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MERRILL LYNCH PHOENIX FUND, INC.
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MERRILL LYNCH PHOENIX FUND, INC.
POTENTIAL
INVESTORS
Open an account (two options).
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MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT Financial Data Services, Inc.
OR SECURITIES DEALER P.O. Box 45289
Jacksonville, Florida 32232-5289
Advises shareholders on
their Fund investments. Performs recordkeeping and
/|\ reporting services.
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| DISTRIBUTOR |
| Merrill Lynch Funds Distributor, |
|___\ a division of Princeton Funds Distributor, Inc. /__|
/ P.O. Box 9081 \
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
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COUNSEL \|/
Brown & Wood LLP THE FUND CUSTODIAN
One World Trade Center__\ The Board of Directors /____The Chase Manhatten Bank
New York, New York / oversees the Fund. \ Global Securities Services
10048-0557 4 Chase MetroTech Center
/|\ /|\ 18th Floor, Brooklyn, New York 11245 | |
Provides legal advice | | Holds the Fund's assets
to the Fund. | | for safekeeping.
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INDEPENDENT AUDITORS______ ______THE INVESTMENT ADVISER
Deloitte & Touche LLP Fund
117 Campus Drive Asset Management, L.P.
Princeton, New Jersey 08540-6400 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Audits the financial Plainsboro, New Jersey 08536
statements of the Fund on behalf of MAILING ADDRESS
the shareholders. P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's
day-to-day activities.
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] For More Information
Additional information about the Fund’s investments
is available in the Fund’s annual and semi-annual reports to
shareholders. In the Fund’s annual report you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund’s 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 Fund’s 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 SEC’s
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the public reference room. This
information is also available on the SEC’s Internet site at
http://www.sec.gov and copies may be obtained upon payment of a
duplicating fee by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
You should rely only on the information contained in
this Prospectus. No one is authorized to provide you with information
that is different from the information contained in this
Prospectus.
Investment Company Act file #811-3450
Code #10121-11-99
©Fund Asset Management, L.P.
[LOGO OF PROSPECTUS]
NOVEMBER 26, 1999
[LOGO OF MERRILL LYNCH]
STATEMENT OF ADDITIONAL INFORMATION
Merrill Lynch Phoenix Fund, Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011
Ÿ Phone No. (609) 282-2800
Merrill
Lynch Phoenix Fund, Inc. (the “Fund”) is a diversified
open-end investment company seeking long-term growth of capital by
investing in a diversified portfolio of equity and fixed income
securities, including municipal securities, of issuers in weak
financial condition or experiencing poor operating results that
management of the Fund believes are undervalued relative to management
’s assessment of the current or prospective condition of such
issuer. The investment policy of the Fund is based upon the belief that
the prices of securities of troubled issuers are often depressed to a
greater extent than warranted by the condition of the issuer and that,
while investment in such securities involves a high degree of risk,
such investments offer the opportunity for significant capital gains.
Current income is not necessarily a factor in the selection of
investments. There can be no assurance that the investment objective of
the Fund will be realized. For more information on the Fund’s
investment objectives and policies, see “Investment Objective and
Policies.”
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
November 26, 1999 (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 Fund’s audited
financial statements are incorporated in this Statement of Additional
Information by reference to its 1999 annual report to shareholders. You
may request a copy of the annual report or the Prospectus at no charge
by calling (800) 456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on
any business day.
Fund Asset Management — Investment
Adviser
Merrill Lynch Funds Distributor —
Distributor
The date of this Statement of Additional Information is
November 26, 1999.
TABLE OF CONTENTS
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 equity and fixed income
securities, including municipal securities, of issuers in weak
financial condition or experiencing poor operating results that
management of the Fund believes are undervalued relative to management
’s assessment of the current or prospective condition of such
issuers. The types of securities in which the Fund invests require
active monitoring and may, at times, require participation in
bankruptcy or reorganization proceedings by the Investment Adviser on
behalf of the Fund. To the extent that Fund Asset Management, L.P. (the
“Investment Adviser” or “FAM”) becomes involved in
such proceedings, the Fund may have a more active participation in the
affairs of the issuer than that assumed generally by an investor. The
Fund, however, will not make investments for the purpose of exercising
day-to-day management of any issuer’s affairs. The investment
objective of the Fund is based upon the belief that the pricing
mechanism of the securities markets lacks perfect efficiency so that
the prices of securities of troubled issuers are often depressed to a
greater extent than warranted by the condition of the issuer and that,
while investment in such securities involves a high degree of risk,
such investments offer the opportunity for significant capital gains.
Current income is not necessarily a factor in the selection of
investments. The investment objective of the Fund described in this
paragraph is a fundamental policy of the Fund and may not be changed
without the approval of the holders of a majority of the Fund’s
outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended (the “Investment Company Act”). Reference
is made to “How the Fund Invests” and “Investment Risks
” in the Prospectus. The Fund is classified as a diversified fund
under the Investment Company Act.
Investment in securities of issuers in weak financial condition
or experiencing poor operating results involves a high degree of
financial and market risk that can result in substantial or at times
even total losses. The Fund may invest in companies or institutions
that have substantial capital needs or negative net worth, or that are
involved in bankruptcy or reorganization proceedings. The Fund will
also invest in companies whose earnings have been severely depressed by
periods of unfavorable operating conditions. Among the problems
involved in investments in troubled issuers is the fact that it
frequently may be difficult to obtain information as to the condition
of such issuers. The market prices of such securities are also subject
to abrupt and erratic market movements and above average price
volatility, and the spread between the bid and asked prices of such
securities may be greater than normally expected. It may take a number
of years for the market price of such securities to reflect their
intrinsic value.
The Fund
expects to invest in securities of issuers that are encountering a
variety of financial or earnings problems and representing distinct
types of risk. The Fund’s investments in equity or fixed income
securities of companies or institutions in weak financial condition may
include issuers with substantial capital needs or negative net worth or
issuers that are, have been or may become involved in bankruptcy or
reorganization proceedings. Issuers experiencing poor operating results
may include companies whose earnings have been severely depressed by
periods of unfavorable operating conditions or which face special
competitive or product obsolescence problems. Issuers with poor
operating results will not necessarily be in weak financial
condition.
The Fund
may invest in high yield bonds. High yield bonds, commonly referred to
as “junk bonds,” are regarded as being predominantly
speculative as to the issuer’s ability to make payments of
principal and interest. Investment in such securities involves
substantial risk. High yield bonds may be issued by less creditworthy
companies or by larger, highly leveraged companies, and are frequently
issued in corporate restructurings such as mergers and leveraged
buy-outs. Such securities are particularly vulnerable to adverse
changes in the issuer’s industry and in general economic
conditions. High yield bonds frequently are junior obligations of their
issuers, so that in the event of the issuer’s bankruptcy, claims
of the holders of high yield bonds will be satisfied only after
satisfaction of the claims of senior securityholders. In an effort to
minimize the risk of issuer default or bankruptcy, the Fund diversifies
its holdings among many issuers. However, there can be no assurance
that diversification will protect the Fund from widespread defaults
brought about by a sustained economic downturn. The Fund has no
prescribed limit on the ratings of the high yield bonds in which it may
invest. It is conceivable that a considerable portion of such bonds
could be rated Caa, Ca or C by Moody’s Investors Service, Inc. or
CCC, CC or C by Standard & Poor’s (“Standard & Poor
”). Such ratings indicate the presence of speculative elements
with respect to the payment of principal or interest, or the imminent
possibility or existence of a default.
High
yield bonds tend to be more volatile than higher-rated fixed income
securities, so that adverse economic events may have a greater impact
on the prices of high yield bonds than on higher-rated fixed-income
securities. Like higher-rated fixed-income securities, high yield bonds
are generally purchased and sold through dealers who make a market in
such securities for their own accounts. However, there are fewer
dealers in the high yield bond market, which may be less liquid than
the market for higher-rated fixed-income securities, even under normal
economic conditions. Also, there may be significant disparities in the
prices quoted for high yield bonds by various dealers. Adverse economic
conditions or investor perceptions (whether or not based on economic
fundamentals) may impair the liquidity of this market, and may cause
the prices the Fund receives for its high yield bonds to be reduced, or
the Fund may experience difficulty in liquidating a portion of its
portfolio. Under such conditions, judgment may play a greater role in
valuing certain of the Fund’s securities than in the case of
securities trading in a more liquid market.
The Fund
has established no rating criteria for the fixed income securities in
which it may invest and such securities may not be rated at all for
creditworthiness. The Fund may also invest in fixed income securities
issued by states, municipalities, local governments and their agencies
and authorities whose interest is exempt from Federal income taxes. The
Fund has established no rating criteria for such fixed income
securities. The prices of such tax-exempt securities may be depressed
for a variety of financial or political reasons, such as concern as to
the fiscal integrity of the issuer and pending litigation or
legislation that may affect future revenues of the issuer. Although the
Fund may receive tax-exempt income on such securities, it is not
anticipated that any portion of the dividends paid by the Fund will
qualify for tax-exempt treatment by shareholders.
The
Investment Adviser is responsible for the management of the Fund’s
portfolio and makes portfolio decisions based upon its own research
analysis supplemented by research information provided by other
sources. The basic orientation of the Fund’s investment policies
is such that many of the portfolio securities may have less than
favorable research ratings from research analysts. The Investment
Adviser makes extensive use of investment research information provided
by unaffiliated brokers and dealers and of the securities research and
economic research facilities of Merrill Lynch. However, it may at times
be difficult to obtain information with respect to the types of
securities in which the Fund invests.
Risk Factors and Special Considerations
Financial and Market
Risks
The Fund
may invest in companies or institutions that have substantial capital
needs or negative net worth or that are involved in bankruptcy or
reorganization proceedings. The Fund may also invest in companies whose
earnings have been severely depressed by periods of unfavorable
operating conditions. Investments of this type involve a high degree of
financial and market risks that can result in substantial or at times
even total losses. Among the problems involved in investments in
troubled issuers is the fact that it frequently may be difficult to
obtain information as to the conditions of such issuers. The market
prices of such securities are also subject to abrupt and erratic market
movements and above average price volatility, and the spread between
the bid and asked prices of such securities may be greater than
normally expected. It may take a number of years for the market price
of such securities to reflect their intrinsic value.
Disposition of Portfolio
Securities
It is
anticipated that many of the portfolio securities of the Fund may not
be widely traded, and that the Fund’s position in such securities
may be substantial in relation to the market for the securities. As a
result, the Fund may experience time delays and incur costs and
possible losses in connection with the sale of such securities. In
addition, through service on creditors’ committees or in other
special situations the Fund may gain access to information which would
preclude it from trading in particular portfolio securities.
Accordingly, it would under certain circumstances be difficult for the
Fund to meet redemptions. The Fund may, when management deems it
appropriate, maintain a reserve in liquid assets which it considers
adequate to meet anticipated redemptions. In addition, the Fund will
have limited authority to borrow amounts up to 20% of its total assets
as a temporary measure to meet redemptions. The shares of the Fund may
be redeemed at any time at their next determined net
asset value. See “Redemption of Shares.” In light of the types
of securities in which the Fund invests, the Fund is not an appropriate
investment for investors seeking liquidity or short-term
profits.
Suitability
The
economic benefit from 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 securities involving a high
degree of financial and market risks, the Fund should be considered as
a vehicle for diversification and not as a balanced investment program.
The suitability for any particular investor of a purchase of shares of
the Fund will depend upon, among other things, such investor’s
investment objectives and such investor’s ability to accept the
risks of investing in such speculative securities, including the risk
of a loss of principal.
Risks of Investing in Foreign
Securities
While
there are no investment restrictions limiting investment in foreign
securities, it is anticipated that the Fund will not invest more than
25% of its total assets in the securities of foreign issuers. The Fund
may also invest in debt securities issued or guaranteed by foreign
government entities, commonly known as “sovereign debt securities.
”
Foreign Market Risk. Since the Fund
invests in foreign securities, it offers the potential for more
diversification than an investment only in the United States. This is
because securities traded on foreign markets have often (though not
always) performed differently than securities in the United States.
However, such investments involve special risks not present in U.S.
investments that can increase the chances that the Fund will lose
money. In particular, the Fund is subject to the risk that because
there are generally fewer investors on foreign exchanges and a smaller
number of shares traded each day, it may make it difficult for the Fund
to buy and sell securities on those exchanges. In addition, prices of
foreign securities may go up and down more than prices of securities
traded in the United States.
Foreign Economy Risk. The economies of
certain foreign markets often do not compare favorably with that of the
United States with respect to such issues as growth of gross national
product, reinvestment of capital, resources and balance of payments
position. Certain such economies may rely heavily on particular
industries or foreign capital and are more vulnerable to diplomatic
developments, the imposition of economic sanctions against a particular
country or countries, changes in international trading patterns, trade
barriers and other protectionist or retaliatory measures. Investments
in foreign markets may also be adversely affected by governmental
actions such as the imposition of capital controls, nationalization of
companies or industries expropriation of assets or the imposition of
punitive taxes. In addition, the governments of certain countries may
prohibit or impose substantial restrictions on foreign investing in
their capital markets or in certain industries. Any of these actions
could severely affect security prices, impair the Fund’s ability
to purchase or sell foreign securities or transfer the Fund’s
assets or income back into the United States, or otherwise adversely
affect the Fund’s operations. Other foreign market risks include
foreign exchange controls, difficulties in pricing securities, defaults
on foreign government securities, difficulties in enforcing favorable
legal judgments in foreign courts, and political and social
instability. Legal remedies available to investors in certain foreign
countries may be less extensive than those available to investors in
the United States or other foreign countries.
Currency Risk and Exchange Risk.
Securities in which the Fund invests are usually denominated
or quoted in currencies other than the U.S. dollar. Changes in foreign
currency exchange rates affect the value of the Fund’s portfolio.
Generally, when the U.S. dollar rises in value against a foreign
currency, a security denominated in that currency loses value because
the currency is worth fewer U.S. dollars. Conversely, when the U.S.
dollar decreases in value against a foreign currency, a security
denominated in that currency gains value because the currency is worth
more U.S. dollars. This risk, generally known as “currency risk,
” means that a strong U.S. dollar will reduce returns for U.S.
investors while a weak U.S. dollar will increase those
returns.
European Economic and Monetary Union.
For a number of years, certain European countries have been
seeking economic unification that would, among other things, reduce
barriers between countries, increase competition among companies,
reduce government subsidies in certain industries, and reduce or
eliminate currency fluctuations among these European countries. The
Treaty on European Union (the “Maastricht Treaty”) set out a
framework for the European Economic and Monetary Union (“EMU”)
among the countries that comprise the European Union (“EU”).
EMU established a single common European currency (the “euro
”) that was introduced on January 1, 1999 and is expected to
replace the existing national currencies of all EMU participants by
July 1, 2002. EMU took effect for the initial EMU participants on
January 1, 1999. Certain securities issued in participating EU
countries (beginning with government and corporate bonds) were
redenominated in the euro, and are listed, traded, and make dividend
and other payments only in euros.
No
assurance can be given that EMU will take 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 country’s national currency,
particularly if the withdrawing country is a major economic power. Such
developments could have an adverse impact on the Fund’s
investments in Europe generally or in specific countries participating
in EMU. Gains or losses from euro conversions may be taxable to Fund
shareholders under foreign or, in certain limited circumstances, U.S.
tax laws.
Governmental Supervision and Regulation/Accounting Standards.
Many foreign governments supervise and
regulate stock exchanges, brokers and the sale of securities less than
the United States does. Other countries may not have laws to protect
investors the way the U.S. securities laws do. For example, some
foreign countries may have no laws or rules against insider trading.
Insider trading occurs when a person buys or sells a company’s
securities based on non-public information about that company.
Accounting standards in other countries are not necessarily the same as
in the United States. If the accounting standards in another country do
not require as much detail as U.S. accounting standards, it may be
harder for Fund management to completely and accurately determine a
company’s financial condition. Also, brokerage commissions and
other costs of buying or selling securities often are higher in foreign
countries than they are in the United States. This reduces the amount
the Fund can earn on its investments.
Certain Risks of Holding Fund Assets Outside the United States.
The Fund generally holds its foreign
securities and cash in foreign banks and securities depositories. Some
foreign banks and securities depositories may be recently organized or
new to the foreign custody business. In addition, there may be limited
or no regulatory oversight over their operations. Also, the laws of
certain countries may put limits on the Fund’s ability to recover
its assets if a foreign bank, depository or issuer of a security, or
any of their agents, goes bankrupt. In addition, it is often more
expensive for the Fund to buy, sell and hold securities in certain
foreign markets than in the United States. The increased expense of
investing in foreign markets reduces the amount the Fund can earn on
its investments and typically results in a higher operating expense
ratio for the Fund than investment companies invested only in the
United States.
Settlement Risk. Settlement and
clearance procedures in certain foreign markets differ significantly
from those in the United States. Foreign settlement procedures and
trade regulations also may involve certain risks (such as delays in
payment for or delivery of securities) not typically generated by the
settlement of U.S. investments. Communications between the United
States and emerging market countries may be unreliable, increasing the
risk of delayed settlements or losses of security certificates.
Settlements in certain foreign countries at times have not kept pace
with the number of securities transactions; these problems may make it
difficult for the Fund to carry out transactions. If the Fund cannot
settle or is delayed in settling a purchase of securities, it may miss
attractive investment opportunities and certain of its assets may be
uninvested with no return earned thereon for some period. If the Fund
cannot settle or is delayed in settling a sale of securities, it may
lose money if the value of the security then declines or, if it has
contracted to sell the security to another party, the Fund could be
liable to that party for any losses incurred.
Dividends or interest on,
or proceeds from the sale of, foreign securities may be subject to
foreign withholding taxes.
Sovereign Debt. Investment in
sovereign debt involves a high degree of risk. The governmental entity
that controls the repayment of sovereign debt may not be able or
willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity’s willingness
or ability to repay principal and interest due in a timely manner may
be affected by, among other factors, its cash flow situation, the
extent of its foreign reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity
’s policy towards the International Monetary Fund and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements
from foreign governments, multilateral agencies and others abroad to
reduce principal and interest arrearages on their debt. The commitment
on the part of these governments, agencies and others to make such
disbursements may be conditioned on a governmental entity’s
implementation of economic reforms and/or economic performance and the
timely service of such debtor’s obligations. Failure to implement
such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such
third parties’ commitments to lend funds to the governmental
entity, which may further impair such debtor’s ability or
willingness to timely service its debts. Consequently, governmental
entities may default on their sovereign debt.
Holders
of sovereign debt may be requested to participate in the rescheduling
of such debt and to extend further loans to governmental entities. In
the event of a default by a governmental entity, there may be few or no
effective legal remedies available to a Fund and there can be no
assurance a Fund will be able to collect on defaulted sovereign debt in
whole or in part.
Other Investment Policies, Practices and Risk Factors
Writing of Covered Call Options. The
Fund may from time to time write, i.e., sell, covered call
options on its portfolio securities and enter into closing purchase
transactions with respect to certain of such options. A call option is
considered covered where the writer of the option owns the underlying
securities. By writing a covered call option, the Fund, in return for
the premium income realized from the sale of the option, may give up
the opportunity to profit from a price increase in the underlying
security above the option exercise price. In addition, the Fund will
not be able to sell the underlying security until the option expires,
is exercised or the Fund effects a closing purchase transaction as
described below. A closing purchase transaction cancels out the Fund
’s position as the writer of an option by means of an offsetting
purchase of an identical option prior to the expiration of the option
it has written. If the option expires unexercised, the Fund realizes a
gain in the amount of the premium received for the option which may be
offset by a decline in the market price of the underlying security
during the option period. The Fund may not write covered options on
underlying securities exceeding 15% of the value of its total
assets.
Options
referred to herein may be options issued by The Options Clearing
Corporation (the “Clearing Corporation”) which are currently
traded on the Chicago Board Options Exchange, the American Stock
Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange,
the New York Stock Exchange (the “NYSE”) or the Midwest Stock
Exchange. A call option gives the purchaser of an option the right to
buy, and obligates the writer (seller) to sell, the underlying security
at the exercise price during the option period. The option period
normally ranges from three to nine months from the date the option is
written. For writing an option, the Fund receives a premium, which is
the price of such option on the exchange on which it is traded. The
exercise price of the option may be below, equal to or above the
current market value of the underlying security at the time the option
is written.
The
writer may terminate its obligation prior to the expiration date of the
option by executing a closing purchase transaction which is effected by
purchasing on an exchange an option of the same series (i.e.,
same underlying security, exercise price and expiration date) as
the option previously written. Such a purchase does not result in
ownership of an option. A closing purchase transaction ordinarily will
be effected to realize a profit on an outstanding call option, to
prevent an underlying security from being called, to permit the sale of
the underlying security or to permit the writing of a new call option
containing different terms on such underlying security. The cost of
such a liquidation purchase plus transaction costs may be greater than
the premium received on the original
option, in which case the Fund will have incurred a loss in the
transaction. An option may be closed out only on an exchange which
provides secondary market for an option of the same series and there is
no assurance that a secondary market will exist for any particular
option. A covered option writer unable to effect a closing purchase
transaction will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise,
with the result that the writer will be subject to the risk of market
decline in the underlying security during such period.
Over-the-counter Options. The Fund may
engage in transactions in options on securities on 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.
Options
traded in OTC markets, 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 dealer’s quotation may be
used.
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 Fund’s
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
Fund’s operations require cash, such as when the Fund redeems
shares or pays dividends, and could result in the Fund borrowing to
meet short term cash requirements or incurring capital losses on the
sale of illiquid investments.
The Fund
may invest in securities that are “restricted securities”.
Restricted securities have contractual or legal restrictions on their
resale and include “private placement” securities that the
Fund may buy directly from the issuer. Restricted securities may be
sold in private placement transactions between 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 Fund’s 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 Fund’s ability to conduct
portfolio transactions in such securities.
144A
Securities. Notwithstanding the above
limitations on Illiquid or Restricted Securities, the Fund may
purchase, without limitation, 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 tradeable in their primary markets offshore or have
been determined to be liquid in accordance with the policies and
procedures adopted by the Fund’s 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. This investment practice could have
the effect of increasing the level of illiquidity in the Fund to the
extent that qualified institutional buyers may be uninterested in
purchasing these securities.
Securities Lending. The Fund may lend
securities from its portfolio to brokers, dealers and financial
institutions with a value not exceeding 20% of its total assets. In
return, the Fund receives collateral in cash or securities issued or
guaranteed by the United States 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. Such cash collateral will be invested
in short-term securities. Such loans will be terminable at any time.
During the period of such a loan, the Fund receives the income on both
the loaned securities and the collateral, which increases its yield.
The Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as voting rights,
subscription rights and rights to dividends, interest or other
distributions. The Fund may pay reasonable finder’s,
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.
The Fund
has adopted the following restrictions and policies relating to the
investment of its assets and its activities, which are fundamental
policies and may not be changed without the approval of the holders of
a majority of the Fund’s outstanding voting securities (which for
this purpose and under the Investment Company Act means the lesser of
(i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares). The Fund may not:
|
1. Make any investment
inconsistent with the Fund’s classification as a diversified
company under the Investment Company Act of 1940, as amended (the
“Investment Company Act”).
|
|
2. Invest more than
25% of its assets, taken at market value, in the securities of
issuers in any particular industry (excluding the U.S. Government and
its agencies and instrumentalities).
|
|
3. Make investments
for the purpose of exercising control or management. (The Fund may,
however, from time to time have a controlling interest in a
particular issuer, be part of a group holding a controlling interest,
or serve on a creditor’s committee or otherwise participate in
bankruptcy or reorganization proceedings).
|
|
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
Fund’s Prospectus and Statement of Additional Information, as
they may be amended from time to time.
|
|
6. Issue senior
securities to the extent such issuance would violate applicable
law.
|
|
7. Borrow money,
except that (i) the Fund may borrow from banks (as defined in the
Investment Company Act) in amounts up to 33 1
/3% of its total assets (including the amount
borrowed), (ii) the Fund may
borrow up to an additional 5% of its total assets for temporary
purposes, (iii) the Fund may obtain such short-term credit as may be
necessary for the clearance of purchases and sales of portfolio
securities and (iv) the Fund may purchase securities on margin to the
extent permitted by applicable law. The Fund may not pledge its
assets other than to secure such borrowings or, to the extent
permitted by the Fund’s investment policies as set forth in its
Prospectus and Statement of Additional Information, as they may be
amended from time to time, in connection with hedging transactions,
short sales, when-issued and forward commitment transactions and
similar investment strategies.
|
|
8. Underwrite
securities of other issuers except insofar as the Fund technically
may be deemed an underwriter under the Securities Act of 1933, as
amended (the “Securities Act”) in selling portfolio
securities.
|
|
9. Purchase or sell
commodities or contracts on commodities, except to the extent that
the Fund may do so in accordance with applicable law and the Fund
’s 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, the Fund may
not:
|
a. Purchase securities
of other investment companies, except to the extent such purchases
are permitted by applicable law. As a matter of policy, however, the
Fund will not purchase shares of any registered open-end investment
company or registered unit investment trust, in reliance on Section
12(d)(1)(F) or (G) (the “fund of funds” provisions) of the
Investment Company Act, at any time the Fund’s shares are owned
by another investment company that is part of the same group of
investment companies as the Fund.
|
|
b. Make short sales of
securities or maintain a short position, except to the extent
permitted by applicable law. The Fund currently does not intend to
engage in short sales, except short sales “against the box.
”
|
|
c. Invest in
securities which cannot be readily resold because of legal or
contractual restrictions or which cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in
such securities. This restriction shall not apply to securities which
mature within seven days or securities which the Board of Directors
of the Fund has otherwise determined to be liquid pursuant to
applicable law.
|
|
d. Notwithstanding
fundamental investment restriction (7) above, borrow amounts in
excess of 20% of its total assets, taken at market value, and then
only from banks as a temporary measure for extraordinary or emergency
purposes such as the redemption of Fund shares.
|
The
staff of the Commission has taken the position that purchased OTC
options and the assets used as cover for written OTC options are
illiquid securities. Therefore, the Fund has adopted an investment
policy pursuant to which it will not purchase or sell OTC options if,
as a result of such transactions, the sum of the market value of OTC
options currently outstanding which are held by the Fund, the market
value of the underlying securities covered by OTC call options
currently outstanding which were sold by the Fund and margin deposits
on the Fund’s existing OTC covered call options exceed 15% of the
net assets of the Fund, taken at market value, together with all other
assets of the Fund which are illiquid or are not otherwise readily
marketable. However, if an OTC option is sold by the Fund to a primary
U.S. Government securities dealer recognized by the Federal Reserve
Bank of New York and if the Fund has the unconditional contractual
right to repurchase such OTC option from the dealer at a predetermined
price, then the Fund will treat as illiquid such amount of the
underlying securities as is equal to the repurchase price less the
amount by which the option is “in-the-money” (i.e.,
current market value of the underlying securities minus the option
’s strike price). The repurchase price with the primary dealers is
typically a formula price which is generally based on a multiple of the
premium received for the option, plus the amount by which the option is
“in-the-money.” This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Board of
Directors of the Fund without the approval of the Fund’s
shareholders. However, the Fund will not change or modify this policy
prior to the change or modification by the Commission staff of its
position.
The
Board of Directors may draft guidelines and delegate to the Investment
Adviser the daily function of monitoring the liquidity of restricted
securities, including Rule 144A securities. The Board will, however,
maintain sufficient oversight and be ultimately responsible for the
determinations. The Board has determined that securities that are
freely tradable in their primary market overseas should be deemed
liquid.
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
such firm or its affiliates except for brokerage transactions permitted
under the Investment Company Act involving only usual and customary
commissions or transactions pursuant to an exemptive order under the
Investment Company Act. See “Portfolio Transactions and Brokerage.
” Without such an exemptive order, the Fund would be prohibited
from engaging in portfolio transactions with Merrill Lynch or any of
its affiliates acting as principal.
Portfolio Turnover. Due to the fact
that many of the securities in which the Fund invests are unlikely to
show significant short-term appreciation, it is anticipated that the
portfolio turnover rate ordinarily will be low as measured by
traditional standards; however, there may be periods when the portfolio
turnover rate will be relatively high. The Fund pays brokerage
commissions in connection with purchases and sales of portfolio
securities. A high rate of portfolio turnover results in
correspondingly greater brokerage commission expenses and may result in
increased capital gain dividends or in ordinary income dividends of
accrued market discount. The portfolio turnover rate is calculated by
dividing the lesser of the Fund’s annual sale or purchases of
portfolio securities (exclusive of purchases or sales of U.S.
Government securities and of 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.
The
Directors of the Fund consist of seven individuals, five of whom are
not “interested persons” of the Fund as defined in the
Investment Company Act (the “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 Asset Management, L.P. (“MLAM”) (which terms as used
herein include their corporate predecessors) since 1983; President of
Princeton Funds Distributors, Inc. (“PFD”) 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.
JOE
GRILLS
(64) — Director (2)(3) — P.O. Box
98, Rapidan, Virginia 22773. Member of the Committee of Investment of
Employee Benefit Assets of the Financial Executives Institute (
“CIEBA”) since 1986; Member of CIEBA’s Executive
Committee since 1988 and its Chairman from 1991 to 1993; Assistant
Treasurer of International Business Machines Incorporated (“IBM
”) and Chief Investment Officer of IBM Retirement Funds from 1986
until 1993; Member of the Investment Advisory Committee of the State of
New York Common Retirement Fund and the Howard Hughes Medical Institute
since 1997; Director, Duke Management Company since 1992 and Vice
Chairman since 1998; Director, LaSalle Street Fund since 1995;
Director, Hotchkis and Wiley Mutual Funds since 1996; Director, Kimco
Realty Corporation since January 1997; Member of the Investment
Advisory Committee of the Virginia Retirement System since 1998;
Director, Montpelier Foundation since 1998.
WALTER
MINTZ
(70) — Director (2)(3) — 1114 Avenue
of the Americas, New York, New York 10036. Special Limited Partner of
Cumberland Associates (investment partnership) since 1982.
ROBERT
S. SALOMON
, JR
. (63) — Director (2) — 106 Dolphin
Cove Quay, Stamford, Connecticut 06902. Principal of STI Management
(investment adviser) since 1994; Trustee, Common Fund since 1980;
Chairman and CEO of Salomon Brothers Asset Management from 1992 until
1995; Chairman of Salomon Brothers equity mutual funds from 1992 until
1995; Monthly columnist with Forbes magazine since 1992;
Director of Stock Research and U.S. Equity Strategist at Salomon
Brothers from 1975 until 1991.
MELVIN
R. SEIDEN
(69) — Director (2)(3) — 780 Third
Avenue, Suite 2502, New York, New York 10017. Director of Silbanc
Properties, Ltd. (real estate, investment and consulting) since 1987;
Chairman and President of Seiden & de Cuevas, Inc. (private
investment firm) from 1964 to 1987.
STEPHEN
B. SWENSRUD
(66) — Director (2)(3) — 24 Federal
Street, Suite 400, Boston, Massachusetts 02110. Chairman of Fernwood
Advisors (investment adviser) since 1996; Principal, Fernwood
Associates (financial consultant) since 1975; Chairman of
Manufacturing, RPP Corporation since 1978; Director of
Telecommunications, International Mobile Communications, Inc. since
1998.
ARTHUR
ZEIKEL
(67) — Director (1)(2) — 300
Woodland Avenue, Westfield, New Jersey 07090. Chairman of the
Investment Adviser and MLAM from 1997 to 1999 and President thereof
from 1977 to 1997; Chairman of Princeton Services from 1997 to 1999,
Director thereof from 1993 to 1999 and President thereof from 1993 to
1997; Executive Vice President of Merrill Lynch & Co., Inc. (
“ML & Co.”) from 1990 to 1999.
ROBERT
C. DOLL
(45) — Senior Vice President (1)(2) —
Senior Vice President of the Investment Adviser and MLAM since
1999; Senior Vice President of Princeton Services since 1999; Chief
Investment Officer of Oppenheimer Funds, Inc. in 1999 and Executive
Vice President thereof from 1991 to 1999.
ROBERT
J. MARTORELLI
(42) — Senior Vice President (1)(2) —
First Vice President of MLAM since 1997; Vice President of MLAM
from 1987 to 1997; Fund Analyst with MLAM from 1985 to 1987 and
Portfolio Manager since 1987; Senior Security Analyst for First
Investors Management Co., Inc. from 1983 to 1985; Senior Analyst for
the National Association of Insurance Commissioners from 1981 to
1983.
DONALD
C. BURKE
(39) — Vice President and Treasurer (1)(2)
— Senior Vice President and Treasurer of the Investment
Adviser and MLAM since 1999; Senior Vice President and Treasurer of
Princeton Services since 1999; First Vice President of the Investment
Adviser from 1997 to 1999; Vice President of the Investment Adviser
from 1990 to 1997; Director of Taxation of the Investment Adviser since
1990; Vice President of PFD since 1999.
BARBARA
G. FRASER
(55) — Secretary (1)(2) — First Vice
President of MLAM since 1996; Vice President MLAM from 1994 to
1996.
(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 the Investment Adviser or MLAM
acts as the investment adviser or manager.
|
(3)
|
Member of
the Fund’s 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
November 1, 1999, 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 a fee of $2,000 per year plus $500
per Board meeting attended. The Fund also compensates each member of
the Audit and Nominating Committee (the “Committee”), which
consists of the non-interested Directors at a rate of $2,000 per year,
plus $500 per Committee meeting attended. The Fund reimburses each
non-interested Director for his out-of-pocket expenses relating to
attendance at Board and Committee meetings.
The
following table shows the compensation earned by the non-interested
Directors for the fiscal year ended July 31, 1999 and the aggregate
compensation paid to them from all registered investment companies
advised by the Investment Adviser and its affiliate, MLAM (
“MLAM/FAM-advised funds”), for the calendar year ended
December 31, 1998.
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
MLAM/FAM-
Advised Funds(1)
|
| Joe Grills |
|
Director |
|
$15,000 |
|
None |
|
None |
|
$198,333 |
| Walter Mintz |
|
Director |
|
$15,000 |
|
None |
|
None |
|
$178,583 |
| Robert S. Salomon, Jr.
|
|
Director |
|
$15,000 |
|
None |
|
None |
|
$178,583 |
| Melvin R. Seiden |
|
Director |
|
$15,000 |
|
None |
|
None |
|
$178,583 |
| Stephen B. Swensrud |
|
Director |
|
$15,000 |
|
None |
|
None |
|
$195,583 |
(1)
|
The
directors serve on the boards of MLAM/FAM-advised funds as follows:
Joe Grills (23 registered investment companies consisting of 55
portfolios), Walter Mintz (21 registered investment companies
consisting of 42 portfolios), Robert S. Salomon, Jr. (21 registered
investment companies consisting of 42 portfolios), Melvin R. Seiden
(21 registered investment companies consisting of 42 portfolios),
Stephen B. Swensrud (25 registered investment companies consisting of
58 portfolios).
|
Directors of the Fund may purchase Class A shares of the Fund at
net asset value. See “Purchase of Shares — Initial
Sales Charge Alternatives — Class A and Class D Shares
— Reduced Initial Sales Charges —
Purchase Privilege of Certain Persons.”
Management and Advisory Arrangements
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 Fund
’s portfolio and constantly reviews the Fund’s holdings in
light of its own research analysis and that from other relevant
sources. The responsibility for making decisions to buy, sell or hold a
particular security rests with the Investment Adviser. The Investment
Adviser performs certain of the other administrative services and
provides all the office space, facilities, equipment and necessary
personnel for management of the Fund.
Investment Advisory Fee. The Fund has
entered into a management 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 rate of 1.0% of the average daily net assets
of the Fund. However, the Investment Adviser has voluntarily agreed to
waive a portion of its advisory fee so that such fee is equal to 1.00%
of average daily net assets not exceeding $500 million; 0.95% of
average daily net assets in excess of $500 million but not exceeding $1
billion; and 0.90% of average daily net assets in excess of $1 billion.
This fee is higher than that of many other mutual funds, but the Fund
believes it is justified by the high degree of care that must be given
to the initial selection and continuous supervision of the types of
securities in which the Fund invests. The table below sets forth
information about the total management fees paid by the Fund to the
Investment Adviser for the periods indicated.
Fiscal Year Ended July
31,
|
|
Investment
Advisory Fee
|
| 1999 |
|
$5,392,315 |
| 1998 |
|
$7,181,685 |
| 1997 |
|
$7,150,934 |
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. For the fiscal years
ended July 31, 1999, 1998 and 1997, the Investment Adviser paid no fees
to MLAM U.K. pursuant to this agreement.
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 Merrill Lynch Funds
Distributor, a division of PFD (the “Distributor”); charges
of the custodian and sub-custodian, and the transfer agent; expenses of
redemption of shares; Commission 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 Sub-Advisory Agreement will continue in effect for a
period of two years from the date of execution and will remain 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 Fund’s Transfer Agent pursuant to a
Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement (the “Transfer Agency Agreement”). Pursuant
to the Transfer Agency Agreement, the Transfer Agent is responsible for
the issuance, transfer and redemption of shares and the opening and
maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreement, the Transfer Agent receives a fee of $11.00 per Class A or
Class D account and $14.00 per Class B or Class C account and is
entitled to reimbursement for certain transaction charges and
out-of-pocket expenses incurred by the Transfer Agent under the
Transfer Agency Agreement. Additionally, a $.20 monthly closed account
charge will be assessed on all accounts which close during the calendar
year. Application of this fee will commence the month following the
month the account is closed. At the end of the calendar year, no
further fees will be due. For purposes of the Transfer Agency
Agreement, the term “account” includes a shareholder account
maintained directly by the Transfer Agent and any other account
representing the beneficial interest of a person in the relevant share
class on a recordkeeping system, provided the recordkeeping system is
maintained by a subsidiary of ML & Co.
Distribution Expenses. The Fund has
entered into four separate distribution agreements with the Distributor
in connection with the continuous offering of each class of shares of
the Fund (the “Distribution Agreements”). The Distribution
Agreements obligate 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 Agreements are subject to the same
renewal requirements and termination provisions as the Investment
Advisory Agreement described above.
The
Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act that incorporates the Code of
Ethics of the Investment Adviser (together, the “Codes”). The
Codes significantly restrict the personal investing activities of all
employees of the Investment Adviser and, as described below, impose
additional, more onerous, restrictions on fund investment
personnel.
The
Codes require that all employees of the Investment Adviser pre-clear
any personal securities investment (with limited exceptions, such as
government securities). The pre-clearance requirement and associated
procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive
restrictions applicable to all employees of the Investment Adviser
include a ban on acquiring any securities in a “hot” initial
public offering and a prohibition from profiting on short-term trading
in securities. In addition, no employee may purchase or sell any
security that at the time is being purchased or sold (as the case may
be), or to the knowledge of the employee is being considered for
purchase or sale, by any fund advised by the Investment Adviser.
Furthermore, the Codes provide for trading “blackout periods”
which prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15
or 30 days depending upon the transaction).
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 FAM or MLAM. Funds advised by FAM or MLAM that utilize the
Merrill Lynch Select Pricing
SM
System are referred to herein as “Select Pricing Funds.
”
The Fund
or the Distributor may suspend the continuous offering of the Fund
’s shares of any class at any time in response to conditions in
the securities markets or otherwise and may thereafter resume such
offering from time to time. Any order may be rejected by the Fund or
the Distributor. Neither the Distributor nor the dealers 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 shareholder 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
MLAM/FAM 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
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 MLAM/FAM-advised investment companies. Certain persons who
acquired shares of certain MLAM/FAM-advised closed-end funds in their
initial offerings who wish to reinvest the net proceeds from a sale of
their closed-end fund shares of common stock in shares of the Fund also
may purchase Class A shares of the Fund if certain conditions are met.
In addition, Class A shares of the Fund and certain other Select
Pricing Funds are offered at net asset value to shareholders of Merrill
Lynch Senior Floating Rate Fund, Inc. and, if certain conditions are
met, to shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest
the net proceeds from a sale of certain of their shares of common stock
pursuant to a tender offer conducted by such funds in shares of the
Fund and certain other Select Pricing Funds.
Class A and Class D Sales Charge
Information
Class A
Shares
|
For the Fiscal Year
Ended
July 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained By
Distributor
|
|
Sales Charges
Paid To
Merrill Lynch
|
|
CDSCs Received on
Redemption of
Load-
Waived Shares
|
|
1999
|
|
$11,792
|
|
$1,013
|
|
$10,779
|
|
$ 0
|
|
1998
|
|
$25,889
|
|
$2,034
|
|
$23,855
|
|
$ 34,961
|
|
1997
|
|
$29,102
|
|
$2,131
|
|
$26,971
|
|
$ 0
|
| |
Class D
Shares
|
For the Fiscal Year
Ended
July 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained By
Distributor
|
|
Sales Charges
Paid To
Merrill Lynch
|
|
CDSCs Received on
Redemption of
Load-
Waived Shares
|
|
1999
|
|
$10,563
|
|
$ 606
|
|
$ 9,957
|
|
$ 0
|
|
1998
|
|
$28,559
|
|
$1,809
|
|
$26,750
|
|
$ 0
|
|
1997
|
|
$66,255
|
|
$5,253
|
|
$61,002
|
|
$ 0
|
The
Distributor may reallow discounts to selected dealers 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 charge
are due to the nature of the investors and/or the reduced sales efforts
that will be needed to obtain such investments.
Reinvested Dividends. No initial sales
charges are imposed upon Class A and Class D shares issued as a result
of the automatic reinvestment of dividends.
Right
of Accumulation. Reduced sales charges are
applicable through a right of accumulation under which eligible
investors are permitted to purchase shares of the Fund subject to an
initial sales charge at the offering price applicable to the total of
(a) the public offering price of the shares then being purchased plus
(b) an amount equal to the then current net asset value or cost,
whichever is higher, of the purchaser’s combined holdings of all
classes of shares of the Fund and of any other Select Pricing Funds.
For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser
or the purchaser’s securities dealer, with sufficient information
to permit confirmation of qualification. Acceptance of the purchase
order is subject to such confirmation. The right of accumulation may be
amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing or other employee benefit
plans may not be combined with other shares to qualify for the right of
accumulation.
Letter of Intent. Reduced sales
charges are applicable to purchases aggregating $25,000 or more of the
Class A or Class D shares of the Fund or any Select Pricing Funds made
within a 13-month period starting with the first purchase pursuant to a
Letter of Intent. The Letter of Intent is available only to investors
whose accounts are established and maintained at the Fund’s
Transfer Agent. The Letter of Intent is not available to employee
benefit plans for which Merrill Lynch provides plan participant
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, trade associations and benefit plans. 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%,
$300.01 up to $5,000 at 3.25% plus $3, 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 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 and Class D investors through Blueprint, however, may differ
from those available to other Class A or Class D share
investors.
Class A
and Class D shares are offered at net asset value to participants in
Blueprint 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
MLAM/FAM-advised investment companies, ML & Co. and its
subsidiaries (the term “subsidiaries,” when used herein with
respect to ML & Co., includes MLAM, FAM and certain other entities
directly or indirectly wholly owned and controlled by ML & Co.) and
their directors and employees, and any trust, pension, profit-sharing
or other benefit plan for such persons, may purchase Class A shares of
the Fund at net asset value. The Fund realizes economies of scale and
reduction of sales-related expenses by virtue of the familiarity of
these persons with the Fund. Employees and directors or trustees
wishing to purchase shares of the Fund must satisfy the Fund’s
suitability standards.
Class D
shares of the Fund are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a
Financial Consultant who joined Merrill Lynch from another investment
firm within six months prior to the date of purchase by such investor,
if the following conditions are satisfied: first, the investor must
advise Merrill Lynch that it will purchase Class D shares of the Fund
with proceeds from a redemption of shares of a mutual fund that was
sponsored by the Financial Consultant’s previous firm and was
subject to a sales charge either at the time of purchase or on a
deferred basis; and, second, the investor must establish that such
redemption had been made within 60 days prior to the investment in the
Fund and the proceeds from the redemption had been maintained in the
interim in cash or a money market fund.
Class D
shares of the Fund are also offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Merrill
Lynch Financial Consultant and that has invested in a mutual fund
sponsored by a non-Merrill Lynch company for which Merrill Lynch has
served as a selected dealer and where Merrill Lynch has either received
or given notice that such arrangement will be terminated (“notice
”) if the following conditions are satisfied: first, the investor
must purchase Class D shares of the Fund with proceeds from a
redemption of shares of such other mutual fund and the shares of such
other fund were subject to a sales charge either at the time of
purchase or on a deferred basis; and, second, such purchase of Class D
shares must be made within 90 days after such notice.
Class D
shares of the Fund are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Merrill
Lynch Financial Consultant and that has invested in a mutual fund for
which Merrill Lynch has not served as a selected dealer if the
following conditions are satisfied: first, the investor must advise
Merrill Lynch that it will purchase Class D shares of the Fund with
proceeds from the redemption of shares of such other mutual fund and
that such shares have been outstanding for a period of no less than six
months; and, second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the
redemption must be maintained in the interim in cash or a money market
fund.
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
MLAM 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
MLAM/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 fund’s 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.
Deferred Sales Charge Alternatives — Class B and Class C
Shares
Investors choosing the deferred sales charge alternatives should
consider Class B shares if they intend to hold their shares for an
extended period of time and Class C shares if they are uncertain as to
the length of time they intend to hold their assets in Select Pricing
Funds.
Because
no initial sales charges are deducted at the time of the purchase,
Class B and Class C shares provide the benefit of putting all of the
investor’s dollars to work from the time the investment is made.
The deferred sales charge alternatives may be particularly appealing to
investors that do not qualify for the reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution fees potentially may be offset to the
extent any return is realized on the additional funds initially
invested in Class B or Class C shares. In addition, Class B shares will
be converted into Class D shares of the Fund after a conversion period
of approximately eight years, and thereafter investors will be subject
to lower ongoing fees.
The
public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined
net asset value per share without the imposition of a sales charge at
the time of purchase. See “Pricing of Shares —
Determination of Net Asset Value” below.
Contingent Deferred Sales Charges — Class B
Shares
Class B
shares that are redeemed within four years of purchase may be subject
to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. In determining whether a CDSC is
applicable to a redemption, the calculation will be determined in the
manner that results in the lowest applicable rate being charged. The
charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed.
Accordingly, no CDSC will be imposed on increases in net asset value
above the initial purchase price. In addition, no CDSC will be assessed
on shares derived from reinvestment of dividends. It will be assumed
that the redemption is first of shares held for over four years or
shares acquired pursuant to reinvestment of dividends and then of
shares held longest during the four-year period. A transfer of shares
from a shareholder’s account to another account will be assumed to
be made in the same order as a redemption.
The
following table sets forth the Class B CDSC:
Year Since Purchase
Payment Made
|
|
CDSC as a
Percentage
of Dollar Amount
Subject to Charge
|
| 0-1 |
|
4.0% |
| 1-2 |
|
3.0% |
| 2-3 |
|
2.0% |
| 3-4 |
|
1.0% |
| 4 and thereafter |
|
None |
To
provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the
net asset value per share is $12 and, during such time, the investor
has acquired 10 additional shares upon dividend reinvestment. If at
such time the investor makes his or her first redemption of 50 shares
(proceeds of $600), 10 shares will not be subject to a CDSC because of
dividend reinvestment. With respect to the remaining 40 shares, the
charge is applied only to the original cost of $10 per share and not to
the increase in net asset value of $2 per share. Therefore, $400 of the
$600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The
Class B CDSC may be waived on redemptions of shares in connection with
certain post-retirement withdrawals from an Individual Retirement
Account (“IRA”) or other retirement plan or following the
death or disability (as defined in the Internal Revenue Code of 1986,
as amended) of a shareholder (including one who owns the Class B shares
as joint tenant with his or her spouse), provided the redemption is
requested within one year of the death or initial determination of
disability or, if later, reasonably promptly following completion of
probate. The Class B CDSC also may be waived on redemptions of shares
by certain eligible 401(a) and 401(k) plans. 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 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
MLAM 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. Services, including the exchange privilege,
available to Class B investors through Blueprint, however, may differ
from those available to other investors in Class B shares. 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 the Blueprint automatic investment plan. Additional
information
concerning these Blueprint programs, including any annual fees or
transaction charges, is available from Merrill Lynch, Pierce, Fenner
& Smith Incorporated, The Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
Conversion of Class B Shares to Class D Shares.
After approximately eight years (the “Conversion Period
”), Class B shares will be converted automatically into Class D
shares of the Fund. Class D shares are subject to an ongoing account
maintenance fee of 0.25% of average daily net assets but are not
subject to the distribution fee that is borne by Class B shares.
Automatic conversion of Class B shares into Class D shares will occur
at least once each month (on the “Conversion Date”) on the
basis of the relative net asset value of the shares of the two classes
on the Conversion Date, without the imposition of any sales load, fee
or other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income tax
purposes.
In
addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The
Conversion Date for dividend reinvestment shares will be calculated
taking into account the length of time the shares underlying such
dividend reinvestment shares were outstanding. If at the Conversion
Date the conversion of Class B shares to Class D shares of the Fund in
a single account will result in less than $50 worth of Class B shares
being left in the account, all of the Class B shares of the Fund held
in the account on the Conversion Date will be converted to Class D
shares of the Fund.
In
general, Class B shares of equity Select Pricing Funds will convert
approximately eight years after initial purchase and Class B shares of
taxable and tax-exempt fixed income Select Pricing Funds will convert
approximately ten years after initial purchase. If, during the
Conversion Period, a shareholder exchanges Class B shares with an
eight-year Conversion Period for Class B shares with a ten-year
Conversion Period, or vice versa, the Conversion Period applicable to
the Class B shares acquired in the exchange will apply and the holding
period for the shares exchanged will be tacked on to the holding period
for the shares acquired. The Conversion Period also may be modified for
investors that participate in certain fee-based programs. See
“Shareholder Services —Fee-Based Programs.
”
Class B
shareholders of the Fund exercising the exchange privilege described
under “Shareholder Services —Exchange Privilege”
will continue to be subject to the Fund’s CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B
shares acquired as a result of the exchange.
Share
certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the
Conversion Date applicable to those shares. In the event such
certificates are not received by the Transfer Agent at least one week
prior to the Conversion Date, the related Class B shares will convert
to Class D shares on the next scheduled Conversion Date after such
certificates are delivered.
Contingent Deferred Sales Charges — Class C
Shares
Class C
shares that are redeemed within one year of purchase may be subject to
a 1.0% CDSC charged as a percentage of the dollar amount subject
thereto. In determining whether a Class C CDSC is applicable to a
redemption, the calculation will be determined in the manner that
results in the lowest possible rate being charged. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption
or the cost of the shares being redeemed. Accordingly, no Class C CDSC
will be imposed on increases in net asset value above the initial
purchase price. In addition, no Class C CDSC will be assessed on shares
derived from reinvestment of dividends. It will be assumed that the
redemption is first of shares held for over one year or shares acquired
pursuant to reinvestment of dividends and then of shares held longest
during the one-year period. A transfer of shares from a shareholder
’s account to another account will be assumed to be made in the
same order as a redemption. The Class C CDSC may be waived in
connection with involuntary termination of an account in which Fund
shares are held and withdrawals through the Merrill Lynch Systematic
Withdrawal Plan. See “Shareholder Services —
Systematic Withdrawal Plan.” The Class C CDSC of the Fund
and certain other MLAM/FAM-advised mutual funds may be waived with
respect to Class C shares purchased by an investor with the net
proceeds of a tender offer made by certain MLAM/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*
|
For the Fiscal Year
Ended July 31,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
|
1999 |
|
$194,715 |
|
$194,715 |
|
1998 |
|
$244,931 |
|
$244,931 |
|
1997 |
|
$588,205 |
|
$588,205 |
*
|
Additional
Class B CDSCs payable to the Distributor may have been waived or
converted to a contingent obligation in connection with a shareholder
’s participation in certain fee-based programs.
|
Class C
Shares
|
For the Fiscal Year
Ended July 31,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
|
1999 |
|
$2,271 |
|
$2,271 |
|
1998 |
|
$2,715 |
|
$2,715 |
|
1997 |
|
$5,533 |
|
$5,533 |
Merrill
Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. Proceeds
from the CDSC and the distribution fee are paid to the Distributor and
are used in whole or in part by the Distributor to defray the expenses
of dealers (including Merrill Lynch) related to providing
distribution-related services to the Fund in connection with the sale
of the Class B and Class C shares, such as the payment of compensation
to financial consultants for selling Class B and Class C shares from
the dealer’s own funds. The combination of the CDSC and the
ongoing distribution fee facilitates the ability of the Fund to sell
the Class B and Class C shares without a sales charge being deducted at
the time of purchase. See “Distribution Plans” below.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the National Association of Securities Dealers,
Inc. (“NASD”) asset-based sales charge rule. See
“Limitations on the Payment of Deferred Sales Charges”
below.
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 Class B, Class C and Class D shares each
provides 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 and Merrill Lynch (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 each provides 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 rates of 0.75% of the average daily net assets of the Fund
attributable to the shares of the relevant class in order to compensate
the Distributor and Merrill Lynch (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 for selling Class B and Class C shares of the
Fund. The Distribution Plans relating to Class B and Class C shares are
designed to permit an investor to purchase Class B and Class C shares
through dealers without
the assessment of an initial sales charge and at the same time permit the
dealer to compensate its financial consultants in connection with the
sale of the Class B and Class C shares.
The Fund
’s Distribution Plans are subject to the provisions of Rule 12b-1
under the Investment Company Act. In their consideration of each
Distribution Plan, the Directors must consider all factors they deem
relevant, including information as to the benefits of the Distribution
Plan to the Fund and each related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution
Plan remains in effect, the selection and nomination of non-interested
Directors shall be committed to the discretion of the non-interested
Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the non-interested Directors concluded that
there is reasonable likelihood that each Distribution Plan will benefit
the Fund and its related class of shareholders. Each Distribution Plan
can be terminated at any time, without penalty, by the vote of a
majority of the non-interested Directors or by the vote of the holders
of a majority of the outstanding related class of voting securities of
the Fund. A Distribution Plan cannot be amended to increase materially
the amount to be spent by the Fund without the approval of the related
class of shareholders and all material amendments are required to be
approved by the vote of Directors, including a majority of the
non-interested Directors who have no direct or indirect financial
interest in the Distribution 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, 1998, the fully allocated accrual revenues of the
Distributor and Merrill Lynch for the period since the commencement of
operations of Class B shares exceeded the fully allocated accrual
expenses by approximately $1,321,000 (.58% of Class B net assets at
that date). As of July 31, 1999, direct cash revenues for the period
since the commencement of operations of Class B shares exceeded direct
cash expenses by $18,463,420 (9.27% of Class B net assets at that
date). As of December 31, 1998, the fully allocated accrual expenses of
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 $112,000 (1.39% of Class C net assets at that
date). As of July 31, 1999, direct cash revenues for the period since
the commencement of operations of Class C shares exceeded direct cash
expenses by $373,847 (4.53% of Class C net assets at that
date).
For the
fiscal year ended July 31, 1999, the Fund paid the Distributor
$2,186,447 pursuant to the Class B Distribution Plan (based on average
daily net assets subject to such Class B Distribution Plan of
approximately $219.2 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 July 31, 1999, the Fund paid the Distributor $81,101 pursuant to
the Class C Distribution Plan (based on average daily net assets
subject to such Class C Distribution Plan of approximately $8.1
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 July 31,
1999, the Fund paid the Distributor $201,043 pursuant to the Class D
Distribution Plan (based on average daily net assets subject to such
Class D Distribution Plan of approximately $80.6 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 July 31, 1999
with respect to the Class B and Class C shares of the Fund indicating
the maximum allowable payments that can be made under the NASD maximum
sales charge rule and, with respect to the Class B shares, the
Distributor’s voluntary maximum.
|
|
|
Data
Calculated as of July 31,
1999
|
|
|
|
(in
thousands) |
|
|
|
Eligible
Gross
Sales(1)
|
|
Allowable
Aggregate
Sales Charges(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 July 31, 1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Under NASD Rule as Adopted |
|
$568,443 |
|
$35,204 |
|
$13,718 |
|
$48,922 |
|
$22,164 |
|
$26,758 |
|
$1,493 |
Under Distributor’s Voluntary
Waiver |
|
$568,443 |
|
$35,528 |
|
$ 2,842 |
|
$38,370 |
|
$22,164 |
|
$15,882 |
|
$1,493 |
Class C Shares, for the period
October 21, 1994
(commencement of operations)
to July 31, 1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Under NASD Rule as Adopted |
|
$ 22,365 |
|
$ 1,404 |
|
$
458 |
|
$ 1,862 |
|
$
440 |
|
$ 1,422 |
|
$
62 |
(1)
|
Purchase
price of all eligible Class B or Class C shares sold during the
periods indicated other than shares acquired through dividend
reinvestment and the exchange privilege.
|
(2)
|
Includes
amounts attributable to exchanges from Summit Cash Reserves Fund (
“Summit”) which are not reflected in Eligible Gross Sales.
Shares of Summit can only be purchased by exchange from another fund
(the “redeemed fund”). Upon such an exchange, the maximum
allowable sales charge payment to the redeemed fund is reduced in
accordance with the amount of the redemption. This amount is then
added to the maximum allowable sales charge payment with respect to
Summit. Upon an exchange out of Summit, the remaining balance of this
amount is deducted from the maximum allowable sales charge payment to
Summit and added to the maximum allowable sales charge payment to the
fund into which the exchange is made.
|
(3)
|
Interest is
computed on a monthly basis based upon the prime rate, as reported in
The Wall Street Journal, plus 1.0%, as permitted under the NASD
Rule.
|
(4)
|
Consists of
CDSC payments, distribution fee payments and accruals. See “What
are the Fund’s fees and expenses?” in the Prospectus. This
figure may include CDSCs that were deferred when a shareholder
redeemed shares prior to the expiration of the applicable CDSC period
and invested the proceeds, without the imposition of a sales charge,
in Class A shares in conjunction with the shareholder’s
participation in the Merrill Lynch Mutual Fund Advisor (Merrill Lynch
MFA
SM
) Program (the “MFA Program”). The CDSC is booked as
a contingent obligation that may be payable if the shareholder
terminates participation in the MFA Program.
|
(5)
|
Provided to
illustrate the extent to which the current level of distribution fee
payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution
fee will reach either the voluntary maximum (with respect to Class B
shares) or the NASD maximum (with respect to Class B and Class C
shares).
|
Reference is made to “How to Buy, Sell, Transfer and
Exchange Shares” in the Prospectus.
The Fund
is required to redeem for cash all shares of the Fund upon receipt of a
written request in proper form. The redemption price is the net asset
value per share next determined after the initial receipt of proper
notice of redemption. Except for any CDSC that may be applicable, there
will be no charge for redemption if the redemption request is sent
directly to the Transfer Agent. Shareholders liquidating their holdings
will receive upon redemption all dividends reinvested through the date
of redemption.
The
right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any
period during which trading on the New York Stock Exchange (the
“NYSE”) is restricted as determined by the Commission or the
NYSE is closed (other than customary weekend and holiday closings), for
any period during which an emergency exists as defined by the
Commission as a result of which disposal of portfolio securities or
determination of the net asset value of the Fund is not reasonably
practicable, and for such other periods as the Commission may by order
permit for the protection of shareholders of the Fund.
The
value of shares at the time of redemption may be more or less than the
shareholder’s cost, depending in part on the market value of the
securities held by the Fund at such time.
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 Agent’s register. The signature(s) on the redemption
request may require a guarantee by an “eligible guarantor
institution” as defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934 (the “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 Agent’s register; (ii) all checks must be mailed to
the stencil address of record on the Transfer Agent’s register and
(iii) the stencil address must not have changed within 30 days. Certain
rules may apply regarding certain account types such as but not limited
to UGMA/UTMA accounts, Joint Tenancies With Rights of Survivorship,
contra broker transactions, and institutional accounts. In certain
instances, the Transfer Agent may require additional documents such as,
but not limited to, trust instruments, death certificates, appointments
as executor or administrator, or certificates of corporate authority.
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 usually not exceed 10 days.
The Fund
also will repurchase Fund shares through a shareholder’s listed
securities dealer. 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 dealer prior to the regular close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) and such
request is received by the Fund from such dealer not later than 30
minutes after the close of business on the NYSE on the same day.
Dealers have the responsibility of submitting such repurchase requests
to the Fund not later than 30 minutes after the close of business on
the NYSE, in order to obtain that day’s closing price.
The
foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any
applicable CDSC). Securities firms that do not have selected dealer
agreements with the Distributor, however, may impose a transaction
charge on the shareholder for transmitting the notice of repurchase to
the Fund. Merrill Lynch may charge its customers a processing fee
(presently $5.35) to confirm a repurchase of shares to such customers.
Repurchases made directly through the Transfer Agent on accounts held
at the Transfer Agent are not subject to the processing fee. The Fund
reserves the right to reject any order for repurchase, which right of
rejection might adversely affect shareholders seeking redemption
through the repurchase procedure. However, a shareholder whose order
for repurchase is rejected by the Fund may redeem Fund shares as set
forth above.
Reinstatement Privilege — Class A and Class D Shares
Shareholders who have redeemed their Class A or Class D shares of
the Fund have a privilege to reinstate their accounts by purchasing
Class A or Class D shares, as the case may be, of the Fund at net asset
value without a sales charge up to the dollar amount redeemed. The
reinstatement privilege may be exercised by sending a notice of
exercise along with a check for the amount to be reinstated to the
Transfer Agent within 30 days after the date the request for redemption
was accepted by the Transfer Agent or the Distributor. Alternatively,
the reinstatement privilege may be exercised through the investor
’s Merrill Lynch Financial Consultant within 30 days after the
date the request for redemption was accepted by the Transfer Agent or
the Distributor. The reinstatement will be made at the net asset value
per share next determined after the notice of reinstatement is received
and cannot exceed the amount of the redemption proceeds.
Determination of Net Asset Value
Reference is made to “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 after the close of business on the NYSE on
each day the NYSE is open for trading. The NYSE generally closes at
4:00 p.m., Eastern time. Any assets or liabilities initially expressed
in terms of non-U.S. dollar currencies are translated into U.S. dollars
at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. The NYSE is not open for trading on
New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
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 (regular way) on the exchange on which
such securities are traded as of the close of business on the day the
securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available ask
price for short positions. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated
by or under the authority of the 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.
The Fund
may, to the extent permitted by its investment restrictions, have
positions in portfolio securities for which market quotations are not
readily available. It may be difficult to determine precisely the fair
market value for such investments and there may be a range of values
which are reasonable at any particular time. Determination of fair
value in such instances will be based upon such factors as are deemed
relevant under the circumstances, including the financial condition and
operating results of the issuer, recent third party transactions
(actual or proposed) relating to such securities and, in extreme cases,
the liquidation value of the issuer.
Generally, trading in non-U.S. securities, as well as U.S.
Government securities and money market instruments, is substantially
completed each day at various times prior to the close of business on
the NYSE. The values of such securities used in computing the net asset
value of the Fund’s shares are determined as of such times.
Foreign currency exchange rates are also generally determined prior to
the close of business on the NYSE. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the
times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund’s
net asset value.
Computation of Offering Price Per Share
An
illustration of the computation of the offering price for Class A,
Class B, Class C and Class D shares of the Fund based on the value of
the Fund’s net assets and number of shares outstanding on July 31,
1999 is set forth below.
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
|
Class
D
|
| Net Assets |
|
$245,712,242 |
|
$199,131,368 |
|
$8,244,749 |
|
$84,479,226 |
| |
|
|
|
|
|
|
|
|
| Number of Shares
Outstanding |
|
17,918,461 |
|
15,251,431 |
|
637,362 |
|
6,177,712 |
| |
|
|
|
|
|
|
|
|
Net Asset Value Per Share (net assets
divided by
number of shares outstanding) |
|
$
13.71 |
|
$
13.06 |
|
$
12.94 |
|
$
13.67 |
Sales Charge (for Class A and Class D
shares:
5.25% of offering price; 5.54% of net
asset value
per share)* |
|
.76 |
|
** |
|
** |
|
.76 |
| |
|
|
|
|
|
|
|
|
| Offering Price |
|
$
14.47 |
|
$
13.06 |
|
$
12.94 |
|
$
14.43 |
| |
|
|
|
|
|
|
|
|
*
|
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 Charges 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
Fund’s 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 firm’s 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. In addition, consistent with the Conduct Rules
of the NASD and policies established by the Board of Directors of the
Fund, the Investment Adviser 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 analysis 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 July
31
|
|
Aggregate
Brokerage
Commissions
Paid
|
|
Commissions
Paid
to Merrill
Lynch
|
| 1999 |
|
$1,741,171 |
|
$108,297 |
| 1998 |
|
$2,154,678 |
|
$ 16,710 |
| 1997 |
|
$2,610,331 |
|
$
0 |
For the
fiscal year ended July 31, 1999, the brokerage commissions paid to
Merrill Lynch represented 6.22% of the aggregate brokerage commissions
paid and involved 4.58% of the Fund’s 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 Policies — Investment
Restrictions.”
Section
11(a) of the Exchange Act generally prohibits members of the United
States national securities exchanges from executing exchange
transactions for their affiliates and institutional accounts that they
manage unless the member (i) has obtained prior express authorization
from the account to effect such transactions, (ii) at least annually
furnishes the account with the aggregate compensation received by the
member in effecting such transactions, and (iii) complies with any
rules the Commission has prescribed with respect to the requirements of
clauses (i) and (ii). To the extent Section 11(a) would apply to
Merrill Lynch 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 an
affiliate when one or more clients of the Investment Adviser or an
affiliate are selling the same security. If purchases or sales of
securities arise for consideration at or about the same time that would
involve the Fund or other clients or funds for which the Investment
Adviser or an affiliate acts as manager transactions in such securities
will be made, insofar as feasible, for the respective funds and clients
in a manner deemed equitable to all. To the extent that transactions on
behalf of more than one client of the Investment Adviser or an
affiliate during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an
adverse effect on price.
The Fund
offers a number of shareholder services and investment plans described
below that are designed to facilitate investment in shares of the Fund.
Full details as to each of such services, copies of the various plans
and instructions as to how to participate in the various services or
plans, or how to change options with respect thereto, can be obtained
from the Fund, by calling the telephone number on the cover page
hereof, or from the Distributor or Merrill Lynch. Certain of these
services are available only to U.S. investors and certain of these
services are not available to investors who place orders through the
Merrill Lynch Blueprint
SM
Program.
Each
shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly,
from the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment
of dividends. The statements will also show any other activity in the
account since the preceding statement. Shareholders will also receive
separate confirmations for each purchase or sale transaction other than
automatic investment purchases and the reinvestment of dividends. A
shareholder with an account held at the Transfer Agent may make
additions to his or her Investment Account at any time by mailing a
check directly to the Transfer Agent. A shareholder may also maintain
an account through Merrill Lynch. Upon the transfer of shares out of a
Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder’s name may be opened automatically at the
Transfer Agent.
Share
certificates are issued only for full shares and only upon the specific
request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an
Investment Account may be requested by a shareholder directly from the
Transfer Agent.
Shareholders may transfer their Fund shares from Merrill Lynch to
another securities dealer that has entered into a selected dealer
agreement with Merrill Lynch. Certain shareholder services may not be
available for the transferred shares. After the transfer, the
shareholder may purchase additional shares of funds owned before the
transfer and all future trading of these assets must be coordinated by
the new firm. If a shareholder wishes to transfer his or her shares to
a securities dealer 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 should be aware that, if the firm to which
the retirement account is to be transferred will not take delivery of
shares of the Fund, a shareholder must either redeem the shares, paying
any applicable CDSC, so that the cash proceeds can be transferred to
the account at the new firm, or such shareholder must continue to
maintain a retirement account at Merrill Lynch for those
shares.
U.S.
shareholders of each class of shares of the Fund have an exchange
privilege with certain other Select Pricing Funds and Summit Cash
Reserves Fund (“Summit”), a series of Financial Institutions
Series Trust, which is a Merrill Lynch-sponsored money market fund
specifically designated for exchange by holders of Class A, Class B,
Class C and Class D shares of Select Pricing Funds. Shares with a net
asset value of at least $100 are required to qualify for the exchange
privilege and any shares utilized in an exchange must have been held by
the shareholder for at least 15 days. Before effecting an exchange,
shareholders should obtain a currently effective prospectus of the fund
into which the exchange is to be made. Exercise of the exchange
privilege is treated as a sale of the exchanged shares and a purchase
of the acquired shares for Federal income tax purposes.
Exchanges of Class A and Class D Shares.
Class A shareholders may exchange Class A shares of the Fund
for Class A shares of a second Select Pricing Fund if the shareholder
holds any Class A shares of the second fund in the account in which the
exchange is made at the time of the exchange or is otherwise eligible
to purchase
Class A shares of the second fund. If the Class A shareholder wants to
exchange Class A shares for shares of a second Select Pricing Fund, but
does not hold Class A shares of the second fund in his or her account
at the time of the exchange and is not otherwise eligible to acquire
Class A shares of the second fund, the shareholder will receive Class D
shares of the second fund as a result of the exchange. Class D shares
also may be exchanged for Class A shares of a second Select Pricing
Fund at any time as long as, at the time of the exchange, the
shareholder holds Class A shares of the second fund in the account in
which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class D shares are exchangeable with shares
of the same class of other Select Pricing Funds.
Exchanges of Class A or Class D shares outstanding (
“outstanding Class A or Class D shares”) for Class A or Class
D shares of other Select Pricing Funds 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
Fund’s CDSC schedule if such schedule is higher than the CDSC
schedule relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Fund acquired
through use of the exchange privilege will be subject to the Fund
’s CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares of the fund from which the exchange has
been made. For purposes of computing the CDSC that may be payable on a
disposition of the new Class B or Class C shares, the holding period
for the outstanding Class B or Class C shares is “tacked” to
the holding period of the new Class B or Class C shares. For example,
an investor may exchange Class B shares of the Fund for those of
Merrill Lynch Special Value Fund, Inc. (“Special Value Fund”)
after having held the Fund’s Class B shares for two and a half
years. The 2% CDSC that generally would apply to a redemption would not
apply to the exchange. Three years later the investor may decide to
redeem the Class B shares of Special Value Fund and receive cash. There
will be no CDSC due on this redemption, since by “tacking”
the two and a half year holding period of Fund Class B shares to the
three-year holding period for the Special Value Fund Class B shares,
the investor will be deemed to have held the Special Value Fund Class B
shares for more than five years.
Exchanges for Shares of a Money Market Fund.
Class A and Class D shares are exchangeable for Class A
shares of Summit and Class B and Class C shares are exchangeable for
Class B shares of Summit. Class A shares of Summit have an exchange
privilege back into Class A or Class D shares of Select Pricing Funds;
Class B shares of Summit have an exchange privilege back into Class B
or Class C shares of Select Pricing Funds and, in the event of such an
exchange, the period of time that Class B shares of Summit are held
will count toward satisfaction of the holding period requirement for
purposes of reducing any CDSC and toward satisfaction of any Conversion
Period with respect to Class B shares. Class B shares of Summit will be
subject to a distribution fee at an annual rate of 0.75% of average
daily net assets of such Class B shares. This exchange privilege does
not apply with respect to certain Merrill Lynch fee-based programs for
which alternative exchange arrangements may exist. Please see your
Merrill Lynch Financial Consultant for further information.
Prior to October 12,
1998, exchanges from the Fund and other Select Pricing Funds into a
money market fund were directed to certain Merrill Lynch-sponsored
money market funds other than Summit. Shareholders who exchanged Select
Pricing Fund shares for shares of such other money market funds and
subsequently wish to exchange those money market fund shares for shares
of the Fund will be subject to the CDSC schedule applicable to such
Fund shares, if any. The holding period for the money market fund
shares will not count toward satisfaction of the holding period
requirement for reduction of the CDSC imposed on such shares, if any,
and, with respect to Class B shares, toward satisfaction of the
Conversion Period. However, the holding period for Class B or Class C
shares of the Fund received in exchange for such money market fund
shares will be aggregated with the holding period for the fund shares
originally exchanged for such money market fund shares for purposes of
reducing the CDSC or satisfying the Conversion Period.
Exchanges by Participants in the MFA Program.
The exchange privilege is modified with respect to certain
retirement plans which participate in the MFA Program. Such retirement
plans may exchange Class B, Class C or Class D shares that have been
held for at least one year for Class A shares of the same fund on the
basis of relative net asset values in connection with the commencement
of participation in the MFA Program, i.e., no CDSC will apply. The one
year holding period does not apply to shares acquired through
reinvestment of dividends. Upon termination of participation in the MFA
Program, Class A shares will be re-exchanged for the class of shares
originally held. For purposes of computing any CDSC that may be payable
upon redemption of Class B or Class C shares so reacquired, or the
Conversion Period for Class B shares so reacquired, the holding period
for the Class A shares will be “tacked” to the holding period
for the Class B or Class C shares originally held. The Fund’s
exchange privilege is also modified with respect to purchases of Class
A and Class D shares by non-retirement plan investors under the MFA
Program. First, the initial allocation of assets is made under the MFA
Program. Then, any subsequent exchange under the MFA Program of Class A
or Class D shares of a Select Pricing Fund for Class A or Class D
shares of the Fund will be made solely on the basis of the relative net
asset values of the shares being exchanged. Therefore, there will not
be a charge for any difference between the sales charge previously paid
on the shares of the other Select Pricing Fund and the sales charge
payable on the shares of the Fund being acquired in the exchange under
the MFA Program.
Exercise of the Exchange Privilege. To
exercise the exchange privilege, a shareholder should contact his or
her Merrill Lynch Financial Consultant, who will advise the Fund of the
exchange. Shareholders of the Fund, and shareholders of the other
Select Pricing Funds with shares for which certificates have not been
issued, may exercise the exchange privilege by wire through their
securities dealers. The Fund reserves the right to require a properly
completed Exchange Application. This exchange privilege may be modified
or terminated in accordance with the rules of the Commission. The Fund
reserves the right to limit the number of times an investor may
exercise the exchange privilege. Certain funds may suspend the
continuous offering of their shares to the general public at any time
and may thereafter resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where the
exchange legally may be made. It is contemplated that the exchange
privilege may be applicable to other new mutual funds whose shares may
be distributed by the Distributor.
Certain
Merrill Lynch fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a
“Program”), may permit the purchase of Class A shares at net
asset value. Under specified circumstances, participants in certain
Programs may deposit other classes of shares which will be exchanged
for Class A shares. Initial or deferred sales charges otherwise due in
connection with such exchanges may be waived or modified, as may the
Conversion Period applicable to the deposited shares. Termination of
participation in a Program may result in the redemption of shares held
therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon
termination of participation in a Program, shares that have been held
for less than specified periods within such Program may be subject to a
fee based upon the current value of such shares. These Programs also
generally prohibit such shares from being transferred to another
account at Merrill Lynch, to another broker-dealer or to the Transfer
Agent. Except in limited circumstances (which may also involve an
exchange as described above), such shares must be redeemed and another
class of shares purchased (which may involve the imposition of initial
or deferred sales charges and distribution and account maintenance
fees) in order for the investment not to be subject to Program
fees. Additional information regarding a specific Program (including
charges and limitations on transferability applicable to shares that
may be held in such Program) is available in such Program’s client
agreement and from the Transfer Agent at 1-800-MER-FUND
(1-(800)-637-3863).
Retirement and Education Savings Plans
Individual retirement accounts and other retirement 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.
Merrill Lynch may charge an initial establishment fee and an annual fee
for each account. Information with respect to these plans is available
on request from Merrill Lynch.
Dividends received in each of the plans referred to above are
exempt from Federal taxation until distributed from the plans.
Different tax rules apply to Roth IRA plans and education savings
plans. Investors considering participation in any retirement or
education savings plan should review specific tax laws relating thereto
and should consult their attorneys or tax advisers with respect to the
establishment and maintenance of any such plan.
Automatic Investment Plans
A
shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A
investor) or Class B, Class C or Class D shares at the applicable
public offering price. These purchases may be made either through the
shareholder’s securities dealer, or by mail directly to the
Transfer Agent, acting as agent for such securities dealer. Voluntary
accumulation also can be made through a service known as the Fund
’s Automatic Investment Plan. The Fund would be authorized, on a
regular basis, to provide systematic additions to the Investment
Account of such shareholder through charges of $50 or more to the
regular bank account of the shareholder by either pre-authorized checks
or automated clearing house debits. For investors who buy shares of the
Fund through Blueprint, no minimum charge to the investor’s bank
account is required. Alternatively, an investor that maintains a CMA
® or CBA® Account may arrange to have periodic investments made
in the Fund in amounts of $100 ($1 for retirement accounts) or more
through the CMA® or CBA® Automated Investment
Program.
Automatic Dividend Reinvestment Plan
Unless
specific instructions are given as to the method of payment, dividends
will be automatically reinvested, without sales charge, in additional
full and fractional shares of the Fund. Such reinvestment will be at
the net asset value of shares of the Fund as determined after the close
of business on the NYSE on the monthly payment date for such dividends.
No CDSC will be imposed upon redemption of shares issued as a result of
the automatic reinvestment of dividends.
Shareholders may, at any time, by written notification to Merrill
Lynch if their account is maintained with Merrill Lynch, or by written
notification or by telephone (1-800-MER-FUND) to the Transfer Agent, if
their account is maintained with the Transfer Agent, elect to have
subsequent dividends paid in cash, rather than reinvested in shares of
the Fund or vice versa (provided that, in the event that a payment on
an account maintained at the Transfer Agent would amount to $10.00 or
less, a shareholder will not receive such payment in cash and such
payment will automatically be reinvested in additional shares).
Commencing ten days after the receipt by the Transfer Agent of such
notice, those instructions will be effected. The Fund is not
responsible for any failure of delivery to the shareholder’s
address of record and no interest will accrue on amounts represented by
uncashed dividend checks. Cash payments can also be directly deposited
to the shareholder’s bank account.
Systematic Withdrawal Plan
A
shareholder may elect to receive systematic withdrawals from his or her
Investment Account by check or through automatic payment by direct
deposit to his or her bank account on either a monthly or quarterly
basis as provided below. Quarterly withdrawals are available for
shareholders that have acquired shares of the Fund having a value,
based on cost or the current offering price, of $5,000 or more, and
monthly withdrawals are available for shareholders with shares having a
value of $10,000 or more.
At the time of each
withdrawal payment, sufficient shares are redeemed from those on
deposit in the shareholder’s account to provide the withdrawal
payment specified by the shareholder. The shareholder may specify the
dollar amount and the class of shares to be redeemed. Redemptions will
be made at net asset value as determined 15 minutes after the close of
business on the NYSE (generally, the NYSE closes at 4:00 p.m., Eastern
time) on the 24th day of each month or the 24th day of the last month
of each quarter, whichever is applicable. If the NYSE is not open for
business on such date, the shares will be redeemed at the net asset
value determined after the close of business on the following business
day. The check for the withdrawal payment will be mailed, or the direct
deposit for withdrawal payment will be made, on the next business day
following redemption. When a shareholder is making systematic
withdrawals, dividends on all shares in the Investment Account are
reinvested automatically in Fund shares. A shareholder’s
Systematic Withdrawal Plan may be terminated at any time, without
charge or penalty, by the shareholder, the Fund, the Transfer Agent or
the Distributor.
With
respect to redemptions of Class B or Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C
shares that can be redeemed from an account annually shall not exceed
10% of the value of shares of such class in that account at the time
the election to join the systematic withdrawal plan was made. Any CDSC
that otherwise might be due on such redemption of Class B or Class C
shares will be waived. Shares redeemed pursuant to a systematic
withdrawal plan will be redeemed in the same order as Class B or Class
C shares are otherwise redeemed. See “Purchase of Shares
— Deferred Sales Charge Alternatives —Class B and
Class C Shares.” Where the systematic withdrawal plan is applied
to Class B shares, upon conversion of the last Class B shares in an
account to Class D shares, the systematic withdrawal plan will be
applied thereafter to Class D shares if the shareholder so elects. If
an investor wishes to change the amount being withdrawn in a systematic
withdrawal plan the investor should contact his or her Merrill Lynch
Financial Consultant.
Withdrawal payments should not be considered as dividends. Each
withdrawal is a taxable event. If periodic withdrawals continuously
exceed reinvested dividends, the shareholder’s original investment
may be reduced correspondingly. Purchases of additional shares
concurrent with withdrawals are ordinarily disadvantageous to the
shareholder because of sales charges and tax liabilities. The Fund will
not knowingly accept purchase orders for shares of the Fund from
investors that maintain a Systematic Withdrawal Plan unless such
purchase is equal to at least one year’s scheduled withdrawals or
$1,200, whichever is greater. Automatic investments may not be made
into an Investment Account in which the shareholder has elected to make
systematic withdrawals.
Alternatively, a shareholder whose shares are held within a CMA
® or CBA® Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the
CMA® or CBA® Systematic Redemption Program. The minimum fixed
dollar amount redeemable is $50. The proceeds of systematic redemptions
will be posted to the shareholder’s account three business days
after the date the shares are redeemed. All redemptions are made at net
asset value. A shareholder may elect to have his or her shares redeemed
on the first, second, third or fourth Monday of each month, in the case
of monthly redemptions, or of every other month, in the case of
bimonthly redemptions. For quarterly, semiannual or annual redemptions,
the shareholder may select the month in which the shares are to be
redeemed and may designate whether the redemption is to be made on the
first, second, third or fourth Monday of the month. If the Monday
selected is not a business day, the redemption will be processed at net
asset value on the next business day. The CMA® or CBA®
Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automated Investment
Program. For more information on the CMA® or CBA® Systematic
Redemption Program, eligible shareholders should contact their Merrill
Lynch Financial Consultant.
The Fund
intends to distribute substantially all of its net investment income,
if any. Dividends from such net investment income will be paid at least
annually. All net realized capital gains, if any, will be distributed
to the Fund’s shareholders at least annually. From time to time,
the Fund may declare a special distribution at or about the end of the
calendar year in order to comply with Federal tax requirements that
certain percentages of its ordinary income and capital gains be
distributed during the year. If in any fiscal year, the Fund has net
income from certain foreign currency transactions, such income will be
distributed at least annually.
See
“Shareholder Services — Automatic Dividend
Reinvestment Plan” for information concerning the manner in which
dividends may be reinvested automatically in shares of the Fund. A
shareholder whose account is maintained at the Transfer Agent or whose
account is maintained through Merrill Lynch 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
C shares will be lower than the per share dividends on Class A and
Class D shares as a result of the account maintenance, distribution and
higher transfer agency fees applicable with respect to the Class B and
Class C shares; similarly, the per share dividends on Class D shares
will be lower than the per share dividends on Class A shares as a
result of the account maintenance fees applicable with respect to the
Class D shares. See “Pricing of Shares —
Determination of Net Asset Value.”
The Fund
intends to continue to qualify for the special tax treatment afforded
regulated investment companies (“RICs”) under the Internal
Revenue Code of 1986, as amended (the “Code”). As long as it
so qualifies, the Fund (but not its shareholders) will not be subject
to Federal income tax on the part of its net ordinary income and net
realized capital gains that it distributes to Class A, Class B, Class C
and Class D shareholders (together, the “shareholders”). The
Fund intends to distribute substantially all of such
income.
The Code
requires a RIC to pay a nondeductible 4% excise tax to the extent the
RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital
gains, determined, in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While the Fund intends to
distribute its income and capital gains in the manner necessary to
minimize imposition of the 4% excise tax, there can be no assurance
that sufficient amounts of the Fund’s taxable income and capital
gains will be distributed to avoid entirely the imposition of the tax.
In such event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution
requirements.
Dividends paid by the Fund from its ordinary income or from an
excess of net short-term capital gains over net long-term capital
losses (together referred to hereafter as “ordinary income
dividends”) are taxable to shareholders as ordinary income.
Distributions made from an excess of net long-term capital gains over
net short-term capital losses (including gains or losses from certain
transactions in options) (“capital gain dividends”) are
taxable to shareholders as long-term capital gains, regardless of the
length of time the shareholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or less will be
treated as long-term capital loss to the extent of any capital gain
dividends received by the shareholder. Distributions in excess of the
Fund’s earnings and profits will first reduce the adjusted tax
basis of a holder’s shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming
the shares are held as a capital asset). Certain categories of capital
gains are taxable at different rates. Generally not later than 60 days
after the close of its taxable year, the Fund will provide its
shareholders with a written notice designating the amount of any
capital gain dividends as well as any amount of capital gain dividends
in the different categories of capital gain referred to
above.
Dividends are taxable to shareholders even though they are
reinvested in additional shares of the Fund. A portion of the Fund
’s ordinary income dividends may be eligible for the dividends
received deduction allowed to corporations under the Code, if certain
requirements are met. For this purpose, the Fund will allocate
dividends eligible for the dividends received deduction among the Class
A, Class B, Class C and Class D shareholders according to a method
(which it believes is consistent with the Commission rule permitting
the issuance and sale of multiple classes of stock) that is based on
the gross income allocable to Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as the
Internal Revenue Service may prescribe. If the Fund pays a dividend in
January that was declared in the previous October, November or December
to shareholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by
the Fund and received by its shareholders on December 31 of the year in
which such dividend was declared.
No gain
or loss will be recognized by Class B shareholders on the conversion of
their Class B shares into Class D shares. A shareholder’s basis in
the Class D shares acquired will be the same as such shareholder’s
basis
in the Class B shares converted, and the holding period of the acquired
Class D shares will include the holding period for the converted Class
B shares.
If a
shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange
will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge the
shareholder would have owed upon the purchase of the new shares in the
absence of the exchange privilege. Instead, such sales charge will be
treated as an amount paid for the new shares.
A loss
realized on a sale or exchange of shares of the Fund will be disallowed
if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the
shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss.
Ordinary
income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% U.S. withholding tax under
existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Nonresident
shareholders are urged to consult their own tax advisers concerning the
applicability of the U.S. withholding tax.
Under
certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain
dividends and redemption payments (“backup withholding”).
Generally, shareholders subject to backup withholding will be those for
whom no certified taxpayer identification number is on file with the
Fund or who, to the Fund’s knowledge, have furnished an incorrect
number. When establishing an account, an investor must certify under
penalty of perjury that such number is correct and that such investor
is not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce
or eliminate such taxes.
Tax Treatment of Options Transactions
The Fund
may write covered call options with respect to securities that it holds
in its portfolio and enter into closing transactions with respect to
certain of such options. In general, unless an election is available to
the Fund or an exception applies, such options that are “Section
1256 contracts” will be “marked to market” for Federal
income tax purposes at the end of each taxable year, i.e., each such
option will be treated as sold for its fair market value on the last
day of the taxable year, and any 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.
Code
Section 1092, which applies to certain “straddles,” may
affect the taxation of the Fund’s sales of securities and
transactions in options. Under Section 1092, the Fund may be required
to postpone recognition for tax purposes of losses incurred in certain
sales of securities and certain closing transactions in options
contracts.
Special Rules for Certain Foreign Currency Transactions
In
general, gains from “foreign currencies” and from foreign
currency options relating to investments in stocks, securities or
foreign currencies will be qualifying income for purposes of
determining whether the Fund qualifies as a RIC. It is currently
unclear, however, who will be treated as the issuer of a foreign
currency instrument or how foreign currency options will be valued for
purposes of the RIC diversification requirements applicable to the
Fund.
Under
Code Section 988, special rules are provided for certain transactions
in a foreign currency other than in taxpayer’s functional currency
(i.e., unless certain special rules apply, currencies other than
the U.S. dollar). In
general, foreign currency gains or losses from certain debt instruments,
from certain forward contracts, from futures contracts that are not
“regulated futures contracts” and from unlisted options will
be treated as ordinary income or loss under Code Section 988. In
certain circumstances, the Fund may elect capital gain or loss
treatment for such transactions. In general, however, Code Section 988
gains or losses will increase or decrease the amount of the Fund’s
investment company taxable income available to be distributed to
shareholders as ordinary income. Additionally, if Code Section 9888
losses exceed other investment company taxable income during a taxable
year, the Fund would not be able to make any ordinary income dividend
distributions, and all or a portion of distributions made before the
losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby
reducing the basis of each shareholder’s Fund shares and resulting
in a capital gain for any shareholder who received a distribution
greater than such shareholder’s basis in Fund shares (assuming the
shares were held as a capital asset). These rules and the
mark-to-market rules described above, however, will not apply to
certain transactions entered into by the Fund solely to reduce the risk
of currency fluctuations with respect to its investments.
The
foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect.
For the complete provisions, reference should be made to the pertinent
Code sections and the Treasury regulations promulgated thereunder. The
Code and the Treasury regulations are subject to change by legislative,
judicial or administrative action either prospectively or
retroactively.
Ordinary
income and capital gain dividends may also be subject to state and
local taxes.
Certain
states exempt from state income taxation dividends paid by RICs that
are derived from interest on U.S. Government obligations. State law
varies as to whether dividend income attributable to U.S. Government
obligations is exempt from state income tax.
Shareholders are urged to consult their 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.
From
time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to
present or prospective shareholders. Total return figures are based on
the Fund’s historical performance and are not intended to indicate
future performance. Average annual total return is determined
separately for Class A, Class B, Class C and Class D shares in
accordance with formulas specified by the Commission.
Average
annual total return quotations for the specified periods are computed
by finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or
losses on portfolio investments over such periods) that would equate
the initial amount invested to the redeemable value of such investment
at the end of each period. Average annual total return is computed
assuming all dividends and distributions are reinvested and taking into
account all applicable recurring and nonrecurring expenses, including
the maximum sales charge in the case of Class A and Class D shares and
the CDSC that would be applicable to a complete redemption of the
investment at the end of the specified period as in the case of Class B
and Class C shares and the maximum sales charge in the case of Class A
and D shares. Dividends paid by the Fund with respect to all shares, to
the extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same amount,
except that account maintenance and distribution charges and any
incremental transfer agency costs relating to each class of shares will
be borne exclusively by that class. The Fund will include performance
data for all classes of shares of the Fund in any advertisement or
information including performance data of the Fund.
The Fund
also may quote annual, average annual and annualized total return and
aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various
periods other than those noted below. Such data will be computed as
described above, except that (1) as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather than
average annual data, may be quoted and (2) the maximum applicable sales
charges will not be included with respect to annual or
annualized rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the maximum
applicable sales charges, actual annual or annualized total return data
generally will be lower than average annual total return data since the
average rates of return reflect compounding of return; aggregate total
return data generally will be higher than average annual total return
data since the aggregate rates of return reflect compounding over a
longer period of time. The Fund’s total return may be expressed
either as a percentage or as a dollar amount in order to illustrate
such total return on a hypothetical $1,000 investment in the Fund at
the beginning of each specified period.
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
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
|
|
Average Annual
Total Return |
|
|
|
(including
maximum applicable sales charges) |
|
|
| One Year Ended July 31,
1999 |
|
17.63 |
% |
|
$ 1,176.30 |
|
18.97 |
% |
|
$1,189.70 |
| Five Years Ended July 31,
1999 |
|
15.13 |
% |
|
$ 2,022.30 |
|
15.21 |
% |
|
$2,029.80 |
| Ten Years Ended July 31,
1999 |
|
13.57 |
% |
|
$ 3,571.30 |
|
13.03 |
% |
|
$3,404.20 |
|
|
|
|
Class A
Shares
|
|
Class B
Shares
|
Period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
|
|
|
|
Annual Total
Return |
|
|
|
(excluding maximum
applicable sales charges) |
|
|
| Year Ended July 31, |
|
1999 |
|
24.15 |
% |
|
$ 1,241.50 |
|
22.97 |
% |
|
$1,229.70 |
|
1998 |
|
10.98 |
% |
|
$ 1,109.80 |
|
9.84 |
% |
|
$1,098.40 |
|
1997 |
|
29.78 |
% |
|
$ 1,297.80 |
|
28.48 |
% |
|
$1,284.80 |
|
1996 |
|
4.78 |
% |
|
$ 1,047.80 |
|
3.67 |
% |
|
$1,036.70 |
|
1995 |
|
13.91 |
% |
|
$ 1,139.10 |
|
12.83 |
% |
|
$1,128.30 |
|
1994 |
|
9.36 |
% |
|
$ 1,093.60 |
|
8.21 |
% |
|
$1,082.10 |
|
1993 |
|
28.96 |
% |
|
$ 1,289.60 |
|
27.66 |
% |
|
$1,276.60 |
|
1992 |
|
14.54 |
% |
|
$ 1,145.40 |
|
13.35 |
% |
|
$1,133.50 |
|
1991 |
|
10.35 |
% |
|
$ 1,103.50 |
|
9.14 |
% |
|
$1,091.40 |
|
1990 |
|
(0.93 |
)% |
|
$
990.70 |
|
(1.86 |
)% |
|
$
981.40 |
|
|
|
|
Aggregate
Total Return |
|
|
|
(including
maximum applicable sales charges) |
Inception (November 1, 1982) to July
31,
1999 |
|
1,131.51 |
% |
|
$12,315.10 |
|
— |
|
|
— |
Inception (October 21, 1988) to July
31,
1999 |
|
— |
|
|
— |
|
286.58 |
% |
|
$3,865.80 |
|
|
|
Class C
Shares
|
|
Class D
Shares
|
Period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
|
|
|
|
Average Annual
Total Return |
|
|
|
(including
maximum applicable sales charges) |
|
|
| One Year Ended July 31,
1999 |
|
21.95 |
% |
|
$1,219.50 |
|
17.37 |
% |
|
$1,173.70 |
Inception (October 21, 1994) to July
31,
1999 |
|
15.58 |
% |
|
$1,996.50 |
|
15.17 |
% |
|
$1,963.30 |
|
|
|
Annual Total
Return |
|
|
|
(excluding
maximum applicable sales charges) |
|
|
| Year Ended July 31, |
|
1999 |
|
22.95 |
% |
|
$1,229.50 |
|
23.87 |
% |
|
$1,238.70 |
|
1998 |
|
9.90 |
% |
|
$1,099.00 |
|
10.70 |
% |
|
$1,107.00 |
|
1997 |
|
28.39 |
% |
|
$1,283.90 |
|
29.44 |
% |
|
$1,294.40 |
|
1996 |
|
3.69 |
% |
|
$1,036.90 |
|
4.50 |
% |
|
$1,045.00 |
| Inception (October 21, 1994) to July
31, |
|
|
|
|
|
|
|
|
|
|
|
1995 |
|
10.99 |
% |
|
$1,109.90 |
|
11.72 |
% |
|
$1,117.20 |
|
|
|
|
Aggregate
Total Return
(including maximum applicable sales
charges) |
Inception (October 21, 1994) to
July 31, 1999 |
|
99.65 |
% |
|
$1,996.50 |
|
96.33 |
% |
|
$1,963.30 |
In order
to reflect the reduced sales charges in the case of Class A or Class D
shares, or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under
“Purchase of Shares,” the total return data quoted by the
Fund in advertisements directed to such investors may take into account
the reduced, and not the maximum, sales charge or may not take into
account the CDSC, and therefore may reflect greater total return since,
due to the reduced sales charges or the waiver of CDSCs, a lower amount
of expenses may be deducted.
On
occasion, the Fund may compare its performance to various indices
including the Standard & Poor’s 500 Index, the Dow Jones
Industrial Average, or 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 Fund’s Morningstar
risk-adjusted performance ratings in advertisements or supplemental
sales literature. As with other performance data, performance
comparisons should not be considered indicative of the Fund’s
relative performance for any future period.
Total
return figures are based on the Fund’s historical performance and
are not intended to indicate future performance. The Fund’s total
return will vary depending on market conditions, the securities
comprising the Fund’s portfolio, the Fund’s operating
expenses and the amount of realized and unrealized net capital gains or
losses during the period. The value of an investment in the Fund will
fluctuate and an investor’s shares, when redeemed, may be worth
more or less than their original cost.
The Fund
was incorporated under Maryland law on April 15, 1982. It has an
authorized capital of 300,000,000 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 and Class C each consist
of 50,000,000 shares, and Class B and Class D each consist of
100,000,000 shares. Class A, Class B, Class C and Class D Common Stock
represent an interest in the same assets of the Fund and are identical
in all respects 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 Fund has received an order from the
Commission permitting the issuance and sale of multiple classes of
Common Stock. 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 and will vote on the
election of Directors and any other matter submitted to a shareholder
vote. The Fund does not intend to hold meetings of shareholders in any
year in which the Investment Company Act of 1940 does not require
shareholders to act on any of the following matters: (i) election of
Directors; (ii) approval of an investment
advisory agreement; (iii) approval of a distribution agreement; and (iv)
ratification of selection of independent auditors. Generally under
Maryland law, a meeting of shareholders may be called for any purpose
on the written request of the holders of at least 25% of the
outstanding shares of the Fund. 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 the meeting. Voting rights for Directors are not cumulative. Shares
issued are fully paid and non-assessable and have no preemptive or
conversion rights. Redemption and conversion rights are discussed
elsewhere herein and in the Prospectus. Each share of Class A, Class B,
Class C and Class D Common Stock is entitled to participate equally in
dividends and distributions declared by the Fund and in the net assets
of the Fund on liquidation or dissolution after satisfaction of
outstanding liabilities. Stock certificates will be issued by the
Transfer Agent only on specific request. Certificates for fractional
shares are not issued in any case.
Deloitte
& Touche LLP, 117 Campus Drive, 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.
The
Chase Manhattan Bank (the “Custodian”), Global Securities
Services, 4 Chase MetroTech Center, 18th Floor, Brooklyn, New York
11245, acts as the custodian of the Fund’s assets. Under its
contract with the Fund, the Custodian is authorized, among other
things, to establish separate accounts in foreign currencies and to
cause foreign securities owned by the Fund to be held in its offices
outside of the United States and with certain foreign banks and
securities depositories. The Custodian is responsible for safeguarding
and controlling the Fund’s cash and securities, handling the
receipt and delivery of securities and collecting interest and
dividends on the Fund’s investments.
Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund’s Transfer
Agent. The Transfer Agent is responsible for the issuance, transfer and
redemption of shares and the opening, maintenance and servicing of
shareholder accounts. See “How to Buy, Sell, Transfer and Exchange
Shares — Through the Transfer Agent” in the
Prospectus.
Brown
& Wood LLP, One World Trade Center, New York, New York
10048-0557, is counsel for the Fund.
The
fiscal year of the Fund ends on July 31 of each year. The Fund sends to
its shareholders at least semi-annually reports showing the Fund’s
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders
each year. After the end of each year, shareholders will receive
Federal income tax information regarding dividends and capital gains
distributions.
Shareholder inquiries may be addressed to the Fund at the address
or telephone number set forth on the cover page of this Statement of
Additional Information.
The
Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the
exhibits relating thereto, which the Fund has filed with the Securities
and Exchange Commission, Washington, D.C., under the Securities Act and
the Investment Company Act, to which reference is hereby
made.
Under a
separate agreement, ML & Co. has granted the Fund the right to use
the “Merrill Lynch” name and has reserved the right to
withdraw its consent to the use of such name by the Fund at any time or
to grant the use of such name to any other company, and the Fund has
granted ML & Co. under certain conditions, the use of any other
name it might assume in the future, with respect to any corporation
organized by ML & Co.
To the
knowledge of the Fund, the following persons or entities owned
beneficially 5% or more of a class of the Fund’s shares as of
November 1, 1999:
Name
|
|
Address
|
|
Percent
and Class
|
| Merrill Lynch Trust Company
(1)
|
|
|
|
29% Class A |
| |
|
| Merrill Lynch Trust
Company |
|
P.O. Box 30532 |
|
8.6% Class
A |
TTEE FBO AT&T Capital
Corp |
|
New Brunswick, NJ 08989 |
|
|
|
Retirement and Savings Plan |
|
|
|
|
|
Att: Trust Administrator |
|
|
|
|
| |
|
| Merrill Lynch Trust
Company |
|
P.O. Box
30532 |
|
5.2% Class
A |
|
Trustee FBO
MLSIP |
|
New Brunswick, NJ
08989 |
|
|
|
Investment
Account |
|
|
|
|
|
Att: Robert Arimenta
Jr. |
|
|
|
|
| |
|
| Merrill Lynch
Trust Company |
|
|
|
5.6% Class
B |
|
|
| Merrill Lynch
Trust Company |
|
|
|
23% Class
D |
(1)
|
Merrill Lynch Trust Company is the record holder
on behalf of certain employee retirement, personal trust or
savings plan accounts for which it acts as trustee.
|
The
Fund’s audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1999 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.
APPENDIX
DESCRIPTION OF LONG-TERM OBLIGATION
RATINGS
Description of Long-Term Debt Ratings of Moody
’s Investors Service, Inc.:
| Aaa |
|
Bonds which are rated Aaa are
judged to be of the best quality. They carry the smallest degree
of
investment risk and are generally referred to as “gilt edge
”. Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally
strong position of such issues. |
|
| Aa |
|
Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the
Aaa
group they comprise what are generally known as high grade bonds.
They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of
protective elements may be of greater amplitude or there may be
other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities. |
|
| A |
|
Bonds which are rated A possess
many favorable investment attributes and are to be considered as
upper medium-grade obligations. Factors giving security to
principal and interest are considered
adequate but elements may be present which suggest a susceptibility
to impairment sometime in the
future. |
|
| Baa |
|
Bonds which are rated Baa are
considered medium-grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well. |
|
| Ba |
|
Bonds which are rated Ba are
judged to have speculative elements; their future cannot be
considered as
well assured. Often the protection of interest and principal
payments may be very moderate and
thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position
characterizes bonds in this class. |
|
| B |
|
Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of
the contract over any long period
of time may be small. |
|
| Caa |
|
Bonds which are rated Caa are of
poor standing. Such issues may be in default or there may be
present
elements of danger with respect to principal or
interest. |
|
| Ca |
|
Bonds which are rated Ca
represent obligations which are speculative in a high degree.
Such issues are
often in default or have other marked shortcomings. |
|
| C |
|
Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real
investment standing. |
The
modifier 1 indicates that the bond ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its rating category.
Description of Long-Term Issue Credit Ratings of
Standard & Poor’s (“S&P”):
| AAA |
|
An obligation rated AAA has the
highest rating assigned by S&P. The obligor’s capacity
to meet its
financial commitment is extremely strong. |
|
| AA |
|
An obligation rated AA differs
from the highest rated obligations only in small degree. The
obligor’s
capacity to meet its financial commitment is very
strong. |
| A |
|
An obligation rated A is somewhat
more susceptible to the adverse effects of changes in
circumstances
and economic conditions than obligations in higher rated
categories. However, the obligor’s capacity to
meet its financial commitment on the obligation is still
strong. |
|
| BBB |
|
An obligation rated BBB exhibits
adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to
meet its financial commitment on the obligation. |
|
| BB |
|
An obligation rated BB is less
vulnerable to nonpayment than other speculative issues. However,
it
faces major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions
which could lead to the obligor’s inadequate capacity to meet
its financial commitment on the
obligation. |
|
| B |
|
An obligation rated B is more
vulnerable to nonpayment than obligations rated BB, but the
obligor
currently has the capacity to meet its financial commitment on the
obligation. Adverse business,
financial, or economic conditions will likely impair the obligor
’s capacity or willingness to meet its
financial commitment on the obligation. The B rating category is
also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB-
rating. |
|
| CCC |
|
An obligation rated CCC is
currently vulnerable to nonpayment, and is dependent upon
favorable
business, financial, and economic conditions to meet timely payment
of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating
category is also used for debt
subordinated to senior debt that is assigned an actual or implied B
or B- rating. |
|
| CC |
|
An obligation rated CC is
currently highly vulnerable to nonpayment. |
|
| C |
|
The C rating may be used to cover
a situation where a bankruptcy petition has been filed or similar
action has been taken, but payments on this obligation are
continued. |
|
| |
|
Obligations rated BB, B, CCC, CC
and C are regarded as having significant speculative
characteristics.
BB indicates the least degree of speculation and C the highest.
While such obligations will likely have
some quality and protective characteristics, these may be
outweighed by large uncertainties or major
exposures to adverse conditions. |
|
| CI |
|
The rating CI is reserved for
income bonds on which no interest is being paid. |
|
| D |
|
An obligation rated D is in
payment default. The D rating category is used when payments on an
obligation are not made on the date due even if the applicable
grace period has not expired, unless
S&P believes that such payments will be made during such grace
period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of
similar action if payments on an
obligation are jeopardized. |
Plus
(+) or minus (-): The ratings from AAA to CCC may be modified by
the addition of a plus or minus sign to show relative standing
within the major rating categories.
| c |
|
The letter c indicates that the
holder’s option to tender the security for purchase may be
canceled under
certain prestated conditions enumerated in the tender option
documents. |
|
| L |
|
The letter L indicates that the
rating pertains to the principal amount of those bonds to the
extent that
the underlying deposit collateral is federally insured and interest
is adequately collateralized. In the
case of certificates of deposit, the letter L indicates that the
deposit, combined with other deposits
being held in the same right and capacity, will be honored for
principal and accrued pre-default interest
up to the federal insurance limits within 30 days after closing of
the insured institution or, in the event
that the deposit is assumed by as successor insured institution,
upon maturity. |
|
| p |
|
The letter p indicates that the
rating is provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt
service requirements is largely or entirely dependent upon the
successful and timely completion of the
project. |
|
This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment
on the likelihood of, or the risk of default upon failure of,
such completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
|
*
|
Continuance of the rating is contingent upon S
&P’s receipt of an executed copy of the escrow agreement
or closing documentation confirming investments and cash
flows.
|
Obligations of issuers outside the United States and its
territories are rated on the same basis as domestic long-term and
short-term issues. The ratings measure the creditworthiness of the
obligor but do not take into account currency exchange and related
uncertainties.
Bond
Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated
in the top four categories (“AAA”, “A”,
“BBB”, commonly known as “Investment Grade”
ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments
impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance
companies and fiduciaries generally.
D
|
An obligation rated D is in payment default. The D
rating category is used when payments on an obligation are not
made on the date due even if the applicable grace period has not
expired, unless S&P believes that such payments will be made
during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of similar action
if payments on an obligation are jeopardized.
|
Plus
(+) or Minus (-): The ratings from AAA to CCC may be modified by
the addition of a plus or minus sign to show relative standing
within the major rating categories.
c
|
The letter c indicates that the holder’s
option to tender the security for purchase may be canceled under
certain prestated conditions enumerated in the tender option
documents.
|
L
|
The letter L indicates that the rating pertains to
the principal amount of those bonds to the extent that the
underlying deposit collateral is federally insured and interest
is adequately collateralized. In the case of certificates of
deposit, the letter L indicates that the deposit, combined with
other deposits being held in the same right and capacity, will be
honored for principal and accrued pre-default interest up to the
federal insurance limits within 30 days after closing of the
insured institution or, in the event that the deposit is assumed
by a successor insured institution, upon maturity.
|
p
|
The letter p indicates that the rating is
provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure
of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
|
*
|
Continuance of the rating is contingent upon S
&P’s receipt of an executed copy of the escrow agreement
or closing documentation confirming investments and cash
flows.
|
Obligations of issuers outside the United States and its
territories are rated on the same basis as domestic long-term and
short-term issues. The ratings measure the creditworthiness of the
obligor but do not take into account currency exchange and related
uncertainties.
Bond
Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated
in the top four categories (“AAA”, “AA”, “A
”, “BBB”, commonly known as “Investment Grade
” ratings) are generally regarded as eligible for bank
investment. In addition, the laws of various states governing legal
investments impose certain rating or other standards for
obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries
generally.
[This page intentionally left blank.]
Code # 10242-11-99
PART C
ITEM 23.
Exhibits
Exhibit
Number
|
|
Description
|
| 1(a) |
|
—
Articles of Incorporation of the Registrant, dated April
13, 1982.(a) |
|
(b) |
|
—
Articles of Amendment to Articles of Incorporation of the
Registrant, dated October 3, 1988.(a) |
|
(c) |
|
—
Articles of Amendment to Articles of Incorporation of the
Registrant, dated October 17, 1994.(a) |
|
(d) |
|
—
Articles Supplementary to Articles of Incorporation of the
Registrant, dated October 18, 1995.(f) |
| 2 |
|
—
By-Laws of the Registrant.(a) |
| 3 |
|
—
Portions of the Articles of Incorporation, and By-Laws of
the Registrant defining the rights of
shareholders of the Registrant.(b) |
| 4(a) |
|
—
Investment Advisory Agreement between the Registrant and
Fund Asset Management, L.P.(a) |
|
(b) |
|
—
Supplement to Investment Advisory Agreement between the
Registrant and Fund Asset
Management, L.P.(d) |
|
(c) |
|
— Form
of Sub-Advisory Agreement between Fund Asset Management, L.P. and
Merrill Lynch Asset
Management U.K. Limited.(h) |
| 5(a) |
|
— Form
of Class A Shares Distribution Agreement between the Registrant
and Merrill Lynch Funds
Distributor, a division of Princeton Funds Distributor, Inc. (the
“Distributor”) (including Form of
Selected Dealers Agreement).(d) |
|
(b) |
|
— Form
of Class B Shares Distribution Agreement between the Registrant
and the Distributor
(including Form of Selected Dealers Agreement).(a) |
|
(c) |
|
— Form
of Class C Shares Distribution Agreement between the Registrant
and the Distributor,
(including Form of Selected Dealers Agreement).(d) |
|
(d) |
|
— Form
of Class D Shares Distribution Agreement between the Registrant
and the Distributor
(including Form of Selected Dealers Agreement).(d) |
|
(e) |
|
—
Letter Agreement between the Registrant and the Distributor
with respect to the Merrill Lynch
Mutual Fund Advisor Program.(c) |
| 6 |
|
—
None. |
| 7 |
|
— Form
of Custody Agreement between the Registrant and The Chase
Manhattan Bank.(e) |
| 8(a) |
|
—
Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement
between the Registrant and Financial Data Services,
Inc.(a) |
|
(b) |
|
—
License Agreement Relating to Use of Name between the
Registrant and Merrill Lynch & Co.,
Inc.(a) |
| 9(a) |
|
—
Opinion of Brown & Wood LLP
, counsel to the Registrant.(a) |
|
(b) |
|
—
Consent of Brown & Wood LLP
, counsel to the Registrant.(i) |
| 10 |
|
—
Consent of Deloitte & Touche LLP
, independent auditors for the Registrant. |
| 11 |
|
—
None. |
| 12 |
|
—
None. |
| 13(a) |
|
—
Amended and Restated Class B Distribution Plan of the
Registrant.(c) |
|
(b) |
|
— Class
C Distribution Plan and Class C Distribution Plan Sub-Agreement
of the Registrant.(f) |
|
(c) |
|
— Class
D Distribution Plan and Class D Distribution Plan Sub-Agreement
of the Registrant.(f) |
| 14 |
|
—
None. |
| 15 |
|
—
Merrill Lynch Select Pricing
SM
System Plan pursuant to Rule 18f-3.(g) |
(a)
|
Previously filed as an exhibit to Pre-Effective Amendment
No. 1 to the Registrant’s Registration Statement on Form
N-1A under the Securities Act of 1933, as amended (File No.
2-77068) (the “Registration Statement”) and refiled on
November 28, 1995, as an exhibit to Post-Effective Amendment No.
16 to the Registrant’s Registration Statement pursuant to
Electronic Data Gathering, Analysis and Retrieval (“EDGAR
”) requirements.
|
(b)
|
Reference is made to Article III, Article V, Article VI
(sections 2, 3, 4 and 5), Article VII, Article VIII and Article X
of the Registrant’s Articles of Incorporation, previously
filed as Exhibit (1), to the Registration Statement, and to
Article II, Article III (sections 1, 3, 5, 6 and 17), Article VI,
Article VII, Article XII, Article XIII, Article XIV and Article
XV of the Registrant’s By-Laws previously filed as Exhibit
(2) to the Registration Statement.
|
(c)
|
Filed on November 24, 1993 as an Exhibit to
Post-Effective Amendment No. 13 to the Registrant’s
Registration Statement.
|
(d)
|
Filed on October 11, 1994 as an exhibit to
Post-Effective Amendment No. 14 to Registrant’s Registration
Statement.
|
(e)
|
Filed on October 14, 1994 as an exhibit to
Post-Effective Amendment No. 15 to the Registrant’s
Registration Statement.
|
(f)
|
Filed on November 28, 1995 as an exhibit to
Post-Effective Amendment No. 16 to Registrant’s Registration
Statement.
|
(g)
|
Incorporated by reference to Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A of
Merrill Lynch New York Municipal Bond Fund of Merrill Lynch
Multi-State Municipal Series Trust filed on January 25,
1996.
|
(h)
|
Filed on November 27, 1996 as an exhibit to
Post-Effective Amendment No. 17 to Registrant’s Registration
Statement.
|
(i)
|
Filed on September 29, 1999 as an exhibit to
Post-Effective Amendment No. 20 to the Registrant’s
Registration Statement.
|
Item 24. Persons
Controlled by or Under Common Control with
Registrant
Not
applicable.
Item 25.
Indemnification
Reference is made to Article VI of Registrant’s Articles
of Incorporation, Article VI of Registrant’s By-Laws, Section
2-418 of the Maryland General Corporation Law and Section 9 of the
Class A, Class B, Class C and Class D Distribution
Agreements.
Article VI of the By-Laws provides that each officer and
director of the Registrant shall be indemnified by the Registrant
to the full extent permitted under the General Laws of the State of
Maryland, except that such indemnity shall not protect any such
person against any liability to the Registrant or any stockholder
thereof to which such person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful
misfeaseance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office, the decision by
the Registrant to indemnify such person must be based upon the
reasonable determination of independent counsel or non-party
independent directors, after review of the facts, that such officer
or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office.
Each
officer and director of the Registrant claiming indemnification
within the scope of Article VI of the By-Laws shall be entitled to
advances from the Registrant for payment of the reasonable expenses
incurred by him in connection with proceedings to which he is a
party in the manner and to the full extent permitted under the
General Laws of the State of Maryland; provided, however, that the
person seeking indemnification shall provide to the Registrant a
written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Registrant has been
met and a written undertaking to repay any such advance, if it
should ultimately be determined that the standard of conduct has
not been met, and provided further that at least one of the
following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount
acceptable to the Registrant for his undertaking; (b) the
Registrant is insured against losses arising by reason of the
advance; (c) a majority of a quorum of non-party independent
directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the
Registrant at the time the advance is proposed to be made, that
there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to
indemnification.
The
Registrant may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under
the General Laws of the State of Maryland from liability arising
from his activities as
officer or director of the Registrant. The Registrant, however, may
not purchase insurance on behalf of any officer or director of the
Registrant that protects or purports to protect such person from
liability to the Registrant or to its stockholders to which such
officer or director would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
The
Registrant may indemnify, make advances or purchase insurance to
the extent provided in Article VI of the By-Laws on behalf of an
employee or agent who is not an officer or director of the
Registrant.
In
Section 9 of the Class A and Class D Distribution Agreements
relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act
of 1933 (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 the conditional advancing of indemnification
moneys for actions based on the Investment Company Act of 1940 may
be concerned, such payments will be made only on the following
conditions: (i) the advances must be limited to amounts used, or to
be used, for the preparation or presentation of a defense to the
action, including costs connected with the preparation of a
settlement; (ii) advances may be made only on receipt of a written
promise by, or on behalf of, the recipient to repay that amount of
the advance which exceeds the amount to which it is ultimately
determined that he is entitled to receive from the Registrant by
reason of indemnification; and (iii) such promise must be secured
by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the
Registrant without delay or litigation, which bond, insurance or
other form of security must be provided by the recipient or the
advance ultimately will be found entitled to
indemnification.
Item 26. Business and
Other Connections of Investment Adviser
Fund
Asset Management, L.P. (“FAM” or the “Investment
Adviser”), acts as the investment adviser for the following
open-end registered investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi- State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions
Series Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
California Municipal Series Trust, Merrill Lynch Corporate Bond
Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc., Merrill
Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch
Global Financial Services Fund, Inc., 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 Special Value Fund,
Inc., Merrill Lynch World Income Fund, Inc., and The Municipal Fund
Accumulation Program, Inc.; and for the following closed-end
registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II,
Inc., Corporate High Yield Fund III, Inc., Debt Strategies Fund,
Inc., Debt Strategies Fund II, Inc., Debt Strategies Fund III,
Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc.,
MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund,
Inc., MuniHoldings Fund II, Inc., MuniHoldings California Insured
Fund, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings California Insured Fund III, Inc., MuniHoldings
California Insured Fund IV, Inc., MuniHoldings California Insured
Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings
Florida Insured Fund II, MuniHoldings Florida Insured Fund III,
MuniHoldings Florida Insured Fund IV, MuniHoldings Florida Insured
Fund V, MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund
II, Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Insured
Fund IV, Inc., MuniHoldings Michigan Insured Fund, Inc.,
MuniHoldings Michigan Insured Fund II, Inc., MuniHoldings New
Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund II,
Inc., MuniHoldings New Jersey Insured Fund III, Inc., MuniHoldings
New Jersey Insured Fund IV, Inc., MuniHoldings New York Fund, Inc.,
MuniHoldings New York Insured Fund, Inc., MuniHoldings New York
Insured Fund II, Inc., MuniHoldings New York Insured Fund III,
Inc., MuniHoldings New York Insured Fund IV, Inc., MuniHoldings
Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest Fund,
Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc.,
MuniVest Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc.,
MuniYield California Fund, Inc., MuniYield California Insured Fund,
Inc., MuniYield California Insured Fund II, Inc., MuniYield Florida
Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc.,
MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund,
Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc.,
MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc.
and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. (“MLAM”), an
affiliate of the Investment Adviser, acts as the investment adviser
for the following open-end registered investment companies: Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch 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 Growth Fund, Inc., Merrill Lynch
Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund,
Merrill Lynch Healthcare Fund, Inc., Merrill Lynch 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. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a
division of MLAM); and for the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond
Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund II, Inc. MLAM also acts as
sub-adviser to Merrill Lynch World Strategy Portfolio and Merrill
Lynch Basic Value Equity Portfolio, two investment portfolios of EQ
Advisors Trust.
The
address of each of these registered investment companies is P.O.
Box 9011, Princeton, New Jersey 08543-9011, except that the address
of Merrill Lynch Funds for Institutions Series and Merrill Lynch
Intermediate Government Bond Fund is One Financial Center, 23rd
Floor, Boston, Massachusetts 02111-2665. The address of the
Manager, FAM, Princeton Services, Inc. (“Princeton Services
”) and Princeton Administrators, L.P. (“Princeton
Administrators”) is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Princeton Funds Distributor, Inc. (
“PFD”) and of Merrill Lynch Funds Distributor (“MLFD
”) is P.O. Box 9081, Princeton, New Jersey 08543-9081. The
address of Merrill Lynch, Pierce, Fenner & Smith Incorporated (
“Merrill Lynch”) and ML & Co. is World Financial
Center, North Tower, 250 Vesey Street, New York, New York
10281-1201. The address of the Fund’s transfer agent,
Financial Data Services, Inc. (“FDS”), is 4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484.
Set
forth below is a list of each executive officer and partner of the
Manager indicating each business, profession, vocation or
employment of a substantial nature in which each such person or
entity has been engaged since July 1, 1997 for his, her or its own
account or in the capacity of director, officer, partner or
trustee. In addition, Mr. Glenn is President and Mr. Burke is Vice
President and Treasurer of all or substantially all of the
investment companies described in the first two paragraphs of this
Item 26, and Messrs. Doll, Giordano and Monagle are officers of one
or more of such companies.
Name
|
|
Position(s)
with the
Investment Adviser
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
| ML & Co. |
|
Limited Partner |
|
Financial Services Holding
Company; Limited Partner
of MLAM |
|
| Princeton Services |
|
General Partner |
|
General Partner of
MLAM |
|
| Jeffrey M. Peek |
|
President |
|
President of MLAM; President and
Director of
Princeton Services; Executive Vice President of ML &
Co.; Managing Director and Co-Head of the
Investment Banking Division of Merrill Lynch in 1997 |
|
Name
|
|
Position(s)
with the
Investment Adviser
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
| Terry K. Glenn |
|
Executive Vice
President |
|
Executive Vice President of MLAM;
Executive Vice
President and Director of Princeton Services; President
and Director of PFD; Director of FDS; President of
Princeton Administrators |
|
| Gregory A. Bundy |
|
Managing Director
and Chief
Operating Officer |
|
Managing Director and Chief
Operating Officer of
MLAM; Managing Director and Chief Operating Officer
of Princeton Services; Co-CEO of Merrill Lynch
Australia from 1997 to 1999; Managing Director of
Merrill Lynch from 1992 to 1996 |
|
| Donald C. Burke |
|
Senior Vice President,
Treasurer and
Director of Taxation |
|
Senior Vice President and
Treasurer of MLAM; Senior
Vice President and Treasurer of Princeton Services; Vice
President of PFD; First Vice President of the Investment
Adviser from1997 to 1999; Vice President of the
Investment Adviser from 1990 to 1997 |
|
| Michael G. Clark |
|
Senior Vice President |
|
Senior Vice President of MLAM;
Senior Vice President
of Princeton Services; Treasurer and Director of PFD;
First Vice President of the Investment Adviser from
1997 to 1999; Vice President of the Investment Adviser
from 1996 to 1997 |
|
| Robert C. Doll |
|
Senior Vice President |
|
Senior Vice President of MLAM;
Senior Vice President
of Princeton Services; Chief Investment Officer of
Oppenheimer Funds, Inc. in 1999 and Executive Vice
President thereof from 1991 to 1999 |
|
| Linda L. Federici |
|
Senior Vice President |
|
Senior Vice President of MLAM;
Senior Vice President
of Princeton Services |
|
| Vincent R. Giordano |
|
Senior Vice President |
|
Senior Vice President of MLAM;
Senior Vice President
of Princeton Services |
|
| Michael J. Hennewinkel |
|
Senior Vice President,
Secretary and
General Counsel |
|
Senior Vice President, Secretary
and General Counsel of
MLAM; Senior Vice President of Princeton Services |
|
| Philip L. Kirstein |
|
Senior Vice President |
|
Senior Vice President of MLAM;
Senior Vice President,
Secretary, General Counsel and Director of Princeton
Services |
|
| Debra W. Landsman-Yaros |
|
Senior Vice President |
|
Senior Vice President of MLAM;
Senior Vice President
of Princeton Services; Vice President of PFD |
|
| Stephen M. M. Miller |
|
Senior Vice President |
|
Executive Vice President of
Princeton Administrators;
Senior Vice President of Princeton Services |
|
| Joseph T. Monagle, Jr. |
|
Senior Vice President |
|
Senior Vice President of MLAM;
Senior Vice President
of Princeton Services |
|
| Brian A. Murdock |
|
Senior Vice President |
|
Senior Vice President of MLAM;
Senior Vice President
of Princeton Services |
|
| Gregory D. Upah |
|
Senior Vice President |
|
Senior Vice President of MLAM;
Senior Vice President
of Princeton Services |
Merrill Lynch Asset
Management U.K. Limited (“MLAM U.K.”) acts as sub-adviser
for the following registered investment companies: The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc.,
Debt Strategies Fund III, Inc., Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Consults International Portfolio,
Merrill Lynch Convertible Fund, Inc., Merrill Lynch Corporate Bond
Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc., Merrill
Lynch Developing Capital Markets Fund, Inc., Merrill Lynch,
Disciplined Equity Fund, Inc. Merrill Lynch Dragon Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund,
Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment
and Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund,
Merrill Lynch Healthcare Fund, Inc., Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch
Middle East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Real Estate Fund,
Inc., Merrill Lynch Series Fund, Inc., Merrill Lynch Senior Floating
Rate Fund, Inc., Merrill Lynch Senior Floating Rate Fund II, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch Strategic Dividend Fund,
Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable
Series Funds, Inc., Merrill Lynch World Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc. and Worldwide DollarVest
Fund, Inc. The address of each of these registered investment
companies is P.O. Box 9011, Princeton, New Jersey 08543-9011. The
address of MLAM U.K. is 33 King William Street, London EC4R 9AS,
England.
Set
forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of
a substantial nature in which each such person has been engaged
since July 1, 1997, for his or her own account or in the capacity of
director, officer, partner or trustee. In addition, Messrs. Glenn,
Burke and Albert are officers of one or more of the registered
investment companies listed in the first two paragraphs of this Item
26.
Name
|
|
Positions with
MLAM U.K.
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
| Terry K. Glenn |
|
Director and Chairman |
|
Executive Vice President of
MLAM and FAM; Executive Vice
President and Director of Princeton
Services; President and Director of
PFD; President of Princeton Administrators |
|
| Alan J. Albert |
|
Senior Managing
Director |
|
Vice President of MLAM |
|
| Nicholas C.D. Hall |
|
Director |
|
Director of Merrill Lynch Europe
PLC.; General Counsel of Merrill
Lynch International Private
Banking Group |
|
| Donald C. Burke |
|
Treasurer |
|
Senior Vice President and
Treasurer of MLAM and FAM;
Director of Taxation of MLAM;
Senior Vice President and
Treasurer of Princeton Services;
Vice President of PFD; First Vice
President of MLAM from 1997 to
1999; Vice President of MLAM from 1990 to 1997 |
|
| Carol Ann Langham |
|
Company Secretary |
|
None |
|
| Debra Anne Searle |
|
Assistant Company
Secretary |
|
None |
Item 27. Principal
Underwriters
(a)
MLFD, a division of PFD, 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 MerrillLynch Senior Floating
Rate Fund II, Inc. A separate division of PFD acts as the principal
underwriter of a number of other investment companies.
(b)
Set forth below is information concerning each director
and officer of PFD. The principal business address of each such
person is P.O. Box 9081, Princeton, New Jersey 08543-9081, except
that the address of Messrs. Breen, Crook, Fatseas and Wasel is One
Financial Center, 23rd Floor, Boston, Massachusetts
02111-2665.
Name
|
|
Position(s) and
Office(s)
with PFD
|
|
Position(s) and
Office(s)
with Registrant
|
| Terry K. Glenn |
|
President and Director |
|
President and Director |
|
| Michael G. Clark |
|
Treasurer and Director |
|
None |
|
| Thomas J. Verage |
|
Director |
|
None |
|
| Robert W. Crook |
|
Senior Vice President |
|
None |
|
| Michael J. Brady |
|
Vice President |
|
None |
|
| William M. Breen |
|
Vice President |
|
None |
|
| Donald C. Burke |
|
Vice President |
|
Vice President and
Treasurer |
|
| James T. Fatseas |
|
Vice President |
|
None |
|
| Debra W. Landsman-Yaros |
|
Vice President |
|
None |
|
| Michelle T. Lau |
|
Vice President |
|
None |
|
| Salvatore Venezia |
|
Vice President |
|
None |
|
| William Wasel |
|
Vice President |
|
None |
|
| Robert Harris |
|
Secretary |
|
None |
(c)
Not applicable.
Item 28. Location of
Accounts and Records
All
accounts, books and other documents required to be maintained by
Section 31(a) of the 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
the requirements for effectiveness of this Registration Statement
pursuant to 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 24th day of November,
1999.
|
MERRILL
LYNCH
PHOENIX
FUND
, INC
.
|
|
(Donald C. Burke, Vice President and
Treasurer)
|
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates
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) |
|
November 24,
1999 |
|
|
JOE
GRILLS
*
(Joe Grills) |
|
Director |
|
|
|
|
WALTER
MINTZ
*
(Walter Mintz) |
|
Director |
|
|
|
|
MELVIN
R. SEIDEN
*
(Melvin R. Seiden) |
|
Director |
|
|
|
|
ROBERT
S. SALOMON
, JR
.*
(Robert S. Salomon, Jr.) |
|
Director |
|
|
|
|
STEPHEN
B. SWENSRUD
*
(Stephen B. Swensrud) |
|
Director |
|
|
|
ARTHUR
ZEIKEL
*
(Arthur Zeikel) |
|
Director |
|
|
|
|
|
/s/
DONALD
C. BURKE
*By:
(Donald C. Burke, Attorney-in-Fact) |
|
|
|
November 24,
1999 |
POWER OF ATTORNEY
The undersigned, the Directors/Trustees and the officers
of each of the registered investment companies listed below,
hereby authorize Terry K. Glenn, Donald C. Burke and Joseph T.
Monagle, Jr. or any of them, as attorney-in-fact, to sign on his
behalf in the capacities indicated any Registration Statement or
amendment thereto (including post-effective amendments) for each
of the following registered investment companies and to file the
same, with all exhibits thereto, with the Securities and
Exchange Commission: Merrill Lynch Adjustable Rate Securities
Fund, Inc.; Apex Municipal Fund, Inc.; Merrill Lynch Asset
Builder Program, Inc.; Corporate High Yield Fund, Inc.;
Corporate High Yield Fund II, Inc.; Corporate High Yield Fund
III, Inc.; Merrill Lynch Federal Securities Trust; Merrill Lynch
Fundamental Growth Fund, Inc.; Income Opportunities Fund 1999,
Inc.; Income Opportunities Fund 2000, Inc.: MuniHoldings Insured
Fund II, Inc.; MuniHoldings Insured Fund III, Inc.; MuniInsured
Fund, Inc.; MuniYield Insured Fund, Inc.; Merrill Lynch Phoenix
Fund, Inc.; Merrill Lynch Real Estate Fund, Inc.; Merrill Lynch
Retirement Reserves Money Fund of Merrill Lynch Retirement
Series Trust and Summit Cash Reserves Fund of Financial
Institution Series Trust.
Signature
|
|
Title
|
|
Date
|
|
| |
/s/
TERRY
K. GLENN
(Terry K. Glenn) |
|
President
(Principal Executive
Officer), Director and Trustee |
|
April 13,
1999 |
|
|
/s/
DONALD
C. BURKE
(Donald C. Burke) |
|
Vice President
and Treasurer
(Principal Financial and
Accounting Officer) |
|
April 13,
1999 |
|
|
/s/
JOE
GRILLS
(Joe Grills) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
WALTER
MINTZ
(Walter Mintz) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
ROBERT
S. SALOMON
, JR
.
(Robert S. Salomon, Jr.) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
MELVIN
R. SEIDEN
(Melvin R. Seiden) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
STEPHEN
B. SWENSRUD
(Stephen B. Swensrud) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
ARTHUR
ZEIKEL
(Arthur Zeikel) |
|
Director/Trustee |
|
April 13,
1999 |
EXHIBIT INDEX
Exhibit
Numbers
|
|
Description
|
|
10 |
|
—Consent
of Deloitte & Touche LLP, independent
auditors for the Registrant. |
