SZEMIS
(40) Senior Vice President and Portfolio Manager(1)(2) First Vice President of MLIM since 1997; Vice President of MLIM from 1996 to 1997; Portfolio Manager with Prudential Mutual Fund Investment Management
Advisors from 1990 to 1996.
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; First Vice President
of MLIM from 1997 to 1999; Vice President of MLIM from 1990 to 1997; Director of Taxation of MLIM since 1990; Vice President of FAMD since 1999.
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 MLIM since 1992.
(1)
|
Interested person, as defined in the Investment Company Act, of the Fund.
|
(2)
|
Such Director or officer is a trustee, director or officer of certain other investment companies for which MLIM or the Investment
Adviser acts as the investment adviser or manager.
|
(3)
|
Member of the Funds Audit and Nominating Committee, which is responsible for the selection of the independent auditors and
the selection and nomination of non-interested Directors.
|
As of July 1, 2000, the Directors and officers of the Fund as a group (11 persons) owned an aggregate of less than 1% of the
outstanding shares of the Fund. At such date, Mr. Zeikel, a Director of the Fund, Mr. Glenn, a Director and officer of the Fund, and the other officers of the Fund owned an aggregate of less than 1% of the outstanding shares of common stock of ML & Co.
Compensation of Directors
The Fund pays each non-interested Director an annual fee of $2,000 plus a fee of $500 for each meeting attended and pays all
Directors actual out-of-pocket expenses relating to attendance at meetings. The Fund also pays each member of the Audit and Nominating Committee of the Board of Directors (the Committee), which consists of all of the non-interested
Directors, an annual fee of $2,100 and the chairman of such committee receives an annual fee of $750.
The following table shows the compensation earned by the non-interested Directors for the fiscal year ended March 31, 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
|
|
Compensation
from Fund
|
|
Pension or
Retirement Benefits
Accrued as Part of
Fund Expense
|
|
Estimated
Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation from
Fund and Other
MLIM/FAM-
Advised Funds(1)
|
M. Colyer Crum(1) |
|
Director |
|
$6,100 |
|
None |
|
None |
|
$122,975 |
Laurie Simon Hodrick(1)(2) |
|
Director |
|
$2,708 |
|
None |
|
None |
|
$ 53,000 |
Jack B. Sunderland(1) |
|
Director |
|
$6,100 |
|
None |
|
None |
|
$143,975 |
Stephen B. Swensrud(1)(3) |
|
Director |
|
$ N/A |
|
None |
|
None |
|
$232,250 |
J. Thomas Touchton(1) |
|
Director |
|
$6,100 |
|
None |
|
None |
|
$142,725 |
Fred G. Weiss(1) |
|
Director |
|
$6,850 |
|
None |
|
None |
|
$122,975 |
(1)
|
The Directors serve on the boards of MLIM/FAM-advised funds as follows: Mr. Crum (14 registered investment companies consisting of
14 portfolios); Ms. Hodrick (14 registered investment companies consisting of 14 portfolios); Mr. Sunderland (18 registered investment companies consisting of 33 portfolios); Mr. Swensrud (35 registered investment companies consisting of 72 portfolios);
Mr. Touchton (18 registered investment companies consisting of 33 portfolios); and Mr. Weiss (14 registered investment companies consisting of 14 portfolios).
|
(2)
|
Ms. Hodrick was elected a Director of the Fund and a Director/Trustee of certain other MLIM/FAM-advised funds on November 4, 1999.
|
(3)
|
Mr. Swensrud was elected a Director of the Fund and a Director/Trustee of certain other MLIM/FAM-advised funds on July 17, 2000.
|
Directors of the Fund may purchase Class A shares of the Fund at net asset value. See Purchase of SharesInitial
Sales Charge AlternativesClass A and Class D SharesReduced Initial Sales ChargesPurchase Privilege of Certain Persons.
Management and Advisory Arrangements
Investment Advisory Services. The Investment Adviser provides the Fund with investment advisory
and management services. Subject to the supervision of the Directors, the Investment Adviser is responsible for the actual management of the Funds portfolio and constantly reviews the Funds 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 provides the Portfolio Manager for the Fund, who considers analyses from various
sources, make the necessary investment decisions and place transactions accordingly. The Investment Adviser also performs certain of the other administrative services and provides all the office space, facilities, equipment and necessary personnel for
management of the Fund.
Investment Advisory Fee. The Fund has entered into an advisory agreement with the Investment
Adviser (the Investment Advisory Agreement), pursuant to which the Investment Adviser receives for its services to the Fund monthly compensation at the annual rates of 0.75% of the average daily net assets of the Fund for the first $1 billion;
.725% of the average daily net assets from $1 billion to $1.5 billion; and .70% of the average daily net assets above $1.5 billion. The table below sets forth information about the total management fees paid by the Fund to the Investment Adviser for the
periods indicated.
Period
|
|
Investment
Advisory
Fee
|
Fiscal year ended March 31, 2000 |
|
$7,208,238 |
Fiscal year ended March 31, 1999 |
|
$7,530,195 |
Fiscal year ended March 31, 1998 |
|
$6,981,534 |
The Investment Adviser has entered into a sub-advisory agreement with Merrill Lynch Asset Management U.K. Limited (MLAM
U.K.) pursuant to which MLAM U.K. provides investment advisory services to the Investment Adviser with respect to the Fund. The Investment Adviser paid no fees to MLAM U.K. in the fiscal years ended March 31, 2000, 1999 and 1998.
Payment of Fund Expenses. The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish office space for officers and employees of the Fund connected with investment and economic research, trading and investment management of the Fund, as well as the fees of all
Directors of the Fund who are affiliated persons of the Investment Adviser. The Fund pays all other expenses incurred in the operation of the Fund, including among other things: taxes, expenses for legal and auditing services, costs of printing proxies,
stock certificates, shareholder reports, prospectuses and statements of additional information, except to the extent paid by FAMD (the Distributor); charges of the custodian and sub-custodian, and the transfer agent; expenses of redemption of
shares; SEC fees; expenses of registering the shares under Federal, state or foreign laws; fees and expenses of non-interested Directors; accounting and pricing costs (including the daily calculations of net asset value); insurance; interest; brokerage
costs; litigation and other extraordinary or non-recurring expenses; and other expenses properly payable by the Fund. Accounting services are provided for the Fund by the Investment Adviser and the Fund reimburses the Investment Adviser for its costs in
connection with such services on a semi-annual basis. The Distributor will pay certain promotional expenses of the Fund incurred in connection with the offering of shares of the Fund. 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.
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 or their power to exercise a controlling influence over its management or policies.
The following entities may be considered controlling persons of MLAM U.K.: Merrill Lynch Europe PLC (MLAM
U.K.s parent), a subsidiary of Merrill Lynch International Holdings, Inc., a subsidiary of Merrill Lynch International, Inc., a subsidiary of ML & Co.
Duration and Termination. Unless earlier terminated as described herein, the Investment
Advisory Agreement and the sub-advisory agreement will continue in effect from year to year if approved annually (a) by the Directors of the Fund or by a majority of the outstanding shares of the Fund and (b) by a majority of the Directors who are not
parties to such contract or interested persons (as defined in the Investment Company Act) of any such party. Such contracts are not assignable and may be terminated without penalty on 60 days written notice at the option of either party or by vote
of the shareholders of the Fund.
Transfer Agency Services. Financial Data Services, Inc. (the Transfer Agent), a
subsidiary of ML & Co., acts as the Funds Transfer Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement (the Transfer Agency Agreement). Pursuant to the Transfer Agency Agreement,
the Transfer Agent is responsible for the issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts. Pursuant to the Transfer Agency Agreement, the Transfer Agent receives a fee of $11.00 per Class A or Class D
account and $14.00 per Class B or Class C account and is entitled to reimbursement for certain transaction charges and out-of-pocket expenses incurred by the Transfer Agent under the Transfer Agency Agreement. Additionally, a $.20 monthly closed account
charge will be assessed on all accounts 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 separate 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 each class of shares of
the Fund. After the prospectuses, statements of additional information and periodic reports have been prepared, set in type and mailed to shareholders, the Distributor pays for the printing and distribution of copies thereof used in connection with the
offering to dealers and investors. The Distributor also pays for other supplementary sales literature and advertising costs. The Distribution Agreement is subject to the same renewal requirements and termination provisions as the Investment Advisory
Agreement described above.
Code of Ethics
The Board of Directors of the Fund has approved a Code of Ethics under Rule 17j-1 of the Investment Company Act that covers
the Fund and the Funds Investment Adviser and Distributor ( the Code of Ethics). The Code of Ethics significantly restricts the personal investing activities of all employees of the Investment Adviser and Distributor and, as described
below, imposes additional more onerous restrictions on Fund investment personnel.
The Code of Ethics requires that all employees of the Investment Adviser and Distributor preclear any personal securities
investments (with limited exceptions, such as mutual funds, high-quality short-term securities and direct obligations of the U.S. government). The preclearance requirement and associated procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive restrictions applicable to all employees of the Investment Adviser and Distributor include a ban on acquiring any securities in a hot initial public offering and investment
personnel are prohibited from profiting on short-term trading in securities. In addition, no employee may purchase or sell any security that at the time is being purchased or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Investment Adviser. Furthermore, the Code of Ethics provides for trading blackout periods which prohibit trading by investment personnel of the Fund within seven calendar days before
or after trading by the Fund in the same or equivalent security.
PURCHASE OF SHARES
Reference is made to How to Buy, Sell, Transfer and Exchange Shares in the Prospectus.
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 investment portfolio of the Fund and has the same rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees (also known as service fees) and Class B and Class C shares bear the expenses of the ongoing distribution fees and the additional incremental transfer agency costs resulting from the deferred sales charge arrangements.
The contingent deferred sales charges (CDSCs), distribution fees and account maintenance fees that are imposed on Class B and Class C shares, as well as the account maintenance fees that are imposed on Class D shares, are imposed directly
against those classes and not against all assets of the Fund and, accordingly, such charges do not affect the net asset value of any other class or have any impact on investors choosing another sales charge option. Dividends paid by the Fund for each
class of shares are calculated in the same manner at the same time and differ only to the extent that account maintenance and distribution fees and any incremental transfer agency costs relating to a particular class are borne exclusively by that class.
Each class has different exchange privileges. See Shareholder Services Exchange Privilege.
Investors should understand that the purpose and function of the initial sales charges with respect to the Class A and Class D
shares are the same as those of the CDSCs and distribution fees with respect to the Class B and Class C shares in that the sales charges and distribution fees applicable to each class provide for the financing of the distribution of the shares of the
Fund. The distribution-related revenues paid with respect to a class will not be used to finance the distribution expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares.
The Merrill Lynch Select Pricing
SM
System is used by more than 50 registered investment companies advised by 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 have the responsibility of submitting purchase orders to the Fund not
later than 30 minutes after the close of business on the NYSE in order to purchase shares at that days offering price.
The Fund or the Distributor may suspend the continuous offering of the Funds shares of any class at any time in response
to conditions in the securities markets or otherwise and may thereafter resume such offering from time to time. Any order may be rejected by the Fund or the Distributor. Neither the Distributor nor the dealers or other financial intermediaries are
permitted to withhold placing orders to benefit themselves by a price change. 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 a shareholders 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 employer-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 MLIM 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 |
|
Fiscal Year Ended March 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received on
Redemption of
Load-Waived Shares
|
2000 |
|
$ 10,865 |
|
$ 658 |
|
$ 10,207 |
|
$ 0 |
1999 |
|
$ 11,890 |
|
$ 1,068 |
|
$ 10,822 |
|
$ 0 |
1998 |
|
$ 36,202 |
|
$ 2,430 |
|
$ 33,772 |
|
$10,209 |
|
Class D Shares |
|
Fiscal Year Ended March 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received on
Redemption of
Load-Waived Shares
|
2000 |
|
$130,398 |
|
$ 8,400 |
|
$121,998 |
|
$ 240 |
1999 |
|
$135,515 |
|
$ 9,364 |
|
$126,151 |
|
$ 0 |
1998 |
|
$418,634 |
|
$28,752 |
|
$389,882 |
|
$ 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 securities dealers 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 purchasers combined holdings of all classes of shares of the Fund and of any other Select Pricing Funds. For any such right of accumulation to be made available, the Distributor
must be provided at the time of purchase, by the purchaser or the purchasers securities dealer or other financial intermediary, with sufficient information to permit confirmation of qualification. Acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any time. Shares held in the name of a nominee or custodian under pension, profit-sharing or other employee benefit plans may not be combined with other shares to qualify for the
right of accumulation.
Letter of Intent. Reduced sales charges are applicable to purchases aggregating $25,000 or more
of 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 Funds Transfer Agent. The Letter of Intent is not available to employee benefit plans for which Merrill Lynch provides plan participant recordkeeping 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
expiration 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 (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
SM
Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
TMA
SM
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. Directors of the Fund, members of the Boards of other
MLIM/FAM-advised investment companies, ML & Co. and its subsidiaries (the term subsidiaries, when used herein with respect to ML & Co., includes 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 Funds suitability standards.
Class D shares of the Fund are offered at net asset value, without a sales charge, to an investor that has a business
relationship with a Financial Consultant who joined Merrill Lynch from another investment firm within six months prior to the date of purchase by such investor, if the following conditions are satisfied: first, the investor must advise Merrill Lynch that
it will purchase Class D shares of the Fund with proceeds from a redemption of shares of a mutual fund that was sponsored by the Financial Consultants previous firm and was subject to a sales charge either at the time of purchase or on a deferred
basis; and, second, the investor must establish that such redemption had been made within 60 days prior to the investment in the Fund and the proceeds from the redemption had been maintained in the interim in cash or a money market fund.
Class D shares of the Fund are also offered at net asset value, without a sales charge, to an investor that has a business
relationship with a Merrill Lynch Financial Consultant and that has invested in a mutual fund sponsored by a non-Merrill Lynch company for which Merrill Lynch has served as a selected dealer and where Merrill Lynch has either received or given notice that
such arrangement will be terminated (notice) if the following conditions are satisfied: first, the investor must purchase Class D shares of the Fund with proceeds from a redemption of shares of such other mutual fund and the shares of such
other fund were subject to a sales charge either at the time of purchase or on a deferred basis; and, second, such purchase of Class D shares must be made within 90 days after such notice.
Class D shares of the Fund are offered at net asset value, without a sales charge, to an investor that has a business
relationship with a Merrill Lynch Financial Consultant and that has invested in a mutual fund for which Merrill Lynch has not served as a selected dealer if the following conditions are satisfied: first, the investor must advise Merrill Lynch that it will
purchase Class D shares of the Fund with proceeds from the redemption of shares of such other mutual fund and that such shares have been outstanding for a period of no less than six months; and, second, such purchase of Class D shares must be made within
60 days after the redemption and the proceeds from the redemption must be maintained in the interim in cash or a money market fund.
Closed-End Fund Investment Option. Class A shares of the Fund and certain other Select Pricing
Funds (Eligible Class A Shares) are offered at net asset value to shareholders of certain closed-end funds advised by FAM or MLIM who purchased such closed-end fund shares prior to October 21, 1994 (the date the Merrill Lynch Select Pricing
SM
System commenced operations) and wish to reinvest the net proceeds from a sale of their closed-end fund shares of common stock in Eligible Class A Shares, if the conditions set forth
below are satisfied. Alternatively, closed-end fund shareholders who purchased such shares on or after October 21, 1994 and wish to reinvest the net proceeds from a sale of their closed-end fund shares are offered Class A shares (if eligible to buy Class
A shares) or Class D shares of the Fund and other Select Pricing Funds (Eligible Class D Shares), if the following conditions are met. First, the sale of closed-end fund shares must be made through Merrill Lynch, and the net proceeds therefrom
must be immediately reinvested in Eligible Class A or Eligible Class D Shares. Second, the closed-end fund shares must either have been acquired in the initial public offering or be shares representing dividends from shares of common stock acquired in
such offering. Third, the closed-end fund shares must have been continuously maintained in a Merrill Lynch securities account. Fourth, there must be a minimum purchase of $250 to be eligible for the investment option.
Shareholders of certain MLIM/FAM-advised continuously offered closed-end funds may reinvest at net asset value the net
proceeds from a sale of certain shares of common stock of such funds in shares of the Fund. Upon
exercise of this investment option, shareholders of Merrill Lynch Senior Floating Rate Fund, Inc. will receive Class A shares of the Fund and shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond Fund,
Inc. will receive Class D shares of the Fund, except that shareholders already owning Class A shares of the Fund will be eligible to purchase additional Class A shares pursuant to this option, if such additional Class A shares will be held in the same
account as the existing Class A shares and the other requirements pertaining to the reinvestment privilege are met. In order to exercise this investment option, a shareholder of one of the above-referenced continuously offered closed-end funds (an
eligible fund) must sell his or her shares of common stock of the eligible fund (the eligible shares) back to the eligible fund in connection with a tender offer conducted by the eligible fund and reinvest the proceeds immediately in the
designated class of shares of the Fund. This investment option is available only with respect to eligible shares as to which no Early Withdrawal Charge or CDSC (each as defined in the eligible funds prospectus) is applicable. Purchase orders from
eligible fund shareholders wishing to exercise this investment option will be accepted only on the day that the related tender offer terminates and will be effected at the net asset value of the designated class of the Fund on such day.
Acquisition of Certain Investment Companies. Class D shares may be offered at net asset value in
connection with the acquisition of the assets of or merger or consolidation with a personal holding company or a public or private investment company.
Purchases Through Certain Financial Intermediaries. Reduced sales charges may be applicable for
purchase 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 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 investors dollars to work from the time the investment is made. The deferred sales charge alternatives may be particularly appealing to investors that do not qualify for the reduction in initial sales charges. Both Class B and
Class C shares are subject to ongoing account maintenance fees and distribution fees; however, the ongoing account maintenance and distribution fees potentially may be offset to the extent any return is realized on the additional funds initially invested
in Class B or Class C shares. In addition, Class B shares will be converted into Class D shares of the Fund after a conversion period of approximately eight years, and thereafter investors will be subject to lower ongoing fees.
The public offering price of Class B and Class C shares for investors choosing the deferred sales charge alternatives is the
next determined net asset value per share without the imposition of a sales charge at the time of purchase. See Pricing of Shares Determination of Net Asset Value below.
Contingent Deferred Sales Charges Class B Shares
Class B shares that are redeemed within four years of purchase may be subject to a CDSC at the rates set forth below charged
as a percentage of the dollar amount subject thereto. In determining whether a CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest applicable rate being charged. The charge will be assessed on an
amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no CDSC will be assessed on shares
derived from reinvestment of dividends. It will be assumed that the redemption is first of shares held for over four years or shares acquired pursuant to reinvestment of dividends and then of shares held longest during the four-year period. A transfer of
shares from a shareholders account to another account will be assumed to be made in the same order as a redemption.
The following table sets forth the Class B CDSC:
Years Since Purchase Payment Made
|
|
CDSC as a Percentage
of Dollar Amount
Subject to Charge
|
01 |
|
4.0% |
12 |
|
3.0% |
23 |
|
2.0% |
34 |
|
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 for shares purchased on or after October 21, 1994).
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
SM
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 the average daily net assets but are not subject to the distribution fee
that is borne by Class B shares. Automatic conversion of Class B shares into Class D shares will occur at least once each month (on the Conversion Date) on the basis of the relative net asset value of the shares of the two classes on the
Conversion Date, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class D shares will not be deemed a purchase or sale of the shares for Federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B shares also will convert automatically to Class D
shares. The Conversion Date for dividend reinvestment shares will be calculated taking into account the length of time the shares underlying such dividend reinvestment shares were outstanding. If at the Conversion Date the conversion of Class B shares to
Class D shares of the Fund in a single account will result in less than $50 worth of Class B shares being left in the account, all of the Class B shares of the Fund held in the account on the Conversion Date will be converted to Class D shares of the Fund.
In general, Class B shares of equity Select Pricing Funds will convert approximately eight years after initial purchase and
Class B shares of taxable and tax-exempt fixed income Select Pricing Funds will convert approximately ten years after initial purchase. If, during the Conversion Period, a shareholder exchanges Class B shares with an eight-year Conversion Period for Class
B shares with a ten-year Conversion Period, or vice versa, the Conversion Period applicable to the Class B shares acquired in the exchange will apply and the holding period for the shares exchanged will be tacked on to the holding period for the shares
acquired. The Conversion Period also may be modified for investors that participate in certain fee-based programs. See Shareholder Services Fee-Based Programs.
Class B shareholders of the Fund exercising the exchange privilege described under Shareholder Services
Exchange Privilege will continue to be subject to the Funds CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B shares acquired as a result of the exchange.
Share certificates for Class B shares of the Fund to be converted must be delivered to the Transfer Agent at least one week
prior to the Conversion Date applicable to those shares. In the event such certificates are not received by the Transfer Agent at least one week prior to the Conversion Date, the related Class B shares will convert to Class D shares on the next scheduled
Conversion Date after such certificates are delivered.
Contingent Deferred Sales Charges Class C Shares
Class C shares that are redeemed within one year of purchase may be subject to a 1.0% CDSC charged as a percentage of the
dollar amount subject thereto. In determining whether a Class C CDSC is applicable to a redemption, the calculation will be determined in the manner that results in the lowest possible rate being charged. The charge will be assessed on an amount equal to
the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no Class C CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no Class C CDSC will be assessed on shares
derived from reinvestment of dividends. It will be assumed that the redemption is first of shares held for over one year or shares acquired pursuant to reinvestment of dividends and then of shares held longest during the one-year period. A transfer of
shares from a shareholders account to another account will be assumed to be made in the same order as a redemption. The Class C CDSC may be 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 ServicesSystematic Withdrawal Plan. The Class C CDSC of the Fund and certain other Select Pricing Funds
may be waived with respect to Class C shares purchased by an investor with the net proceeds of a tender offer made by certain MLIM/FAM-advised closed end funds, including
Merrill Lynch Senior Floating Rate Fund II, Inc. Such waiver is subject to the requirement that the tendered shares shall have been held by the investor for a minimum of one year, and to such other conditions as are set forth in the prospectus for the
related closed end fund.
Class B and Class C Sales Charge Information
Class B Shares*
|
Fiscal Year Ended March 31, |
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
2000 |
|
$681,686 |
|
$681,686 |
1999 |
|
$969,353 |
|
$969,353 |
1998 |
|
$558,202 |
|
$558,202 |
|
* Additional Class B CDSCs payable to the Distributor may have been waived or converted to a contingent obligation in connection with a shareholders participation in certain fee-based programs. |
|
Class C Shares
|
Fiscal Year Ended March 31,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
2000 |
|
$ 16,359 |
|
$ 16,359 |
1999 |
|
$ 43,738 |
|
$ 43,738 |
1998 |
|
$ 17,130 |
|
$ 17,130 |
Merrill Lynch compensates its Financial Consultants for selling Class B and Class C shares at the time of purchase from its
own funds. Proceeds from the CDSC and the distribution fee are paid to the Distributor and are used in whole or in part by the Distributor to defray the expenses of dealers (including Merrill Lynch) related to providing distribution-related services to
the Fund in connection with the sale of the Class B and Class C shares, such as the payment of compensation to financial consultants for selling Class B and Class C shares from the dealers own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the Fund to sell the Class B and Class C shares without a sales charge being deducted at the time of purchase. See Distribution Plans below. Imposition of the CDSC and the distribution fee on Class B
and Class C shares is limited by the National Association of Securities Dealers, Inc. (the NASD) asset-based sales charge rule. See Limitations on the Payment of Deferred Sales Charges below.
Distribution Plans
Reference is made to Fees and Expenses in the Prospectus for certain information with respect to the separate
distribution plans for Class B, Class C and Class D shares 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 pay 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 Class B and Class C shares provide that the Fund also pay 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, a selected
securities dealer or other financial intermediary (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 or other
financial intermediaries for selling Class B and Class C shares of the Fund. The Distribution Plans relating to Class B and Class C shares are designed to permit an investor to purchase Class B and Class C shares through selected securities dealers and
other financial intermediaries without the assessment of an initial sales charge and at the same time permit the dealer to compensate its financial consultants, selected securities dealer or other financial intermediary in connection with the sale of the
Class B and Class C shares.
The Funds Distribution Plans are subject to the provisions of Rule 12b-1 under the Investment Company Act. In their
consideration of each Distribution Plan, the Directors must consider all factors they deem relevant, including information as to the benefits of the Distribution Plan to the Fund and 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 Plan, cast in person at a meeting called for that purpose. Rule 12b-1 further requires that the Fund preserve copies of the Distribution Plan and any report made pursuant to such plan for a period of not less than six years
from the date of the Distribution Plan or such report, the first two years in an easily accessible place.
Among other things, each Distribution Plan provides that the Distributor shall provide and the Directors shall review
quarterly reports of the disbursement of the account maintenance and/or distribution fees paid to the Distributor. Payments under the Distribution Plans are based on a percentage of average daily net assets attributable to the shares regardless of the
amount of expenses incurred and, accordingly, distribution-related revenues from the Distribution Plans may be more or less than distribution-related expenses. 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 expenses incurred by the Distributor and Merrill Lynch for the period
since the commencement of operations of Class B shares exceeded the fully allocated accrual revenues by approximately $2,221,000 (0.47% of Class B net assets at that date). As of March 31, 2000, direct cash revenues for the period since the commencement
of operations of Class B shares exceeded direct cash expenses by $18,887,854 (3.69% of Class B net assets at that date). As of December 31, 1999, the fully allocated accrual expenses incurred by the Distributor and Merrill Lynch for the period since the
commencement of operations of Class C shares exceeded the fully allocated accrual revenues by approximately $281,000 (0.51% of Class C net assets at that date). As of March 31, 2000, direct cash revenues for the period since the commencement of operations
of Class C shares exceeded direct cash expenses by $1,482,421 (2.20% of Class C net assets at that date).
For the fiscal year ended March 31, 2000, the Fund paid the Distributor $4,356,503 pursuant to the Class B Distribution Plan
(based on average daily net assets subject to such Class B Distribution Plan of approximately
$435.7 million), 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 March 31, 2000, the Fund paid the Distributor $490,449 pursuant to the Class C Distribution Plan (based on average daily net assets subject to such Class C Distribution Plan of approximately $49.0 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 March 31, 2000, the Fund paid the Distributor $279,034 pursuant to the Class D Distribution
Plan (based on average daily net assets subject to such Class D Distribution Plan of approximately $111.7 million), 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 March 31, 2000 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 Distributors voluntary maximum.
|
|
Data Calculated as of March 31, 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 March 31, 2000 |
Under NASD Rule as Adopted |
|
$702,228 |
|
$43,960 |
|
$9,402 |
|
$53,362 |
|
$23,324 |
|
$30,038 |
|
$ 3,842 |
Under Distributors Voluntary Waiver |
|
$702,228 |
|
$43,960 |
|
$3,440 |
|
$47,400 |
|
$23,324 |
|
$24,076 |
|
$ 3,842 |
|
Class C Shares, for the period
October 21, 1994 (commencement of
operations) to March 31, 2000 |
Under NASD Rule as Adopted |
|
$110,750 |
|
$ 7,084 |
|
$1,649 |
|
$ 8,733 |
|
$ 1,727 |
|
$ 7,005 |
|
$504,575 |
(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 Funds 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 shareholders 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).
|
REDEMPTION OF SHARES
Reference is made to 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 shareholders cost, depending in part on the
market value of the securities held by the Fund at such time.
The Fund 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 Fund with a temporary source of cash to be used to meet redemption requests from Fund shareholders in extraordinary or emergency circumstances.
Redemption
A shareholder wishing to redeem shares held with the Transfer Agent may do so without charge by tendering the shares directly
to the 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 Agents register. The signature(s) on the redemption requests may require a guarantee by an eligible guarantor institution as such is
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the Exchange Act), the existence and validity of which may be verified by the Transfer Agent through the use of industry publications. In the event a signature
guarantee is required, notarized signatures are not sufficient. In general, signature guarantees are waived on redemptions of less than $50,000 as long as the following requirements are met: (i) all requests require the signature(s) of all persons in
whose name(s) shares are recorded on the Transfer Agents register; (ii) all checks must be mailed to the stencil address of record on the Transfer Agents register and (iii) the stencil address must not have changed within 30 days. Certain
rules may apply regarding certain account types such as but not limited to UGMA/UTMA accounts, Joint Tenancies With Rights of Survivorship, contra broker
transactions, and institutional accounts. In certain instances, the Transfer Agent may require additional documents such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or certificates of corporate authority.
A shareholder may also redeem shares held with the Transfer Agent by telephone request. To request a redemption from your
account, call the Transfer Agent at 1-800-MER-FUND. The request must be made by the shareholder of record and be for an amount less than $50,000. Before telephone requests will be honored, signature approval from all shareholders of record on the account
must be obtained. The shares being redeemed must have been held for at least 15 days. Telephone redemption requests will not be honored in the following situations: the accountholder is deceased, the proceeds are to be sent to someone other than the
shareholder of record, funds are to be wired to the clients bank account, a systematic withdrawal plan is in effect, the request is by an individual other than the accountholder of record, the account is held by joint tenants who are divorced, the
address on the account has changed within the last 30 days or share certificates have been issued on the account.
Since this account feature involves a risk of loss from unauthorized or fraudulent transactions, the Transfer Agent will take
certain precautions to protect your account from fraud. Telephone redemption may be refused if the caller is unable to provide: the account number, the name and address registered on the account and the social security number registered on the account.
The Fund or the Transfer Agent may temporarily suspend telephone transactions at any time.
For shareholders redeeming directly with the Transfer Agent, payments will be mailed within seven days of receipt of a proper
notice of redemption. At various times the Fund may be requested to redeem shares for which it has not yet received good payment (e.g., cash, Federal funds or certified check drawn on a U.S. bank). The Fund may delay or cause to be delayed the mailing of a redemption check until such time as 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.
Repurchase
The Fund also will repurchase Fund shares through a shareholders 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 the 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 days closing price.
The foregoing repurchase arrangements are for the convenience of shareholders and do not involve a charge by the Fund (other
than any applicable CDSC). Securities firms that do not have selected dealer agreements with the Distributor, however, may impose a transaction charge on the shareholder for transmitting the notice of repurchase to the Fund. Merrill Lynch, another
selected securities dealer or the financial intermediary may charge its customers a processing fee (Merrill Lynch currently charges $5.35) to confirm a repurchase of shares to such customers. Repurchases made directly through the Transfer Agent on
accounts held at the Transfer Agent are not subject to the processing fee. The Fund reserves the right to reject any order for repurchase, which right of rejection might adversely affect shareholders seeking redemption through the repurchase procedure.
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 investors Merrill Lynch Financial Consultant within 30 days after the date the request for redemption was accepted by the
Transfer Agent or the Distributor. The reinstatement will be made at the net asset value per share next determined after the notice of reinstatement is received and cannot exceed the amount of the redemption proceeds.
PRICING OF SHARES
Determination of Net Asset Value
Reference is made to How Shares are Priced in the Prospectus.
The net asset value of the shares of all classes of the Fund is determined once daily Monday through Friday as of the close of
business on the NYSE on each day the NYSE is open for trading based on prices at the time of closing. The NYSE generally closes at 4:00 p.m., Eastern time. Any assets or liabilities initially expressed in terms of non-U.S. dollar currencies are translated
into U.S. dollars at the prevailing market rates as quoted by one or more banks or dealers on the day of valuation. The NYSE is not open for trading on New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Net asset value is computed by dividing the value of the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities (including accrued expenses) by the total number of shares outstanding at such time, rounded to the nearest cent. Expenses, including the fees payable to the Investment Adviser 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 generally will be lower than the per share net asset value of Class D shares reflecting the daily expense accruals of the distribution
fees and higher transfer agency fees applicable with respect to Class B and Class C shares of the Fund. It is expected, however, that the per share net asset value of the four classes 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 Directors as the primary market. Long positions in securities traded in the OTC market are valued at the last available bid price in
the OTC market prior to the time of valuation. Short positions in securities traded in the OTC market are valued at the last available ask price in the OTC market prior to the time of valuation. Portfolio securities that are traded both in the OTC market
and on a stock exchange are valued according to the broadest and most representative market. When the Fund writes an option, the amount of the premium received is recorded on the books of the Fund 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 asked price. Options purchased
by the Fund 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 Directors of the Fund. Such valuations and procedures will be reviewed
periodically by the Directors.
Generally, trading in non-U.S. securities, as well as U.S. Government securities and money market instruments, is
substantially completed each day at various times prior to the close of business on the NYSE. The values of such securities used in computing the net asset value of the Funds shares are determined as of such times. Foreign currency exchange rates
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 Funds net asset value.
Computation of Offering Price Per Share
An illustration of the computation of the offering price for Class A, Class B, Class C and Class D shares of the Fund based on
the value of the Funds net assets and number of shares outstanding on March 31, 2000 is set forth below.
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
Net Assets |
|
$491,855,059 |
|
$511,779,939 |
|
$67,390,143 |
|
$151,649,731 |
|
|
|
|
|
|
|
|
|
Number of Shares Outstanding |
|
21,501,882 |
|
23,709,944 |
|
3,160,271 |
|
6,652,112 |
|
|
|
|
|
|
|
|
|
Net Asset Value Per Share (net assets divided by
number of shares outstanding) |
|
$ 22.87 |
|
$ 21.59 |
|
$ 21.32 |
|
$ 22.80 |
Sales Charge (for Class A and Class D shares:
5.25% of offering price; 5.54% of net asset value
per share)* |
|
1.27 |
|
** |
|
** |
|
1.26 |
|
|
|
|
|
|
|
|
|
Offering Price |
|
$ 24.14 |
|
$ 21.59 |
|
$ 21.32 |
|
$ 24.06 |
|
|
|
|
|
|
|
|
|
*
|
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
Subject to policies established by the Board of Directors of the Fund, the Investment Adviser is primarily responsible for the
execution of the Funds portfolio transactions and the allocation of brokerage. The Fund 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 Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of
order, difficulty of execution and operational facilities of the firm and the firms risk in positioning a block of securities. While the Investment Adviser generally seeks reasonably competitive commission rates, the Fund does not necessarily pay
the lowest spread or commission available. Transactions with respect to the securities of small and emerging growth companies in which the Fund invests may involve specialized services on the part of the broker or dealer and thereby entail higher
commissions or spreads than would be the case with transactions involving more widely traded securities of more established companies. In addition, consistent with the Conduct Rules of the NASD and policies established by the Board of Directors of the
Fund, the Manager may consider sales of shares of the Fund as a factor in the selection of brokers or dealers to execute portfolio transactions for the Fund; 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 Fund.
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 Fund. 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 Fund 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 transaction. 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 Fund 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 Fund 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
Fund 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.
Information about the brokerage commissions paid by the Fund, including commissions paid to Merrill Lynch, is set forth in the
following table:
Fiscal year ended March 31,
|
|
Aggregate Brokerage
Commissions Paid
|
|
Commissions Paid
to Merrill Lynch
|
2000 |
|
$2,400,284 |
|
$239,441 |
1999 |
|
$1,592,068 |
|
$135,048 |
1998 |
|
$1,632,650 |
|
$ 75,023 |
For the fiscal year ended March 31, 2000, the brokerage commissions paid to Merrill Lynch represented 9.98% of the aggregate
brokerage commissions paid and involved 7.11% of the Funds dollar amount of transactions involving payment of brokerage commissions.
The Fund may invest in certain securities traded in the OTC market and intends to deal directly with the dealers who make a
market in securities involved, except in those circumstances in which better prices and execution are available elsewhere. Under the Investment Company Act, persons affiliated with the Fund and persons who are affiliated with such affiliated persons are
prohibited from dealing with the Fund 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 Fund will not deal with affiliated persons, including Merrill Lynch and its affiliates, in connection with such transactions. However, an affiliated person of the Fund 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 Fund may not purchase securities during the existence of any underwriting syndicate for such securities of which Merrill Lynch is a member or in a private placement in which Merrill Lynch serves as placement agent except
pursuant to procedures approved by the Board of Directors of the Fund that either comply with rules adopted by the Commission or with interpretations of the Commission staff. See Investment Objective and PoliciesInvestment Restrictions.
Section 11(a) of the Exchange Act generally prohibits members of the 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 acting as a broker for the Fund 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 Fund and annual statements as to aggregate compensation will be
provided to the Fund.
The Board of Directors of the Fund has considered the possibility of seeking to recapture for the benefit of the Fund
brokerage commissions and other expenses of possible portfolio transactions by conducting portfolio transactions through affiliated entities. For example, brokerage commissions received by affiliated brokers could be offset against the advisory fee paid
by the Fund to the Investment Adviser. After considering all factors deemed
relevant, the Board of Directors made a determination not to seek such recapture. The Board 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 Fund or
other clients or funds for which the Investment Adviser or an affiliate acts as manager, transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent that
transactions on behalf of more than one client of the Investment Adviser or an affiliate during the same period may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
As a non-fundamental restriction, the Fund will not purchase or retain the securities of any issuer, if those individual
officers and Directors of the Fund, the officers and general partner of the Investment Adviser, the directors of such general partner or the officers and directors of any subsidiary thereof each owning beneficially more than one-half of one percent of the
securities of such issuer own in the aggregate more than five percent of the securities of such issuer.
SHAREHOLDER SERVICES
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, Merrill Lynch, a 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 purchase orders for the Funds shares through the Merrill Lynch Blueprint
SM
Program.
Investment Account
Each shareholder whose account is maintained at the Transfer Agent has an Investment Account and will receive statements, at
least quarterly, from the Transfer Agent. These statements will serve as transaction confirmations for automatic investment purchases and the reinvestment of dividends. The statements 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, a selected securities dealer or other financial intermediary. Upon the transfer of shares out
of a Merrill Lynch brokerage account or an account maintained with a selected securities dealer or other financial intermediary, an Investment Account in the transferring shareholders name may be opened automatically at the Transfer Agent.
Share certificates are issued only for full shares and only upon the specific request of a shareholder who has an Investment
Account. Issuance of certificates representing all or only part of the full shares in an Investment Account may be requested by a shareholder directly from the Transfer Agent.
Shareholders may transfer their Fund shares from Merrill Lynch, a 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 to maintain the shares in an account at the Transfer Agent registered in the name of the securities dealer for the benefit of the shareholder whether the securities dealer has entered into a selected
dealer agreement or not.
Shareholders considering transferring a tax-deferred retirement account, such as an individual retirement account, from
Merrill Lynch to another securities dealer or other financial intermediary should be aware that, if the firm to which the retirement account is to be transferred will not take delivery of shares of the Fund, a shareholder must either redeem the shares,
paying any applicable CDSC, so that the cash proceeds can be transferred to the account at the new firm, or such shareholder must continue to maintain a retirement account at Merrill Lynch for those shares.
Exchange Privilege
U.S. shareholders of each class of shares of the Fund have an exchange privilege with certain other Select Pricing Funds and
Summit Cash Reserves Fund (Summit), a series of Financial Institutions Series Trust, which is a Merrill Lynch-sponsored money market fund specifically designated 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 or for Class A shares of Summit (new Class A or Class D shares) are transacted on the basis of relative net asset value per Class A or Class D share, respectively, plus an amount equal to the difference, if
any, between the sales charge previously paid on the outstanding Class A or Class D shares and the sales charge payable at the time of the exchange on the new Class A or Class D shares. With respect to outstanding Class A or Class D shares as to which
previous exchanges have taken place, the sales charge previously paid shall include the aggregate of the sales charges paid with respect to such Class A or Class D shares in the initial purchase and any subsequent exchange. Class A or Class D
shares issued pursuant to dividend reinvestment are sold on a no-load basis in each of the funds offering Class A or Class D shares. For purposes of the exchange privilege, Class A 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 Funds CDSC schedule if such schedule is higher than the CDSC schedule relating to the new Class B shares acquired through use of the exchange privilege. In addition, Class B shares of the Fund acquired
through use of the exchange privilege will be subject to the Funds CDSC schedule if such schedule is higher than the CDSC schedule relating to the Class B
shares of the fund from which the exchange 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 Basic Value Fund,
Inc. (Basic Value) after having held the Funds Class B shares for two and a half years. The 2% CDSC that generally would apply to a redemption would not apply to the exchange. Three years later the investor may decide to redeem the Class
B shares of Basic Value 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 Basic Value Class B shares, the
investor will be deemed to have held the new Basic Value 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 Funds 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.
Telephone exchange requests are also available in accounts held with the Transfer Agent for amounts up to $50,000. To request
an exchange from your account, call the Transfer Agent at 1-800-MER-FUND. The request must be from the shareholder of record. Before telephone requests will be honored, signature approval from all shareholders of record must be obtained. The shares being
exchanged must have been held for at least 15 days. Telephone requests for an exchange will not be honored in the following situations: the accountholder is deceased, the request is by an individual other than the accountholder of record, the account is
held by joint tenants who are divorced or the address on the account has changed within the last 30 days. Telephone exchanges may be refused if the caller is unable to provide: the account number, the name and address registered on the account and the
social security number registered on the account. The Fund or the Transfer Agent may temporarily suspend telephone transactions at any time.
This exchange privilege may be modified or terminated in accordance with the rules of the Commission. The Fund reserves the
right to limit the number of times an investor may exercise the exchange privilege. Certain funds may suspend the continuous offering of their shares to the general public at any time and may thereafter resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where the exchange legally may be made. It is contemplated that the exchange privilege may be applicable to other new mutual funds whose shares may be distributed by the Distributor.
Fee-Based Programs
Certain fee-based programs offered by Merrill Lynch and other financial intermediaries, 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 or another 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 Programs 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. 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 shareholders securities dealer, or by mail directly to the Transfer Agent, acting as agent for
such securities dealer. Voluntary accumulation also can be made through a service known as the Funds Automatic Investment Plan. The Fund would be authorized, on a regular basis, to provide systematic additions to the Investment Account of such
shareholder through charges of $50 or more to the regular bank account of the shareholder by either pre-authorized checks or automated clearing house debits. Alternatively, an investor that maintains a CMA® or CBA® Account may arrange to have
periodic investments made in the Fund in amounts of $100 ($1 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 shareholders address of record and no interest will accrue on amounts represented by
uncashed dividend checks. Cash payments can also be directly deposited to the shareholders bank account.
Systematic Withdrawal 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 shareholders 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 shareholders 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 shareholders original investment may be reduced correspondingly. Purchases of additional shares concurrent with withdrawals are ordinarily disadvantageous to the shareholder because of sales charges and
tax liabilities. The Fund will not knowingly accept purchase orders for shares of the Fund from investors that maintain a Systematic Withdrawal Plan unless such purchase is equal to at least one years 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
shareholders account three business days after the date the shares are redeemed. All redemptions are made at net asset value. A shareholder may elect to have his or her shares redeemed on the first, second, third or fourth Monday of each month, in
the case of monthly redemptions, or of every other month, in the case of bimonthly redemptions. For quarterly, semiannual or annual redemptions, the shareholder may select the month in which the shares are to be redeemed and may designate whether the
redemption is to be made on the first, second, third or fourth Monday of the month. If the Monday selected is not a business day, the redemption will be processed at net asset value on the next business day. The CMA® or CBA® Systematic Redemption
Program is not available if Fund shares are being purchased within the account pursuant to the Automated Investment Program. For more information on the CMA® or CBA® Systematic Redemption Program, eligible shareholders should contact their Merrill
Lynch Financial Consultant.
DIVIDENDS AND TAXES
Dividends
The Fund intends to distribute substantially all of its net investment income, if any. Dividends from such net investment
income will be paid at least annually. All net realized capital gains, if any, will be distributed to the Funds shareholders at least annually. From time to time, the Fund may declare a special distribution at or about the end of the calendar year
in order to comply with Federal tax requirements that certain percentages of its ordinary income and capital gains be distributed during the year. If in any fiscal year, the Fund has net income from certain foreign currency transactions, such income will
be distributed at least annually.
See Shareholder ServicesAutomatic Dividend Reinvestment Plan for information concerning the manner in which
dividends may be reinvested automatically in shares of the Fund. A shareholder whose account is maintained at the Transfer Agent or whose account is maintained through Merrill Lynch, another 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 SharesDetermination of Net Asset Value.
Taxes
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 Funds taxable income and capital gains will be distributed to avoid entirely the imposition of the tax.
In such event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income or from an excess of net short-term capital gains over net long-term
capital losses (together referred to hereafter as ordinary income dividends) are taxable to shareholders as ordinary income. Distributions made from an excess of net long-term capital gains over net short-term capital losses (including gains
or losses from certain transactions in futures and options) (capital gain dividends) are taxable to shareholders as long-term capital gains, regardless of the length of time the shareholder has owned Fund shares. Any loss upon the sale or
exchange of Fund shares held for six months or less will be treated as long-term capital loss to the extent of any capital gain dividends received by the shareholder. Distributions in excess of the Funds earnings and profits will first reduce the
adjusted tax basis of a holders shares and, after such adjusted tax basis is reduced to zero, will constitute capital gains to such holder (assuming the shares are held as a capital asset). Certain categories of capital gains are taxable at
different rates. Generally not later than 60 days after the close of its taxable year, the Fund will provide its shareholders with a written notice designating the amount of any capital gain dividends as well as any amount of capital gain dividends in the
different categories of capital gain referred to above.
Dividends are taxable to shareholders even though they are reinvested in additional shares of the Fund. A portion of the
Funds ordinary income dividends may be eligible for the dividends received deduction allowed to corporations under the Code, if certain requirements are met. For this purpose, the Fund will allocate dividends eligible for the dividends received
deduction among the Class A, Class B, Class C and Class D shareholders according to a method (which it believes is consistent with the Commission rule permitting the issuance and sale of multiple classes of stock) that is based on the gross income
allocable to Class A, Class B, Class C and Class D shareholders during the taxable year, or such other method as the Internal Revenue Service may prescribe. If the Fund pays a dividend in January that was declared in the previous October, November or
December to shareholders of record on a specified date in one of such months, then such dividend will be treated for tax purposes as being paid by the Fund and received by its shareholders on December 31 of the year in which such dividend was declared.
No gain or loss will be recognized by Class B shareholders on the conversion of their Class B shares into Class D shares. A
shareholders basis in the Class D shares acquired will be the same as such shareholders basis in the Class B shares converted, and the holding period of the acquired Class D shares will include the holding period for the converted Class B shares
.
If a shareholder exercises an exchange privilege within 90 days of acquiring the shares, then the loss the shareholder can
recognize on the exchange will be reduced (or the gain increased) to the extent any sales charge paid 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 Funds
knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or eliminate such taxes.
The Fund may invest up to 10% of its total assets in securities of other investment companies. If the Fund purchases shares of
an investment company (or similar investment entity) organized under foreign law, the Fund will be treated as owning shares in a passive foreign investment company (PFIC) for U.S. Federal income tax purposes. The Fund may be subject to U.S.
Federal income tax, and an additional tax in the nature of interest (the interest charge), on a portion of the distributions from such a company and on gain from the disposition of the shares of such a company (collectively referred to as
excess distributions), even if such excess distributions are paid by the Fund as a dividend to its shareholders. The Fund may be eligible to make an election with respect to certain PFICs in which it owns shares that will allow it to avoid the
taxes on excess distributions. However, such election may cause the Fund to recognize income in a particular year in excess of the distributions received from such PFICs. Alternatively, the Fund could elect to mark to market at the end of each
taxable year all shares that it holds in PFICs. If it made this election, the Fund would recognize as ordinary income any increase in the value of such shares over their adjusted basis and as ordinary loss any decrease in such value to the extent it did
not exceed prior increases. By making the mark-to-market election, the Fund could avoid imposition of the interest charge with respect to its distributions from PFICs, but in any particular year might be required to recognize income in excess of the
distributions it received from PFICs and its proceeds from dispositions of PFIC stock.
Tax Treatment of Options, Futures and Forward Foreign Exchange Transactions
The Fund may write, purchase or sell options, futures and forward foreign exchange contracts. Options and futures contracts
that are Section 1256 contracts will be marked to market for Federal income tax purposes at the end of each taxable year, i.e., each such option or futures contract will be treated as sold for its fair market value on the last day of the taxable year. Unless such contract is a forward foreign exchange contract, or is a non-equity option or a regulated futures contract
for a non-U.S. currency for which the Fund elects to have gain or loss treated as ordinary gain or loss under Code Section 988 (as described below), gain or loss from Section 1256 contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund may alter the timing and character of distributions to shareholders. The mark-to-market rules outlined above, however, will not apply to certain transactions entered into by the Fund
solely to reduce the risk of changes in price or interest or currency exchange rates with respect to its investments.
A forward foreign exchange contract that is a Section 1256 contract will be marked to market, as described above. However, the
character of gain or loss from such a contract will generally be ordinary under Code Section 988. The Fund may, nonetheless, elect to treat the gain or loss from certain forward foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256 contract will be characterized as 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain straddles, may affect the taxation of the Funds sales of
securities and transactions in options, futures and forward foreign exchange contracts. Under Section 1092, the
Fund may be required to postpone recognition for tax purposes of losses incurred in certain sales of securities and certain closing transactions in options, futures and forward foreign exchange contracts.
Special Rules for Certain Foreign Currency Transactions
In general, gains from foreign currencies and from foreign currency options, foreign currency futures and forward
foreign exchange contracts relating to investments in stocks, securities or foreign currencies will be qualifying income for purposes of determining whether the Fund qualifies as a RIC. It is currently unclear, however, who will be treated as the issuer
of a foreign currency instrument or how foreign currency options, futures, or forward foreign exchange contracts will be valued for purposes of the RIC diversification requirements applicable to the Fund.
Under Code Section 988, special rules are provided for certain transactions in a foreign currency other than the taxpayer
s functional currency (i.e., unless certain special rules apply, currencies other than the U.S. dollar). In general, foreign currency gains or losses from certain debt instruments, from certain forward contracts, from futures contracts that are not regulated
futures contracts and from unlisted options will be treated as ordinary income or loss under Code Section 988. In certain circumstances, the Fund may elect capital gain or loss treatment for such transactions. Regulated futures contracts, as
described above, will be taxed under Code Section 1256 unless application of Section 988 is elected by the Fund. In general, however, Code Section 988 gains or losses will increase or decrease the amount of the Funds investment company taxable
income available to be distributed to shareholders as ordinary income. Additionally, if Code Section 988 losses exceed other investment company taxable income during a taxable year, the Fund would not be able to make any ordinary income dividend
distributions, and all or a portion of distributions made before the losses were realized but in the same taxable year would be recharacterized as a return of capital to shareholders, thereby reducing the basis of each shareholders Fund shares and
resulting in a capital gain for any shareholder who received a distribution greater than such shareholders basis in Fund shares (assuming the shares were held as a capital asset). These rules and the mark-to-market rules described above, however,
will not apply to certain transactions entered into by the Fund solely to reduce the risk of currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently
in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and local taxes.
Certain states exempt from state income taxation dividends paid by RICs that are derived from interest on U.S. Government
obligations. State law varies as to whether dividend income attributable to U.S. Government obligations is exempt from state income tax.
Shareholders are urged to consult their own 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.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and other total return data in advertisements or
information furnished to present or prospective shareholders. Total return figures are based on the Funds historical performance and are not intended to indicate future performance. Average annual total return is determined separately for Class 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 investment of $1,000 or some other amount, 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.
|
|
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 March 31, 2000 |
|
49.03% |
|
51.72% |
Five Years Ended March 31, 2000 |
|
18.49% |
|
18.57% |
Ten Years Ended March 31, 2000 |
|
14.78% |
|
14.23% |
|
|
|
Class C Shares
|
|
Class D 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 March 31, 2000 |
|
54.64% |
|
48.73% |
Five Years Ended March 31, 2000 |
|
18.54% |
|
18.21% |
Inception (October 21, 1994) to March 31, 2000 |
|
17.92% |
|
17.68% |
Total return figures are based on the Funds historical performance and are not intended to indicate future performance.
The Funds total return will vary depending on market conditions, the securities comprising the Funds portfolio, the Funds operating expenses and the amount of realized and unrealized net capital gains or losses during the period. The
value of an investment in the Fund will fluctuate and an investors shares, when redeemed, may be worth more or less than their original cost.
In order to reflect the reduced sales charges in the case of Class 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 Russell 2000 Index, the Standard &
Poors 500 Index, the Dow Jones Industrial Average, or to 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 the Funds 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 objective. This may include information about past, current or possible economic, market, political, or other conditions, descriptive
information on general principles of investing such as asset allocation, diversification and risk tolerance, discussion of the Funds portfolio composition, investment philosophy, strategy or investment techniques, comparisons of the Funds
performance or portfolio composition to that of other funds or types of investments, indices relevant to the comparison being made, or to a hypothetical or model portfolio. The Fund may also quote various measures of volatility and benchmark correlation
in advertising and other materials, and may compare these measures to those of other funds or types of investments. As with other performance data, performance comparisons should not be considered indicative of the Funds relative performance for any
future period.
GENERAL INFORMATION
Description of Shares
The Fund, a diversified, open-end investment company, was incorporated under Maryland law on February 23, 1978. The former
name of the Fund is Merrill Lynch Special Value Fund, Inc. The Fund changed its name to Merrill Lynch Small Cap Value Fund, Inc. on or about July 1, 2000. As of the date of this Statement of Additional Information, the Fund has an authorized capital of
400,000,000 shares of Common Stock, par value $0.10 per share, divided into four classes, designated Class A, Class B, Class C and Class D Common Stock. Class A, Class B, Class C and Class D each consists of 100,000,000 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 annual meetings of shareholders in any year in which the Investment Company Act does not require shareholders to act upon 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. Also, the by-laws of the Fund require that a special meeting of shareholders
be held upon the written request of at least 25% of the outstanding shares of the Fund entitled to vote at such meeting, if they comply
with applicable Maryland law. Also, the by-laws of the Fund require that a special meeting of shareholders be held on the written request of at least 10% of the outstanding
shares of the Fund entitled to vote at such meeting. Voting rights for Directors are not cumulative. Shares issued are fully paid and non-assessable and have no preemptive rights. 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.
Independent Auditors
Deloitte & Touche LLP, Princeton Forrestal Village, 116-300 Village Boulevard, Princeton, New Jersey 08540 has been selected as the independent auditors of the Fund. The selection of independent auditors is subject to approval by the non-interested Directors of the Fund. The
independent auditors are responsible for auditing the annual financial statements of the Fund.
Custodian
The Bank of New York, 100 Church Street, 12th Floor, New York, New York 10286, acts as the custodian of the Funds
assets. The Custodian is responsible for safeguarding and controlling the Funds cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on the Funds investments.
Transfer Agent
Financial Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484, acts as the Funds 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 SharesThrough the Transfer Agent
in the Prospectus.
Legal Counsel
Brown & Wood LLP, One World Trade Center, New York, New York 10048-0557, is counsel for the Fund.
Reports to Shareholders
The fiscal year of the Fund ends on March 31 of each year. The Fund sends to its shareholders, at least semi-annually, reports
showing the Funds portfolio and other information. An annual report, containing financial statements audited by independent auditors, is sent to shareholders each year. After the end of each year, shareholders will receive Federal income tax
information regarding dividends.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Fund at the address or telephone number set forth on the cover page of this
Statement of Additional Information.
Additional Information
The Prospectus and this Statement of Additional Information do not contain all the information set forth in the Registration
Statement and the exhibits relating thereto, which the Fund has filed with the 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 of record or beneficially 5% or more of a class of the Funds
shares as of July 19, 2000:
Name
|
|
Address
|
|
Percent of Class
|
Merrill Lynch Trust Co. |
|
P.O. Box 30532
New Brunswick, NJ 08989 |
|
38.0% of Class A |
|
Merrill Lynch Trust Co. |
|
P.O. Box 30532
New Brunswick, NJ 08989 |
|
23.5% of Class D |
|
FINANCIAL STATEMENTS
The Funds 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.
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CODE #: 10256-07-00
PART C. OTHER INFORMATION
Item 23. Exhibits.
Exhibit
Number
|
|
Description
|
1(a) |
|
Articles of Incorporation of the Registrant.(a) |
(b) |
|
Articles of Amendment to Articles of Incorporation of the Registrant.(a) |
(c) |
|
Articles Supplementary to the Articles of Incorporation of the Registrant.(a) |
(d) |
|
Articles of Amendment to the Articles of Incorporation of the Registrant.(a) |
(e) |
|
Articles of Amendment to the Articles of Incorporation of the Registrant. |
2 |
|
By-Laws of the Registrant.(b) |
3 |
|
Portions of the Articles of Incorporation, as amended, and the By-Laws of the Registrant defining the
rights of holders of shares of common stock of the Registrant.(c) |
4(a) |
|
Investment Advisory Agreement between the Registrant and Fund Asset Management, L.P.(a) |
(b) |
|
Form of Sub-Advisory Agreement between Fund Asset Management L.P. and Merrill Lynch Asset
Management U.K. Limited.(d) |
5 |
|
Form of Distribution Agreement between the Registrant and FAM Distributors, Inc.(e) |
6 |
|
None. |
7 |
|
Custody Agreement between the Registrant and The Bank of New York.(a) |
8(a) |
|
Transfer Agency Agreement between the Registrant and Financial Data Services, Inc.(a) |
(b) |
|
Credit Agreement between Registrant and a syndicate of banks.(f) |
9 |
|
Opinion and Consent of Brown & Wood LLP, counsel to the Registrant.(g) |
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.(b) |
(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)
|
Previously filed with Post-Effective Amendment No. 21 to the Registrants Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (File No. 2-60836) (the Registration Statement) on July 28, 1995.
|
(b)
|
Previously filed with Post-Effective Amendment No. 19 to the Registrants Registration Statement on July 28, 1994.
|
(c)
|
Reference is made to Article IV, Article V (Sections 3, 5, 6 and 7), Articles VI, VII and IX of the Registrants Articles of
Incorporation, as amended, filed as Exhibits 1(a), 1(b), 1(c) and 1(d) to the Registration Statement and to Article II, Article III (Sections 1, 3, 5 and 6), Articles VI, VII, XIII and XIV of the Registrants By-Laws, previously filed as Exhibit 2 to
the Registrants Statement.
|
(d)
|
Previously filed with Post-Effective Amendment No. 23 to the Registrants Registration Statement on July 18, 1997.
|
(e)
|
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.
|
(f)
|
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.
|
(g)
|
Filed on May 26, 1999 as an Exhibit to Post-Effective Amendment No. 25 to the Registration Statement.
|
(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. 2-49007) 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 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 Registrants Articles of Incorporation, Article VI of the Registrants
By-Laws, Section 2-418 of the Maryland General Corporation Law and Section 9 of the 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 Registrants By-laws provides that such payments will be made only on the following conditions: (i) advances may be made only on receipt of a written affirmation of such
persons good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to repay any such advance if it is ultimately determined that the standard of conduct has not been met and (ii) (a) such
promise must be secured by a security for the undertaking in form and amount acceptable to the Registrant, (b) the Registrant is insured against losses arising by receipt of the advance, or (c) a majority of a quorum of the Registrants
disinterested, non-party Directors, or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts, that at the time the advance is proposed to be made, there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to indemnification.
In Section 9 of the 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 (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. (the Investment Adviser), an affiliate of Merrill Lynch Investment Managers, L.P.
(MLIM) acts as the investment adviser for the following open-end registered investment companies: CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund,
The Corporate Fund Accumulation Program, Inc., Financial Institutions Series Trust, Master Focus Twenty Trust, Master Internet Strategies Trust, Master Large Cap Series Trust, Master Premier Growth Trust, Mercury Global Holdings, Inc. Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc., Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Small Cap Value Fund, Inc., Merrill Lynch U.S. Government Mortgage Fund, Merrill Lynch World Income
Fund, Inc., The Asset Program, Inc., and The Municipal Fund Accumulation Program, Inc.; and for the following closed-end registered investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc.,
Corporate High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured Fund V, Inc.,
MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund V, MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Insured Fund IV, Inc., MuniHoldings Michigan Insured Fund II,
Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund IV, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings New York Insured Fund IV, Inc., MuniInsured Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc.,
MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc.,
MuniYield Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield Pennsylvania Insured Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
MLIM acts as the investment adviser for the following open-end registered investment companies: Master Global Financial
Services Trust, Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Balanced Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill
Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill
Lynch Global Financial Services Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global 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 Index Funds, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch
Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund, Inc., 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 the Investment Adviser, 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 ML & Co. is World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281-1201. The address of the Funds
transfer agent, Financial Data Services, Inc. (FDS), is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the Investment Adviser indicating each business,
profession, vocation or employment of a substantial nature in which each such person or entity has been engaged since May 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, Treasurer and Director of
Taxation of MLIM; Senior Vice President and
Treasurer of Princeton Services; Vice President
of FAMD; First Vice President of MLIM from
1997 to 1999; Vice President of MLIM from
1990 to 1997 |
Michael G. Clark |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services; Treasurer and
Director of FAMD; First Vice President of
MLIM from 1997 to 1999; Vice President of
MLIM from 1996 to 1997 |
Robert C. Doll, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services; Chief
Investment Officer of Oppenheimer Funds, Inc.
in 1999 and Executive Vice President thereof
from 1991 to 1999 |
Vincent R. Giordano |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services |
Michael J. Hennewinkel |
|
Senior Vice President,
Secretary and General
Counsel |
|
Senior Vice President, Secretary and General
Counsel of MLIM; Senior Vice President of
Princeton Services |
Philip L. Kirstein |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President, Secretary, General Counsel and
Director of Princeton Services |
Debra W. Landsman-Yaros |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services; Vice President
of FAMD |
Stephen M. M. Miller |
|
Senior Vice President |
|
Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services |
Joseph T. Monagle, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services |
Gregory D. Upah |
|
Senior Vice President |
|
Senior Vice President of MLIM; Senior Vice
President of Princeton Services |
Merrill Lynch Asset Management U.K. Limited (MLAM U.K.) acts as sub-adviser for the following registered
investment companies: The Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High Yield 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 Premier Growth Trust, Master Large Cap Series Trust, Mercury Global Holdings, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch Balanced Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill
Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch
Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch Senior Floating Rate
Fund, Inc., Merrill Lynch Senior Floating Rate Fund II, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Small Cap Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, 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 May 1, 1998, for his or her own account or in the capacity of director, officer, partner or trustee. In addition, Messrs. Glenn and Burke are officers of one or more of
the registered investment companies listed in the first two paragraphs of this Item 26.
Name
|
|
Position with
MLAM U.K.
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
Terry K. Glenn |
|
Director and Chairman |
|
Executive Vice President of MLIM and FAM;
Executive Vice President and Director of Princeton
Services; President and Director of FAMD; Director of
FDS; President of Princeton Administrators |
Nicholas C.D. Hall |
|
Director |
|
Director of Mercury Asset Management Ltd. and
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 and FAM;
Senior Vice President and Treasurer of Princeton
Services; Vice President of FAMD; First Vice
President of MLIM from 1997 to 1999 |
Carol Ann Langham |
|
Company Secretary |
|
None |
Debra Anne Searle |
|
Assistant Company Secretary |
|
None |
Item 27. Principal Underwriters.
(a) FAMD acts as the principal underwriter for the Registrant and for each of the open-end registered investment
companies referred to in the first two paragraphs of Item 26 except CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program,
Inc. and The Municipal Fund Accumulation Program, Inc. MLFD also acts as the principal underwriter for the following closed-end registered investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., Merrill Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch Senior Floating Rate Fund II, Inc. FAMD also acts as the principal underwriter of a number of other investment companies.
(b) Set forth below is information concerning each director and officer of FAMD. The principal business address of
each such person is P.O. Box 9081, Princeton, New Jersey 08543-9081, except that the address of Messrs. Breen, Crook, Fatseas and Wasel is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665.
Name
|
|
Position(s) and Office(s)
with PFD
|
|
Position(s) and Office(s) with
Registrant
|
Terry K. Glenn |
|
President and Director |
|
President and Director |
Michael G. Clark |
|
Treasurer and Director |
|
None |
Thomas J. Verage |
|
Director |
|
None |
Robert W. Crook |
|
Senior Vice President |
|
None |
Michael J. Brady |
|
Vice President |
|
None |
William M. Breen |
|
Vice President |
|
None |
Donald C. Burke |
|
Vice President |
|
Vice President and Treasurer |
James T. Fatseas |
|
Vice President |
|
None |
Debra W. Landsman-Yaros |
|
Vice President |
|
None |
Michelle T. Lau |
|
Vice President |
|
None |
Salvatore Venezia |
|
Vice President |
|
None |
William Wasel |
|
Vice President |
|
None |
Robert Harris |
|
Secretary |
|
None |
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, as
amended (the 1940 Act) and the rules thereunder are maintained at the offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey 08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484).
Item 29. Management Services.
Other than as set forth under the caption Management of the Fund Fund Asset Management in the
Prospectus constituting Part A of the Registration Statement and under Management of the Fund Management and Advisory Arrangements in the Statement of Additional Information constituting Part B of the Registration Statement,
the Registrant is not a party to any management-related service contract.
Item 30. Undertakings.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company Act, the Registrant certifies that it meets
all of the requirements for effectiveness of this registration statement under Rule 485(b) under the Securities Act and has duly caused this registration statement to be signed on its behalf by the undersigned, duly authorized, in the Township of
Plainsboro, and State of New Jersey, on the 28
th
day of July, 2000.
|
MERRILL
LYNCH
SMALL
CAP
VALUE
FUND
, INC
.
|
|
Terry K. Glenn, President
|
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 |
|
|
|
|
(Stephen B. Swensrud) |
|
Director |
|
|
|
|
J. THOMAS
TOUCHTON
*
(J. Thomas Touchton) |
|
Director |
|
|
|
|
FRED
G. WEISS
*
(Fred G. Weiss) |
|
Director |
|
|
|
|
ARTHUR
ZEIKEL
*
(Arthur Zeikel) |
|
Director |
|
|
|
|
/s/ TERRY
K. GLENN
*By:
(Terry K. Glenn, Attorney-in-Fact)
|
|
|
|
July 28, 2000 |
|
POWER OF ATTORNEY
The undersigned hereby authorizes Terry K. Glenn, Donald C. Burke and Joseph T. Monagle, Jr. or any of them, as
attorney-in-fact, to sign on her behalf in the capacities indicated in 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 Capital 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.; Merrill Lynch Ready Assets Trust; Merrill Lynch U.S.A. Government Reserves; Merrill Lynch U.S. Treasury Money Fund; MuniHoldings Michigan Insured Fund II, Inc.; MuniVest Florida Fund; MuniVest Michigan Insured
Fund, Inc.; MuniVest New Jersey Fund, Inc.; MuniYield Florida Insured Fund; MuniYield Pennsylvania Fund; MuniYield New Jersey Insured Fund, Inc.; MuniYield Michigan Insured Fund, Inc.
Dated: November 22, 1999
/s/ LAURIE
SIMON
HODRICK
Laurie Simon Hodrick
(Director/Trustee)
EXHIBIT INDEX
Exhibit
Number
|
|
Description
|
1(e) |
|
Articles of Amendment to the Articles of Incorporation of the Registrant. |
10 |
|
Consent of Deloitte & Touche LLP, independent auditors for the Registrant. |
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