As filed with the Securities and Exchange
Commission on September 29, 1999
Securities Act File No. 2-77068
Investment Company Act File No. 811-3450
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
x
Pre-Effective Amendment No.
Post-Effective Amendment No. 20
x
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
x
Amendment No. 22
x
(Check appropriate box or boxes)
Merrill Lynch Phoenix Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
800 Scudders Mill Road, Plainsboro, New Jersey
08536
(Address of Principal Executive Offices)
Registrant’s Telephone Number, including Area
Code: (609) 282-2800
Terry K. Glenn
Merrill Lynch Phoenix Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address: P.O. Box 9011, Princeton, New
Jersey 08543-9011
(Name and Address of Agent for Service)
Copies to:
| Counsel for the
Fund
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
Attention: Thomas R. Smith, Jr., Esq.
Frank P. Bruno, Esq.
|
|
Michael J. Hennewinkel, Esq.
FUND
ASSET MANAGEMENT
P.O. Box 9011
Princeton, New Jersey 08543-9011
|
|
It is proposed that this filing will become
effective (check appropriate box):
¨
immediately upon filing pursuant to paragraph (b)
¨
on (date) pursuant to paragraph (b)
x
60 days after filing pursuant to paragraph (a)(1)
¨
on (date) pursuant to paragraph (a)(1)
¨
75 days after filing pursuant to paragraph (a)(2)
¨
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
¨
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Common Stock, par value $.10 per share.
The information
in this prospectus is not complete and may be changed. We may not
use this prospectus to sell securities until the registration
statement containing this prospectus, which has been filed with the
Securities and Exchange Commission, is effective. This prospectus is
not an offer to sell these securities and is not soliciting an offer
to buy these securities in any state where the offer or sale is not
permitted.
[LOGO] Prospectus NOVEMBER , 1998
[LOGO] Merrill Lynch
|
PRELIMINARY PROSPECTUS DATED SEPTEMBER 29, 1999
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|
Merrill
Lynch Phoenix Fund, Inc.
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|
This Prospectus contains information you should know before
investing, including information about risks. Please read it
before you invest and keep it for future reference.
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The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
|
[LOGO] Table of Contents
[LOGO KEY]
[LOGO DETAILS]
[LOGO ACCOUNT]
[LOGO MANAGEMENT]
[LOGO INFORMATION]
| PAGE
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| KEY FACTS
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| Merrill Lynch Phoenix Fund
at a Glance... 3
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| Risk/Return Bar Chart... 6
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| Fees and Expenses... 7
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| DETAILS ABOUT THE FUND
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| How the Fund Invests... 9
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| Investment Risks... 10
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| YOUR ACCOUNT
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|
|
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| Merrill Lynch Select
Pricing
SM
System... 17
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| How to Buy, Sell, Transfer
and Exchange Shares... 22
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| Participation in Merrill
Lynch Fee-Based Programs... 26
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| MANAGEMENT OF THE FUND
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| Fund Asset Management... 29
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| Financial Highlights... 30
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| FOR MORE INFORMATION
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| Shareholder Reports...
Back Cover
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| Statement of Additional
Information... Back Cover
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MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Key Facts
MERRILL LYNCH PHOENIX FUND AT A GLANCE
In an effort to help you better understand the many
concepts involved in making an investment decision, we have defined
highlighted terms in this prospectus in the sidebar.
Equity Securities
—
common stock or securities whose price is linked to the
value of common stock.
Fixed Income Security
—
security that pays a fixed rate of interest or a fixed
dividend.
Debt
Securities — securities representing an
obligation to pay specified amounts at specified times such as bonds.
Current Income
— income from interest or dividends.
Investment Grade
— any of the four highest debt obligation ratings by
recognized rating agencies, including Moody’s Investors
Service, Inc. or Standard & Poor’s.
Junk Bonds
— fixed income securities rated below investment
grade by recognized rating agencies, including Moody’s
Investors Service, Inc. and Standard & Poor’s, or unrated
securities of comparable quality.
What is the Fund’s investment objective?
The Fund’s investment objective is to seek
long-term growth of capital by investing in a diversified portfolio
of equity and fixed income securities of
issuers in a weakened financial condition or experiencing poor
operating results that, in the opinion of Fund management, are
undervalued relative to its assessment of the current or prospective
condition of the issuer. In other words, the Fund tries to choose
investments in troubled issuers that will increase in value over
time.
What are the Fund’s main investment strategies?
The Fund tries to achieve its objective by investing
in a portfolio of equity securities of companies and institutions
with financial or earnings problems. The Fund also buys debt
securities of these issuers and of states, municipalities,
local governments and their agencies and authorities whose interest
is exempt from Federal income taxes and whose prices are depressed
for a variety of financial or political reasons. The Fund’s
Investment Adviser invests in those securities that it believes are
undervalued relative to its assessment of the current or future
condition of the issuer. This investment strategy is based on the
belief that prices of securities of troubled issuers are often
depressed to a greater extent than is warranted by the actual
condition of the issuer, and that, while investment in these
securities involves a high degree of risk, it also offers the
opportunity for significant capital gains. Current income
is not necessarily a factor in the selection of investments. We
cannot guarantee that the Fund will achieve its objective.
The Fund may invest in high yield fixed income
securities that are rated below investment grade,
commonly called “junk bonds”. These
securities are particularly vulnerable to adverse changes in the
issuer’s industry and in general economic conditions. Further,
they frequently are junior obligations of the issuers that will be
satisfied in default or bankruptcy proceedings only after claims of
more senior security holders. To minimize these risks, the
Investment Adviser diversifies its investment in these securities
among many issuers. There is no guarantee, however, that
diversification will protect the Fund from widespread defaults in an
economic downturn.
While there are no restrictions limiting investment
in foreign securities, it is anticipated that the Fund will not
invest more than 25% of its total assets in the equity and fixed
income securities of foreign issuers.
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Key Facts
What are the main risks of investing in the Fund?
Investment in the Fund is speculative and involves a
high degree of risk. You should purchase shares of the Fund for
diversification and not as a balanced investment program. Whether
shares of the Fund are appropriate for you depends upon, among other
things, your investment objectives and whether you can accept the
risk of investing in speculative securities, including the risk of
loss of principal.
As with any mutual fund, the value of the Fund’s
investments, and therefore the value of the Fund’s shares, may
go up or down. Changes in the value of the Fund’s equity
investments may occur because the stock market is rising or falling
or as the result of specific factors that affect particular
investments. Changes in the value of Fund shares may also occur
because prices of the debt securities held by the Fund generally
increase when interest rates decline and decrease when interest
rates increase. Prices of longer term debt securities generally
change more in response to interest rate changes than prices of
shorter term debt securities. The price of the debt securities may
also change because of credit risk, which is the risk that the
issuer will be unable to pay the interest or principal when due. The
degree of credit risk depends on both the financial condition of the
issuer and the terms of the obligation and is greater for issuers
with financial or earnings problems. Securities issued by issuers
with financial and earnings problems and junk bonds may be volatile
and subject to greater liquidity, credit and other types of risk. If
the value of the Fund’s investments goes down, you may lose
money.
The Fund may invest its assets in non-U.S.
securities. Foreign investing involves special risks, including
foreign currency risks and the possibility of substantial volatility
due to adverse political, economic or other developments. Foreign
securities may also be less liquid and harder to value than U.S.
securities. These risks are greater for investments in emerging
markets.
Who should invest?
The Fund may be an appropriate investment for you if
you:
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are
investing with long-term goals in mind, such as retirement or
funding a child’s education
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Ÿ
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want a
professionally managed and diversified portfolio
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MERRILL LYNCH PHOENIX FUND, INC.
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are not
looking for current income, liquidity or short-term profits
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are
willing to accept the high degree of risk of investing in issuers
with financial or earnings problems, including the risk of a loss
of principal
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MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Key Facts
RISK/RETURN BAR CHART
The bar chart and table shown below provide an indication
of the risks of investing in the Fund. The bar chart shows changes
in the Fund’s performance for Class B shares for each of the
past ten calendar years. Sales charges are not reflected in the bar
chart. If these amounts were reflected, returns would be less than
those shown. The table compares the average annual total returns for
each class of the Fund’s shares for the periods shown with
those of the S&P 500 Index. How the Fund performed in the past
is not necessarily an indication of how the Fund will perform in the
future.
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
12.78% -21.54% 35.66% 25.37% 28.23% -7.40% 20.68% 14.49% 18.63% 3.72%
[RISK RETURN CHART APPEARS HERE]
During the 10-year period shown in the bar chart, the
highest return for a quarter was 32.75% (quarter ended March 31,
1991) and the lowest return for a quarter was
-
19.07% (quarter
ended September 30, 1998). The Fund’s year-to-date return as of
June 30, 1999 was 29.22%.
Average Annual
Total Returns
(for the calendar year ended)
December 31, 1998)
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Past
One Year
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Past
Five Years
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Past Ten Years/
Since Inception
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| Merrill
Lynch Phoenix Fund* — Class A
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-
0.78%
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9.43%
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12.29%
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| S&P
500**
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28.58%
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24.05%
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19.20%
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| Merrill
Lynch Phoenix Fund* — Class B
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0.20%
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9.50%
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11.75%†
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| S&P
500**
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28.58%
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24.05%
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19.20%
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| Merrill
Lynch Phoenix Fund* — Class C
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2.74%
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N/A
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11.42%††
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| S&P
500**
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28.58%
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N/A
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28.70%
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| Merrill
Lynch Phoenix Fund* — Class D
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-
0.94%
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N/A
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10.88%††
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| S&P
500**
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28.58%
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N/A
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28.70%
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**
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The
S&P 500® is the Standard & Poor’s Composite Index
of 500 Stocks, a widely recognized, unmanaged index of common
stock prices. Past performance is not predictive of future
performance.
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†
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This performance does not reflect the effect of conversion of
Class B shares to Class D shares after approximately eight years.
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†
†
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Inception date is October 21, 1994.
|
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Details About the Fund
FEES AND EXPENSES
UNDERSTANDING EXPENSES
Fund investors pay various fees and expenses, either
directly or indirectly. Listed below are some of the main types of
expenses, which all mutual funds may charge:
Expenses paid directly by the shareholder:
Shareholder
fees
—
these include sales charges which you may pay when you buy or
sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund
Operating Expenses
—
expenses that cover the costs of operating the Fund.
Management
Fee
—
a fee paid to the Investment Adviser for managing the Fund.
Distribution
Fees
—
fees used to support the Fund’s marketing and
distribution efforts, such as compensating Financial Consultants,
advertising and promotion.
Service
(Account Maintenance) Fees
—
fees used to compensate securities dealers for account
maintenance activities.
The Fund offers four different classes of shares.
Although your money will be invested the same way no matter which
class of shares you buy, there are differences among the fees and
expenses associated with each class. Not everyone is eligible to buy
every class. After determining which classes you are eligible to
buy, decide which class best suits your needs. Your Merrill Lynch
Financial Consultant can help you with this decision.
This table shows the different fees and expenses that
you may pay if you buy and hold the different classes of shares of
the Fund. Future expenses may be greater or less than those
indicated below.
Shareholder
Fees (fees paid directly from
your investment) (a):
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Class A
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Class B(b)
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Class C
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Class D
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Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering price)
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5.25%(c)
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None
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None
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5.25%(c)
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Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption
proceeds, whichever is lower)
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None(d)
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4.0%(c)
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1.0%(c)
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None(d)
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Maximum Sales Charge (Load) imposed on
Dividend Reinvestments
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None
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None
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None
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None
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Redemption Fee
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None
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None
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None
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None
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Exchange Fee
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None
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None
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None
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None
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Annual Fund Operating Expenses (expenses that are deducted from
Fund assets):
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Management Fee(e)
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0.99%
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0.99%
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0.99%
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0.99%
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Distribution and/or Service (12b-1) Fees(f)
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None
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1.00%
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1.00%
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0.25%
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Other Expenses (including transfer agency fees)(g)
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0.28%
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0.31%
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0.32%
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0.28%
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| Total Annual
Fund Operating Expenses
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1.27%
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2.30%
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2.31%
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1.52%
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(a)
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In
addition, Merrill Lynch may charge clients a processing fee
(currently $5.35) when a client buys or sells shares.
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(b)
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Class B shares automatically convert to Class D shares about eight
years after you buy them and will no longer be subject to
distribution fees.
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(c)
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Some investors may qualify for reductions in the sales charge
(load).
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(d)
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You
may pay a deferred sales charge if you purchase $1 million or more
and you redeem within one year.
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(e)
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The
Fund pays the Investment Adviser a fee at the annual rate of 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 1.0% of the average
daily net assets of the Fund not exceeding $500 million; 0.95% of
the 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. For the fiscal year ended July 31, 1999, the
Investment Adviser received a fee equal to 0.99% of the Fund’
s average daily net assets.
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(f)
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The
Fund calls the “Service Fee” an “Account
Maintenance Fee.” Account Maintenance Fee is the term used in
this Prospectus and in all other Fund materials. If you hold Class
B or Class C shares for a long time, it may cost you more in
distribution (12b-1) fees than the maximum sales charge that you
would have paid if you had bought one of the other classes.
|
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Key Facts
(footnotes continued from previous page)
(g)
|
The
Fund pays the Transfer Agent $11.00 for each Class A and Class D
shareholder account and $14.00 for each Class B and Class C
shareholder account and reimburses the Transfer Agent’s
out-of-pocket expenses. The Fund pays a 0.10% fee for certain
accounts that participate in the Merrill Lynch Mutual Fund Advisor
program. The Fund also pays a $0.20 monthly closed account charge,
which is assessed upon all accounts that close during the year.
This fee begins the month following the month the account is
closed and ends at the end of the calendar year. For the fiscal
year ended July 31, 1999, the Fund paid the Transfer Agent fees
totaling $1,022,505. The Investment Adviser provides accounting
services to the Fund at its cost. For the fiscal year ended July
31, 1999, the Fund reimbursed the Investment Adviser $103,786 for
these services.
|
Examples:
These examples are intended to help you compare the
cost of investing in the Fund with the cost of investing in other
mutual funds.
These examples assume that you invest $10,000 in the
Fund for the time periods indicated, that your investment has a 5%
return each year, that you pay the sales charges, if any, that apply
to the particular class and that the Fund’s operating expenses
remain the same. This assumption is not meant to indicate you will
receive a 5% annual rate of return. Your annual return may be more
or less than the 5% used in this example. Although your actual costs
may be higher or lower, based on these assumptions your costs would
be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
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1 Year
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3 Years
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5 Years
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10 Years
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| Class A
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$648
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$907
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$1,185
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$1,978
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| Class B
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$633
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$918
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$1,230
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$2,448
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*
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| Class C
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$334
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$721
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$1,235
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$2,646
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| Class D
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$672
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$980
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$1,310
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$2,242
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| EXPENSES IF YOU DID NOT REDEEM YOUR
SHARES:
|
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1 Year
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3 Years
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5 Years
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10 Years
|
|
| Class A
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$648
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$907
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$1,185
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$1,978
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| Class B
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$233
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$718
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$1,230
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$2,448
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*
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| Class C
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$234
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$721
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$1,235
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$2,646
|
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| Class D
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$672
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$980
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$1,310
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$2,242
|
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*
|
Assumes conversion to Class D shares approximately eight years
after purchase. See note (b) to the Fees and Expenses table above.
|
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Details About the Fund
ABOUT THE
PORTFOLIO MANAGER
Robert J. Martorelli is a Senior Vice President and the
portfolio manager of the Fund. Mr. Martorelli has been a First Vice
President of Merrill Lynch Asset Management since 1997 and was Vice
President from 1987 to 1997.
ABOUT THE INVESTMENT ADVISER
The Fund is managed by Fund Asset Management.
HOW THE FUND INVESTS
The Fund’s main investment objective is
long-term growth of capital. The Fund tries to achieve its goal by
investing in a diversified portfolio consisting of equity and fixed
income securities of companies and institutions with financial or
earnings problems. There are no restrictions on the portion of the
Fund’s assets to be allocated to these two types of
securities. In seeking to achieve the Fund’s objective, Fund
management selects companies or institutions with financial or
earnings problems. Some of the characteristics of these companies
may include:
|
Ÿ
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substantial capital needs or negative worth
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Ÿ
|
involvement in bankruptcy or reorganization proceedings
|
|
Ÿ
|
severely
depressed earnings due to periods of unfavorable operating
conditions
|
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 tax. The prices for these securities may be depressed for a
variety of financial or political reasons including the financial
condition 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 these securities, it is not expected
that any portion of the dividends paid by the Fund will qualify for
tax-exempt treatment by shareholders.
The Fund has established no rating criteria for the
fixed income securities in which it invests and the fixed income
securities in which it invests may not be rated at all for
creditworthiness. A considerable portion of these securities may be
rated Caa or lower by Moody’s Investors Service, Inc. or CCC
or lower by Standard & Poor’s. These ratings indicate that
the payment of principal or interest may be speculative or that
there is the imminent possibility or existence of a default.
While there are no restrictions limiting investment
in foreign securities, it is anticipated that the Fund will not
invest more than 25% of its total assets in the equity and fixed
income 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”.
The Fund will normally invest a portion of its
assets in short term debt securities and cash or cash equivalents
(including repurchase agreements) when Fund management is unable to
find attractive equity or long-term debt
MERRILL LYNCH PHOENIX FUND, INC.
securities or when Fund management believes it is advisable to reduce
exposure to these markets temporarily. Investment in these
securities may also be used to meet redemptions. Short term
investments may limit the potential for an increase in the value of
your shares or for the Fund to achieve its investment objective.
The Fund may invest up to 15% of its net assets in
illiquid securities
that
it cannot easily resell. These securities may include securities
for which there is no readily available market. Other possibly
illiquid securities in which the Fund may invest are securities
that have contractual or legal restrictions on resale, known as
“restricted securities”, including Rule 144A securities
that can be resold to qualified institutional buyers but not to the
general public.
The Fund may borrow amounts up to 20% of its total
assets, taken at market value, only from banks as a temporary
measure for extraordinary or emergency purposes such as the
settlement of a trade or the redemption of Fund shares.
The Fund may write (i.e., sell) covered call
options not exceeding 15% of its total assets, taken at market
value. The Fund may also enter into closing transactions with
respect to these options. A call option is considered covered when
the Fund as writer of the option owns the underlying securities.
The Fund may use different investment strategies
involving various types of risks. The strategies that this Fund may
use and the types of risk involved are described more fully in the
Fund’s Statement of Additional Information.
INVESTMENT RISKS
This section contains a summary discussion of the
general risks of investing in the Fund. As with any fund, there can
be no guarantee that the Fund will meet its goals or that the Fund
’s performance will be positive for any period of time.
Stock Market and Selection Risk
— Market risk is the risk that the stock market will go
down in value, including the possibility that the market will go
down sharply and unpredictably. Selection risk is the risk that the
investments that Fund management selects will underperform the
stock market or other funds with similar investment objectives and
investment strategies.
Illiquid
Securities
— securities that cannot be resold within seven
days under normal circumstances at prices approximating carrying
value or that have contractual or legal restrictions on resale.
MERRILL LYNCH PHOENIX FUND, INC.
Risks of Securities of Issuers with Financial and
Economic Problems
—Investment in securities of issuers in weak financial
condition or experiencing poor operating results involves a high
degree of risk of substantial and, at times, even total loss. It
may be difficult to obtain information and research about such
issuers. These securities may not be widely traded. The market
prices of such securities are subject to abrupt and rapid market
movements and above average price volatility. The spread between
bid and ask prices may be greater than normally expected. It may
take a number of years for the prices of these securities to
reflect their intrinsic value.
Foreign Market Risk
—
Since the Fund may invest in foreign securities, it offers the
potential for more diversification than an investment only in the
United States. This is because securities traded on foreign markets
have often (though not always) performed differently than
securities in the United States. However, such investments involve
special risks not present in U.S. investments that can increase the
chances that the Fund will lose money. In particular, the Fund is
subject to the risk that because there are generally fewer
investors on foreign exchanges and a smaller number of shares
traded each day, it may make it difficult for the Fund to buy and
sell securities on those exchanges. In addition, prices of foreign
securities may 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
MERRILL LYNCH PHOENIX FUND, INC.
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
—
Foreign securities in which the Fund invests may be denominated or
quoted in currencies other than the U.S. dollar. Changes in foreign
currency exchange rates 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.
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 that the U.S. securities laws do. For example, some foreign
countries may have no laws or rules against insider trading.
Insider trading occurs when a person buys or sells a 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
MERRILL LYNCH PHOENIX FUND, INC.
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.
European Economic and Monetary Union (“EMU
”)
— Certain European countries have entered into EMU in an
effort to, 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 countries. 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. Certain
securities (beginning with government and corporate bonds) were
redenominated in the euro, and are listed, trade and make dividend
and other payments only in euros. Although EMU is generally
expected to have a beneficial effect, it could negatively affect
the Fund in a number of situations, including as follows:
|
Ÿ
|
If the
transition to the euro, or EMU as a whole, does not proceed as
planned, the Fund’s investments could be adversely affected.
For example, sharp currency fluctuations, exchange rate
volatility, and other disruptions of the markets could occur.
|
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Details About the Fund
|
Ÿ
|
Withdrawal from EMU by a participating country could also have a
negative effect on the Fund’s investments, for example, if
securities redenominated in euros are transferred back into that
country’s national currency.
|
|
Ÿ
|
Computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency. If not properly
addressed, this may negatively affect the operations of the
companies in which the Fund invests.
|
Borrowing and Leverage
— The Fund may borrow for temporary purposes including to
meet redemptions. Borrowing may exaggerate changes in the net asset
value of the Fund shares and in the yield on the Fund’s
portfolio. Borrowing will cost the Fund interest expense and other
fees. The cost of borrowing may reduce the Fund’s return.
Securities Lending
— The Fund may lend securities to financial institutions
that provide government securities as collateral. Securities
lending involves the risk that the borrower may fail to return the
securities in a timely manner or at all. As a result, the Fund may
lose money and there may be a delay in recovering the loaned
securities. The Fund could also lose money if it does not recover
the securities and the value of the collateral falls. These events
could trigger adverse tax consequences to the Fund.
Risks associated with certain types of securities in
which the Fund may invest include:
Writing Covered Call Options
— The Fund may write, i.e., sell, covered
call options on its portfolio securities and enter into closing
purchase transactions with respect to certain of such options. In
return for the premium income realized from the sale of covered
call options, the Fund will give up the opportunity to profit from
a price increase in the underlying security above the option
exercise price and it will not be able to sell the underlying
security until the option expires or is exercised or the Fund
effects a closing purchase transaction. If an option expires
unexercised, the Fund will realize a gain in the amount of the
premium. This gain, of course, may be offset by a decline in the
market price of the underlying security during the option period.
Additionally, the cost of a closing purchase transaction may be
greater than the premium received on the original option, in which
case the Fund will have incurred a loss in the transaction.
Further, there is no assurance that a secondary market will exist
for any particular option. The Fund may not
MERRILL LYNCH PHOENIX FUND, INC.
write
options on underlying securities exceeding 15% of its total assets,
taken at market value.
Debt Securities
—
Debt securities, such as bonds, involve credit risk. This is the
risk that the borrower will not make timely payments of principal
and interest. The degree of credit risk depends on the issuer’
s financial condition and on the terms of the bonds. These
securities are also subject to interest rate risk. This is the risk
that the value of the security may fall when interest rates rise.
In general, the market price of debt securities with longer
maturities will go up or down more in response to changes in
interest rates than market price of shorter term securities.
Junk Bonds
—
Junk bonds are debt securities that are rated below investment
grade by the major rating agencies or are unrated securities that
Fund management believes are of comparable quality. Although junk
bonds generally pay higher rates of interest than investment grade
bonds, they are high risk investments that may cause income and
principal losses for the Fund. Junk bonds generally are less liquid
and experience more price volatility than higher rated debt
securities. The issuers of junk bonds may have a larger amount of
outstanding debt relative to their assets than issuers of
investment grade bonds. In the event of an issuer’s
bankruptcy, claims of other creditors may have priority over the
claims of junk bond holders, leaving few or no assets available to
repay junk bond holders. Junk bonds may be subject to greater call
and redemption risk than higher rated debt securities.
Call and Redemption Risk
—
A bond’s issuer may call a bond for redemption before it
matures. If this happens to a bond the Fund holds, the Fund may
lose income and may have to invest the proceeds in bonds with lower
yields.
Sovereign Debt
—
The Fund may invest in sovereign debt securities. These securities
are issued or guaranteed by foreign government entities.
Investments in sovereign debt are subject to the risk that a
government entity may delay or refuse to pay interest or repay
principal on its sovereign debt. Some of these reasons may include
cash flow problems, insufficient foreign currency reserves,
political considerations, the relative size of its debt position to
its economy or its failure to put in place economic reforms
required by the International Monetary Fund or other multilateral
agencies. If a government entity defaults, it may ask for more time
in which to pay or for further loans. There is no legal process for
collecting sovereign debts that a government
MERRILL LYNCH PHOENIX FUND, INC.
does
not pay or bankruptcy proceeding by which all or part of sovereign
debt that a government entity has not repaid may be collected.
Illiquid or Restricted Securities
— The Fund may invest up to 15% of its net assets in
securities that it cannot easily resell within seven days at
current value or that have contractual or legal restrictions on
resale. If the Fund buys illiquid or restricted securities it may
be unable to quickly resell them or may be able to sell them only
at a price below current value.
Restricted securities include private placement
securities that the Fund buys directly from the issuer. Private
placement and other restricted securities may not be listed on an
exchange and may have no active trading market. The Fund may get
only limited information about the issuer, so it may be less able
to predict a loss. In addition, if Fund management receives
material adverse nonpublic information about the issuer, the Fund
will not be able to sell the security.
Rule 144A Securities
— The Fund may invest in Rule 144A securities without
limitation. Rule 144A securities are restricted securities that can
be resold to qualified institutional buyers but not to the general
public. Rule 144A securities may have an active trading market, but
carry the risk that the active trading market may not continue.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the
Fund, including how it invests, please see the Statement of
Additional Information.
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Your Account
MERRILL LYNCH SELECT PRICING
SM
SYSTEM
The Fund offers four share classes, each with its
own sales charge and expense structure, allowing you to invest in
the way that best suits your needs. Each share class represents an
ownership interest in the same investment portfolio. When you
choose your class of shares you should consider the size of your
investment and how long you plan to hold your shares. Your Merrill
Lynch Financial Consultant can help you determine which share class
is best suited to your personal financial goals.
For example, if you select Class A or D shares, you
generally pay a sales charge at the time of purchase. If you buy
Class D shares, you also pay an ongoing account maintenance fee of
0.25%. You may be eligible for a sales charge reduction or waiver.
The Fund has adopted a plan under Rule 12b-1 to pay
distribution fees for the sale and distribution of its shares. If
you select Class B or C shares, you will invest the full amount of
your purchase price, but you will be subject to a distribution fee
of 0.75% and an account maintenance fee of 0.25%. Because these
fees are paid out of the Fund’s assets on an ongoing basis,
over time these fees increase the cost of your investment and may
cost you more than paying an initial sales charge. In addition, you
may be subject to a deferred sales charge when you sell Class B or
C shares.
The Fund’s shares are distributed by Merrill
Lynch Funds Distributor, a division of Princeton Funds Distributor,
Inc., an affiliate of Merrill Lynch.
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Your Account
The table below summarizes key features of the
Merrill Lynch Select Pricing
SM
System.
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
|
| Availability
|
|
Limited to certain
investors including:
Ÿ
Current Class A
shareholders
Ÿ
Certain Retirement
Plans
Ÿ
Participants in
certain Merrill Lynch-
sponsored programs
Ÿ
Certain affiliates of
Merrill Lynch.
|
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers.
|
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers.
|
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers.
|
|
|
|
Initial Sales
Charge?
|
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments.
|
|
No. Entire purchase
price is invested in
shares of the Fund.
|
|
No. Entire purchase
price is invested in
shares of the Fund.
|
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments.
|
|
Deferred Sales
Charge?
|
|
No. (May be charged
for purchases over
$1 million that are
redeemed within
one year.)
|
|
Yes. Payable if you
redeem within four
years of purchase.
|
|
Yes. Payable if you
redeem within one
year of purchase.
|
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year.)
|
|
|
|
Account
Maintenance and
Distribution Fees?
|
|
No.
|
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee.
|
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee.
|
|
0.25% Account
Maintenance Fee
No Distribution Fee.
|
|
Conversion to
Class D shares?
|
|
No.
|
|
Yes, automatically
after approximately
eight years.
|
|
No.
|
|
No.
|
|
|
|
MERRILL LYNCH PHOENIX FUND, INC.
Class A and Class D Shares — Initial
Sales Charge Options
If you select Class A or Class D shares, you will
pay a sales charge at the time of purchase.
| Your Investment
|
|
As a %
of
Offering Price
|
|
As a %
of
Your Investment*
|
|
Dealer
Compensation
as a % of
Offering Price
|
|
| Less
than $25,000
|
|
5.25%
|
|
5.54%
|
|
5.00%
|
|
$25,000 but less than
$50,000
|
|
4.75%
|
|
4.99%
|
|
4.50%
|
|
$50,000 but less than
$100,000
|
|
4.00%
|
|
4.17%
|
|
3.75%
|
|
$100,000 but less than
$250,000
|
|
3.00%
|
|
3.09%
|
|
2.75%
|
|
$250,000 but less than
$1,000,000
|
|
2.00%
|
|
2.04%
|
|
1.80%
|
|
|
$1,000,000 and over**
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
|
*
|
Rounded to the nearest one-hundredth percent.
|
**
|
If you invest $1,000,000 or more in Class A or Class D shares,
you may not pay an initial sales charge. However, if you redeem
your shares within one year after purchase, you may be charged a
deferred sales charge. This charge is 1% of the lesser of the
original cost of the shares being redeemed or your redemption
proceeds. A sales charge of 0.75% will be charged on purchases
of $1,000,000 or more of Class A or Class D shares by certain
employer-sponsored retirement or savings plans.
|
No initial sales charge applies to Class A or Class
D shares that you buy through reinvestment of dividends.
A reduced or waived sales charge on a purchase of
Class A or Class D shares may apply for:
|
Ÿ
|
Purchases under a Right of Accumulation or
Letter of Intent
|
|
Ÿ
|
Certain
Merrill Lynch investment or central asset accounts
|
|
Ÿ
|
Certain
employer-sponsored retirement or savings plans
|
|
Ÿ
|
Purchases using proceeds from the sale of certain Merrill Lynch
closed-end funds under certain circumstances
|
|
Ÿ
|
Merrill
Lynch Blueprint
SM
Program participants
|
Right of Accumulation
—
permits you to pay the sales charge that would apply to the
cost or value (whichever is higher) of all shares you own in the
Merrill Lynch mutual funds that offer Select Pricing options.
Letter of Intent
—
permits you to pay the sales charge that would be applicable
if you add up all shares of Merrill Lynch Select Pricing
SM
System funds
that you agree to buy within a 13 month period. Certain
restrictions apply.
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Your Account
|
Ÿ
|
Certain
investors, including directors of Merrill Lynch mutual funds and
Merrill Lynch employees
|
|
Ÿ
|
Certain
Merrill Lynch fee-based programs
|
Only certain investors are eligible to buy Class A
shares. Your Merrill Lynch Financial Consultant can help you
determine whether you are eligible to buy Class A shares or to
participate in any of these programs.
If you decide to buy shares under the initial sales
charge alternative and you are eligible to buy both Class A and
Class D shares, you should buy Class A since Class D shares are
subject to a 0.25% account maintenance fee, while Class A shares
are not.
If you redeem Class A or Class D shares and within
30 days buy new shares of the same class, you will not pay a sales
charge on the new purchase amount. The amount eligible for this
“Reinstatement Privilege” may not exceed the amount of
your redemption proceeds. To exercise the privilege, contact your
Merrill Lynch Financial Consultant or the Fund’s Transfer
Agent at 1-800-MER-FUND.
Class B and Class C Shares — Deferred
Sales Charge Options
If you select Class B or Class C shares, you do not
pay an initial sales charge at the time of purchase. However, if
you redeem your Class B shares within four years after purchase or
your Class C shares within one year after purchase, you may be
required to pay a deferred sales charge. You will also pay
distribution fees of 0.75% and account maintenance fees of 0.25%
each year under distribution plans that the Fund has adopted under
Rule 12b-1. Because these fees are paid out of the Fund’s
assets on an ongoing basis, over time these fees increase the cost
of your investment and may cost you more than paying an initial
sales charge. The Distributor uses the money that it receives from
the deferred sales charges and the distribution fees to cover the
costs of marketing, advertising and compensating the Merrill Lynch
Financial Consultant or other securities dealer who assists you in
purchasing Fund shares.
Class B Shares
If you redeem Class B shares within four years
after purchase, you may be charged a deferred sales charge. The
amount of the charge gradually decreases as you hold your shares
over time, according to the following schedule:
MERRILL LYNCH PHOENIX FUND, INC.
| Years Since Purchase
|
|
Sales Charge*
|
|
|
| 0
– 1
|
|
4.00%
|
|
|
| 1
– 2
|
|
3.00%
|
|
|
| 2
– 3
|
|
2.00%
|
|
|
| 3
– 4
|
|
1.00%
|
|
|
| 4 and
thereafter
|
|
0.00%
|
|
|
*
|
The percentage charge will apply to the lesser of the original
cost of the shares being redeemed or the proceeds of your
redemption. Shares acquired through reinvestment of dividends
are not subject to a deferred sales charge. Not all Merrill
Lynch funds have identical deferred sales charge schedules. If
you exchange your shares for shares of another fund, the higher
charge will apply.
|
The deferred sales charge relating to Class B
shares will be reduced or waived in certain circumstances, such as:
|
Ÿ
|
Certain
post-retirement withdrawals from an IRA or other retirement plan
if you are over 59
1
/
2
years old
|
|
Ÿ
|
Redemption by certain eligible 401(a) and 401(k) plans, certain
related accounts, and certain retirement plan rollovers
|
|
Ÿ
|
Redemption in connection with participation in certain Merrill
Lynch fee-based programs
|
|
Ÿ
|
Withdrawals resulting from shareholder death or disability as
long as the waiver request is made within one year of death or
disability or, if later, reasonably promptly following
completion of probate, or in connection with involuntary
termination of an account in which Fund shares are held
|
|
Ÿ
|
Withdrawal through the Merrill Lynch Systematic Withdrawal Plan
of up to 10% per year of your Class B account value at the time
the plan is established
|
Your Class B shares convert automatically into
Class D shares approximately eight years after purchase. Any Class
B shares received through reinvestment of dividends paid on
converting shares will also convert at that time. Class D shares
are subject to lower annual expenses than Class B shares. The
conversion of Class B to Class D shares is not a taxable event for
Federal income tax purposes.
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Your Account
Different conversion schedules apply to Class B
shares of different Merrill Lynch mutual funds. For example, Class
B shares of a fixed income fund convert approximately ten years
after purchase compared to approximately eight years for equity
funds. If you acquire your Class B shares in an exchange from
another fund with a shorter conversion schedule, the Fund’s
eight year conversion schedule will apply. If you exchange your
Class B shares in the Fund for Class B shares of a fund with a
longer conversion schedule, the other fund’s conversion
schedule will apply. The length of time that you hold both the
original and exchanged Class B shares in both funds will count
toward the conversion schedule. The conversion schedule may be
modified in certain other cases as well.
Class C Shares
If you redeem Class C shares within one year after
purchase, you may be charged a deferred sales charge of 1.00%. The
charge will apply to the lesser of the original cost of the shares
being redeemed or the proceeds of your redemption. You will not be
charged a deferred sales charge when you redeem shares that you
acquire through reinvestment of Fund dividends. The deferred sales
charge relative to Class C shares may be reduced or waived in
connection with involuntary termination of an account in which
Fund shares are held and withdrawals through the Merrill Lynch
Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart on the following page summarizes how to
buy, sell, transfer and
exchange shares through Merrill Lynch or other
securities dealers. You may also buy shares through the Transfer
Agent. To learn more about buying shares through the Transfer
Agent, call 1-800-MER-FUND. Because the selection of a mutual fund
involves many considerations, your Merrill Lynch Financial
Consultant may help you with this decision.
MERRILL LYNCH PHOENIX FUND, INC.
| If You Want To
|
|
Your Choices
|
|
Information Important
for You to Know
|
|
| Buy Shares
|
|
First, select the share
class appropriate for you
|
|
Refer to the Merrill
Lynch Select Pricing table on page 18. Be sure
to read this prospectus carefully.
|
| |
|
|
|
|
Next, determine the
amount of your investment
|
|
The minimum initial
investment for the Fund is $1,000 for all
accounts except:
Ÿ
$250 for
certain Merrill Lynch fee-based programs
Ÿ
$100 for
retirement plans
|
|
|
|
|
|
|
|
(The minimums for
initial investments may be waived under
certain circumstances.)
|
| |
|
|
|
|
Have your Merrill Lynch
Financial Consultant or
securities dealer submit
your purchase order
|
|
The price of your shares
is based on the next calculation of net
asset value after your order is placed. Any purchase orders placed
prior to the close of business on the New York Stock Exchange
(generally 4:00 p.m Eastern time) will be priced at the net asset
value determined that day.
|
|
|
|
|
|
|
|
Purchase orders received
after that time will be priced at the net
asset value determined on the next business day. The Fund may
reject any order to buy shares and may suspend the sale of shares
at any time. Merrill Lynch may charge a processing fee to confirm
a purchase. This fee is currently $5.35.
|
| |
|
|
|
|
Or contact the Transfer
Agent
|
|
To purchase shares
directly, call the Transfer Agent at
1-800-MER-FUND and request a purchase application. Mail the
completed purchase application to the Transfer Agent at the
address on the inside back cover of this Prospectus.
|
|
Add to Your
Investment
|
|
Purchase additional
shares
|
|
The minimum investment
for additional purchases is generally $50
except that retirement plans have a minimum additional purchase
of $1 and certain programs, such as automatic investment plans,
may have higher minimums.
|
|
|
|
|
|
|
|
(The minimums for
additional purchases may be waived under
certain circumstances.)
|
| |
|
|
|
|
Acquire additional
shares through the
automatic dividend
reinvestment plan
|
|
All dividends are
automatically reinvested without a sales charge.
|
| |
|
|
|
|
Participate in the
automatic
investment plan
|
|
You may invest a
specific amount on a periodic basis through
certain Merrill Lynch investment or central asset accounts.
|
|
Transfer Shares to
Another Securities
Dealer
|
|
Transfer to a
participating securities
dealer
|
|
You may transfer your
Fund shares only to another securities
dealer that has entered into an agreement with Merrill Lynch.
Certain shareholder services may not be available for the
transferred shares. You may only purchase additional shares of
funds previously owned before the transfer. All future trading of
these assets must be coordinated by the receiving firm.
|
| |
|
|
|
|
Transfer to a non-
participating securities
dealer
|
|
You must either:
Ÿ
Transfer
your shares to an account with the Transfer Agent; or
Ÿ
Sell your
shares, paying any applicable CDSC.
|
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Your Account
| If You Want To
|
|
Your Choices
|
|
Information Important
for You to Know
|
|
| Sell Your Shares
|
|
Have your Merrill Lynch
Financial Consultant or
securities dealer submit
your sales order
|
|
The price of your shares
is based on the next calculation of net
asset value after your order is placed. For your redemption request
to be priced at the net asset value on the day of your request, you
must submit your request to your dealer prior to that day’s
close of
business on the New York Stock Exchange (generally 4:00 p.m.
Eastern time). Any redemption request placed after that time will
be priced at the net asset value at the close of business on the
next
business day. Dealers must submit redemption requests to the Fund
not more than thirty minutes after the close of business on the
New York Stock Exchange on the day the request was received.
|
|
|
|
|
|
|
|
Securities dealers,
including Merrill Lynch, may charge a fee to
process a redemption of shares. Merrill Lynch currently charges a
fee of $5.35. No processing fee is charged if you redeem shares
directly through the Transfer Agent.
|
|
|
|
|
|
|
|
The Fund may reject an
order to sell shares under certain
circumstances.
|
|
|
| |
|
|
|
|
Sell through the Transfer
Agent
|
|
You may sell shares held
at the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of this
prospectus. All shareholders on the account must sign the letter.
In
some cases a signature guarantee may be required. Please see the
Statement of Additional Information for details on when a
signature guarantee is needed. If you hold stock certificates,
return
the certificates with the letter. The Transfer Agent will normally
mail redemption proceeds within seven days following receipt of a
properly completed request. If you make a redemption request
before the Fund has collected a payment for the purchase of
shares, the Fund or the Transfer Agent may delay mailing your
proceeds. This delay will usually not exceed ten days.
|
|
|
|
|
|
|
|
If you hold share
certificates, they must be delivered to the Transfer
Agent before they can be converted. Check with the Transfer Agent
or your Merrill Lynch Financial Consultant for details.
|
|
|
|
Sell Shares
Systematically
|
|
Participate in the Fund
’s
Systematic Withdrawal Plan
|
|
You can choose to
receive systematic payments from your Fund
account either by check or through direct deposit to your bank
account on a monthly or quarterly basis. If you hold your Fund
shares in a Merrill Lynch CMA®, CBA® or Retirement Account
you
can arrange for systematic redemptions of a fixed dollar amount
on a monthly, bi-monthly, quarterly, semi-annual or annual basis,
subject to certain conditions. Under either method you must have
dividends and other distributions automatically reinvested. For
Class B and C shares your total annual withdrawals cannot be
more than 10% per year of the value of your shares at the time
your plan is established. The deferred sales charge is waived for
systematic redemptions. Ask your Merrill Lynch Financial
Consultant for details.
|
MERRILL LYNCH PHOENIX FUND, INC.
| If You Want To
|
|
Your Choices
|
|
Information Important
for You to Know
|
|
Exchange Your
Shares
|
|
Select the fund into
which
you want to exchange. Be
sure to read that fund’s
prospectus
|
|
You can exchange your
shares of the Fund for shares of many
other Merrill Lynch mutual funds. You must have held the shares
used in the exchange for at least 15 calendar days before you can
exchange to another fund.
|
|
|
|
|
|
|
|
Each class of Fund
shares is generally exchangeable for shares of
the same class of another fund. If you own Class A shares and wish
to exchange into a fund in which you have no Class A shares, you
will exchange into Class D shares.
|
|
|
|
|
|
|
|
Some of the Merrill
Lynch mutual funds impose a different initial
or deferred sales charge schedule. If you exchange Class A or D
shares for shares of a fund with a higher initial sales charge than
you originally paid, you will be charged the difference at the time
of exchange. If you exchange Class B shares for shares of a fund
with a different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or C shares in both
funds will count when determining your holding period for
calculating a deferred sales charge at redemption. If you exchange
Class A or D shares for money market fund shares, you will receive
Class A shares of Summit Cash Reserves Fund. Class B or C shares of
the Fund will be exchanged for Class B shares of Summit.
|
|
|
|
|
|
|
|
Although there is
currently no limit on the number of exchanges
that you can make, the exchange privilege may be modified or
terminated at any time in the future.
|
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Your Account
Net Asset Value
—
the
market value of the Fund’s total assets after deducting
liabilities, divided by the number of shares outstanding.
HOW SHARES ARE PRICED
When you buy shares, you pay the net asset
value, plus any applicable sales charge. This is the offering
price. Shares are also redeemed at their net asset value, minus
any applicable deferred sales charge. The Fund calculates its net
asset value (generally by using market quotations) each day the
New York Stock Exchange is open, after the close of business on
the Exchange (the Exchange generally closes at 4:00 p.m. Eastern
time). The net asset value used in determining your price is the
next one calculated after your purchase or redemption order is
placed. Foreign securities owned by the Fund may trade on weekends
or other days when the Fund does not price its shares. As a
result, the Fund’s net asset value may change on days when
you will not be able to purchase or redeem the Fund’s shares.
Generally, Class A shares will have the highest net
asset value because that class has the lowest expenses, and Class
D shares will have a higher net asset value than Class B or Class
C shares. Also dividends paid on Class A and Class D shares will
generally be higher than dividends paid on Class B and Class C
shares because Class A and Class D shares have lower expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
If you participate in certain fee-based programs
offered by Merrill Lynch, you may be able to buy Class A shares at
net asset value, including by exchanges from other share classes.
Sales charges on the shares being exchanged may be reduced or
waived under certain circumstances.
You generally cannot transfer shares held through a
fee-based program into another account. Instead, you will have to
redeem your shares held through the program and purchase shares of
another class, which may be subject to distribution and account
maintenance fees. This may be a taxable event and you will pay any
applicable sales charges.
If you leave one of these programs, your shares may
be redeemed or automatically exchanged into another class of Fund
shares or into a money market fund. The class you receive may be
the class you originally owned when you entered the program, or in
certain cases, a different class. If the exchange is into Class B
shares, the period before conversion to Class D shares may be
modified. Any redemption or exchange will be at net asset value.
MERRILL LYNCH PHOENIX FUND, INC.
However, if you participate in the program for less than a specified
period, you may be charged a fee in accordance with the terms of
the program.
Details about these features and the relevant
charges are included in the client agreement for each fee-based
program and are available from your Merrill Lynch Financial
Consultant.
DIVIDENDS AND TAXES
The Fund will distribute any net investment income
and any net realized long-term capital gains at least annually.
The Fund may also pay a special distribution at the end of the
calendar year to comply with Federal tax requirements. If your
account is with Merrill Lynch and you would like to receive
dividends in cash, contact your Merrill Lynch Financial
Consultant. If your account is with the Transfer Agent and you
would like to receive dividends in cash, contact the Transfer
Agent. Although this cannot be predicted with any certainty, the
Fund anticipates that the majority of its dividends, if any, will
consist of capital gains.
You will pay tax on dividends from the Fund whether
you receive them in cash or additional shares. If you redeem Fund
shares or exchange them for shares of another fund, any gain on
the transaction may be subject to tax. Capital gain dividends are
generally taxed at different rates than ordinary income dividends.
If you are neither a lawful permanent resident nor
a citizen of the U.S. or if you are a foreign entity, the Fund
’s ordinary income dividends (which include distributions of
net short-term capital gains) will generally be subject to a 30%
U.S. withholding tax, unless a lower treaty rate applies.
Dividends and interest received by the Fund may
give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes.
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Your Account
By law, the Fund must withhold 31% of your
dividends and proceeds if you have not provided a taxpayer
identification number or social security number or if the number
you have provided is incorrect.
This section summarizes some of the consequences
under current Federal tax law of an investment in the Fund. It is
not a substitute for personal tax advice. Consult your personal
tax adviser about the potential tax consequences of an investment
in the Fund under all applicable tax laws.
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Management of the Fund
FUND ASSET MANAGEMENT
Fund Asset Management, the Fund’s Investment
Adviser, manages the Fund’s investments and its business
operations under the overall supervision of the Fund’s Board
of Directors. The Investment Adviser has the responsibility for
making all investment decisions for the Fund. The Investment
Adviser has a sub-advisory agreement with Merrill Lynch Asset
Management U.K. Limited, an affiliate, under which the Investment
Adviser may pay a fee for services it receives. The Fund pays the
Investment Adviser a fee at the annual rate of 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. For the fiscal
year ended July 31, 1999, the Investment Adviser received a fee
equal to 0.99% of the Fund’s average daily net assets.
Fund Asset Management is part of the Merrill Lynch
Asset Management Group which had approximately $520 billion in
investment company and other portfolio assets under management as
of August 1999. This amount includes assets managed for Merrill
Lynch affiliates.
A Note About Year 2000
Many computer systems were designed using only two
digits to designate years. These systems may not be able to
distinguish the Year 2000 from the Year 1900 (commonly known as
the “Year 2000 Problem”). The Fund could be adversely
affected if the computer systems used by the Fund’s
management or other Fund service providers do not properly address
this problem before January 1, 2000. The Fund’s management
expects to have addressed this problem before then, and does not
anticipate that the services it provides will be adversely
affected. The Fund’s other service providers have told Fund
management that they also expect to resolve the Year 2000 Problem,
and Fund management will continue to monitor the situation as the
Year 2000 approaches. However, if the problem has not been fully
addressed, the Fund could be negatively affected. The Year 2000
Problem could also have a negative impact on the issuers of
securities in which the Fund invests. This negative impact may be
greater for companies in foreign markets, particularly emerging
markets, since they may be less prepared for the Year 2000 Problem
than domestic companies and markets. If the companies in which the
Fund invests have Year 2000 Problems, the Fund’s returns
could be adversely affected.
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Management of the Fund
FINANCIAL HIGHLIGHTS
The Financial Highlights table is intended to help
you understand the Fund’s financial performance for the
periods shown. Certain information reflects financial results for
a single Fund share. The total returns in the table represent the
rate an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends). This information has
been audited by Deloitte & Touche LLP
, whose report, along with the Fund’s financial statements, are
included in the Fund’s annual report to shareholders, which
is available upon request.
|
|
|
Class A
†
|
|
Class B†
|
| Increase
(Decrease) in
|
|
For the Year
Ended July 31,
|
|
For the
Year Ended July 31,
|
| Net Asset Value:
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
1995
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
1995
|
|
| Per Share Operating
Performance:
|
|
| Net asset value,
beginning of year
|
|
$
|
|
$15.32
|
|
|
$13.37
|
|
|
$13.44
|
|
|
$13.31
|
|
|
$ —
|
|
|
$14.82
|
|
|
$12.99
|
|
|
$13.12
|
|
|
$13.02
|
|
|
| Investment income (loss)
— net
|
|
|
|
.12
|
|
|
.10
|
|
|
.13
|
|
|
.17
|
|
|
—
|
|
|
(.03
|
)
|
|
(.03
|
)
|
|
(.01
|
)
|
|
.04
|
|
|
Realized and unrealized
gain on
investments and foreign currency
transactions — net
|
|
|
|
1.33
|
|
|
3.46
|
|
|
.51
|
|
|
1.47
|
|
|
—
|
|
|
1.28
|
|
|
3.35
|
|
|
.50
|
|
|
1.45
|
|
|
| Total from investment
operations
|
|
|
|
1.45
|
|
|
3.56
|
|
|
.64
|
|
|
1.64
|
|
|
—
|
|
|
1.25
|
|
|
3.32
|
|
|
.49
|
|
|
1.49
|
|
|
| Less dividends and
distributions:
|
|
Investment income — net
|
|
|
|
(.11
|
)
|
|
(.06
|
)
|
|
(.13
|
)
|
|
(.11
|
)
|
|
—
|
|
|
(.01
|
)
|
|
—
|
|
|
(.04
|
)
|
|
(.02
|
)
|
|
In excess of investment income — net
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Realized gain on investments — net
|
|
|
|
(3.17
|
)
|
|
(1.55
|
)
|
|
(.58
|
)
|
|
(1.40
|
)
|
|
—
|
|
|
(3.13
|
)
|
|
(1.49
|
)
|
|
(.58
|
)
|
|
(1.37
|
)
|
In excess of realized gain on
investments — net
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
| Total dividends and
distributions
|
|
|
|
(3.28
|
)
|
|
(1.61
|
)
|
|
(.71
|
)
|
|
(1.51
|
)
|
|
—
|
|
|
(3.14
|
)
|
|
(1.49
|
)
|
|
(.62
|
)
|
|
(1.39
|
)
|
|
| Net asset value, end of
year
|
|
$
|
|
$13.49
|
|
|
$15.32
|
|
|
$13.37
|
|
|
$13.44
|
|
|
$ —
|
|
|
$12.93
|
|
|
$14.82
|
|
|
$12.99
|
|
|
$13.12
|
|
|
| Total Investment
Return:*
|
|
| Based on net asset value
per share
|
|
%
|
|
10.98
|
%
|
|
29.78
|
%
|
|
4.78
|
%
|
|
13.91
|
%
|
|
—
|
|
|
9.84
|
%
|
|
28.48
|
%
|
|
3.67
|
%
|
|
12.83
|
%
|
|
| Ratios to Average Net
Assets:
|
|
| Expenses
|
|
%
|
|
1.24
|
%
|
|
1.26
|
%
|
|
1.24
|
%
|
|
1.31
|
%
|
|
—
|
|
|
2.26
|
%
|
|
2.29
|
%
|
|
2.26
|
%
|
|
2.34
|
%
|
|
| Investment income (loss)
— net
|
|
%
|
|
.83
|
%
|
|
.77
|
%
|
|
.92
|
%
|
|
1.40
|
%
|
|
—
|
%
|
|
(.18
|
%)
|
|
(.26
|
%)
|
|
(.11
|
%)
|
|
.37
|
%
|
|
| Supplemental Data:
|
|
| Net assets, end of year
(in thousands)
|
|
$
|
|
$283,005
|
|
|
$301,936
|
|
|
$279,351
|
|
|
$286,258
|
|
|
$ —
|
|
|
$286,396
|
|
|
$337,022
|
|
|
$381,808
|
|
|
$414,886
|
|
|
| Portfolio turnover
|
|
%
|
|
81.20
|
%
|
|
81.46
|
%
|
|
87.66
|
%
|
|
70.36
|
%
|
|
—
|
%
|
|
81.20
|
%
|
|
81.46
|
%
|
|
87.66
|
%
|
|
70.36
|
%
|
|
*
|
Total investment returns exclude the effects of sales charges.
|
†
|
Based on average shares outstanding.
|
MERRILL LYNCH PHOENIX FUND, INC.
[LOGO] Management of the Fund
FINANCIAL HIGHLIGHTS (concluded)
|
|
|
Class C†
†
|
|
Class D†
†
|
| Increase (Decrease) in
|
|
For the
Year Ended July 31,
|
|
For
the Period
Oct. 21, 1994†
to July 31,
1995
|
|
For the
Year Ended July 31,
|
|
For
the Period
Oct. 21, 1994†
to July 31,
1995
|
| Net Asset Value:
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
|
1999
|
|
1998
|
|
1997
|
|
1996
|
|
| Per Share Operating
Performance:
|
|
| Net asset value,
beginning of period
|
|
$—
|
|
|
$14.72
|
|
|
$12.92
|
|
|
$13.07
|
|
|
$12.31
|
|
|
$—
|
|
|
$15.29
|
|
|
$13.35
|
|
$13.43
|
|
|
$12.57
|
|
|
| Investment income (loss)
— net
|
|
—
|
|
|
(.03
|
)
|
|
(.04
|
)
|
|
(.02
|
)
|
|
.03
|
|
|
—
|
|
|
.08
|
|
|
.07
|
|
.09
|
|
|
.11
|
|
|
Realized and unrealized
gain on
investments and foreign currency
transactions — net
|
|
—
|
|
|
1.29
|
|
|
3.33
|
|
|
.51
|
|
|
1.21
|
|
|
—
|
|
|
1.33
|
|
|
3.45
|
|
.51
|
|
|
1.25
|
|
|
| Total from investment
operations
|
|
—
|
|
|
1.26
|
|
|
3.29
|
|
|
.49
|
|
|
1.24
|
|
|
—
|
|
|
1.41
|
|
|
3.52
|
|
.60
|
|
|
1.36
|
|
|
| Less dividends and
distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income — net
|
|
—
|
|
|
(.02
|
)
|
|
—
|
|
|
(.06
|
)
|
|
(.05
|
)
|
|
—
|
|
|
(.09
|
)
|
|
(.04)
|
|
(.10
|
)
|
|
(.07
|
)
|
|
In excess of investment income — net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Realized gain on
investments — net
|
|
—
|
|
|
(3.13
|
)
|
|
(1.49
|
)
|
|
(.58
|
)
|
|
(.43
|
)
|
|
—
|
|
|
(3.16
|
)
|
|
(1.54)
|
|
(.58
|
)
|
|
(.43
|
)
|
In excess of realized gain on
investments — net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
| Total dividends and
distributions
|
|
|
|
|
(3.15
|
)
|
|
(1.49
|
)
|
|
(.64
|
)
|
|
(.48
|
)
|
|
—
|
|
|
(3.25
|
)
|
|
(1.58)
|
|
(.68
|
)
|
|
(.50
|
)
|
|
| Net asset value, end of
period
|
|
$—
|
|
|
$12.83
|
|
|
$14.72
|
|
|
$12.92
|
|
|
$13.07
|
|
|
$—
|
|
|
$13.45
|
|
|
$15.29
|
|
$13.35
|
|
|
$13.43
|
|
|
| Total Investment
Return:**
|
|
| Based on net asset value
per share
|
|
—
|
|
|
9.90
|
%
|
|
28.39
|
%
|
|
3.69
|
%
|
|
10.99
|
%#
|
|
—
|
|
|
10.70
|
%
|
|
29.44%
|
|
4.50
|
%
|
|
11.72
|
%#
|
|
| Ratios to Average Net
Assets:
|
|
| Expenses
|
|
—
|
%
|
|
2.27
|
%
|
|
2.30
|
%
|
|
2.27
|
%
|
|
2.39
|
%*
|
|
—
|
%
|
|
1.51
|
%
|
|
1.52%
|
|
1.48
|
%
|
|
1.60
|
%*
|
|
| Investment income (loss)
— net
|
|
—
|
|
|
(.19
|
%)
|
|
(.27
|
%)
|
|
(.12
|
%)
|
|
.34
|
%*
|
|
—
|
%
|
|
.59
|
%
|
|
.54%
|
|
.67
|
%
|
|
1.11
|
%*
|
|
| Supplemental Data:
|
|
Net assets, end of period
(in thousands)
|
|
$—
|
|
|
$11,316
|
|
|
$14,448
|
|
|
$15,821
|
|
|
$11,775
|
|
|
$—
|
|
|
$89,691
|
|
|
$85,409
|
|
$48,873
|
|
|
$36,388
|
|
|
| Portfolio turnover
|
|
—
|
%
|
|
81.20
|
%
|
|
81.46
|
%
|
|
87.66
|
%
|
|
70.36
|
%
|
|
—
|
%
|
|
81.20
|
%
|
|
81.46%
|
|
87.66
|
%
|
|
70.36
|
%
|
|
**
|
Total investment returns exclude the effects of sales charges.
|
#
|
Aggregate total investment return.
|
†
|
Commencement of operations.
|
†
†
|
Based on average shares outstanding.
|
MERRILL LYNCH PHOENIX FUND, INC.
[This page intentionally left blank]
MERRILL LYNCH PHOENIX FUND, INC.
[This page intentionally left blank]
MERRILL LYNCH PHOENIX FUND, INC.
[This page intentionally left blank]
MERRILL LYNCH PHOENIX FUND, INC.
Management of the Fund
[FLOW CHART APPEARS HERE]
POTENTIAL
INVESTORS
Open an account (two options).
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.
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.
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
New York, New York 10286
Provides legal advice Holds the Fund's assets
to the Fund. for safekeeping.
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] Prospectus November ,
1999
Shareholder Reports
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 information contained in
this Prospectus.
Investment Company Act file #811-3450
Code #10121-11-99
©
Fund Asset Management, L.P.
[MERRILL LYNCH LOGO APPEARS HERE]
[LOGO] For More Information
SUBJECT TO COMPLETION
Preliminary Statement of Additional Information
Dated September 29, 1999
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 objective of the
Fund will be realized.
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 , 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 , 1999.
The information in this statement of additional
information is not complete and may be changed. This statement of
additional information is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
TABLE OF CONTENTS
|
|
|
Page
|
| Investment
Objective and Policies...
|
|
2
|
|
Risk Factors and
Special Considerations...
|
|
3
|
|
Other Investment
Policies, Practices and Risk Factors...
|
|
6
|
|
Investment
Restrictions...
|
|
8
|
|
Portfolio
Turnover...
|
|
10
|
| Management of
the Fund...
|
|
10
|
|
Directors and
Officers...
|
|
10
|
|
Compensation of
Directors...
|
|
11
|
|
Management and
Advisory Arrangements...
|
|
12
|
|
Code of Ethics...
|
|
13
|
| Purchase of
Shares...
|
|
14
|
|
Initial Sales
Charge Alternatives — Class A and Class D Shares...
|
|
14
|
|
Reduced Initial
Sales Charges...
|
|
16
|
|
Deferred Sales
Charge Alternatives — Class B and Class C Shares...
|
|
18
|
|
Distribution
Plans...
|
|
21
|
|
Limitations on
the Payment of Deferred Sales Charges...
|
|
23
|
| Redemption of
Shares...
|
|
24
|
|
Redemption...
|
|
24
|
|
Repurchase...
|
|
25
|
|
Reinstatement
Privilege — Class A and Class D Shares...
|
|
25
|
| Pricing of
Shares...
|
|
25
|
|
Determination of
Net Asset Value...
|
|
25
|
|
Computation of
Offering Price Per Share...
|
|
27
|
| Portfolio
Transactions...
|
|
27
|
| Shareholder
Services...
|
|
29
|
|
Investment
Account...
|
|
29
|
|
Exchange
Privilege...
|
|
29
|
|
Fee-Based
Programs...
|
|
31
|
|
Retirement and
Education Savings Plans...
|
|
32
|
|
Automatic
Investment Plans...
|
|
32
|
|
Automatic
Dividend Reinvestment Plan...
|
|
32
|
|
Systematic
Withdrawal Plan...
|
|
32
|
| Dividends and
Taxes...
|
|
33
|
|
Dividends...
|
|
33
|
|
Taxes...
|
|
34
|
|
Tax Treatment of
Options Transactions...
|
|
35
|
|
Special Rules
for Certain Foreign Currency Transactions...
|
|
35
|
| Performance
Data...
|
|
36
|
| General
Information...
|
|
39
|
|
Description of
Shares...
|
|
39
|
|
Independent
Auditors...
|
|
39
|
|
Custodian...
|
|
39
|
|
Transfer Agent...
|
|
39
|
|
Legal Counsel...
|
|
40
|
|
Reports to
Shareholders...
|
|
40
|
|
Shareholder
Inquiries...
|
|
40
|
|
Additional
Information...
|
|
40
|
| Financial
Statements...
|
|
40
|
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
”).
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. 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.
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.
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.
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 not registered (“
restricted securities”) under the Securities Act of 1933, as
amended (the “Securities Act”). Restricted securities
may be sold in private placement transactions between the issuers
and their purchasers and may be neither listed on an exchange nor
traded in other established markets. In many cases, privately
placed securities may not be freely transferable under the laws of
the applicable jurisdiction or due to contractual restrictions on
resale. As a result of the absence of a public trading market,
privately placed securities may be less liquid and more difficult
to value than publicly traded securities. To the extent that
privately placed securities may be resold in privately negotiated
transactions, the prices realized from the sales, due to
illiquidity, could be less than those originally paid by the Fund
or less than their fair market value. In addition, issuers whose
securities are not publicly traded may not be subject to the
disclosure and other investor protection requirements that may be
applicable if their securities were publicly traded. If any
privately placed securities held by the Fund are required to be
registered under the securities laws of one or more jurisdictions
before being resold, the Fund may be required to bear the expenses
of registration. Certain of the 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.
Lending of Portfolio Securities. The
Fund may lend securities with a value not exceeding 20% of its
total assets. In return, the Fund receives collateral in an amount
equal to at least 100% of the current market value of the loaned
securities in cash or securities issued or guaranteed by the U.S.
Government. 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 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.
Investment Restrictions
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.” 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
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 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.
MANAGEMENT OF THE FUND
Directors and Officers
The
Directors of the Fund consist of seven individuals, five of whom
are not “interested persons” of the Fund as defined in
the Investment Company Act (the “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.
T
ERRY
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.
J
OE
GRILLS
(64) — Director (2) — 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.
W
ALTER
MINTZ
(70) — Director (2) — 1114
Avenue of the Americas, New York, New York 10036. Special Limited
Partner of Cumberland Associates (investment partnership) since
1982.
R
OBERT
S. SALOMON
, JR
. (62) — 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.
M
ELVIN
R. SEIDEN
(68) — Director (2) — 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.
S
TEPHEN
B. SWENSRUD
(66) — Director (2) — 24
Federal Street, Suite 400, Boston, Massachusetts 02110. Chairman
of Fernwood Advisors (investment adviser) since 1996; Principal,
Fernwood Associates (financial consultant) since 1975.
A
RTHUR
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.
R
OBERT
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.
R
OBERT
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.
D
ONALD
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.
R
OBERT
HARRIS
(47) — Secretary (1)(2) — First
Vice President of MLAM since 1997; Vice President of the
Investment Adviser and MLAM from 1984 to 1997; Attorney associated
with MLAM since 1980; Secretary of PFD since 1992.
(1)
|
Interested person, as defined in the Investment Company Act, of
the Fund.
|
(2)
|
Such Director or officer is a trustee, director or officer of
certain other investment companies for which the Investment
Adviser or MLAM acts as the investment adviser or manager.
|
As
of November , 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 (24 registered investment companies
consisting of 56 portfolios), Walter Mintz (22 registered
investment companies consisting of 43 portfolios), Robert S.
Salomon, Jr. (22 registered investment companies consisting of
43 portfolios), Melvin R. Seiden (22 registered investment
companies consisting of 43 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...
|
|
$
|
| 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; SEC fees;
expenses of registering the shares under Federal, state or foreign
laws; fees and expenses of non-interested Directors; accounting
and pricing costs (including the daily calculations of net asset
value); insurance; interest; brokerage costs; litigation and other
extraordinary or non-recurring expenses; and other expenses
properly payable by the Fund. Accounting services are provided for
the Fund by the Investment Adviser and the Fund reimburses the
Investment Adviser for its costs in connection with such services
on a semi-annual basis. The Distributor will pay certain
promotional expenses of the Fund incurred in connection with the
offering of shares of the Fund. Certain expenses will be financed
by the Fund pursuant to distribution plans in compliance with Rule
12b-1 under the Investment Company Act. See “Purchase of
Shares—Distribution Plans.”
Organization of the Investment Adviser.
The Investment Adviser is a limited partnership, the partners of
which are ML & Co., a financial services holding company and
the parent of Merrill Lynch, and Princeton Services. ML & Co.
and Princeton Services are “controlling persons” of the
Investment Adviser as defined under
the Investment Company Act because of their ownership of its voting
securities or their power to exercise a controlling influence over
its management or policies.
The
following entities may be considered “controlling persons
” of MLAM U.K.: Merrill Lynch Europe PLC (MLAM U.K.’s
parent), a subsidiary of Merrill Lynch International Holdings,
Inc., a subsidiary of Merrill Lynch International, Inc., a
subsidiary of ML & Co.
Duration and Termination. Unless
earlier terminated as described herein, the Investment Advisory
Agreement 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.
Code of Ethics
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).
PURCHASE OF SHARES
Reference is made to “How to Buy, Sell, Transfer and Exchange
Shares” in the Prospectus.
The
Fund offers four classes of shares under the Merrill Lynch Select
Pricing
SM
System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives and shares of Class
B and Class C are sold to investors choosing the deferred sales
charge alternatives. Each Class A, Class B, Class C or Class D
share of the Fund represents an identical interest in the
investment portfolio of the Fund and has the same rights, except
that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees (also known as service fees) and
Class B and Class C shares bear the expenses of the ongoing
distribution fees and the additional incremental transfer agency
costs resulting from the deferred sales charge arrangements. The
contingent deferred sales charges (“CDSCs”),
distribution fees and account maintenance fees that are imposed on
Class B and Class C shares, as well as the account maintenance
fees that are imposed on Class D shares, are imposed directly
against those classes and not against all assets of the Fund and,
accordingly, such charges do not affect the net asset value of any
other class or have any impact on investors choosing another sales
charge option. Dividends paid by the Fund for each class of shares
are calculated in the same manner at the same time and differ only
to the extent that account maintenance and distribution fees and
any incremental transfer agency costs relating to a particular
class are borne exclusively by that class. Each class has
different exchange privileges. See “Shareholder Services
— Exchange Privilege.”
Investors should understand that the purpose and function of the
initial sales charges with respect to the Class A and Class D
shares are the same as those of the CDSCs and distribution fees
with respect to the Class B and Class C shares in that the sales
charges and distribution fees applicable to each class provide for
the financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will
not be used to finance the distribution expenditures of another
class. Sales personnel may receive different compensation for
selling different classes of shares.
The
Merrill Lynch Select Pricing
SM
System is used by more than 50 registered investment companies
advised by the Investment Adviser or MLAM. Funds advised by the
Investment Adviser 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 employee-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 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-advised investment companies.
Certain persons who acquired shares of certain MLAM-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
|
|
$11,643
|
|
$864
|
|
$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 load
are due to the nature of the investors and/or the reduced sales
efforts that will be needed in obtaining such investments.
Reinvested Dividends. No initial sales
charges are imposed upon Class A and Class D shares issued as a
result of the automatic reinvestment of dividends.
Right of Accumulation. Reduced sales
charges are applicable through a right of accumulation under which
eligible investors are permitted to purchase shares of the Fund
subject to an initial sales charge at the offering price
applicable to the total of (a) the public offering price of the
shares then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the
purchaser’s combined holdings of all classes of shares of the
Fund and of any other Select Pricing Funds. For any such right of
accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or the purchaser
’s 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.
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-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 be waived for any
Class B shares that were acquired and held at the time of the
redemption in an Employee Access
SM
Account available through employers providing eligible 401(k)
plans. The Class B CDSC may also be waived for any Class B shares
that are purchased by a Merrill Lynch rollover IRA that was funded
by a rollover from a terminated 401(k) plan managed by the 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 the average daily net
assets but are not subject to the distribution fee that is borne
by Class B shares. Automatic conversion of Class B shares into
Class D shares will occur at least once each month (on the “
Conversion Date”) on the basis of the relative net asset
value of the shares of the two classes on the Conversion Date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed
a purchase or sale of the shares for Federal income tax purposes.
In
addition, shares purchased through reinvestment of dividends on
Class B shares also will convert automatically to Class D shares.
The Conversion Date for dividend reinvestment shares will be
calculated taking into account the length of time the shares
underlying such dividend reinvestment shares were outstanding. If
at the Conversion Date the conversion of Class B shares to Class D
shares of the Fund in a single account will result in less than
$50 worth of Class B shares being left in the account, all of the
Class B shares of the Fund held in the account on the Conversion
Date will be converted to Class D shares of the Fund.
In
general, Class B shares of equity Select Pricing Funds will
convert approximately eight years after initial purchase and Class
B shares of taxable and tax-exempt fixed income Select Pricing
Funds will convert approximately ten years after initial purchase.
If, during the Conversion Period, a shareholder exchanges Class B
shares with an eight-year Conversion Period for Class B shares
with a ten-year Conversion Period, or vice versa, the Conversion
Period applicable to the Class B shares acquired in the exchange
will apply and the holding period for the shares exchanged will be
tacked on to the holding period for the shares acquired. The
Conversion Period also may be modified for investors that
participate in certain fee-based programs. See “Shareholder
Services —Fee-Based Programs.”
Class B shareholders of the Fund exercising the exchange privilege
described under “Shareholder Services —Exchange
Privilege” will continue to be subject to the Fund’s
CDSC schedule if such schedule is higher than the CDSC schedule
relating to the Class B shares acquired as a result of the
exchange.
Share certificates for Class B shares of the Fund to be converted
must be delivered to the Transfer Agent at least one week prior to
the Conversion Date applicable to those shares. In the event such
certificates are not received by the Transfer Agent at least one
week prior to the Conversion Date, the related Class B shares will
convert to Class D shares on the next scheduled Conversion Date
after such certificates are delivered.
Contingent Deferred Sales Charges — Class C
Shares
Class C shares that are redeemed within one year of purchase may
be subject to a 1.0% CDSC charged as a percentage of the dollar
amount subject thereto. In determining whether a Class C CDSC is
applicable to a redemption, the calculation will be determined in
the manner that results in the lowest possible rate being charged.
The charge will be assessed on an amount equal to the lesser of
the proceeds of redemption or the cost of the shares being
redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In
addition, no Class C CDSC will be assessed on shares derived from
reinvestment of dividends. It will be assumed that the redemption
is first of shares held for over one year or shares acquired
pursuant to reinvestment of dividends and then of shares held
longest during the one-year period. A transfer of shares from a
shareholder’s account to another account will be assumed to
be made in the same order as a redemption. The Class C CDSC may be
waived in connection with involuntary termination of an account in
which Fund shares are held and withdrawals through the Merrill
Lynch Systematic Withdrawal Plans. See “Shareholder Services
— Systematic Withdrawal Plan.” The Class C
CDSC of the Fund and certain other MLAM-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-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
|
|
$652,512
|
|
$652,512
|
|
1997
|
|
$244,931
|
|
$244,931
|
*
|
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
|
|
$5,533
|
|
$5,533
|
|
1997
|
|
$2,715
|
|
$2,715
|
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 NASD asset-based sales charge
rule. See “Limitations on the Payment of Deferred Sales
Charges” below.
Distribution Plans
Reference is made to “Fees and Expenses” in the
Prospectus for certain information with respect to the separate
distribution plans for Class B, Class C and Class D shares
pursuant to Rule 12b-1 under the Investment Company Act (each a
“Distribution Plan”) with respect to the account
maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.
The
Distribution Plans for 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 $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
$
pursuant to the Class B Distribution Plan (based on
average daily net assets subject to such Class B Distribution Plan
of approximately
$
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 $
pursuant to the Class C Distribution Plan (based on average daily
net assets subject to such Class C Distribution Plan of
approximately $
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 $
pursuant to the Class D
Distribution Plan (based on average daily net assets subject to
such Class D Distribution Plan of approximately $
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
|
|
$35,204
|
|
$2,842
|
|
$38,046
|
|
$22,164
|
|
$16,206
|
|
$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).
|
REDEMPTION OF SHARES
Reference is made to “How to Buy, Sell, Transfer and Exchange
Shares” in the Prospectus.
The
Fund is required to redeem for cash all shares of the Fund upon
receipt of a written request in proper form. The redemption price
is the net asset value per share next determined after the initial
receipt of proper notice of redemption. Except for any CDSC that
may be applicable, there will be no charge for redemption if the
redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon
redemption all dividends reinvested through the date of redemption.
The
right to redeem shares or to receive payment with respect to any
such redemption may be suspended for more than seven days only for
any period during which trading on the New York Stock Exchange
(the “NYSE”) is restricted as determined by the
Commission or the NYSE is closed (other than customary weekend and
holiday closings), for any period during which an emergency exists
as defined by the Commission as a result of which disposal of
portfolio securities or determination of the net asset value of
the Fund is not reasonably practicable, and for such other periods
as the Commission may by order permit for the protection of
shareholders of the Fund.
The
value of shares at the time of redemption may be more or less than
the shareholder’s cost, depending in part on the market value
of the securities held by the Fund at such time.
Redemption
A
shareholder wishing to redeem shares held with the Transfer Agent
may do so without charge by tendering the shares directly to the
Transfer Agent at Financial Data Services, Inc., P.O. Box 45289,
Jacksonville, Florida 32232-5289. Redemption requests delivered
other than by mail should be delivered to Financial Data Services,
Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Proper notice of redemption in the case of shares deposited with
the Transfer Agent may be accomplished by a written letter
requesting redemption. Proper notice of redemption in the case of
shares for which certificates have been issued may be accomplished
by a written letter as noted above accompanied by certificates for
the shares to be redeemed. Redemption requests should not be sent
to the Fund. The redemption request in either event requires the
signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as such name(s) appear(s) on the
Transfer Agent’s register. The signature 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, as amended (the “Exchange Act”),
the existence and validity of which may be verified by the
Transfer Agent through the use of industry publications. In the
event a signature guarantee is required, notarized signatures are
not sufficient. In general, signature guarantees are waived on
redemptions of less than $50,000 as long as the following
requirements are met: (i) all requests require the signature(s) of
all persons in whose name(s) shares are recorded on the Transfer
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 United States 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 United
States bank) has been collected for the purchase of such Fund
shares, which will not usually exceed 10 days.
Repurchase
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.
PRICING OF SHARES
Determination of Net Asset Value
Reference is made to “How Shares are Priced” in the
Prospectus.
The
net asset value of the shares of all classes of the Fund is
determined once daily Monday through Friday 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...
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
| Number of Shares
Outstanding...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value
Per Share (net assets divided by number of shares
outstanding)...
|
|
$
|
|
$
|
|
$
|
|
$
|
Sales Charge
(for Class A and Class D shares: 5.25% of offering price;
5.54% of net asset value per
share)*...
|
|
|
|
**
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
| Offering Price...
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
*
|
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
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 price and execution, 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...
|
|
$
|
|
$
|
| 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
% of the aggregate brokerage commissions paid
and involved % 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.
SHAREHOLDER SERVICES
The
Fund offers a number of shareholder services and investment plans
described below that are designed to facilitate investment in
shares of the Fund. Full details as to each of such services,
copies of the various plans and instructions as to how to
participate in the various services or plans, or how to change
options with respect thereto, can be obtained from the Fund, by
calling the telephone number on the cover page hereof, or from the
Distributor 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.
Investment Account
Each shareholder whose account is maintained at the Transfer Agent
has an Investment Account and will receive statements, at least
quarterly, from the Transfer Agent. These statements will serve as
transaction confirmations for automatic investment purchases and
the reinvestment of dividends. The statements will also show any
other activity in the account since the preceding statement.
Shareholders will also receive separate confirmations for each
purchase or sale transaction other than automatic investment
purchases and the reinvestment of dividends. A shareholder with an
account held at the Transfer Agent may make additions to his or
her Investment Account at any time by mailing a check directly to
the Transfer Agent. A shareholder may also maintain an account
through Merrill Lynch. 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.
Exchange Privilege
U.S. shareholders of each class of shares of the Fund have an
exchange privilege with certain other Select Pricing Funds and
Summit Cash Reserves Fund (“Summit”), a series of
Financial Institutions Series Trust, which is a Merrill
Lynch-sponsored money market fund specifically designated for
exchange by holders of Class A, Class B, Class C and Class D
shares of Select Pricing Funds. Shares with a net asset value of
at least $100 are required to qualify for the exchange privilege
and any shares utilized in an exchange must have been held by the
shareholder for at least 15 days. Before effecting an exchange,
shareholders should obtain a currently effective prospectus of the
fund into which the exchange is to be made. Exercise of the
exchange privilege is treated as a sale of the exchanged shares
and a purchase of the acquired shares for Federal income tax
purposes.
Exchanges of Class A and Class D Shares.
Class A shareholders may exchange Class A shares of the Fund
for Class A shares of a second Select Pricing Fund if the
shareholder holds any Class A shares of the second fund
in the account in which the exchange is made at the time of the
exchange or is otherwise eligible to purchase Class A shares of
the second fund. If the Class A shareholder wants to exchange
Class A shares for shares of a second Select Pricing Fund, but
does not hold Class A shares of the second fund in his or her
account at the time of the exchange and is not otherwise eligible
to acquire Class A shares of the second fund, the shareholder will
receive Class D shares of the second fund as a result of the
exchange. Class D shares also may be exchanged for Class A shares
of a second Select Pricing Fund at any time as long as, at the
time of the exchange, the shareholder holds Class A shares of the
second fund in the account in which the exchange is made or is
otherwise eligible to purchase Class A shares of the second fund.
Class D shares are exchangeable with shares of the same class of
other Select Pricing Funds.
Exchanges of Class A or Class D shares outstanding (“
outstanding Class A or Class D shares”) for Class A or Class
D shares of other Select Pricing Funds or for Class A shares of
Summit, (“new Class A or Class D shares”) are transacted
on the basis of relative net asset value per Class A or Class D
share, respectively, plus an amount equal to the difference, if
any, between the sales charge previously paid on the outstanding
Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect
to outstanding Class A or Class D shares as to which previous
exchanges have taken place, the “sales charge previously paid
” shall include the aggregate of the sales charges paid with
respect to such Class A or Class D shares in the initial purchase
and any subsequent exchange. Class A or Class D shares issued
pursuant to dividend reinvestment are sold on a no-load basis in
each of the funds offering Class A or Class D shares. For purposes
of the exchange privilege, Class A or Class D shares acquired
through dividend reinvestment shall be deemed to have been sold
with a sales charge equal to the sales charge previously paid on
the Class A or Class D shares on which the dividend was paid.
Based on this formula, Class A and Class D shares generally may be
exchanged into the Class A or Class D shares, respectively, of the
other funds with a reduced sales charge or without a sales charge.
Exchanges of Class B and Class C Shares.
Certain Select Pricing Funds with Class B or Class C shares
outstanding (“outstanding Class B or Class C shares”)
offer to exchange their Class B or Class C shares for Class B or
Class C shares, respectively, of certain other Select Pricing
Funds or for Class B shares of Summit (“new Class B or Class
C shares”) on the basis of relative net asset value per Class
B or Class C share, without the payment of any CDSC that might
otherwise be due on redemption of the outstanding shares. Class B
shareholders of the Fund exercising the exchange privilege will
continue to be subject to the 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.
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.
Fee-Based Programs
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.
Capital gains and ordinary income received in each of the plans
referred to above are exempt from Federal taxation until
distributed from the plans. Different tax rules apply to Roth IRA
plans and education savings plans. Investors considering
participation in any retirement or education savings plan should
review specific tax laws relating thereto and should consult their
attorneys or tax advisers with respect to the establishment and
maintenance of any such plan.
Automatic Investment Plans
A
shareholder may make additions to an Investment Account at any
time by purchasing Class A shares (if he or she is an eligible
Class A investor) or Class B, Class C or Class D shares at the
applicable public offering price. These purchases may be made
either through the shareholder’s securities dealer, or by
mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made through
a service known as the Fund’s Automatic Investment Plan. The
Fund would be authorized, on a regular basis, to provide
systematic additions to the Investment Account of such shareholder
through charges of $50 or more to the regular bank account of the
shareholder by either pre-authorized checks or automated clearing
house debits. Alternatively, an investor that maintains a CMA®
or CBA® account may arrange to have periodic investments made
in the Fund in amounts of $100 ($1 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 of the close of business on the NYSE on the monthly payment
date for such dividends. No CDSC will be imposed upon redemption
of shares issued as a result of the automatic reinvestment of
dividends.
Shareholders may, at any time, by written notification to Merrill
Lynch if their account is maintained with Merrill Lynch, or by
written notification or by telephone (1-800-MER-FUND) to the
Transfer Agent, if their account is maintained with the Transfer
Agent elect to have subsequent dividends paid in cash, rather than
reinvested in shares of the Fund or vice versa (provided that, in
the event that a payment on an account maintained at the Transfer
Agent would amount to $10.00 or less, a shareholder will not
receive such payment in cash and such payment will automatically
be reinvested in additional shares). Commencing ten days after the
receipt by the Transfer Agent of such notice, those instructions
will be effected. The Fund is not responsible for any failure of
delivery to the shareholder’s address of record and no
interest will accrue on amounts represented by uncashed dividend
checks. Cash payments can also be directly deposited to the
shareholder’s bank account.
Systematic Withdrawal Plan
A
shareholder may elect to receive systematic withdrawals from his
or her Investment Account by check or through automatic payment by
direct deposit to his or her bank account on either a monthly or
quarterly basis as provided below. Quarterly withdrawals are
available for shareholders that have acquired shares of the Fund
having a value, based on cost or the current offering price, of
$5,000 or more, and monthly withdrawals are available for
shareholders with shares having a value of $10,000 or more.
At
the time of each withdrawal payment, sufficient shares are
redeemed from those on deposit in the shareholder’s account
to provide the withdrawal payment specified by the shareholder.
The shareholder may specify the dollar amount and the class of
shares to be redeemed. Redemptions will be made at net asset value
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 close of
business on the following business day. The check for the
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.
DIVIDENDS AND TAXES
Dividends
The
Fund intends to distribute substantially all of its net investment
income, if any. Dividends from such net investment income will be
paid at least annually. All net realized capital gains, if any,
will be distributed to the 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.”
Taxes
The
Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies (“RICs”) under
the Internal Revenue Code of 1986, as amended (the “Code”
). As long as it so qualifies, the Fund (but not its shareholders)
will not be subject to Federal income tax on the part of its net
ordinary income and net realized capital gains that it distributes
to Class A, Class B, Class C and Class D shareholders (together,
the “shareholders”). The Fund intends to distribute
substantially all of such income.
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.
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.
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.
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.
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. 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.
PERFORMANCE DATA
From time to time the Fund may include its average annual total
return and other total return data in advertisements or
information furnished to present or prospective shareholders.
Total return figures are based on the 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. In
advertisements distributed to investors whose purchases are
subject to waiver of the CDSC in the case of Class B and Class C
shares (such as investors in certain retirement plans) or to
reduced sales loads in the case of Class A and Class D shares, the
performance data may take into account the reduced, and not the
maximum, sales charge or may not take into account the CDSC and
therefore may reflect greater total return since, due to the
reduced sales charges or waiver of the CDSC, a lower amount of
expenses is deducted. See “Purchase of Shares.” The 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
|
|
|
|
|
Annual Total
Return
|
|
|
|
(excluding
maximum applicable sales charges)
|
|
|
| Year Ended July
31,
|
|
1999...
|
|
|
%
|
|
$
|
|
|
%
|
|
$
|
|
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
|
|
1989...
|
|
17.48
|
%
|
|
$1,174.80
|
|
|
|
|
|
|
1988...
|
|
4.64
|
%
|
|
$1,046.40
|
|
|
|
|
|
|
1987...
|
|
30.34
|
%
|
|
$1,303.40
|
|
|
|
|
|
|
1986...
|
|
25.45
|
%
|
|
$1,254.50
|
|
|
|
|
|
|
1985...
|
|
29.44
|
%
|
|
$1,294.40
|
|
|
|
|
|
|
1984...
|
|
2.88
|
%
|
|
$1,028.80
|
|
|
|
|
|
Inception
(November 1, 1982) to July 31,
1983...
|
|
28.83
|
%
|
|
$1,288.30
|
|
|
|
|
|
Inception
(October 21, 1988) to July 31,
1989...
|
|
|
|
|
|
|
13.56
|
%
|
|
$1,135.60
|
|
|
|
|
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.
GENERAL INFORMATION
Description of Shares
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 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.
Independent Auditors
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.
Custodian
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.
Transfer Agent
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.
Legal Counsel
Brown & Wood LLP
, One World Trade Center, New York, New York 10048-0557, is counsel
for the Fund.
Reports to Shareholders
The
fiscal year of the Fund ends on 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
Shareholder inquiries may be addressed to the Fund at the address
or telephone number set forth on the cover page of this Statement
of Additional Information.
Additional Information
The
Prospectus and this Statement of Additional Information do not
contain all the information set forth in the Registration
Statement and the exhibits relating thereto, which the Fund has
filed with the Securities and Exchange Commission, Washington,
D.C., under the Securities Act and the Investment Company Act, to
which reference is hereby made.
Under a separate agreement, ML & Co. has granted the Fund the
right to use the “Merrill Lynch” name and has reserved
the right to withdraw its consent to the use of such name by the
Fund at any time or to grant the use of such name to any other
company, and the Fund has granted ML & Co. under certain
conditions, the use of any other name it might assume in the
future, with respect to any corporation organized by ML & Co.
To
the knowledge of the Fund, persons or entities owned beneficially
5% or more of a class of the Fund’s shares as of November 1,
1999:
FINANCIAL STATEMENTS
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.
Code # 10121-11-99
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.
|
|
(b)
|
|
—Consent of
Brown & Wood LLP
, counsel to the Registrant.
|
| 10
|
|
—Consent of
Deloitte & Touche LLP
, independent auditors for the Registrant.
|
| 11
|
|
—None.
|
| 12
|
|
—
[Certificate of Merrill Lynch Asset Management, L.P.(a)]
|
| 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)
|
Refiled on November 28, 1995, as an exhibit to Post-Effective
Amendment No. 16 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”).
|
(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.
|
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 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
Michigan Insured Fund, 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
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 Technology Fund, Inc., 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 May 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. 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
|
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
|
|
Secretary
|
(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 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 29th day of September, 1999.
|
MERRILL
LYNCH
PHOENIX
FUND
, INC
.
|
|
Vice President and Treasurer)
|
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been
signed below by the following persons in the capacities and on the
dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
/s/
TERRY
K. GLENN
*
(Terry K. Glenn)
|
|
President and
Director
(Principal Executive Officer)
|
|
|
|
|
/s/
DONALD
C. BURKE
(Donald C. Burke)
|
|
Vice President
and Treasurer
(Principal Financial and
Accounting Officer)
|
|
September 29,
1999
|
|
|
/s/
JOE
GRILLS
*
(Joe Grills)
|
|
Director
|
|
|
|
|
/s/
WALTER
MINTZ
*
(Walter Mintz)
|
|
Director
|
|
|
|
|
/s/
MELVIN
R. SEIDEN
*
(Melvin R. Seiden)
|
|
Director
|
|
|
|
|
/s/
ROBERT
S. SALOMON
, JR
.*
(Robert S. Salomon, Jr.)
|
|
Director
|
|
|
|
|
/s/
STEPHEN
B. SWENSRUD
*
(Stephen B. Swensrud)
|
|
Director
|
|
|
|
/s/
ARTHUR
ZEIKEL
*
(Arthur Zeikel)
|
|
Director
|
|
|
|
|
|
/s/
DONALD
C. BURKE
*By:
(Donald C. Burke, Attorney-in-Fact)
|
|
|
|
September 29, 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
|
|
9(b)
|
|
—
Consent of Brown & Wood LLP
, counsel to the Registrant.
|
|
|
10
|
|
—
Consent of Deloitte & Touche LLP
, independent auditors for the Registrant.
|
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