As filed with the Securities and Exchange
Commission on October 1, 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. 13
x
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
x
Amendment No. 15
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)
Registrants 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
919 Third Avenue
New York, New York 10022
Attention: Joel H. Goldberg, Esq.
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Michael J. Hennewinkel, Esq.
MERRILL LYNCH ASSET MANAGEMENT
P.O. Box 9011
Princeton, New Jersey 08543-9011
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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)
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immediately upon filing pursuant to paragraph (b)
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¨
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on
(date) pursuant to paragraph (b)
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x
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60
days after filing pursuant to paragraph (a)(1)
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¨
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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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¨
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on
(date) pursuant to paragraph (a)(2) of Rule 485.
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If
appropriate, check the following box:
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This post effective amendment designates a new effective date for
a previously filed post-effective amendment.
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Prospectus
[LOGO] Merrill Lynch
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Merrill
Lynch Strategic Dividend Fund
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November , 1999
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This Prospectus contains information you should know before
investing, including information about risks. Please read it
before you invest and keep it for future reference.
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The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
Prospectus. Any representation to the contrary is a criminal
offense.
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Table of Contents
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MERRILL LYNCH STRATEGIC DIVIDEND FUND
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[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 Stock
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.
THE MERRILL LYNCH STRATEGIC DIVIDEND FUND AT A GLANCE
What are the Funds objective and goals?
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 & Poors
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.
We cannot guarantee that the Fund will achieve its goals.
What are the Funds 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. 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 stock
and debt securities. The Fund has not
established a rating criteria for debt securities or preferred
stock that it may hold. However, the Fund intends to invest in
securities rated in the four highest quality ratings as
determined by either Moodys 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.
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. If the value of the Fund
s investments goes down, you may lose money. These changes may
occur because the 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.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
[LOGO] Key Facts
THE MERRILL LYNCH STRATEGIC DIVIDEND FUND AT A GLANCE
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:
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Are investing with long term goals, such as retirement
or funding a childs education
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Want a professionally managed and diversified portfolio
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In seeking long term total return you are willing to
accept the risk that the value of your investment may decline
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MERRILL LYNCH STRATEGIC DIVIDEND FUND
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The bar chart and table shown below provide an
indication of the risks of investing in the Fund. The bar chart
shows changes in the Funds performance for Class B shares
for each of the past ten calendar years. Sales charges are not
reflected in the bar chart. If these amounts were reflected,
returns would be less than those shown. The table compares the
average annual returns for each class of the Funds 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 10-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 funds
year-to-date return as of June 30, 1999 was 7.66%.
Average Annual
Total Returns (for the
calendar year ended December 31, 1998)
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Past
One Year
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Past
Five Years
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Past Ten
Years/
Since Inception
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Strategic Dividend Fund* Class A
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8.57%
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17.06%
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13.38%
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S&P 500 Index**
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28.58%
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24.05%
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19.20%
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S&P 500 Yield Index***
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7.01%
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14.29%
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N/A
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Strategic Dividend Fund* Class B
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9.64%
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17.12%
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12.83%
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S&P 500 Index**
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28.58%
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24.05%
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19.20%
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S&P 500 Yield Index***
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7.01%
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14.29%
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N/A
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Strategic Dividend Fund* Class C
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12.47%
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N/A
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20.35%
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S&P 500 Index**
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28.58%
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N/A
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28.70%
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S&P 500 Yield Index***
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7.01%
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N/A
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17.22%
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Strategic Dividend Fund* Class D
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8.31%
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N/A
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19.77%
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S&P 500 Index**
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28.58%
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N/A
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28.70%
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S&P 500 Yield Index***
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7.01%
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N/A
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17.22%
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The S&P 500® is the Standard & Poors
Composite Index of 500 Stocks, a widely recognized, unmanaged
index of common stock prices.
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*** 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.
Inception date is
October 21, 1994.
Since October 31,
1994.
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MERRILL LYNCH STRATEGIC DIVIDEND FUND
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[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 Investment Adviser for
managing the Fund.
Distribution Fees
fees used to support the Funds
marketing and distribution efforts, such as compensating
Financial Consultants, advertising and promotion.
Service
(Account Maintenance) Fees
fees used to compensate securities dealers for
account maintenance activities.
The Fund offers four different classes of
shares. Although your money will be invested the same way no
matter which class of shares you buy, there are differences
among the fees and expenses associated with each class. Not
everyone is eligible to buy every class. After determining
which classes you are eligible to buy, decide which class best
suits your needs. Your Merrill Lynch Financial Consultant can
help you with this decision.
This table shows the different fees and expenses
that you may pay if you buy and hold the different classes of
shares of the Fund. Future expenses may be greater or less than
those indicated below.
Shareholder Fees (fees paid directly from
your investment)(a):
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Class A
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Class B(b)
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Class C
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Class D
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Maximum Sales Charge (Load) imposed on
purchases (as a percentage of offering
price)
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5.25%(c)
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None
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None
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5.25%(c)
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Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption proceeds, whichever is lower)
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None(d)
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4.0%(c)
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1.0%(c)
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None(d)
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Maximum Sales Charge (Load) imposed on
Dividend Reinvestments
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None
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None
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None
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None
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Redemption Fee
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None
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None
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None
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None
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Exchange Fee
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None
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None
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None
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None
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Maximum Account Fee
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None
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None
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None
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None
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Annual Fund Operating Expenses (expenses
that are deducted from Fund assets):
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Management Fee
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0.60%
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0.60%
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0.60%
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0.60%
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Distribution and/or Service (12b-1) Fees(e)
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None
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1.00%
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1.00%
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0.25%
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Other Expenses (including transfer agency fees)(f)
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0.27%
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0.29%
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0.30%
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0.27%
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Total
Annual Fund Operating Expenses
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0.87%
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1.89%
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1.90%
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1.12%
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(a)
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In addition, Merrill Lynch may charge clients a
processing fee (currently $5.35) when a client buys or
redeems shares.
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(b)
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Class B shares automatically convert to Class D shares
about eight years after you buy them and will no longer be
subject to distribution fees.
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(c)
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Some investors may qualify for reductions in the sales
charge (load).
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(d)
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You may pay a deferred sales charge if you purchase $1
million or more and you redeem within one year.
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(e)
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The Fund calls the Service Fee an
Account Maintenance Fee. Account Maintenance Fee is the
term used elsewhere in this Prospectus and in all other Fund
materials. If you hold Class B or C shares for a long time,
it may cost you more in distribution (12b-1) fees than the
maximum sales charge that you would have paid if you had
bought one of the other classes.
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(f)
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The Fund pays the Transfer Agent $11.00 for each Class
A and D shareholder account and $14.00 for each Class B and C
shareholder account and reimburses the Transfer Agents
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
Investment Adviser provides accounting services to the Fund
at its cost. For the fiscal year ended July 31, 1999, the
Fund reimbursed the Investment Adviser $65,898 for these
services.
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MERRILL LYNCH STRATEGIC DIVIDEND FUND
Examples:
These examples are intended to help you compare
the cost of investing in the Fund with the cost of investing in
other mutual funds.
These examples assume that you invest $10,000 in
the Fund for the time periods indicated, that your investment
has a 5% return each year, that you pay the sales charges, if
any, that apply to the particular class and that the Fund
s operating expenses remain the same. This assumption is not
meant to indicate you will receive a 5% annual rate of return.
Your annual return may be more or less than the 5% used in this
example. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
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1 Year
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3 Years
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5 Years
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10 Years
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Class A
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$609
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$788
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$982
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$1,541
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Class B
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$592
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$794
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$1,021
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$2,016*
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Class C
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$293
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$597
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$1,026
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$2,222
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Class D
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$633
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$862
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$1,110
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$1,817
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EXPENSES IF YOU DID NOT
REDEEM YOUR SHARES:
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1 Year
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3 Years
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5 Years
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10 Years
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Class A
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$609
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$788
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$982
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$1,541
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Class B
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$192
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$594
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$1,021
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$2,016*
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Class C
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$193
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$597
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$1,026
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$2,222
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Class D
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$633
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$862
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$1,110
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$1,817
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*
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Assumes conversion to Class D shares approximately
eight years after purchase. See note (b) to the Fees and
Expenses table above.
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MERRILL LYNCH STRATEGIC DIVIDEND FUND
Details About the Fund [LOGO]
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 INVESTMENT ADVISER
The Fund is managed by Merrill Lynch Asset
Management.
The Funds main goal 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. 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 Funds 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 has not established a
rating criteria for debt securities or preferred stock that
it may hold. Therefore, the Fund may invest in securities
that are in default or are vulnerable to adverse conditions.
However, the Fund intends to invest in securities 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 & Poors 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 use derivatives, such as futures
and options [and indexed and inverse
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 [to a lesser degree] in illiquid securities,
enter into repurchase agreements and engage in securities
lending.
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
MERRILL LYNCH STRATEGIC DIVIDEND FUND
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 Funds 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 Funds 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 Funds investments in dividend-paying
common stocks will be limited and the Fund may, therefore,
not be able to achieve its investment objective.
The Fund may use many different investment
strategies in seeking its investment objectives and it has
certain investment restrictions. These strategies and certain
of the restrictions and policies governing the Funds
investments are explained in the Funds Statement of
Additional Information. If you would like to learn more about
the Fund, request the 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 Funds performance will be
positive over any period of time.
Stock Market and Selection Risk
Stock market risk is the risk that the
stock market will go down in value, including the possibility
that the market
MERRILL LYNCH STRATEGIC DIVIDEND FUND
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.
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.
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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.
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Investments in foreign markets may be adversely
affected by governmental actions such as the imposition of
capital controls, nationalization of companies or
industries, expropriation of assets or the imposition of
punitive taxes.
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The governments of certain countries may prohibit or
impose substantial restrictions on foreign investing in
their capital markets or in certain industries. Any of
these actions could severely affect security prices. They
could also impair the Funds ability to purchase or
sell foreign securities or transfer its assets or income
back into the United States, or otherwise adversely affect
the Funds operations.
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Other foreign market risks include foreign exchange
controls, difficulties in pricing securities, defaults on
foreign government securities, difficulties in enforcing
favorable legal judgments in foreign courts and political
and social
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MERRILL LYNCH STRATEGIC DIVIDEND FUND
instability. Legal remedies available to investors in some
foreign countries may be less extensive than those
available to investors in the United States.
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Because there are generally fewer investors on
foreign exchanges and a smaller number of shares traded
each day, it may be difficult for the Fund to buy and sell
securities on those exchanges. In addition, prices of
foreign securities may go up and down more than prices of
securities traded in the United States.
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Foreign markets may have different clearance and
settlement procedures. In certain markets, settlements may
be unable to keep pace with the volume of securities
transactions. If this occurs, settlement may be delayed and
the Funds assets may be uninvested and not earning
returns. The Fund may miss investment opportunities or be
unable to sell an investment because of these delays.
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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 Funds 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.
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 had established a single European currency (the euro),
which was introduced on January 1, 1999 and has replaced the
existing national currencies of all initial EMU participants.
The use of notes and coins of the relevant national
currencies will be phased out by July 1, 2002. Certain
securities (beginning with government and corporate bonds)
were
MERRILL LYNCH STRATEGIC DIVIDEND FUND
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:
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If the transition to euro, or EMU as a whole, does
not continue to proceed as planned.
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If a participating country withdraws from EMU.
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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 Funds portfolio. Borrowing will
cost the Fund interest expense and other fees. The cost of
borrowing may reduce the Funds return. Certain
securities that the Fund 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 and inverse
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.
|
|
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.
|
MERRILL LYNCH STRATEGIC DIVIDEND FUND
|
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 Funds 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.
Convertible securities
Convertibles are generally debt securities
or preferred stocks that may be converted into common stock.
Convertibles typically pay current income as either interest
(debt security convertibles) or dividends (preferred stocks).
A convertibles value usually reflects both the stream
of current income payments and the value of the underlying
common stock. The market value of a convertible performs like
regular debt securities; that is, if market interest rates
rise, the value of a convertible usually falls. Since it is
convertible into common stock, the convertible also has the
same types of market and issuer risk as the value of the
underlying common stock.
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.
MERRILL LYNCH STRATEGIC DIVIDEND FUND
[LOGO] Details About the Fund
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
[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 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 Funds 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 Funds 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
The table below summarizes key features
of the Merrill Lynch Select Pricing
SM
System.
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
|
Availability
|
|
Limited to certain
investors including:
Current Class A
shareholders
Certain Retirement
Plans
Participants in
certain Merrill Lynch
sponsored programs
Certain affiliates of
Merrill Lynch.
|
|
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
[LOGO] Your Account
Right of Accumulation
permits you to pay the sales charge
that would apply to the cost or value (whichever is
higher) of all shares you own in the Merrill Lynch mutual
funds that offer Select Pricing options.
Letter of Intent
permits you to pay the sales charge
that would be applicable if you add up all shares of
Merrill Lynch Select Pricing System funds that you agree
to buy within a 13 month period. Certain restrictions
apply.
Class A and Class D Shares
Initial Sales Charge Options
If you select Class A or
Class D shares, you will pay a sales charge at the time
of purchase.
Your
Investment
|
|
As a
% of
Offering Price
|
|
As a
% of
Your Investment*
|
|
Dealer
Compensation
as a % of
Offering Price
|
|
Less than $25,000
|
|
5.25%
|
|
5.54%
|
|
5.00%
|
|
$25,000 but less than
$50,000
|
|
4.75%
|
|
4.99%
|
|
4.50%
|
|
$50,000 but less than
$100,000
|
|
4.00%
|
|
4.17%
|
|
3.75%
|
|
$100,000 but less than
$250,000
|
|
3.00%
|
|
3.09%
|
|
2.75%
|
|
$250,000 but less than
$1,000,000
|
|
2.00%
|
|
2.04%
|
|
1.80%
|
|
$1,000,000 and over**
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
|
*
|
Rounded to the nearest
one-hundredth percent.
|
**
|
If you invest
$1,000,000 or more in Class A or Class D shares, you
may not pay an initial sales charge. However, if you
redeem your shares within one year after purchase, you
may be charged a deferred sales charge. This charge is
1% of the lesser of the original cost of the shares
being redeemed or your redemption proceeds. A sales
charge of 0.75% will be charged on purchases of
$1,000,000 or more of Class A or Class D shares by
certain employer sponsored retirement or savings plans.
|
No initial sales charge
applies to Class A or Class D shares that you buy through
reinvestment of dividends or distributions.
A reduced or waived sales
charge on a purchase of Class A or Class D shares may
apply for:
|
|
Purchases under a
Right of Accumulation or
Letter of Intent
|
|
|
Merrill Lynch Blueprint
SM
Program participants
|
|
|
Certain Merrill Lynch
investment or central asset accounts
|
|
|
Certain
employer-sponsored retirement or savings plans
|
|
|
Purchases using
proceeds from the sale of certain Merrill Lynch
closed-end funds under certain circumstances
|
MERRILL LYNCH STRATEGIC DIVIDEND
FUND
|
|
Certain investors,
including directors of Merrill Lynch mutual funds and
Merrill Lynch employees
|
|
|
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 an
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
Funds Transfer Agent at 1-800-MER-FUND.
Class B and Class C Shares
Deferred Sales Charge Options
If you select Class B or
Class C shares, you do not pay an initial sales charge at
the time of purchase. However, if you redeem your Class B
shares within four years after purchase or your Class C
shares within one year after purchase, you may be
required to pay a deferred sales charge. You will also
pay distribution fees of 0.75% and account maintenance
fees of 0.25% each year under a distribution plan 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 Funds 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
[LOGO] Your Account
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 or distributions are not subject to a
deferred sales charge. Not all Merrill Lynch funds have
identical deferred sales charge schedules. If you
exchange your shares for shares of another fund, the
higher charge will apply.
|
The deferred sales charge
relating to Class B shares will be reduced or waived in
certain circumstances, such as:
|
|
Certain post-retirement
withdrawals from an IRA or other retirement plan if you
are over 59
1
/
2
years old.
|
|
|
Redemption by certain
eligible 401(a) and 401(k) plans and group plans
participating in the Merrill Lynch Blueprint Program
and certain retirement plan rollovers.
|
|
|
Redemption in
connection with participation in certain Merrill Lynch
fee-based programs.
|
|
|
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.
|
|
|
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 or distributions 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 convert approximately ten years after
purchase compared to approximately
MERRILL LYNCH STRATEGIC DIVIDEND
FUND
eight years for equity funds. If you acquire your Class B
shares in an exchange from another fund with a shorter
conversion schedule, the Funds eight year
conversion schedule will apply. If you exchange your
Class B shares in the Fund for Class B shares of a fund
with a longer conversion schedule, the other funds
conversion schedule will apply. The length of time that
you hold both the original and exchanged Class B shares
in both funds will count toward the conversion schedule.
The conversion schedule may be modified in certain other
cases as well.
Class C Shares
If you redeem Class C
shares within one year after purchase, you may be charged
a deferred sales charge of 1.00%. The charge will apply
to the lesser of the original cost of the shares being
redeemed or the proceeds of your redemption. You will not
be charged a deferred sales charge when you redeem shares
that you acquire through reinvestment of Fund dividends
or distributions. The deferred sales charge relating to
Class C shares may be reduced or waived in connection
with involuntary termination of an account in which Fund
shares are held and withdrawals through the Merrill Lynch
Systematic Withdrawal Plan.
Class C shares do not
offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart 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
[LOGO] Your Account
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:
$250 for certain Merrill Lynch fee-based
programs
$100 for retirement plans
|
|
|
|
|
|
(The minimums
for initial investments may be waived under
certain circumstances.)
|
|
|
|
|
Have your
Merrill Lynch
Financial Consultant or
securities dealer submit
your purchase order
|
|
The price of
your shares is based on the next calculation of net
asset value after your order is placed. Any purchase
orders placed
prior to the close of business on the New York Stock
Exchange
(generally, 4:00 p.m. Eastern time) will be priced at the
net asset
value determined that day.
|
|
|
|
|
|
Purchase orders
placed after that time will be priced at the net
asset value determined on the next business day. The Fund
may
reject any order to buy shares and may suspend the sale
of shares
at any time. Merrill Lynch may charge a processing fee to
confirm
a purchase. This fee is currently $5.35.
|
|
|
|
|
Or contact the
Transfer
Agent
|
|
You can
purchase shares by calling the Transfer Agent at 1-800-
MER-FUND to request an application and making a purchase
order
directly 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 $50 for all
accounts except that retirement plans have a minimum
additional
purchase of $1.
|
|
|
|
|
|
(The minimums
for additional purchases may be waived under
certain circumstances.)
|
|
|
|
|
Acquire
additional shares
through the automatic
dividend reinvestment plan
|
|
All dividends
and capital gains distributions 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:
Transfer your shares to an account with the
Transfer Agent; or
Sell your shares, paying any applicable
CDSC.
|
MERRILL LYNCH STRATEGIC DIVIDEND
FUND
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 (the New York
Stock
Exchange generally closes at 4:00 p.m. Eastern time). Any
redemption request placed after that time will be priced
at the net
asset value at the close of business on the next business
day.
Dealers must submit redemption requests to the Fund not
more
than thirty minutes after the close of business on the
New York
Stock Exchange on the day the request was received.
|
|
|
|
|
|
Securities
dealers, including Merrill Lynch, may charge a fee to
process a redemption of shares. Merrill Lynch currently
charges a
fee of $5.35. No processing fee is charged if you redeem
shares
directly through the Transfer Agent.
|
|
|
|
|
|
The Fund may
reject an order to sell shares under certain
circumstances.
|
|
|
|
|
Sell through
the Transfer
Agent
|
|
You may sell
shares held at the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of
this
prospectus. All shareholders on the account must sign the
letter
and signatures must be guaranteed. 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 Funds
Systematic Withdrawal Plan
|
|
You can choose
to receive systematic payments from your Fund
account either by check or through direct deposit to your
bank
account on a monthly or quarterly basis. If you have a
Merrill Lynch
CMA®, CBA® or Retirement Account you can arrange
for systematic
redemptions of a fixed dollar amount on a monthly,
bi-monthly,
quarterly, semi-annual or annual basis, subject to certain
conditions. Under either method you must have dividends
and
other distributions automatically reinvested. For Class B
and C
shares your total annual withdrawals cannot be more than
10%
per year of the value of your shares at the time your
plan is
established. The deferred sales charge is waived for
systematic
redemptions. Ask your Merrill Lynch Financial Consultant
for
details.
|
MERRILL LYNCH STRATEGIC DIVIDEND
FUND
[LOGO] Your Account
If You Want
To
|
|
Your Choices
|
|
Information
Important for You to Know
|
|
Exchange Your
Shares
|
|
Select the fund
into which
you want to exchange. Be
sure to read that funds
prospectus
|
|
You can
exchange your shares of the Fund for shares of many
other Merrill Lynch mutual funds. You must have held the
shares
used in the exchange for at least 15 calendar days before
you can
exchange to another fund.
|
|
|
|
|
|
Each class of
Fund shares is generally exchangeable for shares of
the same class of another fund. If you own Class A shares
and wish
to exchange into a fund in which you have no Class A
shares, 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
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 (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 Funds net asset value may change on
days when you will not be able to purchase or redeem the
Funds shares. If an event occurs after the close of
a foreign exchange that is likely to significantly affect
the Funds 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 Funds 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
[LOGO] Your Account
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 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.
DIVIDENDS AND TAXES
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. The Fund intends to
make distributions that will either be taxed as ordinary
income or capital gains. Capital gain dividends derived
by individuals are generally taxed at different rates
than ordinary income dividends.
If you are neither a
lawful permanent resident nor a citizen of the U.S. or if
you are a foreign entity, the Funds ordinary income
dividends (which include distributions of net short term
capital gains) will generally be subject to a 30% U.S.
withholding tax, unless a lower treaty rate applies.
MERRILL LYNCH STRATEGIC DIVIDEND
FUND
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.
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
[LOGO] Management of the Fund
MERRILL LYNCH ASSET MANAGEMENT
Merrill Lynch Asset
Management, the Funds Investment Adviser, manages
the Funds investments and its business operations
under the overall supervision of the Funds Board of
Trustees. The Investment Adviser has the responsibility
for making all investment decisions for the Fund. The
Investment Adviser has a sub-advisory agreement with
Merrill Lynch Asset Management, U.K. Limited, an
affiliate, under which the Investment Adviser may pay a
fee for services it receives. For the fiscal year ended
July 31, 1999 the Investment Adviser received a fee equal
to 0.60% of the Funds average daily net assets.
Merrill Lynch Asset
Management is part of the Merrill Lynch Asset Management
Group, which had approximately $
billion in investment company
and other portfolio assets under management as of
1999. This amount
includes assets managed for Merrill Lynch affiliates.
A Note About Year 2000
Many computer systems
were designed using only two digits to designate years.
These systems may not be able to distinguish the year
2000 from the year 1900 (commonly known as the Year
2000 Problem). The Fund could be adversely affected
if the computer systems used by the Funds
management or other Fund service providers do not
properly address this problem before January 1, 2000. The
Funds 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 the Fund
management that they also expect to resolve the Year 2000
Problem, and the Fund management will continue to monitor
the situation as the Year 2000 approaches. However, if
the problem has not been fully addressed, the Fund could
be negatively affected. The Year 2000 Problem could also
have a negative impact on the issuers of securities in
which the Fund invests. This negative impact may be
greater for companies in foreign markets 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 Funds returns
could be adversely affected.
MERRILL LYNCH STRATEGIC DIVIDEND
FUND
The Financial Highlights
table is intended to help you understand the Funds
financial performance for the periods shown. Certain
information reflects financial results for a single Fund
share. The total returns in the table represent the rate
an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by
Deloitte & Touche
LLP
, whose report, along with the Funds
financial statements, is included in the Funds
annual report to shareholders, which is available upon
request.
|
|
Class A
|
|
Class B
|
Increase
(Decrease) in
|
|
For the Year Ended 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
|
|
$
|
|
$15.21
|
|
|
$12.43
|
|
|
$12.24
|
|
|
$12.78
|
|
|
|
|
$15.22
|
|
|
$12.44
|
|
|
$12.23
|
|
|
$12.77
|
|
Investment
income net
|
|
|
|
.39
|
|
|
.38
|
|
|
.38
|
|
|
.39
|
|
|
|
|
.23
|
|
|
.25
|
|
|
.26
|
|
|
.29
|
|
Realized and
unrealized gain (loss)
on investments and foreign currency
transactions net
|
|
|
|
1.37
|
|
|
4.17
|
|
|
1.55
|
|
|
1.10
|
|
|
|
|
1.38
|
|
|
4.16
|
|
|
1.55
|
|
|
1.07
|
|
Total from
investment operations
|
|
|
|
1.76
|
|
|
4.55
|
|
|
1.93
|
|
|
1.49
|
|
|
|
|
1.61
|
|
|
4.41
|
|
|
1.81
|
|
|
1.36
|
|
Less
dividends and distributions:
|
Investment income net
|
|
|
|
(.39
|
)
|
|
(.39
|
)
|
|
(.36
|
)
|
|
(.42
|
)
|
|
|
|
(.23
|
)
|
|
(.25
|
)
|
|
(.22
|
)
|
|
(.29)
|
Realized gain on
investments net
|
|
|
|
(1.22
|
)
|
|
(1.38
|
)
|
|
(1.38
|
)
|
|
(1.61
|
)
|
|
|
|
(1.22
|
)
|
|
(1.38
|
)
|
|
(1.38
|
)
|
|
(1.61)
|
|
Total dividends
and distributions
|
|
|
|
(1.61
|
)
|
|
(1.77
|
)
|
|
(1.74
|
)
|
|
(2.03
|
)
|
|
|
|
(1.45
|
)
|
|
(1.63
|
)
|
|
(1.60
|
)
|
|
(1.90)
|
|
Net asset
value, end of year
|
|
$
|
|
$15.36
|
|
|
$15.21
|
|
|
$12.43
|
|
|
$12.24
|
|
|
$
|
|
$15.38
|
|
|
$15.22
|
|
|
$12.44
|
|
|
$12.23
|
|
Total Investment Return:*
|
|
Based on net
asset value per share
|
|
%
|
|
12.03
|
%
|
|
40.42
|
%
|
|
16.98
|
%
|
|
14.04
|
%
|
|
%
|
|
10.94
|
%
|
|
38.90
|
%
|
|
15.89
|
%
|
|
12.82%
|
|
Ratios to Average Net Assets:
|
|
Expenses
|
|
%
|
|
.88
|
%
|
|
.90
|
%
|
|
1.04
|
%
|
|
1.05
|
%
|
|
%
|
|
1.90
|
%
|
|
1.94
|
%
|
|
2.08
|
%
|
|
2.09%
|
|
Investment
income net
|
|
%
|
|
2.51
|
%
|
|
2.87
|
%
|
|
3.04
|
%
|
|
3.39
|
%
|
|
%
|
|
1.50
|
%
|
|
1.89
|
%
|
|
2.06
|
%
|
|
2.36%
|
|
Supplemental Data:
|
|
Net assets, end
of year
(in thousands)
|
|
$
|
|
$24,233
|
|
|
$28,940
|
|
|
$18,106
|
|
|
$18,687
|
|
|
$
|
|
$73,067
|
|
|
$93,509
|
|
|
$96,461
|
|
|
$130,921
|
|
Portfolio
turnover
|
|
|
|
32.66
|
%
|
|
14.29
|
%
|
|
26.42
|
%
|
|
52.69
|
%
|
|
|
|
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
[LOGO] Management of the Fund
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
|
|
|
|
$15.11
|
|
|
$12.37
|
|
|
$12.20
|
|
|
$11.84
|
|
|
|
|
$15.20
|
|
|
$12.43
|
|
|
$12.24
|
|
$11.85
|
|
|
Investment
income net
|
|
|
|
.23
|
|
|
.24
|
|
|
.24
|
|
|
.21
|
|
|
|
|
.35
|
|
|
.35
|
|
|
.34
|
|
.26
|
|
|
Realized and
unrealized gain on
investments and foreign currency
transactions net
|
|
|
|
1.37
|
|
|
4.13
|
|
|
1.55
|
|
|
1.21
|
|
|
|
|
1.38
|
|
|
4.16
|
|
|
1.57
|
|
1.23
|
|
|
Total from
investment operations
|
|
|
|
1.60
|
|
|
4.37
|
|
|
1.79
|
|
|
1.42
|
|
|
|
|
1.73
|
|
|
4.51
|
|
|
1.91
|
|
1.49
|
|
|
Less dividends
and distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income net
|
|
|
|
(.24
|
)
|
|
(.25
|
)
|
|
(.24
|
)
|
|
(.25
|
)
|
|
|
|
(.35
|
)
|
|
(.36
|
)
|
|
(.34)
|
|
(.29
|
)
|
Realized gain on investments
net
|
|
|
|
(1.22
|
)
|
|
(1.38
|
)
|
|
(1.38
|
)
|
|
(.81
|
)
|
|
|
|
(1.22
|
)
|
|
(1.38
|
)
|
|
(1.38)
|
|
(.81
|
)
|
|
Total dividends
and distributions
|
|
|
|
(1.46
|
)
|
|
(1.63
|
)
|
|
(1.62
|
)
|
|
(1.06
|
)
|
|
|
|
(1.57
|
)
|
|
(1.74
|
)
|
|
(1.72)
|
|
(1.10
|
)
|
|
Net asset
value, end of period
|
|
|
|
$15.25
|
|
|
$15.11
|
|
|
$12.37
|
|
|
$12.20
|
|
|
|
|
$15.36
|
|
|
$15.20
|
|
|
$12.43
|
|
$12.24
|
|
|
Total
Investment Return:**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on net
asset value per
share
|
|
|
|
10.96
|
%
|
|
38.84
|
%
|
|
15.78
|
%
|
|
13.30
|
%#
|
|
|
|
11.84
|
%
|
|
39.99
|
%
|
|
16.73%
|
|
13.98
|
%#
|
|
Ratios To
Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
1.90
|
%
|
|
1.95
|
%
|
|
2.08
|
%
|
|
2.19
|
%*
|
|
|
|
1.12
|
%
|
|
1.15
|
%
|
|
1.28%
|
|
1.38
|
%*
|
|
Investment
income net
|
|
|
|
1.47
|
%
|
|
1.83
|
%
|
|
1.91
|
%
|
|
1.94
|
%*
|
|
|
|
2.25
|
%
|
|
2.62
|
%
|
|
2.62%
|
|
2.93
|
%*
|
|
Supplemental
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end
of period
(in thousands)
|
|
|
|
$4,379
|
|
|
$3,025
|
|
|
$1,953
|
|
|
$811
|
|
|
|
|
$100,642
|
|
|
$74,577
|
|
|
$44,691
|
|
$13,988
|
|
|
Portfolio
turnover
|
|
|
|
32.66
|
%
|
|
14.29
|
%
|
|
26.42
|
%
|
|
52.69
|
%
|
|
|
|
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
Open an account (two options).
MERRILL LYNCH
|
|
TRANSFER AGENT
|
FINANCIAL
CONSULTANT
|
|
Financial Data
Services, Inc.
|
OR SECURITIES
DEALER
|
|
P.O. Box 45289
|
Advises
shareholders on their Fund investments.
|
|
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
|
|
CUSTODIAN
|
Swidler Berlin
|
|
State Street Bank
|
Shereff Friedman,
LLP
|
|
and Trust Company
|
919 Third Avenue
|
THE FUND
|
One Heritage
Drive P2N
|
New York, New
York 10022
|
The Board of
Directors
|
North Quincy,
Massachusetts 02171
|
Provides legal
advice
|
oversees the
Fund.
|
Holds the Fund's
assets
|
to the Fund.
|
|
for safekeeping.
|
INDEPENDENT
AUDITORS
|
|
INVESTMENT
ADVISER
|
Deloitte & Touche
LLP
|
|
Merrill Lynch
Asset Management, L.P.
|
117 Campus Drive
|
|
ADMINISTRATIVE
OFFICES
|
Princeton, New
Jersey 08540-6400
|
|
800 Scudders Mill
Road
|
Audits the
financial
|
|
Plainsboro, New
Jersey 08536
|
statements of the
Fund on behalf of
|
|
MAILING ADDRESS
|
the shareholders.
|
|
P.O. Box 9011
|
|
|
Princeton, New
Jersey 08543-9011
|
|
|
TELEPHONE NUMBER
|
|
|
1-800-MER-FUND
|
|
|
Manages the
Fund's day-to-day activities.
|
MERRILL LYNCH STRATEGIC DIVIDEND
FUND
[LOGO] For More Information
Additional information about the
Funds investments is available in the Funds
annual and semi-annual reports to shareholders. In the
Funds annual report you will find a discussion of
the market conditions and investment strategies that
significantly affected the Funds performance during
its last fiscal year. You may obtain these reports at no
cost by calling 1-800-MER-FUND.
The Fund will send you one copy
of each shareholder report and certain other mailings,
regardless of the number of Fund accounts you have. To
receive separate shareholder reports for each account,
call your Merrill Lynch Financial Consultant or write to
the Transfer Agent at its mailing address. Include your
name, address, tax identification number and Merrill
Lynch brokerage or mutual fund account number. If you
have any questions, please call your Merrill Lynch
Financial Consultant or the Transfer Agent at
1-800-MER-FUND.
Statement of Additional Information
The Funds Statement of
Additional Information contains further information about
the Fund and is incorporated by reference (legally
considered to be part of this prospectus). You may
request a free copy by writing the Fund at Financial Data
Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289 or by calling 1-800-MER-FUND.
Contact your Merrill Lynch
Financial Consultant or the Fund, at the telephone number
or address indicated above, if you have any questions.
Information about the Fund
(including the Statement of Additional Information) can
be reviewed and copied at the SECs Public Reference
Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the public reference
room. This information is also available on the SEC
s Internet site at http://www.sec.gov and copies may be
obtained upon payment of a duplicating fee by writing the
Public Reference Section of the SEC, Washington, D.C.
20549-6009.
You should rely only
on the information contained in this prospectus. No one
is authorized to provide you with information that is
different from information contained in this Prospectus.
Investment Company Act
file #811-5178
Code #10559-1099
©
Merrill Lynch Asset Management, L.P.
Prospectus
[LOGO] Merrill Lynch
[GRAPHIC]
November , 1999
STATEMENT OF
ADDITIONAL INFORMATION
Merrill Lynch
Strategic Dividend Fund
P.O. Box 9011, Princeton,
New Jersey 08543-9011
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.
Pursuant to the Merrill Lynch
Select Pricing
SM
System, the Fund offers four classes of shares,
each with a different combination of sales charges,
ongoing fees and other features. The Merrill Lynch Select
Pricing
SM
System permits an investor to choose the method
of purchasing shares that the investor believes is most
beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares and other
relevant circumstances. See Purchase of Shares.
This Statement of Additional
Information of the Fund is not a prospectus and should be
read in conjunction with the Prospectus of the Fund,
dated November , 1999 (the
Prospectus), which has been filed with the
Securities and Exchange Commission (the Commission
) and can be obtained, without charge, by calling
(800) 637-3863 or by writing the Fund at the above
address. The Prospectus is incorporated by reference into
this Statement of Additional Information, and this
Statement of Additional Information is incorporated by
reference into the Prospectus. The Funds audited
financial statements are incorporated in this Statement
of Additional Information by reference to its 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 Investment Adviser
Merrill Lynch Funds
Distributor Distributor
The date of this
Statement of Additional Information is November
, 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 Investment Adviser), 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 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 & Poors 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 depositarys
transaction fees, whereas in an unsponsored arrangement
the foreign issuer assumes no obligations and the
depositarys 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 Investment Adviser 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.
Because the Fund may invest up to
25% of its total assets in foreign securities, the Fund
offers you more diversification than an investment only
in the United States since prices of securities traded on
foreign markets have often, though not always, moved
counter to prices in the United States. Foreign security
investments, however, 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 be 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 Funds 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 Funds 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 securities of
the Fund. Generally, when the U.S. dollar rises in value
against a foreign currency, your investment in a security
denominated in that currency loses value because the
currency is worth fewer U.S. dollars. Similarly when the
U.S. dollar decreases in value against a foreign
currency, your investment in a security denominated in
that currency gains value because the currency is worth
more U.S. dollars. This risk is generally known as
currency risk, which is the possibility that a
stronger U.S. dollar will reduce returns for U.S.
investors investing overseas and a weak U.S. dollar will
increase returns for U.S. investors investing overseas.
European Economic and
Monetary Union (EMU).
For a number of years, certain European countries
have been seeking economic unification that would, among
other things, reduce barriers between countries, increase
competition among companies, reduce government subsidies
in certain industries, and reduce or eliminate currency
fluctuations among these European countries. The Treaty
on European Union (the Maastricht Treaty)
seeks to set out a framework for the European Economic
and Monetary Union (EMU) among the countries
that comprise the European Union (EU). Among
other things, EMU establishes a single common European
currency (the euro) that was introduced on
January 1, 1999 and has replaced the existing national
currencies of all EMU participants. The use of notes and
coins of the relevant national currencies will be phased
out by July 1, 2002. Upon implementation of EMU, certain
securities issued in participating EU countries
(beginning with government and corporate bonds) were or
are being redenominated in the euro, and thereafter, will
be 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 at any time after the
conversion weekend by an initial participant could cause
disruption of the financial markets as securities that
have been redenominated in euros are transferred back
into that countrys national currency, particularly
if the withdrawing country is a major economic power.
Such developments could have an adverse impact on the 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 United States securities laws do. 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 Funds portfolio
manager 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 the foreign
securities and cash in which it invests outside the
United States in foreign banks and securities
depositories. Certain of such foreign banks and
securities depositories may be recently organized or new
to the foreign custody business. They may also have
operations subject to limited or no regulatory oversight.
Also, the laws of certain countries may put limits on the
Funds 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 can be
expected that it will be more expensive for the Fund to
buy, sell and hold securities in certain foreign markets
than it is in the U.S. market due to higher brokerage,
transaction, custody and/or other costs. The increased
expense of investing in foreign markets reduces the
amount the Fund can earn on its investments.
Settlement and clearance
procedures in certain foreign markets differ
significantly from those in the United States. Foreign
settlement and clearance procedures and trade regulations
also may involve certain risks (such as delays in payment
for or delivery of securities) not typically involved
with the settlement of U.S. investments. Communications
between the United States and emerging market countries
may be unreliable, increasing the risk of delayed
settlements or losses of security certificates.
Settlements in certain foreign countries at times have
not kept pace with the number of securities transactions;
these problems may make it difficult for the Fund to
carry out transactions. If the Fund cannot settle or is
delayed in settling a purchase of securities, it may miss
attractive investment opportunities and certain of its
assets may be uninvested with no return earned thereon
for some period. If the Fund cannot settle or is delayed
in settling a sale of securities, it may lose money if
the value of the security then declines or, if it has
contracted to sell the security to another party, the
Fund could be liable to that party for any losses
incurred.
Dividends or interest on, or
proceeds from the sale of, foreign securities may be
subject to foreign withholding taxes, and special U.S.
tax considerations may apply.
The Fund is authorized to use
certain derivative instruments (Derivatives),
including indexed and inverse securities, options and
futures, and to purchase and sell foreign exchange, as
described below. Although certain risks are involved in
the options and futures transactions (as discussed below
in Risk Factors in Options, Futures and Currency
Instruments), the Investment Adviser believes that,
because the fund will (i) write only covered call options
on portfolio securities and (ii) engage in other options
and futures transactions only for hedging purposes, the
options and futures portfolio strategies of the Fund will
not subject the Fund to the risks frequently associated
with the speculative use of options and futures
transactions. While the Funds use of hedging
strategies is intended to reduce the volatility of the
net asset value of fund shares, the Funds net asset
value will fluctuate. There can be no assurance that the
Funds 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.
Indexed and Inverse Securities
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. In addition, the Fund may invest in
securities that pay a higher rate of interest when a
particular index decreases and pay a lower rate of
interest (or do not fully return principal) when the
value of the index increases. 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 and inverse
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 and
inverse 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 Funds risk of loss in the event
of a decline in the market value of the portfolio
holdings underlying the put option prior to the 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 Funds 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 may
protect the Fund from attempting to identify specific
securities in which to invest in a market the Fund
believes to be attractive (an anticipatory hedge
).
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 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 Funds risk of loss through a decline in
the market value of portfolio holdings correlated with
the futures contract prior to the futures contracts
expiration date. In the event the market value of the
portfolio holdings correlated with the futures contract
increases rather than decreases, however, the Fund will
realize a loss on the futures position and a lower return
on the portfolio holdings than would have been realized
without the purchase of the futures contract.
The purchase of a futures
contract may protect the Fund from having to pay more for
securities as a consequence of increases in the market
value for such securities during a period when the Fund
was attempting to identify specific securities in which
to invest in a market the Fund believes to be attractive.
In the event that such securities decline in value or the
Fund determines not to complete an anticipatory hedge
transaction relating to a futures contract, however, the
Fund may realize a loss relating to the futures position.
The Fund will limit transactions
in futures and options on futures to financial futures
contracts (i.e., contracts for which the
underlying 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 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 Funds use of Currency Instruments to effect
hedging strategies is intended to reduce the volatility
of the net asset value of the Funds shares, the net
asset value of the Funds shares will fluctuate.
Moreover, although Currency Instruments will be used with
the intention of hedging against adverse currency
movements, transactions in Currency Instruments involve
the risk that anticipated currency movements will not be
accurately predicted and that the Funds hedging
strategies will be ineffective. To the extent that the
Fund hedges against anticipated currency movements 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. 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 Funds exposure, on a mark-to-market basis,
to the transaction (as calculated pursuant to
requirements of the Commission). Such segregation will
ensure that the Fund
has assets available to satisfy its obligations with
respect to the transaction, but will not limit the 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 dealers 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 options 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 Derivative
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 Funds
portfolio. Although the principal of such borrowings will
be fixed, the Funds 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 Funds 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 Investment Adviser in its best judgment
nevertheless may determine to maintain the Funds
leveraged
position if it expects that the benefits to the Funds
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 Investment Adviser from
managing the Funds portfolio in accordance with the
Funds 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 Investment Adviser, 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 sellers 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 issuers 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 issuers 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 Funds
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 United States
Government. The Fund receives securities as collateral
for the loaned securities, and the Fund and the borrower
negotiate a rate for the loan premium to be received by
the Fund for the loaned securities, which increases the
Funds 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 finders, administrative and custodial
fees in connection with its loans. In the event that the
borrower defaults on its obligation to return borrowed
securities because of insolvency or for any other reason,
the Fund could experience delays and costs in gaining
access to the collateral and could suffer a loss to the
extent the value of the collateral falls below the market
value of the borrowed securities.
Illiquid or Restricted
Securities. The Fund may
invest up to 15% of its net assets in securities that
lack an established secondary trading market or otherwise
are considered illiquid. Liquidity of a security relates
to the ability to dispose easily of the security and the
price to be obtained upon disposition of the security,
which may be less than would be obtained for a comparable
more liquid security. Illiquid securities may trade at a
discount from comparable, more liquid investments.
Investment of the Funds assets in illiquid
securities may restrict the ability of the Fund to
dispose of its investments in a timely fashion and for a
fair price as well as its ability to take advantage of
market opportunities. The risks associated with
illiquidity will be particularly acute where the Fund
s operations require cash, such as when the Fund
redeems shares or pays dividends, and could result in the
Fund borrowing to meet short term cash requirements or
incurring capital losses on the sale of illiquid
investments.
The Fund may invest in securities
that are not registered (restricted securities)
under the Securities Act of 1933, as amended (
Securities Act). Restricted securities may be
sold in private placement transactions between the
issuers and their purchasers and may be neither listed on
an exchange nor traded in other established markets. In
many cases, privately placed securities may not be freely
transferable under the laws of the applicable
jurisdiction or due to contractual restrictions on
resale. As a result of the absence of a public trading
market, privately placed securities may be less liquid
and more difficult to value than publicly traded
securities. To the extent that privately placed
securities may be resold in privately negotiated
transactions, the prices realized from the sales, due to
illiquidity, could be less than those originally paid by
the Fund or less than their fair market value. In
addition, issuers whose securities are not publicly
traded may not be subject to the disclosure and other
investor protection requirements that may be applicable
if their securities were publicly traded. If any
privately placed securities held by the Fund are required
to be registered under the securities laws of one or more
jurisdictions before being resold, the Fund may be
required to bear the expenses of registration. Certain of
the Funds investments in private placements may
consist of direct investments and may include investments
in smaller, less-seasoned issuers, which may involve
greater risks. These issuers may have limited product
lines, markets or financial resources, or they may be
dependent on a limited management group. In making
investments in such securities, the Fund may obtain
access to material non-public information which may
restrict the Funds ability to conduct portfolio
transactions in such securities.
144A Securities.
The Fund may purchase restricted
securities that can be offered and sold to
qualified institutional buyers under Rule 144A
under the Securities Act. The Board of Trustees has
determined to treat as liquid Rule 144A securities that
are either (i) freely tradable in their primary markets
offshore or (ii) non-investment grade debt securities
that the Funds management determines are as liquid
as publicly-registered non-
investment grade debt securities. The Board of Trustees has
adopted guidelines and delegated to the Funds
management 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 Funds
investments in these securities. This investment practice
could have the effect of increasing the level of
illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing these securities.
Suitability.
The economic benefit of an investment in
the Fund depends upon many factors beyond the control of
the Fund, the Investment Adviser and its affiliates.
Because of its emphasis on 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 investors investment objectives and
such investors 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 Funds outstanding voting securities
(which for this purpose and under the Investment Company
Act means the lesser of (i) 67% of the Funds shares
present at a meeting at which more than 50% of the
outstanding shares of the Fund are represented or (ii)
more than 50% of the Funds outstanding shares). The
Fund may not:
|
(1) Make any
investment inconsistent with the Funds
classification as a diversified company under the
Investment Company Act.
|
|
(2) Invest more than
25% of its 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 Funds
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 Funds shares are owned by another
investment company that is part of the same group of
investment companies as the Fund.
|
|
(b) Make short sales
of securities or maintain a short position, except to
the extent permitted by applicable law. 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.
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|
(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.
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In addition, to comply with tax
requirements for qualification as a regulated
investment company, the Funds 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 Funds total assets are invested in the
securities of a single issuer, and (b) with regard to at
least 50% of the Funds 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 Investment Adviser,
the Fund is prohibited from engaging in certain
transactions involving Merrill Lynch or its affiliates
except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary
commissions or transactions pursuant to an exemptive
order under the Investment Company Act. See
Portfolio Transactions and Brokerage. Without such
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 managements 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 Funds investment policies, under
certain market conditions, the Funds 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 Funds
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 Board of Trustees of the Fund
consists of six 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
(58) President and Trustee(1)(2)
Executive Vice President of the
Investment Adviser and FAM since 1983; Executive Vice
President and Director of 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
(58) 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
(46) 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
(67) 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
(66) Trustee(2)
127 Commonwealth Avenue, Chestnut Hill, Massachusetts
02167. Founder and current Director of The Boston
University Center for the Advancement of Ethics and
Character; Professor 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
(60) 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 Alexanders
Inc. (real estate company).
ARTHUR
ZEIKEL
(67) Trustee(1)
800 Scudders Mill Road, Plainsboro, NJ 08536. Chairman of
the Investment Adviser and Fund Asset Management, L.P. (
FAM) (which terms as used herein, includes
their corporate predecessors) from 1997 to 1999;
President of the Investment Adviser 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.
NORMAN
R. HARVEY
(65) Senior Vice President(1)(2)
Senior Vice President of the Investment
Adviser and FAM since 1982; Senior Vice President of
Princeton Services since 1993.
WALTER
D. ROGERS
(56) Senior Vice President and
Portfolio Manager(1) First Vice
President of the Investment Adviser 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 Investment Adviser and FAM since 1999;
Senior Vice President and Treasurer of Princeton Services
since 1999; Vice President of PFD since 1999; First Vice
President of Investment Adviser and FAM from 1997 to 1999;
Vice President of Investment Adviser from 1990 to 1997;
Director of Taxation of Investment Adviser since 1990.
IRA
P. SHAPIRO
(36) Secretary(1)(2)
First Vice President of the Investment Adviser
since 1998; Director (Legal Advisory) of the Investment
Adviser from 1997 to 1998; Vice President of the
Investment Adviser from 1996 to 1997; Attorney with the
Investment Adviser and FAM from 1993 to 1996.
(1)
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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.
|
(3)
|
Member of the Fund
s Audit Committee, which is responsible for the
selection of the independent auditors and the selection
and nomination of non-interested Trustees.
|
As of September 1, 1999, the
Trustees and officers of the Fund as a group (11 persons)
owned an aggregate of less than 1% of the outstanding
shares of the Fund. At such date, Mr. Zeikel, a 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 meeting
attended. The Fund also compensates members of its Audit
Committee (the Committee), which consists of
all the non-interested Trustees, a fee of $900 per year.
The Chairman of the Committee receives an additional
annual 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
|
|
Total
Compensation
From Fund and
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 (41 registered investment companies consisting
of 54 portfolios); Ms. Montgomery (41 registered
investment companies consisting of 54 portfolios); Mr.
Reilly (60 registered investment companies consisting
of 73 portfolios); Mr. Ryan (41 registered investment
companies consisting of 54 portfolios); and Mr. West
(62 registered investment companies consisting of 81
portfolios).
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Trustees of the Fund, members of
the Boards of other MLAM/FAM Advised Funds, ML & Co.
and its subsidiaries (the term subsidiaries,
when used herein with respect to ML & Co., includes
MLAM, FAM and certain other entities directly or
indirectly wholly owned and controlled by ML & Co.)
and their directors and employees, and any trust,
pension, profit-sharing or other benefit plan for such
persons, may purchase Class A shares of the Fund at net
asset value.
Management and Advisory Arrangements
Management Services.
The Investment Adviser provides the
Fund with investment advisory and management services.
Subject to the supervision of the Board of Directors, the
Investment Adviser is responsible for the actual
management of the Funds portfolio and constantly
reviews the Funds holdings in light of its own
research analysis and that from other relevant sources.
The responsibility for making decisions to buy, sell or
hold a particular security rests with the Investment
Adviser. The Investment Adviser 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 Investment Adviser (the
Management Agreement), pursuant to which the
Investment Adviser 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 Investment Adviser
for the periods indicated.
Fiscal Year Ended July 31,
|
|
Investment Advisory Fee
|
1999...
|
|
$
|
1998...
|
|
$1,230,228
|
1997...
|
|
$1,056,060
|
Payment of Fund Expenses.
The Management Agreement
obligates the Investment Adviser to provide investment
advisory services and to pay all compensation of and
furnish office space for officers and employees of the
Fund connected with investment and economic research,
trading and investment management of the Fund, as well as
the fees of all Trustees of the Fund who are affiliated
persons of ML & Co. or any of its affiliates. The
Fund pays all other expenses incurred in the operation of
the Fund, including among other things: taxes, expenses
for legal and auditing services, costs of printing
proxies, stock certificates, shareholder reports,
prospectuses and statements of additional information,
except to the extent paid by Merrill Lynch Funds
Distributor, a division of PFD (the Distributor
); charges of the custodian, any sub-custodian and
the transfer agent; expenses of redemption of shares;
Commission fees; expenses of registering the shares under
Federal, state or foreign laws; fees and expenses of
unaffiliated 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 Investment
Adviser and the Fund reimburses the Investment Adviser
for its costs in connection with such services. See
Purchase of Shares Distribution Plans.
Organization of the
Investment Adviser. The
Investment Adviser is a limited partnership, the partners
of which are ML & Co., a financial services holding
company and the parent of Merrill Lynch, and Princeton
Services. ML & Co. and Princeton Services are
controlling persons of the Investment Adviser as
defined under the Investment Company Act because of their
ownership of its voting securities or their power to
exercise a controlling influence over its management or
policies.
The Investment Adviser 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 the Investment Adviser pays MLAM U.K. a fee for
providing investment advisory services to the Investment
Adviser with respect to the Fund in an amount to be
determined from time to time by the Investment Adviser
and MLAM U.K. but in no event in excess of the amount
that the Investment Adviser actually receives for
providing services to the Fund pursuant to the Management
Agreement. The following entities may be considered
controlling persons of MLAM U.K.: Merrill Lynch
Europe PLC (MLAM U.K.s parent), a subsidiary of
Merrill Lynch International Holdings, Inc., a subsidiary
of Merrill Lynch International, Inc., a subsidiary of ML
& Co.
Duration and Termination.
Unless earlier terminated as
described herein, the Management Agreement and
Sub-Advisory Agreement will remain in effect from year to
year if approved annually (a) by the 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 Funds Transfer Agent
pursuant to a Transfer Agency, Dividend Disbursing Agency
and Shareholder Servicing Agency Agreement (the
Transfer Agency Agreement). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is
responsible for the issuance, transfer and redemption of
shares and the opening and maintenance of shareholder
accounts. Pursuant to the Transfer Agency Agreement, the
Transfer Agent receives a fee of $11.00 per Class A or
Class D account and $14.00 per Class B or Class C account
and is entitled to reimbursement for certain transaction
charges and out-of-pocket expenses incurred by the
Transfer Agent under the Transfer Agency Agreement.
Additionally, a $.20 monthly closed account charge will
be assessed on all accounts 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 Investment Adviser (together, the
Codes). The Codes significantly restrict the
personal investing activities of all employees of the
Investment Adviser and, as described below, impose
additional, more onerous, restrictions on fund investment
personnel.
The Codes require that all
employees of the Investment Adviser pre-clear any
personal securities investment (with limited exceptions,
such as government securities). The pre-clearance
requirement and associated procedures are designed to
identify any substantive prohibition or limitation
applicable to the proposed investment. The substantive
restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any
securities in a hot initial public offering
and a prohibition 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 Investment Adviser. Furthermore, the
Codes provide for trading blackout periods
which prohibit trading by investment personnel of the
Fund within periods of trading by the Fund in the same
(or equivalent) security (15 or 30 days depending upon
the transaction).
Reference is made to How to
Buy, Sell, Transfer and Exchange Shares in the
Prospectus.
The Fund offers four classes of
shares under the Merrill Lynch Select Pricing
SM
System: shares of Class A and Class D are sold to
investors choosing the initial sales charge alternatives
and shares of Class B and Class C are sold to investors
choosing the deferred sales charge alternatives. Each
Class A, Class B, Class C or Class D share of the Fund
represents an identical interest in the investment
portfolio of the Fund and has the same rights, except
that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees (also
known as service fees) and Class B and Class C shares
bear the expenses of the ongoing distribution fees and
the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements.
The contingent deferred sales charges (CDSCs
), distribution fees and account maintenance fees that
are imposed on Class B and Class C shares, as well as the
account maintenance fees that are imposed on Class D
shares, are imposed directly against those classes and
not against all assets of the Fund and, accordingly, such
charges do not affect the net asset value of any other
class or have any impact on investors choosing another
sales charge option. Dividends paid by the Fund for each
class of shares are calculated in the same manner at the
same time and differ only to the extent that account
maintenance and distribution fees and any incremental
transfer agency costs relating to a particular class are
borne exclusively by that class. Each class has different
exchange privileges. See Shareholder Services
Exchange Privilege.
Investors should understand that
the purpose and function of the initial sales charges
with respect to the Class A and Class D shares are the
same as those of the CDSCs and distribution fees with
respect to the Class B and Class C shares in that the
sales charges and distribution fees applicable to each
class provide for the financing of the distribution of
the shares of the Fund. The distribution-related revenues
paid with respect to a class will not be used to finance
the distribution expenditures of another class. Sales
personnel may receive different compensation for selling
different classes of shares.
The Merrill Lynch Select Pricing
SM
System is used by more than 50 registered
investment companies advised by 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 Funds shares
of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume
such offering from time to time. Any order may be
rejected by the Fund or 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, 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 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
|
|
$3,549
|
|
$1,502
|
|
$2,047
|
|
$
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
Reinvested Dividends and
Capital Gains. No initial
sales charges are imposed upon Class A and Class D shares
issued as a result of the automatic reinvestment of
dividends or capital gains distributions.
Right of Accumulation.
Reduced sales charges are
applicable through a right of accumulation under which
eligible investors are permitted to purchase shares of
the Fund subject to an initial sales charge at the
offering price applicable to the total of (a) the public
offering price of the shares then being purchased plus
(b) an amount equal to the then current net asset value
or cost, whichever is higher, of the purchasers
combined holdings of all classes of shares of the Fund
and of any other Select Pricing Funds. For any such right
of accumulation to be made available, the Distributor
must be provided at the time of purchase, by the
purchaser or the purchasers securities dealer, with
sufficient information to permit confirmation of
qualification. Acceptance of the purchase order is
subject to such confirmation. The right of accumulation
may be amended or terminated at any time. Shares held in
the name of a nominee or custodian under pension,
profit-sharing or other employee benefit plans may not be
combined with other shares to qualify for the right of
accumulation.
Letter of Intent.
Reduced sales charges are
applicable to purchases aggregating $25,000 or more of
the Class A or Class D shares of the Fund or any Select
Pricing Funds made within a 13-month period starting with
the first purchase pursuant to a Letter of Intent. The
Letter of Intent is available only to investors whose
accounts are established and maintained at the Fund
s Transfer Agent. The Letter of Intent is not available
to employee benefit plans for which Merrill Lynch
provides plan participant recordkeeping services. The
Letter of Intent is not a binding obligation to purchase
any amount of Class A or Class D shares; however, its
execution will result in the purchaser paying a lower
sales charge at the appropriate quantity purchase level.
A purchase not originally made pursuant to a Letter of
Intent may be included under a subsequent Letter of
Intent executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within
such 90-day period. The value of Class A and Class D
shares of the Fund and of other Select Pricing Funds
presently held, at cost or maximum offering price
(whichever is higher), on the date of the first purchase
under the Letter of Intent, may be included as a credit
toward the completion of such Letter, but the reduced
sales charge applicable to the amount covered by such
Letter will be applied only to new purchases. If the
total amount of shares does not equal the amount stated
in the Letter of Intent (minimum of $25,000), the
investor will be notified and must pay, within 20 days of
the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares purchased
at the reduced rate and the sales charge applicable to
the shares actually purchased through the Letter. Class A
or Class D shares equal to at least 5.0% of the intended
amount will be held in escrow during the 13-month period
(while remaining registered in the name of the purchaser)
for this purpose. The first purchase under the Letter of
Intent must be at least 5.0% of the dollar amount of such
Letter. If a purchase during the term of such Letter
would otherwise be subject to a further reduced sales
charge based on the right of accumulation, the purchaser
will be entitled on that purchase and subsequent
purchases to the further reduced percentage sales charge
that would be applicable to a single purchase equal to
the total dollar value of the Class A or Class D shares
then being purchased under such Letter, but there will be
no retroactive reduction of the sales charge on any
previous purchase.
The value of any shares redeemed
or otherwise disposed of by the purchaser prior to
termination or completion of the Letter of Intent will be
deducted from the total purchases made under such Letter.
An exchange from the Summit Cash Reserves Fund into the
Fund that creates a sales charge will count toward
completing a new or existing Letter of Intent from the
Fund.
Merrill Lynch Blueprint
SM
Program.
Class D shares of the Fund are offered to participants in
the Merrill Lynch Blueprint
SM
Program (Blueprint). In addition,
participants in Blueprint who own Class A shares of the
Fund may purchase additional Class A shares of the Fund
through Blueprint. The Blueprint program is directed to
small investors, group IRAs and participants in certain
affinity groups such as credit unions, trade associations
and benefit plans. Investors placing orders to purchase
Class A or Class D shares of the Fund through Blueprint
will acquire the Class A or Class D shares at net asset
value plus a sales charge calculated in accordance with
the Blueprint sales charge schedule (i.e., up to
$300 at 4.25%, from $300.01 to $5,000 at 3.25% plus
$3.00, and $5,000.01 or more at the standard sales charge
rates disclosed in the Prospectus). In addition, Class A
or Class D shares of the Fund are being offered at net
asset value plus a sales charge of 0.50% for corporate or
group IRA programs placing orders to purchase their Class
A or Class D shares through Blueprint. Services,
including the exchange privilege, available to Class A
and Class D investors through Blueprint, however, may
differ from those available to other investors in Class A
or Class D shares.
Class A and Class D shares are
offered at net asset value to Blueprint participants
through the Merrill Lynch Directed IRA Rollover Program
(the IRA Rollover Program) available from
Merrill Lynch Business Financial Services, a business
unit of Merrill Lynch. The IRA Rollover Program is
available to custodian rollover assets from
employer-sponsored retirement and savings plans (as
defined below) whose trustee and/or plan sponsor has
entered into the IRA Rollover Program.
Orders for purchases and
redemptions of Class A or Class D shares of the Fund may
be grouped for execution purposes which, in some
circumstances, may involve the execution of such orders
two business days following the day such orders are
placed. The minimum initial purchase price is $100, with
a $50 minimum for subsequent purchases through Blueprint.
There are no minimum initial or subsequent purchase
requirements for participants who are part of an
automatic investment plan. Additional information
concerning purchases through Blueprint, including any
annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
The Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
TMA
SM
Managed Trusts.
Class A shares are offered at net asset value to
TMA
SM
Managed Trusts to which Merrill Lynch Trust
Company provides discretionary trustee services.
Employee Access
SM
Accounts.
Provided applicable threshold requirements are met,
either Class A or Class D shares are offered at net asset
value to Employee Access
SM
Accounts available through authorized employers.
The initial minimum investment for such accounts is $500,
except that the initial minimum investment for shares
purchased for such accounts pursuant to the Automatic
Investment Program is $50.
Employer-Sponsored
Retirement or Savings Plans and Certain Other Arrangements
. Certain employer-sponsored
retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at
net asset value, based on the number of employees or
number of employees eligible to participate in the plan,
the aggregate amount invested by the plan in specified
investments and/or the services provided by Merrill Lynch
to the plan. Additional information regarding purchases
by employer-sponsored retirement or savings plans and
certain other arrangements is available toll-free from
Merrill Lynch Business Financial Services at (800)
237-7777.
Purchase Privilege of
Certain Persons. Trustees of
the Fund, members of the Boards of other MLAM/FAM Advised
Funds, ML & Co. and its subsidiaries (the term
subsidiaries, when used herein with respect to ML
& Co., includes MLAM, FAM and certain other entities
directly or indirectly wholly owned and controlled by ML
& Co.) and their directors and employees, and any
trust, pension, profit-sharing or other benefit plan for
such persons, may purchase Class A shares of the Fund at
net asset value. Under such programs, the Fund realizes
economies of scale and reduction of sales-related
expenses by virtue of familiarity with the Fund.
Employees and directors or trustees wishing to purchase
shares of the Fund must satisfy the Funds
suitability standards.
Class D shares of the Fund are
offered at net asset value, without a sales charge, to an
investor that has a business relationship with a
Financial Consultant who joined Merrill Lynch from
another investment firm within six months prior to the
date of purchase by such investor, if the following
conditions are satisfied: first, the investor must advise
Merrill Lynch that it will purchase Class D shares of the
Fund with proceeds from a redemption of shares of a
mutual fund that was sponsored by the Financial 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 funds prospectus) is
applicable. Purchase orders from eligible fund
shareholders wishing to exercise this investment option
will be accepted only on the day that the related tender
offer terminates and will be effected at the net asset
value of the designated class of the Fund on such day.
Acquisition of Certain
Investment Companies. The
public offering price of Class D shares may be reduced to
the net asset value per Class D share 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. The value of the assets or
company acquired in a tax-free transaction may be
adjusted in appropriate cases to reduce possible adverse
tax consequences to the Fund that might result from an
acquisition of assets having net unrealized appreciation
that is disproportionately higher at the time of
acquisition than the realized or unrealized appreciation
of the Fund. The
issuance of Class D shares for consideration other than
cash is limited to bona fide reorganizations, statutory
mergers or other acquisitions of portfolio securities
that (i) meet the investment objectives and policies of
the Fund; (ii) are acquired for investment and not for
resale (subject to the understanding that the disposition
of the Funds portfolio securities shall at all
times remain within its control); and (iii) are liquid
securities, the value of which is readily ascertainable,
which are not restricted as to transfer either by law or
liquidity of market (except that the Fund may acquire
through such transactions restricted or illiquid
securities to the extent the Fund does not exceed the
applicable limits on acquisition of such securities set
forth under Investment Objective and Policies
herein).
Reductions in or exemptions from
the imposition of a sales load are due to the nature of
the investors and/or the reduced sales efforts that will
be needed in obtaining such investments.
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.
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.
Because no initial sales charges
are deducted at the time of the purchase, Class B and
Class C shares provide the benefit of putting all of the
investors dollars to work from the time the
investment is made. The deferred sales charge
alternatives may be particularly appealing to investors
that do not qualify for the reduction in initial sales
charges. Both Class B and Class C shares are subject to
ongoing account maintenance fees and distribution fees;
however, the ongoing account maintenance and distribution
fees potentially may be offset to the extent any return
is realized on the additional funds initially invested in
Class B or Class C shares. In addition, Class B shares
will be converted into Class D shares of the Fund after a
conversion period of approximately eight years, and
thereafter investors will be subject to lower ongoing
fees.
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 or capital gains distributions.
It will be assumed that the redemption is first of shares
held for over four years or shares acquired pursuant to
reinvestment of dividends or distributions and then of
shares held longest during the four-year period. A
transfer of shares from a shareholders account to
another account will be assumed to be made in the same
order as a redemption.
The following table sets forth
the Class B CDSC:
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).
As discussed in the prospectus
under Merrill Lynch Select Pricing
SM
System Class B Shares,
while Class B shares redeemed within four years of
purchase and subject to a CDSC under most circumstances,
the charge may be reduced or waived in certain instances.
These include certain post-retirement withdrawals from an
IRA or other retirement plan or redemption of Class B
shares in certain circumstances following the death of a
Class B shareholder. In the case of such withdrawal,
reduction or waiver applies to: (a) any partial or
complete redemption in connection with a distribution
following retirement under a tax-deferred retirement plan
or attaining age 59
1
/
2
in the case of an IRA or other retirement plan,
or part of a series of equal periodic payments (not less
frequently than annually) made for life (or life
expectancy), or any redemption resulting from the tax
free return of an excess contribution to an IRA; or (b)
any partial or complete redemption following the death or
disability (as defined in the Code) of a Class B
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 charge may also be reduced or
waived in other instances, such as: (c) redemptions of
shares by certain eligible 401(a) and eligible 401(k)
plans and in connection with certain group plans placing
orders through Blueprint; (d) 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 and for any Class B
shares that were acquired and held at the time of the
redemption in an Employee Access
SM
Account available through employers providing
eligible 401(k) plans; (e) any Class B shares that are
purchased by a Merrill Lynch rollover IRA that was funded
by a rollover from a terminated 401(k) plan managed by
the MLAM Private Portfolio Group and held in such account
at the time of redemption; (f) any Class B shares
purchased within qualifying Employee Access
SM
Accounts; (g) redemptions in connection with
participation in certain fee-based programs (see
Shareholder Services Fee-Based Programs
); (h) withdrawals through the Merrill Lynch
Systematic Withdrawal Plan up to 10% per year of the
shareholders Class B account value at the time the
plan is established; or (i) the Class B CDSC may also be
waived in connection with involuntary termination of an
account in which Fund shares are held.
Employer-Sponsored
Retirement or Savings Plans and Certain Other
Arrangements. Certain
employer-sponsored retirement or savings plans and
certain other arrangements may purchase Class B shares
with a waiver of the CDSC upon redemption, based on the
number of employees or number of employees eligible to
participate in the plan, the aggregate amount invested by
the plan in specified investments and/or the services
provided by Merrill Lynch to the plan. Such Class B
shares will convert into Class D shares approximately ten
years after the plan purchases the first share of any
Select Pricing Fund. Minimum purchase requirements may be
waived or varied for such plans. Additional information
regarding purchases by employer-sponsored retirement or
savings plans and certain other arrangements is available
toll-free from Merrill Lynch Business Financial Services
at (800) 237-7777.
Merrill Lynch Blueprint
SM
Program.
Class B shares are offered to certain participants in
Blueprint. Blueprint is directed to small investors,
group IRAs and participants in certain affinity groups
such as trade associations, credit unions and benefit
plans. Class B shares of the Fund are offered through
Blueprint only to members of certain affinity groups. The
CDSC is waived in connection with purchase orders placed
through Blueprint. Services, including the exchange
privilege, available to Class B investors through
Blueprint, however, may differ from those available to
other Class B investors. Orders for purchases and
redemptions of Class B shares of the Fund may be grouped
for execution purposes which, in some circumstances, may
involve the execution of such orders two business days
following the day such orders are placed. The minimum
initial purchase price is $100, with a $50 minimum for
subsequent purchases through Blueprint. There is no
minimum initial or subsequent purchase requirement for
investors who are part of a Blueprint automatic
investment plan. Additional information concerning these
Blueprint programs, including any annual fees or
transaction charges, is available from Merrill Lynch,
Pierce, Fenner & Smith Incorporated, The Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
Conversion of Class B
Shares to Class D Shares.
After approximately eight years (the Conversion
Period), Class B shares will be converted
automatically into Class D shares of the Fund. Class D
shares are subject to an ongoing account maintenance fee
of 0.25% of average daily net assets but are not subject
to the distribution fee that is borne by Class B shares.
Automatic conversion of Class B shares into Class D
shares will occur at least once each month (on the
Conversion Date) on the basis of the relative net
asset value of the shares of the two classes on the
Conversion Date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares
to Class D shares will not be deemed a purchase or sale
of the shares for federal income tax purposes.
In addition, shares purchased
through reinvestment of dividends on Class B shares also
will convert automatically to Class D shares. The
Conversion Date for dividend reinvestment shares will be
calculated taking into account the length of time the
shares underlying such dividend reinvestment shares were
outstanding. If at the Conversion Date the conversion of
Class B shares to Class D shares of the Fund in a single
account will result in less than $50 worth of Class B
shares being left in the account, all of the Class B
shares of the Fund held in the account on the Conversion
Date will be converted to Class D shares of the Fund.
In general, Class B shares of
equity Select Pricing Funds will convert approximately
eight years after initial purchase and Class B shares of
taxable and tax-exempt fixed income Select Pricing Funds
will convert approximately ten years after initial
purchase. If, during the Conversion Period, a shareholder
exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion
Period, or vice versa, the Conversion Period applicable
to the Class B shares acquired in the exchange will apply
and the holding period for the shares exchanged will be
tacked on to the holding period for the shares acquired.
The conversion period also may be modified for investors
that participate in certain fee-based programs. See
Shareholder Services Fee-Based Programs.
Class B shareholders of the Fund
exercising the exchange privilege described under
Shareholder Services Exchange Privilege
will continue to be subject to the Funds CDSC
schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares acquired as a
result of the exchange.
Share certificates for Class B
shares of the Fund to be converted must be delivered to
the Transfer Agent at least one week prior to the
Conversion Date applicable to those shares. In the event
such certificates are not received by the Transfer Agent
at least one week prior to the Conversion Date, the
related Class B shares will convert to Class D shares on
the next scheduled Conversion Date after such
certificates are delivered.
Contingent Deferred
Sales Charges Class C Shares
Class C shares that are redeemed
within one year of purchase may be subject to a 1.0% CDSC
charged as a percentage of the dollar amount subject
thereto. In determining whether a Class C CDSC is
applicable to a redemption, the calculation will be
determined in the manner that results in the lowest
possible rate being charged. The charge will be assessed
on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.
Accordingly, no Class C CDSC will be imposed on increases
in net asset value above the initial purchase price. In
addition, no Class C CDSC will be assessed on shares
derived from reinvestment of dividends or capital gains
distributions. It will be assumed that the redemption is
first of shares held for over one year or shares acquired
pursuant to reinvestment of dividends or distributions
and then of shares held longest during the one-year
period. The charge will not be applied to dollar amounts
representing an increase in the net asset value since the
time of purchase. A transfer of shares from a shareholder
s account to another account will be assumed to be
made in the same order as a redemption. The Class C CDSC
may be waived in connection with certain fee-based
programs, involuntary termination of an account in which
Fund shares are held and withdrawals through the Merrill
Lynch Systematic Withdrawal Plan. See Shareholder
Services Systematic Withdrawal Plan.
The Class C CDSC of the Fund and certain other
MLAM-advised mutual funds may be waived with respect to
Class C shares purchased by an investor with the net
proceeds of a tender offer made by certain MLAM-advised
closed end funds, including Merrill Lynch Senior Floating
Rate Fund II, Inc. Such waiver is subject to the
requirements that the tendered shares shall have been
held by the investor for a minimum of one year and to
such other conditions as are set forth in the prospectus
for the related closed end fund.
Class B and Class C
Sales Charge Information
Class B Shares*
|
For
the Fiscal Year
Ended July 31
|
|
CDSCs
Received
by Distributor
|
|
CDSCs
Paid to
Merrill Lynch
|
1999
|
|
$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
|
|
$2,523
|
|
$2,523
|
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 dealers
own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales
charge being deducted at the time of purchase. See
Distribution Plans below. Imposition of the CDSC
and the distribution fee on Class B and Class C shares is
limited by the 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 Funds Distribution
Plans are subject to the provisions of Rule 12b-1 under
the Investment Company Act. In their consideration of
each Distribution Plan, the 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
Independent Trustees shall be committed to the discretion
of the Independent Trustees then in office. In approving
each Distribution Plan in accordance with Rule 12b-1, the
Independent 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 Independent
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 Independent
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 $1,030,022 (1.37% 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 $
pursuant to the Class B Distribution Plan (based on
average daily net assets subject to such Class B
Distribution Plan of approximately $
billion), all of which was
paid to Merrill Lynch for providing account maintenance
and distribution-related activities and services in
connection with Class B shares. For the fiscal year ended
July 31, 1999, the Fund paid the Distributor $
pursuant to the Class C Distribution Plan (based on
average daily net assets subject to such Class C
Distribution Plan of approximately $
million), all of which was paid to Merrill Lynch for
providing account maintenance and distribution-related
activities and services in connection with Class C
shares. For the fiscal year ended July 31, 1999, the Fund
paid the Distributor $
pursuant to the Class D Distribution Plan (based
on average daily net assets subject to such Class D
Distribution Plan of approximately $
billion), 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 Distributors 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
|
|
424,844
|
|
26,430
|
|
16,223
|
|
42,653
|
|
20,945
|
|
21,708
|
|
565
|
Under
NASD Rule as Adopted...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under
Distributors Voluntary Waiver...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class C Shares, for the period October 21,
1994 (commencement of operations)
to
July 31, 1999
|
|
424,844
|
|
26,430
|
|
2,247
|
|
28,677
|
|
20,945
|
|
7,732
|
|
565
|
Under
NASD Rule as Adopted...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Purchase price of all
eligible Class B or Class C shares sold during the
periods indicated other than shares acquired through
dividend reinvestment and the exchange privilege.
|
(2)
|
Includes amounts
attributable to exchanges from Summit Cash Reserves
Fund (Summit) which are not reflected in
Eligible Gross Sales. Shares of Summit can only be
purchased by exchange from another fund (the
redeemed fund). Upon such an exchange, the
maximum allowable sales charge payment to the redeemed
fund is reduced in accordance with the amount of the
redemption. This amount is then added to the maximum
allowable sales charge payment with respect to Summit.
Upon an exchange out of Summit, the remaining balance
of this amount is deducted from the maximum allowable
sales charge payment to Summit and added to the maximum
allowable sales charge payment to the fund into which
the exchange is made.
|
(3)
|
Interest is computed on
a monthly basis based upon the prime rate, as reported
in The Wall Street Journal, plus 1.0%, as
permitted under the NASD Rule.
|
(4)
|
Consists of CDSC
payments, distribution fee payments and accruals. Of
the distribution fee payments made with respect to
Class B shares prior to July 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. See What are the Funds fees and
expenses? in the Prospectus. This figure may
include CDSCs that were deferred when a shareholder
redeemed shares prior to the expiration of the
applicable CDSC period and invested the proceeds,
without the imposition of a sales charge, in Class A
shares in conjunction with the shareholders
participation in the Merrill Lynch Mutual Fund Advisor
(Merrill Lynch MFA
SM
) Program (the MFA Program). The
CDSC is booked as a contingent obligation that may be
payable if the shareholder terminates participation in
the MFA Program.
|
(5)
|
Provided to illustrate
the extent to which the current level of distribution
fee payments (not including any CDSC payments) is
amortizing the unpaid balance. No assurance can be
given that payments of the distribution fee will reach
either the voluntary maximum (with respect to Class B
shares) or the NASD maximum (with respect to Class B
and Class C shares).
|
Reference is made to How to
Buy, Sell, Transfer and Exchange Shares in the
Prospectus.
The Fund is required to redeem
for cash all shares of the Fund upon receipt of a written
request in proper form. The redemption price is the net
asset value per share next determined after the initial
receipt of proper notice of redemption. Except for any
CDSC that may be applicable, there will be no charge for
redemption if the redemption request is sent directly to
the Transfer Agent. Shareholders liquidating their
holdings will receive upon redemption all dividends
reinvested through the date of redemption.
The right to redeem shares or to
receive payment with respect to any such redemption may
be suspended for more than seven days only for any period
during which trading on the NYSE is restricted as
determined by the Commission or the NYSE is closed (other
than customary weekend and holiday closings), for any
period during which an emergency exists as defined by the
Commission as a result of which disposal of portfolio
securities or determination of the net asset value of the
Fund is not reasonably practicable, and for such other
periods as the Commission may by order permit for the
protection of shareholders of the Fund.
The value of shares at the time
of redemption may be more or less than the shareholder
s cost, depending in part on the 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 Agents register. The signature(s)
on the redemption requests must be guaranteed by an
eligible guarantor institution as such is defined
in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended (the Exchange Act), the
existence and validity of which may be verified by the
Transfer Agent through the use of industry publications.
Notarized signatures are not sufficient. In certain
instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments,
death certificates, appointments as executor or
administrator, or certificates of corporate authority.
For shareholders redeeming directly with the Transfer
Agent, payments will be mailed within seven days of
receipt of a proper notice of redemption.
At various times the Fund may be
requested to redeem shares for which it has not yet
received good payment (e.g., cash, Federal funds
or certified check drawn on a United States bank). The
Fund may delay or cause to be delayed the mailing of a
redemption check until such time as it has assured itself
that good payment (e.g., cash, Federal funds or
certified check drawn on a United States bank) has been
collected for the purchase of such Fund shares, which
will not exceed 10 days.
The Fund also will repurchase
Fund shares through a shareholders 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 days closing price.
The foregoing repurchase
arrangements are for the convenience of shareholders and
do not involve a charge by the Fund (other than any
applicable CDSC). Securities firms that do not have
selected dealer agreements with the Distributor, however,
may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund.
Merrill Lynch 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 investors Merrill
Lynch Financial Consultant within 30 days after the date
the request for redemption was accepted by the Transfer
Agent or the Distributor. The reinstatement will be made
at the net asset value per share next determined after
the notice of reinstatement is received and cannot exceed
the amount of the redemption proceeds.
Determination of Net Asset Value
Reference is made to How
Shares are Priced in the Prospectus.
The net asset value of the shares
of all classes of the Fund is determined once daily
Monday through Friday after the close of business on the
NYSE on each day the NYSE is open for trading. The NYSE
generally closes at 4:00 p.m., Eastern time. Any assets
or liabilities initially expressed in terms of non-U.S.
dollar currencies are translated into U.S. dollars at the
prevailing market rates as quoted by one or more banks or
dealers on the day of valuation. The NYSE is not open for
trading on New Years Day, Martin Luther King, Jr.
Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Net asset value is computed by
dividing the value of the securities held by the
Portfolio plus any cash or other assets (including
interest and dividends accrued but not yet received)
minus all liabilities (including accrued expenses) by the
total number of shares outstanding at such time, rounded
to the nearest cent. Expenses, including the fees payable
to the Investment Adviser and Distributor, are accrued
daily.
The per share net asset value of
Class B, Class C and Class D shares generally will be
lower than the per share net asset value of Class A
shares, reflecting the daily expense accruals of the
account maintenance, distribution and higher transfer
agency fees applicable with respect to Class B and Class
C shares, and the daily expense accruals of the account
maintenance fees applicable with respect to the Class D
shares; moreover, the per share net asset value of the
Class B and Class C shares generally will be lower than
the per share net asset value of Class D shares
reflecting the daily expense accruals of the distribution
fees and higher transfer agency fees applicable with
respect to Class B and Class C shares of the Fund. It is
expected, however, that the per share net asset value of
the four classes will tend to converge (although not
necessarily meet) immediately after the payment of
dividends or distributions, 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. 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.
Long positions in securities traded in the
over-the-counter (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. 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 Funds shares are
determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of
business on the NYSE. Occasionally, events affecting the
values of such securities and such exchange rates may
occur between the times at which they are determined and
the close of business on the NYSE that will not be
reflected in the computation of the Funds net asset
value. If events materially affecting the value of such
securities occur during such period, then these
securities will be valued at their fair value as
determined in good faith by the Trustees.
Computation of Offering Price Per Share
An illustration of the
computation of the offering price for Class A, Class B,
Class C and Class D shares of the Fund based on the value
of the Funds net assets and number of shares
outstanding on July 31, 1999 is set forth below.
|
|
Class
A
|
|
Class
B
|
|
Class
C
|
|
Class
D
|
Net
Assets...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares Outstanding...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value Per Share (net assets divided by number of
shares
outstanding)...
|
|
|
|
|
|
|
|
|
Sales
Charge (for Class A and Class D shares: 5.25% of
offering
price; 5.54% of net asset
value per share)*...
|
|
|
|
**
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
Offering Price...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Rounded to the nearest
one-hundredth percent; assumes maximum sales charge is
applicable.
|
**
|
Class B and Class C
shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See
Purchase of Shares Merrill Lynch
Select Pricing
SM
System and Deferred
Sales Charge Alternatives Contingent
Deferred Sales Charges Class B Shares
and Contingent Deferred Sales Charges
Class C Shares herein.
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser is
responsible for making the Funds portfolio
decisions, placing the Funds brokerage business,
evaluating the reasonableness of brokerage commissions
and negotiating the amount of commissions paid subject to
a policy established by the Funds Trustees and
officers. The Fund has no obligation to deal with any
broker or group of brokers in the execution of
transactions in portfolio securities. Orders for
transactions in portfolio securities are placed for the
Fund with a number of brokers and dealers, including
Merrill Lynch. In placing orders, it is the policy of the
Fund to obtain the most favorable net results, taking
into account various factors, including price,
commissions, if any, size of the transaction and
difficulty of execution. Where practicable, the
Investment Adviser surveys a number of brokers and
dealers in connection with proposed portfolio
transactions and selects the broker or dealer which
offers the Fund best price and execution or other
services which are of benefit to the Fund. Securities
firms also may receive brokerage commissions on
transactions including covered call options written by
the Fund and the sale of underlying securities upon the
exercise of such options. In addition, consistent with
the NASD Conduct Rules and policies established by the
Funds Trustees, the Investment Adviser may consider
sales of shares of the Fund as a factor in the selection
of brokers or dealers to execute portfolio transactions
for the Fund. It is expected that the majority of the
shares of the Fund will be sold by Merrill Lynch.
The Fund does not use any
particular broker or dealer, and brokers who provide
supplemental investment research to the Investment
Adviser may receive orders for transactions by the Fund.
Such supplemental research services ordinarily consist of
assessments and analyses of the business or prospects of
a company, industry or economic sector. Information so
received will be in addition to and not in lieu of the
services required to be performed by the Investment
Adviser under the Management Agreement. If in the
judgment of the Investment Adviser the Fund will be
benefited by supplemental research services, the
Investment Adviser is authorized to pay brokerage
commissions to a broker furnishing such services which
are in excess of commissions which another broker may
have charged for effecting the same transaction. The
expenses of the Investment Adviser will not necessarily
be reduced as a result of the receipt of such
supplemental information, and the Investment Adviser may
use such information in servicing its other accounts.
For the fiscal year ended July
31, 1999, brokerage commissions paid to Merrill Lynch
aggregated $
, which comprised
% of the Funds aggregate
brokerage commissions paid and involved
% of the Funds aggregate dollar amount of
transactions involving payment of commissions during the
year. For the fiscal year ended July 31, 1998, brokerage
commissions paid to Merrill Lynch aggregated $7,029. For
the fiscal year ended July 31, 1997, brokerage
commissions paid to Merrill Lynch aggregated $8,080.
Aggregate brokerage commissions paid by the Fund are set
forth in the following table:
Fiscal Year Ended July 31,
|
|
Brokerage Commissions Paid
|
1999...
|
|
$
|
1998...
|
|
$205,336
|
1997...
|
|
$82,194
|
The Fund invests in certain OTC
securities and, when possible, deals directly with the
dealers who make a market in the 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
purchase and sale of securities. Since transactions in
the OTC market usually involve transactions with dealers
acting as principal for their own accounts, affiliated
persons of the Fund, including Merrill Lynch, will not
serve as the Funds dealer in such transactions.
However, affiliated persons 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 Directors of the Fund that either
comply with rules adopted by the Commission or with
interpretations of the Commission staff.
Certain court decisions have
raised questions as to the extent to which investment
companies should seek exemptions under the Investment
Company Act in order to seek to recapture underwriting
and dealer spreads from affiliated entities. The Trustees
have considered all factors deemed relevant and have made
a determination not to seek such recapture at this time.
The Trustees will reconsider this matter from time to
time.
Section 11(a) of the Exchange Act
generally prohibits members of the U.S. national
securities exchanges from executing exchange transactions
for their affiliates and institutional accounts that they
manage unless the member (i) has obtained prior express
authorization from the account to effect such
transactions, (ii) at least annually furnishes the
account with a statement setting forth the aggregate
compensation received by the member in effecting such
transactions, and (iii) complies with any rules the
Commission has prescribed with respect to the
requirements of clauses (i) and (ii). To the extent
Section 11(a) would apply to Merrill Lynch acting as a
broker for the Fund in any of its portfolio transactions
executed on any such securities exchange of which it is a
member, appropriate consents have been obtained from the
Fund and annual statements as to aggregate compensation
will be provided to the Fund. Securities may be held by,
or be appropriate investments for, the Fund as well as
other funds or investment advisory clients of the
Investment Adviser or FAM.
Because of different objectives
or other factors, a particular security may be bought for
one or more clients of the Investment Adviser or an
affiliate when one or more clients of the Investment
Adviser or an affiliate are selling the same security. If
purchases or sales of securities arise for consideration
at or about the same time that would involve the Fund or
other clients or funds for which the Investment Adviser
or an affiliate act as manager, transactions in such
securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable
to all. To the extent that transactions on behalf of more
than one client of the Investment Adviser or an affiliate
during the same period may increase the demand for
securities being purchased or the supply of securities
being sold, there may be an adverse effect on price.
The Fund offers a number of
shareholder services and investment plans described below
that are designed to facilitate investment in shares of
the Fund. Full details as to each of such services,
copies of the various plans and instructions as to how to
participate in the various services or plans, or how to
change options with respect thereto, can be obtained from
the Fund, by calling the telephone number on the cover
page hereof, or from the Distributor or Merrill Lynch.
Certain of these services are available only to U.S.
investors and certain of these services are not available
to investors who place orders through the Merrill Lynch
Blueprint
SM
Program.
Each shareholder whose account is
maintained at the Transfer Agent has an Investment
Account and will receive statements, at least quarterly,
from the Transfer Agent. These statements will serve as
transaction confirmations for automatic investment
purchases and the reinvestment of ordinary income
dividends and capital gain distributions. 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 ordinary income dividends and capital
gains distributions. 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
shareholders name may be opened automatically at
the Transfer Agent.
Share certificates are issued
only for full shares and only upon the specific request
of a shareholder who has an Investment Account. Issuance
of certificates representing all or only part of the full
shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
Shareholders may transfer their
Fund shares from Merrill Lynch to another securities
dealer that has entered into a selected dealer agreement
with Merrill Lynch. Certain shareholder services may not
be available for the transferred shares. After the
transfer, the shareholder may purchase additional shares
of funds owned before the transfer and all future trading
of these assets must be coordinated by the new firm. If a
shareholder wishes to transfer his or her shares to a
securities dealer that has not entered into a selected
dealer agreement with Merrill Lynch, the shareholder must
either (i) redeem his or her shares, paying any
applicable CDSC or (ii) continue to maintain an
Investment Account at the Transfer Agent for those
shares. The shareholder may also request the new
securities dealer to maintain the shares in an account at
the Transfer Agent registered in the name of the
securities dealer for the benefit of the shareholder
whether the securities dealer has entered into a selected
dealer agreement or not.
Shareholders considering
transferring a tax-deferred retirement account, such as
an individual retirement account, from Merrill Lynch to
another securities dealer should be aware that, if the
firm to which the retirement account is to be transferred
will not take delivery of shares of the Fund, a
shareholder must either redeem the shares, paying any
applicable CDSC, so that the cash proceeds can be
transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement
account at Merrill Lynch for those shares.
U.S. shareholders of each class
of shares of the Fund have an exchange privilege with
certain other Select Pricing Funds and Summit Cash
Reserves Fund (Summit), a series of Financial
Institutions Series Trust, which is a Merrill
Lynch-sponsored money market fund specifically designated
for exchange by holders of Class A, Class B, Class C and
Class D shares of Select Pricing Funds. Shares with a net
asset value of at least $100 are required to qualify for
the exchange privilege and any shares utilized in an
exchange must have been held by the shareholder for at
least 15 days. Before effecting an exchange, shareholders
should obtain a currently effective prospectus of the
fund into which the exchange is to be made. Exercise of
the exchange privilege is treated as a sale of the
exchanged shares and a purchase of the acquired shares
for Federal income tax purposes.
Exchanges of Class A and
Class D Shares. Class A
shareholders may exchange Class A shares of the Fund for
Class A shares of a second Select Pricing Fund if the
shareholder holds any Class A shares of the second fund
in his or her account in which the exchange is made at
the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class
A shareholder wants to exchange Class A shares for shares
of a second Select Pricing Fund, but does not hold Class
A shares of the second fund in his or her account at the
time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the
shareholder will receive Class D shares of the second
fund as a result of the exchange. Class D shares also may
be exchanged for Class A shares of a second Select
Pricing Fund at any time as long as, at the time of the
exchange, the shareholder holds Class A shares of the
second fund in the account in which the exchange is made
or is otherwise eligible to purchase Class A shares of
the second fund. Class D shares are exchangeable with
shares of the same class of other Select Pricing Funds.
Exchanges of Class A or Class D
shares outstanding (outstanding Class A or Class D
shares) for Class A or Class D shares of other
Select Pricing Funds or Class A shares of Summit (
new Class A or Class D shares), are transacted on
the basis of relative net asset value per Class A or
Class D share, respectively, plus an amount equal to the
difference, if any, between the sales charge previously
paid on the outstanding Class A or Class D shares and the
sales charge payable at the time of the exchange on the
new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which
previous exchanges have taken place, the sales
charge previously paid shall include the aggregate
of the sales charges paid with respect to such Class A or
Class D shares in the initial purchase and any subsequent
exchange. Class A or Class D shares issued pursuant to
dividend reinvestment are sold on a no-load basis in each
of the funds offering Class A or Class D shares. For
purposes of the exchange privilege, Class A or Class D
shares acquired through dividend reinvestment shall be
deemed to have been sold with a sales charge equal to the
sales charge previously paid on the Class A or Class D
shares on which the dividend was paid. Based on this
formula, Class A and Class D shares generally may be
exchanged into the Class A or Class D shares,
respectively, of the other funds with a reduced sales
charge or without a sales charge.
Exchanges of Class B and
Class C Shares. Certain Select
Pricing Fund with Class B or Class C shares outstanding (
outstanding Class B or Class C shares) offers
to exchange its Class B or Class C shares for Class B or
Class C shares, respectively, of certain other Select
Pricing Fund or for Class B shares of Summit (new
Class B or Class C shares) on the basis of relative
net asset value per Class B or Class C share, without the
payment of any CDSC that might otherwise be due on
redemption of the outstanding shares. Class B
shareholders of the Fund exercising the exchange
privilege will continue to be subject to the Funds
CDSC schedule if such schedule is higher than the CDSC
schedule relating to the new Class B shares acquired
through use of the exchange privilege. In addition, Class
B shares of the Fund acquired through use of the exchange
privilege will be subject to the Funds CDSC
schedule if such schedule is higher than the CDSC
schedule relating to the Class B shares of the fund from
which the exchange has been made. For purposes of
computing the CDSC that may be
payable on a disposition of the new Class B or Class C
shares, the holding period for the outstanding Class B or
Class C shares is tacked to the holding
period of the new Class B or Class C shares. For example,
an investor may exchange Class B or Class C shares of the
Fund for those of Merrill Lynch Special Value Fund, Inc. (
Special Value Fund) after having held the Fund
s Class B shares for two and a half years. The 2%
CDSC that generally would apply to a redemption would not
apply to the exchange. Three years later the investor may
decide to redeem the Class B shares of Special Value Fund
and receive cash. There will be no CDSC due on this
redemption, since by tacking the two and a
half year holding period of Fund Class B shares to the
three-year holding period for the Special Value Fund
Class B shares, the investor will be deemed to have held
the Special Value Fund Class B shares for more than five
years.
Exchanges for Shares of a
Money Market Fund. Class A and
Class D shares are exchangeable for Class A shares of
Summit and Class B and Class C shares are exchangeable
for Class B shares of Summit. Class A shares of Summit
have an exchange privilege back into Class A or Class D
shares of Select Pricing Funds; Class B shares of Summit
have an exchange privilege back into Class B or Class C
shares of Select Pricing Funds and, in the event of such
an exchange, the period of time that Class B shares of
Summit are held will count toward satisfaction of the
holding period requirement for purposes of reducing any
CDSC and toward satisfaction of any Conversion Period
with respect to Class B shares. Class B shares of Summit
will be subject to a distribution fee at an annual rate
of 0.75% of average daily net assets of such Class B
shares. This exchange privilege does not apply with
respect to certain Merrill Lynch fee-based programs for
which alternative exchange arrangements may exist. Please
see your Merrill Lynch Financial Consultant for further
information.
Prior to October 12, 1998,
exchanges from the Fund and other Select Pricing Funds
into a money market fund were directed to certain Merrill
Lynch-sponsored money market funds other than Summit.
Shareholders who have exchanged Select Pricing Fund
shares for shares of such other money market funds and
subsequently wish to exchange those money market fund
shares for shares of the Fund will be subject to the CDSC
schedule applicable to such Fund shares, if any. The
holding period for the money market fund shares will not
count toward satisfaction of the holding period
requirement for reduction of the CDSC imposed on such
shares, if any, and, with respect to Class B shares,
toward satisfaction of the Conversion Period. However,
the holding period for Class B or Class C shares received
in exchange for such money market fund shares will be
aggregated with the holding period for the 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 Funds exchange
privilege is also modified with respect to purchases of
Class A and Class D shares by non-retirement plan
investors under the MFA Program. First, the initial
allocation of assets is made under the MFA Program. Then,
any subsequent exchange under the MFA Program of Class A
or Class D shares of a Select Pricing Fund for Class A or
Class D shares of the Fund will be made solely on the
basis of the relative net asset values of the shares
being exchanged. Therefore, there will not be a charge
for any difference between the sales charge previously
paid on the shares of the other Select Pricing Fund and
the sales charge payable on the shares of the Fund being
acquired in the exchange under the MFA Program.
Exercise of the Exchange
Privilege. To exercise the
exchange privilege, a shareholder should contact his or
her Merrill Lynch Financial Consultant, who will advise
the Fund of the exchange. Shareholders of the Fund, and
shareholders of the other Select Pricing Funds with
shares for which certificates have not been issued, may
exercise the exchange privilege by wire through their
securities dealers. 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 Programs client
agreement and from the Transfer Agent at 1-800-MER-FUND
or 1-800-637-3863.
Individual retirement accounts
and other retirement 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 charges 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. The minimum initial purchase to establish any such
plan is $100, and the minimum subsequent purchase is $1.
However, there is no minimum for purchases through
Blueprints Systematic Investment Plans.
Automatic Investment Plans
A shareholder may make additions
to an Investment Account at any time by purchasing Class
A shares (if he or she is an eligible Class A investor)
or Class B, Class C or Class D shares at the applicable
public offering price. These purchases may be made either
through the shareholders securities dealer, or by
mail directly to the Transfer Agent, acting as agent for
such securities dealer. Voluntary accumulation also can
be made through a service known as the Funds
Automatic Investment Plan. The Fund would be authorized,
on a regular basis, to provide systematic additions to
the Investment Account of such shareholder through
charges of $50 or more to the regular bank account of the
shareholder by either pre-authorized checks or automated
clearing house debits. For investors who buy shares of
the Fund through Blueprint, no minimum charge to the
investors bank account is required. Alternatively,
an investor that maintains a CMA® or CBA® account
may arrange to have periodic investments, of 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 shareholders address of
record and no interest will accrue on amounts represented
by uncashed dividend checks. Cash payments can also be
directly deposited to the shareholders bank account.
Systematic Withdrawal Plan
A shareholder may elect to
receive systematic withdrawals from his or her Investment
Account by check or through automatic payment by direct
deposit to his or her bank account on either a monthly or
quarterly basis as provided below. Quarterly withdrawals
are available for shareholders that have acquired shares
of the Fund having a value, based on cost or the current
offering price, of $5,000 or more, and monthly
withdrawals are available for shareholders with shares
having a value of $10,000 or more.
At the time of each withdrawal
payment, sufficient shares are redeemed from those on
deposit in the shareholders account to provide the
withdrawal payment specified by the shareholder. The
shareholder may specify the dollar amount and the class
of shares to be redeemed. Redemptions will be made at net
asset value 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 net asset value
determined after the close of business on the NYSE on the
following business day. The check for the withdrawal
payment will be mailed, or the direct deposit of the
withdrawal payment will be made, on the next business day
following redemption. When a shareholder is making
systematic withdrawals, dividends and distributions on
all shares in the Investment Account are reinvested
automatically in Fund shares. A shareholders
Systematic Withdrawal Plan may be terminated at any time,
without charge or penalty, by the shareholder, the Fund,
the Transfer Agent or the Distributor.
With respect to redemptions of
Class B or Class C shares pursuant to a systematic
withdrawal plan, the maximum number of Class B or Class C
shares that can be redeemed from an account annually
shall not exceed 10% of the value of shares of such class
in that account at the time the election to join the
systematic withdrawal plan was made. Any CDSC that
otherwise might be due on such redemption of Class B or
Class C shares will be waived. Shares redeemed pursuant
to a systematic withdrawal plan will be redeemed in the
same order as Class B or Class C shares are otherwise
redeemed. See Purchase of Shares
Deferred Sales Charge Alternatives Class
B and Class C Shares. Where the systematic
withdrawal plan is applied to Class B shares, upon
conversion of the last Class B shares in an account to
Class D shares, the systematic withdrawal plan will be
applied thereafter to Class D shares if the shareholder
so elects. If an investor wishes to change the amount
being withdrawn in a systematic withdrawal plan the
investor should contact his or her Merrill Lynch
Financial Consultant.
Withdrawal payments should not be
considered as dividends. Each withdrawal is a taxable
event. If periodic withdrawals continuously exceed
reinvested dividends, the shareholders original
investment may be reduced correspondingly. Purchases of
additional shares concurrent with withdrawals are
ordinarily disadvantageous to the shareholder because of
sales charges and tax liabilities. The Fund will not
knowingly accept purchase orders for shares of the Fund
from investors that maintain a Systematic Withdrawal Plan
unless such purchase is equal to at least one years
scheduled withdrawals or $1,200, whichever is greater.
Automatic investments may not be made into an Investment
Account in which the shareholder has elected to make
systematic withdrawals.
Alternatively, a shareholder
whose shares are held within a CMA®, CBA® Account
or Retirement Account may elect to have shares redeemed
on a monthly, bimonthly, quarterly, semiannual or annual
basis through the CMA® or CBA® Systematic
Redemption Program. The minimum fixed dollar amount
redeemable is $50. The proceeds of systematic redemptions
will be posted to the shareholders account three
business days after the date
the shares are redeemed. All redemptions are made at net
asset value. A shareholder may elect to have his or her
shares redeemed on the first, second, third or fourth
Monday of each month, in the case of monthly redemptions,
or of every other month, in the case of bimonthly
redemptions. For quarterly, semiannual or annual
redemptions, the shareholder may select the month in
which the shares are to be redeemed and may designate
whether the redemption is to be made on the first,
second, third or fourth Monday of the month. If the
Monday selected is not a business day, the redemption
will be processed at net asset value on the next business
day. The CMA® or CBA® Systematic Redemption
Program is not available if Fund shares are being
purchased within the account pursuant to the Automatic
Investment Program. For more information on the CMA®
or CBA® Systematic Redemption Program, eligible
shareholders should contact their Merrill Lynch Financial
Consultant.
Capital gains and ordinary income
received in each of the retirement plans referred to
above are exempt from Federal taxation until distributed
from the plan. Investors considering participation in any
such 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.
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 Funds 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 income 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. Shareholders 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 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 which it distributes to Class A, Class B,
Class C and Class D shareholders (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 Funds 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 Funds
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 Funds ordinary income
dividends may be eligible for the dividends received
deduction allowed to corporations under the Code, if
certain requirements are met. For this purpose, the Fund
will allocate dividends eligible for the dividends
received deduction between the Class A, Class B, Class C
and Class D shareholders according to a method (which it
believes is consistent with the Commission exemptive
order 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 Funds
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 Funds knowledge, have
furnished an incorrect number. When establishing an
account, an investor must certify under penalty of
perjury that such number is correct and that such
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 shareholders 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 shareholders 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 Funds
earnings and profits will first reduce the adjusted tax
basis of a holders shares, and after such adjusted
tax basis is reduced to zero, will constitute capital
gains to such holder (assuming the shares are held as a
capital asset).
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 Funds 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 taxpayers 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 shareholders 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 Funds historical performance and
are not intended to indicate future performance. Average
annual total return is determined separately for Class A,
Class B, Class C and Class D shares in accordance with
formulas specified by the Commission.
Average annual total return
quotations for the specified periods are computed by
finding the average annual compounded rates of return
(based on net investment income and any realized and
unrealized capital gains or losses on portfolio
investments over such periods) that would equate the
initial amount invested to the redeemable value of such
investment at the end of each period. Average annual
total return is computed assuming all dividends and
distributions are reinvested and taking into account all
applicable recurring and nonrecurring expenses, including
the maximum sales charge in the case of Class A and Class
D shares and the CDSC that would be applicable to a
complete redemption of the investment at the end of the
specified period in the case of Class B and Class C
shares.
The Fund also may quote annual,
average annual and annualized total return and aggregate
total return performance data 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 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 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 sales
charges, 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 in the tables below is
total return information for the Class A, Class B, Class
C and Class D shares of the Fund for the periods
indicated.
|
|
Class A Shares
|
|
Class B Shares
|
Period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
Expressed as
a percentage
based on a
hypothetical
$1,000 investment
|
|
Redeemable Value
of a hypothetical
$1,000 investment
at the end of
the period
|
|
|
Average Annual Total Return
|
|
|
(including maximum applicable
sales charges)
|
One
Year Ended July 31, 1999...
|
|
|
|
|
|
|
|
|
|
|
Five
Years Ended July 31, 1999...
|
|
|
|
|
|
|
|
|
|
|
Ten
Years Ended July 31, 1999...
|
|
|
|
|
|
|
|
|
|
|
Inception (November 29, 1988) to
July 31, 1999...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Total Return
|
|
|
(excluding maximum applicable
sales charges)
|
Year
Ended July 31,
|
1999...
|
|
|
|
|
|
|
|
|
|
|
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
|
1989...
|
|
|
|
|
|
|
23.48
|
%
|
|
$1,234.80
|
|
|
Inception (November 25, 1987) to
July 31, 1988...
|
|
|
|
|
|
|
10.13
|
%
|
|
$1,101.30
|
Inception (November 29, 1988) to
July 31, 1988...
|
|
22.02
|
%
|
|
$1,220.20
|
|
|
|
|
|
|
|
|
|
Aggregate Total Return
|
|
|
(including maximum applicable
sales charges)
|
Inception (November 29, 1988) to
July 31, 1999...
|
|
|
|
|
|
|
|
|
|
|
Inception (November 25, 1987) to
July 31, 1999...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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...
|
|
|
|
|
|
|
|
|
|
|
Inception (July 21, 1994) to
July 31, 1999...
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Total Return
|
|
|
(excluding maximum applicable
sales charges)
|
Year
Ended July 31,
|
1999...
|
|
|
|
|
|
|
|
|
|
|
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...
|
|
|
|
|
|
|
|
|
|
|
On occasion, the Fund may compare
its performance to that of the S&P 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 and 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. As with other performance data,
performance comparisons should not be considered
indicative of the Funds relative performance for
any future period. In addition, from time to time the
Fund may include its risk-adjusted performance ratings
assigned by Morningstar Publications, Inc. in advertising
or supplemental sales literature.
The Funds total return will
vary depending on market conditions, the securities
comprising the Funds portfolio, the Funds
operating expenses and the amount of realized and
unrealized net capital gains or losses during the period.
The value of an investment in the Fund will fluctuate and
an investors shares, when redeemed, may be worth
more or less than their original cost.
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, One Heritage Drive P2N, North Quincy,
Massachusetts 02171 (the Custodian), acts as
custodian of the Funds assets. 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 Funds investments.
Financial Data Services, Inc.,
4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484, acts as the Funds Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer
and redemption of shares and the opening, maintenance and
servicing of shareholder accounts. See How to Buy,
Sell, Transfer and Exchange Shares in the
Prospectus.
Swidler Berlin Shereff Friedman,
LLP 919 Third Avenue, New York, New York 10022-9998, 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
Funds portfolio and other information. An annual
report, containing financial statements audited by
independent auditors, is sent to shareholders each year.
After the end of each year, shareholders will receive
federal income tax information regarding dividends 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
Merrill Lynch 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 Merrill Lynch,
under certain conditions, the use of any other name it
might assume in the future, with respect to any
corporation organized by Merrill Lynch.
To the knowledge of the Fund, the
following persons or entities owned beneficially 5% or
more of a class of the Funds shares as of September
1, 1999:
Name/Address
|
|
Class
|
MERRILL
LYNCH TRUST COMPANY
TRUSTEE FBO MLSIP
INVESTMENT ACCOUNT
ATTN: ROBERT ARIMENTA JR.
PO BOX 30532
NEW BRUNSWICK, NJ 08989
|
|
12.1%
OF CLASS A
|
|
MERRILL
LYNCH TRUST COMPANY
OF AMERICA TRUSTEE FBO COBE
CARDIOVASCULAR OPERATING CO.
ATTN: WEST REGION
PO BOX 30532
NEW BRUNSWICK, NJ 18989
|
|
5.5% OF
CLASS D
|
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 Funds 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:
Moodys 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 Moodys means promissory
obligations not having an original maturity in excess of
nine months. Moodys 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.
Moodys 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. Moodys 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. Moodys 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, Moodys 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. Moodys 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: Moodys 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 & Poors Ratings Groups (
Standard & Poors) Corporate Debt Ratings
A Standard & Poors
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 & Poors from other sources it
considers reliable. Standard & Poors 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 & Poors 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 & Poors Commercial Paper Ratings
A Standard & Poors
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 & Poors 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 & Poors Preferred Stock Ratings
A Standard & Poors
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 &
Poors 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 issuers 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 & Poors earnings and dividend
rankings for common stocks.
The ratings are based on current
information furnished to Standard & Poors by
the issuer, and obtained by Standard & Poors
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.
Code #10560-1099
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 Distribution Plan
Sub-Agreement.(a)
|
14(a)
|
|
Rule
18f-3 Plan.
|
14(b)
|
|
Other Exhibits
|
|
|
Powers
of Attorney for Officers and Trustees
|
|
|
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 Registrants
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 Registrants
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 Registrants
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 Registrants 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 Registrants 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
Investment Adviser.
Merrill Lynch Asset Management,
L.P. (MLAM or the Investment Adviser
) acts as the investment adviser for the following
open-end registered investment companies: Merrill Lynch
Adjustable Rate Securities Fund, Inc., Merrill Lynch
Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc.,
Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Disciplined Equity Fund, Inc., Merrill
Lynch Dragon Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill
Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology
Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill
Lynch Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America
Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc.,
Merrill Lynch Municipal Series Trust, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Ready Assets Trust,
Merrill Lynch Real Estate Fund, Inc., Merrill Lynch
Retirement Series Trust, Merrill Lynch Series Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch
Technology Fund, Inc.,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch
U.S.A. Government Reserves, Merrill Lynch Utility Income
Fund, Inc. and 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
Michigan Insured Fund, Inc., MuniHoldings Michigan
Insured Fund II, Inc., MuniHoldings Insured Fund, Inc.,
MuniHoldings Insured Fund II, Inc., MuniHoldings Insured
Fund III, Inc. MuniHoldings New Jersey Insured Fund,
Inc., MuniHoldings New Jersey Insured Fund II, Inc.,
MuniHoldings New Jersey Insured Fund III, 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 Funds transfer
agent, Financial Data Services, Inc. (FDS),
is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each
executive officer and partner of the Investment Adviser
indicating each business, profession, vocation or
employment of a substantial nature in which each such
person or entity has been engaged since 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 substantially all of the investment
companies described in the first two paragraphs of this
Item 26, and Messrs. Giordano and Monagle are officers of
one or more of such companies.
Name
|
|
Position(s) with the
Investment Adviser
|
|
Other Substantial Business
Profession, Vocation or Employment
|
ML &
Co....
|
|
Limited
Partner
|
|
Financial Services Holding Company;
Limited Partner of 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; Senior
Vice President and Director of the Global
Securities and Economics division of
Merrill Lynch from 1995 to 1997.
|
|
|
Terry
K. Glenn...
|
|
Executive Vice President
|
|
Executive Vice President of FAM;
Executive Vice President and Director of
Princeton Services; President and Director
of PFD; Director of FDS; President of
Princeton Administrators.
|
|
Donald
C. Burke...
|
|
Senior
Vice President,
Treasurer and Director of
Taxation
|
|
Senior
Vice President and Treasurer of
FAM; Senior Vice President and Treasurer
of Princeton Services; Vice President of
PFD; First Vice President of 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; Director
and Treasurer of PFD; First Vice President
of MLAM from 1997 to 1999; Vice
President of MLAM from 1996 to 1997.
|
|
|
Mark A.
Desario...
|
|
Senior
Vice President
|
|
Senior
Vice President of FAM; Senior Vice
President of Princeton Services.
|
|
|
Linda
L. Federici...
|
|
Senior
Vice President
|
|
Senior
Vice President of FAM; Senior Vice
President of Princeton Services.
|
|
|
Vincent
R. Giordano...
|
|
Senior
Vice President
|
|
Senior
Vice President of FAM; Senior Vice
President of Princeton Services.
|
|
|
Michael
J. Hennewinkel...
|
|
Senior
Vice President,
Secretary and General
Counsel
|
|
Senior
Vice President, Secretary and
General Counsel of FAM; Senior Vice
President of Princeton Services.
|
|
|
Philip
L. Kirstein...
|
|
Senior
Vice President
|
|
Senior
Vice President of FAM; Senior Vice
President, Director and Secretary of
Princeton Services.
|
|
Name
|
|
Position(s) with the
Investment Adviser
|
|
Other Substantial Business
Profession, Vocation or Employment
|
Debra
W. Landsman-Yaros...
|
|
Senior
Vice President
|
|
Senior
Vice President of FAM; Senior Vice
President of Princeton Services; Vice
President of PFD.
|
|
|
Stephen
M. M. Miller...
|
|
Senior
Vice President
|
|
Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services.
|
|
|
Joseph
T. Monagle, Jr. ...
|
|
Senior
Vice President
|
|
Senior
Vice President of FAM; Senior Vice
President of Princeton Services.
|
|
|
Brian
A. Murdock...
|
|
Senior
Vice President
|
|
Senior
Vice President of FAM; Senior Vice
President of Princeton Services.
|
|
|
Gregory
D. Upah...
|
|
Senior
Vice President
|
|
Senior
Vice President of FAM; Senior Vice
President of Princeton Services.
|
|
|
Ronald
L. Welburn...
|
|
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 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 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
EC2Y 9HA, 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 since 1983; Executive Vice President
and Director of Princeton Services since
1993; President of PFD since 1986 and
Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.
|
|
|
Donald
C. Burke...
|
|
Treasurer
|
|
Senior
Vice President and Treasurer of
FAM and MLAM since 1999; Senior Vice
President and Treasurer of Princeton
Services since 1999; Vice President of PFD
since 1999; First Vice President of MLAM
from 1997 to 1999; Vice President of
MLAM from 1990 to 1997; Director of
Taxation of MLAM since 1990.
|
|
|
Alan J.
Albert...
|
|
Senior
Managing Director
|
|
Managing Director of Private Investment
Group of Merrill Lynch Mercury Asset
Management since 1997; Senior Managing
Director of Merrill Lynch Asset
Management U.K. Limited from 1993 to
1997; Vice President of MLAM since 1986.
|
|
|
Nicholas C.D. Hall...
|
|
Director
|
|
Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch Mercury
Asset Management Group.
|
|
|
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. and Merrill Lynch Senior Floating Rate Fund, 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
|
|
Executive Vice President
|
Michael
G. Clark...
|
|
Director and Treasurer
|
|
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 of 1933 and the
Investment Company Act of 1940, the Registrant has duly
caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Plainsboro,
and the State of New Jersey, on the 1st day of October
1999.
|
MERRILL
LYNCH
STRATEGIC
DIVIDEND
FUND
|
|
(Donald C. Burke,
Vice President and Treasurer )
|
Pursuant to the
requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement
has been signed below by the following persons in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date(s)
|
|
|
*
(Terry K. Glenn)
|
|
President and Trustee (Principal
Executive Officer)
|
|
|
|
|
/
S
/ DONALD
C. BURKE
(Donald C. Burke)
|
|
Vice
President and Treasurer
(Principal Financial and
Accounting Officer)
|
|
October 1, 1999
|
|
|
*
(Ronald W. Forbes)
|
|
Trustee
|
|
|
|
|
*
(Cynthia A. Montgomery)
|
|
Trustee
|
|
|
|
|
*
(Charles C. Reilly)
|
|
Trustee
|
|
|
|
|
*
(Kevin A. Ryan)
|
|
Trustee
|
|
|
|
|
*
(Richard R. West)
|
|
Trustee
|
|
|
|
|
*
(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)
|
|
|
|
October 1, 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.
|
14(a)
|
|
Rule
18f-3 Plan.
|
14(b)
|
|
Powers
of Attorney for Officers and Trustees.
|
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