As filed with the Securities and Exchange Commission on November 30,
1999
Securities Act File No. 33-14517
Investment Company Act File No. 811-5178
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
x
Pre-Effective Amendment No.
¨
Post-Effective Amendment No. 14
x
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
x
Amendment No. 16
x
(Check appropriate box or boxes)
MERRILL LYNCH STRATEGIC DIVIDEND FUND
(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 Strategic Dividend Fund
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address: P.O. Box 9011, Princeton, New Jersey
08543-9011
(Name and Address of Agent for Service)
Copies to:
| Counsel for the
Fund: |
|
|
SWIDLER BERLIN SHEREFF
FRIEDMAN, LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: Joel H. Goldberg, Esq. |
|
Michael J. Hennewinkel, Esq.
MERRILL LYNCH ASSET MANAGEMENT, L.P.
P.O. Box 9011
Princeton, New Jersey 08543-9011 |
Approximate date
of the Proposed Public Offering: As soon as
practicable after the effective date of the Registration
Statement.
It is proposed that
this filing will become effective (check appropriate box)
|
x
|
immediately upon filing
pursuant to paragraph (b)
|
|
¨
|
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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¨
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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.
|
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.
|
Prospectus
[LOGO] Merrill Lynch
|
Merrill Lynch Strategic
Dividend Fund
|
November 30, 1999
|
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.
|
|
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.
|
Table of Contents
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MERRILL
LYNCH STRATEGIC DIVIDEND FUND
|
[LOGO] Key Facts
In an effort to help you better understand the many concepts
involved in making an investment decision, we have defined highlighted
terms in this prospectus in the sidebar.
Common Stock —
shares of ownership of a corporation.
Yield —
percentage rate of return paid on stock in dividends. For
example, a stock that sells for $100 and has an annual dividend of $2
per share has a yield of 2%.
Convertible Securities
—corporate securities (usually preferred stock or bonds)
that are exchangeable for a fixed number of other securities (usually
common stock) at a set price or formula.
Preferred Stocks —
class of stock that often pays dividends at a specified rate and
has preference over common stock in dividend payments and liquidation
of assets.
Debt Securities —
debt obligations issued by governments, corporations and other
issuers.
MERRILL LYNCH STRATEGIC DIVIDEND FUND AT A GLANCE
What is the Fund’s investment objective?
The investment objective of the Fund is to seek long-term total
return by investing primarily in a diversified portfolio of
dividend-paying common stocks that yield more than the
Standard & Poor’s 500 Composite Stock Price Index (the “S
&P 500 Index”). In other words, it tries to choose
dividend-paying common stocks that will provide income and increase in
value.
What are the Fund’s main investment strategies?
The Fund will invest at least 65% of its total assets in
dividend-paying common stocks, except during temporary defensive
periods. Fund management selects a diversified portfolio of
dividend-paying common stocks for the Fund that have above average
yields and have good prospects for earnings growth. A
company whose earnings per share grow faster than inflation and the
economy in general usually has a higher stock price over time than a
company with slower earnings growth. Fund management believes that
stocks that have above average yields will provide attractive long-term
total return and greater price stability during periods of downward
movements in market prices than stocks that have below average dividend
yields. Total return consists of both income and increases in value.
The Fund will generally invest in companies with a continuous record of
paying dividends, but it may also invest in companies that have only
recently begun paying dividends. The Fund may also invest in
convertible securities, non-convertible preferred
stocks and debt securities. The Fund intends to
invest in debt securities of any maturity and rated in the four highest
quality ratings as determined by either Moody’s Investors
Services, Inc. (currently Aaa, Aa, A and Baa for bonds) or Standard
& Poor’s Ratings Group (currently AAA, AA, A and BBB for
bonds) or if unrated, considered by Fund management to be of comparable
quality. The Fund may invest up to 25% of its total assets in
securities of foreign issuers.
We cannot guarantee that the Fund will achieve its
objective.
What are the main risks of investing in the Fund?
As with any mutual fund, the value of the Fund’s
investments — and therefore the value of Fund shares — may go
up or down. 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. The Fund is also
subject to the risk that the investments that
Fund management selects will underperform the markets or other funds with
similar investment objectives and investment strategies. If the value
of the Fund’s investments goes down, you may lose
money.
In addition, the Fund’s investments in debt securities are
subject to interest rate and credit risk. Interest rate risk is the
risk that when interest rates go up, the value of debt instruments
generally goes down. In general, the market price of debt securities
with longer maturities will go up or down more in response to changes
in interest rates than shorter term securities. Credit risk is the risk
that the issuer will be unable to pay the interest or principal when
due. The degree of credit risk depends on both the financial condition
of the issuer and the terms of the obligation.
The Fund may invest in non-U.S. securities. Because foreign
markets may differ significantly from U.S. markets in terms of both
economic conditions and government regulation, investments in foreign
securities involve special risks. In addition, investments in
securities denominated in foreign currencies involve the risk that
these currencies may decline in value relative to the U.S. dollar,
which decreases the value of the investments in U.S. dollar
terms.
Who should invest?
The Fund may be an appropriate investment for you if
you:
|
Ÿ
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Are
investing with long term goals, such as retirement or funding a child
’s education
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Ÿ
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Want a
professionally managed and diversified portfolio
|
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Ÿ
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Are willing
to accept the risk that the value of your investment may decline in
order to seek long-term total return
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MERRILL
LYNCH STRATEGIC DIVIDEND FUND
|
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 returns for each class of the Fund
’s shares for the periods shown with those of the S&P 500
Index and the S&P 500 Yield Index. How the Fund performed in the
past is not necessarily an indication of how the Fund will perform in
the future.
[GRAPHIC]
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------ ------ ------ ----- ----- ------ ------ ------ ------ ------
23.40% -7.68% 14.78% 7.89% 7.54% -0.82% 30.73% 17.71% 27.32% 13.41%
During the ten year period shown in the bar chart, the highest
return for a quarter was 11.40% (quarter ended June 30, 1997) and the
lowest return for a quarter was –9.48% (quarter ended September
30, 1990). The fund’s year-to-date return as of September 30, 1999
was 0.69%.
Average Annual Total Returns (as
of the
calendar year ended December 31, 1998) |
|
Past
One Year |
|
Past
Five Years |
|
Past Ten Years/
Since Inception |
|
|
Merrill Lynch Strategic Dividend Fund* A |
|
8.57% |
|
17.06% |
|
13.38% |
|
|
S&P 500 Index** |
|
28.58% |
|
24.05% |
|
19.20% |
|
|
S&P 500 Yield Index*** |
|
7.01% |
|
14.29% |
|
N/A |
|
|
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Merrill Lynch Strategic Dividend Fund* B |
|
9.64% |
|
17.12% |
|
12.83% |
† |
|
S&P 500 Index** |
|
28.58% |
|
24.05% |
|
19.20% |
|
|
S&P 500 Yield Index*** |
|
7.01% |
|
14.29% |
|
N/A |
|
|
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Merrill Lynch Strategic Dividend Fund* C |
|
12.47% |
|
N/A |
|
20.35% |
†† |
|
S&P 500 Index** |
|
28.58% |
|
N/A |
|
28.70% |
††† |
|
S&P 500 Yield Index*** |
|
7.01% |
|
N/A |
|
17.22% |
# |
|
|
Merrill Lynch Strategic Dividend Fund* D |
|
8.31% |
|
N/A |
|
19.77% |
†† |
|
S&P 500 Index** |
|
28.58% |
|
N/A |
|
28.70% |
††† |
|
S&P 500 Yield Index*** |
|
7.01% |
|
N/A |
|
17.22% |
# |
|
**
|
The S&P
500® is the Standard & Poor’s Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock prices.
Past performance is not predictive of future performance.
|
***
|
This
unmanaged Index consists of the first two quintiles of the
highest-yielding stocks of the S&P 500. Past performance is not
predictive of future performance.
|
†
|
This
performance does not reflect the effect of conversion of Class B
shares to Class D shares after approximately eight years.
|
†
†
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Inception
date is October 21, 1994.
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††
†
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Since
October 21, 1994.
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# Since October 31, 1994.
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MERRILL
LYNCH STRATEGIC DIVIDEND FUND
|
5
[LOGO] Key Facts
UNDERSTANDING EXPENSES
Fund investors pay various fees and expenses, either directly or
indirectly. Listed below are some of the main types of expenses, which
all mutual funds may charge:
Expenses paid directly by the shareholder:
Shareholder Fees — these
fees include sales charges and redemption fees, 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) |
|
|
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, whichever is
lower) |
|
None(d) |
|
4.0%(c) |
|
1.0%(c) |
|
None(d) |
|
|
Maximum Sales Charge (Load) imposed on
Dividend Reinvestments |
|
None |
|
None |
|
None |
|
None |
|
|
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Redemption Fee |
|
None |
|
None |
|
None |
|
None |
|
|
|
Exchange Fee |
|
None |
|
None |
|
None |
|
None |
|
|
Annual Fund Operating Expenses (expenses
that are deducted from Fund assets): |
|
|
Management Fee |
|
0.60% |
|
0.60% |
|
0.60% |
|
0.60% |
|
|
|
Distribution and/or Service (12b-1)
Fees(e) |
|
None |
|
1.00% |
|
1.00% |
|
0.25% |
|
|
|
Other Expenses (including transfer agency fees)(f) |
|
0.27% |
|
0.29% |
|
0.30% |
|
0.27 |
% |
|
| Total
Annual Fund Operating Expenses |
|
0.87% |
|
1.89% |
|
1.90% |
|
1.12% |
|
|
(a)
|
In addition,
Merrill Lynch may charge clients a processing fee (currently $5.35)
when a client buys or redeems shares.
|
(b)
|
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.
|
(c)
|
Some
investors may qualify for reductions in the sales charge
(load).
|
(d)
|
You may pay
a deferred sales charge if you purchase $1 million or more and you
redeem within one year.
|
(e)
|
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 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.
|
(f)
|
The Fund
pays the Transfer Agent $11.00 for each Class A and D shareholder
account and $14.00 for each Class B and C shareholder account and
reimburses the Transfer Agent’s out-of-pocket expenses. The Fund
pays a 0.10% fee for certain accounts that participate in the Merrill
Lynch Mutual Fund Advisor program. The Fund also pays a $0.20 monthly
closed account charge, which is assessed upon all accounts that close
during the year. This fee begins the month following the month the
account is closed and ends at the end of the calendar year. For the
fiscal year ended July 31, 1999, the Fund paid the Transfer Agent
fees totaling $277,177. The Manager provides accounting services to
the Fund at its cost. For the fiscal year ended July 31, 1999, the
Fund reimbursed the Manager $65,898 for these services.
|
MERRILL LYNCH STRATEGIC DIVIDEND FUND
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 |
|
$609 |
|
$788 |
|
$
982 |
|
$1,541 |
|
| Class B |
|
$592 |
|
$794 |
|
$1,021 |
|
$2,016* |
|
| Class C |
|
$293 |
|
$597 |
|
$1,026 |
|
$2,222 |
|
| Class D |
|
$633 |
|
$862 |
|
$1,110 |
|
$1,817 |
|
|
| |
| EXPENSES IF YOU DID NOT REDEEM YOUR
SHARES: |
|
| |
|
1
Year |
|
3
Years |
|
5
Years |
|
10
Years |
|
| Class A |
|
$609 |
|
$788 |
|
$
982 |
|
$1,541 |
|
| Class B |
|
$192 |
|
$594 |
|
$1,021 |
|
$2,016* |
|
| Class C |
|
$193 |
|
$597 |
|
$1,026 |
|
$2,222 |
|
| Class D |
|
$633 |
|
$862 |
|
$1,110 |
|
$1,817 |
|
*
|
Assumes
conversion to Class D shares approximately eight years after
purchase. See note (b) to the Fees and Expenses table
above.
|
MERRILL LYNCH STRATEGIC DIVIDEND FUND
7
Details About the Fund [GRAPHIC]
ABOUT THE PORTFOLIO MANAGER
Walter D. Rogers has been the portfolio manager and
Senior Vice President of the Fund since 1997. He has been a Vice
President of Merrill Lynch Asset Management since 1987.
ABOUT THE MANAGER
The Fund is managed by Merrill Lynch Asset
Management.
Futures — exchange-traded contracts
involving the obligation of the seller to deliver, and the buyer to
receive, certain assets (or a money payment based on the change in
the level of an index) at a specified time.
Options —
exchange-traded or private contracts involving the right of a
holder to deliver (“put”) or receive (“call”)
certain assets (or a money payment based on the change in the level
of an index) from another party at a specified price within a
specified time period.
Indexed
Securities — debt obligations that return a
variable amount of principal or interest based on the value of an
index at a specified time.
The Fund’s main objective is to seek long-term
total return. The Fund tries to achieve its goal by investing
primarily in a diversified portfolio of dividend-paying common stocks
that yield more than the S&P 500 Index. In selecting securities,
Fund management emphasizes stocks of companies that pay dividends and
have good prospects for earnings growth.
The Fund will invest at least 65% of its total assets
in dividend-paying common stocks, except during temporary defensive
periods. Fund management selects a diversified portfolio of
dividend-paying common stocks for the Fund that have above average
yields. Total return consists of both income and increases in value.
A company whose earnings per share grow faster than inflation and the
economy in general usually has a higher stock price over time than a
company with slower earnings growth. Fund management believes that
stocks that have above average yields will provide attractive
long-term total return and greater price stability during periods of
downward movements in market prices than stocks that have below
average dividend yields. The Fund will generally invest in companies
with a continuous record of paying dividends, but it may also invest
in companies that have recently begun paying dividends. Due to the
Fund’s emphasis in dividend-paying common stocks, the Fund may
not have as much investment flexibility as funds that have a similar
investment objective without such an emphasis.
The Fund may also invest in securities convertible
into common stocks, non-convertible preferred stocks and debt
securities. The Fund intends to invest in debt securities of any
maturity and rated in the four highest quality ratings as determined
by either Moody’s Investors Services, Inc. (currently Aaa, Aa, A
and Baa for bonds) or Standard & Poor’s Ratings Group
(currently AAA, AA, A and BBB for bonds) or if unrated, considered by
Fund management to be of comparable quality. However, the Fund has
the authority to buy debt securities or preferred stocks of any
credit quality. Therefore, the Fund may invest in securities that are
in default or are vulnerable to adverse conditions. The Fund may use
derivatives, such as futures, 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 S&P 500. The Fund may use derivatives for
hedging purposes, including anticipatory hedges, and to seek
increased return. The Fund may also invest in illiquid securities,
enter into repurchase agreements and engage in securities
lending.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
8
The Fund invests mainly in U.S. companies, but may invest up to 25% of
its total assets in securities of foreign issuers. The Fund may
invest in securities from any country. 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. The Fund may invest in securities
denominated in currencies other than the U.S. dollar. The Fund’s
return on investments denominated in foreign currencies will be
affected by changes in currency exchange rates. The Fund may engage
in currency transactions to seek to hedge against the risk of loss
from changes in currency exchange rates, but Fund management cannot
guarantee that it will be able to enter into such transactions or
that such transactions will be effective. The Fund is not required to
hedge currency risk, and Fund management may choose not to do
so.
The Fund will normally invest a portion of its assets
in short term debt securities, money market securities, including
repurchase agreements, or cash. The Fund invests in such securities
or cash when Fund management is unable to find enough attractive long
term investments to reduce exposure to stocks when Fund management
believes it is advisable to do so or to meet redemptions. Except
during temporary defensive periods, such investments will not exceed
20% of the Fund’s total assets. As a temporary measure for
defensive purposes, the Fund may invest more heavily in these
securities or cash, without limitation. During such periods, the Fund
’s investments in dividend-paying common stocks will be limited
and the Fund may, therefore, not be able to achieve its investment
objective.
This prospectus describes the Fund’s principal
investment strategies and related risks. The Fund may use many
different investment strategies and it has certain investment
restrictions, all of which are explained in the Fund’s Statement
of Additional Information.
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 over any period of
time.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
9
[LOGO] Details About the Fund
Market and Selection Risk — Market risk is the
risk that the stock market in one or more countries in which the Fund
invests will go down in value, including the possibility that one or
more markets will go down sharply and unpredictably. Selection risk
is the risk that the investments that Fund management selects will
underperform the markets or other funds with similar investment
objectives and investment strategies.
Interest Rate Risk —
Interest rate risk is the risk that prices of debt securities
generally increase when interest rates decline and decrease when
interest rates increase. Prices of longer term securities generally
change more in response to interest rate changes than prices of
shorter term securities.
Credit Risk —
Credit risk is the risk that the issuer will be unable to pay
the interest or principal when due. The degree of credit risk depends
on both the financial condition of the issuer and the terms of the
obligation.
Foreign Market Risk — Since
the Fund may invest in foreign securities, it offers the potential
for more diversification than an investment only in the United
States. This is because 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, investment in foreign securities involves
the following risks, which are generally greater for investments in
emerging markets.
|
Ÿ
|
The
economies of some foreign markets often do not compare favorably
with that of the United States in areas such as growth of gross
domestic product, reinvestment of capital, resources and balance of
payments. Some of these economies may rely heavily on particular
industries or foreign capital. They may be more vulnerable to
adverse 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.
|
|
Ÿ
|
Investments in foreign markets may be adversely affected by
governmental actions such as the imposition of capital controls,
nationalization of companies or industries, expropriation of assets
or the imposition of punitive taxes.
|
|
Ÿ
|
The
governments of certain countries may prohibit or impose substantial
restrictions on foreign investing in their
capital markets or in certain industries. Any of these actions could
severely affect security prices. They could also impair the Fund
’s ability to purchase or sell foreign securities or transfer
its assets or income back into the United States, or otherwise
adversely affect the Fund’s operations.
|
|
Ÿ
|
Other
foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign government
securities, difficulties in enforcing favorable legal judgments in
foreign courts and political and social instability. Legal remedies
available to investors in some foreign countries may be less
extensive than those available to investors in the United
States.
|
|
Ÿ
|
Because
there are generally fewer investors on foreign exchanges and a
smaller number of shares traded each day, it may be difficult for
the Fund to buy and sell securities on those exchanges. In
addition, prices of foreign securities may go up and down more than
prices of securities traded in the United States.
|
|
Ÿ
|
Foreign
markets may have different clearance and settlement procedures. In
certain markets, settlements may be unable to keep pace with the
volume of securities transactions. If this occurs, settlement may
be delayed and the Fund’s assets may be uninvested and not
earning returns. The Fund may miss investment opportunities or be
unable to sell an investment because of these delays.
|
Certain Risks of Holding Fund Assets Outside the
United States
— The Fund generally holds its foreign securities and cash
in foreign banks and securities depositories. Some foreign banks and
securities depositories may be recently organized or new to the
foreign custody business. In addition, there may be limited or no
regulatory oversight over their operations. Also, the laws of certain
countries may put limits on the Fund’s ability to recover its
assets if a foreign bank, depository or issuer of a security, or any
of their agents, goes bankrupt. In addition, it is often more
expensive for the Fund to buy, sell and hold securities in certain
foreign markets than in the 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.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
11
[LOGO] Details About the Fund
European Economic and Monetary Union (“EMU
”) — A number of
European countries have entered into EMU in an effort to reduce trade
barriers between themselves and eliminate fluctuations in their
currencies. EMU established a single European currency (the euro),
which was introduced on January 1, 1999 and is expected to replace
the existing national currencies of all initial EMU participants by
July 1, 2002. Certain securities (beginning with government and
corporate bonds) were redenominated in the euro. These securities
trade and make dividend and other payments only in euros. Like other
investment companies and business organizations, including the
companies in which the Fund invests, the Fund could be adversely
affected:
|
Ÿ
|
If the
transition to euro, or EMU as a whole, does not proceed as
planned.
|
|
Ÿ
|
If a
participating country withdraws from EMU.
|
Borrowing and Leverage — 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 securities that the Fund
buys may create leverage including, for example, options.
Risks associated with certain types of securities in
which the Fund may invest include:
Derivatives — The Fund may use
derivative instruments, including futures, options and indexed
securities. Derivatives allow the Fund to increase or decrease its
risk exposure more quickly and efficiently than other types of
instruments. Derivatives are volatile and involve significant risks,
including:
|
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.
|
|
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.
|
MERRILL LYNCH STRATEGIC DIVIDEND FUND
12
|
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.
|
|
Liquidity risk — the risk that
certain securities may be difficult or impossible to sell at the
time that the Fund would like or at the price that the Fund
believes the security is currently worth.
|
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 it will be possible for the Fund to enter into hedging
transactions or that the Fund’s hedging strategy will reduce
risk successfully. The Fund is not required to use hedging and may
choose not to do so. It may be impossible for the Fund to hedge
certain holdings costs effectively.
The use of a derivative is speculative if the Fund is
primarily seeking to achieve gains, rather than offset the risk of
other positions. When the Fund invests in a derivative for
speculative purposes, the Fund will be fully exposed to the risks of
loss of that derivative, which may sometimes be greater than the
derivative’s cost. The Fund will not invest in a derivative to
gain exposure to an asset or class of assets that it would be
prohibited by its investment restrictions from purchasing
directly.
Convertible securities —
Convertible securities are generally debt securities or
preferred stocks that may be converted into common stock. Convertible
securities typically pay current income as either interest (debt
security convertibles) or dividends (preferred stocks). A convertible
security’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
security usually falls. Since it is convertible into common stock,
the convertible security also has the same types of market and issuer
risk as the value of the underlying common stock.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
13
[LOGO] Details About the Fund
Illiquid securities — The
Fund may invest up to 15% of its assets in securities that it cannot
easily resell within seven days at current value or that have
contractual or legal restrictions on resale. If the Fund buys
illiquid securities, it may be unable to quickly resell them or may
be able to sell them only at a price below current value.
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.
STATEMENT OF ADDITIONAL INFORMATION
If you would like further information about the Fund,
including how it invests, please see the Statement of Additional
Information.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
14
[LOGO] Your Account
MERRILL LYNCH SELECT PRICING
SM
SYSTEM
The Fund offers four share classes, each with its own
sales charge and expense structure, allowing you to invest in the way
that best suits your needs. Each share class represents an ownership
interest in the same investment portfolio. When you choose your class
of shares you should consider the size of your investment and how
long you plan to hold your shares. Your Merrill Lynch Financial
Consultant can help you determine which share class is best suited to
your personal financial goals.
For example, if you select Class A or D shares, you
generally pay a sales charge at the time of purchase. If you buy
Class D shares, you also pay an ongoing account maintenance fee of
0.25%. You may be eligible for a sales charge reduction or
waiver.
If you select Class B or C shares, you will invest the
full amount of your purchase price, but you will be subject to a
distribution fee of 0.75% and account maintenance fee of 0.25%.
Because these fees are paid out of the Fund’s assets on an
ongoing basis, over time these fees increase the cost of your
investment and may cost you more than paying an initial sales charge.
In addition, you may be subject to a deferred sales charge when you
sell Class B or C shares.
The Fund’s shares are distributed by Merrill
Lynch Funds Distributor, a division of Princeton Funds Distributor,
Inc., an affiliate of Merrill Lynch.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
15
[LOGO] Your Account
The table below summarizes key features of the
Merrill Lynch Select Pricing
SM
System.
| |
|
Class
A |
|
Class
B |
|
Class
C |
|
Class
D |
|
| Availability |
|
Limited to certain
investors including:
Ÿ Current Class A
shareholders
Ÿ Certain Retirement
Plans
Ÿ Participants in
certain Merrill Lynch-
sponsored programs
Ÿ Certain affiliates of
Merrill Lynch. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
| |
|
Initial Sales
Charge? |
|
Yes. Payable at
time
of purchase. Lower
sales charges available
for larger
investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
Deferred Sales
Charge? |
|
No. (May be
charged
for purchases over
$1 million that are
redeemed within
one year.) |
|
Yes. Payable if you
redeem within four
years of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
|
No. (May be charged
for purchases over
$1 million that are
redeemed within one
year.) |
| |
|
Account
Maintenance and
Distribution Fees? |
|
No. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
No Distribution Fee. |
|
Conversion to
Class D shares? |
|
No. |
|
Yes,
automatically
after approximately
eight years. |
|
No. |
|
No. |
|
|
|
MERRILL LYNCH STRATEGIC DIVIDEND FUND
16
Right of Accumulation
— permits you to pay the sales charge that would apply
to the cost or value (whichever is higher) of all shares you own
in the Merrill Lynch mutual funds that offer Select Pricing
options.
Letter of Intent
— permits you to pay the sales charge that would be
applicable if you add up all shares of Merrill Lynch Select
Pricing
SM
System funds that you agree to buy within a 13
month period. Certain restrictions apply.
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
|
|
Ÿ
|
Purchases using proceeds from the sale of
certain Merrill Lynch closed-end funds under certain
circumstances
|
MERRILL LYNCH STRATEGIC DIVIDEND FUND
17
[LOGO] Your Account
|
Ÿ
|
Certain investors, including directors or
trustees 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 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 pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Because these fees are paid out of the Fund’s
assets on an ongoing basis, over time these fees increase the
cost of your investment and may cost you more than paying an
initial sales charge. The Distributor uses the money that it
receives from the deferred sales charges and the distribution
fees to cover the costs of marketing, advertising and
compensating the Merrill Lynch Financial Consultant or other
securities dealer who assists you in purchasing Fund
shares.
Class B Shares
If you redeem Class B shares within four years
after purchase, you may be charged a deferred sales charge. The
amount of the charge gradually decreases as you hold your shares
over time, according to the following schedule:
MERRILL LYNCH STRATEGIC DIVIDEND FUND
18
| 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.
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 relative to Class C shares may be
reduced or waived in connection with involuntary termination of
an account in which Fund shares are held and withdrawals through
the Merrill Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion
privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart below summarizes how to buy, sell,
transfer and exchange shares through Merrill Lynch or other
securities dealers. You may also buy shares through the Transfer
Agent. To learn more about buying shares through the Transfer
Agent, call 1-800-MER-FUND. Because the selection of a mutual
fund involves many considerations, your Merrill Lynch Financial
Consultant may help you with this decision.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
20
| 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 16. 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
for all accounts 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 purchase additional shares only of
funds previously owned before the transfer. All future trading of
these assets must be coordinated by the receiving
firm. |
|
| |
|
Transfer to a
non-
participating securities
dealer |
|
You must either:
Ÿ Transfer your shares to an
account with the Transfer Agent; or
Ÿ Sell your shares, paying any
applicable CDSC. |
MERRILL LYNCH STRATEGIC DIVIDEND FUND
21
[LOGO] Your Account
| If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
| Sell Your
Shares |
|
Have your
Merrill Lynch
Financial Consultant or
securities dealer submit
your sales order |
|
The price of
your shares is based on the next calculation of net
asset value after your order is placed. For your redemption
request
to be priced at the net asset value on the day of your request,
you
must submit your request to your dealer prior to that day’s
close of
business on the New York Stock Exchange (generally 4:00 p.m.
Eastern time). Any redemption request placed after that time will
be priced at the net asset value at the close of business on the
next
business day. |
| |
| |
|
|
|
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 and loan association, national securities exchange
and registered securities association. A notary public seal will
not
be acceptable. If you hold stock certificates, return the
certificates
with the letter. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly
completed request. If you make a redemption request before the
Fund has collected payment for the purchase of shares, the Fund or
the Transfer Agent may delay mailing your proceeds. This delay
will
usually not exceed ten days. |
| |
|
|
|
|
|
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 the
value of your shares at the time your plan is established. The
deferred sales charge is waived for systematic redemptions. Ask
your Merrill Lynch Financial Consultant for details. |
MERRILL LYNCH STRATEGIC DIVIDEND FUND
22
| If You Want
To |
|
Your
Choices |
|
Information
Important for You to Know |
|
Exchange Your
Shares |
|
Select the fund
into which
you want to exchange. Be
sure to read that fund’s
prospectus |
|
You can
exchange your shares of the Fund for shares of many
other Merrill Lynch mutual funds. You must have held the shares
used in the exchange for at least 15 calendar days before you can
exchange to another fund. |
| |
| |
|
|
|
Each class of
Fund shares is generally exchangeable for shares of
the same class of another fund. If you own Class A shares and wish
to exchange into a fund in which you have no Class A shares (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. |
MERRILL LYNCH STRATEGIC DIVIDEND FUND
23
[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.
When you buy shares, you pay the net asset value, plus any
applicable sales charge. This is the offering price. Shares are
also redeemed at their net asset value, minus any applicable
deferred sales charge. The Fund calculates its net asset value
(generally by using market quotations) each day the New York
Stock Exchange is open after the close of business on the
Exchange, 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. If an event occurs
after the close of a foreign exchange that is likely to
significantly affect the Fund’s net asset value, “fair
value” pricing may be used. This means that the Fund may
value its foreign holdings at prices other than their last
closing prices, and the Fund’s net asset value will reflect
this.
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.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
24
Dividends
— ordinary income and capital gains paid to
shareholders. Dividends may be reinvested in additional Fund
shares as they are paid.
“BUYING A DIVIDEND”
Unless your investment is in a tax-deferred
account, you may want to avoid buying shares shortly before the
Fund pays a dividend. The reason? If you buy shares when a fund
has realized but not yet distributed ordinary income or capital
gains, you will pay the full price for the shares and then
receive a portion of the price back in the form of a taxable
dividend. Before investing you may want to consult your tax
adviser.
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.
The Fund will distribute any net investment income
quarterly and any net realized long- or short-term capital gains
at least annually. The Fund may also pay a special distribution
at the end of the calendar year to comply with Federal tax
requirements. If your account is with Merrill Lynch and you would
like to receive dividends in cash, contact your Merrill Lynch
Financial Consultant. If your account is with the Transfer Agent
and you would like to receive dividends in cash, contact the
Transfer Agent.
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.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
25
[LOGO] Your Account
By law, the Fund must withhold 31% of your dividends and proceeds
if you have not provided a taxpayer identification number or
social security number or if the number you have provided is
incorrect.
This section summarizes some of the consequences
under current Federal tax law of an investment in the Fund. It is
not a substitute for personal tax advice. Consult your personal
tax adviser about the potential tax consequences of an investment
in the Fund under all applicable tax laws.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
26
[LOGO] 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.
For the fiscal year ended July 31, 1999 the Manager received a
fee equal to 0.60% of the Fund’s average daily net
assets.
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., which had approximately $518 billion in investment
company and other portfolio assets under management as of October
1999. This amount includes assets managed for Merrill Lynch
affiliates.
A Note About Year 2000
Many computer systems were designed using only two
digits to designate years. These systems may not be able to
distinguish the year 2000 from the year 1900 (commonly known as
the “Year 2000 Problem”). The Fund could be adversely
affected if the computer systems used by Fund management or other
Fund service providers do not properly address this problem
before January 1, 2000. Fund management expects to have addressed
this problem before then and does not anticipate that the
services it provides will be adversely affected. The Fund’s
other service providers have told Fund management that they also
expect to resolve the Year 2000 Problem, and Fund management will
continue to monitor the situation as the Year 2000 approaches.
However, if the problem has not been fully addressed, the Fund
could be negatively affected. The Year 2000 Problem could also
have a negative impact on the issuers of securities in which the
Fund invests. This negative impact may be greater for smaller
companies and companies in foreign markets, particularly emerging
markets, since they may be less prepared for the Year 2000
Problem than domestic companies and markets. If the companies in
which the Fund invests have Year 2000 Problems, the Fund’s
returns could be adversely affected.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
27
[LOGO] Management of the Fund
The Financial Highlights table is intended to help
you understand the Fund’s financial performance for the
periods shown. Certain information reflects financial results for
a single Fund share. The total returns in the table represent the
rate an investor would have earned on an investment in the Fund
(assuming reinvestment of all dividends). This information has
been audited by Deloitte & Touche LLP, whose
report, along with the Fund’s financial statements, is
included in the Fund’s annual report to shareholders, which
is available upon request.
| |
|
Class A
|
|
Class B
|
| Increase
(Decrease) in |
|
For
the Year Ended July 31,
|
|
For
the Year Ended July 31,
|
| Net Asset
Value: |
|
1999
† |
|
1998
† |
|
1997
† |
|
1996
† |
|
1995 |
|
1999
† |
|
1998
† |
|
1997
† |
|
1996
† |
|
1995 |
|
| Per
Share Operating Performance: |
|
| Net
asset value, beginning of year |
|
$
15.36 |
|
|
$
15.21 |
|
|
$
12.43 |
|
|
$
12.24 |
|
|
$
12.78 |
|
|
$
15.38 |
|
|
$
15.22 |
|
|
$
12.44 |
|
|
$
12.23 |
|
|
$
12.77 |
|
|
| Investment income — net |
|
.35 |
|
|
.39 |
|
|
.38 |
|
|
.38 |
|
|
.39 |
|
|
.21 |
|
|
.23 |
|
|
.25 |
|
|
.26 |
|
|
.29 |
|
|
Realized and unrealized gain
on investments and foreign
currency
transactions — net |
|
1.42 |
|
|
1.37 |
|
|
4.17 |
|
|
1.55 |
|
|
1.10 |
|
|
1.41 |
|
|
1.38 |
|
|
4.16 |
|
|
1.55 |
|
|
1.07 |
|
|
| Total
from investment operations |
|
1.77 |
|
|
1.76 |
|
|
4.55 |
|
|
1.93 |
|
|
1.49 |
|
|
1.62 |
|
|
1.61 |
|
|
4.41 |
|
|
1.81 |
|
|
1.36 |
|
|
| Less dividends
and distributions: |
|
Investment income —
net |
|
(.36 |
) |
|
(.39 |
) |
|
(.39 |
) |
|
(.36 |
) |
|
(.42 |
) |
|
(.21 |
) |
|
(.23 |
) |
|
(.25 |
) |
|
(.22 |
) |
|
(.29 |
) |
Realized gain on
investments —
net |
|
(2.50 |
) |
|
(1.22 |
) |
|
(1.38 |
) |
|
(1.38 |
) |
|
(1.61 |
) |
|
(2.50 |
) |
|
(1.22 |
) |
|
(1.38 |
) |
|
(1.38 |
) |
|
(1.61 |
) |
|
| Total
dividends and distributions |
|
(2.86 |
) |
|
(1.61 |
) |
|
(1.77 |
) |
|
(1.74 |
) |
|
(2.03 |
) |
|
(2.71 |
) |
|
(1.45 |
) |
|
(1.63 |
) |
|
(1.60 |
) |
|
(1.90 |
) |
|
| Net
asset value, end of year |
|
$
14.27 |
|
|
$
15.36 |
|
|
$
15.21 |
|
|
$
12.43 |
|
|
$
12.24 |
|
|
$
14.29 |
|
|
$
15.38 |
|
|
$
15.22 |
|
|
$
12.44 |
|
|
$
12.23 |
|
|
| Total
Investment Return:* |
|
| Based
on net asset value per share |
|
14.15 |
% |
|
12.03 |
% |
|
40.42 |
% |
|
16.98 |
% |
|
14.04 |
% |
|
12.96 |
% |
|
10.94 |
% |
|
38.90 |
% |
|
15.89 |
% |
|
12.82 |
% |
|
| Ratios to
Average Net Assets: |
|
| Expenses |
|
.87 |
% |
|
.88 |
% |
|
.90 |
% |
|
1.04 |
% |
|
1.05 |
% |
|
1.89 |
% |
|
1.90 |
% |
|
1.94 |
% |
|
2.08 |
% |
|
2.09 |
% |
|
| Investment income — net |
|
2.50 |
% |
|
2.51 |
% |
|
2.87 |
% |
|
3.04 |
% |
|
3.39 |
% |
|
1.48 |
% |
|
1.50 |
% |
|
1.89 |
% |
|
2.06 |
% |
|
2.36 |
% |
|
| Supplemental
Data: |
|
Net
assets, end of year
(in thousands) |
|
$25,477 |
|
|
$24,233 |
|
|
$28,940 |
|
|
$18,106 |
|
|
$18,687 |
|
|
$75,330 |
|
|
$73,067 |
|
|
$93,509 |
|
|
$96,461 |
|
|
$130,921 |
|
|
| Portfolio turnover |
|
20.11 |
% |
|
32.66 |
% |
|
14.29 |
% |
|
26.42 |
% |
|
52.69 |
% |
|
20.11% |
|
|
32.66 |
% |
|
14.29 |
% |
|
26.42 |
% |
|
52.69 |
% |
|
*
|
Total investment returns exclude the effects of
sales charges.
|
†
|
Based on average shares outstanding.
|
MERRILL LYNCH STRATEGIC DIVIDEND FUND
28
FINANCIAL HIGHLIGHTS (concluded)
| |
|
Class C
|
|
Class D
|
| Increase
(decrease) In |
|
For
the Year Ended July 31,
|
|
For the Period
October 21, 1994†
to July 31,
1995 |
|
For
the Year Ended July 31,
|
|
For the Period
October 21, 1994†
to July 31,
1995 |
| Net Asset
Value: |
|
1999
†† |
|
1998
†† |
|
1997
†† |
|
1996
†† |
|
|
1999
†† |
|
1998
†† |
|
1997
†† |
|
1996
†† |
|
| Per
Share Operating Performance: |
|
Net
asset value, beginning of
period |
|
$15.25 |
|
|
$15.11 |
|
|
$12.37 |
|
|
$12.20 |
|
|
$11.84 |
|
|
$
15.36 |
|
|
$
15.20 |
|
|
$
12.43 |
|
|
$
12.24 |
|
|
$
11.85 |
|
|
| Investment income — net |
|
.20 |
|
|
.23 |
|
|
.24 |
|
|
.24 |
|
|
.21 |
|
|
.32 |
|
|
.35 |
|
|
.35 |
|
|
.34 |
|
|
.26 |
|
|
Realized and unrealized gain on
investments and foreign currency
transactions — net |
|
1.40 |
|
|
1.37 |
|
|
4.13 |
|
|
1.55 |
|
|
1.21 |
|
|
1.41 |
|
|
1.38 |
|
|
4.16 |
|
|
1.57 |
|
|
1.23 |
|
|
| Total
from investment operations |
|
1.60 |
|
|
1.60 |
|
|
4.37 |
|
|
1.79 |
|
|
1.42 |
|
|
1.73 |
|
|
1.73 |
|
|
4.51 |
|
|
1.91 |
|
|
1.49 |
|
|
| Less
dividends and distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income —
net |
|
(.21 |
) |
|
(.24 |
) |
|
(.25 |
) |
|
(.24 |
) |
|
(.25 |
) |
|
(.32 |
) |
|
(.35 |
) |
|
(.36 |
) |
|
(.34 |
) |
|
(.29 |
) |
Realized gain on investments —
net |
|
(2.50 |
) |
|
(1.22 |
) |
|
(1.38 |
) |
|
(1.38 |
) |
|
(.81 |
) |
|
(2.50 |
) |
|
(1.22 |
) |
|
(1.38 |
) |
|
(1.38 |
) |
|
(.81 |
) |
|
| Total
dividends and distributions |
|
(2.71 |
) |
|
(1.46 |
) |
|
(1.63 |
) |
|
(1.62 |
) |
|
(1.06 |
) |
|
(2.82 |
) |
|
(1.57 |
) |
|
(1.74 |
) |
|
(1.72 |
) |
|
(1.10 |
) |
|
| Net
asset value, end of period |
|
$14.14 |
|
|
$15.25 |
|
|
$15.11 |
|
|
$12.37 |
|
|
$12.20 |
|
|
$
14.27 |
|
|
$
15.36 |
|
|
$
15.20 |
|
|
$
12.43 |
|
|
$
12.24 |
|
|
| Total Investment Return:** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based
on net asset value per
share |
|
12.96 |
% |
|
10.96 |
% |
|
38.84 |
% |
|
15.78 |
% |
|
13.30 |
%# |
|
13.88 |
% |
|
11.84 |
% |
|
39.99 |
% |
|
16.73 |
% |
|
13.98 |
%# |
|
| Ratios To Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses |
|
1.90 |
% |
|
1.90 |
% |
|
1.95 |
% |
|
2.08 |
% |
|
2.19 |
%* |
|
1.12 |
% |
|
1.12 |
% |
|
1.15 |
% |
|
1.28 |
% |
|
1.38 |
%* |
|
| Investment income — net |
|
1.45 |
% |
|
1.47 |
% |
|
1.83 |
% |
|
1.91 |
% |
|
1.94 |
%* |
|
2.26 |
% |
|
2.25 |
% |
|
2.62 |
% |
|
2.62 |
% |
|
2.93 |
%* |
|
| Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets, end of period
(in thousands) |
|
$5,347 |
|
|
$4,379 |
|
|
$3,025 |
|
|
$1,953 |
|
|
$
811 |
|
|
$127,743 |
|
|
$100,642 |
|
|
$74,577 |
|
|
$44,691 |
|
|
$13,988 |
|
|
| Portfolio turnover |
|
20.11 |
% |
|
32.66 |
% |
|
14.29 |
% |
|
26.42 |
% |
|
52.69 |
% |
|
20.11 |
% |
|
32.66 |
% |
|
14.29 |
% |
|
26.42 |
% |
|
52.69 |
% |
|
**
|
Total investment returns exclude the effects of
sales charges.
|
†
|
Commencement of operations.
|
†
†
|
Based on average shares outstanding.
|
#
|
Aggregate total investment return.
|
MERRILL LYNCH STRATEGIC DIVIDEND FUND
29
(This page intentionally left blank)
MERRILL LYNCH STRATEGIC DIVIDEND FUND
POTENTIAL
INVESTORS
Open an account (two options).
|
______________________________|____________________
| |
1 2
\|/ \|/
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT Financial Data Services, Inc.
OR SECURITIES DEALER ADMINISTRATIVE OFFICES
4800 Deer Lake Drive East
Advises shareholders on Jacksonville, Florida 32246-6484
their Fund investments.
MAILING ADDRESS
/|\ P.O. Box 45289
| Jacksonville, Florida 32232-5289
|
| Performs recordkeeping and
| reporting services.
|
|
| /|\
| |
| |
| DISTRIBUTOR |
| Merrill Lynch Funds Distributor, |
|___\ a division of Princeton Funds Distributor, Inc. /__|
/ P.O. Box 9081 \
Princeton, New Jersey 08543-9081
Arranges for the sale of Fund shares.
|
|
COUNSEL \|/
Swidler Berlin
Shereff Friedman, LLP THE FUND CUSTODIAN
The Chrysler Building __\ The Board of Trustees /__ State Street Bank and
405 Lexington Avenue / oversees the Fund. \ Trust Company
New York, New York 10174 One Heritage Drive P2N
/|\ /|\ North Quincy, Massachusetts 02171
Provides legal advice | |
to the Fund. | | Holds the Fund's assets
| | for safekeeping.
| |
| |
| |
INDEPENDENT AUDITORS______ ______ MANAGER
Deloitte & Touche LLP Merrill Lynch Asset Management, L.P.
117 Campus Drive ADMINISTRATIVE OFFICES
Princeton, New Jersey 08540-6400 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Audits the financial
MAILING ADDRESS
statements of the Fund on behalf of P.O. Box 9011
the shareholders. Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's
day-to-day activities.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
For More Information [GRAPHIC]
Additional information about the Fund’s
investments is available in the Fund’s annual and
semi-annual reports to shareholders. In the Fund’s annual
report you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund’s
performance during its last fiscal year. You may obtain these
reports at no cost by calling 1-800-MER-FUND.
The Fund will send you one copy of each
shareholder report and certain other mailings, regardless of the
number of Fund accounts you have. To receive separate shareholder
reports for each account, call your Merrill Lynch Financial
Consultant or write to the Transfer Agent at its mailing address.
Include your name, address, tax identification number and Merrill
Lynch brokerage or mutual fund account number. If you have any
questions, please call your Merrill Lynch Financial Consultant or
the Transfer Agent at 1-800-MER-FUND.
Statement of Additional Information
The Fund’s Statement of Additional
Information contains further information about the Fund and is
incorporated by reference (legally considered to be part of this
prospectus). You may request a free copy by writing the Fund at
Financial Data Services, Inc., P.O. Box 45289, Jacksonville,
Florida 32232-5289 or by calling 1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or
the Fund, at the telephone number or address indicated above, if
you have any questions.
Information about the Fund (including the
Statement of Additional Information) can be reviewed and copied
at the SEC’s Public Reference Room in Washington, D.C. Call
1-800-SEC-0330 for information on the operation of the public
reference room. This information is also available on the SEC
’s Internet site at http://www.sec.gov and copies may be
obtained upon payment of a duplicating fee by writing the Public
Reference Section of the SEC, Washington, D.C.
20549-6009.
You should rely only on the information
contained in this Prospectus. No one is authorized to provide you
with information that is different from the information contained
in this Prospectus.
Investment Company Act file #811-5178
Code #10559-1199
©
Merrill Lynch Asset Management, L.P.
Prospectus
[LOGO] Merrill Lynch
[GRAPHIC] November 30,
1999
STATEMENT OF ADDITIONAL
INFORMATION
Merrill Lynch Strategic Dividend
Fund
P.O. Box 9011, Princeton, New Jersey 08543-9011
Ÿ Phone No. (609) 282-2800
The investment objective of Merrill Lynch Strategic
Dividend Fund (the “Fund”) is to seek long-term total
return by investing primarily in a diversified portfolio of
dividend-paying common stocks that yield more than the Standard
& Poor’s 500 Index. Total return is the aggregate of
income and capital value changes. The strategy of the Fund’s
manager, Merrill Lynch Asset Management, is based on the belief
that stocks that have above average yields will provide
attractive long-term total return and greater price stability
than stocks that have below average dividend yields during
periods of downward movements in market prices. There can be no
assurance that the investment objective of the Fund will be
realized. For more information on the Fund’s investment
objectives and policies, see “Investment Objective and
Policies.”
Pursuant to the Merrill Lynch Select Pricing
SM
System, the Fund offers four classes of shares,
each with a different combination of sales charges, ongoing fees
and other features. The Merrill Lynch Select Pricing
SM
System permits an investor to choose the method
of purchasing shares that the investor believes is most
beneficial given the amount of the purchase, the length of time
the investor expects to hold the shares and other relevant
circumstances. See “Purchase of Shares.”
This Statement of Additional Information of the Fund is not
a prospectus and should be read in conjunction with the
Prospectus of the Fund, dated November 30, 1999 (the
“Prospectus”), which has been filed with the Securities
and Exchange Commission (the “Commission”) and can be
obtained, without charge, by calling (800) MER-FUND or by writing
the Fund at the above address. The Prospectus is incorporated by
reference into this Statement of Additional Information, and this
Statement of Additional Information is incorporated by reference
into the Prospectus. The Fund’s audited financial statements
are incorporated in this Statement of Additional Information by
reference to its 1999 annual report to shareholders. You may
request a copy of the annual report 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 November 30, 1999.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term
total return by investing primarily in a diversified portfolio of
dividend-paying common stocks that yield more than the Standard
& Poor’s 500 Index. Total return is the aggregate of
income and capital value changes. The strategy of the Fund’s
adviser, Merrill Lynch Asset Management (“MLAM” or the
“Manager”), is based on the belief that stocks that
have above average yields will provide attractive long-term total
return and greater price stability than stocks that have below
average dividend yields during periods of downward movements in
market prices. While the Fund generally will invest in companies
with a continuous record of paying dividends, it may also invest
in companies that recently have commenced payment of dividends.
The Fund may engage in various portfolio strategies involving
options and futures to seek to increase its return and to hedge
its portfolio against movements in the equity markets, interest
rates and exchange rates between currencies. Because the Fund
will seek long-term total return (i.e., income and capital
growth) by emphasizing investments in dividend-paying common
stocks, it will not have as much investment flexibility as total
return funds that may pursue their objective by investing in both
income and capital growth stocks without such an emphasis. There
can be no assurance that the investment objective of the Fund
will be realized. Reference is made to “How the Fund Invests
” and “Investment Risks” in the Prospectus. The
Fund is classified as a diversified fund under the Investment
Company Act of 1940, as amended (the “Investment Company Act
”).
The Fund at all times, except during temporary defensive
periods, will maintain at least 65% of its total assets invested
in dividend-paying common stocks. The Fund may also invest in
securities convertible into common stocks, non-convertible
preferred stocks and debt securities and utilize the other
investment practices described below. The Fund has established no
rating criteria for debt securities or preferred stock that it
may hold. As a result, the Fund’s investments in such
securities are permitted to include securities that are in
default or have major risk exposures to adverse conditions. The
Fund, however, does not intend to invest in securities with such
characteristics or in debt securities not within the four highest
quality ratings as determined by either Moody’s Investors
Service, Inc. (currently Aaa, Aa, A and Baa for bonds) or
Standard & Poor’s Ratings Group (currently AAA, AA, A
and BBB for bonds). The Fund reserves the right to hold, as a
temporary defensive measure or as a reserve for redemptions,
short-term U.S. Government securities, money market securities,
including repurchase agreements, or cash in such proportions as,
in the opinion of the Manager, prevailing market or economic
conditions warrant. Except during temporary defensive periods,
such securities or cash will not exceed 20% of its total assets.
The investment objective of the Fund set forth in the first
sentence of the above paragraph and the 65% requirement with
respect to dividend-paying common stocks are fundamental policies
of the Fund which may not be changed without a vote of a majority
of its outstanding shares as defined below.
The Fund may invest in the securities of foreign issuers in
the form of American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs) or other securities convertible into
securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities
into which they may be converted. ADRs are receipts typically
issued by a United States bank or trust company that evidence
ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe that evidence a
similar ownership arrangement. Generally, ADRs, which are issued
in registered form, are designed for use in the United States
securities markets, and EDRs, which are issued in bearer form,
are designed for use in European securities markets. In a
sponsored ADR or EDR arrangement, the foreign issuer assumes the
obligation to pay some or all of the depositary’s
transaction fees, whereas in an unsponsored arrangement the
foreign issuer assumes no obligations and the depositary’s
transaction fees are paid by the ADR or EDR holders. Foreign
issuers in respect of whose securities unsponsored ADRs or EDRs
have been issued are not necessarily obligated to disclose
material information in the markets in which the unsponsored ADRs
or EDRs are traded and, therefore, there may not be a correlation
between such information and the market value of such
securities.
Other Investment Policies, Practices and Risk
Factors
Convertible securities entitle the holder to receive
interest payments paid on corporate debt securities or the
dividend preference on a preferred stock until such time as the
convertible security matures or is redeemed or until the holder
elects to exercise the conversion privilege.
The characteristics of convertible securities include the
potential for capital appreciation as the value of the underlying
common stock increases, the relatively high yield received from
dividend or interest payments as compared to common stock
dividends and decreased risks of decline in value relative to the
underlying common stock due to their fixed-income nature. As a
result of the conversion feature, however, the interest rate or
dividend preference on a convertible security is generally less
than would be the case if the securities were issued in
nonconvertible form.
In
analyzing convertible securities, the 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. Even in cases where a substantial portion of
the convertible securities held by the Fund is 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.
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.
Foreign Market Risk. Since the
Fund may invest in foreign securities, it offers the potential
for more diversification than an investment only in the United
States. This is because securities traded on foreign markets have
often (though not always) performed differently than securities
in the United States. However, such investments involve special
risks not present in U.S. investments that can increase the
chances that the Fund will lose money. In particular, the Fund is
subject to the risk that because there are generally fewer
investors on foreign exchanges and a smaller number of shares
traded each day, it may make it difficult for the Fund to buy and
sell securities on those exchanges. In addition, prices of
foreign securities may fluctuate more than prices of securities
traded in the United States.
Foreign Economy Risk. The
economies of certain foreign markets often do not compare
favorably with that of the United States with respect to such
issues as growth of gross national product, reinvestment of
capital,
resources, and balance of payments position. Certain such economies
may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of
economic sanctions against a particular country or countries,
changes in international trading patterns, trade barriers, and
other protectionist or retaliatory measures. Investments in
foreign markets may also be adversely affected by governmental
actions such as the imposition of capital controls,
nationalization of companies or industries, expropriation of
assets, or the imposition of punitive taxes. In addition, the
governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital
markets or in certain industries. Any of these actions could
severely affect security prices, impair the Fund’s ability
to purchase or sell foreign securities or transfer the Fund
’s assets or income back into the United States, or
otherwise adversely affect the Fund’s operations. Other
foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign
government securities, difficulties in enforcing favorable legal
judgments in foreign courts, and political and social
instability. Legal remedies available to investors in certain
foreign countries may be less extensive than those available to
investors in the United States or other foreign
countries.
Currency Risk and Exchange Risk.
Securities in which the Fund invests may be denominated
or quoted in currencies other than the U.S. dollar. Changes in
foreign currency exchange rates will 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 stronger U.S. dollar will reduce returns for U.S.
investors investing overseas while a weak U.S. dollar will
increase those returns.
European Economic and Monetary Union.
For a number of years, certain European countries have
been seeking economic unification that would, among other things,
reduce barriers between countries, increase competition among
companies, reduce government subsidies in certain industries, and
reduce or eliminate currency fluctuations among these European
countries. The Treaty on European Union (the “Maastricht
Treaty”) sets out a framework for the European Economic and
Monetary Union (“EMU”) among the countries that
comprise the European Union (“EU”). EMU established a
single common European currency (the “euro”) that was
introduced on January 1, 1999 and is expected to replace the
existing national currencies of all EMU participants by July 1,
2002. EMU took effect for the initial EMU participants on January
1, 1999. Certain securities issued in participating EU countries
(beginning with government and corporate bonds) were
redenominated in the euro, and are listed, traded and make
dividend and other payments only in euros.
No
assurance can be given that EMU will continue to proceed as
planned, 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
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 by
an initial participant could cause disruption of the financial
markets as securities that have been 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.
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 U.S.
securities laws do. For example, some foreign countries may have
no laws or rules against insider trading. Insider trading occurs
when a person buys or sells a company’s
securities based on non-public information about that company.
Accounting standards in other countries are not necessarily the
same as in the United States. If the accounting standards in
another country do not require as much detail as U.S. accounting
standards, it may be harder for the Fund management to completely
and accurately determine a company’s financial condition.
Also, brokerage commissions and other costs of buying or selling
securities often are higher in foreign countries than they are in
the United States. This reduces the amount the Fund can earn on
its investments.
Certain Risks of Holding Fund Assets Outside the United
States. The Fund generally holds its
foreign securities and cash in foreign banks and securities
depositories. Some foreign banks and securities depositories may
be recently organized or new to the foreign custody business. In
addition, there may be limited or no regulatory oversight over
their operations. Also, the laws of certain countries may put
limits on the Fund’s ability to recover its assets if a
foreign bank or 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 it is 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 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
procedures and trade regulations also may involve certain risks
(such as delays in payment for or delivery of securities) not
typically generated by the settlement of U.S. investments.
Communications between the United States and emerging market
countries may be unreliable, increasing the risk of delayed
settlements or losses of security certificates. Settlements in
certain foreign countries at times have not kept pace with the
number of securities transactions; these problems may make it
difficult for the Fund to carry out transactions. If the Fund
cannot settle or is delayed in settling a purchase of securities,
it may miss attractive investment opportunities and certain of
its assets may be uninvested with no return earned thereon for
some period. If the Fund cannot settle or is delayed in settling
a sale of securities, it may lose money if the value of the
security then declines or, if it has contracted to sell the
security to another party, the Fund could be liable to that party
for any losses incurred.
Dividends or interest on, or proceeds from the sale of,
foreign securities may be subject to foreign withholding
taxes.
The Fund is authorized to use certain derivative
instruments (“Derivatives”), including indexed
securities, options and futures, and to purchase and sell foreign
exchange, as described below. While the Fund’s use of
hedging strategies is intended to reduce the volatility of the
net asset value of fund shares, the Fund’s net asset value
will fluctuate. There can be no assurance that the Fund’s
hedging transactions will be effective. Furthermore, the Fund
will engage in hedging activities only from time to time and may
not necessarily be engaging in hedging activities when movements
in the equity markets, interest rates or currency exchange rates
occur. The Fund may use derivatives to seek increased return. The
use of a derivative is speculative if the Fund is primarily
seeking to achieve gains, rather than offset the risk of other
positions. When the Fund invests in a derivative for speculative
purposes, the Fund will be fully exposed to the risks of loss of
that derivative, which may sometimes be greater than the
derivative’s cost. The Fund will not invest in a derivative
to gain exposure to an asset or class of assets that it would be
prohibited by its investment restrictions from purchasing
directly.
The Fund may invest in securities the potential return of
which is based on the change in particular measurements of value
or rate (an “index”). As an illustration, the Fund may
invest in a debt security that pays interest and returns
principal based on the change in the value of a securities index
or a basket of securities, or based on the relative changes of
two indices. If the Fund invests in such securities, it may be
subject to reduced or eliminated interest payments or loss of
principal in the event of an adverse movement in the relevant
index or indices.
Certain indexed
securities may have the effect of providing investment leverage
because the rate of interest or amount of principal payable
increases or decreases at a rate that is a multiple of the
changes in the relevant index. As a consequence, the market value
of such securities may be substantially more volatile than the
market values of other debt securities. The Fund believes that
indexed securities may provide portfolio management flexibility
that permits the Fund to seek enhanced returns, hedge other
portfolio positions or vary the degree of portfolio leverage with
greater efficiency than would otherwise be possible under certain
market conditions.
Options on Securities and Securities Indices
Purchasing Options. The Fund is
authorized to purchase put options on equity securities held in
its portfolio or securities indices the performance of which is
substantially replicated by securities held in its portfolio for
hedging purposes. 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. The Fund will not purchase put options on
securities if, as a result of such purchase, the aggregate cost
of all outstanding options on securities held by the Fund would
exceed 5% of the market value of the Fund’s total
assets.
The Fund is also authorized to purchase call options on
securities indices the performance of which substantially
replicates the performance of the types of securities it intends
to purchase. When the Fund purchases a call option on a
securities index, in consideration for the option premium the
Fund acquires the right 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. The purchase
of a call option provides the Fund with the opportunity to profit
if the underlying security or security or interest rate index
increases in value. If the underlying security or security or
interest rate index decreases in value, however, the Fund may
lose the entire option premium.
The Fund is also authorized to purchase put or call options
in connection with closing out put or call options it has
previously sold.
Writing Call Options. The Fund
is authorized to write (i.e., sell) call options on equity
securities held in its portfolio or securities indices the
performance of which is substantially correlated to 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
on securities to earn income, through the receipt of option
premiums; the Fund may write call options on securities indices
for hedging purposes. 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.
The Fund is also authorized to sell call options in
connection with closing out call options it has previously
purchased.
Other than with respect to closing transactions, the Fund
will only write call options that are “covered.” A call
option will be considered covered if the Fund has segregated
assets with respect to such option in the manner described in
“Risk Factors in Options, Futures and Currency Instruments
” 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 option on a securities index, securities which
substantially replicate the performance of such index) or owns a
call option, warrant or convertible instrument that is
immediately exercisable for, or convertible into, such
security.
Types of Options. The Fund may
engage in transactions in the options on securities or securities
indices described above 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 seller, but generally do not
require the parties to post margin and are subject to greater
risk of counterparty default. See “Additional Risk Factors
of OTC Transactions; Limitations on the Use of OTC Derivatives
” below.
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 a commodity 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.
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 commodity 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 operator” under regulations of the Commodity Futures
Trading Commission.
Foreign Exchange Transactions
The Fund may engage in spot and forward foreign exchange
transactions, purchase and sell options on currencies and
purchase and sell currency futures and related options thereon
(collectively, “Currency Instruments”) for purposes of
hedging against possible variations in foreign exchange rates.
Such transactions may be effected with respect to hedges on
non-U.S. dollar denominated securities owned by the Fund, sold by
the Fund but not yet delivered, or committed or anticipated to be
purchased by the Fund.
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 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.
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.
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 not incur potential net liabilities of
more than 20% of its total assets from foreign currency options,
futures or related options. The Fund will not necessarily attempt
to hedge all of its foreign portfolio positions.
Risk Factors in Hedging Foreign Currency Risks.
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 that
do not occur, the Fund may realize losses, and decrease its total
return, as the result of its hedging transactions. Furthermore,
the Fund will engage in hedging activities only 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 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 Options, Futures and Currency
Instruments
Use of Derivatives for hedging purposes involves the risk
of imperfect correlation in movements in the value of the
Derivatives and the value of the instruments being hedged. If the
value of the Derivatives moves more or less than the value of the
hedged instruments the Fund will experience a gain or loss that
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 (e.g., forward
foreign exchange transactions, futures transactions, sales of put
options) may expose the Fund to potential losses that exceed the
amount originally invested by the Fund in such instruments. 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
marked-to-market basis, to the transaction (as calculated
pursuant to requirements of the Commission). Such segregation
will ensure that the
Fund has assets available to satisfy its obligations with respect
to the transaction, but will not limit the 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 and OTC options, may be substantially less
liquid than other instruments in which the Fund may invest. 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.
The staff of the 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
will 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).
Because Derivatives traded in OTC markets are not
guaranteed by an exchange or clearing corporation and do not
generally require payment of margin, to the extent that the Fund
has unrealized gains in such instruments or has deposited
collateral with its counterparty, the Fund is at risk that its
counterparty will become bankrupt or otherwise fail to honor its
obligations. The Fund will attempt to minimize the risk that a
counterparty will become bankrupt or otherwise fail to honor its
obligations by engaging in transactions in Derivatives traded in
OTC markets only with financial institutions which have
substantial capital or which have provided the Fund with a
third-party guaranty or other credit enhancement.
Additional Limitations on the Use of
Derivatives
The Fund may not use Derivatives to gain exposure to an
asset or class of assets that it would be prohibited by its
investment restrictions from purchasing directly.
The use of leverage by the Fund creates an opportunity for
greater total return, but, at the same time, creates special
risks. For example, leveraging may exaggerate changes in the net
asset value of Fund shares and in the yield on the Fund’s
portfolio. Although the principal of such borrowings will be
fixed, the Fund’s assets may change in value during the time
the borrowings are outstanding. Borrowings will create interest
expenses of the Fund that can exceed the income from the assets
purchased with the borrowings. To the extent the income or
capital appreciation derived from securities purchased with
borrowed funds exceeds the interest the Fund will have to pay on
the borrowings, the Fund’s return will be greater than if
leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such borrowed
funds is not sufficient to cover the cost of borrowing, the
return to the Fund will be less than if leverage had not been
used, and therefore the amount available for distribution to
shareholders as dividends and other distributions will be
reduced. In the latter case, the Manager in its best judgment
nevertheless may determine to maintain the Fund’s leveraged
position if it expects that the benefits to the Fund’s
shareholders of maintaining the leveraged position will outweigh
the current reduced return.
Certain types of borrowings by the Fund may result in the
Fund being subject to covenants in credit agreements relating to
asset coverage, portfolio composition requirements and other
matters. It is not anticipated that observance of such covenants
would impede the Manager from managing the Fund’s portfolio
in accordance with the Fund’s investment objectives and
policies. However, a breach of any such covenants not cured
within the specified cure period may result in acceleration of
outstanding indebtedness and require the Fund to dispose of
portfolio investments at a time when it may be disadvantageous to
do so.
The Fund at times may borrow from affiliates of the
Manager, provided that the terms of such borrowings are no less
favorable than those available from comparable sources of funds
in the marketplace.
Repurchase Agreements. The Fund
may invest in securities pursuant to repurchase agreements.
Repurchase agreements may be entered into only with a member bank
of the Federal Reserve System or primary dealer in U.S.
Government securities or an affiliate thereof. Under such
agreements, the bank or primary dealer or an affiliate thereof
agrees, upon entering into the contract, to repurchase the
security at a mutually agreed upon time and price, thereby
determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market
fluctuations during such period. Repurchase agreements usually
cover short periods, such as under one week. The Fund may not
invest more than 15% of its total assets in repurchase agreements
maturing in more than seven days. Repurchase agreements may be
construed to be collateralized loans by the purchaser to the
seller secured by the securities transferred to the purchaser.
The Fund will require the seller to provide additional collateral
if the market value of the securities falls below the repurchase
price at any time during the term of the repurchase agreement. In
the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities
are not owned by the Fund but only constitute collateral for the
seller’s obligation to pay the repurchase price. Therefore,
the Fund may suffer time delays and incur costs or possible
losses in connection with the disposition of the collateral. In
the event of a default under such a repurchase agreement, instead
of the contractual fixed rate of return, the rate of return to
the Fund shall be dependent upon intervening fluctuations of the
market value of such security and the accrued interest on the
security. In such event, the Fund would have rights against the
seller for breach of contract with respect to any losses arising
from market fluctuations following the failure of the seller to
perform.
The Fund may invest in junk bonds. Junk bonds are debt
securities that are rated below investment grade by the major
rating agencies or are unrated securities that Fund management
believes are of comparable quality. Although junk bonds generally
pay higher rates of interest than investment grade bonds, they
are high-risk investments that may cause income and principal
losses for the Fund. The major risks in junk bond investments
include:
Junk bonds may be issued by less creditworthy companies.
These securities are vulnerable to adverse changes in the issuer
’s industry and to general economic conditions. Issuers of
junk bonds may be unable to meet their interest or principal
payment obligations because of an economic downturn, specific
issuer development or the unavailability of additional
financing.
The issuers of junk bonds may have a larger amount of
outstanding debt relative to their assets than issuers of
investment grade bonds. If the issuer experiences financial
stress, it may be unable to meet its debt obligations. The issuer
’s ability to pay its debt obligations also may be lessened
by specific issuer developments, or the unavailability of
additional financing.
Junk bonds are frequently ranked junior in claims by other
creditors. If the issuer cannot meet its obligations, the senior
obligations are generally paid off before the junior
obligations.
Junk bonds frequently have redemption features that permit
an issuer to repurchase the security from the Fund before it
matures. If the issuer redeems the junk bonds, the Fund may have
to invest the proceeds in bonds with lower yields and may lose
income.
Prices of junk bonds are subject to extreme price
fluctuations. Negative economic developments may have a greater
impact on the prices of junk bonds than on other higher rated
fixed-income securities.
Junk bonds may be less liquid than higher rated
fixed-income securities even under normal economic conditions.
There are fewer dealers in the junk bond market, and there may be
significant differences in the prices quoted for junk bonds by
the dealers. Because they are less liquid, judgment may play a
greater role in valuing certain of the Fund’s portfolio
securities than in the case with securities trading in a more
liquid market.
The Fund may incur expenses to the extent necessary to seek
recovery upon default or to negotiate new terms with a defaulting
issuer.
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) to banks, brokers and other
financial institutions. In return, the Fund receives collateral
in an amount equal to at least 100% of the current market value
of the loaned securities in cash or securities issued or
guaranteed by the U.S. Government. 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 “restricted
securities.” Restricted securities have contractual or legal
restrictions on their resale and include “private placement
” securities that the Fund may buy direct from the Issuer.
Restricted securities may be sold in private placement
transactions between the issuers and their purchasers and may be
neither listed on an exchange nor traded in other established
markets. In many cases, privately placed securities may not be
freely transferable under the laws of the applicable jurisdiction
or due to contractual restrictions on resale. As a result of the
absence of a public trading market, privately placed securities
may be less liquid and more difficult to value than publicly
traded securities. To the extent that privately placed securities
may be resold in privately negotiated transactions, the prices
realized from the sales, due to illiquidity, could be less than
those originally paid by the Fund or less than their fair market
value. In addition, issuers whose securities are not publicly
traded may not be subject to the disclosure and other investor
protection requirements that may be applicable if their
securities were publicly traded. If any privately placed
securities held by the Fund are required to be registered under
the securities laws of one or more jurisdictions before being
resold, the Fund may be
required to bear the expenses of registration. Certain of the Fund
’s investments in private placements may consist of direct
investments and may include investments in smaller, less-seasoned
issuers, which may involve greater risks. These issuers may have
limited product lines, markets or financial resources, or they
may be dependent on a limited management group. In making
investments in such securities, the Fund may obtain access to
material non-public 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 tradeable
in their primary markets offshore or have been determined to be
liquid in accordance with the policies and procedures adopted by
the Fund’s Board. The Board of Trustees has adopted
guidelines and delegated to the Manager the daily function of
determining and monitoring liquidity of restricted securities.
The Board of Trustees, 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 dividend-paying common stocks that the
Fund believes have good prospects for earnings growth, 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 dividend-paying common stocks, 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 total 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.
|
In
addition, the Fund has adopted non-fundamental investment
restrictions that may be changed by the Trustees without a vote
of the Fund’s shareholders. Under the non-fundamental
investment restrictions, 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 Trustees of the
Fund have 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 (including the amount
borrowed), and then only from banks as a temporary measure for
extraordinary or emergency purposes such as the redemption of
Fund shares. In addition, the Fund will not purchase securities
while borrowings are outstanding except to honor prior
commitments and to exercise subscription rights.
|
In
addition, to comply with tax requirements for qualification as a
“regulated investment company,” the Fund’s
investments will be limited in a manner such that at the close of
each quarter of each fiscal year, (a) no more than 25% of the Fund
’s total assets are invested in the securities of a single
issuer, and (b) with regard to at least 50% of the Fund’s
total assets, no more than 5% of its total assets are invested in
the securities of a single issuer. For purposes of this
restriction, the Fund will regard each state and each political
subdivision, agency or instrumentality of such state and each
multi-state agency of which such state is a member and each
public authority which issues securities on behalf of a private
entity as a separate issuer, except that if the security is
backed only by the assets and revenues of a non-government entity
then the entity with the ultimate responsibility for the payment
of interest and principal may be regarded as the sole issuer.
These tax-related limitations may be changed by the Board of
Trustees of the Fund to the extent necessary to comply with
changes to the Federal tax requirements.
Because of the affiliation of Merrill Lynch, Pierce, Fenner
& Smith Incorporated (“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 will effect portfolio transactions without regard
to holding period only if, in its management’s judgment,
such transactions are advisable in light of a change in
circumstances of a particular company or within a particular
industry or in general market, economic or financial conditions.
As a result of the Fund’s investment policies, under certain
market conditions, the Fund’s portfolio turnover may be
higher than that of other investment companies. Accordingly, it
is impossible to predict portfolio turnover rates. 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 all securities with
maturities at the time of acquisition of one year or less) by the
monthly average value of the securities in the portfolio during
the year.
The Trustees of the Fund consist of seven individuals, five
of whom are not “interested persons” of the Fund as
defined in the Investment Company Act (the “non-interested
Trustees”). The Trustees are responsible for the overall
supervision of the operations of the Fund and perform the various
duties imposed on the directors or trustees 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 FAM 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.
RONALD
W. FORBES
(59) — Trustee(2) — 1400
Washington Avenue, Albany, New York 12222. Professor of Finance,
School of Business, State University of New York at Albany, since
1989; Consultant, Urban Institute, Washington D.C. since
1995.
CYNTHIA
A. MONTGOMERY
(47) — Trustee(2) — Harvard
Business School, Soldiers Field Road, Boston, Massachusetts
02163. Professor, Harvard Business School since 1989; Associate
Professor, J.L. Kellog Graduate School of Management,
Northwestern University from 1985 to 1989; Assistant Professor,
Graduate School of Business Administration, The University of
Michigan from 1979 to 1985; Director, UNUM Corporation since 1990
and Director of Newell Co. since 1995.
CHARLES
C. REILLY
(68) — Trustee(2) — 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.
KEVIN
A. RYAN
(67) — Trustee(2) — 127
Commonwealth Avenue, Chestnut Hill, Massachusetts 02167. Founder
and Director Emeritus of The Boston University Center for the
Advancement of Ethics and Character and Director thereof until
1999; Professor until 1999 and currently Professor Emeritus of
Education at Boston University since 1982; formerly taught on the
faculties of the University of Chicago, Stanford University and
Ohio State University.
RICHARD
R. WEST
(61) — Trustee(2) — Box 604,
Genoa, Nevada 89411. Professor of Finance since 1984, and 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 corporation), and Alexander’s Inc. (real estate
company).
ARTHUR
ZEIKEL
(67) — Trustee(1)(2) — 300
Woodland Avenue, Westfield, New Jersey 07090-1826. Chairman of
the Manager and Fund Asset Management, L.P. (“FAM”)
(which terms as used herein, includes their corporate
predecessors) from 1997 to 1999; President of the Manager and FAM
from 1977 to 1997; Chairman of Princeton Services, Inc. (
“Princeton Services”) from 1997 to 1999 and Director
thereof from 1993 to 1999; President of Princeton Services from
1993 to 1997; Executive Vice President of Merrill Lynch &
Co., Inc. (“ML & Co.”) from 1990 to
1999.
WALTER
D. ROGERS
(57) — Senior Vice President and Portfolio
Manager(1) — First Vice President of the
Manager since 1997; Vice President of the Manager 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 Manager and FAM from 1997 to 1999;
Vice President of Manager from 1990 to 1997; Director of Taxation
of Manager since 1990.
IRA
P. SHAPIRO
(36) — Secretary(1)(2) — First
Vice President of the Manager since 1998; Director (Legal
Advisory) of the Manager from 1997 to 1998; Vice President of the
Manager from 1996 to 1997; Attorney with the Manager and FAM from
1993 to 1996.
(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 FAM
or MLAM acts as the investment adviser or manager.
|
As
of November 1, 1999, the Trustees and officers of the Fund as a
group (10 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, and the 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 $2,000
per year plus $400 per Board meeting attended. The Fund also
compensates each member of the Audit and Nominating Committee
(the “Committee”), which consists of the non-interested
Trustees, at a rate of $900 per year. The Fund pays the Chairman
of the Committee an additional fee of $1,000 per year. 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 July 31, 1999
and the aggregate compensation paid to them from all registered
investment companies advised by the MLAM and its affiliate, FAM (
“MLAM/FAM Advised Funds”), for the calendar year ended
December 31, 1998.
Name of
Trustee
|
|
Aggregate
Compensation
From Fund
|
|
Pension or
Retirement
Benefits Accrued as
Part of Fund Expenses
|
|
Aggregate
Compensation
From Fund and Other
MLAM/FAM Advised
Funds Paid to
Trustees(1)
|
| Ronald
W. Forbes |
|
$4,500 |
|
None |
|
$192,567 |
| Cynthia A. Montgomery |
|
$4,500 |
|
None |
|
$192,567 |
| Charles C. Reilly |
|
$5,500 |
|
None |
|
$362,858 |
| Kevin
A. Ryan |
|
$4,500 |
|
None |
|
$192,567 |
| Richard R. West |
|
$4,500 |
|
None |
|
$346,125 |
| |
|
|
|
|
|
|
(1)
|
The Trustees serve on the boards of MLAM/FAM
Advised Funds as follows: Mr. Forbes (42 registered investment
companies consisting of 55 portfolios); Ms. Montgomery (42
registered investment companies consisting of 55 portfolios);
Mr. Reilly (60 registered investment companies consisting of 73
portfolios); Mr. Ryan (42 registered investment companies
consisting of 55 portfolios); and Mr. West (62 registered
investment companies consisting of 86 portfolios).
|
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 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 0.60% 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 July 31,
|
|
Investment
Advisory Fee
|
| 1999 |
|
$1,287,539 |
| 1998 |
|
$1,230,228 |
| 1997 |
|
$1,056,060 |
The Manager has also entered into a sub-advisory agreement
(the “Sub-Advisory Agreement”) with Merrill Lynch Asset
Management U.K. Limited (“MLAM U.K.”) pursuant to which
MLAM U.K. provides investment advisory services to the Manager
with respect to the Fund. For the fiscal years ended July 31,
1999, 1998 and 1997, the Manager paid no fees to MLAM U.K.
pursuant to this agreement.
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 the Manager. The Fund pays
all other expenses incurred in the operation of the Fund,
including among other things: taxes, expenses for legal and
auditing services, costs of printing proxies, stock certificates,
shareholder reports, prospectuses and statements of additional
information, except to the extent paid by Merrill Lynch Funds
Distributor, a division of PFD (the “Distributor”);
charges of the custodian and sub-custodian, and the transfer
agent; expenses of redemption of shares; SEC fees; expenses of
registering the shares under Federal, state or foreign laws; fees
and expenses of non-interested 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. The Distributor
will pay certain promotional expenses of the Fund incurred in
connection with the offering of shares of the Fund. Certain
expenses will be financed by the Fund pursuant to distribution
plans in compliance with Rule 12b-1 under the Investment Company
Act. See “Purchase of Shares — Distribution
Plans.”
Organization of the 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 continue in effect from year to year
if approved annually (a) by the 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 that 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 which
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 against 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 MLAM or FAM. Funds advised by
MLAM or FAM that utilize the Merrill Lynch Select
Pricing
SM
System are referred to herein as “Select
Pricing Funds.”
The Fund or the Distributor may suspend the continuous
offering of the Fund’s shares of any class at any time in
response to conditions in the securities markets or otherwise and
may thereafter resume such offering from time to time. Any order
may be rejected by the Fund or Distributor. Neither the
Distributor nor the dealers are permitted to withhold placing
orders to benefit themselves by a price change. Merrill Lynch may
charge its customers a processing fee (presently $5.35) to
confirm a sale of shares to such customers. Purchases made
directly through the Transfer Agent are not subject to the
processing fee.
Initial Sales Charge Alternatives — Class A and
Class D Shares
Investors who prefer an initial sales charge alternative
may elect to purchase Class D shares or, if an eligible investor,
Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should
purchase Class A shares rather than Class D shares because there
is an account maintenance fee imposed on Class D shares.
Investors qualifying for significantly reduced initial sales
charges may find the initial sales charge alternative
particularly attractive because similar sales charge reductions
are not available with respect to the deferred sales charges
imposed in connection with purchases of Class B or Class C
shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time also may elect to purchase Class A or Class D
shares, because over time the accumulated ongoing account
maintenance and distribution fees on Class B or Class C shares
may exceed the initial sales charges, and, in the case of Class D
shares, the account maintenance fee. Although some investors who
previously purchased Class A shares may no longer be eligible to
purchase Class A shares of other Select Pricing Funds, those
previously purchased Class A shares, together with Class B, Class
C and Class D share holdings, will count toward a right of
accumulation which may qualify the investor for a reduced initial
sales charge on new initial sales charge purchases. In addition,
the ongoing Class B and Class C account maintenance and
distribution fees will cause Class B and Class C shares to have
higher expense ratios, pay lower dividends and have lower total
returns than the initial sales charge shares. The ongoing Class D
account maintenance fees will cause Class D shares to have a
higher expense ratio, pay lower dividends and have a lower total
return than Class A shares.
The term “purchase,” as used in the Prospectus
and this Statement of Additional Information in connection with
an investment in Class A and Class D shares of the Fund, refers
to a single purchase by an individual or to concurrent purchases,
which in the aggregate are at least equal to the prescribed
amounts, by an individual, his or
her spouse and their children under the age of 21 years purchasing
shares for his, her or their own account and to single purchases
by a trustee or other fiduciary purchasing shares for a single
trust estate or single fiduciary account although more than one
beneficiary is involved. The term “purchase” also
includes purchases by any “company,” as that term is
defined in the Investment Company Act, but does not include
purchases by any such company that has not been in existence for
at least six months or which has no purpose other than the
purchase of shares of the Fund or shares of other registered
investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose
sole organizational nexus is that the participants therein are
credit cardholders of a company, policyholders of an insurance
company, customers of either a bank or broker-dealer or clients
of an investment adviser.
Eligible Class A Investors
Class A shares are offered to a limited group of investors
and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors who currently own Class A
shares in a shareholder account, including participants in the
Merrill Lynch Blueprint
SM
Program, are entitled to purchase additional
Class A shares of the Fund in that account. Certain
employer-sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class A shares at net asset
value provided such plans meet the required minimum number of
eligible employees or required amount of assets advised by MLAM
or any of its affiliates. Class A shares are available at net
asset value to corporate warranty insurance reserve fund programs
provided and U.S. branches of foreign banking institutions that
the program has $3 million or more initially invested in Select
Pricing Funds. Also eligible to purchase Class A shares at net
asset value are participants in certain investment programs
including TMA
SM
Managed Trusts to which Merrill Lynch Trust
Company provides discretionary trustee services, collective
investment trusts for which Merrill Lynch Trust Company serves as
trustee and certain purchases made in connection with certain
fee-based programs. In addition, Class A shares are offered at
net asset value to ML & Co. and its subsidiaries and their
directors and employees and to members of the Boards of MLAM/FAM
Advised Funds. Certain persons who acquired shares of certain
MLAM-advised closed-end funds in their initial offerings who wish
to reinvest the net proceeds from a sale of their closed-end fund
shares of common stock in shares of the Fund also may purchase
Class A shares of the Fund if certain conditions are met. In
addition, Class A shares of the Fund and certain other Select
Pricing Funds are offered at net asset value to shareholders of
Merrill Lynch Senior Floating Rate Fund, Inc. and, if certain
conditions are met, to shareholders of Merrill Lynch Municipal
Strategy Fund, Inc. and Merrill Lynch High Income Municipal Bond
Fund, Inc. who wish to reinvest the net proceeds from a sale of
certain of their shares of common stock pursuant to a tender
offer conducted by such funds in shares of the Fund and certain
other Select Pricing Funds.
Class A and Class D Sales Charge
Information
Class A Shares
|
For the Fiscal
Year
Ended July 31,
1999
|
|
Gross Sales
Charges Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received
on
Redemption of
Load-Waived Shares
|
| 1999
|
|
$
1,132 |
|
$
66 |
|
$
1,066 |
|
$
0 |
| 1998
|
|
$
3,914 |
|
$
260 |
|
$
3,654 |
|
0 |
| 1997
|
|
$
6,629 |
|
$
384 |
|
$
6,245 |
|
0 |
| |
|
Class D Shares
|
For the Fiscal
Year
Ended July 31,
1999
|
|
Gross Sales
Charges Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received
on
Redemption of
Load-Waived Shares
|
| 1999
|
|
$21,977 |
|
$1,502 |
|
$20,475 |
|
$
0 |
| 1998
|
|
$35,468 |
|
$2,330 |
|
$33,138 |
|
0 |
| 1997
|
|
$20,997 |
|
$1,314 |
|
$19,683 |
|
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.
Blueprint is directed to small investors, group IRAs and
participants in certain affinity groups such as credit unions,
trade associations and benefit plans. Investors placing orders to
purchase Class A or Class D shares of the Fund through Blueprint
will acquire the Class A or Class D shares at net asset value
plus a sales charge calculated in accordance with the Blueprint
sales charge schedule (i.e., up to $300 at 4.25%, $300.01
up to $5,000 at 3.25% plus $3, and $5,000.01
or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A or Class D shares of the Fund
are being offered at net asset value plus a sales charge of 0.50%
of 1% for corporate or group IRA programs placing orders to
purchase their Class A or Class D shares through Blueprint.
Services, including the exchange privilege, available to Class A
and Class D investors through Blueprint, however, may differ from
those available to other investors in Class A or Class D
shares.
Class A and Class D shares are offered at net asset value
to participants in Blueprint through the Merrill Lynch Directed
IRA Rollover Program (the “IRA Rollover Program”)
available from Merrill Lynch Business Financial Services, a
business unit of Merrill Lynch. The IRA Rollover Program is
available to custodian rollover assets from employer-sponsored
retirement and savings plans whose trustee and/or plan sponsor
has entered into a Merrill Lynch Directed IRA Rollover Program
Service Agreement.
Orders for purchases and redemptions of Class A or Class D
shares of the Fund may be grouped for execution purposes which,
in some circumstances, may involve the execution of such orders
two business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for
subsequent purchases through Blueprint. There are no minimum
initial or subsequent purchase requirements for participants who
are part of an automatic investment plan. Additional information
concerning purchases through Blueprint, including any annual fees
and transaction charges, is available from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, The Blueprint
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 investment companies, ML & Co. and its
subsidiaries (the term “subsidiaries,” when used herein
with respect to ML & Co., includes MLAM, FAM and certain
other entities directly or indirectly wholly owned and controlled
by ML & Co.) and their directors and employees, and any
trust, pension, profit-sharing or other benefit plan for such
persons, may purchase Class A shares of the Fund at net asset
value. The Fund realizes economies of scale and reduction of
sales-related expenses by virtue of the familiarity of these
persons with the Fund. Employees and directors or trustees
wishing to purchase shares of the Fund must satisfy the Fund
’s suitability standards.
Class D shares of the Fund are offered at net asset value,
without a sales charge, to an investor that has a business
relationship with a Financial Consultant who joined Merrill Lynch
from another investment firm within six months prior to the date
of purchase by such investor, if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from a
redemption of shares of a mutual fund that was sponsored by the
Financial Consultant’s previous firm and was subject to a
sales charge either at the time of purchase or on a deferred
basis; and, second, the investor must establish that such
redemption had been made within 60 days prior to the investment
in the Fund and the proceeds from the redemption had been
maintained in the interim in cash or a money market
fund.
Class D shares of the Fund are also offered at net asset
value, without a sales charge, to an investor that has a business
relationship with a Merrill Lynch Financial Consultant and that
has invested in a mutual fund sponsored by a non-Merrill Lynch
company for which Merrill Lynch has served as a selected dealer
and where Merrill Lynch
has either received or given notice that such arrangement will be
terminated (“notice”) if the following conditions are
satisfied: first, the investor must purchase Class D shares of
the Fund with proceeds from a redemption of shares of such other
mutual fund and the shares of such other fund were subject to a
sales charge either at the time of purchase or on a deferred
basis; and, second, such purchase of Class D shares must be made
within 90 days after such notice.
Class D shares of the Fund are offered at net asset value,
without a sales charge, to an investor that has a business
relationship with a Merrill Lynch Financial Consultant and that
has invested in a mutual fund for which Merrill Lynch has not
served as a selected dealer if the following conditions are
satisfied: first, the investor must advise Merrill Lynch that it
will purchase Class D shares of the Fund with proceeds from the
redemption of shares of such other mutual fund and that such
shares have been outstanding for a period of no less than six
months; and, second, such purchase of Class D shares must be made
within 60 days after the redemption and the proceeds from the
redemption must be maintained in the interim in cash or a money
market fund.
Closed-End Fund Investment Option.
Class A shares of the Fund and certain other Select
Pricing Funds (“Eligible Class A Shares”) are offered
at net asset value to shareholders of certain closed-end funds
advised by FAM or MLAM who purchased such closed-end fund shares
prior to October 21, 1994 (the date the Merrill Lynch Select
Pricing
SM
System commenced operations) and wish to reinvest
the net proceeds from a sale of their closed-end fund shares of
common stock in Eligible Class A Shares, if the conditions set
forth below are satisfied. Alternatively, closed-end fund
shareholders who purchased such shares on or after October 21,
1994 and wish to reinvest the net proceeds from a sale of their
closed-end fund shares are offered Class A shares (if eligible to
buy Class A shares) or Class D shares of the Fund and other
Select Pricing Funds (“Eligible Class D Shares”), if
the following conditions are met. First, the sale of closed-end
fund shares must be made through Merrill Lynch, and the net
proceeds therefrom must be immediately reinvested in Eligible
Class A or Eligible Class D Shares. Second, the closed-end fund
shares must either have been acquired in the initial public
offering or be shares representing dividends from shares of
common stock acquired in such offering. Third, the closed-end
fund shares must have been continuously maintained in a Merrill
Lynch securities account. Fourth, there must be a minimum
purchase of $250 to be eligible for the investment
option.
Shareholders of certain MLAM-advised continuously offered
closed-end funds may reinvest at net asset value the net proceeds
from a sale of certain shares of common stock of such funds in
shares of the Fund. Upon exercise of this investment option,
shareholders of Merrill Lynch Senior Floating Rate Fund, Inc.
will receive Class A shares of the Fund and shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. and Merrill Lynch
High Income Municipal Bond Fund, Inc. will receive Class D shares
of the Fund, except that shareholders already owning Class A
shares of the Fund will be eligible to purchase additional Class
A shares pursuant to this option, if such additional Class A
shares will be held in the same account as the existing Class A
shares and the other requirements pertaining to the reinvestment
privilege are met. In order to exercise this investment option, a
shareholder of one of the above-referenced continuously offered
closed-end funds (an “eligible fund”) must sell his or
her shares of common stock of the eligible fund (the
“eligible shares”) back to the eligible fund in
connection with a tender offer conducted by the eligible fund and
reinvest the proceeds immediately in the designated class of
shares of the Fund. This investment option is available only with
respect to eligible shares as to which no Early Withdrawal Charge
or CDSC (each as defined in the eligible fund’s prospectus)
is applicable. Purchase orders from eligible fund shareholders
wishing to exercise this investment option will be accepted only
on the day that the related tender offer terminates and will be
effected at the net asset value of the designated class of the
Fund on such day.
Acquisition of Certain Investment Companies.
Class D shares may be offered at net asset value
in connection with the acquisition of the assets of or merger or
consolidation with a personal holding company or a public or
private investment company.
Deferred Sales Charge Alternatives — Class B and Class C
Shares
Investors choosing the deferred sales charge alternatives
should consider Class B shares if they intend to hold their
shares for an extended period of time and Class C shares if they
are uncertain as to the length of time they intend to hold their
assets in Select Pricing Funds.
Because no initial sales charges are deducted at the time
of the purchase, Class B and Class C shares provide the benefit
of putting all of the investor’s dollars to work from the
time the investment is made. The deferred sales charge
alternatives may be particularly appealing to investors that do
not qualify for the reduction in initial sales charges. Both
Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing
account maintenance and distribution fees potentially may be
offset to the extent any return is realized on the additional
funds initially invested in Class B or Class C shares. In
addition, Class B shares will be converted into Class D shares of
the Fund after a conversion period of approximately eight years,
and thereafter investors will be subject to lower ongoing
fees.
The public offering price of Class B and Class C shares for
investors choosing the deferred sales charge alternatives is the
next determined net asset value per share without the imposition
of a sales charge at the time of purchase. See “Pricing of
Shares — Determination of Net Asset Value”
below.
Contingent Deferred Sales Charges — Class
B Shares
Class B shares that are redeemed within four years of
purchase may be subject to a CDSC at the rates set forth below
charged as a percentage of the dollar amount subject thereto. In
determining whether a CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the
lowest applicable rate being charged. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or
the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial
purchase price. In addition, no CDSC will be assessed on shares
derived from reinvestment of dividends. It will be assumed that
the redemption is first of shares held for over four years or
shares acquired pursuant to reinvestment of dividends and then of
shares held longest during the four-year period. A transfer of
shares from a shareholder’s account to another account will
be assumed to be made in the same order as a
redemption.
The following table sets forth the Class B
CDSC:
Year
Since Purchase Payment
Made
|
|
CDSC as
a Percentage
of Dollar Amount
Subject to Charge
|
| 0-1 |
|
4.0% |
| 1-2 |
|
3.0% |
| 2-3 |
|
2.0% |
| 3-4 |
|
1.0% |
| 4 and
thereafter |
|
None |
To
provide an example, assume an investor purchased 100 shares at
$10 per share (at a cost of $1,000) and in the third year after
purchase, the net asset value per share is $12 and, during such
time, the investor has acquired 10 additional shares upon
dividend reinvestment. If at such time the investor makes his or
her first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to a CDSC because of dividend reinvestment.
With respect to the remaining 40 shares, the charge is applied
only to the original cost of $10 per share and not to the
increase in net asset value of $2 per share. Therefore, $400 of
the $600 redemption proceeds will be charged at a rate of 2.0%
(the applicable rate in the third year after
purchase).
The Class B CDSC may be waived on redemptions of shares in
connection with certain post-retirement withdrawals from an
Individual Retirement Account (“IRA”) or other
retirement plan 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
also be waived for any Class B shares that are purchased by
eligible 401(k) or eligible 401(a) plans that are rolled over
into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA
and held in such account at the time of redemption. The Class B
CDSC may also be waived for any Class B shares that are purchased
by a Merrill Lynch rollover IRA that was funded by a rollover
from a terminated 410(k) plan managed by MLAM Private Portfolio
Group and held in such account at the time of redemption. The
Class B
CDSC may also be waived or its terms be modified in connection with
certain fee-based programs. The Class B CDSC may also be waived
in connection with involuntary termination of an account in which
Fund shares are held or for withdrawals through the Merrill Lynch
Systematic Withdrawal Plan. See “Shareholder Services
— Fee-Based Programs” and “—
Systematic Withdrawal Plan.”
Employer-Sponsored Retirement or Savings Plans and Certain
Other Arrangements. Certain
employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class B shares with a waiver of the
CDSC upon redemption, based on the number of employees or number
of employees eligible to participate in the plan, the aggregate
amount invested by the plan in specified investments and/or the
services provided by Merrill Lynch to the plan. Such Class B
shares will convert into Class D shares approximately ten years
after the plan purchases the first share of any Select Pricing
Fund. Minimum purchase requirements may be waived or varied for
such plans. Additional information regarding purchases by
employer-sponsored retirement or savings plans and certain other
arrangements is available toll-free from Merrill Lynch Business
Financial Services at (800) 237-7777.
Merrill Lynch Blueprint
SM
Program. Class
B shares are offered to certain participants in Blueprint.
Blueprint is directed to small investors, group IRAs and
participants in certain affinity groups such as trade
associations and credit unions. Class B shares of the Fund are
offered through Blueprint only to members of certain affinity
groups. The CDSC is waived in connection with purchase orders
placed through Blueprint. Services, including the exchange
privilege, available to Class B investors through Blueprint,
however, may differ from those available to other Class B
investors. Orders for purchases and redemptions of Class B shares
of the Fund will be grouped for execution purposes which, in some
circumstances, may involve the execution of such orders two
business days following the day such orders are placed. The
minimum initial purchase price is $100, with a $50 minimum for
subsequent purchases through Blueprint. There is no minimum
initial or subsequent purchase requirement for investors who are
part of a Blueprint automatic investment plan. Additional
information concerning these Blueprint programs, including any
annual fees or transaction charges, is available from Merrill
Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
Conversion of Class B Shares to Class D Shares.
After approximately eight years (the
“Conversion Period”), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares are
subject to an ongoing account maintenance fee of 0.25% of average
daily net assets but are not subject to the distribution fee that
is borne by Class B shares. Automatic conversion of Class B
shares into Class D shares will occur at least once each month
(on the “Conversion Date”) on the basis of the relative
net asset value of the shares of the two classes on the
Conversion Date, without the imposition of any sales load, fee or
other charge. Conversion of Class B shares to Class D shares will
not be deemed a purchase or sale of the shares for Federal income
tax purposes.
In
addition, shares purchased through reinvestment of dividends on
Class B shares also will convert automatically to Class D shares.
The Conversion Date for dividend reinvestment shares will be
calculated taking into account the length of time the shares
underlying such dividend reinvestment shares were outstanding. If
at the Conversion Date the conversion of Class B shares to Class
D shares of the Fund in a single account will result in less than
$50 worth of Class B shares being left in the account, all of the
Class B shares of the Fund held in the account on the Conversion
Date will be converted to Class D shares of the Fund.
In
general, Class B shares of equity Select Pricing Funds will
convert approximately eight years after initial purchase and
Class B shares of taxable and tax-exempt fixed income Select
Pricing Funds will convert approximately ten years after initial
purchase. If, during the Conversion Period, a shareholder
exchanges Class B shares with an eight-year Conversion Period for
Class B shares with a ten-year Conversion Period, or vice versa,
the Conversion Period applicable to the Class B shares acquired
in the exchange will apply and the holding period for the shares
exchanged will be tacked on to the holding period for the shares
acquired. The Conversion Period also may be modified for
investors that participate in certain fee-based programs. See
“Shareholder Services —Fee-Based Programs.
”
Class B shareholders of the Fund exercising the exchange
privilege described under “Shareholder Services
—Exchange Privilege” will continue to be subject to the
Fund’s CDSC schedule if such schedule is higher than the
CDSC schedule relating to the Class B shares acquired as a result
of the exchange.
Share certificates for Class B shares of the Fund to be
converted must be delivered to the Transfer Agent at least one
week prior to the Conversion Date applicable to those shares. In
the event such certificates are not received by the Transfer
Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next
scheduled Conversion Date after such certificates are
delivered.
Contingent Deferred Sales Charges —
Class C Shares
Class C shares that are redeemed within one year of
purchase may be subject to a 1.0% CDSC charged as a percentage of
the dollar amount subject thereto. In determining whether a Class
C CDSC is applicable to a redemption, the calculation will be
determined in the manner that results in the lowest possible rate
being charged. The charge will be assessed on an amount equal to
the lesser of the proceeds of redemption or the cost of the
shares being redeemed. Accordingly, no Class C CDSC will be
imposed on increases in net asset value above the initial
purchase price. In addition, no Class C CDSC will be assessed on
shares derived from reinvestment of dividends. It will be assumed
that the redemption is first of shares held for over one year or
shares acquired pursuant to reinvestment of dividends and then of
shares held longest during the one-year period. A transfer of
shares from a shareholder’s account to another account will
be assumed to be made in the same order as a redemption. The
Class C CDSC may be waived in connection with involuntary
termination of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic Withdrawal
Plans.
Class B and Class C Sales Charge
Information
Class B Shares*
|
For the
Fiscal Year
Ended July 31
|
|
CDSCs
Received
by Distributor
|
|
CDSCs Paid
to
Merrill Lynch
|
| 1999 |
|
$109,392 |
|
$109,392 |
| 1998 |
|
$
44,463 |
|
$
44,463 |
| 1997 |
|
$
74,947 |
|
$
74,947 |
|
* Additional
Class B CDSCs payable to the Distributor may have been waived
or converted to a contingent obligation in connection with a
shareholder’s participation in certain fee-based
programs.
|
Class C Shares
|
For the
Fiscal Year
Ended July 31
|
|
CDSCs
Received
by Distributor
|
|
CDSCs Paid
to
Merrill Lynch
|
| 1999 |
|
$2,528 |
|
$2,528 |
| 1998 |
|
$1,695 |
|
$1,695 |
| 1997 |
|
$1,310 |
|
$1,310 |
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 Plan for each of the Class B, Class C and
Class D shares 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 Plan for each of the Class B and Class C
shares 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 Trustees must
consider all factors they deem relevant, including information as
to the benefits of the Distribution Plan to the Fund and each
related class of shareholders. Each Distribution Plan further
provides that, so long as the Distribution Plan remains in
effect, the selection and nomination of non-interested Trustees
shall be committed to the discretion of the non-interested
Trustees then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the non-interested Trustees concluded
that there is reasonable likelihood that each Distribution Plan
will benefit the Fund and its related class of shareholders. Each
Distribution Plan can be terminated at any time, without penalty,
by the vote of a majority of the non-interested Trustees 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 Trustees, including a majority of the
non-interested Trustees 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 Trustees 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
Trustees 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 $6,667,000 (8.25% of
Class B net assets at that date). As of July 31, 1999, direct
cash revenues for the period since the commencement of operations
of Class B shares exceeded direct cash expenses by $18,395,583
(24.42% 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 expenses by approximately $9,000 (.19% of Class
C net assets at that date). As of July 31, 1999, direct cash
revenues for the period since the commencement of operations of
Class C shares exceeded direct cash expenses by $95,386 (1.78% of
Class C net assets at that date).
For the fiscal year ended July 31, 1999, the Fund paid the
Distributor $769,537 pursuant to the Class B Distribution Plan
(based on average daily net assets subject to such Class B
Distribution Plan of approximately $77.2 million), all of which
was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with
Class B shares. For the fiscal year ended July 31, 1999, the Fund
paid the Distributor $48,535 pursuant to the Class C Distribution
Plan (based on average daily net assets subject to such Class C
Distribution Plan of approximately $4.9 million), all of which
was paid to Merrill Lynch for providing account maintenance and
distribution-related activities and services in connection with
Class C shares. For the fiscal year ended July 31, 1999, the Fund
paid the Distributor $269,815 pursuant to the Class D
Distribution Plan (based on average daily net assets subject to
such Class D Distribution Plan of approximately $108.2 million),
all of which was paid to Merrill Lynch for providing account
maintenance activities in connection with Class D
shares.
Limitations on the Payment of Deferred Sales
Charges
The maximum sales charge rule in the Conduct Rules of the
NASD imposes a limitation on certain asset-based sales charges
such as the distribution fee and the CDSC borne by the Class B
and Class C shares but not the account maintenance fee. The
maximum sales charge rule is applied separately to each class. As
applicable to the Fund, the maximum sales charge rule limits the
aggregate of distribution fee payments and CDSCs payable by the
Fund to (1) 6.25% of eligible gross sales of Class B shares and
Class C shares, computed separately (defined to exclude shares
issued pursuant to dividend reinvestments and exchanges), plus
(2) interest on the unpaid balance for the respective class,
computed separately, at the prime rate plus 1% (the unpaid
balance being the maximum amount payable minus amounts received
from the payment of the distribution fee and the CDSC). In
connection with the Class B shares, the Distributor has
voluntarily agreed to waive interest charges on the unpaid
balance in excess of 0.50% of eligible gross sales. Consequently,
the maximum amount payable to the Distributor (referred to as the
“voluntary maximum”) in connection with the Class B
shares is 6.75% of eligible gross sales. The Distributor retains
the right to stop waiving the interest charges at any time. To
the extent payments would exceed the voluntary maximum, the Fund
will not make further payments of the distribution fee with
respect to Class B shares and any CDSCs will be paid to the Fund
rather than to the Distributor; however, the Fund will continue
to make payments of the account maintenance fee. In certain
circumstances the amount payable pursuant to the voluntary
maximum may exceed the amount payable under the NASD formula. In
such circumstances payment in excess of the amount payable under
the NASD formula will not be made.
The following table sets forth comparative information as
of July 31, 1999 with respect to the Class B and Class C shares
of the Fund indicating the maximum allowable payments that can be
made under the NASD maximum sales charge rule and, with respect
to the Class B shares, the Distributor’s voluntary
maximum.
| |
|
Data Calculated as of July 31, 1999
|
| |
|
(in
thousands) |
| |
|
Eligible
Gross
Sales(1)
|
|
Allowable
Aggregate
Sales
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 November 25,
1987 (commencement of operations) to
July 31, 1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Under
NASD Rule as Adopted |
|
424,844 |
|
26,430 |
|
16,223 |
|
42,653 |
|
20,945 |
|
21,708 |
|
565 |
| Under
Distributor’s Voluntary Waiver |
|
424,844 |
|
26,430 |
|
2,247 |
|
28,677 |
|
20,945 |
|
7,732 |
|
565 |
|
Class C Shares, for the period October 21,
1994 (commencement of operations) to
July 31, 1999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Under
NASD Rule as Adopted |
|
6,263 |
|
392 |
|
65 |
|
457 |
|
106 |
|
351 |
|
40 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Purchase price of all eligible Class B or Class
C shares sold during the periods indicated other than shares
acquired through dividend reinvestment and the exchange
privilege.
|
(2)
|
Includes amounts attributable to exchanges from
Summit Cash Reserves Fund (“Summit”) which are not
reflected in Eligible Gross Sales. Shares of Summit can only be
purchased by exchange from another fund (the “redeemed fund
”). Upon such an exchange, the maximum allowable sales
charge payment to the redeemed fund is reduced in accordance
with the amount of the redemption. This amount is then added to
the maximum allowable sales charge payment with respect to
Summit. Upon an exchange out of Summit, the remaining balance
of this amount is deducted from the maximum allowable sales
charge payment to Summit and added to the maximum allowable
sales charge payment to the fund into which the exchange is
made.
|
(3)
|
Interest is computed on a monthly basis based
upon the prime rate, as reported in The Wall Street
Journal, plus 1.0%, as permitted under the NASD
Rule.
|
(4)
|
Consists of CDSC payments, distribution fee
payments and accruals. See “What are the Fund’s fees
and expenses?” in the Prospectus. Of the distribution fee
payments made with respect to Class B shares prior to July 6,
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. This figure may include CDSCs
that were deferred when a shareholder redeemed shares prior to
the expiration of the applicable CDSC period and invested the
proceeds, without the imposition of a sales charge, in Class A
shares in conjunction with the shareholder’s participation
in the Merrill Lynch Mutual Fund Advisor (Merrill Lynch
MFA
SM
) Program (the “MFA Program”). The
CDSC is booked as a contingent obligation that may be payable
if the shareholder terminates participation in the MFA
Program.
|
(5)
|
Provided to illustrate the extent to which the
current level of distribution fee payments (not including any
CDSC payments) is amortizing the unpaid balance. No assurance
can be given that payments of the distribution fee will reach
either the voluntary maximum (with respect to Class B shares)
or the NASD maximum (with respect to Class B and Class C
shares).
|
Reference is made to “How to Buy, Sell, Transfer and
Exchange Shares” in the Prospectus.
The Fund is required to redeem for cash all shares of the
Fund upon receipt of a written request in proper form. The
redemption price is the net asset value per share next determined
after the initial receipt of proper notice of redemption. Except
for any CDSC that may be applicable, there will be no charge for
redemption if the redemption request is sent directly to the
Transfer Agent. Shareholders liquidating their holdings will
receive upon redemption all dividends reinvested through the date
of redemption.
The right to redeem shares or to receive payment with
respect to any such redemption may be suspended for more than
seven days only for any period during which trading on the New
York Stock Exchange (the “NYSE”) is restricted as
determined by the Commission or the NYSE is closed (other than
customary weekend and holiday closings), for any period during
which an emergency exists as defined by the Commission as a
result of which disposal of portfolio securities or determination
of the net asset value of the Fund is not reasonably practicable,
and for such other periods as the Commission may by order permit
for the protection of shareholders of the Fund.
The value of shares at the time of redemption may be more
or less than the shareholder’s cost, depending in part on
the net asset value of such shares at such time.
A
shareholder wishing to redeem shares held with the Transfer Agent
may do so without charge by tendering the shares directly to the
Transfer Agent at Financial Data Services, Inc., P.O. Box 45289,
Jacksonville, Florida 32232-5289. Redemption requests delivered
other than by mail should be delivered to Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484. Proper notice of redemption in the case of shares
deposited with the Transfer Agent may be accomplished by a
written letter requesting redemption. Proper notice of redemption
in the case of shares for which certificates have been issued may
be accomplished by a written letter as noted above accompanied by
certificates for the shares to be redeemed. Redemption requests
should not be sent to the Fund. The redemption request in either
event requires the signature(s) of all persons in whose name(s)
the shares are registered, signed exactly as such name(s)
appear(s) on the Transfer Agent’s register. The signature(s)
on the redemption requests may require a guarantee by an
“eligible guarantor institution” as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), the existence and validity of
which may be verified by the Transfer Agent through the use of
industry publications. In the event a signature guarantee is
required, notarized signatures are not sufficient. In general,
signature guarantees are waived on redemptions of less than
$50,000 as long as the following requirements are met: (i) all
requests require the signature(s) of all person(s) whose name(s)
shares are recorded on the Transfer Agent’s register; (ii)
all checks must be mailed to the stencil address of record on the
Transfer Agent’s register and (iii) the stencil address must
not have changed within 30 days. Certain rules may apply
regarding certain account types such as, but not limited to,
UGMA/UTMA accounts, Joint Tenancies with Rights of Survivorship,
contra broker transactions, and institutional accounts. In
certain instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments, death
certificates, appointments as executor or administrator, or
certificates of corporate authority. For shareholders redeeming
directly with the Transfer Agent, payments will be mailed within
seven days of receipt of a proper notice of
redemption.
At
various times the Fund may be requested to redeem shares for
which it has not yet received good payment (e.g., cash,
Federal funds or certified check drawn on a U.S. bank). The Fund
may delay or cause to be delayed the mailing of a redemption
check until such time as it has assured itself that good payment
(e.g., cash, Federal funds or certified check drawn on a
U.S. bank) has been collected for the purchase of such Fund
shares, which will usually not exceed 10 days.
The Fund also will repurchase Fund shares through a
shareholder’s listed securities dealer. The Fund normally
will accept orders to repurchase Fund shares by wire or telephone
from dealers for their customers at the net asset value next
computed after the order is placed. Shares will be priced at the
net asset value calculated on the day the request is received,
provided that the request for repurchase is submitted to the
dealer prior to the regular close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) and such
request is received by the Fund from such dealer not later than
30 minutes after the close of business on the NYSE on the same
day. Dealers have the responsibility of submitting such
repurchase requests to the Fund not later than 30 minutes after
the close of business on the NYSE, in order to obtain that day
’s closing price.
The foregoing repurchase arrangements are for the
convenience of shareholders and do not involve a charge by the
Fund (other than any applicable CDSC). Securities firms that do
not have selected dealer agreements with the Distributor,
however, may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch
may charge its customers a processing fee (presently $5.35) to
confirm a repurchase of shares to such customers. Repurchases
made directly through the Transfer Agent on accounts held at the
Transfer Agent are not subject to the processing fee. The Fund
reserves the right to reject any order for repurchase, which
right of rejection might adversely affect shareholders seeking
redemption through the repurchase procedure. However, a
shareholder whose order for repurchase is rejected by the Fund
may redeem Fund shares as set forth above.
Reinstatement Privilege — Class A and Class D
Shares
Shareholders who have redeemed their Class A or Class D
shares of the Fund have a privilege to reinstate their accounts
by purchasing Class A or Class D shares, as the case may be, of
the Fund at net asset value without a sales charge up to the
dollar amount redeemed. The reinstatement privilege may be
exercised by sending a notice of exercise along with a check for
the amount to be reinstated to the Transfer Agent within 30 days
after the date the request for redemption was accepted by the
Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor
’s Merrill Lynch Financial Consultant within 30 days after
the date the request for redemption was accepted by the Transfer
Agent or the Distributor. The reinstatement will be made at the
net asset value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the
redemption proceeds.
Determination of Net Asset Value
Reference is made to “How Shares are Priced” in
the Prospectus.
The net asset value of the shares of all classes of the
Fund is determined once daily Monday through Friday after the
close of business on the NYSE on each day the NYSE is open for
trading, 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 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. Short positions in securities traded in the OTC market
are valued at the last available ask price in the OTC market
prior to the time of valuation. Portfolio securities that are
traded both in the OTC market and on a stock exchange are valued
according to the broadest and most representative market. When
the Fund writes an option, the amount of the premium received is
recorded on the books of the Fund as an asset and an equivalent
liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based
upon the last sale price in the case of exchange-traded options
or, in the case of options traded in the OTC market, the last
asked price. Options purchased by the Fund are valued at their
last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last bid price.
Other investments, including
financial futures contracts and related options, are stated at
market value. Securities and assets for which market quotations
are not readily available are 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 will not be reflected in the computation of the Fund’s
net asset value.
Computation of Offering Price Per Share
An
illustration of the computation of the offering price for Class
A, Class B, Class C and Class D shares of the Fund based on the
value of the Fund’s net assets and number of shares
outstanding on July 31, 1999 is set forth below.
| |
|
Class
A
|
|
Class
B
|
|
Class
C
|
|
Class
D
|
| Net
Assets |
|
$25,476,997 |
|
$75,329,703 |
|
$5,346,549 |
|
$127,743,408 |
| |
|
|
|
|
|
|
|
|
| Number
of Shares Outstanding |
|
1,784,846 |
|
5,270,594 |
|
378,039 |
|
8,953,722 |
| |
|
|
|
|
|
|
|
|
Net
Asset Value Per Share (net assets divided
by number of shares
outstanding) |
|
$
14.27 |
|
$
14.29 |
|
$
14.14 |
|
$
14.27 |
Sales
Charge (for Class A and Class D shares:
5.25% of offering price; 5.54% of
net asset
value per share)* |
|
.79 |
|
** |
|
** |
|
.79 |
| |
|
|
|
|
|
|
|
|
| Offering Price |
|
$
15.06 |
|
$
14.29 |
|
$
14.14 |
|
$
15.06 |
| |
|
|
|
|
|
|
|
|
*
|
Rounded to the nearest one-hundredth percent;
assumes maximum sales charge is applicable.
|
**
|
Class B and Class C shares are not subject to an
initial sales charge but may be subject to a CDSC on redemption
of shares. See “Purchase of Shares —
Deferred Sales Charge Alternatives —
Class B and Class C Shares” herein.
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Board of Trustees of
the Fund, 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 broker or
group of brokers in the execution of transactions in portfolio
securities and does not use any particular broker or dealer. In
executing transactions with brokers and dealers, the Manager
seeks to obtain the best net results for the Fund, taking into
account such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm and the firm
’s risk in positioning a block of securities. While the
Manager generally seeks reasonably competitive commission rates,
the Fund does not necessarily pay the lowest spread or commission
available. In addition, consistent with the Conduct Rules of the
NASD and policies established by the Board of 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; however, whether or not a
particular broker or dealer sells shares of the Fund neither
qualifies nor disqualifies such broker or dealer to execute
transactions for the Fund.
Subject to obtaining the best net results, brokers who
provide supplemental investment research services to the Manager
may receive orders for transactions by the Fund. Such
supplemental research services ordinarily consist of assessments
and analyses of the business or prospects of a company, industry
or economic sector. Information so received will be in addition
to and not in lieu of the services required to be performed by
the Manager under the Management Agreement, and the expenses of the
Manager will not necessarily be reduced as a result of the
receipt of such supplemental information. If in the judgment of
the Manager the Fund will benefit from supplemental research
services, the Manager is authorized to pay brokerage commissions
to a broker furnishing such services that are in excess of
commissions that another broker may have charged for effecting
the same transaction. Certain supplemental research services may
primarily benefit one or more other investment companies or other
accounts for which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of the
supplemental research services received as a result of portfolio
transactions effected for such other accounts or investment
companies.
The Fund anticipates that its brokerage transactions involving
securities of issuers domiciled in countries other than the
United States generally will be conducted primarily on the
principal stock exchanges of such countries. Brokerage
commissions and other transaction costs on foreign stock exchange
transactions generally are higher than in the United States,
although the Fund will endeavor to achieve the best net results
in effecting its portfolio transactions. There generally is less
government supervision and regulation of foreign stock exchanges
and brokers than in the United States.
Information about the brokerage commissions paid by the
Fund, including commissions paid to Merrill Lynch, is set forth
in the following table:
Fiscal Year
Ended July 31,
|
|
Brokerage
Commissions Paid
|
|
Commissions
Paid
to Merrill Lynch
|
| 1999 |
|
$114,279 |
|
$22,980 |
| 1998 |
|
$205,336 |
|
$
7,029 |
| 1997 |
|
$
82,194 |
|
$
8,080 |
For the fiscal year ended July 31, 1999, the brokerage
commissions paid to Merrill Lynch represented 20.11% of the
aggregate brokerage commissions paid and involved 17.59% of the
Fund’s aggregate dollar amount of transactions involving
payment of commissions during the year.
The Fund may invest in certain securities in the OTC market
and intends to deal directly with the dealers who make a market
in securities involved, except in those circumstances in which
better prices and execution are available elsewhere. Under the
Investment Company Act, persons affiliated with the Fund are
prohibited from dealing with the Fund as principal in the
purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Commission. Since
transactions in the OTC market usually involve transactions with
dealers acting as principal for their own accounts, the Fund will
not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions. However, an
affiliated person of the Fund may serve as its broker in OTC
transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated
broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable
transactions. In addition, the Fund may not purchase securities
during the existence of any underwriting syndicate for such
securities of which Merrill Lynch is a member or in a private
placement in which Merrill Lynch serves as placement agent except
pursuant to procedures 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. See
“Investment Objective and Policies —
Investment Restrictions.”
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
the aggregate compensation received by the member in effecting
such transactions, and (iii) complies with any rules the
Commission has prescribed with respect to the requirements of
clauses (i) and (ii). To the extent Section 11(a) would apply to
Merrill Lynch acting as a broker for the Fund in any of its
portfolio transactions executed on any such securities exchange
of which it is a member, appropriate consents have been obtained
from the Fund and annual statements as to aggregate compensation
will be provided to the Fund.
The Board of Trustees of the Fund has considered the
possibility of seeking to recapture for the benefit of the Fund
brokerage commissions and other expenses of possible portfolio
transactions by conducting portfolio transactions through
affiliated entities. For example, brokerage commissions received
by affiliated brokers could
be offset against the advisory fee paid by the Fund to the Manager.
After considering all factors deemed relevant, the Board of
Trustees made a determination not to seek such recapture. The
Board will reconsider this matter from time to time.
Because of different objectives or other factors, a
particular security may be bought for one or more clients of the
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 acts as manager, transactions
in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all.
To the extent that transactions on behalf of more than one client
of the 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 orders through the
Merrill Lynch Blueprint
SM
Program.
Each shareholder whose account is maintained at the
Transfer Agent has an Investment Account and will receive
statements, at least quarterly, from the Transfer Agent. These
statements will serve as transaction confirmations for automatic
investment purchases and the reinvestment of dividends. The
statements will also show any other activity in the account since
the preceding statement. Shareholders will also receive separate
confirmations for each purchase or sale transaction other than
automatic investment purchases and the reinvestment of dividends.
A shareholder with an account held at the Transfer Agent may make
additions to his or her Investment Account at any time by mailing
a check directly to the Transfer Agent. A shareholder may also
maintain an account through Merrill Lynch. Upon the transfer of
shares out of a Merrill Lynch brokerage account, an Investment
Account in the transferring shareholder’s name may be opened
automatically at the Transfer Agent.
Share certificates are issued only for full shares and only
upon the specific request of a shareholder who has an Investment
Account. Issuance of certificates representing all or only part
of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
Shareholders may transfer their Fund shares from Merrill
Lynch to another securities dealer that has entered into a
selected dealer agreement with Merrill Lynch. Certain shareholder
services may not be available for the transferred shares. After
the transfer, the shareholder may purchase additional shares of
funds owned before the transfer and all future trading of these
assets must be coordinated by the new firm. If a shareholder
wishes to transfer his or her shares to a securities dealer that
has not entered into a selected dealer agreement with Merrill
Lynch, the shareholder must either (i) redeem his or her shares,
paying any applicable CDSC or (ii) continue to maintain an
Investment Account at the Transfer Agent for those shares. The
shareholder may also request the new securities dealer to
maintain the shares in an account at the Transfer Agent
registered in the name of the securities dealer for the benefit
of the shareholder whether the securities dealer has entered into
a selected dealer agreement or not.
Shareholders considering transferring a tax-deferred
retirement account, such as an individual retirement account,
from Merrill Lynch to another securities dealer should be aware
that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of the Fund, a
shareholder must either redeem the shares, paying any applicable
CDSC, so that the cash proceeds can be transferred to the account
at the new firm, or such shareholder must continue to maintain a
retirement account at Merrill Lynch for those shares.
U.S. shareholders of each class of shares of the Fund have
an exchange privilege with certain other Select Pricing Funds and
Summit Cash Reserves Fund (“Summit”), a series of
Financial Institutions Series Trust, which is a Merrill
Lynch-sponsored money market fund specifically designated for
exchange by holders of Class A, Class B, Class C and Class D
shares of Select Pricing Funds. Shares with a net asset value of
at least $100 are required to qualify for the exchange privilege
and any shares utilized in an exchange must have been held by the
shareholder for at least 15 days. Before effecting an exchange,
shareholders should obtain a currently effective prospectus of
the fund into which the exchange is to be made. Exercise of the
exchange privilege is treated as a sale of the exchanged shares
and a purchase of the acquired shares for Federal income tax
purposes.
Exchanges of Class A and Class D Shares.
Class A shareholders may exchange Class A shares of the
Fund for Class A shares of a second Select Pricing Fund if the
shareholder holds any Class A shares of the second fund in the
account in which the exchange is made at the time of the exchange
or is otherwise eligible to purchase Class A shares of the second
fund. If the Class A shareholder wants to exchange Class A shares
for shares of a second Select Pricing Fund, but does not hold
Class A shares of the second fund in his or her account at the
time of the exchange and is not otherwise eligible to acquire
Class A shares of the second fund, the shareholder will receive
Class D shares of the second fund as a result of the exchange.
Class D shares also may be exchanged for Class A shares of a
second Select Pricing Fund at any time as long as, at the time of
the exchange, the shareholder holds Class A shares of the second
fund in the account in which the exchange is made or is otherwise
eligible to purchase Class A shares of the second fund. Class D
shares are exchangeable with shares of the same class of other
Select Pricing Funds.
Exchanges of Class A or Class D shares outstanding (
“outstanding Class A or Class D shares”) for Class A or
Class D shares of other Select Pricing Funds or Class A shares of
Summit (“new Class A or Class D shares”), are
transacted on the basis of relative net asset value per Class A
or Class D share, respectively, plus an amount equal to the
difference, if any, between the sales charge previously paid on
the outstanding Class A or Class D shares and the sales charge
payable at the time of the exchange on the new Class A or Class D
shares. With respect to outstanding Class A or Class D shares as
to which previous exchanges have taken place, the “sales
charge previously paid” shall include the aggregate of the
sales charges paid with respect to such Class A or Class D shares
in the initial purchase and any subsequent exchange. Class A or
Class D shares issued pursuant to dividend reinvestment are sold
on a no-load basis in each of the funds offering Class A or Class
D shares. For purposes of the exchange privilege, Class A or
Class D shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the sales
charge previously paid on the Class A or Class D shares on which
the dividend was paid. Based on this formula, Class A and Class D
shares generally may be exchanged into the Class A or Class D
shares, respectively, of the other funds with a reduced sales
charge or without a sales charge.
Exchanges of Class B and Class C Shares.
Certain Select Pricing Funds with Class B or Class C
shares outstanding (“outstanding Class B or Class C shares
”) offer to exchange their Class B or Class C shares for
Class B or Class C shares, respectively, of certain other Select
Pricing Funds or for Class B shares of Summit (“new Class B
or Class C shares”) on the basis of relative net asset value
per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding
shares. Class B shareholders of the Fund exercising the exchange
privilege will continue to be subject to the Fund’s CDSC
schedule if such schedule is higher than the CDSC schedule
relating to the new Class B shares acquired through use of the
exchange privilege. In addition, Class B shares of the Fund
acquired through use of the exchange privilege will be subject to
the Fund’s CDSC schedule if such schedule is higher than the
CDSC schedule relating to the Class B shares of the fund from
which the exchange has been made. For purposes of computing the
CDSC that may be payable on a disposition of the new Class B or
Class C shares, the holding period for the outstanding Class B or
Class C shares is “tacked” to the holding period of the
new Class B or Class C shares. For example, an investor may
exchange Class B shares of the Fund for those of Merrill Lynch
Special Value Fund, Inc. (“Special Value Fund”) after
having held the Fund’s Class B shares for two and a half
years. The 2% CDSC that generally would apply to a redemption
would not apply to the exchange. Three years later the investor
may decide to redeem the Class B shares of Special Value Fund and
receive cash. There will be no CDSC due on this redemption, since
by “tacking” the two and a half year holding period of
Fund Class B shares to the three-year holding period for the
Special Value Fund Class B shares, the investor will be deemed to
have held the Special Value Fund Class B shares for more than
five years. Shareholders of Merrill Lynch Senior Floating Rate
Fund II, Inc. have the option to exchange their shares of common
stock into Class C shares of certain Merrill Lynch-sponsored
open-end funds (“Eligible Class C shares”) at their net
value, without the imposition of any CDSC upon any subsequent
redemption of Eligible Class C shares. This investment option is
available only with respect to eligible shares of Merrill Lynch
Senior Floating Rate Fund II, Inc. as to which no Early
Withdrawal Charge 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 Class C
shares of the fund on such day.
Exchanges for Shares of a Money Market Fund.
Class A and Class D shares are exchangeable for
Class A shares of Summit and Class B and Class C shares are
exchangeable for Class B shares of Summit. Class A shares of
Summit have an exchange privilege back into Class A or Class D
shares of Select Pricing Funds; Class B shares of Summit have an
exchange privilege back into Class B or Class C shares of Select
Pricing Funds and, in the event of such an exchange, the period
of time that Class B shares of Summit are held will count toward
satisfaction of the holding period requirement for purposes of
reducing any CDSC and toward satisfaction of any Conversion
Period with respect to Class B shares. Class B shares of Summit
will be subject to a distribution fee at an annual rate of 0.75%
of average daily net assets of such Class B shares. This exchange
privilege does not apply with respect to certain Merrill Lynch
fee-based programs for which alternative exchange arrangements
may exist. Please see your Merrill Lynch Financial Consultant for
further information.
Prior to October 12, 1998, exchanges from the Fund and
other Select Pricing Funds into a money market fund were directed
to certain Merrill Lynch-sponsored money market funds other than
Summit. Shareholders who exchanged Select Pricing Fund shares for
shares of such other money market funds and subsequently wish to
exchange those money market fund shares for shares of the Fund
will be subject to the CDSC schedule applicable to such Fund
shares, if any. The holding period for the money market fund
shares will not count toward satisfaction of the holding period
requirement for reduction of the CDSC imposed on such shares, if
any, and, with respect to Class B shares, toward satisfaction of
the Conversion Period. However, the holding period for Class B or
Class C shares received in exchange for such money market fund
shares will be aggregated with the holding period for the
original 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 that participate in the MFA Program.
Such retirement plans may exchange Class B, Class C or Class D
shares that have been held for at least one year for Class A
shares of the same fund on the basis of relative net asset values
in connection with the commencement of participation in the MFA
Program, i.e., no CDSC will apply. The one year holding
period does not apply to shares acquired through reinvestment of
dividends. Upon termination of participation in the MFA Program,
Class A shares will be re-exchanged for the class of shares
originally held. For purposes of computing any CDSC that may be
payable upon redemption of Class B or Class C shares so
reacquired, or the Conversion Period for Class B shares so
reacquired, the holding period for the Class A shares will be
“tacked” to the holding period for the Class B or Class
C shares originally held. The Fund’s exchange privilege is
also modified with respect to purchases of Class A and Class D
shares by non-retirement plan investors under the MFA Program.
First, the initial allocation of assets is made under the MFA
Program. Then, any subsequent exchange under the MFA Program of
Class A or Class D shares of a Select Pricing Fund for Class A or
Class D shares of the Fund will be made solely on the basis of
the relative net asset values of the shares being exchanged.
Therefore, there will not be a charge for any difference between
the sales charge previously paid on the shares of the other
Select Pricing Fund and the sales charge payable on the shares of
the Fund being acquired in the exchange under the MFA
Program.
Exercise of the Exchange Privilege.
To exercise the exchange privilege, a shareholder
should contact his or her Merrill Lynch Financial Consultant, who
will advise the Fund of the exchange. Shareholders of the Fund,
and shareholders of the other Select Pricing Funds with shares
for which certificates have not been issued, may exercise the
exchange privilege by wire through their securities dealers. The
Fund reserves the right to require a properly completed Exchange
Application. This exchange privilege may be modified or
terminated in accordance with the rules of the Commission. The
Fund reserves the right to limit the number of times an investor
may
exercise the exchange privilege. Certain funds may suspend the
continuous offering of their shares to the general public at any
time and may thereafter resume such offering from time to time.
The exchange privilege is available only to U.S. shareholders in
states where the exchange legally may be made. It is contemplated
that the exchange privilege may be applicable to other new mutual
funds whose shares may be distributed by the
Distributor.
Certain Merrill Lynch fee-based programs, including pricing
alternatives for securities transactions (each referred to in
this paragraph as a “Program”), may permit the purchase
of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other
classes of shares which will be exchanged for Class A shares.
Initial or deferred sales charges otherwise due in connection
with such exchanges may be waived or modified, as may the
Conversion Period applicable to the deposited shares. Termination
of participation in a Program may result in the redemption of
shares held therein or the automatic exchange thereof to another
class at net asset value, which may be shares of a money market
fund. In addition, upon termination of participation in a
Program, shares that have been held for less than specified
periods within such Program may be subject to a fee based upon
the current value of such shares. These Programs also generally
prohibit such shares from being transferred to another account at
Merrill Lynch, to another broker-dealer or to the Transfer Agent.
Except in limited circumstances (which may also involve an
exchange as described above), such shares must be redeemed and
another class of shares purchased (which may involve the
imposition of initial or deferred sales charges and distribution
and account maintenance fees) in order for the investment not to
be subject to Program fees. Additional information regarding a
specific Program (including charges and limitations on
transferability applicable to shares that may be held in such
Program) is available in such Program’s client agreement and
from the Transfer Agent at 1-800-MER-FUND
(1(800)637-3863).
Retirement and Education Savings Plans
Individual retirement accounts and other retirement and
education savings plans are available from Merrill Lynch. Under
these plans, investments may be made in the Fund and certain of
the other mutual funds sponsored by Merrill Lynch as well as in
other securities. Merrill Lynch may charge an initial
establishment fee and an annual custodial fee for each account.
Information with respect to these plans is available on request
from Merrill Lynch.
Dividends received in each of the plans referred to above
are exempt from Federal taxation until distributed from the
plans. Different tax rules apply to Roth IRA plans and education
savings plans. Investors considering participation in any
retirement or education savings plan should review specific tax
laws relating thereto and should consult their attorneys or tax
advisers with respect to the establishment and maintenance of any
such plan.
Automatic Investment Plans
A
shareholder may make additions to an Investment Account at any
time by purchasing Class A shares (if he or she is an eligible
Class A investor) or Class B, Class C or Class D shares at the
applicable public offering price. These purchases may be made
either through the shareholder’s securities dealer, or by
mail directly to the Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation also can be made
through a service known as the Fund’s Automatic Investment
Plan. The Fund would be authorized, on a regular basis, to
provide systematic additions to the Investment Account of such
shareholder through charges of $50 or more to the regular bank
account of the shareholder by either pre-authorized checks or
automated clearing house debits. Alternatively, an investor who
maintains a CMA® or CBA® account may arrange to have
periodic investments made in the Fund in amounts of $100 ($1 for
retirement accounts) or more through the CMA® or CBA®
Automatic Investment Program.
Automatic Dividend Reinvestment Plan
Unless specific instructions are given as to the method of
payment, dividends will be automatically reinvested, without
sales charge, in additional full and fractional shares of the
Fund. Such reinvestment will be at the net asset value of shares
of the Fund as of the close of business on the NYSE on the
monthly payment date for such
dividends. No CDSC will be imposed upon redemption of shares issued
as a result of the automatic reinvestment of
dividends.
Shareholders may, at any time, by written notification to
Merrill Lynch if their account is maintained with Merrill Lynch,
or by written notification or by telephone (1-800-MER-FUND) to
the Transfer Agent, if their account is maintained with the
Transfer Agent, elect to have subsequent dividends, paid in cash,
rather than reinvested in shares of the Fund or vice versa
(provided that, in the event that a payment on an account
maintained at the Transfer Agent would amount to $10.00 or less,
a shareholder will not receive such payment in cash and such
payment will automatically be reinvested in additional shares).
Commencing ten days after the receipt by the Transfer Agent of
such notice, those instructions will be effected. The Fund is not
responsible for any failure of delivery to the shareholder’s
address of record and no interest will accrue on amounts
represented by uncashed dividend checks. Cash payments can also
be directly deposited to the shareholder’s bank
account.
Systematic Withdrawal Plan
A
shareholder may elect to receive systematic withdrawals from his
or her Investment Account by check or through automatic payment
by direct deposit to his or her bank account on either a monthly
or quarterly basis as provided below. Quarterly withdrawals are
available for shareholders that have acquired shares of the Fund
having a value, based on cost or the current offering price, of
$5,000 or more, and monthly withdrawals are available for
shareholders with shares having a value of $10,000 or
more.
At
the time of each withdrawal payment, sufficient shares are
redeemed from those on deposit in the shareholder’s account
to provide the withdrawal payment specified by the shareholder.
The shareholder may specify the dollar amount and the class of
shares to be redeemed. Redemptions will be made at net asset
value as determined after the close of business on the NYSE
(generally, the NYSE closes at 4:00 p.m., Eastern time) on the
24th day of each month or the 24th day of the last month of each
quarter, whichever is applicable. If the NYSE is not open for
business on such date, the shares will be redeemed at the close
of business on the following business day. The check for the
withdrawal payment will be 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® or CBA® Account may elect to have shares redeemed on
a monthly, bimonthly, quarterly, semiannual or annual basis
through the CMA® or CBA® Systematic Redemption Program.
The minimum fixed dollar amount redeemable is $50. The proceeds of
systematic redemptions will be posted to the shareholder’s
account three business days after the date the shares are
redeemed. All redemptions are made at net asset value. A
shareholder may elect to have his or her shares redeemed on the
first, second, third or fourth Monday of each month, in the case
of monthly redemptions, or of every other month, in the case of
bimonthly redemptions. For quarterly, semiannual or annual
redemptions, the shareholder may select the month in which the
shares are to be redeemed and may designate whether the
redemption is to be made on the first, second, third or fourth
Monday of the month. If the Monday selected is not a business
day, the redemption will be processed at net asset value on the
next business day. The CMA® or CBA® Systematic Redemption
Program is not available if Fund shares are being purchased
within the account pursuant to the Automatic Investment Program.
For more information on the CMA® or CBA® Systematic
Redemption Program, eligible shareholders should contact their
Merrill Lynch Financial Consultant.
The Fund intends to distribute all its net investment
income, if any. Dividends from such net investment income will be
paid quarterly. All net realized capital gains, if any, will be
distributed to the Fund’s shareholders at least annually.
From time to time, the Fund may declare a special dividend at or
about the end of the calendar year in order to comply with a
Federal tax requirement that certain percentages of its ordinary
income and capital gains be distributed during the calendar year.
See “Shareholder Services — Automatic
Dividend Reinvestment Plan” for information concerning the
manner in which dividends are reinvested automatically in shares
of the Fund. A shareholder whose account is maintained at the
Transfer Agent or whose account is maintained through Merrill
Lynch may elect in writing to receive any dividends in cash.
Dividends are taxable to shareholders, as discussed below,
whether they are reinvested in shares of the Fund or received in
cash. The per share dividends on Class B and Class C shares will
be lower than the per share dividends on Class A and Class D
shares as a result of the account maintenance, distribution and
higher transfer agency fees applicable with respect to the Class
B and Class C shares; similarly, the per share dividends on Class
D shares will be lower than the per share dividends on Class A
shares as a result of the account maintenance fees applicable
with respect to the Class D shares. See “Determination of
Net Asset Value.”
The Fund intends to continue to qualify for the special tax
treatment afforded regulated investment companies (“RICs
”) under the Internal Revenue Code of 1986, as amended (the
“Code”). As long as it so qualifies, the Fund (but not
its shareholders) will not be subject to Federal income tax on
the part of its net ordinary income and net realized capital
gains that it distributes to Class A, Class B, Class C and Class
D shareholders (together, the “shareholders”). The Fund
intends to distribute substantially all of such
income.
In
order to qualify, the Fund must among other things, (i) derive at
least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, gains from the sale of
securities, certain gains from foreign currencies, or other
income (including but not limited to gains from options, futures
or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; (ii)
distribute at least 90% of its dividend, interest and certain
other taxable income each year; (iii) at the end of each fiscal
quarter maintain at least 50% of the value of its total assets in
cash, government securities, securities of other RICs, and other
securities of issuers which represent, with respect to each
issuer, no more than 5% of the value of the Fund’s total
assets and 10% of the outstanding voting securities of such
issuer; and (iv) at the end of each fiscal quarter have no more
than 25% of its assets invested in the securities (other than
those of the government or other RICs) of any one issuer or of
two or more issuers which the Fund controls and which are engaged
in the same, similar or related trades and
businesses.
Dividends paid by the Fund from its ordinary income and
distributions of the Fund’s net realized short-term capital
gains (together referred to hereafter as “ordinary income
dividends”) are taxable to shareholders as ordinary
income.
Any net capital gains (i.e., the excess of net
capital gains from the sale of assets held for more than 12
months over net short-term capital losses, and including such
gains from certain transactions in futures and options) (
“capital gain dividends”) distributed to shareholders
will be taxable as capital gain to the shareholders, whether or
not reinvested and regardless of the length of time a shareholder
has owned his or her shares. The maximum capital gains rate for
individuals is 20%. The maximum capital gain rate for corporate
shareholders currently is the same as the maximum tax rate for
ordinary income.
Not later than 60 days after the close of its taxable year,
the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income dividends or
capital gain dividends. A portion of the Fund’s ordinary
income dividends may be eligible for the dividends received
deduction allowed to corporations under the Code, if certain
requirements are met. For this purpose, the Fund will allocate
dividends eligible for the dividends received deduction between
the Class A, Class B, Class C and Class D shareholders according
to a method (which it believes is consistent with the Commission
rule permitting the issuance and sale of multiple classes of
stock) that is based on the gross income allocable to the Class
A, Class B, Class C and Class D shareholders during the taxable
year, or such other method as the Internal Revenue Service may
prescribe. If the Fund pays a dividend in January that was
declared in the previous October, November or December to
shareholders of record on a specified date in one of such months,
then such dividend or distribution will be treated for tax
purposes as being paid by the RIC and received by its
shareholders on December 31 of the year in which such dividend
was declared.
Pursuant to the Fund’s investment objectives, the Fund
may invest in foreign securities. Foreign taxes may be paid by
the Fund as a result of tax laws of countries in which the Fund
may invest. Income tax treaties between certain countries and the
United States may reduce or eliminate such taxes. It is
impossible to determine in advance the effective rate of foreign
tax to which the Fund will be subject, since the amount of Fund
assets to be invested in various countries is not known. Because
the Fund limits its investment in foreign securities,
shareholders will not be entitled to claim foreign tax credits
with respect to their share of foreign taxes paid by the Fund on
income from investments of foreign securities held by the
Fund.
Under certain provisions of the Code, some shareholders may
be subject to a 31% withholding tax on dividends and redemption
payments (“backup withholding”). Generally,
shareholders subject to backup withholding will be those for whom
a certified taxpayer identification number is not 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 shareholder is not otherwise subject to backup
withholding.
Ordinary income dividends paid by the Fund to shareholders
who are non-resident aliens or foreign entities generally 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. Non-resident
shareholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding
tax.
No
gain or loss will be recognized by Class B shareholders on the
conversion of their Class B shares for 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.
Upon a sale or exchange of its shares, a shareholder will
realize a taxable gain or loss depending on its basis in the
shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder’s hands.
In the case of an individual, any such capital gain will be
treated as short-term capital gain if the shares were held for
not more than 12 months and long-term capital gain taxable at the
maximum of 20% if such shares were held for more than 12 months.
In the case of a corporation, any such capital gain will be
treated as long-term capital gain, taxable at the same rates as
ordinary income, if such shares were held for more than 12
months. Any such capital loss will be treated as long term
capital loss if such shares were held for more than 12
months.
Any loss from sale or exchange of shares held for six
months or less, however, will be treated as long-term capital
loss to the extent of any long-term capital gains dividends with
respect to such shares. 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).
Generally, any 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.
If
a shareholder exercises the exchange privilege within 90 days of
acquiring such shares, then the loss the shareholder can
recognize on the exchange will be reduced (or the gain increased)
to the extent the sales charge paid to the Fund reduces any
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.
The Code requires a RIC to pay a nondeductible 4% excise
tax to the extent the RIC does not distribute, during each
calendar year, 98% of its ordinary income, determined on a
calendar year basis, and 98% of its capital gains, determined, in
general, on an October 31 year end, plus certain undistributed
amounts from previous years. The Fund anticipates that it will
make sufficient timely distributions to avoid imposition of the
excise tax.
Tax Treatment of Options and Futures Transactions
The Fund may purchase or sell options and futures and
foreign currency options and futures, and related options on such
futures. 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 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 transactions in such option
and futures contracts will be 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 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 closing
transactions in options, futures and forward foreign exchange.
Similarly, Code Section 1091, which deals with “wash sales,
” may cause the Fund to postpone recognition of certain
losses for tax purposes; and Code Section 1258, which deals with
“conversion transactions,” may apply to recharacterize
certain capital gains as ordinary income for tax purposes, and
Code Section 1259, which deals with “constructive sales
” of appreciated financial positions (e.g. stock),
may treat the Fund as having recognized income before the time
that such income is economically recognized by the
Fund.
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,
futures or forward foreign exchange contracts will be valued for
purposes of the RIC diversification requirements applicable to
the Fund.
Under Code Section 988, special rules are provided for
certain transactions in a foreign currency other than the taxpayer
’s functional currency (i.e., unless certain special
rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from certain forward contracts,
from futures contracts that are not “regulated futures
contracts” and from unlisted options will be treated as
ordinary income or loss under Code Section 988. In certain
circumstances, the Fund may elect capital gain or loss treatment
for such transactions. In
general, however, Code Section 988 gains or losses will increase or
decrease the amount of the Fund’s investment company taxable
income available to be distributed to shareholders as ordinary
income dividends. 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 dividends
and any 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 each shareholder’s
basis in the Fund shares.
The foregoing is a general and abbreviated summary of the
applicable provisions of the Code and the 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 or
administrative action either prospectively or
retroactively.
Dividends and gains on the sale or exchange of shares in
the Fund may also be subject to state and local
taxes.
Shareholders are urged to consult their own tax advisers
regarding specific questions as to Federal, state, local or
foreign taxes. Foreign investors should consider applicable
foreign taxes in their evaluation of an investment in the
Fund.
From time to time, the Fund may include its average annual
total return and other total return data in advertisements or
information furnished to present or prospective shareholders.
Total return figures are based on the Fund’s historical
performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A,
Class B, Class C and Class D shares in accordance with formulas
specified by the Commission.
Average annual total return quotations for the specified
periods are computed by finding the average annual compounded
rates of return (based on net investment income and any realized
and unrealized capital gains or losses on portfolio investments
over such periods) that would equate the initial amount invested
to the redeemable value of such investment at the end of each
period. Average annual total return is computed assuming all
dividends and distributions are reinvested and taking into
account all applicable recurring and nonrecurring expenses,
including the maximum sales charge in the case of Class A and
Class D shares and the CDSC that would be applicable to a
complete redemption of the investment at the end of the specified
period as in the case of Class B and Class C shares and the
maximum sales charge in the case of Class A and Class D shares.
Dividends paid by the Fund with respect to all shares, to the
extent any dividends are paid, will be calculated in the same
manner at the same time on the same day and will be in the same
amount, except that account maintenance and distribution charges
and any incremental transfer agency costs relating to each class
of shares will be borne exclusively by that class. The Fund will
include performance data for all classes of shares of the Fund in
any advertisement or information including performance data of
the Fund.
The Fund also may quote annual, average annual and
annualized total return and aggregate total return performance
data, both as a percentage and as a dollar amount based on a
hypothetical $1,000 investment, for various periods other than
those noted below. Such data will be computed as described above,
except that (1) as required by the periods of the quotations,
actual annual, annualized or aggregate data, rather than average
annual data, may be quoted and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized
rates of return calculations. Aside from the impact on the
performance data calculations of including or excluding the
maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual
total return data since the average rates of return reflect
compounding of return; aggregate total return data generally will
be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer
period of time. In advertisements distributed to investors whose
purchases are subject to waiver of the CDSC in the case of Class
B and Class C shares (such as investors in certain retirement
plans) or to reduced sales loads in the case of Class A and Class
D shares, the performance data may take into account the reduced,
and not the maximum, sales charge or may take into account the
waiver of the CDSC and therefore may reflect greater total return
since, due to the reduced sales charges or the waiver of the
CDSC, a lower amount of expenses is deducted. The Fund’s total
return may be expressed either as a percentage or as a dollar
amount in order to illustrate such total return on a hypothetical
$1,000 investment in the Fund at the beginning of each specified
period.
Set forth below is total return information for the Class
A, Class B, Class C and Class D shares of the Fund for the
periods indicated.
| |
|
Class A Shares
|
|
Class B Shares
|
Period
|
|
Expressed
as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable
Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed
as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable
Value
of a hypothetical
$1,000 investment
at the end of
the period
|
| |
|
Average Annual Total
Return |
| |
|
(including maximum applicable sales
charges) |
| One
Year Ended July 31, 1999 |
|
8.16% |
|
$1,081.60 |
|
9.16% |
|
$1,091.60 |
| Five
Years Ended July 31, 1999 |
|
17.81% |
|
$2,269.80 |
|
17.88% |
|
$2,276.00 |
| Ten
Years Ended July 31, 1999 |
|
11.90% |
|
$3,077.70 |
|
11.35% |
|
$2,930.80 |
| |
|
| |
|
Annual Total Return |
| |
|
(excluding maximum applicable sales
charges) |
| Year
Ended July 31, |
| 1999 |
|
14.15% |
|
$1,141.50 |
|
12.96% |
|
$1,129.60 |
| 1998 |
|
12.03% |
|
$1,120.30 |
|
10.94% |
|
$1,109.40 |
| 1997 |
|
40.42% |
|
$1,404.20 |
|
38.90% |
|
$1,389.00 |
| 1996 |
|
16.98% |
|
$1,169.80 |
|
15.89% |
|
$1,158.90 |
| 1995 |
|
14.04% |
|
$1,140.40 |
|
12.82% |
|
$1,128.20 |
| 1994 |
|
2.38% |
|
$1,023.80 |
|
1.30% |
|
$1,013.00 |
| 1993 |
|
10.03% |
|
$1,100.30 |
|
8.90% |
|
$1,089.00 |
| 1992 |
|
11.96% |
|
$1,119.60 |
|
10.85% |
|
$1,108.50 |
| 1991 |
|
6.25% |
|
$1,062.50 |
|
5.14% |
|
$1,051.40 |
| 1990 |
|
1.20% |
|
$1,012.00 |
|
0.15% |
|
$1,001.50 |
| |
|
| |
|
Aggregate Total Return |
| |
|
(including maximum applicable sales
charges) |
Inception (November 29, 1988) to
July 31, 1999 |
|
275.56% |
|
$3,755.60 |
|
—
|
|
—
|
Inception (November 25, 1987) to
July 31, 1999 |
|
—
|
|
—
|
|
298.54% |
|
$3,985.40 |
|
| |
|
Class C Shares
|
|
Class D Shares
|
Period
|
|
Expressed
as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable
Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed
as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable
Value
of a hypothetical
$1,000 investment
at the end of
the period
|
| |
|
Average Annual Total
Return |
| |
|
(including maximum applicable sales
charges) |
| One
Year Ended July 31, 1999 |
|
12.01% |
|
$1,120.10 |
|
7.90% |
|
$1,079.00 |
Inception (October 21, 1994) to
July 31, 1999 |
|
18.87% |
|
$2,282.50 |
|
18.48% |
|
$2,247.60 |
| |
|
Annual Total Return |
| |
|
(excluding maximum applicable sales
charges) |
| Year
Ended July 31, |
| 1999 |
|
12.96 |
% |
|
$1,129.60 |
|
13.88 |
% |
|
$1,138.80 |
| 1998 |
|
10.96 |
% |
|
$1,109.60 |
|
11.84 |
% |
|
$1,118.40 |
| 1997 |
|
38.84 |
% |
|
$1,388,40 |
|
39.99 |
% |
|
$1,399.90 |
| 1996 |
|
15.78 |
% |
|
$1,157.80 |
|
16.73 |
% |
|
$1,167.30 |
Inception (October 21, 1994) to
July 31, 1995 |
|
13.30 |
% |
|
$1,133.00 |
|
13.98 |
% |
|
$1,139.80 |
| |
|
| |
|
Aggregate Total Return |
| |
|
(including maximum applicable sales
charges) |
Inception (October 21, 1994) to
July 31, 1999 |
|
128.25 |
% |
|
$2,282.50 |
|
124.76 |
% |
|
$2,247.60 |
In
order to reflect the reduced sales charges in the case of Class A
or Class D shares, or the waiver of the CDSC in the case of Class
B or Class C shares applicable to certain investors, as described
under “Purchase of Shares,” the total return data
quoted by the Fund in advertisements directed to such investors
may take into account the reduced, and not the maximum, sales
charge or may not take into account the CDSC, and therefore may
reflect greater total return since, due to the reduced sales
charges or the waiver of CDSCs, a lower amount of expenses may be
deducted.
On
occasion, the Fund may compare its performance to various indices
including the Standard & Poors 500 Composite Stock Price
Index, the Dow Jones Industrial Average, other market indexes or
performance data published by Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., Money Magazine, U.S. News
& World Report, Business Week, CDA Investment Technology,
Inc., 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 risk-adjusted performance
ratings in advertisements or supplemental sales literature. As
with other performance data, performance comparisons should not
be considered indicative of the Fund’s relative performance
for any future period.
Total return figures are based on the Fund’s
historical performance and are not intended to indicate future
performance. The Fund’s total return will vary depending on
market conditions, the securities comprising the Fund’s
portfolio, the Fund’s operating expenses and the amount of
realized and unrealized net capital gains or losses during the
period. The value of an investment in the Fund will fluctuate and
an investor’s shares, when redeemed, may be worth more or
less than their original cost.
The Declaration of Trust of the Fund permits the Trustees
to issue an unlimited number of full and fractional shares of
beneficial interest, par value $0.10 per share, of different
classes and to divide or combine the shares of each class into a
greater or lesser number of shares without thereby changing the
proportionate beneficial interest 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.
Under the Declaration of Trust, the Trustees have the authority
to issue separate classes of shares that represent interests in
the assets of the Fund and have identical voting, dividend,
liquidation and other rights and the same terms and conditions
except that expenses related to the account maintenance and
distribution of the shares of a class may be borne solely by such
class and a class may have exclusive voting rights with respect
to matters relating to the account maintenance and distribution
expenses being borne only by such class. The Trustees of the Fund
may classify and reclassify the shares of the Fund into
additional classes of shares at a future date. Upon liquidation
of the Fund, shareholders of each class are entitled to share pro
rata in the net assets of the Fund available for distribution to
shareholders, except for any expenses which may be attributable
only to one class. Shares have no preemptive rights. The rights
of redemption, conversion and exchange are described elsewhere
herein and in the Prospectus. Shares are fully paid and
non-assessable by the Fund.
The Declaration of Trust of the Fund does not require that
the Fund hold an annual meeting of shareholders. However, the
Fund will be required to call special meetings 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 of a change in the
fundamental policies, objectives or restrictions of the Fund. The
Fund also would be required to hold a special shareholders’
meeting to elect new Trustees at such time as less than a
majority of the Trustees holding office have been elected by
shareholders. The Declaration provides that a shareholders’
meeting may be called for any reason at the request of 10% of the
outstanding shares of the Fund or by majority of the
Trustees.
Shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held in the
election of Trustees (to the extent hereinafter provided) and on
other matters submitted to vote of shareholders, except that
shareholders of the class bearing distribution and account
maintenance expenses as provided above shall have exclusive
voting rights with respect to matters relating to such
distribution and account maintenance expenditures (except that
Class B shareholders may vote upon any material changes to
expenses charged under the Class D Distribution Plan). Voting
rights are not cumulative, so that the holders of more than 50%
of the shares voting in the election of Trustees can, if they
choose to do so, elect all the Trustees of the Fund, in which
event the holders of the remaining shares are unable to elect any
person as a Trustee.
Deloitte & Touche LLP
, 117 Campus Drive, 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.
State Street Bank and Trust Company, (the “Custodian
”), One Heritage Drive P2N, North Quincy, Massachusetts
02171, acts as custodian of the Fund’s assets. Under its
contract with the Fund, the Custodian is authorized, among other
things, to establish separate accounts in foreign currencies and
to cause foreign securities owned by the Fund to be held in its
offices outside of the United States and with certain foreign
banks and securities depositories. The Custodian is responsible
for safeguarding and controlling the Fund’s cash and
securities, handling the receipt and delivery of securities and
collecting interest and dividends on the Fund’s
investments.
Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund’s
Transfer Agent. The Transfer Agent is responsible for the
issuance, transfer and redemption of shares and the opening,
maintenance and servicing of shareholder accounts. See “How
to Buy, Sell, Transfer and Exchange Shares” in the
Prospectus.
Swidler Berlin Shereff Friedman, LLP, The Chrysler
Building, 405 Lexington Avenue, New York, New York 10174, is
counsel for the Fund.
The fiscal year of the Fund ends on July 31 of each year.
The Fund sends to its shareholders, at least semi-annually,
reports showing the Fund’s portfolio and other information.
An annual report, containing financial statements audited by
independent auditors, is sent to shareholders each year. After
the end of each year, shareholders will receive federal income
tax information regarding dividends and capital gains
distributions.
Shareholder inquiries may be addressed to the Fund at the
address or telephone number set forth on the cover page of this
Statement of Additional Information.
The Prospectus and this Statement of Additional Information
do not contain all the information set forth in the Registration
Statement and the exhibits relating thereto, which the Fund has
filed with the Securities and Exchange Commission, Washington,
D.C., under the Securities Act and the Investment Company Act, to
which reference is hereby made.
Under a separate agreement, ML & Co. has granted the
Fund the right to use the “Merrill Lynch” name and has
reserved the right to withdraw its consent to the use of such
name by the Fund at any time or to grant the use of such name to
any other company, and the Fund has granted ML & Co., under
certain conditions, the use of any other name it might assume in
the future, with respect to any corporation organized by ML &
Co.
To
the knowledge of the Fund, the following persons or entities
owned beneficially 5% or more of a class of the Fund’s
shares as of November 1, 1999:
Name/Address
|
|
Class
A
|
| Merrill Lynch Trust Co. |
|
22.58% |
| P.O.
Box 30532 |
|
|
| New
Brunswick, NJ 08989 |
|
|
|
|
| Merrill Lynch Trust Company |
|
|
| Trustee FBO MLSIP |
|
12.46% |
| Investment Account |
|
|
| Attn:
Robert Arimenta Jr. |
|
|
| PO Box
30532 |
|
|
| New
Brunswick, NJ 08989 |
|
|
| Acnt
#89939X10 |
|
|
| FC
#9999 |
|
|
Name/Address
|
|
Class
D
|
| Merrill Lynch Trust Co. |
|
19.60% |
| P.O.
Box 30532 |
|
|
| New
Brunswick, NJ 08989 |
|
|
|
|
| Merrill Lynch Trust Company |
|
|
| of
America Trustee FBO COBE |
|
5.24% |
| Cardiovascular Operating Co. |
|
|
| Attn:
West Region |
|
|
| PO Box
30532 |
|
|
| New
Brunswick, NJ 08989 |
|
|
| Acnt
#89920H17 |
|
|
| FC
#0601 |
|
|
The Declaration of Trust establishing the Fund, dated as of
May 14, 1987, 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 Strategic Dividend Fund”
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 Fund 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 said Fund but the “Trust Property” only shall be
liable.
The Fund’s audited financial statements are
incorporated in this Statement of Additional Information by
reference to its 1999 annual report to shareholders. You may
request a copy of the annual report at no charge by calling (800)
456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on any business
day.
APPENDIX
RATINGS OF FIXED INCOME
SECURITIES
Description of Moody’s Investors Services,
Inc.’s (“Moody’s”) Corporate
Ratings
| Aaa |
|
Bonds which are
rated Aaa are judged to be of the best quality. They carry the
smallest degree of
investment risk and are generally referred to as “gilt edge.
” Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While
the various protective elements are likely
to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position
of such issues. |
|
| Aa
|
|
Bonds which are
rated Aa are judged to be of high quality by all standards.
Together with the Aaa group
they comprise what are generally known as high grade bonds. They
are rated lower than the best bonds
because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear
somewhat larger than in Aaa securities. |
|
| A |
|
Bonds which are
rated A possess many favorable investment attributes and are to
be considered as upper
medium grade obligations. Factors giving security to principal
and interest are considered adequate, but
elements may be present which suggest a susceptibility to
impairment sometime in the future. |
|
| Baa |
|
Bonds which are
rated Baa are considered as medium grade obligations;
i.e., they are neither highly
protected nor poorly secured. Interest payments and principal
security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as
well. |
|
| Ba |
|
Bonds which are
rated Ba are judged to have speculative elements; their future
cannot be considered as
well assured. Often the protection of interest and principal
payments may be very moderate, and therefore
not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes
bonds in this class. |
|
| B |
|
Bonds which are
rated B generally lack characteristics of desirable
investments. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be
small. |
|
| Caa |
|
Bonds which are
rated Caa are of poor standing. Such issues may be in default
or there may be present
elements of danger with respect to principal or
interest. |
|
| Ca |
|
Bonds which are
rated Ca represent obligations which are speculative in a high
degree. Such issues are
often in default or have other marked shortcomings. |
|
| C |
|
Bonds which are
rated C are the lowest rated bonds, and issues so rated can be
regarded as having
extremely poor prospects of ever attaining any real investment
standing. |
Note: Moody’s may apply
numerical modifiers 1, 2 and 3 in each generic classification
from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking, and the modifier 3 indicates that the issue ranks in the
lower end of its generic category.
Description of Moody’s Commercial Paper
Ratings
The term “commercial paper” as used by Moody
’s means promissory obligations not having an original
maturity in excess of nine months. Moody’s makes no
representations as to whether such commercial paper is by any
other definition “commercial paper” or is exempt from
registration under the Securities Act of 1933, as
amended.
Moody’s commercial paper ratings are opinions of the
ability of issuers to repay punctually promissory obligations not
having an original maturity in excess of nine months. Moody
’s makes no representation that such obligations are exempt
from registration under the Securities Act of 1933, nor does it
represent that any specific note is a valid obligation of a rated
issuer or issued in conformity with any applicable law. Moody
’s employs the following three designations, all judged to
be investment grade, to indicate the relative repayment capacity
of rated issuers:
Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
|
—
|
Leading market positions in well-established
industries
|
|
—
|
High rates of return on funds
employed
|
|
—
|
Conservative capitalization structures with
moderate reliance on debt and ample asset
protection
|
|
—
|
Broad margins in earnings coverage of fixed
financial charges and higher internal cash
generation
|
|
—
|
Well established access to a range of financial
markets and assured sources of alternate liquidity.
|
Issuers rated Prime-2 (or related supporting institutions)
have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions)
have an acceptable capacity for repayment of short-term
promissory obligations. The effect of industry characteristics
and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in level of debt
protection measurements and the requirement for relatively high
financial leverage. Adequate alternative liquidity is
maintained.
Issuers rated Not Prime do not fall within any of the Prime
rating categories.
If
an issuer represents to Moody’s that its commercial paper
obligations are supported by the credit of another entity or
entities, then the name or names of such supporting entity or
entities are listed within parentheses beneath the name of the
issuer, or there is a footnote referring the reader to another
page for the name or names of the supporting entity or entities.
In assigning ratings to such issuers, Moody’s evaluates the
financial strength of the indicated affiliated corporations,
commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating
assessment. Moody’s makes no representation and gives no
opinion on the legal validity or enforceability of any support
arrangement. You are cautioned to review with your counsel any
questions regarding particular support arrangements.
Description of Moody’s Preferred Stock
Ratings
Because of the fundamental differences between preferred
stocks and bonds, a variation of the bond rating symbols is being
used in the quality ranking of preferred stocks. The symbols,
presented below, are designed to avoid comparison with bond
quality in absolute terms. It should always be borne in mind that
preferred stocks occupy a junior position to bonds within a
particular capital structure and that these securities are rated
within the universe of preferred stocks.
Preferred stock rating symbols and their definitions are as
follows:
aaa
|
An issue rated “aaa” is
considered to be a top-quality preferred stock. This rating
indicates good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
|
aa
|
An issue rated “aa” is
considered a high-grade preferred stock. This rating indicates
that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the
foreseeable future.
|
a
|
An issue rated “a” is
considered to be an upper-medium grade preferred stock. While
risks are judged to be somewhat greater than in the “aaa
” and “a” classifications, earnings and asset
protection are, nevertheless, expected to be maintained at
adequate levels.
|
baa
|
An issue rated “baa” is
considered to be medium grade, neither highly protected nor
poorly secured. Earnings and asset protection appear adequate
at present but may be questionable over any great length of
time.
|
ba
|
An issue rated “ba” is
considered to have speculative elements and its future cannot
be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks
in this class.
|
b
|
An issue rated “b”
generally lacks the characteristics of a desirable investment.
Assurance of dividend payments and maintenance of other terms
of the issue over any long period of time may be
small.
|
caa
|
An issue rated “caa” is
likely to be in arrears on dividend payments. This rating
designation does not purport to indicate the future status of
payments.
|
ca
|
An issue rated “ca” is
speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual
payment.
|
c
|
This is the lowest rated class of
preferred or preference stock. Issues so rated can be regarded
as having extremely poor prospects of ever attaining any real
investment standing.
|
Note: Moody’s may apply numerical modifiers 1, 2 and 3
in each rating classification from “aa” through “b
” in its preferred stock rating system. The modifier 1
indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Description of Standard & Poor’s
Ratings Group’s (“Standard & Poor’s”)
Corporate Debt Ratings
A
Standard & Poor’s corporate or municipal rating is a
current assessment of the creditworthiness of an obligor with
respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell
or hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor’s from other
sources it considers reliable. Standard & Poor’s does
not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in,
or unavailability of, such information, or for other
reasons.
The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default-capacity and
willingness of the obligor as to the timely payment of interest
and repayment of principal in accordance with the terms of the
obligation; (2) nature of and provisions of the obligation; and
(3) protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors’ rights.
AAA
|
Debt rated AAA has the highest rating
assigned by Standard & Poor’s. Capacity to pay
interest and repay principal is extremely strong.
|
AA
|
Debt rated AA has a very strong capacity
to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
|
A
|
Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher-rated
categories.
|
BBB
|
Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in
higher-rated categories.
|
Debt rated BB, B, CCC and C are regarded as having
predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
BB
|
Debt rated BB has less near-term
vulnerability to default than other speculative grade debt.
However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and
principal payment. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied BBB-rating.
|
B
|
Debt rated B has a greater vulnerability
to default but presently has the capacity to meet interest
payments and principal repayments. Adverse business, financial
or economic conditions would likely impair capacity or
willingness to pay interest or repay principal. The B rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB-rating.
|
CCC
|
Debt rated CCC has a current identifiable
vulnerability to default, and is dependent upon favorable
business, financial and economic conditions to meet timely
payments of interest and repayments of principal. In the event
of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay
principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied B or B-rating.
|
CC
|
The rating CC is typically applied to
debt subordinated to senior debt which is assigned an actual or
implied CCC rating.
|
C
|
The rating C is typically applied to debt
subordinated to senior debt which is assigned an actual or
implied CCC-debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed but debt
service payments are continued.
|
CI
|
The rating CI is reserved for income
bonds on which no interest is being paid.
|
D
|
Debt rated D is in default. The D rating
is assigned on the day an interest or principal payment is
missed. The D rating also will be used upon the filing of a
bankruptcy petition if debt service payments are
jeopardized.
|
Plus (+) or minus (-): The ratings from AA to CCC may
be modified by the addition of a plus or minus sign to show
relative standing within the major ratings
categories.
Provisional ratings: The letter “p”
indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed
by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood or risk of
default upon failure of such completion. The investor should
exercise judgment with respect to such likelihood and
risk.
L
|
The letter “L” indicates that
the rating pertains to the principal amount of those bonds to
the extent that the underlying deposit collateral is insured by
the Federal Savings & Loan Insurance Corp. or the Federal
Deposit Insurance Corp. and interest is adequately
collateralized.
|
*
|
Continuance of the rating is contingent
upon Standard & Poor’s receipt of an expected copy of
the escrow agreement or closing documentation confirming
investments and cash flows.
|
NR
|
Indicates that no rating has been
requested, that there is insufficient information on which to
base a rating or that Standard & Poor’s does not rate
a particular type of obligation as a matter of
policy.
|
Debt obligations of issuers outside the United States and
its territories are rated on the same basis as domestic corporate
and municipal issues. The ratings measure the creditworthiness of
the obligor but do not take into account currency exchange and
related uncertainties.
Bond Investment Quality Standards:
Under present commercial bank regulations issued by the
Comptroller of the Currency, bonds rated in the top four
categories (“AAA,” “AA,” “A,”
“BBB,” commonly known as “investment grade”
ratings) are generally regarded as eligible for bank investment.
In addition, the laws of various states governing legal
investments impose certain rating or other standards for
obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries
generally.
Description of Standard & Poor’s
Commercial Paper Ratings
A
Standard & Poor’s commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from “A” for the highest
quality obligations to “D” for the lowest. The four
categories are as follows:
| A |
|
Issuers
assigned this highest rating are regarded as having the
greatest capacity for timely payment.
Issues in this category are delineated with the numbers 1, 2 and
3 to indicate the relative degree of
safety. |
|
| A-1 |
|
This
designation indicates that the degree of safety regarding
timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a
plus (+) sign designation. |
|
| A-2 |
|
Capacity for
timely payment on issues with this designation is strong.
However, the relative degree of
safety is not as high as for issues designated “A-1.
” |
|
| A-3 |
|
Issues carrying
this designation have a satisfactory capacity for timely
payment. They are, however,
somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying
the higher designations. |
|
| B |
|
Issues rated
“B” are regarded as having only adequate capacity for
timely payment. However, such
capacity may be damaged by changing conditions or short-term
adversities. |
|
| C |
|
This rating is
assigned to short-term debt obligations with a doubtful
capacity for payment. |
|
| D |
|
This rating
indicates that the issue is either in default or is expected to
be in default upon maturity. |
The commercial paper rating is not a recommendation to
purchase or sell a security. The ratings are based on current
information furnished to Standard & Poor’s by the issuer
or obtained from other sources it considers reliable. The ratings
may be changed, suspended, or withdrawn as a result of changes in
or unavailability of such information.
Description of Standard & Poor’s
Preferred Stock Ratings
A
Standard & Poor’s preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay
preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating
symbol will normally not be higher than the bond rating symbol
assigned to, or that would be assigned to, the senior debt of the
same issuer.
The preferred stock ratings are based on the following
considerations:
| I. |
|
Likelihood of
payment-capacity and willingness of the issuer to meet the
timely payment of preferred
stock dividends and any applicable sinking fund requirements in
accordance with the terms of the
obligation. |
| II. |
|
Nature of, and
provisions of, the issue. |
|
| III. |
|
Relative
position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting
creditors’ rights. |
|
| AAA |
|
This is the
highest rating that may be assigned by Standard & Poor
’s to a preferred stock issue and
indicates an extremely strong capacity to pay the preferred stock
obligations. |
|
| AA |
|
A preferred
stock issue rated “AA” also qualifies as a
high-quality fixed income security. The capacity to
pay preferred stock obligations is very strong, although not as
overwhelming as for issues rated “AAA.” |
|
| A |
|
An issue rated
“A” is backed by a sound capacity to pay the
preferred stock obligations, although it is
somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. |
|
| BBB |
|
An issue rated
“BBB” is regarded as backed by an adequate capacity
to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to make payments for a
preferred stock in this category than for issues in the “A
” category. |
|
BB,
B,
CCC |
|
Preferred stock
rated “BB,” “B,” and “CCC” are
regarded, on balance, as predominantly speculative
with respect to the issuer’s capacity to pay preferred stock
obligations. “BB” indicates the lowest degree
of speculation and “CCC” the highest degree of
speculation. While such issues will likely have some
quality and protection characteristics, these are outweighed by
large uncertainties or major risk exposures
to adverse conditions. |
|
| CC |
|
The rating
“CC” is reserved for a preferred stock issue in
arrears on dividends or sinking fund
payments but that is currently paying. |
|
| C |
|
A preferred
stock rated “C” is a non-paying issue. |
|
| D |
|
A preferred
stock rated “D” is a non-paying issue in default on
debt instruments. |
NR indicates that no rating has been requested, that
there is insufficient information on which to base a rating, or
that S&P does not rate a particular type of obligation as a
matter of policy.
Plus (+) or Minus (-): To provide more detailed
indications of preferred stock quality, the ratings from “AA
” to “CCC” may be modified by the addition of a
plus or minus sign to show relative standing within the major
rating categories.
The preferred stock ratings are not a recommendation to
purchase or sell a security, inasmuch as market price is not
considered in arriving at the rating. Preferred stock ratings are
wholly unrelated to Standard & Poor’s earnings and
dividend rankings for common stocks.
The ratings are based on current information furnished to
Standard & Poor’s by the issuer, and obtained by
Standard & Poor’s from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as
a result of changes in, or unavailability of, such
information.
[This page intentionally left blank]
Code #10560-1199
PART C. OTHER INFORMATION
Item 23.
Exhibits.
Exhibit
Number
|
|
Description
|
| 1(a)
|
|
—Declaration of Trust of the Registrant.(a) |
|
(b) |
|
—Amendment
to Declaration of Trust of Registrant dated July 14,
1987.(a) |
|
(c) |
|
—Instrument establishing Class A shares and Class B shares
of Registrant.(a) |
|
(d) |
|
—Certificate of Amendment to Declaration of Trust and
Establishment and Designation of Class C and
D shares, dated October 19, 1994.(a) |
| 2(a)
|
|
—By-Laws
of Registrant.(a) |
|
(b) |
|
—Amended
By-laws of Registrant.(b) |
| 3
|
|
—Instruments Defining Rights of Shareholders. Incorporated
by reference to Exhibits 1 and 2 above. |
| 4(a)
|
|
—Management Agreement between Registrant and Merrill Lynch
Asset Management, Inc.(a) |
|
(b) |
|
—Sub-Advisory Agreement between Merrill Lynch Asset
Management, L.P. and Merrill Lynch Asset
Management U.K. Limited.(c) |
| 5(a)
|
|
—Class A
Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(a) |
|
(b) |
|
—Class B
Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(a) |
|
(c) |
|
—Class C
Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(a) |
|
(d) |
|
—Class D
Distribution Agreement between Registrant and Merrill Lynch
Funds Distributor, Inc.(a) |
| 6
|
|
—None. |
| 7
|
|
—Custody
Agreement between Registrant and State Street Bank and Trust
Company.(a) |
| 8
|
|
—Transfer
Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement
between Registrant and Merrill Lynch Financial Data Services,
Inc. (now known as Financial Data
Services, Inc.)(a) |
| 9
|
|
—Opinion
of counsel for Registrant.(d) |
| 10(a)
|
|
—Consent
of Deloitte & Touche LLP
, independent auditors for the Registrant. |
| 10(b)
|
|
—Consent
of Swidler Berlin Shereff Friedman, LLP, counsel for
Registrant. |
| 11
|
|
—None. |
| 12
|
|
—Form of
Certificate of Merrill Lynch Asset Management,
Inc.(a) |
| 13(a)
|
|
—Amended
and Restated Class B Distribution Plan and Class B Distribution
Plan Sub-Agreement of
Registrant.(c) |
|
(b) |
|
—Class C
Distribution Plan and Class C Distribution Plan
Sub-Agreement.(a) |
|
(c) |
|
—Class D
Distribution Plan and Class D Distribution Plan
Sub-Agreement.(a) |
| 14(a)
|
|
—Rule
18f-3 Plan.(e) |
| 14(b)
|
|
—Other
Exhibits |
| |
|
Powers of
Attorney for Officers and Trustees(e) |
| |
|
Terry K.
Glenn |
| |
|
Donald C.
Burke |
| |
|
Ronald W.
Forbes |
| |
|
Cynthia
A. Montgomery |
| |
|
Charles
C. Reilly |
| |
|
Kevin A.
Ryan |
| |
|
Richard
R. West |
| |
|
Arthur
Zeikel |
(a)
|
Incorporated by reference to the corresponding
exhibit numbers to Post-Effective Amendment No. 9 to Registrant
’s Registration Statement under the Securities Act of 1933
on Form N-1A (File No. 33-14517) as set forth
below:
|
Exhibit
Number
|
|
Incorporated
by Reference
to Reference Number
|
| 2(a) |
|
2
|
| 4(a) |
|
5(a) |
| 5(a) |
|
6(a) |
| 5(b) |
|
6(b) |
| 5(c) |
|
6(c) |
| 5(d) |
|
6(d) |
| 7 |
|
8
|
| 8 |
|
9
|
| 12 |
|
13
|
| 13(b) |
|
15(b) |
| 13(c) |
|
15(c) |
(b)
|
Incorporated by reference to the identically
numbered exhibit to Post-Effective Amendment No. 10 to
Registrant’s Registration Statement under the Securities
Act of 1933 on Form N-1A.
|
(c)
|
Incorporated by reference to the corresponding
exhibit numbers to Post-Effective Amendment No. 11 to Registrant
’s Registration Statement under the Securities Act of 1933
on Form N-1A as set forth below.
|
Exhibit
Number
|
|
Incorporated
by Reference
to Reference Number
|
| 4(b) |
|
5(b) |
| 13(a) |
|
15(a) |
(d)
|
Incorporated by reference to exhibit number 10
to Pre-Effective Amendment No. 2 to Registrant’s
Registration Statement under the Securities Act of 1933 on Form
N-1A.
|
(e)
|
Incorporated by reference to identically
numbered exhibits to Post-Effective Amendment No. 13 to
Registrant’s Registration Statement under the Securities
Act of 1933 on Form N-1A.
|
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
Section 5.3 of the Registrant’s Declaration of Trust
provides as follows:
“The Trust shall indemnify each of its Trustees, officers,
employees, and agents (including persons who serve at its request
as directors, officers or trustees of another organization in
which it has any interest as a shareholder, creditor or
otherwise) against all liabilities and expenses (including
amounts paid in satisfaction of judgments, in compromise, as
fines and penalties, and as counsel fees) reasonably incurred by
him in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while in
office or thereafter, by reason of his being or having been such
a trustee, officer, employee or agent, except with respect to any
matter as to which he shall have been adjudicated to have acted
in bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties; provided, however that as to any matter
disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless the
Trust shall have received a written opinion from independent
legal counsel approved by the Trustees to the effect that if
either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or, the matter of good faith and
reasonable belief as to the best interests of the Trust, had been
adjudicated, it would have been adjudicated in favor of such
person. The rights accruing to any other Person under these
provisions shall not exclude any other right to which he may be
lawfully entitled; provided that no person may satisfy any right
of indemnity or reimbursement granted herein or in Section 5.1 or
to which he may be otherwise entitled except out of the property
of the Trust, and no Shareholder shall be personally liable to
any Person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance
payments in connection with indemnification under this Section
5.3, provided that the indemnified person shall have given a
written undertaking to reimburse the Trust in the event it is
subsequently determined that he is not entitled to such
indemnification.”
Insofar as the conditional advancing of indemnification
monies for actions based upon the Investment Company Act of 1940
may be concerned, such payments will be made on the following
conditions: (i) the advances must be limited to amounts used, or
to be used, for the preparation of presentation of a defense to
the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a
written promise by, or on behalf of, the recipient to repay that
amount of the advance which exceeds the amount to which it is
ultimately determined that he is entitled to receive from the
Registrant by reason of indemnification; and (iii) (a) such
promise must be secured by a surety bond, other suitable
insurance or an equivalent form of security which assures that
any repayments may be obtained by the Registrant without delay or
litigation, which bond, insurance or other form of security must
be provided by the recipient of the advance, or (b) a majority of
a quorum of the Registrant’s disinterested, non-party
Trustees, or an independent legal counsel in a written opinion,
shall determine, based upon a review of readily available facts,
that the recipient of the advance ultimately will be found
entitled to indemnification.
The Registrant has purchased an insurance policy insuring
its officers and Trustees against liabilities, and certain costs
of defending claims against such officers and Trustees, to the
extent such officers and Trustees are not found to have committed
conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their
duties.
The Management Agreement between Registrant and Merrill
Lynch Asset Management, Inc. (now called Merrill Lynch Asset
Management, L.P.) (“MLAM”) limits the liability of MLAM
to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or
from reckless disregard of their respective duties and
obligations.
In
Section 9 of the 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, 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 Securities Act of 1933 may be permitted to Trustees, 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 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 Trustee, 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 Trustee, 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 Act and will be
governed by the final adjudication of such issue.
Item 26. Business and
Other Connections of Manager.
Merrill Lynch Asset Management, L.P. (“MLAM” or
the “Manager”) acts as the investment adviser for the
following open-end registered investment companies: Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc.,
Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
Convertible Fund, Inc., Merrill Lynch Developing Capital Markets
Fund, Inc., Merrill Lynch Disciplined Equity Fund, Inc., Merrill
Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch
Fundamental Growth Fund, Inc., Merrill Lynch Global Allocation
Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch
Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global
Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund,
Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust,
Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Retirement
Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch 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.
Fund Asset Management, L.P. (“FAM”), an affiliate
of MLAM acts as the investment adviser for the following open-end
registered investment companies: CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust,
Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch Corporate High Yield Fund, Inc., Merrill Lynch
Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch
Multi-State Limited Maturity Municipal Series Trust, Merrill
Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal
Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.,
and The Municipal Fund Accumulation Program, Inc.; and for the
following closed-end registered investment companies: Apex
Municipal Fund, Inc., Corporate High Yield Fund, Inc., Corporate
High Yield Fund II, Inc., Corporate High Yield Fund III, Inc.,
Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt
Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal
Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund,
Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings
California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc.,
MuniHoldings California Insured Fund V, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III, MuniHoldings Florida
Insured Fund IV, MuniHoldings Florida Insured Fund V,
MuniHoldings Insured Fund, Inc., MuniHoldings Insured Fund II,
Inc., MuniHoldings Insured Fund III, Inc., MuniHoldings Michigan
Insured Fund, Inc., MuniHoldings 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.
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 MLAM, 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 July 31, 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 |
| |
|
| Gregory A.
Bundy |
|
Chief Operating
Officer and
Managing Director |
|
Chief Operating
Officer and Managing
Director of FAM; Chief Operating Officer
and Managing Director of Princeton
Services; Co-CEO of Merrill Lynch
Australia from 1997 to 1999 |
|
| Donald C.
Burke |
|
Senior Vice
President,
Treasurer and Director of
Taxation |
|
Senior Vice
President and Treasurer of
FAM; Senior Vice President and Treasurer
of Princeton Services; Vice President of
PFD; First Vice President of MLAM from
1997 to 1999; Vice President of MLAM
from 1990 to 1997 |
| |
|
| Michael G.
Clark |
|
Senior Vice
President |
|
Senior Vice
President of FAM; Senior Vice
President of Princeton Services; Treasurer
and Director of PFD; First Vice President
of MLAM from 1997 to 1999; Vice
President of MLAM from 1996 to 1997 |
| |
|
| Robert C.
Doll |
|
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 |
| |
|
|
Name
|
|
Position(s)
with the Manager
|
|
Other
Substantial Business
Profession, Vocation or Employment
|
| Elizabeth A.
Griffin |
|
Senior Vice
President |
|
Senior Vice
President of MLAM; Senior
Vice President of Princeton Services |
| |
|
| Michael J.
Hennewinkel |
|
Senior Vice
President and
General Counsel |
|
Senior Vice
President and General Counsel
of FAM; Senior Vice President of Princeton
Services |
| |
|
| Philip L.
Kirstein |
|
Senior Vice
President and
Secretary |
|
Senior Vice
President and Secretary of
FAM; Senior Vice President, Director and
Secretary of Princeton Services |
| |
|
| Ronald M.
Kloss |
|
Senior Vice
President |
|
Senior Vice
President of MLAM; Senior
Vice President of Princeton Services |
| |
|
| 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 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Americas Income
Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill
Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund,
Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch Capital
Fund, Inc., Merrill Lynch Consults International Portfolio,
Merrill Lynch Convertible Fund, Inc., Merrill Lynch Corporate
Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc., Merrill
Lynch Disciplined Equity Fund, Inc., Merrill Lynch Dragon Fund,
Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill
Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch Global Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch
Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc.,
Merrill Lynch Global Technology Fund, Inc., Merrill Lynch Global
Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc.,
Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch International Equity Fund, Merrill Lynch Latin
America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc.,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund,
Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Series
Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc.,
Merrill Lynch Senior Floating Rate Fund II, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Special Value
Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc., Merrill Lynch Utility Income Fund, Inc.,
Merrill Lynch Variable Series Funds, Inc., Merrill Lynch World
Income Fund, Inc., The Municipal Fund Accumulation Program, Inc.
and Worldwide DollarVest Fund, Inc. The address of each of these
registered investment companies is P.O. Box 9011, Princeton, New
Jersey 08543-9011. The address of MLAM U.K. is 33 King William
Street, London EC4R 9AS, England.
Set forth below is a list of each executive officer and
director of MLAM U.K. indicating each business, profession,
vocation or employment of a substantial nature in which each such
person has been engaged since July 31, 1997, for his or her own
account or in the capacity of director, officer, partner or
trustee. In addition, Messrs. Glenn, Burke and Albert are
officers of one or more of the registered investment companies
listed in the first two paragraphs of this Item 26:
Name
|
|
Positions
with MLAM U.K.
|
|
Other
Substantial Business,
Profession, Vocation or Employment
|
| Terry K.
Glenn |
|
Director and
Chairman |
|
Executive Vice
President of MLAM and
FAM; Executive Vice President and
Director of Princeton Services; President
and Director of PFD; President of Princeton
Administrators |
| |
|
| Alan J.
Albert |
|
Senior Managing
Director |
|
Vice President
of MLAM |
| |
|
| Nicholas C.D.
Hall |
|
Director |
|
Director of
Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch
International Private Banking Group |
| |
|
| Donald C.
Burke |
|
Treasurer |
|
Senior Vice
President and Treasurer of
FAM and MLAM; Director of Taxation of
MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President of PFD; First Vice President of
MLAM from 1997 to 1999; Vice President
of MLAM from 1990 to 1997 |
| |
|
| Carol Ann
Langham |
|
Company
Secretary |
|
None |
| |
|
| Debra Anne
Searle |
|
Assistant
Company Secretary |
|
None |
Item 27. Principal
Underwriters.
(a)
MLFD, a division of PFD, acts as the principal
underwriter for the Registrant and for each of the open-end
registered investment companies referred to in the first two
paragraphs of Item 26 except CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc. and The Municipal Fund Accumulation
Program, Inc.; MLFD also acts as the principal underwriter for
the following closed-end registered investment companies: Merrill
Lynch High Income Municipal Bond Fund, Inc., Merrill Lynch
Municipal Strategy Fund, Inc., Merrill Lynch Senior Floating Rate
Fund, Inc. and 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, Princeton, New Jersey
08543-9081, except that the address of Messrs. Breen, Crook,
Fatseas and Wasel is One Financial Center, 23rd Floor, Boston,
Massachusetts 02111-2665.
Name
|
|
Position(s)
and Office(s)
with PFD
|
|
Position(s)
and Office(s)
with Registrant
|
| Terry
K. Glenn |
|
President and
Director |
|
President and
Director |
| Michael G. Clark |
|
Treasurer and
Director |
|
None |
| Thomas
J. Verage |
|
Director |
|
None |
| Robert
W. Crook |
|
Senior Vice
President |
|
None |
| Michael J. Brady |
|
Vice
President |
|
None |
| William M. Breen |
|
Vice
President |
|
None |
| Donald
C. Burke |
|
Vice
President |
|
Vice President
and Treasurer |
| James
T. Fatseas |
|
Vice
President |
|
None |
| Debra
W. Landsman-Yaros |
|
Vice
President |
|
None |
| Michelle T. Lau |
|
Vice
President |
|
None |
| Salvatore Venezia |
|
Vice
President |
|
None |
| William Wasel |
|
Vice
President |
|
None |
| Robert
Harris |
|
Secretary |
|
None |
(c)
Not applicable.
Item 28. Location of
Accounts and Records.
All accounts, books and other documents required to be
maintained by Section 31(a) of the 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 under Rule 485(b) under the Securities Act and has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, duly authorized, in the Township of Plainsboro,
and the State of New Jersey, on the 30th day of November
1999.
|
MERRILL
LYNCH
STRATEGIC
DIVIDEND
FUND
|
|
(Donald C. Burke, Vice President and
Treasurer )
|
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date(s)
|
|
|
TERRY
K. GLENN
*
(Terry K. Glenn) |
|
President and
Trustee (Principal
Executive Officer) |
|
|
|
|
/s/
DONALD
C. BURKE
(Donald C. Burke) |
|
Vice President
and Treasurer
(Principal Financial and
Accounting Officer) |
|
November 30,
1999 |
|
|
RONALD
W. FORBES
*
(Ronald W. Forbes) |
|
Trustee |
|
|
|
|
CYNTHIA
A. MONTGOMERY
*
(Cynthia A. Montgomery) |
|
Trustee |
|
|
|
|
CHARLES
C. REILLY
*
(Charles C. Reilly) |
|
Trustee |
|
|
|
|
KEVIN
A. RYAN
*
(Kevin A. Ryan) |
|
Trustee |
|
|
|
|
RICHARD
R. WEST
*
(Richard R. West) |
|
Trustee |
|
|
|
|
ARTHUR
ZEIKEL
*
(Arthur Zeikel) |
|
Trustee |
|
|
* This Amendment has been signed by each of the
persons so indicated by the undersigned as
Attorney-in-Fact.
/s/
DONALD
C. BURKE
*By:
(Donald C. Burke, Attorney-in-Fact) |
|
|
|
November 30,
1999 |
EXHIBIT INDEX
Exhibit
Number
|
|
Description
|
| 10(a) |
|
Consent of Deloitte & Touche LLP
, independent auditors for the Registrant. |
| 10(b) |
|
Consent of Swidler Berlin Shereff Friedman, counsel for
the Registrant. |
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