As filed with the Securities and Exchange Commission on January 31,
2000
Securities Act File No. 33-4026
Investment Company Act File No. 811-4612
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
| REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 |
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| Pre-Effective Amendment
No. |
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| Post-Effective
Amendment No. 17 |
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and/or
| REGISTRATION STATEMENT
UNDER THE |
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| INVESTMENT COMPANY ACT
OF 1940 |
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| Amendment No.
19 |
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(Check appropriate box or boxes)
MERRILL LYNCH EUROFUND
(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 EuroFund
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address: P.O. Box 9011, Princeton, New Jersey
08543-9011
(Name and Address of Agent for Service)
Copies to:
Counsel for the Trust:
| BROWN &
WOOD LLP
One World Trade Center
New York, New York 10048-0557
Attention: Thomas R. Smith, Jr., Esq.
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Michael J.
Hennewinkel, Esq.
MERRILL LYNCH ASSET MANAGEMENT
P.O. Box 9011
Princeton, New Jersey 08543-9011
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It is proposed that
this filing will become effective (check appropriate box)
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x
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immediately upon filing
pursuant to paragraph (b)
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on (date) pursuant to
paragraph (b)
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60 days after filing
pursuant to paragraph (a)(1)
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on (date) pursuant to
paragraph (a)(1)
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75 days after filing
pursuant to paragraph (a)(2)
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on (date) pursuant to
paragraph (a)(2) of Rule 485.
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If appropriate, check
the following box:
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¨
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This post-effective
amendment designates a new effective date for a previously filed
post-effective amendment.
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Title of Securities Being Registered: Shares
of Beneficial Interest, par value $.10 per share.
Prospectus
[LOGO] Merrill Lynch
January 31, 2000
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This Prospectus
contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for
future reference.
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The Securities and
Exchange Commission has not approved or disapproved these securities or
passed upon the adequacy of this Prospectus. Any representation to the
contrary is a criminal offense.
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Table
of Contents
[GRAPHIC] Key Facts
In an
effort to help you better understand the many concepts involved in making an
investment decision, we have defined highlighted terms in this prospectus in
the sidebar.
Equities — common stock or
securities whose price is linked to the value of common stock.
Common Stock — shares of ownership
of a corporation.
MERRILL LYNCH EUROFUND AT A GLANCE
What is the Fund’s investment objective?
The Fund’s investment objective is to seek capital appreciation
primarily through investment in equities of corporations
domiciled in European countries.
What are the Fund’s main investment
strategies?
The Fund invests primarily in stocks of companies located in European
countries. Under normal market conditions, the Fund will invest at least 80%
of its net assets in common stocks and securities convertible
into common stocks of companies located in Europe. The Fund currently
expects that a majority of the Fund’s assets will be invested in common
stocks of companies in Western European countries such as the United
Kingdom, Germany, The Netherlands, Switzerland, Sweden, France, Italy,
Belgium, Norway, Denmark, Finland, Portugal, Austria and Spain. The Fund may
also invest in Eastern European countries. Fund management selects the
countries in which to invest using a variety of considerations including a
particular country’s economic growth potential, currency and taxation
factors and other political and financial considerations. Within particular
countries the Fund considers the condition and growth potential of industry
sectors and selects what Fund management believes are attractively valued
companies within those sectors. The Fund cannot guarantee that it will
achieve its objective.
The Fund tries to choose investments that will increase in value.
Current income from dividends and interest will not be an important
consideration in choosing investments. The Fund may invest in certain types
of “derivative” securities.
What are the main risks of investing in the
Fund?
As with any fund, the value of the Fund’s investments—and
therefore the value of Fund shares—may fluctuate. These changes may
occur because a particular stock market is rising or falling. At other
times, there are specific factors that may affect the value of a particular
investment. If the value of the Fund’s investments goes down, you may
lose money.
The Fund will invest most of its assets in non-U.S. securities.
Foreign investing involves special risks—including foreign currency
risk 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 such as those in Eastern Europe.
Derivatives may be volatile and subject to liquidity, leverage and
credit risk.
Who should invest?
The Fund may be an appropriate investment for you if you:
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Are looking for capital
appreciation for long term goals such as retirement or funding a child
’s education
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Want a professionally
managed and diversified portfolio
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Are looking for exposure
to the European markets
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Are willing to accept the
risks of foreign investing in order to seek potentially higher capital
appreciation
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Are not looking for a
significant amount of current income
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4
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 Morgan Stanley Capital International
(MSCI) Europe Index. How the Fund performed in the past is not necessarily
an indication of how the Fund will perform in the future.
[BAR CHART]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------- ------ ------ ------ ------ -------
-3.26% 15.08% -6.38% 30.60% 3.24% 11.52% 24.00% 23.52% 23.79% 14.11%
During the ten year period shown in the bar chart, the highest
return for a quarter was 22.58% (quarter ended December 31, 1998) and the
lowest return for a quarter was -18.68% (quarter ended September 30, 1998). The Fund
’s year-to-date return as of December 31, 1999 was 14.11%.
Average Annual Total Returns
(as of the calendar year ended
December 31, 1999) |
|
|
|
Past
One Year |
|
Past
Five Years |
|
Past Ten Years/
Since Inception |
|
| Merrill Lynch
EuroFund* |
|
A |
|
9.22% |
|
19.21% |
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13.54% |
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| MSCI Europe
Index** |
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15.89% |
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22.10% |
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14.04% |
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| Merrill Lynch
EuroFund* |
|
B |
|
10.33% |
|
19.26% |
|
12.99% |
† |
| MSCI Europe
Index** |
|
|
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15.89% |
|
22.10% |
|
14.04% |
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| Merrill Lynch
EuroFund* |
|
C |
|
13.07% |
|
19.23% |
|
17.74% |
†† |
| MSCI Europe
Index** |
|
|
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15.89% |
|
22.10% |
|
20.52% |
# |
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| Merrill Lynch
EuroFund* |
|
D |
|
8.94% |
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18.90% |
|
17.46% |
†† |
| MSCI Europe
Index** |
|
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15.89% |
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22.10% |
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20.52% |
# |
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**
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This unmanaged
capitalization weighted Index is comprised of 615 stocks, including a
representative sampling of large-, medium-, and small-capitalization
companies. Past performance is not predictive of future
performance.
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†
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The performance does not
reflect the effect of the 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.
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#
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Since October 31,
1994.
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5
[GRAPHIC] Key Facts
UNDERSTANDING EXPENSES
Fund
investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds
may charge:
Expenses paid directly by the shareholder:
Shareholder Fees — these include sales charges which
you may pay when you buy or sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses — expenses that
cover the costs of operating the Fund.
Management Fee — a fee paid to the Manager for
managing the 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): |
|
Class A |
|
Class B(b) |
|
Class C |
|
Class D |
|
Maximum
Sales Charge (Load) imposed on
purchases (as a percentage of offering
price) |
|
5.25%(c) |
|
None |
|
None |
|
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) |
|
None(d) |
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4.0%(c) |
|
1.0%(c) |
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None(d) |
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Maximum
Sales Charge (Load) imposed on
Dividend Reinvestments |
|
None |
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None |
|
None |
|
None |
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| Redemption
Fee |
|
None |
|
None |
|
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 |
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0.75% |
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0.75% |
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0.75% |
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0.75% |
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Distribution and/or Service (12b-1) Fees(e) |
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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)(f) |
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0.22% |
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0.25% |
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0.26% |
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0.22% |
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| Total Annual Fund
Operating Expenses |
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0.97% |
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2.00% |
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2.01% |
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1.22% |
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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 redeems 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 calls the
“Service Fee” an “Account Maintenance Fee.” Account
Maintenance Fee is the term used elsewhere in this Prospectus and in all
other Fund materials. If you hold Class B or Class C shares for a long
time, it may cost you more in distribution (12b-1) fees than the maximum
sales charge that you would have paid if you had bought one of the other
classes.
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(f)
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The Fund pays the Transfer
Agent $11.00 for each Class A and Class D shareholder account and $14.00
for each Class B and Class C shareholder account and reimburses the
Transfer 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 October 31, 1999, the
Fund paid the Transfer Agent fees totaling $2,556,209. The Manager
provides accounting services to the Fund at its cost. For the fiscal year
ended October 31, 1999, the Fund reimbursed the Manager $232,787 for these
services.
|
6
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:
| |
|
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
|
| Class A |
|
$619 |
|
$818 |
|
$1,033 |
|
$1,652 |
|
| Class B |
|
$603 |
|
$827 |
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$1,078 |
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$2,134* |
|
| Class C |
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$304 |
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$631 |
|
$1,083 |
|
$2,338 |
|
| Class D |
|
$643 |
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$892 |
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$1,160 |
|
$1,925 |
|
|
| EXPENSES IF YOU DID NOT REDEEM YOUR SHARES: |
|
| |
|
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
|
| Class A |
|
$619 |
|
$818 |
|
$1,033 |
|
$1,652 |
|
| Class B |
|
$203 |
|
$627 |
|
$1,078 |
|
$2,134* |
|
| Class C |
|
$204 |
|
$631 |
|
$1,083 |
|
$2,338 |
|
| Class D |
|
$643 |
|
$892 |
|
$1,160 |
|
$1,925 |
|
*
|
Assumes conversion to
Class D shares approximately eight years after purchase. See note (b) to
the Fees and Expenses table above.
|
7
[GRAPHIC] Details About the Fund
ABOUT THE
PORTFOLIO MANAGER
Adrian Holmes is a Senior Vice President and the portfolio
manager of the Fund. Mr. Holmes has been a Vice President of the Manager
since 1990 and has been associated with the Manager since 1987.
ABOUT THE MANAGER
The
Fund is managed by Merrill Lynch Asset Management.
The Fund’s main objective is growth of capital. The Fund does not
consider current income from dividends and interest to be an important
consideration in selecting investments. Under normal market conditions at
least 80% of the Fund’s net assets will consist of European corporate
securities, primarily common stocks and securities convertible into common
stock, except during temporary and defensive periods. The Fund has no
limits on the geographic asset distribution of its investments within
Europe. However, the Fund anticipates that a majority of the Fund’s
assets will be invested in companies located in Western European countries
such as:
| Ÿ The United
Kingdom
Ÿ Germany
Ÿ The Netherlands
Ÿ Switzerland
Ÿ Sweden
Ÿ France
Ÿ Italy
|
|
Ÿ Belgium
Ÿ Norway
Ÿ Denmark
Ÿ Finland
Ÿ Portugal
Ÿ Austria
Ÿ Spain
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|
If political and economic conditions warrant, the Fund may invest in
issuers located in Eastern European countries.
In making its decisions as to which country to invest in, the Fund
will consider:
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The condition and growth
potential of the various economies and securities markets and the
companies which are located in those markets
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Currency and taxation
factors
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Other financial, social
and political factors which may have an effect on the investment
climate
|
In particular countries Fund management considers the condition and
growth potential of industry sectors and selects what it believes to be
attractively valued companies within those sectors. The Fund may also lend
its securities and may buy securities that are convertible into common
stock. As a temporary measure for defensive purposes, the Fund may invest
in other types of securities such as nonconvertible debt securities and
nonconvertible preferred stocks, government and money market securities of
U.S. and non-U.S. issuers, or cash. The Fund may make these investments or
increase its investment in these securities when Fund management is unable
to find
enough attractive long term investments, to reduce exposure to European
equities when Fund management believes it is advisable to do so, or to meet
redemptions. The Fund will normally invest a portion of the portfolio in
U.S. dollars or short term interest bearing U.S. dollar denominated
securities to provide for possible redemptions. Investments in short term
debt securities can be sold easily and have limited risk of loss but earn
only limited returns and may limit the Fund’s ability to meet its
investment objective.
The Fund may use derivatives including futures, forwards, options
and indexed securities. Derivatives are financial instruments whose value
is derived from another security, a commodity (such as gold or oil) or an
index such as the Standard & Poor’s 500 Index.
This section contains a summary discussion of the general risks of
investing in the Fund. As with any mutual fund, there can be no guarantee
that the Fund will meet its goals or that the Fund’s performance will
be positive for any period of time.
Market and Selection Risk — Market
risk is the risk that the stock market in one or more countries in which
the Fund invests will go down in value, including the possibility that 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.
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 stocks traded on foreign markets have often (though not always)
performed differently than stocks in the United States. However, such
investments involve special risks not present in U.S. investments that can
increase the chances that the Fund will lose money. In particular, 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.
9
[GRAPHIC] Details About the Fund
Foreign Economy Risk — The economies of certain
foreign markets often do not compare favorably with the economy of the
United States with respect to such issues as growth of gross national
product, reinvestment of capital, resources and balance of payments
position. Certain 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. Some countries may not have laws to protect investors
the way that the United States
securities laws do. For example, some 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 in which it invests outside the United States 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 U.S. 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 U.S.
Settlement Risk —
Settlement and clearance procedures in certain foreign markets differ
significantly from those in the United States. Foreign settlement and
clearance procedures and trade regulations also may involve certain risks
(such as delays in payment for or delivery of securities) not typically
involved with 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.
|
|
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.
|
Emerging Markets Risk — The risks
of foreign investments are usually much greater for emerging markets.
Investments in emerging markets may be considered speculative. Emerging
markets include those in countries defined as emerging or developing by the
World Bank, the International Finance Corporation or the United Nations.
Emerging markets are riskier because they develop unevenly and may never
fully develop. They are more likely to experience hyperinflation and
currency devaluations, which adversely affects returns to U.S. investors.
In addition, the securities markets in many of these countries have far
lower trading volumes and less liquidity than developed markets. Since
these markets are so small, investments in them may be more likely to suffer
sharp and frequent price changes or long term price depression because of
adverse publicity, investor perceptions or the actions of a few large
investors. In addition, traditional measures of investment value used in
the United States, such as price to earnings ratios, may not apply to
certain small markets.
Many emerging markets have histories of political instability and
abrupt changes in policies. As a result, their governments are more likely
to take actions that are hostile or detrimental to private enterprise or
foreign investment than those of more developed countries. Certain emerging
markets may also face other significant internal or external risks,
including the risk of war, and ethnic, religious, and racial conflicts. In
addition, governments in many emerging market countries participate to a
significant degree in their economies and securities markets, which may
impair investment and economic growth.
Securities Lending — The Fund
may lend securities to financial institutions which provide government
securities as collateral. Securities lending involves the risk that the
borrower may fail to return the securities in a timely manner or at all. As
a result, the Fund may lose money and there may be a delay in recovering
the loaned securities. The Fund could also lose money if it does not
recover the securities and the value of the collateral falls. These events
could trigger adverse tax consequences to the Fund.
Borrowing And Leverage Risk — The Fund
may borrow for temporary emergency purposes including to meet redemptions.
Borrowing may exaggerate changes in the net asset value of Fund shares and
in the yield on the Fund’s portfolio. Borrowing will cost the Fund
interest expense and other fees. The cost of borrowing may reduce the Fund
’s return. Certain derivative securities that the Fund buys may create
leverage.
Risks associated with certain types of securities in which the Fund
may invest include:
Derivatives — The Fund may use
derivative instruments including futures, forwards, options and indexed
securities. Derivatives allow the Fund to increase or decrease its risk
exposure more quickly and efficiently than other types of
instruments.
13
[GRAPHIC] Details About the Fund
Derivatives are volatile and involve significant risks,
including:
|
Credit risk —
the risk that the counterparty (the party on the other side of the
transaction) on a derivative transaction will be unable to honor its
financial obligation to the Fund.
|
|
Currency risk —
the risk that changes in the exchange rate between currencies will
adversely affect the value (in U.S. dollar terms) of an
investment.
|
|
Leverage risk —
the risk associated with certain types of investments or trading
strategies (such as borrowing money to increase the amount of
investments) that relatively small market movements may result in large
changes in the value of an investment. Certain investments or trading
strategies that involve leverage can result in losses that greatly exceed
the amount originally invested.
|
|
Liquidity risk —
the risk that certain securities may be difficult or impossible to
sell at the time that the seller would like or at the price that the
seller believes the security is currently worth.
|
The Fund may use derivatives for hedging purposes, including
anticipatory hedges. Hedging is a strategy in which the Fund uses a
derivative to offset the risk that other Fund holdings may decrease in
value. While hedging can reduce losses, it can also reduce or eliminate
gains if the market moves in a different manner than anticipated by the
Fund or if the cost of the derivative outweighs the benefit of the hedge.
Hedging also involves the risk that changes in the value of the derivative
will not match those of the holdings being hedged as expected by the Fund,
in which case any losses on the holdings being hedged may not be reduced.
There can be no assurance that the Fund’s hedging strategy will reduce
risk or that hedging transactions will be either available or cost
effective. The Fund is not required to use hedging and may choose not to do
so.
Warrants — A warrant gives the Fund
the right to buy a quantity of stock. The warrant specifies the amount of
underlying stock, the purchase (or “exercise”) price, and the
date the warrant expires. The Fund has no obligation to exercise the
warrant and buy the stock.
14
A warrant has value only if the Fund can exercise it before it expires. If
the price of the underlying stock does not rise above the exercise price
before the warrant expires, the warrant generally expires without any value
and the Fund loses any amount it paid for the warrant. Thus, investments in
warrants may involve substantially more risk than investments in common
stock. Warrants may trade in the same markets as their underlying stock;
however, the price of the warrant does not necessarily move with the price
of the underlying stock.
Illiquid Securities — The Fund
may invest up to 15% of its assets in illiquid securities that it cannot
easily resell within seven days at current value or that have contractual
or legal restrictions on resale. If the Fund buys illiquid securities it
may be unable to quickly resell them or may be able to sell them only at a
price below current value.
Restricted Securities —
Restricted securities have contractual or legal restrictions on their
resale. They include private placement securities that the Fund buys
directly from the issuer. Private placement and other restricted securities
may not be listed on an exchange and may have no active trading
market.
Restricted securities may be very illiquid. The Fund may be unable
to resell them on short notice or may be able to sell them only at a price
below current value. The Fund may get only limited information about the
issuer, so it may be less able to predict a loss. In addition, if Fund
management receives material adverse nonpublic information about the
issuer, the Fund will not be able to sell the security.
Rule 144A Securities — Rule 144A
securities are restricted securities that can be resold to qualified
institutional buyers but not to the general public. Rule 144A securities
may have an active trading market, but carry the risk that the active
trading market may not continue.
Depositary Receipts — The Fund
may invest in securities of foreign issuers in the form of Depositary
Receipts or other securities that are convertible into securities of
foreign issuers. American Depositary Receipts are receipts typically issued
by an American bank or trust company that show evidence of underlying
securities issued by a foreign corporation. European Depositary Receipts
and Global Depositary Receipts each evidence a similar ownership
arrangement. The Fund may also invest in unsponsored Depositary Receipts.
The issuers of such unsponsored Depositary Receipts are not obligated to
disclose material information in the United States and therefore, there may
be less information available regarding such issuers.
15
[GRAPHIC] Details About the Fund
Convertibles — Convertibles are
generally debt securities or preferred stocks that may be converted into
common stock. Convertibles typically pay current income as either interest
(debt security convertibles) or dividends (preferred stocks). A convertible
’s value usually reflects both the stream of current income payments
and the value of the underlying common stock. The market value of a
convertible performs like regular debt securities; that is, if market
interest rates rise, the value of a convertible usually falls. Since it is
convertible into common stock, the convertible also has the same types of
market and issuer risk as the value of the underlying common
stock.
Small Cap and Emerging Growth
Securities — Small cap or emerging growth companies
may have limited product lines or markets. They may be less financially
secure than larger, more established companies. They may depend on a small
number of key personnel. If a product fails, or if management changes, or
there are other adverse developments, the Fund’s investment in a small
cap or emerging growth company may lose substantial value.
Small cap or emerging growth securities generally trade in lower
volumes and are subject to greater and more unpredictable price changes
than larger cap securities or the stock market as a whole. Investing in
small caps and emerging growth securities requires a long term
view.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the Fund, including how
it invests, please see the Statement of Additional Information.
16
[GRAPHIC] 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 Class D shares, you generally
pay a sales charge at the time of purchase. If you buy Class D shares, you
also pay an ongoing account maintenance fee of 0.25%. You may be eligible
for a sales charge reduction or waiver.
If you select Class B or C shares, you will invest the full amount
of your purchase price, but you will be subject to a distribution fee of
0.75% and an account maintenance fee of 0.25%. Because these fees are paid
out of the 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.
17
[GRAPHIC] 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. |
| |
|
18
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 System funds that you agree to buy within a
13 month period. Certain restrictions apply.
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
|
Merrill Lynch
Blueprint
SM
Program participants
|
|
Ÿ
|
Certain Merrill
Lynch investment or central asset accounts
|
|
Ÿ
|
Certain
employer-sponsored retirement or savings plans
|
19
[GRAPHIC] Your Account
|
Ÿ
|
Purchases using
proceeds from the sale of certain Merrill Lynch closed-end funds under
certain circumstances
|
|
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:
| Years Since Purchase |
|
Sales Charge* |
|
| 0 –
1 |
|
4.00% |
|
| 1 –
2 |
|
3.00% |
|
| 2 –
3 |
|
2.00% |
|
| 3 –
4 |
|
1.00% |
|
| 4 and
thereafter |
|
0.00% |
|
*
|
The percentage
charge will apply to the lesser of the original cost of the shares being
redeemed or the proceeds of your redemption. Shares acquired through
reinvestment of dividends are not subject to a deferred sales charge.
Not all Merrill Lynch funds have identical deferred sales charge
schedules. If you exchange your shares for shares of another fund, the
higher charge will apply.
|
The deferred sales charge relating to Class B shares may be reduced
or waived in certain circumstances, such as:
|
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,
group plans participating in the Merrill Lynch Blueprint
SM
Program 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.
21
[GRAPHIC] 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
typically convert approximately ten years after purchase compared to
approximately eight years for equity funds. If you acquire your Class B
shares in an exchange from another fund with a shorter conversion
schedule, the 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 relating to Class C shares may
be reduced or waived in connection with involuntary termination of an
account in which Fund shares are held and withdrawals through the Merrill
Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart on the following pages summarizes how to buy, sell,
transfer and exchange shares through Merrill Lynch or other securities
dealers. You may also buy shares through the Transfer Agent. To learn more
about buying, selling, transferring or exchanging shares through the
Transfer Agent, call 1-800-MER-FUND. Because the selection of a mutual
fund involves many considerations, your Merrill Lynch Financial Consultant
may help you with this decision.
22
| If You Want To |
|
Your Choices |
|
Information Important for You to
Know |
|
| Buy Shares |
|
First, select the share
class appropriate for you |
|
Refer to the Merrill Lynch
Select Pricing table on page 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 placed after
that time will be priced at the net
asset value determined on the next business day. The Fund may
reject any order to buy shares and may suspend the sale of shares
at any time. Merrill Lynch may charge a processing fee to confirm
a purchase. This fee is currently $5.35. |
|
| |
|
Or contact the Transfer
Agent |
|
To purchase shares directly,
call the Transfer Agent at 1-800-MER-
FUND and request a purchase application. Mail the completed
purchase application to the Transfer Agent at the address on the
inside back cover of this Prospectus. |
|
Add to Your
Investment |
|
Purchase additional shares |
|
The minimum investment for
additional purchases is generally $50
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 deferred sales
charge. |
23
[GRAPHIC] 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. |
| |
| |
|
|
|
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. A
signature guarantee will generally be required but may be waived
in certain limited circumstances. You can obtain a signature
guarantee from a bank, securities dealer, securities broker, credit
union, savings association, national securities exchange or
registered securities association. A notary public seal will not be
acceptable.If you hold share certificates, return the certificates
with the letter. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly
completed request. If you make a redemption request before the
Fund has collected payment for the purchase of shares, the Fund
or the Transfer Agent may delay mailing your proceeds. This delay
will usually not exceed ten days. |
| |
| |
|
|
|
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 automatically reinvested. For Class B and C shares your
total annual withdrawals cannot be more than 10% per year of |
24
| If You Want To |
|
Your Choices |
|
Information Important for You to
Know |
|
| |
|
|
|
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. |
| |
|
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 (and
are not eligible to purchase Class A shares), you will exchange into
Class D shares. |
| |
| |
|
|
|
Some of the Merrill Lynch mutual
funds impose a different initial
or deferred sales charge schedule. If you exchange Class A or D
shares for shares of a fund with a higher initial sales charge than
you originally paid, you will be charged the difference at the time
of exchange. If you exchange Class B shares for shares of a fund
with a different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or C shares in both
funds will count when determining your holding period for
calculating a deferred sales charge at redemption. If you exchange
Class A or D shares for money market fund shares, you will receive
Class A shares of Summit Cash Reserves Fund. Class B or C shares of
the Fund will be exchanged for Class B shares of Summit. |
| |
| |
|
|
|
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. |
25
[GRAPHIC] 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 as of the close
of business on the Exchange based on prices at the time of closing. The
Exchange generally closes at 4:00 p.m. Eastern time. The net asset value
used in determining your price is the next one calculated after your
purchase or redemption order is placed. Foreign securities owned by the
Fund may trade on weekends or other days when the Fund does not price its
shares. As a result, the 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. 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 or short term capital gains 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 a 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. You may be able to claim a credit or take a deduction for
foreign taxes paid by the Fund if certain requirements are
met.
27
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.
28
[GRAPHIC] Management of the Fund
MERRILL LYNCH ASSET MANAGEMENT
Merrill Lynch Asset Management, the Fund’s Manager, manages
the Fund’s investments and its business operations under the overall
supervision of the Fund’s Board of Trustees. The Manager has the
responsibility for making all investment decisions for the Fund. The
Manager has a sub-advisory agreement with Merrill Lynch Asset Management
U.K. Limited, an affiliate, under which the Manager may pay a fee for
services it receives. The Fund pays the Manager a fee at the annual rate
of 0.75% of the average daily net assets of the Fund.
Merrill Lynch Asset Management was organized as an investment
adviser in 1977 and offers investment advisory services to more than 40
registered investment companies. Merrill Lynch Asset Management is part of
the Asset Management Group of ML & Co. The Asset Management Group had
approximately $557 billion in investment company and other portfolio
assets under management as of December 1999. This amount includes assets
managed for Merrill Lynch affiliates.
A Note About Year 2000
As the year 2000 began, there were few problems caused by the
inability of certain computer systems to tell the difference between the
year 2000 and the year 1900 (commonly known as the “Year 2000 Problem
”). It is still possible that some computer systems could malfunction
in the future because of the Year 2000 Problem or as a result of actions
taken to address the Year 2000 Problem. Fund management does not
anticipate that its services or those of the Fund’s other service
providers will be adversely affected, but Fund management will continue to
monitor the situation. If malfunctions related to the Year 2000 Problem do
arise, the Fund and its investments could be negatively
affected.
29
[GRAPHIC] Management of the Fund
The Financial Highlights table is intended to help you understand the Fund
’s financial performance for the past five years. Certain information
reflects the 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, is included in the Fund
’s annual report to shareholders, which is available upon
request.
| |
|
Class A†
|
|
Class B†
|
| |
|
For the Year Ended
October 31,
|
|
For the Year Ended
October 31,
|
Increase (Decrease) in
Net Asset Value: |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
| Per Share Operating
Performance: |
|
| Net asset value, beginning of
year |
|
$ 17.52 |
|
|
$ 18.47 |
|
|
$ 16.67 |
|
|
$ 15.07 |
|
|
$ 15.96 |
|
|
$ 15.79 |
|
|
$ 16.92 |
|
|
$ 15.47 |
|
|
$ 14.20 |
|
|
$ 15.28 |
|
|
| Investment income —
net |
|
.28 |
|
|
.40 |
|
|
.26 |
|
|
.32 |
|
|
.19 |
|
|
.10 |
|
|
.17 |
|
|
.07 |
|
|
.14 |
|
|
.04 |
|
|
Realized and unrealized gain on
investments and foreign currency
transactions — net |
|
3.11 |
|
|
1.73 |
|
|
4.31 |
|
|
2.32 |
|
|
.56 |
|
|
2.76 |
|
|
1.60 |
|
|
3.99 |
|
|
2.17 |
|
|
.52 |
|
|
| Total from investment
operations |
|
3.39 |
|
|
2.13 |
|
|
4.57 |
|
|
2.64 |
|
|
.75 |
|
|
2.86 |
|
|
1.77 |
|
|
4.06 |
|
|
2.31 |
|
|
.56 |
|
|
| Less dividends and
distributions: |
|
Investment income — net |
|
(.63 |
) |
|
(.12 |
) |
|
(.44 |
) |
|
— |
|
|
— |
|
|
(.46 |
) |
|
— |
|
|
(.32 |
) |
|
— |
|
|
— |
|
| In
excess of investment income — net |
|
— |
|
|
— |
|
|
(.15 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(.11 |
) |
|
— |
|
|
— |
|
| Realized
gain on investments — net |
|
(3.04 |
) |
|
(2.96 |
) |
|
(2.18 |
) |
|
(1.04 |
) |
|
(1.64 |
) |
|
(3.04 |
) |
|
(2.90 |
) |
|
(2.18 |
) |
|
(1.04 |
) |
|
(1.64 |
) |
|
| Total dividends and
distributions |
|
(3.67 |
) |
|
(3.08 |
) |
|
(2.77 |
) |
|
(1.04 |
) |
|
(1.64 |
) |
|
(3.50 |
) |
|
(2.90 |
) |
|
(2.61 |
) |
|
(1.04 |
) |
|
(1.64 |
) |
|
| Net asset value, end of
year |
|
$ 17.24 |
|
|
$ 17.52 |
|
|
$ 18.47 |
|
|
$ 16.67 |
|
|
$ 15.07 |
|
|
$ 15.15 |
|
|
$ 15.79 |
|
|
$ 16.92 |
|
|
$ 15.47 |
|
|
$ 14.20 |
|
|
| Total Investment
Return:* |
|
| Based on net asset value per
share |
|
23.25 |
% |
|
13.73 |
% |
|
32.13 |
% |
|
18.86 |
% |
|
6.19 |
% |
|
21.96 |
% |
|
12.58 |
% |
|
30.84 |
% |
|
17.61 |
% |
|
5.12 |
% |
|
| Ratios to Average Net
Assets: |
|
| Expenses |
|
.97 |
% |
|
1.00 |
% |
|
1.03 |
% |
|
1.10 |
% |
|
1.12 |
% |
|
2.00 |
% |
|
2.03 |
% |
|
2.06 |
% |
|
2.13 |
% |
|
2.15 |
% |
|
| Investment income —
net |
|
1.70 |
% |
|
2.21 |
% |
|
1.53 |
% |
|
2.04 |
% |
|
1.32 |
% |
|
.70 |
% |
|
1.07 |
% |
|
.45 |
% |
|
1.00 |
% |
|
.27 |
% |
|
| Supplemental
Data: |
|
| Net assets, end of year (in
thousands) |
|
$567,273 |
|
|
$691,197 |
|
|
$563,098 |
|
|
$216,056 |
|
|
$204,713 |
|
|
$730,361 |
|
|
$787,595 |
|
|
$811,859 |
|
|
$738,535 |
|
|
$795,469 |
|
|
| Portfolio turnover |
|
61.12 |
% |
|
78.75 |
% |
|
92.65 |
% |
|
92.34 |
% |
|
72.16 |
% |
|
61.12 |
% |
|
78.75 |
% |
|
92.65 |
% |
|
92.34 |
% |
|
72.16 |
% |
|
|
| * Total investment returns exclude the
effects of sales charges. |
| † Based on average shares
outstanding. |
30
FINANCIAL HIGHLIGHTS (concluded)
| |
|
Class C
†
|
|
Class D
†
|
| |
|
For the Year Ended
October 31,
|
|
For the Year Ended
October 31,
|
Increase (Decrease) in
Net Asset Value: |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
| Per Share Operating
Performance: |
|
| Net asset value, beginning of
year |
|
$ 15.66 |
|
|
$ 16.82 |
|
|
$ 15.45 |
|
|
$ 14.19 |
|
|
$15.28 |
|
|
$ 17.39 |
|
|
$18.35 |
|
|
$ 16.57 |
|
|
$ 15.02 |
|
|
$ 15.96 |
|
|
| Investment income —
net |
|
.10 |
|
|
.19 |
|
|
.07 |
|
|
.15 |
|
|
.01 |
|
|
.24 |
|
|
.36 |
|
|
.20 |
|
|
.28 |
|
|
.20 |
|
|
Realized and unrealized gain on
investments and foreign
currency transactions — net |
|
2.72 |
|
|
1.56 |
|
|
3.97 |
|
|
2.15 |
|
|
.54 |
|
|
3.08 |
|
|
1.72 |
|
|
4.31 |
|
|
2.31 |
|
|
.50 |
|
|
| Total from investment
operations |
|
2.82 |
|
|
1.75 |
|
|
4.04 |
|
|
2.30 |
|
|
.55 |
|
|
3.32 |
|
|
2.08 |
|
|
4.51 |
|
|
2.59 |
|
|
.70 |
|
|
| Less dividends and
distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income — net |
|
(.51 |
) |
|
— |
|
|
(.36 |
) |
|
— |
|
|
— |
|
|
(.60 |
) |
|
(.08 |
) |
|
(.41 |
) |
|
— |
|
|
— |
|
| In
excess of investment income — net |
|
— |
|
|
— |
|
|
(.13 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(.14 |
) |
|
— |
|
|
— |
|
|
Realized gain (loss) on investments —
net |
|
(3.04 |
) |
|
(2.91 |
) |
|
(2.18 |
) |
|
(1.04 |
) |
|
(1.64 |
) |
|
(3.04 |
) |
|
(2.96 |
) |
|
(2.18 |
) |
|
(1.04 |
) |
|
(1.64 |
) |
|
| Total dividends and
distributions |
|
(3.55 |
) |
|
(2.91 |
) |
|
(2.67 |
) |
|
(1.04 |
) |
|
(1.64 |
) |
|
(3.64 |
) |
|
(3.04 |
) |
|
(2.73 |
) |
|
(1.04 |
) |
|
(1.64 |
) |
|
| Net asset value, end of
year |
|
$ 14.93 |
|
|
$ 15.66 |
|
|
$ 16.82 |
|
|
$ 15.45 |
|
|
$14.19 |
|
|
$17.07 |
|
|
$17.39 |
|
|
$18.35 |
|
|
$16.57 |
|
|
$15.02 |
|
|
| Total Investment
Return:* |
|
| Based on net asset value per
share |
|
21.97 |
% |
|
12.56 |
% |
|
30.81 |
% |
|
17.55 |
% |
|
5.04 |
% |
|
22.89 |
% |
|
13.49 |
% |
|
31.84 |
% |
|
18.57 |
% |
|
5.85 |
% |
|
| Ratios to Average Net
Assets: |
|
| Expenses |
|
2.01 |
% |
|
2.04 |
% |
|
2.08 |
% |
|
2.15 |
% |
|
2.18 |
% |
|
1.22 |
% |
|
1.25 |
% |
|
1.28 |
% |
|
1.34 |
% |
|
1.38 |
% |
|
| Investment income —
net |
|
.67 |
% |
|
1.18 |
% |
|
.43 |
% |
|
1.04 |
% |
|
.11 |
% |
|
1.48 |
% |
|
2.01 |
% |
|
1.21 |
% |
|
1.83 |
% |
|
1.37 |
% |
|
| Supplemental
Data: |
|
| Net assets, end of year (in
thousands) |
|
$52,742 |
|
|
$51,671 |
|
|
$22,260 |
|
|
$15,917 |
|
|
$9,668 |
|
|
$363.422 |
|
|
$316,287 |
|
|
$150,474 |
|
|
$114,020 |
|
|
$104,493 |
|
|
| Portfolio turnover |
|
61.12 |
% |
|
78.75 |
% |
|
92.65 |
% |
|
92.34 |
% |
|
72.16 |
% |
|
61.12 |
% |
|
78.75 |
% |
|
92.65 |
% |
|
92.34 |
% |
|
72.16 |
% |
|
*
|
Total
investment returns exclude the effects of sales charges.
|
†
|
Based on
average shares outstanding.
|
31
[This page intentionally left blank]
MERRILL LYNCH EUROFUND
[This page intentionally left blank]
MERRILL LYNCH EUROFUND
[This page intentionally left blank]
MERRILL LYNCH EUROFUND
---------
POTENTIAL
INVESTORS
Open an account (two options).
---------
|
____________________________|____________________________
| |
| |
1 2
\|/ \|/
------------------------- -------------------------
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT
or SECURITIES DEALER Financial Data Services, Inc
Advises shareholders on ADMINISTRATIVE OFFICES
their Fund investments. 4800 Deer Lake Drive East
------------------------- Jacksonville, Florida 32246-6484
|
| MAILING ADDRESS
| P.O. Box 45289
| Jacksonville, Florida 32232-5289
| ------------------------------
| |
| ----------------------- |
|___________________\ 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 \|/ CUSTODIAN
----------------------
Brown & Wood LLP THE FUND Brown Brothers Harriman & Co.
One World Trade Center _____\ The Board of Trustees /______ 40 Water Street
New York, New York / oversees the Fund. \ Boston, Massachusetts 02109
10048-0557 ----------------------
/|\ /|\
Provides legal advice | | Holds the Fund's assets for
to the Fund. | | safekeeping.
----------------------- | | -----------------------------
| |
| |
--------------------------- | | ---------------------------
INDEPENDENT AUDITORS ___________| |_____________ MANAGER
Deloitte & Touche LLP Merrill Lynch
Princeton Forrestal Village Asset Management, L.P.
116-300 Village Boulevard
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
the shareholders. MAILING ADDRESS
--------------------------- P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Managers the Fund's day-to-day
activities.
-------------------------------
MERRILL LYNCH EUROFUND
[GRAPHIC] For More Information
Additional information about the Fund’s investments is
available in the Fund’s annual and semi-annual reports to
shareholders. In the Fund’s annual report you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund’s performance during its last
fiscal year. You may obtain these reports at no cost by calling
1-800-MER-FUND.
The Fund will send you one copy of each shareholder report
and certain other mailings, regardless of the number of Fund accounts
you have. To receive separate shareholder reports for each account, call
your Merrill Lynch Financial Consultant or write to the Transfer Agent
at its mailing address. Include your name, address, tax identification
number and Merrill Lynch brokerage or mutual fund account number. If you
have any questions, please call your Merrill Lynch Financial Consultant
or the Transfer Agent at 1-800-MER-FUND.
Statement of Additional Information
The Fund’s Statement of Additional Information contains
further information about the Fund and is incorporated by reference
(legally considered to be part of this prospectus). You may request a
free copy by writing the Fund at Financial Data Services, Inc., P.O. Box
45289, Jacksonville, Florida 32232-5289 or by calling
1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund
at the telephone number or address indicated on the inside back cover of
this prospectus 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 #811-4612
Code #10475-01-00
©
Merrill Lynch Asset Management, L.P.
[LOGO] Merrill Lynch
Prospectus
January 31, 2000
STATEMENT OF ADDITIONAL INFORMATION
Merrill Lynch EuroFund
P.O. Box 9011, Princeton, New Jersey 08543-9011
Ÿ Phone No. (609) 282-2800
Merrill Lynch
EuroFund (the “Fund”) is a diversified, open-end investment
company that seeks to provide shareholders with capital appreciation
primarily through investment in equities of corporations domiciled in
European countries. Current income from dividends and interest will not
be an important consideration in selecting portfolio securities. The
Fund expects that under normal market conditions at least 80% of the Fund
’s net assets will be invested in European corporate securities,
primarily common stocks, debt and preferred securities convertible into
common stocks. There can be no assurance that the Fund’s investment
objective will be achieved. For more information on the Fund’s
investment objectives and policies, see “Investment Objective and
Policies.”
Pursuant to the
Merrill Lynch Select Pricing
SM
System, the Fund offers four classes of shares, each with a
different combination of sales charges, ongoing fees and other features.
The Merrill Lynch Select Pricing
SM
System permits an investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of
the purchase, the length of time the investor expects to hold the shares
and other relevant circumstances. See “Purchase of Shares.
”
This Statement of
Additional Information of the Fund is not a prospectus and should be
read in conjunction with the Prospectus of the Fund, dated January 31,
2000 (the “Prospectus”), which has been filed with the
Securities and Exchange Commission (the “Commission”) and can
be obtained, without charge, by calling (800) MER-FUND or by writing the
Fund at the above address. The Prospectus is incorporated by reference
into this Statement of Additional Information, and this Statement of
Additional Information is incorporated by reference into the Prospectus.
The 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.
Merrill Lynch Asset Management —
Manager
Merrill Lynch Funds Distributor —
Distributor
The date of this Statement of Additional Information is
January 31, 2000.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES
The Fund is a
diversified, open-end management investment company. The Fund’s
investment objective is to seek capital appreciation primarily through
investment in equities of corporations domiciled in European countries.
Current income from dividends and interest will not be an important
consideration in selecting portfolio securities. The Fund anticipates
that under normal market conditions at least 80% of its net assets will
consist of European corporate securities, primarily common stocks and
securities convertible into common stock. 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.
While there are
no prescribed limits on geographic asset distribution within the
European community, it is currently anticipated that a majority of the
Fund’s assets will be invested in equity securities of issuers
domiciled in Western European countries such as the United Kingdom,
Germany, the Netherlands, Switzerland, Sweden, France, Italy, Belgium,
Norway, Denmark, Finland, Portugal, Austria and Spain. If political and
economic conditions warrant, it is also anticipated that the Fund will
invest in issuers domiciled in Eastern European countries such as
Bulgaria, the Czech Republic, Hungary, Poland, Romania, Slovakia, and
the states which formerly comprised Yugoslavia and the Soviet Union.
Additional countries on the European continent may be added to this
group as circumstances dictate. In making the allocation of assets among
the securities markets, Merrill Lynch Asset Management, L.P., the Fund
’s investment adviser (“MLAM” or the “Manager”)
will consider such factors as the condition and growth potential of the
various economies and securities markets and the issuers domiciled
therein, currency and taxation investment considerations and other
pertinent financial, social, national and political factors which may
have an effect upon the climate for investing within such securities
markets.
Although the
changes taking place in Eastern Europe still are in relatively early
stages, the Manager intends to take advantage of the business
opportunities that may emerge from the changing political, economic and
legal environment in Eastern Europe. At present, the level of
development of organized stock markets within Eastern Europe varies from
country to country. Countries are currently fostering political and
economic liberalization through a variety of reform measures, including
attempts to develop increasingly market-oriented economies, to encourage
foreign investment and to create a political atmosphere conductive to
multi-party political systems. Over the last several years, laws have
been enacted in certain Eastern European countries allowing private
individuals to own and operate businesses and protecting the property
rights of investors, including foreign interests.
The Fund reserves
the right as a temporary defensive measure to hold other types of
securities, including non-convertible debt and preferred securities,
government and money market securities of U.S. and non-U.S. issuers, or
cash (foreign currencies or U.S. dollars), in such proportions as, in
the opinion of the Manager, prevailing market, economic or political
conditions warrant. Investments made for defensive purposes will be
maintained only during periods in which the Manager determines that
economic or financial conditions are adverse for holding or being fully
invested in equity securities of European corporate issuers. A portion
of the portfolio normally will be held in U.S. dollars or short-term
interest bearing U.S. dollar-denominated securities to provide for
possible redemptions.
In addition to
purchasing corporate securities of European issuers in foreign markets,
the Fund may invest in American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other
securities convertible into securities of corporations domiciled in
European countries. These securities may not necessarily be denominated
in the same currency as the securities into which they may be converted.
Generally, ADRs, in registered form, are designed for use in the U.S.
securities markets, and EDRs, in bearer form, are designed for use in
European securities markets. GDRs are tradeable both in the U.S. and
Europe and are designed for use throughout the world.
The Manager is
responsible for the management of the Fund’s portfolio and makes
portfolio decisions based on its own research information supplemented
by research information provided by other sources. The basic orientation
of the Fund’s investment policies is such that at times a large
portion of its common stock holdings may carry less than favorable
research ratings from research analysts. The Manager makes extensive use
of investment research information provided by unaffiliated brokers and
dealers and of the securities research,
economic research and computer applications facilities provided by Merrill
Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch
”).
The U.S.
Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors
such as the Fund. If such restrictions should be reinstituted, it might
become necessary for the Fund to invest all or substantially all of its
assets in U.S. securities. In such event, the Fund would review its
investment objective and investment policies to determine whether
changes are appropriate. Any changes in the investment objective or
fundamental policies set forth under “Investment Restrictions”
below would require the approval of the holders of a majority of the Fund
’s outstanding voting securities.
The Fund’s
ability and decisions to purchase or sell portfolio securities may be
affected by laws or regulations relating to the convertibility and
repatriation of assets. Because the shares of the Fund are redeemable on
a daily basis on each day the Fund determines its net asset value in
U.S. dollars, the Fund intends to manage its portfolio so as to give
reasonable assurance that it will be able to obtain U.S. dollars to the
extent necessary to meet anticipated redemptions. See “Redemption
of Shares.” Under present conditions, the Manager does not believe
that these considerations will have any significant effect on its
portfolio strategy, although there can be no assurance in this
regard.
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”) seeks to set out a framework for the
European Economic and Monetary Union (“EMU”) among the
countries that comprise the European Union (“EU”). EMU
established a single common European currency (the “euro”)
that was introduced on January 1, 1999 and is expected to replace the
existing national currencies of all EMU participants by July 1, 2002.
EMU took effect for the initial EMU participants as of January 1, 1999.
Certain securities issued in participating EU countries (beginning with
government and corporate bonds) were redenominated in the euro, and are
listed, traded, and make dividend and other payments only in
euros.
No assurance can
be given that EMU will take effect, that the changes planned for the EU
can be successfully implemented, or that these changes will result in
the economic and monetary unity and stability intended. There is a
possibility that EMU will not be completed, or will be completed but
then partially or completely unwound. Because any participating country
may opt out of EMU within the first three years, it is also possible
that a significant participant could choose to abandon EMU, which would
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 the 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 at any time
after the conversion weekend 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 resulting from the euro conversion may be taxable to Fund
shareholders under foreign or, in certain limited circumstances, U.S.
tax laws.
Securities of Smaller or Emerging Growth Companies
The securities of
smaller or emerging growth companies may be subject to more abrupt or
erratic market movements than larger, more established companies or the
market average in general. These companies may have limited product
lines, markets or financial resources, or they may be dependent on a
limited management group. Because of these factors, the Fund believes
that its shares may be suitable for investment by persons who can invest
without concern for current income and who are in a financial position
to assume above-average investment
risk in search of above-average long-term reward. It is not intended as a
complete investment program but is designed for those long-term
investors who are prepared to experience above-average fluctuations in
net asset value.
While the issuers
in which the Fund will primarily invest may offer greater opportunities
for capital appreciation than large cap issuers, investments in smaller
or emerging growth companies may involve greater risks and thus may be
considered speculative. Management believes that properly selected
companies of this type have the potential to increase their earnings or
market valuation at a rate substantially in excess of the general growth
of the economy. Full development of these companies and trends
frequently takes time and, for this reason, the Fund should be
considered as a long-term investment and not as a vehicle for seeking
short-term profits.
The securities in
which the Fund invests will often be traded only in the over-the-counter
market or on a regional securities exchange and may not be traded every
day or in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Fund of portfolio
securities to meet redemptions or otherwise may require the Fund to sell
these securities at a discount from market prices or during periods when
in management’s judgment such disposition is not desirable or to
make many small sales over a lengthy period of time.
While the process
of selection and continuous supervision by management does not, of
course, guarantee successful investment results, it does provide access
to an asset class not available to the average individual due to the
time and cost involved. Careful initial selection is particularly
important in this area as many new enterprises have promise but lack
certain of the fundamental factors necessary to prosper. Investing in
small and emerging growth companies requires specialized research and
analysis. In addition, many investors cannot invest sufficient assets in
such companies to provide wide diversification.
Small companies
are generally little known to most individual investors although some
may be dominant in their respective industries. Management of the Fund
believes that relatively small companies will continue to have the
opportunity to develop into significant business enterprises. The Fund
may invest in securities of small issuers in the relatively early stages
of business development which have a new technology, a unique or
proprietary product or service, or a favorable market position. Such
companies may not be counted upon to develop into major industrial
companies, but management believes that eventual recognition of their
special value characteristics by the investment community can provide
above-average long-term growth to the portfolio.
Equity securities
of specific small cap issuers may present different opportunities for
long-term capital appreciation during varying portions of economic or
securities markets cycles, as well as during varying stages of their
business development. The market valuation of small cap issuers tends to
fluctuate during economic or market cycles, presenting attractive
investment opportunities at various points during these
cycles.
Smaller
companies, due to the size and kinds of markets that they serve, may be
less susceptible than large companies to intervention from federal
government by means of price controls, regulations or
litigation.
The Fund may use
instruments referred to as “Derivatives.” Derivatives are
financial instruments the value of which is derived from another
security, a commodity (such as gold or oil) or an index (a measure of
value or rates, such as the Standard & Poor’s Composite 500
Index or the prime lending rate). Derivatives allow the Fund to increase
or decrease the level of risk to which the Fund is exposed more quickly
and efficiently than transactions in other types of
instruments.
Hedging.
The Fund may use Derivatives for hedging purposes.
Hedging is a strategy in which a Derivative is used to offset the risk
that other Fund holdings may decrease in value. Losses on the other
investment may be substantially reduced by gains on a Derivative that
reacts in an opposite manner to market movements. While hedging can
reduce losses, it can also reduce or eliminate gains if the market moves
in a different manner than anticipated by the Fund or if the cost of the
Derivative outweighs the benefit of the hedge. Hedging also involves the
risk that changes in the value of the Derivative will not match those of
the holdings being hedged as expected by the Fund, in which case any
losses on the holdings being hedged may not be reduced.
The Fund may use
Derivative instruments and trading strategies including the
following:
Indexed
Securities. The Fund may invest in securities
the potential return of which is based on an “index.” As an
illustration, the Fund may invest in a debt security that pays interest
based on the current value of an interest rate index, such as the prime
rate. The Fund may also invest in a debt security which returns
principal at maturity based on the level of a securities index or a
basket of securities, or based on the relative changes of two indices.
Indexed securities involve credit risk, and certain indexed securities
may involve leverage risk, liquidity risk, and currency risk. The Fund
may invest in indexed securities for hedging purposes only. When used
for hedging purposes, indexed securities involve correlation
risk.
Options on Securities and Securities
Indices
Purchasing Put
Options. The Fund may purchase put options on
securities held in its portfolio or securities or interest rate indices
which are correlated with securities held in its portfolio. When the
Fund purchases a put option, in consideration for an upfront payment
(the “option premium”) the Fund acquires a right to sell to
another party specified securities owned by the Fund at a specified
price (the “exercise price”) on or before a specified date
(the “expiration date”), in the case of an option on
securities, or to receive from another party a payment based on the
amount a specified securities index declines below a specified level on
or before the expiration date, in the case of an option on a securities
index. The purchase of a put option limits the Fund’s risk of loss
in the event of a decline in the market value of the portfolio holdings
underlying the put option prior to the option’s expiration date. If
the market value of the portfolio holdings associated with the put
option increases rather than decreases, however, the Fund will lose the
option premium and will consequently realize a lower return on the
portfolio holdings than would have been realized without the purchase of
the put. Purchasing a put option may involve correlation risk, and may
also involve liquidity and credit risk.
Purchasing
Call Options. The Fund may also purchase call
options on securities it intends to purchase or securities or interest
rate indices, which are correlated with the types of securities it
intends to purchase. When the Fund purchases a call option, in
consideration for the option premium the Fund acquires a right to
purchase from another party specified securities at the exercise price
on or before the expiration date, in the case of an option on
securities, or to receive from another party a payment based on the
amount a specified securities index increases beyond a specified level
on or before the expiration date, in the case of an option on a
securities index. The purchase of a call option may protect the Fund
from having to pay more for a security as a consequence of increases in
the market value for the security during a period when the Fund is
contemplating its purchase, in the case of an option on a security, or
attempting to identify specific securities in which to invest in a
market the Fund believes to be attractive, in the case of an option on
an index (an “anticipatory hedge”). In the event the Fund
determines not to purchase a security underlying a call option, however,
the Fund may lose the entire option premium. Purchasing a call option
involves correlation risk, and may also involve liquidity and credit
risk.
The Fund is also
authorized to purchase put or call options in connection with closing
out put or call options it has previously sold. However, the Fund will
not purchase options on securities if as a result of such purchase the
aggregate cost of outstanding options on securities held by the Fund
would exceed 5% of the market value of the Fund’s total
assets.
Writing Call
Options. The Fund may write (i.e.,
sell) call options on securities held in its portfolio or securities
indices the performance of which correlates with securities held in its
portfolio. When the Fund writes a call option, in return for an option
premium the Fund gives another party the right to buy specified
securities owned by the Fund at the exercise price on or before the
expiration date, in the case of an option on securities, or agrees to
pay to another party an amount based on any gain in a specified
securities index beyond a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write
call options to earn income, through the receipt of option premiums. In
the event the party to which the Fund has written an option fails to
exercise its rights under the option because the value of the underlying
securities is less than the exercise price, the Fund will partially
offset any decline in the value of the underlying securities through the
receipt of the option premium. By writing a call option, however, the
Fund limits its ability to sell the underlying securities, and gives up
the opportunity to profit from any increase in the value of the
underlying securities beyond the exercise price, while the option
remains outstanding. Writing a call option may involve correlation
risk.
Writing Put Options.
The Fund may also write put options on
securities or securities indices. When the Fund writes a put option, in
return for an option premium the Fund gives another party the right to
sell to the Fund a specified security at the exercise price on or before
the expiration date, in the case of an option on a security, or agrees
to pay to another party an amount based on any decline in a specified
securities index below a specified level on or before the expiration
date, in the case of an option on a securities index. The Fund may write
put options to earn income, through the receipt of option premiums. In
the event the party to which the Fund has written an option fails to
exercise its rights under the option because the value of the underlying
securities is greater than the exercise price, the Fund will profit by
the amount of the option premium. By writing a put option, however, the
Fund will be obligated to purchase the underlying security at a price
that may be higher than the market value of the security at the time of
exercise as long as the put option is outstanding, in the case of an
option on a security, or make a cash payment reflecting any decline in
the index, in the case of an option on an index. Accordingly, when the
Fund writes a put option it is exposed to a risk of loss in the event
the value of the underlying securities falls below the exercise price,
which loss potentially may substantially exceed the amount of option
premium received by the Fund for writing the put option. The Fund will
write a put option on a security or a securities index only if the Fund
would be willing to purchase the security at the exercise price for
investment purposes (in the case of an option on a security) or is
writing the put in connection with trading strategies involving
combinations of options—for example, the sale and purchase of
options with identical expiration dates on the same security or index
but different exercise prices (a technique called a “spread”).
Writing a put option may involve substantial leverage risks.
The Fund is also
authorized to sell call or put options in connection with closing out
call or put options it has previously purchased.
Other than with
respect to closing transactions, the Fund will only write call or put
options that are “covered.” A call or put option will be
considered covered if the Fund has segregated assets with respect to
such option in the manner described below. A call option will also be
considered covered if the Fund owns the securities it would be required
to deliver upon exercise of the option (or, in the case of an option on
a securities index, securities which substantially correlate with the
performance of such index) or owns a call option, warrant or convertible
instrument which is immediately exercisable for, or convertible into,
such security.
Types of
Options. The Fund may engage in transactions
in options on securities or securities indices on exchanges and in the
over-the-counter (“OTC”) markets. In general, exchange-traded
options have standardized exercise prices and expiration dates and
require the parties to post margin against their obligations, and the
performance of the parties’ obligations in connection with such
options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and
the seller, but generally do not require the parties to post margin and
are subject to greater credit risk. OTC options also involve greater
liquidity risk. See “Additional Risk Factors of OTC Transactions
” below.
Futures
The Fund may
engage in transactions in futures and options thereon. Futures are
standardized, exchange-traded contracts which obligate a purchaser to
take delivery, and a seller to make delivery, of a specific amount of an
asset at a specified future date at a specified price. No price is paid
upon entering into a futures contract. Rather, upon purchasing or
selling a futures contract the Fund is required to deposit collateral (
“margin”) equal to a percentage (generally less than 10%) of
the contract value. Each day thereafter until the futures position is
closed, the Fund will pay additional margin representing any loss
experienced as a result of the futures position the prior day or be
entitled to a payment representing any profit experienced as a result of
the futures position the prior day. Futures involve substantial leverage
risk.
The sale of a
futures contract limits the Fund’s risk of loss through a decline
in the market value of portfolio holdings correlated with the futures
contract prior to the futures contract’s expiration date. In the
event the market value of the portfolio holdings correlated with the
futures contract increases rather than decreases, however, the Fund will
realize a loss on the futures position and a lower return on the
portfolio holdings than would have been realized without the purchase of
the futures contract.
The purchase of a futures
contract may protect the Fund from having to pay more for securities as
a consequence of increases in the market value for such securities
during a period when the Fund was attempting to identify specific
securities in which to invest in a market the Fund believes to be
attractive. In the event that such securities decline in value or the
Fund determines not to complete an anticipatory hedge transaction
relating to a futures contract, however, the Fund may realize a loss
relating to the futures position.
The Fund will
limit transactions in futures and options on futures to financial
futures contracts (i.e., contracts for which the underlying asset
is a currency or securities or interest rate index) purchased or sold
for hedging purposes (including anticipatory hedges). The Fund will
further limit transactions in futures and options on futures to the
extent necessary to prevent the Fund from being deemed a “commodity
pool” under regulations of the Commodity Futures Trading
Commission.
Foreign Exchange Transactions
The Fund may
engage in spot and forward foreign exchange transactions and currency
swaps, purchase and sell options on currencies and purchase and sell
currency futures and related options thereon (collectively,
“Currency Instruments”) for purposes of hedging against the
decline in the value of currencies in which its portfolio holdings are
denominated against the U.S. dollar.
Forward
Foreign Exchange Transactions. Forward
foreign exchange transactions are OTC contracts to purchase or sell a
specified amount of a specified currency or multinational currency unit
at a price and future date set at the time of the contract. Spot foreign
exchange transactions are similar but require current, rather than
future, settlement. The Fund will enter into foreign exchange
transactions only for purposes of hedging either a specific transaction
or a portfolio position. The Fund may enter into a foreign exchange
transaction for purposes of hedging a specific transaction by, for
example, purchasing a currency needed to settle a security transaction
or selling a currency in which the Fund has received or anticipates
receiving a dividend or distribution. The Fund may enter into a foreign
exchange transaction for purposes of hedging a portfolio position by
selling forward a currency in which a portfolio position of the Fund is
denominated or by purchasing a currency in which the Fund anticipates
acquiring a portfolio position in the near future. The Fund may also
hedge portfolio positions through currency swaps, which are transactions
in which one currency is simultaneously bought for a second currency on
a spot basis and sold for the second currency on a forward basis.
Forward foreign exchange transactions involve substantial currency risk,
and also involve credit and liquidity risk.
Currency
Futures. The Fund may also hedge against the
decline in the value of a currency against the U.S. dollar through use
of currency futures or options thereon. Currency futures are similar to
forward foreign exchange transactions except that futures are
standardized, exchange-traded contracts. See “Futures” above.
Currency futures involve substantial currency risk, and also involve
leverage risk.
Currency
Options. The Fund may also hedge against the
decline in the value of a currency against the U.S. dollar through the
use of currency options. Currency options are similar to options on
securities, but in consideration for an option premium the writer of a
currency option is obligated to sell (in the case of a call option) or
purchase (in the case of a put option) a specified amount of a specified
currency on or before the expiration date for a specified amount of
another currency. The Fund may engage in transactions in options on
currencies either on exchanges or OTC markets. See “Types of Options
” above and “Additional Risk Factors of OTC Transactions;
Limitations on the Use of OTC Derivatives” below. Currency options
involve substantial currency risk, and may also involve credit, leverage
or liquidity risk.
Limitations on
Currency Hedging. The Fund will not speculate
in Currency Instruments. Accordingly, the Fund will not hedge a currency
in excess of the aggregate market value of the securities which it owns
(including receivables for unsettled securities sales), or has committed
to or anticipates purchasing, which are denominated in such currency.
The Fund may, however, hedge a currency by entering into a transaction
in a Currency Instrument denominated in a currency other than the
currency being hedged (a “cross-hedge”). The Fund will only
enter into a cross-hedge if the Manager believes that (i) there is a
demonstrable high correlation between the currency in which the
cross-hedge is denominated and the currency being hedged, and (ii)
executing a cross-hedge through the currency in which the cross-hedge is
denominated will be significantly more cost-effective or provide
substantially greater liquidity than executing a similar hedging
transaction by means of the currency being hedged.
Risk Factors in Hedging
Foreign Currency Risks. Hedging transactions
involving Currency Instruments involve substantial risks, including
correlation risk. While the Fund’s use of Currency Instruments to
effect hedging strategies is intended to reduce the volatility of the
net asset value of the Fund’s shares, the net asset value of the
Fund’s shares will fluctuate. Moreover, although Currency
Instruments will be used with the intention of hedging against adverse
currency movements, transactions in Currency Instruments involve the
risk that anticipated currency movements will not be accurately
predicted and that the Fund’s hedging strategies will be
ineffective. To the extent that the Fund hedges against anticipated
currency movements which do not occur, the Fund may realize losses, and
decrease its total return, as the result of its hedging transactions.
Furthermore, the Fund will only engage in hedging activities from time
to time and may not be engaging in hedging activities when movements in
currency exchange rates occur.
It may not be
possible for the Fund to hedge against currency exchange rate movements,
even if correctly anticipated, in the event that (i) the currency
exchange rate movement is so generally anticipated that the Fund is not
able to enter into a hedging transaction at an effective price, or (ii)
the currency exchange rate movement relates to a market with respect to
which Currency Instruments are not available (such as certain developing
markets) and it is not possible to engage in effective foreign currency
hedging.
Risk Factors in Derivatives
Derivatives are
volatile and involve significant risks, including:
|
Credit risk—the
risk that the counterparty on a Derivative transaction will be unable
to honor its financial obligation to the Fund.
|
|
Currency risk—the risk
that changes in the exchange rate between two currencies will
adversely affect the value (in U.S. dollar terms) of an
investment.
|
|
Leverage risk—the risk
associated with certain types of investments or trading strategies
(such as borrowing money to increase the amount of investments) that
relatively small market movements may result in large changes in the
value of an investment. Certain investments or trading strategies that
involve leverage can result in losses that greatly exceed the amount
originally invested.
|
|
Liquidity risk—the
risk that certain securities may be difficult or impossible to sell at
the time that the seller would like or at the price that the seller
believes the security is currently worth.
|
Use of
Derivatives for hedging purposes involves correlation risk. If the value
of the Derivative moves more or less than the value of the hedged
instruments the Fund will experience a gain or loss which will not be
completely offset by movements in the value of the hedged
instruments.
The Fund intends
to enter into transactions involving Derivatives only if there appears
to be a liquid secondary market for such instruments or, in the case of
illiquid instruments traded in OTC transactions, such instruments
satisfy the criteria set forth below under “Additional Risk Factors
of OTC Transactions; Limitations on the Use of OTC Derivatives.”
However, there can be no assurance that, at any specific time, either a
liquid secondary market will exist for a Derivative or the Fund will
otherwise be able to sell such instrument at an acceptable price. It may
therefore not be possible to close a position in a Derivative without
incurring substantial losses, if at all.
Certain
transactions in Derivatives (such as futures transactions or sales of
put options) involve a substantial leverage risk and may expose the Fund
to potential losses, which exceed the amount originally invested by the
Fund. When the Fund engages in such a transaction, the Fund will deposit
in a segregated account at its custodian liquid securities with a value
at least equal to the Fund’s exposure, on a mark-to-market basis,
to the transaction (as calculated pursuant to requirements of the
Securities and Exchange Commission). Such segregation will ensure that
the Fund has assets available to satisfy its obligations with respect to
the transaction, but will not limit the Fund’s exposure to
loss.
Additional Risk Factors of OTC Transactions;
Limitations on the Use of OTC Derivatives
Certain
Derivatives traded in OTC markets, including indexed securities, swaps
and OTC options, involve substantial liquidity risk. The absence of
liquidity may make it difficult or impossible for the Fund to sell such
instruments promptly at an acceptable price. The absence of liquidity may
also make it more difficult for the Fund to ascertain a market value for
such instruments. The Fund will therefore acquire illiquid OTC
instruments (i) if the agreement pursuant to which the instrument is
purchased contains a formula price at which the instrument may be
terminated or sold, or (ii) for which the Manager anticipates the Fund
can receive on each business day at least two independent bids or
offers, unless a quotation from only one dealer is available, in which
case that dealer’s quotation may be used.
Because
Derivatives traded in OTC markets are not guaranteed by an exchange or
clearing corporation and generally do not require payment of margin, to
the extent that the Fund has unrealized gains in such instruments or has
deposited collateral with its counterparty the Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its
obligations. The Fund will attempt to minimize the risk that a
counterparty will become bankrupt or otherwise fail to honor its
obligations by engaging in transactions in Strategic Instruments traded
in OTC markets only with financial institutions which have substantial
capital or which have provided the Fund with a third-party guaranty or
other credit enhancement.
Buying a warrant
does not make the Fund a shareholder of the underlying stock. The
warrant holder has no right to dividends or votes on the underlying
stock. A warrant does not carry any right to assets of the issuer, and
for this reason investment in warrants may be more speculative than
other equity-based investments.
Convertible
securities entitle the holder to receive interest payments paid on
corporate debt securities or the dividend preference on a preferred
stock until such time as the convertible security matures or is redeemed
or until the holder elects to exercise the conversion privilege.
Synthetic convertible securities may be either (i) a debt security or
preferred stock that may be convertible only under certain contingent
circumstances or that may pay the holder a cash amount based on the
value of shares of underlying common stock partly or wholly in lieu of a
conversion right (a “Cash-Settled Convertible”) or (ii) a
combination of separate securities chosen by the Manager in order to
create the economic characteristics of a convertible security, i.e., a
fixed income security paired with a security with equity conversion
features, such as an option or warrant (a “Manufactured Convertible
”).
The
characteristics of convertible securities include the potential for
capital appreciation as the value of the underlying common stock
increases, the relatively high yield received from dividend or interest
payments as compared to common stock dividends and decreased risks of
decline in value relative to the underlying common stock due to their
fixed-income nature. As a result of the conversion feature, however, the
interest rate or dividend preference on a convertible security is
generally less than would be the case if the securities were issued in
nonconvertible form.
In analyzing
convertible securities, the Manager will consider both the yield on the
convertible security and the potential capital appreciation that is
offered by the underlying common stock.
Convertible
securities are issued and traded in a number of securities markets. For
the past several years, the principal markets have been the United
States, the Euromarket and Japan. Issuers during this period have
included major corporations domiciled in the United States, Japan,
France, Switzerland, Canada and the United Kingdom. Even in cases where
a substantial portion of the convertible securities held by the Fund are
denominated in United States dollars, the underlying equity securities
may be quoted in the currency of the country where the issuer is
domiciled. With respect to convertible securities denominated in a
currency different from that of the underlying equity securities, the
conversion price may be based on a fixed exchange rate established at
the time the security is issued. As a result, fluctuations in the
exchange rate between the currency in which the debt security is
denominated and the currency in which the share price is quoted will
affect the value of the convertible security.
Apart from
currency considerations, the value of convertible securities is
influenced by both the yield of nonconvertible securities of comparable
issuers and by the value of the underlying common stock. The value of a
convertible security viewed without regard to its conversion feature
(i.e., strictly on the basis of its yield) is sometimes referred
to as its “investment value.” To the extent interest rates
change, the investment value of the convertible security typically will
fluctuate. However, at the same time, the value of the convertible
security will be influenced by its “conversion value,” which
is the market value of the underlying common stock that would be
obtained if the convertible security were converted. Conversion value
fluctuates directly with the price of the underlying common stock. If,
because of a low price of the common stock the conversion value is
substantially below the investment value of the convertible security,
the price of the convertible security is governed principally by its
investment value.
To the extent the
conversion value of a convertible security increases to a point that
approximates or exceeds its investment value, the price of the
convertible security will be influenced principally by its conversion
value. A convertible security will sell at a premium over the conversion
value to the extent investors place value on the right to acquire the
underlying common stock while holding a fixed-income security. The yield
and conversion premium of convertible securities issued in Japan and the
Euromarket are frequently determined at levels that cause the conversion
value to affect their market value more than the securities’
investment value.
Holders of
convertible securities generally have a claim on the assets of the
issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may be
subject to redemption at the option of the issuer at a price established
in the charter provision, indenture or other governing instrument
pursuant to which the convertible security was issued. If a convertible
security held by the Fund is called for redemption, the Fund will be
required to redeem the security, convert it into the underlying common
stock or sell it to a third party. Certain convertible debt securities
may provide a put option to the holder which entitles the holder to
cause the security to be redeemed by the issuer at a premium over the
stated principal amount of the debt security under certain
circumstances.
Other Investment Policies, Practices, and Risk Factors
Securities
Lending. The Fund may lend securities with a
value not exceeding 33 1
/3% of its total assets (subject to investment restriction (5)
below). 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 United States Government. The
Fund receives securities as collateral for the loaned securities and the
Fund and the borrower negotiate a rate for the loan premium to be
received by the Fund for the loaned securities, which increases the Fund
’s yield. The Fund may receive a flat fee for its loans. The loans
are terminable at any time and the borrower, after notice, is required
to return borrowed securities within five business days. The Fund may
pay reasonable 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.
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 that 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. The Fund may purchase restricted
securities that can be offered and sold to “qualified institutional
buyers” under Rule 144A under the Securities Act. The Board of
Trustees has determined to treat as liquid Rule 144A securities that are
either freely tradable in their primary markets offshore or have been
determined to be liquid in accordance with the policies and procedures
adopted by the Fund’s Board. The Board has adopted guidelines and
delegated to the Manager the daily function of determining and
monitoring liquidity of restricted securities. The Board, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. Since it is not possible to predict with assurance
exactly how this market for restricted securities sold and offered under
Rule 144A will continue to develop, the Board of Trustees will carefully
monitor the Fund’s investments in these securities. This investment
practice could have the effect of increasing the level of illiquidity in
the Fund to the extent that qualified institutional buyers become for a
time uninterested in purchasing these securities.
Suitability. The economic benefit of an
investment in the Fund depends upon many factors beyond the control of
the Fund, the Manager and its affiliates. Because of its emphasis on
foreign securities, the Fund should be considered a vehicle for
diversification and not as a balanced investment program. The
suitability for any particular investor of a purchase of shares in the
Fund will depend upon, among other things, such investor’s
investment objectives and such investor’s ability to accept the
risks associated with investing in foreign securities, including the
risk of loss of principal.
The Fund has
adopted a number of fundamental and non-fundamental restrictions and
policies relating to the investment of its assets and its activities.
The fundamental policies set forth below may not be changed without the
approval of the holders of a majority of the Fund’s outstanding
voting securities (which for this purpose and under the Investment
Company Act means the lesser of (i) 67% of the Fund’s shares
present at a meeting at which more than 50% of the outstanding shares of
the Fund are represented or (ii) more than 50% of the Fund’s
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.
|
|
(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.
|
|
(4) Purchase or sell
real estate, except that, to the extent permitted by applicable law,
the Fund may invest in securities directly or indirectly secured by
real estate or interests therein or issued by companies that invest in
real estate or interests therein.
|
|
(5) Make loans to other
persons, except that the acquisition of bonds, debentures or other
corporate debt securities and investment in government obligations,
commercial paper, pass-through instruments, certificates of deposit,
bankers acceptances, repurchase agreements or any similar instruments
shall not be deemed to be the making of a loan, and except further
that the Fund may lend its portfolio securities,
provided that the lending of portfolio securities may be made only in
accordance with applicable law and the guidelines set forth in the
Prospectus and this Statement of Additional Information, as they may
be amended from time to time.
|
|
(6) Issue senior
securities to the extent such issuance would violate applicable
law.
|
|
(7) Borrow money,
except that (i) the Fund may borrow from banks (as defined in the
Investment Company Act) in amounts up to 33 1
/3% of its total assets (including the amount borrowed), (ii) the
Fund may, to the extent permitted by applicable law, borrow up to an
additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the
Fund may purchase securities on margin to the extent permitted by
applicable law. The Fund may not pledge its assets other than to
secure such borrowings or, to the extent permitted by the Fund’s
investment policies as set forth in the Prospectus and this Statement
of Additional Information, as they may be amended from time to time,
in connection with hedging transactions, short sales, when-issued and
forward commitment transactions and similar investment strategies.
|
|
(8) Underwrite
securities of other issuers except insofar as the Fund technically may
be deemed an underwriter under the Securities Act 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 Prospectus
and this Statement of Additional Information, as they may be amended
from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
|
Under the Fund
’s non-fundamental investment restrictions, which may be changed by
the Board of Trustees without shareholder approval, the Fund may
not:
|
(a) Purchase securities
of other investment companies, except to the extent 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 that cannot be readily resold because of legal or
contractual restrictions or that cannot otherwise be marketed,
redeemed or put to the issuer or a third party, if at the time of
acquisition more than 15% of its total assets would be invested in
such securities. This restriction shall not apply to securities that
mature within seven days or securities, that the Board of Directors of
the Fund has otherwise determined to be liquid pursuant to applicable
law. Securities purchased in accordance with Rule 144A under the
Securities Act and determined to be liquid by the Fund’s Board of
Trustees are not subject to the limitations set forth in this
investment restriction.
|
|
(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.
In addition, the Fund will not purchase securities while borrowings
are outstanding except to exercise prior commitments and to exercise
subscription rights.
|
European
corporations frequently issue additional capital stock by means of
subscription rights offerings to existing shareholders at a price
substantially below the market price of the shares. The failure to
exercise such rights would result in the Fund’s interest in the
issuing company being diluted and may cause the Fund to forego a
favorable investment opportunity. The market for such rights is not well
developed, and accordingly, the Fund may not always realize the full
value on the sale of rights. The Fund may purchase securities pursuant
to the exercise of subscription rights as long as such purchase will not
result in the Fund ceasing to be a diversified investment company as
defined in the Investment Company Act and as required by the Internal
Revenue Code of 1986, as amended (the “Code”). Such purchases
may be made when the limits set forth in the investment restrictions
would otherwise be exceeded by such exercise or have already been
exceeded as a result of fluctuations
in the market value of the Fund’s portfolio securities with the
result that the Fund would otherwise be forced either to sell securities
at a time when it might not otherwise have done so or to forego
exercising the rights.
The staff of the
Securities and Exchange Commission has taken the position that purchased
OTC options and the assets underlying written OTC options are illiquid
securities. The Fund has therefore adopted an investment policy pursuant
to which it will not purchase or sell OTC options (including OTC options
on futures contracts) 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 securities underlying OTC call options
currently outstanding which have been sold by the Fund and margin
deposits on the Fund’s outstanding OTC options exceeds 15% of the
total assets of the Fund, taken at market value, together with all other
assets of the Fund which are deemed to be illiquid or are otherwise not
readily marketable. However, if an OTC option is sold by the Fund to a
dealer in U.S. government securities recognized as a “primary dealer
” by the Federal Reserve Bank of New York and the Fund has the
unconditional contractual right to repurchase such OTC option 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 security minus the option’s
exercise 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
Trustees 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.
Because of the
affiliation of Merrill Lynch with the Manager, the Fund is prohibited
from engaging in certain transactions involving Merrill Lynch or its
affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company
Act. See “Portfolio Transactions and Brokerage.” Without such
an exemptive order the Fund would be prohibited from engaging in
portfolio transactions with Merrill Lynch or any of its affiliates
acting as principal.
The Fund’s
investments will be limited in order to allow the Fund to qualify as a
“regulated investment company” for purposes of the Code. See
“Dividends and Taxes — Taxes.” To qualify,
among other requirements, the Fund will limit its investments so that,
at the close of each quarter of the taxable year, (i) not more than 25%
of the market value of the Fund’s total assets will be invested in
the securities of a single issuer, and (ii) with respect to 50% of the
market value of its total assets, not more than 5% of the market value
of its total assets will be invested in the securities of a single
issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. These tax-related limitations may be
changed by the Trustees of the Fund to the extent necessary to comply
with changes to the Federal tax requirements. The Fund is
“diversified” under the Investment Company Act and must
satisfy the foregoing 5% and 10% requirements with respect to 75% of its
total assets.
The Manager will
effect portfolio transactions without regard to the time the securities
have been held, if, in its judgment, such transactions are advisable in
light of a change in circumstances of a particular company or within a
particular industry or in general market, financial or economic
conditions. As a result of its investment policies, the Fund may engage
in a substantial number of portfolio transactions and the Fund’s
portfolio turnover rate may vary greatly from year to year or during
periods within a year. The portfolio turnover rate is calculated by
dividing the lesser of the Fund’s annual sales or purchases of
portfolio securities (exclusive of purchases or sales of U.S. government
securities and all other securities whose maturities at the time of
acquisition were one year or less) by the monthly average value of the
securities in the portfolio during the year. A high portfolio turnover
may result in negative tax consequences, such as an increase in capital
gain dividends. High portfolio turnover may also involve correspondingly
greater transaction costs in the form of dealer spreads and brokerage
commissions, which are borne directly by the Fund.
The Board of
Trustees of the Fund consists of five individuals, three of whom are not
“interested persons” of the Fund as defined in the Investment
Company Act (the “non-interested Trustees”). The Trustees 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 Trustees, executive officers and the portfolio manager of the Fund,
including their ages and their principal occupations for at least the
last five years, is set forth below. Unless otherwise noted, the address
of each Trustee, executive officer and the portfolio manager is P.O. Box
9011, Princeton, New Jersey 08543-9011.
TERRY
K. GLENN
(59) — President and Trustee(1)(2) —
Executive Vice President of the Manager and Fund Asset Management
L.P. (“FAM”) (which terms as used herein include their
corporate predecessors) since 1983; Executive Vice President and
Director of Princeton Services, Inc. (“Princeton Services”)
since 1993; President of Princeton Funds Distributor, Inc. (“PFD
”) since 1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.
CHARLES
C. REILLY
(68) — Trustee(2)(3) — 9 Hampton
Harbor Road, Hampton Bays, New York 11946. Self-employed financial
consultant since 1990; President and Chief Investment Officer of Verus
Capital, Inc. from 1979 to 1990; Senior Vice President of Arnhold and S.
Bleichroeder, Inc. from 1973 to 1990; Adjunct Professor, Columbia
University Graduate School of Business from 1990 to 1991; Adjunct
Professor, Wharton School, University of Pennsylvania from 1989 to 1990;
Partner, Small Cities Cable Television from 1986 to 1997.
RICHARD
R. WEST
(61) — Trustee(2)(3) — Box 604,
Genoa, Nevada 89411. Professor of Finance since 1984, Dean from 1984 to
1993, and currently Dean Emeritus of New York University Leonard N.
Stern School of Business Administration; Director of Bowne & Co.,
Inc. (financial printers), Vornado Realty Trust, Inc. (real estate
holding company) and Alexander’s, Inc. (real estate
company).
ARTHUR
ZEIKEL
(67) — Trustee(1)(2) — 300 Woodland
Avenue, Westfield, New Jersey 07090. Chairman of the Manager and FAM
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.
EDWARD
D. ZINBARG
(65) — Trustee(2)(3) — 5 Hardwell
Road, Short Hills, New Jersey 07078-2117. Executive Vice President of
The Prudential Insurance Company of America from 1988 to 1994; Former
Director of Prudential Reinsurance Company and former Trustee of The
Prudential Foundation.
ROBERT
C. DOLL
, JR
. (45) — Senior Vice President(1)(2) —
Senior Vice President of the Manager and FAM since 1999; Senior
Vice President of Princeton Services since 1999; Chief Investment
Officer of OppenheimerFunds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
ADRIAN
C. HOLMES
(38) — Senior Vice President and Portfolio
Manager(1)(2) — Managing Director of European
Equities for Merrill Lynch Asset Management U.K. Limited (“MLAM U.K.
”) since 1993; Vice President of the Manager since 1990 and
associated therewith since 1987.
DONALD
C. BURKE
(39) — Vice President and Treasurer(1)(2) —
Senior Vice President and Treasurer of the Manager and FAM since
1999; Senior Vice President and Treasurer of Princeton Services since
1999; Vice President of PFD since 1999; First Vice President of the
Manager from 1997 to 1999; Vice President of the Manager from 1990 to
1997; Director of Taxation of the Manager since 1990.
ROBERT
E. PUTNEY
, III (39) — Secretary(1)(2) —
Director (Legal Advisory) of the Manager and Princeton
Administrators, L.P. since 1997; Vice President of the Manager from 1994
to 1997; Vice President of Princeton Administrators, L.P. from 1996 to
1997; Attorney with the Manager from 1991 to 1994.
(1)
|
Interested
person, as defined in the Investment Company Act, of the
Fund.
|
(2)
|
Such Trustee
or officer is a director, trustee or officer of certain other
investment companies for which the Manager or FAM acts as the
investment adviser.
|
(3)
|
Member of the
Fund’s Audit and Nominating Committee, which is responsible for
the selection of independent auditors and the selection and nomination
of non-interested Trustees.
|
As of January 1, 2000, the
Trustees and officers of the Fund as a group (9 persons) owned an
aggregate of less than 1% of the outstanding shares of the Fund. At such
date, Mr. Zeikel, a Trustee of the Fund, Mr. Glenn, a Trustee 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.
The Fund pays
each non-interested Trustee a fee of $3,500 per year plus $500 per Board
meeting attended. The Fund also compensates members of its Audit and
Nominating Committee (the “Committee”), which consists of all
the non-interested Trustees, a fee of $500 per meeting attended. The
Fund pays the Chairman of the Committee an additional fee of $250 per
meeting attended. The Fund reimburses each non-interested Trustee 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 Trustees for
the fiscal year ended October 31, 1999 and the aggregate compensation
paid to them from all registered investment companies advised by the
Manager and its affiliate, FAM (“MLAM/FAM-advised funds”), for
the calendar year ended December 31, 1999.
Name
|
|
Position with
Fund
|
|
Compensation
from Fund
|
|
Pension or
Retirement Benefits
Accrued as Part of
Fund Expense
|
|
Estimated
Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation from
Fund and Other
MLAM/FAM-
Advised Funds(1)
|
| Donald
Cecil(2) |
|
Trustee |
|
$8,500 |
|
None |
|
None |
|
$292,350 |
| Roland M.
Machold(3) |
|
Trustee |
|
$7,000 |
|
None |
|
None |
|
$ 99,875 |
| Edward H.
Meyer(2) |
|
Trustee |
|
$7,000 |
|
None |
|
None |
|
$253,475 |
| Charles C.
Reilly |
|
Trustee |
|
$7,500 |
|
None |
|
None |
|
$400,025 |
| Richard R.
West |
|
Trustee |
|
$7,500 |
|
None |
|
None |
|
$388,775 |
| Edward D.
Zinbarg |
|
Trustee |
|
$7,500 |
|
None |
|
None |
|
$140,815 |
(1)
|
The Trustees
serve on the boards of MLAM/FAM-advised funds as follows: Mr. Reilly
(60 registered investment companies consisting of 73 portfolios); Mr.
West (62 registered investment companies consisting of 86 portfolios);
and Mr. Zinbarg (18 registered investment companies consisting of 18
portfolios).
|
(2)
|
Messrs. Cecil
and Meyer retired as Trustees of the Fund and as trustees or directors
of certain other MLAM/FAM-advised funds on December 31,
1999.
|
(3)
|
Mr. Machold
resigned as a Trustee of the Fund and trustee or director of certain
other MLAM/FAM-advised funds on August 20, 1999.
|
Trustees 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
Management
Services. The Manager provides the Fund with
investment advisory and management services. Subject to the supervision
of the Board of Trustees, the Manager 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 Manager. The Manager
performs certain of the other administrative services and provides all
the office space, facilities, equipment and necessary personnel for
management of the Fund.
Management
Fee. The Fund has entered into a management
agreement with the Manager (the “Management Agreement”),
pursuant to which the Manager receives for its services to the Fund
monthly compensation at the annual rate of 0.75% of the average daily
net assets of the Fund. The table below sets forth information about the
total investment advisory fees paid by the Fund to the Manager for the
periods indicated.
Fiscal Year Ended
October 31,
|
|
Management Fee
|
| 1999 |
|
$13,468,035 |
| 1998 |
|
$13,960,120 |
| 1997 |
|
$10,128,366 |
The Manager has entered
into a sub-advisory agreement with MLAM U.K. pursuant to which MLAM U.K.
provides investment advisory services to the Manager with respect to the
Fund. The table below sets forth information about the total investment
advisory fees paid by the Manager to MLAM U.K. for the periods
indicated.
Fiscal Year Ended
October 31,
|
|
Sub-Advisory
Fee
|
| 1999 |
|
$1,356,022 |
| 1998 |
|
$2,799,466 |
| 1997 |
|
$1,761,720 |
Payment of
Fund Expenses. The Management Agreement
obligates the Manager 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 Trustees
of the Fund who are affiliated persons of ML & Co. or any of its
affiliates. 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 the transfer agent; expenses of redemption of shares;
Commission fees; expenses of registering the shares under Federal, state
or foreign laws; fees and expenses of non-interested Trustees;
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 Manager and the Fund reimburses the Manager for its costs in
connection with such services. See “Purchase of Shares —
Distribution Plans.”
Organization
of the Manager. The Manager is a limited
partnership, the partners of which are ML & Co., a financial
services holding company and the parent of Merrill Lynch, and Princeton
Services. ML & Co. and Princeton Services are “controlling
persons” of the Manager as defined under the Investment Company Act
because of their ownership of its voting securities 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 Management Agreement and sub-advisory agreement
will remain in effect from year to year if approved annually (a) by the
Board of Trustees of the Fund or by a majority of the outstanding shares
of the Fund and (b) by a majority of the Trustees who are not parties to
such contract or interested persons (as defined in the Investment
Company Act) of any such party. Such 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 Management Agreement described
above.
The Board of
Trustees 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
Manager (together, the “Codes”). The Codes significantly
restrict the personal investing activities of all employees of the
Manager and, as described below, impose additional, more onerous,
restrictions on fund investment personnel.
The Codes require
that all employees of the Manager 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 Manager include a ban on acquiring any securities in a
“hot” initial public offering and a prohibition from profiting
on short-term trading in securities. In addition, no employee may
purchase or sell any security that at the time is being purchased or
sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by the Manager.
Furthermore, the Codes provide for trading “blackout periods”
which prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15
or 30 days depending upon the transaction).
Reference is made
to “How to Buy, Sell, Transfer and Exchange Shares” in the
Prospectus.
The Fund offers
four classes of shares under the Merrill Lynch Select Pricing
SM
System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives and shares of Class B and
Class C are sold to investors choosing the deferred sales charge
alternatives. Each Class A, Class B, Class C or Class D share of the
Fund represents an identical interest in the investment portfolio of the
Fund and has the same rights, except that Class B, Class C and Class D
shares bear the expenses of the ongoing account maintenance fees (also
known as service fees) and Class B and Class C shares bear the expenses
of the ongoing distribution fees and the additional incremental transfer
agency costs resulting from the deferred sales charge arrangements. The
contingent deferred sales charges (“CDSCs”), distribution fees
and account maintenance fees that are imposed on Class B and Class C
shares, as well as the account maintenance fees that are imposed on
Class D shares, are imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges do not
affect the net asset value of any other class or have any impact on
investors choosing another sales charge option. Dividends paid by the
Fund for each class of shares are calculated in the same manner at the
same time and differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to
a particular class are borne exclusively by that class. Each class has
different exchange privileges. See “Shareholder Services —
Exchange Privilege.”
Investors should
understand that the purpose and function of the initial sales charges
with respect to the Class A and Class D shares are the same as those of
the CDSCs and distribution fees with respect to the Class B and Class C
shares in that the sales charges and distribution fees applicable to
each class provide for the financing of the distribution of the shares
of the Fund. The distribution-related revenues paid with respect to a
class will not be used to finance the distribution expenditures of
another class. Sales personnel may receive different compensation for
selling different classes of shares.
The Merrill Lynch Select
Pricing
SM
System is used by more than 50 registered investment companies
advised by the Manager or FAM. Funds advised by the Manager or FAM that
use the Merrill Lynch Select Pricing
SM
System are referred to herein as “Select Pricing Funds.
”
The Fund offers
its shares at a public offering price equal to the next determined net
asset value per share plus any sales charge applicable to the class of
shares selected by the investor. The applicable offering price for
purchase orders is based upon the net asset value of the Fund next
determined after receipt of the purchase order by the Distributor. As to
purchase orders received by securities dealers prior to the close of
business on the New York Stock Exchange (the “NYSE”)
(generally 4:00 p.m., Eastern time) which includes orders received after
the determination of net asset value on the previous day, the applicable
offering price will be based on the net asset value on the day the order
is placed with the Distributor, provided that the orders are received by
the Distributor prior to 30 minutes after the close of business on the
NYSE on that day. If the purchase orders are not received prior to 30
minutes after the close of business on the NYSE on that day, such orders
shall be deemed received on the next business day. Dealers have the
responsibility of submitting purchase orders to the Fund not later than
30 minutes after the close of business on the NYSE in order to purchase
shares at that day’s offering price.
The Fund or the
Distributor may suspend the continuous offering of the Fund’s
shares of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering
from time to time. Any order may be rejected by the Fund or the
Distributor. Neither the Distributor nor the dealers 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 charge 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 reduced initial sales
charge on new initial sales charge purchases. In addition, the ongoing
Class B and Class C account maintenance and distribution fees will cause
Class B and Class C shares to have higher expense ratios, pay lower
dividends and have lower total returns than the initial sales charge
shares. The ongoing Class D account maintenance fees will cause Class D
shares to have a higher expense ratio, pay lower dividends and have a
lower total return than Class A shares.
The term
“purchase,” as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and
Class D shares of the Fund, refers to a single purchase by an individual
or to concurrent purchases, which in the aggregate are at least equal to
the prescribed amounts, by an individual, his or her spouse and their
children under the age of 21 years purchasing shares for his, her or
their own account and to single purchases by a trustee or other
fiduciary purchasing shares for a single trust estate or single
fiduciary account although more than one beneficiary is involved. The
term “purchase” also includes purchases by any “company,
” as that term is defined in the Investment Company Act, but does
not include purchases by any such company that has not been in existence
for at least six months or which has no purpose other than the purchase
of shares of the Fund or shares of other registered investment companies
at a discount; provided, however, that it shall not include purchases by
any group of individuals whose sole organizational nexus is that the
participants therein are credit cardholders of a company, policyholders
of an insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser.
Eligible Class A Investors
Class A shares
are offered to a limited group of investors and also will be issued upon
reinvestment of dividends on outstanding Class A shares. Investors who
currently own Class A shares in a shareholder account, including
participants in the Merrill Lynch Blueprint
SM
Program, are entitled to purchase additional Class A shares of
the Fund in that account. Certain Employer Sponsored Retirement or
Savings Plans, including eligible 401(k) plans, may purchase Class A
shares at net asset value provided such plans meet the required minimum
number of eligible employees or required amount of assets advised by
MLAM or any of its affiliates. Class A shares are available at net asset
value to corporate warranty insurance reserve fund programs and U.S.
branches of foreign banking institutions provided that the program or
bank has $3 million or more initially invested in Select Pricing Funds.
Also eligible to purchase Class A shares at net asset value are
participants in certain investment programs including TMA
SM
Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services, collective investment trusts for which
Merrill Lynch Trust Company serves as trustee and certain purchases made
in connection with certain fee-based programs. In addition, Class A
shares are offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the
Boards of MLAM/FAM-advised investment companies. Certain persons who
acquired shares of certain MLAM/FAM-advised closed-end funds in their
initial offerings who wish to reinvest the net proceeds from a sale of
their closed-end fund shares of common stock in shares of the Fund also
may purchase Class A shares of the Fund if certain conditions are met.
In addition, Class A shares of the Fund and certain other Select Pricing
Funds are offered at net asset value to shareholders of Merrill Lynch
Senior Floating Rate Fund, Inc. and, if certain conditions are met, to
shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill
Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock pursuant
to a tender offer conducted by such funds in shares of the Fund and
certain other Select Pricing Funds.
Class A and Class D Sales Charge Information
| Class A
Shares |
|
For the Fiscal Year
Ended
October 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 |
|
$ 21,104 |
|
$ 2,153 |
|
$ 18,951 |
|
$126,744 |
| 1998 |
|
$ 54,134 |
|
$ 4,516 |
|
$ 49,618 |
|
$
10,340 |
| 1997 |
|
$ 97,591 |
|
$ 5,476 |
|
$ 92,115 |
|
0 |
|
| Class D
Shares |
|
For the Fiscal Year
Ended
October 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 |
|
$410,491 |
|
$13,509 |
|
$396,982 |
|
$15,020 |
| 1998 |
|
$426,518 |
|
$27,769 |
|
$398,749 |
|
$
9,433 |
| 1997 |
|
$141,405 |
|
$ 9,679 |
|
$131,726 |
|
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 to
obtain such investments.
Reinvested
Dividends. No initial sales charges are
imposed upon Class A and Class D shares issued as a result of the
automatic reinvestment of dividends.
Right of
Accumulation. Reduced sales charges are
applicable through a right of accumulation under which eligible
investors are permitted to purchase shares of the Fund subject to an
initial sales charge at the offering price applicable to the total of
(a) the public offering price of the shares then being purchased plus
(b) an amount equal to the then current net asset value or cost,
whichever is higher, of the purchaser’s combined holdings of all
classes of shares of the Fund and of any other Select Pricing Funds. For
any such right of accumulation to be made available, the Distributor
must be provided at the time of purchase, by the purchaser or the
purchaser’s securities dealer, with sufficient information to
permit confirmation of qualification. Acceptance of the purchase order
is subject to such confirmation. The right of accumulation may be
amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing or other employee benefit
plans may not be combined with other shares to qualify for the right of
accumulation.
Letter of
Intent. Reduced sales charges are applicable
to purchases aggregating $25,000 or more of the Class A or Class D
shares of the Fund or any Select Pricing Funds made within a 13-month
period starting with the first purchase pursuant to a Letter of Intent.
The Letter of Intent is available only to investors whose accounts are
established and maintained at the Fund’s Transfer Agent. The Letter
of Intent is not available to employee benefit plans for which Merrill
Lynch provides plan participant recordkeeping services. The Letter of
Intent is not a binding obligation to purchase any amount of Class A or
Class D shares; however, its execution will result in the purchaser
paying a lower sales charge at the appropriate quantity purchase level.
A purchase not originally made pursuant to a Letter of Intent may be
included under a subsequent Letter of Intent executed within 90 days of
such purchase if the Distributor is informed in writing of this intent
within such 90-day period. The value of Class A and Class D shares of
the Fund and of other Select Pricing Funds presently held, at cost or
maximum offering price (whichever is higher), on the date of the first
purchase under the Letter of Intent, may be included as a credit toward
the completion of such Letter, but the reduced sales charge applicable
to the amount covered by such Letter will be applied only to new
purchases. If the total amount of shares does not equal the amount
stated in the Letter of Intent (minimum of $25,000), the investor will
be notified and must pay, within 20 days of the expiration of such
Letter, the difference between the sales charge on the Class A or Class
D shares purchased at the reduced rate and the sales charge applicable
to the shares actually purchased through the Letter. Class A or Class D
shares equal to at least 5.0% of the intended amount will be held in
escrow during the 13-month period (while remaining registered in the
name of the purchaser) for this purpose. The first purchase under the
Letter of Intent must be at least 5.0% of the dollar amount of such
Letter. If a purchase during the term of such Letter would otherwise be
subject to a further reduced sales charge based on the right of
accumulation, the purchaser will be entitled on that purchase and
subsequent purchases to the further reduced percentage sales charge that
would be applicable to a single purchase equal to the total dollar value
of the Class A or Class D shares then being purchased under such Letter,
but there will be no retroactive reduction of the sales charge on any
previous purchase.
The value of any
shares redeemed or otherwise disposed of by the purchaser prior to
termination or completion of the Letter of Intent will be deducted from
the total purchases made under such Letter. An exchange from the Summit
Cash Reserves Fund into the Fund that creates a sales charge will count
toward completing a new or existing Letter of Intent from the
Fund.
Merrill Lynch
Blueprint
SM
Program. Class D shares of
the Fund are offered to participants in the Merrill Lynch
Blueprint
SM
Program (“Blueprint”). In addition, participants in
Blueprint who own Class A shares of the Fund may purchase additional
Class A shares of the Fund through Blueprint. The Blueprint program is
directed to small investors, group IRAs and participants in certain
affinity groups such as credit unions, trade associations and benefit
plans. Investors placing orders to purchase Class A or Class D shares of
the Fund through Blueprint will acquire the Class A or Class D shares at
net asset value plus a sales charge calculated in accordance with the
Blueprint sales charge schedule (i.e., up to $300 at 4.25%, from
$300.01 to $5,000 at 3.25% plus $3.00, and $5,000.01 or more at the
standard sales charge rates disclosed in the Prospectus). In addition,
Class A or Class D shares of the Fund are being offered at net asset
value plus a sales charge of 0.50% for corporate or group IRA programs
placing orders to purchase their Class A or Class D shares through
Blueprint. Services, including the exchange privilege, available to
Class A and Class D investors through Blueprint, however, may differ
from those available to other investors in Class A or Class D
shares.
Class A and Class
D shares are offered at net asset value to Blueprint participants
through the Merrill Lynch Directed IRA Rollover Program (the “IRA
Rollover Program”) available from Merrill Lynch Business Financial
Services, a business unit of Merrill Lynch. The IRA Rollover Program is
available to custodian rollover assets from employer-sponsored
retirement and savings plans (as defined below) whose trustee and/or
plan sponsor has entered into the IRA Rollover Program.
Orders for
purchases and redemptions of Class A or Class D shares of the Fund may
be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day
such orders are placed. The minimum initial purchase price is $100, with
a $50 minimum for subsequent purchases through Blueprint. There are no
minimum initial or subsequent purchase requirements for participants who
are part of an automatic investment plan. Additional information
concerning purchases through Blueprint, including any annual fees and
transaction charges, is available from Merrill Lynch, Pierce, Fenner
& Smith Incorporated, The Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
TMA
SM
Managed Trusts. Class A
shares are offered at net asset value to TMA
SM
Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services.
Employee
Access
SM
Accounts. Provided
applicable threshold requirements are met, either Class A or Class D
shares are offered at net asset value to Employee Access
SM
Accounts available through authorized employers. The initial
minimum investment for such accounts is $500, except that the initial
minimum investment for shares purchased for such accounts pursuant to
the Automatic Investment Program is $50.
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored
retirement or savings plans and certain other arrangements may purchase
Class A or Class D shares at net asset value, based on the number of
employees or number of employees eligible to participate in the plan,
the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Additional
information regarding purchases by employer-sponsored retirement or
savings plans and certain other arrangements is available toll-free from
Merrill Lynch Business Financial Services at (800) 237-7777.
Purchase
Privilege of Certain Persons. Trustees of the
Fund, members of the Boards of other MLAM/FAM-advised funds, ML &
Co. and its subsidiaries (the term “subsidiaries,” when used
herein with respect to ML & Co., includes MLAM, FAM and certain
other entities directly or indirectly wholly owned and controlled by ML
& Co.) and their directors and employees, and any trust, pension,
profit-sharing or other benefit plan for such persons, may purchase
Class A shares of the Fund at net asset value. The Fund realizes
economies of scale and reduction of sales-related expenses by virtue of
the familiarity of these persons with the Fund. Employees and directors
or trustees wishing to purchase shares of the Fund must satisfy the Fund
’s suitability standards.
Class D shares of
the Fund are offered at net asset value, without a sales charge, to an
investor that has a business relationship with a Financial Consultant
who joined Merrill Lynch from another investment firm within six months
prior to the date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise Merrill Lynch
that it will purchase Class D shares of the Fund with proceeds from a
redemption of shares of a mutual fund that was sponsored by the
Financial Consultant’s previous firm and was subject to a sales
charge either at the time of purchase or on a deferred basis; and,
second, the investor must establish that such redemption had been made
within 60 days prior to the investment in the Fund and the proceeds from
the redemption had been maintained in the interim in cash or a money
market fund.
Class D shares of
the Fund are also offered at net asset value, without a sales charge, to
an investor that has a business relationship with a Merrill Lynch
Financial Consultant and that has invested in a mutual fund sponsored by
a non-Merrill Lynch company for which Merrill Lynch has served as a
selected dealer and where Merrill Lynch has either received or given
notice that such arrangement will be terminated (“notice”) if
the following conditions are satisfied: first, the investor must
purchase Class D shares of the Fund with proceeds from a redemption of
shares of such other mutual fund and the shares of such other fund were
subject to a sales charge either at the time of purchase or on a
deferred basis; and, second, such purchase of Class D shares must be
made within 90 days after such notice.
Class D shares of
the Fund are offered at net asset value, without a sales charge, to an
investor that has a business relationship with a Merrill Lynch Financial
Consultant and that has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following
conditions are satisfied: first, the investor must advise Merrill Lynch
that it will purchase Class D shares of the Fund with proceeds from the
redemption of shares of such other mutual fund and that such shares have
been outstanding for a period of no less than six months; and, second,
such purchase of Class D shares must be made within 60 days after the
redemption and the proceeds from the redemption must be maintained in
the interim in cash or a money market fund.
Closed-End
Fund Investment Option. Class A shares of the
Fund and certain other Select Pricing Funds (“Eligible Class A
Shares”) are offered at net asset value to shareholders of certain
closed-end funds advised by FAM or MLAM who purchased such closed-end
fund shares prior to October 21, 1994 (the date the Merrill Lynch Select
Pricing
SM
System commenced operations) and wish to reinvest the net
proceeds from a sale of their closed-end fund shares of common stock in
Eligible Class A Shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased
such shares on or after October 21, 1994 and wish to reinvest the net
proceeds from a sale of their closed-end fund shares are offered Class A
shares (if eligible to buy Class A shares) or Class D shares of the Fund
and other Select Pricing Funds (“Eligible Class D Shares”), if
the following conditions are met. First, the sale of closed-end fund
shares must be made through Merrill Lynch, and the net proceeds
therefrom must be immediately reinvested in Eligible Class A or Eligible
Class D Shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing
dividends from shares of common stock acquired in such offering. Third,
the closed-end fund shares must have been continuously maintained in a
Merrill Lynch securities account. Fourth, there must be a minimum
purchase of $250 to be eligible for the investment option.
Shareholders of
certain MLAM/FAM-advised continuously offered closed-end funds may
reinvest at net asset value the net proceeds from a sale of certain
shares of common stock of such funds in shares of the Fund. Upon
exercise of this investment option, shareholders of Merrill Lynch Senior
Floating Rate Fund, Inc. will receive Class A shares of the Fund and
shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill
Lynch High Income Municipal Bond Fund, Inc. will receive Class D shares
of the Fund, except that shareholders already owning Class A shares of
the Fund will be eligible to purchase additional Class A shares pursuant
to this option, if such additional Class A shares will be held in the
same account as the existing Class A shares and the other requirements
pertaining to the reinvestment privilege are met. In order to exercise
this investment option, a shareholder of one of the above-referenced
continuously offered closed-end funds (an “eligible fund”)
must sell his or her shares of common stock of the eligible fund (the
“eligible shares”) back to the eligible fund in connection
with a tender offer conducted by the eligible fund and reinvest the
proceeds immediately in the designated class of shares of the Fund. This
investment option is available only with respect to eligible shares as
to which no Early Withdrawal Charge or CDSC (each as defined in the
eligible fund’s prospectus) is applicable. Purchase orders from
eligible fund shareholders wishing to exercise this investment option
will be accepted only on the day that the related tender offer
terminates and will be effected at the net asset value of the designated
class of the Fund on such day.
Acquisition of
Certain Investment Companies. Class D shares
may be offered at net asset value in connection with the acquisition of
the assets of or merger or consolidation with a personal holding company
or a public or private investment company.
Deferred Sales Charge Alternatives — Class B and Class C
Shares
Investors
choosing the deferred sales charge alternatives should consider Class B
shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time
they intend to hold their assets in Select Pricing Funds.
Because no
initial sales charges are deducted at the time of the purchase, Class B
and Class C shares provide the benefit of putting all of the investor
’s dollars to work from the time the investment is made. The
deferred sales charge alternatives may be particularly appealing to
investors that do not qualify for the reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution fees potentially may be offset to the
extent any return is realized on the additional funds initially invested
in Class B or Class C shares. In addition, Class B shares will be
converted into Class D shares of the Fund after a conversion period of
approximately eight years, and thereafter investors will be subject to
lower ongoing fees.
The public offering price
of Class B and Class C shares for investors choosing the deferred sales
charge alternatives is the next determined net asset value per share
without the imposition of a sales charge at the time of purchase. See
“Pricing of Shares — Determination of Net Asset Value
” below.
Contingent Deferred Sales Charges — Class B
Shares
Class B shares
that are redeemed within four years of purchase may be subject to a CDSC
at the rates set forth below charged as a percentage of the dollar
amount subject thereto. In determining whether a CDSC is applicable to a
redemption, the calculation will be determined in the manner that
results in the lowest applicable rate being charged. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption
or the cost of the shares being redeemed. Accordingly, no CDSC will be
imposed on increases in net asset value above the initial purchase
price. In addition, no CDSC will be assessed on shares derived from
reinvestment of dividends. It will be assumed that the redemption is
first of shares held for over four years or shares acquired pursuant to
reinvestment of dividends and then of shares held longest during the
four-year period. A transfer of shares from a shareholder’s account
to another account will be assumed to be made in the same order as a
redemption.
The following
table sets forth the Class B CDSC:
Year Since Purchase
Payment Made
|
|
CDSC as a Percentage
of Dollar Amount
Subject to Charge
|
| 0–1 |
|
4.0% |
| 1–2 |
|
3.0% |
| 2–3 |
|
2.0% |
| 3–4 |
|
1.0% |
| 4 and
thereafter |
|
None |
To provide an
example, assume an investor purchased 100 shares at $10 per share (at a
cost of $1,000) and in the third year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired
10 additional shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 shares (proceeds of
$600), 10 shares will not be subject to a CDSC because of dividend
reinvestment. With respect to the remaining 40 shares, the charge is
applied only to the original cost of $10 per share and not to the
increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the applicable
rate in the third year after purchase).
The Class B CDSC
may be waived on redemptions of shares in connection with certain
post-retirement withdrawals from an Individual Retirement Account (
“IRA”) or other retirement plan or following the death or
disability (as defined in the Internal Revenue Code of 1986, as amended)
of a shareholder (including one who owns the Class B shares as joint
tenant with his or her spouse), provided the redemption is requested
within one year of the death or initial determination of disability or,
if later, reasonably promptly following completion of probate. The Class
B CDSC also may be waived on redemptions of shares by certain eligible
401(a) and eligible 401(k) plans. The CDSC may 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 redemption in an Employee Access
SM
Account available through employers providing eligible 401(k) plans. The
Class B CDSC also may be waived for any Class B shares that are
purchased by a Merrill Lynch rollover IRA that was funded by a rollover
from a terminated 401(k) plan managed by the MLAM Private Portfolio
Group and held in such account at the time of redemption. The Class B
CDSC may 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, credit unions and benefit plans.
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 Class B investors.
Orders for purchases and redemptions of Class B shares of the Fund may
be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day
such orders are placed. The minimum initial purchase price is $100, with
a $50 minimum for subsequent purchases through Blueprint. There is no
minimum initial or subsequent purchase requirement for investors who are
part of a Blueprint automatic investment plan. Additional information
concerning these Blueprint programs, including any annual fees or
transaction charges, is available from Merrill Lynch, Pierce, Fenner
& Smith Incorporated, The Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
Conversion of
Class B Shares to Class D Shares. After
approximately eight years (the “Conversion Period”), Class B
shares will be converted automatically into Class D shares of the Fund.
Class D shares are subject to an ongoing account maintenance fee of
0.25% of average daily net assets but are not subject to the
distribution fee that is borne by Class B shares. Automatic conversion
of Class B shares into Class D shares will occur at least once each
month (on the “Conversion Date”) on the basis of the relative
net asset value of the shares of the two classes on the Conversion Date,
without the imposition of any sales load, fee or other charge.
Conversion of Class B shares to Class D shares will not be deemed a
purchase or sale of 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. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the time of
purchase. A transfer of shares from a shareholder’s account to
another account will be assumed to be made in the same order as a
redemption. The Class C CDSC may be waived in connection with
involuntary termination of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic Withdrawal Plan. See
“Shareholder Services — Systematic Withdrawal Plan.
” The Class C CDSC of the Fund and certain other Select Pricing
Funds may be waived with respect to Class C shares purchased by an
investor with the net proceeds of a tender offer made by certain
MLAM/FAM-advised closed end funds, including Merrill Lynch Senior
Floating Rate Fund II, Inc. Such waiver is subject to the requirement
that the tendered shares shall have been held by the investor for a
minimum of one year and to such other conditions as are set forth in the
prospectus for the related closed end fund.
Class B and Class C Sales Charge Information
Class B
Shares*
|
For the Fiscal Year
Ended October 31,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
| 1999 |
|
$1,037,370 |
|
$1,037,370 |
| 1998 |
|
$
767,885 |
|
$ 767,885 |
| 1997 |
|
$
847,913 |
|
$ 847,913 |
*
|
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 October 31,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
| 1999 |
|
$
55,801 |
|
$ 55,801 |
| 1998 |
|
$
27,998 |
|
$ 27,998 |
| 1997 |
|
$
8,568 |
|
$
8,568 |
Merrill Lynch
compensates its Financial Consultants for selling Class B and Class C
shares at the time of purchase from its own funds. Proceeds from the
CDSC and the distribution fee are paid to the Distributor and are used
in whole or in part by the Distributor to defray the expenses of dealers
(including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and
Class C shares, such as the payment of compensation to financial
consultants for selling Class B and Class C shares from the dealer
’s own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the Fund to sell the Class B
and Class C shares without a sales charge being deducted at the time of
purchase. See “Distribution Plans” below. Imposition of the
CDSC and the distribution fee on Class B and Class C shares is limited
by the National Association of Securities Dealers, Inc. (the “NASD
”) asset-based sales charge rule. See “Limitations on the
Payment of Deferred Sales Charges” below.
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 pays the Distributor an account maintenance fee relating to the
shares of the relevant class, accrued daily and paid monthly, at the
annual rate of 0.25% of the average daily net assets of the Fund
attributable to shares of the relevant class in order to compensate the
Distributor 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
pays the Distributor a distribution fee relating to the shares of the
relevant class, accrued daily and paid monthly, at the annual rate of
0.75% of the average daily net assets of the Fund attributable to the
shares of the relevant class in order to compensate the Distributor 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 Independent Directors shall be
committed to the discretion of the Independent Directors then in office.
In approving each Distribution Plan in accordance with Rule 12b-1, the
Independent 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 Independent 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 Independent 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 last date for which fully allocated accrual data is
available, 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 $13,689,000 (1.64% of Class B net assets at that date). As
of October 31, 1999, direct cash revenues for the period since the
commencement of
operations of Class B shares exceeded direct cash expenses by $68,265,434
(9.34% of Class B net assets at that date). As of December 31, 1998, the
fully allocated accrual expenses incurred by the Distributor and Merrill
Lynch for the period since the commencement of operations of Class C
shares exceeded the fully allocated accrual revenues by approximately
$191,000 (0.34% of Class C net assets at that date). As of October 31,
1999, direct cash revenues for the period since the commencement of
operations of Class C shares exceeded direct cash expenses by $946,144
(1.79% of Class C net assets at that date).
For the fiscal
year ended October 31, 1999, the Fund paid the Distributor $7,840,904
pursuant to the Class B Distribution Plan (based on average daily net
assets subject to such Class B Distribution Plan of approximately $786.2
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in
connection with Class B shares. For the fiscal year ended October 31,
1999, the Fund paid the Distributor $536,854 pursuant to the Class C
Distribution Plan (based on average daily net assets subject to such
Class C Distribution Plan of approximately $53.8 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 October 31, 1999, the Fund paid the
Distributor $868,772 pursuant to the Class D Distribution Plan (based on
average daily net assets subject to such Class D Distribution Plan of
approximately $348.5 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 October 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 October 31, 1999
|
| |
|
(in
thousands) |
| |
|
Eligible
Gross
Sales(1)
|
|
Allowable
Aggregate
Sales Charge(2)
|
|
Allowable
Interest on
Unpaid
Balance(3)
|
|
Maximum
Amount
Payable
|
|
Amounts
Previously
Paid to
Distributor(4)
|
|
Aggregate
Unpaid
Balance
|
|
Annual
Distribution
Fee at
Current Net
Asset
Level(5)
|
Class B Shares for
the period January
30, 1987 (commencement of
operations) to October 31, 1999 |
| Under NASD Rule as
Adopted |
|
$2,068,740 |
|
$127,747 |
|
$84,856 |
|
$212,603 |
|
$83,998 |
|
$128,605 |
|
$5,748 |
| Under Distributor
’s Voluntary Waiver |
|
$2,068,740 |
|
$129,109 |
|
$10,328 |
|
$139,437 |
|
$83,998 |
|
$ 55,439 |
|
$5,748 |
| |
Class C Shares, for
the period October
21, 1994 (commencement of
operations) to October 31, 1999 |
| Under NASD Rule as
Adopted |
|
$
62,366 |
|
$
4,484 |
|
$
621 |
|
$5,105
|
|
$ 1,063 |
|
$
4,042 |
|
$ 396 |
(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. Of the
distribution fee payments made with respect to Class B shares prior to
July 7, 1993 under the distribution plan in effect at that time, at a
1.0% rate, 0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has been deemed
to have been a service fee and not subject to the NASD maximum sales
charge rule. See “What are the Fund’s fees and expenses?
” in the Prospectus. This figure may include CDSCs that were
deferred when a shareholder redeemed shares prior to the expiration of
the applicable CDSC period and invested the proceeds, without the
imposition of a sales charge, in Class A shares in conjunction with
the shareholder’s participation in the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFA
SM
) Program (the “MFA Program”). The CDSC is booked as
a contingent obligation that may be payable if the shareholder
terminates participation in the MFA Program.
|
(5)
|
Provided to
illustrate the extent to which the current level of distribution fee
payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution
fee will reach either the voluntary maximum (with respect to Class B
shares) or the NASD maximum (with respect to Class B and Class C
shares).
|
Reference is made
to “How to Buy, Sell, Transfer and Exchange Shares” in the
Prospectus.
The Fund is
required to redeem for cash all shares of the Fund upon receipt of a
written request in proper form. The redemption price is the net asset
value per share next determined after the initial receipt of proper
notice of redemption. Except for any CDSC that may be applicable, there
will be no charge for redemption if the redemption request is sent
directly to the Transfer Agent. Shareholders liquidating their holdings
will receive upon redemption all dividends reinvested through the date
of redemption.
The right to
redeem shares or to receive payment with respect to any such redemption
may be suspended for more than seven days only for any period during
which trading on the NYSE is restricted as determined by the Commission
or the NYSE is closed (other than customary weekend and holiday
closings), for any period during which an emergency exists as defined by
the Commission as a result of which disposal of portfolio securities or
determination of the net asset value of the Fund is not reasonably
practicable, and for such other periods as the Commission may by order
permit for the protection of shareholders of the Fund.
The value of
shares at the time of redemption may be more or less than the shareholder
’s cost, depending in part on the market value of the securities
held by the Fund at such time.
A shareholder
wishing to redeem shares held with the Transfer Agent may do so without
charge by tendering the shares directly to the Transfer Agent at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289. Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484. Proper notice of redemption in the
case of shares deposited with the Transfer Agent may be accomplished by
a written letter requesting redemption. Proper notice of redemption in
the case of shares for which certificates have been issued may be
accomplished by a written letter as noted above accompanied by
certificates for the shares to be redeemed. Redemption requests should
not be sent to the Fund. The redemption request in either event requires
the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as such name(s) appear(s) on the Transfer
Agent’s register. The signatures on the redemption request may
require a guarantee by an “eligible guarantor institution” as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 (the
“Exchange Act”), the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
In the event a signature guarantee is required, notarized signatures are
not sufficient. In general, signature guarantees are waived on
redemptions of less than $50,000 as long as the following requirements are
met: (i) all requests require the signature(s) of all persons in whose
name(s) shares are recorded on the Transfer Agent’s register; (ii)
all checks must be mailed to the stencil address of record on the
Transfer Agent’s register and (iii) the stencil address must not
have changed within 30 days. Certain rules may apply regarding certain
account types such as but not limited to UGMA/UTMA accounts, Joint
Tenancies With Rights of Survivorship, contra broker transactions, and
institutional accounts. In certain instances, the Transfer Agent may
require additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. For shareholders
redeeming directly with the Transfer Agent, payments will be mailed
within seven days of receipt of a proper notice of
redemption.
At various times
the Fund may be requested to redeem shares for which it has not yet
received good payment (e.g., cash, Federal funds or certified
check drawn on a U.S. bank). The Fund may delay or cause to be delayed
the mailing of a redemption check until such time as it has assured
itself that good payment (e.g., cash, Federal funds or certified
check drawn on a U.S. bank) has been collected for the purchase of such
Fund shares, which will usually not exceed 10 days.
The Fund also
will repurchase Fund shares through a shareholder’s listed
securities dealer. The Fund normally will accept orders to repurchase
Fund shares by wire or telephone from dealers for their customers at the
net asset value next computed after the order is placed. Shares will be
priced at the net asset value calculated on the day the request is
received, provided that the request for repurchase is submitted to the
dealer prior to the close of business on the NYSE (generally, the NYSE
closes at 4:00 p.m., Eastern time), and such request is received by the
Fund from such dealer not later than 30 minutes after the close of
business on the NYSE on the same day. Dealers have the responsibility of
submitting such repurchase requests to the Fund not later than 30
minutes after the close of business on the NYSE, in order to obtain that
day’s closing price.
The foregoing
repurchase arrangements are for the convenience of shareholders and do
not involve a charge by the Fund (other than any applicable CDSC).
Securities firms that do not have selected dealer agreements with the
Distributor, however, may impose a transaction charge on the shareholder
for transmitting the notice of repurchase to the Fund. Merrill Lynch may
charge its customers a processing fee (presently $5.35) to confirm a
repurchase of shares to such customers. Repurchases made directly
through the Transfer Agent on accounts held at the Transfer Agent are
not subject to the processing fee. The Fund reserves the right to reject
any order for repurchase, which right of rejection might adversely
affect shareholders seeking redemption through the repurchase procedure.
However, a shareholder whose order for repurchase is rejected by the
Fund may redeem Fund shares as set forth above.
Reinstatement Privilege — Class A and Class D
Shares
Shareholders who
have redeemed their Class A or Class D shares of the Fund have a
privilege to reinstate their accounts by purchasing Class A or Class D
shares, as the case may be, of the Fund at net asset value without a
sales charge up to the dollar amount redeemed. The reinstatement
privilege may be exercised by sending a notice of exercise along with a
check for the amount to be reinstated to the Transfer Agent within 30
days after the date the request for redemption was accepted by the
Transfer Agent or the Distributor. Alternatively, the reinstatement
privilege may be exercised through the investor’s Merrill Lynch
Financial Consultant within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next
determined after the notice of reinstatement is received and cannot
exceed the amount of the redemption proceeds.
Determination of Net Asset Value
Reference is made
to “How Shares are Priced” in the Prospectus.
The net asset
value of the shares of all classes of the Fund is determined once daily
Monday through Friday as of the close of business on the NYSE on each
day the NYSE is open for trading based on prices at the time of closing.
The NYSE generally closes at 4:00 p.m., Eastern time. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies
are translated into U.S. dollars at the prevailing market rates as
quoted by one or more banks or dealers on the day of valuation. The NYSE
is not open for trading on New Year’s Day, Martin Luther King, Jr.
Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
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 Manager 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 including ADRs, EDRs and GDRs 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 Trustees as the primary
market. Long positions in securities traded in the OTC market are valued
at the last available bid price in the OTC market prior to the time of
valuation. Portfolio securities that are traded both in the OTC market
and on a stock exchange are valued according to the broadest and most
representative market. Short positions in securities traded in the OTC
market are valued at the last available ask price in the OTC market
prior to the time of valuation. 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 valued at fair value as determined in good faith
by or under the direction of the Trustees of the Fund. Such valuations
and procedures will be reviewed periodically by the
Trustees.
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 October 31, 1999 is set forth
below.
| |
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
| Net Assets |
|
$567,273,512 |
|
$730,360,993 |
|
$52,741,665 |
|
$363,421,806 |
| |
|
|
|
|
|
|
|
|
| Number of Shares
Outstanding |
|
32,903,104 |
|
48,201,387 |
|
3,532,989 |
|
21,285,803 |
| |
|
|
|
|
|
|
|
|
Net Asset Value Per
Share (net assets divided by
number of shares outstanding) |
|
$
17.24 |
|
$
15.15 |
|
$
14.93 |
|
$
17.07 |
Sales Charge (for
Class A and Class D shares:
5.25% of offering price; 5.54% of net asset
value per share)* |
|
0.96 |
|
** |
|
** |
|
0.95 |
| |
|
|
|
|
|
|
|
|
| Offering
Price |
|
$
18.20 |
|
$
15.15 |
|
$
14.93 |
|
$
18.02 |
| |
|
|
|
|
|
|
|
|
*
|
Rounded to
the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
|
**
|
Class B and
Class C shares are not subject to an initial sales charge but may be
subject to a CDSC on redemption of shares. See “Purchase of Shares
— Deferred Sales Charge Alternatives —
Class B and Class C Shares — Contingent Deferred
Sales Charges — Class B Shares” and “—
Contingent Deferred Sales Charges — Class C Shares
” herein.
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to
policies established by the Board of Trustees the Manager 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 dealer or group of dealers in the execution of transactions in
portfolio securities of the Fund. Where possible, the Fund deals
directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are
available elsewhere. It is the policy of the Fund to obtain the best
results in conducting portfolio transactions for the Fund, taking into
account such factors as price (including the applicable dealer spread or
commission), the size, type and difficulty of the transaction involved,
the firm’s general execution and operations facilities and the firm
’s risk in positioning the securities involved. The portfolio
securities of the Fund generally are traded on a principal basis and
normally do not involve either brokerage commissions or transfer taxes.
The cost of portfolio securities transactions of the Fund primarily
consists of dealer or underwriter spreads. While reasonable competitive
spreads or commissions are sought, the Fund will not necessarily be
paying the lowest spread or commission available. Transactions with
respect to the securities of small and emerging growth companies in
which the Fund may invest may involve specialized services on the part
of the broker or dealer and thereby entail higher commissions or spreads
than would be the case with transactions involving more widely traded
securities.
Subject to
obtaining the best net results, dealers who provide supplemental
investment research (such as information concerning tax-exempt
securities, economic data and market forecasts) to the Manager may
receive orders for transactions by the Fund. Information so received
will be in addition to and not in lieu of the services required to be
performed by the Manager under its Management Agreement and the expense
of the Manager will not necessarily be reduced as a result of the
receipt of such supplemental information. Supplemental investment
research obtained from such dealers might be used by the Manager in
servicing all of its accounts and all such research might not be used by
the Manager in connection with the Fund. Consistent with the Conduct
Rules of the NASD and policies established by the Trustees of the Fund,
the Manager may consider sales of shares of the Fund as a factor in the
selection of brokers or dealers to execute portfolio transactions for
the Fund.
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.
Foreign equity
securities may be held by the Fund in the form of ADRs, EDRs, GDRs or
other securities convertible into foreign equity securities. ADRs, EDRs
and GDRs may be listed on stock exchanges, or traded in over-the-counter
markets in the United States or Europe, as the case may be. ADRs, like
other securities traded in the United States, will be subject to
negotiated commission rates. The Fund’s ability and decisions to
purchase or sell portfolio securities of foreign issuers may be affected
by laws or regulations relating to the convertibility and repatriation
of assets. Because the shares of the Fund are redeemable on a daily
basis in United States dollars, the Fund intends to manage its portfolio
so as to give reasonable assurance that it will be able to obtain United
States dollars to the extent necessary to meet anticipated redemptions.
Under present conditions, it is not believed that these considerations
will have any significant effect on its portfolio strategy.
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 October
31,
|
|
Aggregate Brokerage
Commissions Paid
|
|
Commissions Paid
to Merrill Lynch
|
| 1999 |
|
$5,087,963 |
|
$272,650 |
| 1998 |
|
$4,868,165 |
|
$215,841 |
| 1997 |
|
$3,369,078 |
|
$ 75,758 |
For the fiscal year ended October 31, 1999, the brokerage
commissions paid to Merrill Lynch represented 5.36% of the aggregate
brokerage commissions paid and involved 4.95% of the Fund’s dollar
amount of transactions involving payment of commissions during the
year.
Under the
Investment Company Act, persons affiliated with the Fund and persons who
are affiliated with such 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 over-the-counter market usually
involve transactions with dealers acting as principal for their own
accounts, affiliated persons of the Fund, including Merrill Lynch and
any of its affiliates, will not serve as the Fund’s dealer in such
transactions. However, affiliated persons of the Fund may serve as its
broker in listed or over-the-counter 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 adopted by the Board of Trustees of the Fund that either
comply with rules adopted by the Commission or with interpretations of
the Commission staff.
Certain court
decisions have raised questions as to the extent to which investment
companies should seek exemptions under the Investment Company Act in
order to seek to recapture underwriting and dealer spreads from
affiliated entities. The Trustees have considered all factors deemed
relevant and have made a determination not to seek such recapture at
this time. The Trustees will reconsider this matter from time to
time.
Section 11(a) of
the Exchange Act generally prohibits members of the U.S. national
securities exchanges from executing exchange transactions for their
affiliates and institutional accounts that they manage unless the member
(i) has obtained prior express authorization from the account to effect
such transactions, (ii) at least annually furnishes the account with a
statement setting forth the aggregate compensation received by the
member in effecting such transactions, and (iii) complies with any rules
the Commission has prescribed with respect to the requirements of
clauses (i) and (ii). To the extent Section 11(a) would apply to Merrill
Lynch acting as a broker for the 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.
Securities may be held by, or be appropriate investments for, the Fund
as well as other funds or investment advisory clients of the Manager or
FAM.
Because of
different objectives or other factors, a particular security may be
bought for one or more clients of the Manager or an affiliate when one
or more clients of the Manager or an affiliate are selling the same
security. If purchases or sales of securities arise for consideration at
or about the same time that would involve the Fund or other clients or
funds for which the Manager or an affiliate act as manager, transactions
in such securities will be made, insofar as feasible, for the respective
funds and clients in a manner deemed equitable to all. To the extent
that transactions on behalf of more than one client of the Manager or an
affiliate during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an
adverse effect on price.
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 purchase orders for the Fund’s
shares through the Merrill Lynch Blueprint
SM
Program.
Each shareholder
whose account is maintained at the Transfer Agent has an Investment
Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations
for automatic investment purchases and the reinvestment of dividends.
The statements will also show any other activity in the account since
the preceding statement. Shareholders will also receive separate
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of dividends. A shareholder
with an account held at the Transfer Agent may make additions to his or
her Investment Account at any time by mailing a check directly to the
Transfer Agent. A shareholder may also maintain an account through
Merrill Lynch. Upon the transfer of shares out of a Merrill Lynch
brokerage account, an Investment Account in the transferring shareholder
’s name may be opened automatically at the Transfer
Agent.
Share
certificates are issued only for full shares and only upon the specific
request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an
Investment Account may be requested by a shareholder directly from the
Transfer Agent.
Shareholders may
transfer their Fund shares from Merrill Lynch to another securities
dealer that has entered into a selected dealer agreement with Merrill
Lynch. Certain shareholder services may not be available for the
transferred shares. After the transfer, the shareholder may purchase
additional shares of funds owned before the transfer and all future
trading of these assets must be coordinated by the new firm. If a
shareholder wishes to transfer his or her shares to a securities dealer
that has not entered into a selected dealer agreement with Merrill
Lynch, the shareholder must either (i) redeem his or her shares, paying
any applicable CDSC or (ii) continue to maintain an Investment Account
at the Transfer Agent for those shares. The shareholder may also request
the new securities dealer to maintain the shares in an account at the
Transfer Agent registered in the name of the securities dealer for the
benefit of the shareholder whether the securities dealer has entered
into a selected dealer agreement or not.
Shareholders
considering transferring a tax-deferred retirement account, such as an
individual retirement account, from Merrill Lynch to another securities
dealer should be aware that, if the firm to which the retirement account
is to be transferred will not take delivery of shares of the Fund, a
shareholder must either redeem the shares, paying any applicable CDSC,
so that the cash proceeds can be transferred to the account at the new
firm, or such shareholder must continue to maintain a retirement account
at Merrill Lynch for those shares.
U.S. shareholders
of each class of shares of the Fund have an exchange privilege with
certain other Select Pricing Funds and Summit Cash Reserves Fund (
“Summit”), a series of Financial Institutions Series Trust,
which is a Merrill Lynch-sponsored money market fund specifically
designated for exchange by holders of Class A, Class B, Class C and
Class D shares of Select Pricing Funds. Shares with a net asset value of
at least $100 are required to qualify for the exchange privilege and any
shares utilized in an exchange must have been held by the shareholder
for at least 15 days. Before effecting an exchange, shareholders should
obtain a currently effective prospectus of the fund into which the
exchange is to be made. Exercise of the exchange privilege is treated as
a sale of the exchanged shares and a purchase of the acquired shares for
Federal income tax purposes.
Exchanges of
Class A and Class D Shares. Class A
shareholders may exchange Class A shares of the Fund for Class A shares
of a second Select Pricing Fund if the shareholder holds any Class A
shares of the second fund in his or her 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 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
or Class C 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 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 have exchanged Select
Pricing Fund shares for shares of such other money market funds and
subsequently wish to exchange those money market fund shares for shares
of the Fund will be subject to the CDSC schedule applicable to
such Fund shares, if any. The holding period for the money market fund
shares will not count toward satisfaction of the holding period
requirement for reduction of the CDSC imposed on such shares, if any,
and, with respect to Class B shares, toward satisfaction of the
Conversion Period. However, the holding period for Class B or Class C
shares received in exchange for such money market fund shares will be
aggregated with the holding period for the fund shares originally
exchanged for such money market fund shares for purposes of reducing the
CDSC or satisfying the Conversion Period.
Exchanges by
Participants in the MFA Program. The exchange
privilege is modified with respect to certain retirement plans which
participate in the MFA Program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year
for Class A shares of the same fund on the basis of relative net asset
values in connection with the commencement of participation in the MFA
Program, i.e., no CDSC will apply. The one year holding period
does not apply to shares acquired through reinvestment of dividends.
Upon termination of participation in the MFA Program, Class A shares
will be re-exchanged for the class of shares originally held. For
purposes of computing any CDSC that may be payable upon redemption of
Class B or Class C shares so reacquired, or the Conversion Period for
Class B shares so reacquired, the holding period for the Class A shares
will be “tacked” to the holding period for the Class B or
Class C shares originally held. The Fund’s exchange privilege is
also modified with respect to purchases of Class A and Class D shares by
non-retirement plan investors under the MFA Program. First, the initial
allocation of assets is made under the MFA Program. Then, any subsequent
exchange under the MFA Program of Class A or Class D shares of a Select
Pricing Fund for Class A or Class D shares of the Fund will be made
solely on the basis of the relative net asset values of the shares being
exchanged. Therefore, there will not be a charge for any difference
between the sales charge previously paid on the shares of the other
Select Pricing Fund and the sales charge payable on the shares of the
Fund being acquired in the exchange under the MFA Program.
Exercise of
the Exchange Privilege. To exercise the
exchange privilege, a shareholder should contact his or her Merrill
Lynch Financial Consultant, who will advise the Fund of the exchange.
Shareholders of the Fund, and shareholders of the other MLAM-advised
mutual funds with shares for which certificates have not been issued,
may exercise the exchange privilege by wire through their securities
dealers. The Fund reserves the right to require a properly completed
Exchange Application. This exchange privilege may be modified or
terminated in accordance with the rules of the Commission. The Fund
reserves the right to limit the number of times an investor may exercise
the exchange privilege. Certain funds may suspend the continuous
offering of their shares to the general public at any time and may
thereafter resume such offering from time to time. The exchange
privilege is available only to U.S. shareholders in states where the
exchange legally may be made. It is contemplated that the exchange
privilege may be applicable to other new mutual funds whose shares may
be distributed by the Distributor.
Certain Merrill
Lynch fee-based programs, including pricing alternatives for securities
transactions (each referred to in this paragraph as a “Program
”), may permit the purchase of Class A shares at net asset value.
Under
specified circumstances, participants in certain Programs may deposit
other classes of shares which will be exchanged for Class A shares.
Initial or deferred sales charges otherwise due in connection with such
exchanges may be waived or modified, as may the Conversion Period
applicable to the deposited shares. Termination of participation in a
Program may result in the redemption of shares held therein or the
automatic exchange thereof to another class at net asset value, which
may be shares of a money market fund. In addition, upon termination of
participation in a Program, shares that have been held for less than
specified periods within such Program may be subject to a fee based upon
the current value of such shares. These Programs also generally prohibit
such shares from being transferred to another account at Merrill Lynch,
to another broker-dealer or to the Transfer Agent. Except in limited
circumstances (which may also involve an exchange as described above),
such shares must be redeemed and another class of shares purchased
(which may involve the imposition of initial or deferred sales charges
and distribution and account maintenance fees) in order for the
investment not to be subject to Program fees. Additional information
regarding a specific Program (including charges and limitations on
transferability applicable to shares that may be held in such Program)
is available in such Program’s client agreement and from the
Transfer Agent at 1-800-MER-FUND or 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. There may be fees associated with
investing through these plans. 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. For investors
who buy shares of the Fund through Blueprint, no minimum charge to the
investor’s bank account is required. Alternatively, an investor
that maintains a CMA® or CBA® Account may arrange to have
periodic investments made in the Fund of amounts of $100 or more ($1 or
more for retirement accounts) or more through the CMA® or CBA®
Automated Investment Program.
Automatic Dividend Reinvestment Plan
Unless specific
instructions are given as to the method of payment, dividends will be
automatically reinvested, without sales charge, in additional full and
fractional shares of the Fund. Such reinvestment will be at the net
asset value of shares of the Fund determined as of the close of business
on the NYSE on the monthly payment date for such dividends. No CDSC will
be imposed upon redemption of shares issued as a result of the automatic
reinvestment of dividends.
Shareholders may,
at any time, by written notification to Merrill Lynch if their account
is maintained with Merrill Lynch, or by written notification or by
telephone (1-800-MER-FUND) to the Transfer Agent, if their account is
maintained with the Transfer Agent, elect to have subsequent dividends
paid in cash, rather than reinvested in shares of the Fund or vice versa
(provided that, in the event that a payment on an account maintained
at the Transfer Agent would amount to $10.00 or less, a shareholder will
not receive such payment in cash and such payment will automatically be
reinvested in additional shares). Commencing ten days after the receipt
by the Transfer Agent of such notice, those instructions will be
effected. The Fund is not responsible for any failure of delivery to the
shareholder’s address of record and no interest will accrue on
amounts represented by uncashed dividend checks. Cash payments can also
be directly deposited to the shareholder’s bank
account.
Systematic Withdrawal Plan
A shareholder may
elect to receive systematic withdrawals from his or her Investment
Account by check or through automatic payment by direct deposit to his
or her bank account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders that have
acquired shares of the Fund having a value, based on cost or the current
offering price, of $5,000 or more, and monthly withdrawals are available
for shareholders with shares having a value of $10,000 or
more.
At the time of
each withdrawal payment, sufficient shares are redeemed from those on
deposit in the shareholder’s account to provide the withdrawal
payment specified by the shareholder. The shareholder may specify the
dollar amount and the class of shares to be redeemed. With respect to
shareholders who hold accounts directly at the Transfer Agent,
redemptions will be made at net asset value determined as of the close
of business on the NYSE (generally, the NYSE closes at 4:00 p.m.,
Eastern time) on the 24th day of each month or the 24th day of the last
month of each quarter, whichever is applicable. If the NYSE is not open
for business on such date, the shares will be redeemed as of the close
of business on the NYSE on the following business day. The check for the
withdrawal payment will be mailed or the direct deposit of 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®, CBA® Account or
Retirement Account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the CMA® or
CBA® Systematic Redemption Program. The minimum fixed dollar amount
redeemable is $50. The proceeds of systematic redemptions will be posted
to the shareholder’s account three business days after the date the
shares are redeemed. All redemptions are made at net asset value. A
shareholder may elect to have his or her shares redeemed on the first,
second, third or fourth Monday of each month, in the case of monthly
redemptions, or of every other month, in the case of bimonthly
redemptions. For quarterly, semiannual or annual redemptions, the
shareholder may select the month in which the shares are to be redeemed
and may designate whether the redemption is to be made on the first,
second, third or fourth Monday of the month. If the Monday selected is
not
a business day, the redemption will be processed at net asset value on the
next business day. The CMA® or CBA® Systematic Redemption
Program is not available if Fund shares are being purchased within the
account pursuant to the Automated Investment Program. For more
information on the CMA® or CBA® Systematic Redemption Program,
eligible shareholders should contact their Merrill Lynch Financial
Consultant.
It is the Fund
’s intention to distribute all of its net investment income, if
any. Dividends from such investment income are paid annually. All net
realized capital gains, if any, are distributed to the Fund’s
shareholders at least annually. Premiums from expired call options
written by the Fund and net gains from closing purchase transactions are
treated as short-term capital gains for Federal income tax purposes.
Shareholders may elect in writing to receive any such dividends in cash.
See “Shareholder Services — Automatic Dividend
Reinvestment Plan” for information concerning the manner in which
dividends may be reinvested automatically in shares of the Fund.
Dividends are taxable to shareholders, as described below, whether they
are invested in shares of the Fund or received in cash. The per share
dividends and distributions on Class B and Class C shares will be lower
than the per share dividends on Class A and Class D shares as a result
of the account maintenance, distribution and higher transfer agency fees
applicable with respect to the Class B and Class C shares; similarly,
the per share dividends on Class D shares will be lower than the per
share dividends on Class A shares as a result of the account maintenance
fees applicable with respect to the Class D shares. See “Pricing of
Shares — Determination of Net Asset Value.
”
The Fund intends
to continue to qualify for the special tax treatment afforded regulated
investment companies (“RICs”) under the Internal Revenue Code
of 1986, as amended (the “Code”). As long as the Fund so
qualifies, the Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net
realized capital gains that it distributes to Class A, Class B, Class C
and Class D shareholders (together, the “shareholders”). The
Fund intends to distribute substantially all of such income.
The Code requires
a RIC to pay a nondeductible 4% excise tax to the extent the RIC does
not distribute, during each calendar year, 98% of its ordinary income,
determined on a calendar year basis, and 98% of its capital gains,
determined, in general on a October 31 year end, plus certain
undistributed amounts from previous years. While the Fund intends to
distribute its income and capital gains in the manner necessary to
minimize imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of the Fund’s taxable income and capital gains
will be distributed to avoid entirely the imposition of the tax. In such
event, the Fund will be liable for the tax only on the amount by which
it does not meet the foregoing distribution requirements.
Dividends paid by
the Fund from its ordinary income or from an excess of net short-term
capital gains over net long-term capital losses (together referred to
hereafter as “ordinary income dividends”) are taxable to
shareholders as ordinary income. Distributions made from an excess of
net long-term capital gains over net short-term capital losses
(including gains or losses from certain transactions in warrants,
futures and options) (“capital gain dividends”) are taxable to
shareholders as long-term 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. Distributions by the Fund, whether from ordinary
income or capital gains, generally will not be eligible for the
dividends received deduction allowed to corporations under the Code. If
the Fund pays a dividend in January that was declared in the previous
October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax
purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
No gain or loss
will be recognized by Class B shareholders on the conversion of their
Class B shares into Class D shares. A shareholder’s basis in the
Class D shares acquired will be the same as such shareholder’s
basis in the Class B shares converted, and the holding period of the
acquired Class D shares will include the holding period of 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 reduces any sales charge the shareholder would have owed upon
the purchase of the new shares in the absence of the exchange privilege.
Instead, such sales charge will be treated as an amount paid for the new
shares.
A loss realized
on a sale or exchange of shares of the Fund will be disallowed if other
Fund shares are acquired (whether through the automatic reinvestment of
dividends or otherwise) within a 61-day period beginning 30 days before
and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
Ordinary income
dividends paid to shareholders who are nonresident aliens or foreign
entities will be subject to a 30% United States 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 applicability of the
United States withholding tax.
Under certain
provisions of the Code, some shareholders may be subject to a 31%
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments (“backup withholding”). Generally,
shareholders subject to backup withholding will be those for whom no
certified taxpayer identification number is on file with the Fund or
who, to the 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.
Shareholders may be able to claim United States foreign tax credits with
respect to such taxes, subject to certain conditions and limitations
contained in the Code. For example, certain retirement accounts cannot
claim foreign tax credits on investments in foreign securities held in
the Fund. In addition, recent legislation permits a foreign tax credit
to be claimed with respect to withholding tax on a dividend paid by the
Fund only if the shareholder meets certain holding period requirements.
The Fund also must meet these holding period requirements, and if the
Fund fails to do so, it will not be able to “pass through” to
shareholders the ability to claim a credit or deduction for the related
foreign taxes paid by the Fund. If the Fund satisfies the holding period
requirements and more than 50% in value of its total assets at the close
of its taxable year consists of securities of foreign corporations, the
Fund will be eligible, and intends, to file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will
be required to include their proportionate shares of such withholding
taxes in their United States income tax returns as gross income, treat
such proportionate shares as taxes paid by them, and deduct such
proportionate shares computing in their taxable incomes or,
alternatively, use them as foreign tax credits against their United
States income taxes. No deductions for foreign taxes, moreover, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign
corporation may be subject to United States withholding taxes on the
income resulting from the Fund’s election described in this
paragraph but may not be able to claim a credit or deduction against
such United States tax for the foreign taxes treated as having been paid
by such shareholder. The Fund will report annually to its shareholders
the amount per share of such withholding taxes and other information
needed to claim the foreign tax credit. For this purpose, the Fund will
allocate foreign taxes and foreign source income among the Class A,
Class B, Class C and Class D shareholders according to a method (which it
believes is consistent with the Securities and Exchange 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.
Tax Treatment of Options, Futures and Forward Foreign Exchange
Transactions
The Fund may
write, purchase or sell options, futures and forward foreign exchange
contracts. Options and futures contracts that are “Section 1256
contracts” will be “marked to market” for Federal income
tax purposes at the end of each taxable year, i.e., each such
option or futures contract will be treated as sold for its fair market
value on the last day of the taxable year. Unless such contract is a
forward foreign exchange contract, or is a non-equity option or a
regulated futures contract for a non-U.S. currency for which the Fund
elects to have gain or loss treated as ordinary gain or loss under Code
Section 988 (as described below), gain or loss from Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund
may alter the timing and character of distributions to shareholders. The
mark-to-market rules outlined above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of
changes in price or interest or currency exchange rates with respect to
its investments.
A forward foreign
exchange contract that is a Section 1256 contract will be marked to
market, as described above. However, the character of gain or loss from
such a contract will generally be ordinary under Code Section 988. The
Fund may, nonetheless, elect to treat the gain or loss from certain
forward foreign exchange contracts as capital. In this case, gain or
loss realized in connection with a forward foreign exchange contract
that is a Section 1256 contract will be characterized as 60% long-term
and 40% short-term capital gain or loss.
Code Section
1092, which applies to certain “straddles,” may affect the
taxation of the Fund’s sales of securities and transactions in
options, futures and forward foreign exchange contracts. Under Section
1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain sales of securities and certain closing
transactions in options, futures and forward foreign exchange
contracts.
Special Rules for Certain Foreign Currency Transactions
In general, gains
from “foreign currencies” and from foreign currency options,
foreign currency futures and forward foreign exchange contracts relating
to investments in stock, 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,
foreign currency futures and forward foreign exchange contracts will be
valued for purposes of the RIC diversification requirements applicable
to the Fund.
Under Code
Section 988, special rules are provided for certain transactions in a
currency other than the taxpayer’s functional currency
(i.e., unless certain special rules apply, currencies other than
the U.S. dollar). In general, foreign currency gains or losses from
certain debt instruments, from certain forward contracts, from future
contracts that are not “regulated futures contracts” and from
unlisted options will be treated as ordinary income or loss under Code
Section 988. In certain circumstances, the Fund may elect capital gain
or loss treatment for such transactions. Regulated futures contracts, as
described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however,
Code Section 988 gains or losses will increase or decrease the amount of
the Fund’s investment company taxable income available to be
distributed to shareholders as ordinary income. Additionally, if Code
Section 988 losses exceed other investment company taxable income during
a taxable year, the Fund would not be able to make any ordinary income
dividend distributions, and all or a portion of distributions made
before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing
the basis of each shareholder’s Fund shares and resulting in a
capital gain for any shareholder who received a distribution greater
than such shareholder’s basis in Fund shares (assuming the shares
were held as a capital asset). These rules and the mark-to-market rules
described above, however, will not apply to certain transactions entered
into by the Fund solely to reduce the risk of currency fluctuations with
respect to its investments.
The foregoing is
a general and abbreviated summary of the applicable provisions of the
Code and Treasury regulations presently in effect. For the complete
provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Ordinary income
and capital gain dividends may also be subject to state and local
taxes.
Certain states
exempt from state income taxation dividends paid by RICs which are
derived from interest on United States Government obligations. State law
varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
Shareholders are
urged to consult their tax advisers regarding specific questions as to
Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of investment in
the Fund.
From time to time
the Fund may include its average annual total return and other total
return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund
’s historical performance and are not intended to indicate future
performance. Average annual total return is determined separately for
Class A, Class B, Class C and Class D shares in accordance with formulas
specified by the Commission.
Average annual
total return quotations for the specified periods are computed by
finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or
losses on portfolio investments over such periods) that would equate the
initial amount invested to the redeemable value of such investment at
the end of each period. Average annual total return is computed assuming
all dividends and distributions are reinvested and taking into account
all applicable recurring and nonrecurring expenses, including the
maximum sales charge in the case of Class A and Class D shares and the
CDSC that would be applicable to a complete redemption of the investment
at the end of the specified period in the case of Class B and Class C
shares.
The Fund also may
quote annual, average annual and annualized total return and aggregate
total return performance data, both as a percentage and as a dollar
amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described
above, except that (1) as required by the periods of the quotations,
actual annual, annualized or aggregate data, rather than average annual
data, may be quoted and (2) the maximum applicable sales charges will
not be included with respect to annual or annualized rates of return
calculations. Aside from the impact on the performance data calculations
of including or excluding the maximum applicable sales charges, actual
annual or annualized total return data generally will be lower than
average annual total return data since the average rates of return
reflect compounding of return; aggregate total return data generally
will be higher than average annual total return data since the aggregate
rates of return reflect compounding over a longer period of
time.
Set forth in the
tables 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 October
31, 1999 |
|
16.78% |
|
$1,167.80 |
|
17.97% |
|
$1,179.70 |
| Five Years Ended
October 31, 1999 |
|
17.24% |
|
$2,215.10 |
|
17.30% |
|
$2,220.80 |
| Ten Years Ended
October 31, 1999 |
|
14.43% |
|
$3,848.80 |
|
13.86% |
|
$3,663.20 |
|
| |
|
Annual Total
Return |
| |
|
(excluding
maximum applicable sales charges) |
| Year Ended October
31, |
|
|
|
|
|
|
|
|
| 1999 |
|
23.25% |
|
$ 1,232.50 |
|
21.96% |
|
$1,219.60 |
| 1998 |
|
13.73% |
|
$ 1,137.30 |
|
12.58% |
|
$1,125.80 |
| 1997 |
|
32.13% |
|
$ 1,321.30 |
|
30.84% |
|
$1,308.40 |
| 1996 |
|
18.86% |
|
$ 1,188.60 |
|
17.61% |
|
$1,176.10 |
| 1995 |
|
6.19% |
|
$ 1,061.90 |
|
5.12% |
|
$1,051.20 |
| 1994 |
|
15.07% |
|
$ 1,150.70 |
|
13.78% |
|
$1,137.80 |
| 1993 |
|
31.72% |
|
$ 1,317.20 |
|
30.39% |
|
$1,303.90 |
| 1992 |
|
(6.90)% |
|
$
931.00 |
|
(7.73)% |
|
$ 922.70 |
| 1991 |
|
11.54% |
|
$ 1,115.40 |
|
10.35% |
|
$1,103.50 |
| 1990 |
|
10.39% |
|
$ 1,103.90 |
|
9.19% |
|
$1,091.90 |
|
|
| |
|
Aggregate Total
Return |
| |
|
(including
maximum applicable sales charges) |
Inception (October 26,
1988) to
October 31, 1999 |
|
330.02% |
|
$ 4,300.20 |
|
—
|
|
— |
Inception (January 30,
1987) to
October 31, 1999 |
|
—
|
|
— |
|
295.58% |
|
$3,955.80 |
| |
|
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 October
31, 1999 |
|
20.98% |
|
$1,209.80 |
|
16.44% |
|
$1,164.40 |
| Five Years Ended
October 31, 1999 |
|
17.27% |
|
$2,217.50 |
|
16.94% |
|
$2,186.50 |
Inception (October 21,
1994) to
October 31, 1999 |
|
17.47% |
|
$2,246.90 |
|
17.15% |
|
$2,215.70 |
| |
|
| |
|
Annual Total
Return |
| |
|
(excluding
maximum applicable sales charges) |
| Year Ended October
31, |
|
|
|
|
|
|
|
|
| 1999 |
|
21.97% |
|
$1,219.70 |
|
22.89% |
|
$1,228.90 |
| 1998 |
|
12.56% |
|
$1,125.60 |
|
13.49% |
|
$1,134.90 |
| 1997 |
|
30.81% |
|
$1,308.10 |
|
31.84% |
|
$1,318.40 |
| 1996 |
|
17.55% |
|
$1,175.50 |
|
18.57% |
|
$1,185.70 |
| 1995 |
|
5.04% |
|
$1,050.40 |
|
5.85% |
|
$1,058.50 |
Inception (October 21,
1994) to
October 31, 1994 |
|
1.33% |
|
$1,013.30 |
|
1.33% |
|
$1,013.30 |
|
|
| |
|
Aggregate Total
Return |
| |
|
(including
maximum applicable sales charges) |
Inception (October 21,
1994) to
October 31, 1999 |
|
124.69% |
|
$2,246.90 |
|
121.57% |
|
$2,215.70 |
Total return figures are
based on the Fund’s historical performance and are not intended to
indicate future performance. The Fund’s total return will vary
depending on market conditions, the securities comprising the Fund
’s portfolio, the Fund’s operating expenses and the amount of
realized and unrealized net capital gains or losses during the period.
The value of an investment in the Fund will fluctuate and an investor
’s shares, when redeemed, may be worth more or less than their
original cost.
In order to
reflect the reduced sales charges in the case of Class A or Class D
shares, or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under
“Purchase of Shares” the total return data quoted by the Fund
in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may not take into account
the CDSC, and, therefore, may reflect greater total return since, due to
the reduced sales charges or the waiver of CDSCs, a lower amount of
expenses may be deducted.
On occasion, the
Fund may compare its performance to the Financial Times—Actuaries
Europe Index, the Morgan Stanley Capital International Europe Index, 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.
The Trust is a
business trust organized on March 11, 1986 under the laws of
Massachusetts. The Trustees are authorized to issue an unlimited number
of full and fractional shares of beneficial interest, $.10 par value per
share, of different classes and to divide or combine the shares into a
greater or lesser number of shares without thereby changing the
proportionate beneficial interests in the Fund. At the date of this
Statement of Additional Information, the shares of the Fund are divided
into Class A, Class B, Class C and Class D shares. Class A, Class B,
Class C and Class D shares represent interests in the same assets of the
Fund and are identical in all respects except that Class B, Class C and
Class D shares bear certain expenses relating to the account maintenance
associated with such shares and Class B and Class C shares bear certain
expenses relating to the distribution of such shares. All shares of the
Fund have equal voting rights. Each class has exclusive voting rights
with respect to matters relating to distribution and/or account
maintenance expenditures, as applicable (except that Class B
shareholders may vote upon any material changes to expenses charged
under the Class D Distribution Plan). See “Purchase of Shares.
” The Trustees of the Trust may classify and reclassify the shares
of the Fund into additional or other classes at a future
date.
There normally
will be no meetings of shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders’ meeting for the
election of Trustees. Shareholders may, in accordance with the terms of
the Declaration of Trust, cause a meeting of shareholders to be held for
the purpose of voting on the removal of Trustees. Also, the Trust will
be required to call a special meeting of shareholders in accordance with
the requirements of the Investment Company Act to seek approval of new
management and advisory arrangements, of a material increase in
distribution fees or a change in the fundamental policies, objectives or
restrictions of the Fund.
The shares of the
Fund, when issued, will be fully paid and nonassessable, have no
preference, preemptive, conversion, exchange or similar rights and will
be freely transferable. Shareholders are entitled to redeem their
shares as set forth elsewhere herein and in the Prospectus. Shares do not
have cumulative voting rights and the holders of more than 50% of the
shares of the Trust voting for the election of Trustees can elect all of
the Trustees if they choose to do so and in such event the holders of
the remaining shares would not be able to elect any Trustees. No
amendments may be made to the Declaration of Trust, other than
amendments necessary to conform the Declaration to certain laws or
regulations, to change the name of the Trust, or to make certain
non-material changes, without the affirmative vote of a majority of the
outstanding shares of the Trust, or of the affected class, as
applicable.
The Declaration
of Trust establishing the Trust dated March 11, 1986, a copy of which,
together with all amendments thereto (the “Declaration”) is on
file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name “Merrill Lynch EuroFund”
refers to the Trustees under the Declaration collectively as Trustees,
but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any personal
liability; nor shall resort be had to their private property for the
satisfaction of any obligation or claim of the Trust, but the
“Trust Property” only shall be liable. Under Massachusetts
law, shareholders of a business trust may, under certain circumstances,
be held personally liable as partners for the trust’s obligations.
However, the risk of a shareholder incurring financial loss on account
of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the trust itself was unable to meet its
obligations.
Deloitte &
Touche LLP, Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540-6400, has been selected as the independent
auditors of the Fund. The selection of independent auditors is subject
to approval by the non-interested Trustees of the Fund. The independent
auditors are responsible for auditing the annual financial statements of
the Fund.
Brown Brothers
Harriman & Co. (the “Custodian”), 40 Water Street, Boston,
Massachusetts 02109, acts as custodian of the Fund’s assets. Under
its contract with the Fund, the Custodian is authorized to establish
separate accounts in foreign currencies and to cause foreign securities
owned by the Fund to be held in its offices outside the U.S. and with
certain foreign banks and securities depositories. The Custodian is
responsible for safeguarding and controlling the Fund’s cash and
securities, handling the receipt and delivery of securities and
collecting interest and dividends on the Fund’s
investments.
Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484, acts as the Fund’s Transfer Agent. The Transfer Agent
is responsible for the issuance, transfer and redemption of shares and
the opening, maintenance and servicing of shareholder accounts. See
“How to Buy, Sell, Transfer and Exchange Shares —
Through the Transfer Agent” in the Prospectus.
Brown & Wood
LLP, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
The fiscal year
of the Fund ends on October 31 of each year. The Fund sends to its
shareholders, at least semi-annually, reports showing the Fund’s
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each
year. After the end of each year, shareholders will receive Federal
income tax information regarding dividends and capital gains
distributions.
Shareholder
inquiries may be addressed to the Fund at the address or telephone
number set forth on the cover page of this Statement of Additional
Information.
The Prospectus
and this Statement of Additional Information do not contain all the
information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act and the
Investment Company Act, to which reference is hereby made.
To the knowledge
of the Fund, the following persons or entities owned beneficially 5% or
more of a class of the Fund’s shares as of January 1,
2000.
Name
|
|
Address
|
|
Percentage
and Class
|
| Merrill Lynch Trust
Company |
|
P.O. Box 30532
New Brunswick, NJ 08989 |
|
22.64% Class A |
| |
Merrill Lynch Trust
Co., Trustee
FBO Chrysler Salaried Employees
Savings Plan |
|
265 Davidson Avenue #4
Somerset, NJ 08873 |
|
6.11% Class A |
| |
Merrill Lynch Trust
Co., Trustee
FBO Merrill Lynch Savings
Investment Plan |
|
P.O. Box 30532
New Brunswick, NJ 08989 |
|
6.03% Class A |
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.
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.
CODE # 10476-01-00
PART C. OTHER
INFORMATION
Item 23.
Exhibits.
Exhibit
Number
|
|
|
| 1 |
|
(a) |
|
— |
|
Declaration of Trust
of the Registrant, dated March 11, 1986.(a) |
| |
|
(b) |
|
— |
|
Amendment to
Declaration of Trust of the Registrant, dated May 19,
1986.(a) |
| |
|
(c) |
|
— |
|
Amendment to
Declaration of Trust of the Registrant, dated December 16,
1986.(a) |
| |
|
(d) |
|
— |
|
Instrument
establishing Class A shares and Class B shares of the Registrant,
dated October 3,
1988.(a) |
| |
|
(e) |
|
— |
|
Certification of
Amendment to Declaration of Trust and Establishment and Designation of
Classes,
dated October 17, 1994.(a) |
| 2 |
|
|
|
— |
|
By-Laws of the
Registrant.(a) |
| 3 |
|
|
|
— |
|
Portions of the
Declaration of Trust and the By-Laws of the Registrant defining the
rights of
shareholders.(b) |
| 4 |
|
(a) |
|
— |
|
Management Agreement
between the Registrant and Merrill Lynch Asset Management, L.P. dated
December 19, 1986.(c) |
| |
|
(b) |
|
— |
|
Sub-Advisory Agreement
between Merrill Lynch Asset Management, L.P. and Merrill Lynch Asset
Management U.K. Limited dated April 29, 1988.(c) |
| 5 |
|
(a) |
|
— |
|
Class A Shares
Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor.(d) |
| |
|
(b) |
|
— |
|
Class B Shares
Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor.(c) |
| |
|
(c) |
|
— |
|
Class C Shares
Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor.(d) |
| |
|
(d) |
|
— |
|
Class D Shares
Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor.(d) |
| 6 |
|
|
|
— |
|
None. |
| 7 |
|
|
|
— |
|
Custodian Agreement
between the Registrant and Brown Brothers Harriman &
Co.(c) |
| 8 |
|
(a) |
|
— |
|
Transfer Agency,
Dividend Disbursing Agency and Shareholder Servicing Agency Agreement
between the Registrant and Financial Data Services, Inc.(c) |
| |
|
(b) |
|
— |
|
Credit Agreement
between the Registrant and a syndicate of banks.(i) |
| 9 |
|
|
|
— |
|
Opinion 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, Inc.(c) |
| 13 |
|
(a) |
|
— |
|
Amended and Restated
Class B Distribution Plan and Class B Distribution Plan Sub-Agreement
of
the Registrant.(e) |
| |
|
(b) |
|
— |
|
Class C Distribution
Plan and Class C Distribution Plan Sub-Agreement of the
Registrant.(d) |
| |
|
(c) |
|
— |
|
Class D Distribution
Plan and Class D Distribution Plan Sub-Agreement of the
Registrant.(d) |
| 14 |
|
|
|
— |
|
Merrill Lynch Select
Pricing
SM
System Plan pursuant to Rule 18f-3.(f) |
(a)
|
Filed on
February 27, 1995 as an Exhibit to Post-Effective Amendment No. 11 to
the Registrant’s Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (File No. 33-4026) (the
“Registration Statement”).
|
(b)
|
Reference is
made to Article I, Article II (Sections 2.2, 2.3, 2.4 and 2.7),
Article III (Sections 3.1 and 3.4), Article IV (Sections 4.1, 4.3 and
4.4), Article V (Sections 5.1, 5.2, 5.3 and 5.5), Article VI (Sections
6.2, 6.3, 6.4, 6.5, 6.7 and 6.8), Article VII (Section 7.1), Article
VIII (Sections 8.1, 8.2 and 8.3), Article IX (Section 9.2), Article X,
Article XI (Sections 11.3, 11.4 and 11.5) and Article XII (Section
12.6) of the Registrant’s Declaration of Trust, as amended, filed
as Exhibits 1(a), 1(b), 1(c), 1(d) and 1(e) to the Registration
Statement; and Article I, Article V and Article VI of the Registrant
’s By-Laws filed as Exhibit 2 to the Registration
Statement.
|
(c)
|
Filed on
February 27, 1996 as an Exhibit to Post-Effective Amendment No. 12 to
the Registration Statement.
|
(d)
|
Filed on
October 17, 1994 as an Exhibit to Post-Effective Amendment No. 10 to
the Registration Statement.
|
(e)
|
Filed on
February 25, 1994 as an Exhibit to Post-Effective Amendment No. 9 to
the Registration Statement.
|
(f)
|
Incorporated
by reference to Exhibit 18 to Post-Effective Amendment No. 13 to the
Registration Statement on Form N-1A under the Securities Act of 1933,
as amended, filed on January 25, 1996, relating to shares of Merrill
Lynch New York Municipal Bond Fund series of Merrill Lynch Multi-State
Municipal Series Trust (File No. 2-99473).
|
(g)
|
Filed on
December 30, 1998 as an Exhibit to Post-Effective Amendment No. 15 to
the Registration Statement.
|
(h)
|
Incorporated
by reference to Exhibit 8(b) to the Registration Statement on Form
N-1A of Master Premier Growth Trust (File No. 811-09733), filed
December 21, 1999.
|
Item 24. Persons Controlled by
or under Common Control with Registrant.
The Registrant is
not controlled by or under common control with any other
person.
Item 25.
Indemnification
Reference is made
to Article VI of the Registrant’s Articles of Incorporation,
Article VI of the Registrant’s By-Laws, Section 2-418 of the
Maryland General Corporation Law and Section 9 of the Class A, Class B,
Class C and Class D Distribution Agreements.
Insofar as the
conditional advancing of indemnification moneys for actions based on the
Investment Company Act of 1940, as amended (the “1940 Act”)
may be concerned, Article VI of the Registrant’s By-Laws provides
that such payments will be made only on the following conditions: (i)
advances may be made only on receipt of a written affirmation of such
person’s good faith belief that the standard of conduct necessary
for indemnification has been met and a written undertaking to repay any
such advance if it is ultimately determined that the standard of conduct
has not been met; and (ii) (a) such promise must be secured by a
security for the undertaking in form and amount acceptable to the
Registrant, (b) the Registrant is insured against losses arising by
receipt by the advance, or (c) a majority of a quorum of the Registrant
’s disinterested non-party Directors, or an independent legal
counsel in a written opinion, shall determine, based upon a review of
readily available facts, that at the time the advance is proposed to be
made, there is reason to believe that the person seeking indemnification
will ultimately be found to be entitled to indemnification.
In Section 9 of
the Class A, Class B, Class C and Class D Shares Distribution Agreements
relating to the securities being offered hereby, the Registrant agrees
to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act of 1933, as amended
(the “1933 Act”), against certain types of civil liabilities
arising in connection with the Registration Statement or Prospectus and
Statement of Additional Information.
Insofar as
indemnification for liabilities arising under the 1933 Act may be
permitted to Directors, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the
Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by
such Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
Item 26. Business and Other
Connections of Manager.
Fund Asset
Management, L.P. (“FAM”) acts as the investment adviser for
the following open-end registered investment companies: CBA Money Fund,
CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series
Trust, Master Focus Twenty Trust, Master Large Cap
Series Trust, Master Premier Growth 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 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., MuniHolding Insured Fund II,
Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Insured Fund IV,
Inc., MuniHoldings Michigan Insured Fund, Inc., MuniHoldings Michigan
Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund, Inc.,
MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New Jersey
Insured Fund III, Inc., MuniHoldings New Jersey Insured Fund IV, Inc.,
MuniHoldings New York Fund, Inc., MuniHoldings New York Insured Fund,
Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York
Insured Fund III, Inc., MuniHoldings New York Insured Fund IV, Inc.,
MuniHoldings Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest
Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest
Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield
California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield California Insured Fund II, Inc., MuniYield Florida Fund,
MuniYield Florida Insured Fund, MuniYield Fund., Inc., MuniYield Insured
Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan Insured
Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch
Asset Management, L.P. (“MLAM” or the “Manager”), an
affiliate of FAM, acts as the investment adviser for the following
open-end registered investment companies: Master Global Financial
Services Trust, Merrill Lynch Adjustable Rate Securities Fund, Inc.,
Merrill Lynch Americas Income Fund, Inc., Merrill Lynch 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
Financial Services Fund, Inc., Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources
Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill
Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Index Funds, Inc., Merrill Lynch
Intermediate Government Bond Fund, Merrill Lynch International Equity
Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income
Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill
Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds,
Inc. and Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a
division of MLAM); and for the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond Fund,
Inc., Merrill Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch
Senior Floating Rate Fund II, Inc. MLAM also acts as sub-adviser to
Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value
Equity Portfolio, two investment portfolios of EQ Advisors
Trust.
The address of
each of these registered investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill
Lynch Funds for Institutions Series and Merrill Lynch Intermediate
Government Bond Fund is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665. The address of the Manager, FAM, Princeton
Services, Inc. (“Princeton Services”) and Princeton
Administrators, L.P. (“Princeton Administrators”) is also P.O.
Box 9011, Princeton, New Jersey 08543-9011. The address of Princeton
Funds Distributor, Inc. (“PFD”) and of Merrill Lynch Funds
Distributor (“MLFD”) is P.O. Box 9081, Princeton, New Jersey
08543-9081. The address of Merrill Lynch , Pierce, Fenner & Smith
Incorporated (“Merrill Lynch ”)
and Merrill Lynch & Co., Inc. (“ML & Co.”) is World
Financial Center, North Tower, 250 Vesey Street, New York, New York
10281-1201. The address of the Fund’s transfer agent, Financial
Data Services, Inc. (“FDS”), is 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484.
Set forth below
is a list of each executive officer and partner of the Manager
indicating each business, profession, vocation or employment of a
substantial nature in which each such person or entity has been engaged
since November 1, 1997 for his, her or its own account or in the
capacity of director, officer, partner or trustee. In addition, Mr.
Glenn is President and Mr. Burke is Vice President and Treasurer of all
or substantially all of the investment companies described in the first
two paragraphs of this Item 26, and Messrs. Doll, Giordano and Monagle
are officers of one or more of such companies.
Name
|
|
Position(s) with
the Manager
|
|
Other Substantial
Business,
Profession, Vocation or Employment
|
| ML & Co.
|
|
Limited Partner |
|
Financial Services Holding Company;
Limited Partner of FAM |
| Princeton
Services |
|
General Partner |
|
General Partner of FAM |
| Jeffrey M.
Peek |
|
President |
|
President of FAM; 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 |
| Terry K.
Glenn |
|
Executive Vice President |
|
Executive Vice President of FAM;
Executive Vice President and Director of
Princeton Services; President and
Director of PFD; Director of FDS;
President of Princeton Administrators |
| Donald C.
Burke |
|
Senior Vice President,
Treasurer and Director
of Taxation |
|
Senior Vice President and Treasurer of
FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President of PFD; First Vice President of
the Manager from 1997 to 1999; Vice
President of the Manager from 1990
to 1997 |
| Michael G.
Clark |
|
Senior Vice President |
|
Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Director and Treasurer of PFD; First
Vice President of the Manager from
1997 to 1999; Vice President of the
Manager from 1996 to 1997 |
| Robert C. Doll,
Jr. |
|
Senior Vice President |
|
Senior Vice President of FAM; 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 FAM; Senior
Vice President of Princeton Services |
| Vincent R.
Giordano |
|
Senior Vice President |
|
Senior Vice President of FAM; Senior
Vice President of Princeton Services |
| Michael J.
Hennewinkel |
|
Senior Vice President,
Secretary and
General Counsel |
|
Senior Vice President, Secretary and
General Counsel of FAM; Senior Vice
President of Princeton Services |
| Philip L.
Kirstein |
|
Senior Vice President |
|
Senior Vice President of FAM; Senior
Vice President, Secretary, General
Counsel and Director of Princeton
Services |
Name
|
|
Position(s) with
the Manager
|
|
Other Substantial
Business,
Profession, Vocation or Employment
|
| Debra W.
Landsman-Yaros |
|
Senior Vice President |
|
Senior Vice President of FAM; 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 FAM; Senior
Vice President of Princeton Services |
| Brian A.
Murdock |
|
Senior Vice President |
|
Senior Vice President of FAM; Senior
Vice President of Princeton Services |
| Gregory D.
Upah |
|
Senior Vice President |
|
Senior Vice President of FAM; Senior
Vice President of Princeton Services |
Merrill Lynch
Asset Management U.K. Limited (“MLAM U.K.”) acts as
sub-adviser for the following registered investment companies: The
Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt
Strategies Fund III, Inc., Income Opportunities Fund 2000, Inc., Master
Large Cap Series Trust, Merrill Lynch Americas Income Fund, Inc.,
Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth
Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
Consults International Portfolio, Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Developing
Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc.,
Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging Tigers Fund,
Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund,
Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
Bond Fund for Investment and Retirement, Merrill Lynch Global Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global
Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch
Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund,
Merrill Lynch Healthcare Fund, Inc., Merrill Lynch International Equity
Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch
Phoenix Fund, Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch
Series Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc.,
Merrill Lynch Senior Floating Rate Fund II, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Utility
Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc., Merrill
Lynch World Income Fund, Inc., The Municipal Fund Accumulation Program,
Inc. and Worldwide DollarVest Fund, Inc. The address of each of these
registered investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of MLAM U.K. is 33 King William Street, London
EC4R 9AS, England.
Set forth below
is a list of each executive officer and director of MLAM U.K. indicating
each business, profession, vocation or employment of a substantial
nature in which each such person has been engaged since November 1,
1997, for his or her own account or in the capacity of director,
officer, partner or trustee. In addition, Messrs. Glenn and Burke are
officers of one or more of the registered investment companies listed in
the first two paragraphs of this Item 26:
Name
|
|
Position with MLAM
U.K.
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
| Terry K.
Glenn |
|
Director and Chairman |
|
Executive Vice President of the Manager
and FAM; Executive Vice President and
Director of Princeton Services; President
and Director of PFD; President of
Princeton Administrators |
| Nicholas C.D.
Hall |
|
Director |
|
Director of Mercury Asset Management
Ltd. and the Institutional Liquidity Fund
PLC; First Vice President and General
Counsel for Merrill Lynch Mercury
Asset Management |
Name
|
|
Position with MLAM
U.K.
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
| James T.
Stratford |
|
Alternate Director |
|
Director of Mercury Asset Management
Group Ltd.; Head of Compliance,
Merrill Lynch Mercury Asset
Management |
| Donald C.
Burke |
|
Treasurer |
|
Senior Vice President and Treasurer of
the Manager and FAM; Director of
Taxation of MLAM; Senior Vice
President and Treasurer of Princeton
Services; Vice President of PFD; First
Vice President of the Manager from
1997 to 1999; Vice President of the
Manager from 1990 to 1997 |
| Carol Ann
Langham |
|
Company Secretary |
|
None |
| Debra Anne
Searle |
|
Assistant Company Secretary |
|
None |
Item 27. Principal
Underwriters
(a)
MLFD, a division of PFD, acts as the principal underwriter for the
Registrant and for each of the open-end registered investment companies
referred to in the first two paragraphs of Item 26 except CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State
Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc. and The Municipal Fund
Accumulation Program, Inc.; and MLFD also acts as the principal
underwriter for the following closed-end registered investment
companies: Merrill Lynch High Income Municipal Bond Fund, Inc., Merrill
Lynch Municipal Strategy Fund, Inc., Merrill Lynch Senior Floating Rate
Fund, Inc. and Merrill Lynch Senior Floating Rate Fund II, Inc. 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, 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 Trustee |
| Michael G.
Clark |
|
Treasurer and Director |
|
None |
| Thomas J.
Verage |
|
Director |
|
None |
| Robert W.
Crook |
|
Senior Vice President |
|
None |
| Michael J.
Brady |
|
Vice President |
|
None |
| William M.
Breen |
|
Vice President |
|
None |
| Donald C.
Burke |
|
Vice President |
|
Vice President and
Treasurer |
| James T.
Fatseas |
|
Vice President |
|
None |
| Debra W.
Landsman-Yaros |
|
Vice President |
|
None |
| Michelle T.
Lau |
|
Vice President |
|
None |
| Salvatore
Venezia |
|
Vice President |
|
None |
| William
Wasel |
|
Vice President |
|
None |
| Robert
Harris |
|
Secretary |
|
None |
(c)
Not applicable
Item 28. Location of Accounts and
Records
All accounts,
books and other documents required to be maintained by Section 31(a) of
the 1940 Act and the rules thereunder are maintained at the offices of
the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey 08536),
and its transfer agent, Financial Data Services, Inc. (4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484).
Item 29. Management
Services.
Other than as set
forth under the caption “Management of the Fund —
Merrill Lynch Asset Management” in the Prospectus
constituting Part A of the Registration Statement and under
“Management of the Fund — Management and Advisory
Arrangements” in the Statement of Additional Information
constituting Part B of the Registration Statement, the Registrant is not
a party to any management-related service contract.
Item 30.
Undertakings.
Not
applicable.
SIGNATURES
Pursuant to the
requirements of the Securities Act and the Investment Company Act, the
Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b)
under the Securities Act and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, duly authorized, in the
Township of Plainsboro, and State of New Jersey, on the 31st day of
January, 2000.
|
(Donald C.
Burke, Vice President and Treasurer)
|
Pursuant to the
requirements of the Securities Act of 1933, this Post-Effective
Amendment to its Registration Statement has been signed below by the
following persons in the capacities and on the date(s)
indicated.
Signature
|
|
Title
|
|
Date(s)
|
| |
|
TERRY
K GLENN
*
(Terry K. Glenn) |
|
President and Trustee (Principal
Executive Officer) |
|
|
| |
|
DONALD
C. BURKE
*
(Donald C. Burke) |
|
Vice President and Treasurer
(Principal Financial and
Accounting Officer) |
|
|
| |
|
CHARLES
C. REILLY
*
(Charles C. Reilly) |
|
Trustee |
|
|
| |
|
RICHARD
R. WEST
*
(Richard R. West) |
|
Trustee |
|
|
| |
|
ARTHUR
ZEIKEL
*
(Arthur Zeikel) |
|
Trustee |
|
|
| |
|
EDWARD
D. ZINBARG
*
(Edward D. Zinbarg) |
|
Trustee |
|
|
| |
|
|
/s/ DONALD
C. BURKE
*By:
(Donald C. Burke, Attorney-in-Fact) |
|
|
|
January 31, 2000 |
EXHIBIT INDEX
Exhibit
Number
|
|
Description
|
| 9 |
|
Opinion of Brown &
Wood LLP, counsel for the Registrant. |
| 10 |
|
Consent of Deloitte
& Touche LLP, independent auditors for the
Registrant. |
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