As filed with the Securities and Exchange Commission on December 1,
1999
Securities Act File No. 33-47875
Investment Company Act File No. 811-6669
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
| REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 |
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x |
| Pre-Effective Amendment
No. |
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¨ |
| Post-Effective
Amendment No. 9 |
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x |
| and/or |
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| REGISTRATION STATEMENT
UNDER THE |
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| INVESTMENT COMPANY ACT
OF 1940 |
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x |
| Amendment No.
10 |
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x |
(Check appropriate box or boxes)
Merrill Lynch
Fundamental Growth Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
800 Scudders Mill Road, Plainsboro, New Jersey
08536
(Address of Principal Executive Offices)
Registrant’s telephone number, including Area Code: (609)
282-2800
Terry K. Glenn
Merrill Lynch Fundamental Growth Fund, Inc.
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:
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
Attention: Thomas R. Smith, Jr., Esq.
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Michael J.
Hennewinkel, Esq.
Merrill Lynch Asset Management, L.P.
P.O. Box 9011
Princeton, New Jersey 08543-9011
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It is proposed that
this filing will become effective (check appropriate box)
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x immediately upon filing
pursuant to paragraph (b)
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¨ on (date) pursuant to
paragraph (b)
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¨ 60 days after filing
pursuant to paragraph (a)(1)
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¨ on (date) pursuant to
paragraph (a)(1)
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¨ 75 days after filing
pursuant to paragraph (a)(2)
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¨ on (date) pursuant to
paragraph (a)(2) of Rule 485.
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If appropriate, check
the following box:
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¨
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This post-effective
amendment designates a new effective date for a previously filed
post-effective amendment.
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Title Of Securities Being Registered:
Shares of Common Stock, par value $.10 per share.
P r o
s p e c t u s
[LOGO] Merrill Lynch
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Merrill Lynch Fundamental
Growth Fund, Inc.
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December 1, 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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[LOGO] Table of Contents
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
In an
effort to help you better understand the many concepts involved in making an
investment decision, we have defined the highlighted terms in this
prospectus in the sidebar.
Common Stock — shares of ownership
of a corporation.
[LOGO] Key Facts
MERRILL LYNCH FUNDAMENTAL GROWTH FUND AT A GLANCE
What is the Fund’s investment objective?
The investment objective of the Fund is to seek long-term growth of
capital.
What
are the Fund’s main investment strategies?
The Fund tries to achieve its objective by investing primarily in a
portfolio of common stocks of U.S. companies that Fund management believes
have shown above-average rates of growth earnings over the long-term. In
other words, Fund management tries to choose investments that will increase
in value over the long-term. To a lesser extent the Fund may also invest in
securities convertible into common stock and rights to subscribe to common
stock of these companies. The Fund may invest up to 10% of its total assets
in securities issued by foreign companies. We cannot guarantee that the Fund
will achieve its objective.
What
are the main risks of investing in the Fund?
As with any mutual fund, the value of the Fund’s investments
— and therefore the value of Fund shares —
may go up or down. These changes may occur because a particular stock
market is rising or falling. At other times, there are specific factors that
may affect the value of a particular investment. Since 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. If the value of the Fund’s investments goes down, you may lose
money.
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 child’s
education
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Want a professionally
managed and diversified portfolio
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Are willing to accept the
risk that the value of your investment may decline in order to seek
long-term growth of capital
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Are not looking for a
significant amount of current income
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MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
3
[GRAPHIC] Key Facts
The bar chart and table shown below provide an indication of the risks of
investing in the Fund. The bar chart shows changes in the Fund’s
performance for Class D shares for each complete calendar year since the Fund
’s inception. Sales charges are not reflected in the bar chart. If
these amounts were reflected, returns would be less than those shown. The
table compares the average annual total returns for each class of the Fund
’s shares for the periods shown with those of the S&P 500 Index.
How the Fund performed in the past is not necessarily an indication of how
the Fund will perform in the future.
[BAR CHART]
1993 1994 1995 1996 1997 1998
----- ------ ------ ------ ------ ------
5.95% -5.56% 33.58% 18.69% 31.63% 34.47%
During the period shown in the bar chart, the highest return for
a quarter was 27.31% (quarter ended December 31, 1998) and the lowest return
for a quarter was -12.60% (quarter ended September 30, 1998). The year-to-date
return as of September 30, 1999 was 7.17%.
Average Annual Total
Returns (as of the
calendar year ended
December 31, 1998) |
|
Past
One Year |
|
Past
Five Years |
|
Since
Inception |
|
Merrill Lynch
Fundamental Growth Fund*
A |
|
27.70% |
|
N/A |
|
|
26.38%† |
| S&P 500
Index** |
|
28.58% |
|
N/A |
|
|
28.70%†† |
|
Merrill Lynch
Fundamental Growth Fund*
B |
|
29.41% |
|
N/A |
|
|
26.70%† |
| S&P 500
Index** |
|
28.58% |
|
N/A |
|
|
28.70%†† |
|
Merrill Lynch
Fundamental Growth Fund*
C |
|
32.37% |
|
20.57 |
% |
|
17.63%# |
| S&P 500
Index** |
|
28.58% |
|
24.05 |
% |
|
21.35%## |
|
Merrill Lynch
Fundamental Growth Fund*
D |
|
27.41% |
|
20.22 |
% |
|
17.49%# |
| S&P 500
Index** |
|
28.58% |
|
24.05 |
% |
|
21.35%## |
|
**
|
The S&P 500® is
the Standard & Poor’s Composite Index of 500 Stocks, a widely
recognized, unmanaged index of common stock prices. Past performance is
not predictive of future performance.
|
†
|
Inception date is October
21, 1994.
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††
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Since October 21,
1994.
|
#
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Inception date is December
24, 1992.
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##
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Since December 24,
1992.
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
4
UNDERSTANDING EXPENSES
Fund
investors pay various fees and expenses, either directly or indirectly.
Listed below are some of the main types of expenses, which all mutual funds
may charge:
Expenses paid directly by the shareholder:
Shareholder Fees — These include sales charges
which you may pay when you buy or sell shares of the Fund.
Expenses paid indirectly by the shareholder:
Annual Fund Operating Expenses — expenses
that cover the costs of operating the Fund.
Management Fee — a fee paid to the Manager for
managing the Fund.
Distribution Fees — fees used to support the
Fund’s marketing and distribution efforts, such as compensating
Financial Consultants, advertising and promotion.
Service (Account Maintenance) Fees — fees used
to compensate securities dealers for account maintenance
activities.
The Fund offers four different classes of shares. Although your
money will be invested the same way no matter which class of shares you buy,
there are differences among the fees and expenses associated with each
class. Not everyone is eligible to buy every class. After determining which
classes you are eligible to buy, decide which class best suits your needs.
Your Merrill Lynch Financial Consultant can help you with this
decision.
This table shows the different fees and expenses that you may pay if
you buy and hold the different classes of shares of the Fund. Future
expenses may be greater or less than those indicated below.
Shareholder Fees (fees
paid directly from
your investment)(a): |
|
Class A |
|
Class B(b) |
|
Class C |
|
Class D |
|
Maximum
Sales Charge (Load) imposed
on purchases (as a percentage of
offering price) |
|
5.25%(c) |
|
None |
|
None |
|
5.25%(c) |
|
Maximum
Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds,
whichever is lower) |
|
None(d) |
|
4.0%(c) |
|
1.0%(c) |
|
None(d) |
|
Maximum
Sales Charge (Load) imposed
on Dividend Reinvestments |
|
None |
|
None |
|
None |
|
None |
|
| Redemption
Fee |
|
None |
|
None |
|
None |
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None |
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| Exchange
Fee |
|
None |
|
None |
|
None |
|
None |
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Annual
Fund Operating Expenses (expenses
that are deducted from Fund assets): |
|
|
Management Fee(e) |
|
0.62% |
|
0.62% |
|
0.62% |
|
0.62% |
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Distribution and/or Service (12b-1) Fees(f) |
|
None |
|
1.00% |
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1.00% |
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0.25% |
|
Other
Expenses (including transfer
agency fees)(g) |
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0.19% |
|
0.21% |
|
0.21% |
|
0.18% |
|
| Total Annual Fund
Operating Expenses |
|
0.81% |
|
1.83% |
|
1.83% |
|
1.05% |
|
(a)
|
In addition, Merrill Lynch
may charge clients a processing fee (currently $5.35) when a client buys
or sells shares.
|
(b)
|
Class B shares
automatically convert to Class D shares about eight years after you buy
them and will no longer be subject to distribution fees.
|
(c)
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Some investors may qualify
for reductions in the sales charge (load).
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(d)
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You may pay a deferred
sales charge if you purchase $1 million or more and you redeem within one
year.
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(e)
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The Fund pays the Manager
a fee at the annual rate of 0.65% of the average daily net assets of the
Fund for the first $1 billion, 0.625% of average daily net assets above $1
billion to $1.5 billion and 0.60% of average daily net assets above $1.5
billion. For the fiscal year ended August 31, 1999, the Manager received a
fee equal to 0.62% of the Fund’s average daily net
assets.
|
(f)
|
The Fund calls the Service
Fee an “Account Maintenance Fee.” Account Maintenance Fee is the
term used elsewhere in this Prospectus and in all other Fund materials. If
you hold Class B or Class C shares for a long time, it may cost you more
in distribution (12b-1) fees than the maximum sales charge that you would
have paid if you had bought one of the other classes.
|
(g)
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The Fund pays the Transfer
Agent $11.00 for each Class A and Class D shareholder account and $14.00
for each Class B and Class C shareholder account and reimburses the
Transfer Agent’s out-of-pocket expenses. The Fund pays a 0.10% fee
for certain accounts that participate in the Merrill Lynch Mutual Fund
Advisor program. The Fund also pays a $0.20 monthly closed account charge,
which is assessed upon all accounts that close during the year. This fee
begins the month following the month the account is closed and ends at the
end of the calendar year. For the fiscal year ended August 31, 1999, the
Fund paid the Transfer Agent fees totaling $3,354,766. The Manager
provides accounting services to the Fund at its cost. For the fiscal year
ended August 31, 1999, the Fund reimbursed the Manager $143,457 for these
services.
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MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
5
[GRAPHIC] Key Facts
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:
|
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| EXPENSES IF YOU DID REDEEM YOUR SHARES: |
|
| |
|
1 Year |
|
3 Years |
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5 Years |
|
10 Years |
|
| Class A |
|
$603 |
|
$770 |
|
$ 951 |
|
$1,474 |
|
| Class B |
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$586 |
|
$776 |
|
$ 990 |
|
$1,951* |
|
| Class C |
|
$286 |
|
$576 |
|
$ 990 |
|
$2,148 |
|
| Class D |
|
$626 |
|
$842 |
|
$1,074 |
|
$1,740 |
|
| |
|
| EXPENSES IF YOU DID NOT REDEEM YOUR SHARES: |
|
| |
|
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
|
| Class A |
|
$603 |
|
$770 |
|
$ 951 |
|
$1,474 |
|
| Class B |
|
$186 |
|
$576 |
|
$ 990 |
|
$1,951* |
|
| Class C |
|
$186 |
|
$576 |
|
$ 990 |
|
$2,148 |
|
| Class D |
|
$626 |
|
$842 |
|
$1,074 |
|
$1,740 |
|
*
|
Assumes
conversion to Class D shares approximately eight years after purchase.
See note (b) to the Fees and Expenses table above.
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
6
ABOUT THE PORTFOLIO MANAGER
Lawrence R. Fuller is a Senior Vice President and the
portfolio manager of the Fund. Mr. Fuller has been a First Vice President
of Merrill Lynch Asset Management since 1997 and Vice President from 1992
to 1997.
ABOUT THE MANAGER
The Fund is managed by Merrill Lynch Asset
Management.
[GRAPHIC] Details About the Fund
The Fund’s main objective is long-term growth of capital. The Fund
tries to achieve its goals by investing in a diversified portfolio
consisting primarily of common stocks.
The Fund will generally invest at least 65% of its total assets in
the following equity securities:
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Convertible
preferred stock
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Securities
convertible into common stock
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Rights to
subscribe to common stock
|
Of these securities the Fund will generally invest in common
stock.
In selecting securities, Fund management emphasizes common stocks
of companies that have above-average rates of earnings growth. Fund
management believes that the common stocks of companies with
above-average rates of earnings growth frequently have the prospect of
having above-average increases in price. On the other hand, such
companies tend to have higher stock market valuations. As a result, their
shares may be more vulnerable to price declines from unexpected adverse
developments. The common stocks of these companies also tend to have
higher prices relative to stocks of companies that do not have above
average rates of earnings growth.
Some, but not all, of the factors that may cause a company to have
an above-average rate of earnings growth include:
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Above average
growth rate in sales
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Improvement in
its profit margin
|
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Providing
proprietary or niche products or services
|
The Fund may invest in companies of any size but emphasizes common
stocks of companies having a medium to large stock market capitalization
($500 million or more).
The Fund may also invest up to 10% of its total assets in the
securities of foreign companies. Securities of foreign companies may be
in the form of American Depository Receipts (“ADRs”), European
Depository Receipts (“EDRs”) or other securities convertible
into securities of foreign companies.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
7
[GRAPHIC] Details About the Fund
The Fund’s restriction limiting investments in foreign
securities to 10% of total assets does not include ADRs.
The Fund may also lend its portfolio securities.
The Fund will normally invest a portion of its assets in
short-term debt securities, such as commercial paper. These securities
can be sold easily and have limited risk of loss but earn only limited
returns. The Fund may also invest without limitation in short-term debt
securities (including repurchase agreements), non-convertible preferred
stocks and bonds or government and money market securities when Fund
management is unable to find enough attractive equity investments and to
reduce exposure to equities when management believes it is advisable to
do so on a temporary basis. Investment in these securities may also be
used to meet redemptions. Short-term investments and temporary defensive
positions may limit the potential for the Fund to achieve its objective
of long-term growth of capital.
This section contains a summary discussion of the general risks of
investing in the Fund. As with any mutual fund, there can be no guarantee
that the Fund will meet its goals or that the Fund’s performance
will be positive for any period of time.
Market and Selection Risk —
Market risk is the risk that the stock market in one or more
countries in which the Fund invests will go down in value, including the
possibility that one or more markets will go down sharply and
unpredictably. Selection risk is the risk that the investments that Fund
management selects will underperform the stock 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:
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
8
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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 Fund’s ability to purchase or
sell foreign securities or transfer its assets or income back into the
United States, or otherwise adversely affect the Fund’s
operations.
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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 instability. Legal remedies available to investors in
certain 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 Fund’s assets may be uninvested and not earning
returns. The Fund may miss investment opportunities or be unable to
dispose of a security because of these delays.
|
Certain Risks of Holding Fund Assets Outside the United
States — The Fund generally holds its foreign
securities and cash in foreign banks and securities depositories. Some
foreign banks and securities depositories may be recently organized or
new to the foreign custody business. In addition, there may be limited or
no regulatory oversight over their operations. Also, the laws of certain
countries may put limits on the Fund’s ability to recover its assets
if a foreign bank, depository or issuer of a security, or any of their
agents, goes bankrupt. In addition, it is often more expensive for the
Fund to buy, sell and hold securities in certain foreign markets than in
the United States. The increased expense of investing in foreign markets
reduces the amount the Fund can earn on its investments and typically
results in a higher operating expense ratio for the Fund than investment
companies invested only in the United States.
European Economic and Monetary Union
(EMU) — A
number of European countries entered into EMU in an effort to reduce
trade barriers between themselves and eliminate fluctuations in their
currencies. EMU established a single European currency (the euro), which
was introduced on January 1, 1999 and is expected to replace the existing
national currencies of all initial EMU participants by July 1, 2002.
Certain securities (beginning with government and corporate bonds) were
redenominated in the euro and will 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 if the transition to the euro, or EMU as
a whole, does not proceed as planned or if a participating country
withdraws from EMU.
Risks associated with certain types of obligations in which the
Fund may invest include:
Convertibles —
Convertibles are generally debt securities or preferred stocks that
may be converted into common stock. Convertibles typically pay current
income as either interest (debt security convertibles) or dividends
(preferred stocks). A convertible’s value usually reflects both the
stream of current income payments and the value of the underlying common
stock. The market value of a convertible performs like a regular debt
security, 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.
Warrants —
A warrant gives the Fund the right to buy a quantity of stock. The
warrant specifies the amount of underlying stock, the purchase (or
“exercise”) price, and the date the warrant expires. The Fund
has no obligation to exercise the warrant and buy the stock. A warrant
has value only if the Fund can exercise it or sell it before it expires.
If the price of the underlying stock does not rise above the exercise
price before the warrant expires, the warrant generally expires without
any value and the Fund loses any amount it paid for the warrant. Thus,
investments in warrants may involve substantially more risk than
investments in common stock. Warrants may trade in the same markets as
their underlying stock; however, the price of the warrant does not
necessarily move with the price of the underlying stock.
Borrowing and Leverage —
The Fund may borrow for temporary emergency purposes including to
meet redemptions. Borrowing may exaggerate changes in the net asset value
of Fund shares and in the yield on the Fund’s portfolio. Borrowing
will cost the Fund interest expense and other fees. The cost of borrowing
may reduce the Fund’s return. Certain securities that the Fund buys
may create leverage including, for example, options.
Illiquid or Restricted Securities — The
Fund may invest up to 15% of its net assets in securities that it cannot
easily resell within seven days at current value or that have contractual
or legal restrictions on resale. If the Fund buys illiquid or restricted
securities it may be unable to quickly resell them or may be able to sell
them only at a price below current value.
Restricted securities include private placement securities that
the Fund buys directly from the issuer. Private placement and other
restricted securities may not be listed on an exchange and may have no
active trading market. The Fund may get only limited information about
the issuer, so it may be less able to predict a loss. In addition, if
Fund management receives material adverse nonpublic information about the
issuer, the Fund will not be able to sell the security.
Rule 144A Securities — The
Fund may invest in Rule 144A securities without limitation. Rule 144A
securities are restricted securities that can be resold to qualified
institutional buyers but not to the general public. Rule 144A securities
may have an active trading market, but carry the risk that the active
trading market may not continue.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
11
[GRAPHIC] Details About the Fund
Securities Lending —
Securities lending involves the risk that the borrower to which the
Fund has loaned its securities may not return the securities in a timely
manner or at all. As a result, the Fund might suffer costs and delay in
recovering the securities it loaned. In addition, if the Fund does not
get the securities it loaned back and the value of the collateral the
Fund received in return for the loaned securities falls, the Fund could
lose money.
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 FUNDAMENTAL GROWTH FUND, INC.
12
[GRAPHIC] Your Account
MERRILL LYNCH SELECT PRICING
SM
SYSTEM
The Fund offers four share classes, each with its own sales
charge and expense structure, allowing you to invest in the way that best
suits your needs. Each share class represents an ownership interest in
the same investment portfolio. When you choose your class of shares you
should consider the size of your investment and how long you plan to hold
your shares. Your Merrill Lynch Financial Consultant can help you
determine which share class is best suited to your personal financial
goals.
For example, if you select Class A or D shares, you generally pay
a sales charge at the time of purchase. If you buy Class D shares, you
also pay an ongoing account maintenance fee of 0.25%. You may be eligible
for a sales charge reduction or waiver.
If you select Class B or C shares, you will invest the full amount
of your purchase price, but you will be subject to a distribution fee of
0.75% and an account maintenance fee of 0.25%. Because these fees are
paid out of the Fund’s assets on an ongoing basis, over time these
fees increase the cost of your investment and may cost you more than
paying an initial sales charge. In addition, you may be subject to a
deferred sales charge when you sell Class B or C shares.
The Fund’s shares are distributed by Merrill Lynch Funds
Distributor, a division of Princeton Funds Distributor, Inc., an
affiliate of Merrill Lynch.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
13
[GRAPHIC] Your Account
The table below summarizes key features of the Merrill Lynch
Select Pricing
SM
System.
|
|
|
Class A |
|
Class B |
|
Class C |
|
Class D |
|
| Availability |
|
Limited to certain
investors including:
Ÿ
Current Class A
shareholders
Ÿ
Certain Retirement
Plans
Ÿ
Participants in
certain Merrill Lynch
sponsored programs
Ÿ
Certain affiliates of
Merrill Lynch. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
Generally available
through Merrill Lynch.
Limited availability
through other
securities dealers. |
|
|
|
Initial Sales
Charge? |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
No. Entire purchase
price is invested in
shares of the Fund. |
|
Yes. Payable at time
of purchase. Lower
sales charges available
for larger
investments. |
|
Deferred Sales
Charge? |
|
No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
|
Yes. Payable if you
redeem within four
years of purchase. |
|
Yes. Payable if you
redeem within one
year of purchase. |
|
No. (May be charged
for purchases over $1
million that are
redeemed within one
year.) |
|
|
|
Account
Maintenance
and Distribution
Fees? |
|
No. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee
0.75% Distribution
Fee. |
|
0.25% Account
Maintenance Fee No
Distribution Fee. |
|
Conversion to
Class D shares? |
|
No. |
|
Yes, automatically
after approximately
eight years. |
|
No. |
|
No. |
|
|
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
14
Right of Accumulation — permits you to
pay the sales charge that would apply to the cost or value (whichever is
higher) of all shares you own in the Merrill Lynch mutual funds that
offer Select Pricing options.
Letter of Intent — permits you to
pay the sales charge that would be applicable if you add up all shares
of Merrill Lynch Select Pricing
SM
System funds that you
agree to buy within a 13 month period. Certain restrictions
apply.
Class A and Class D Shares — Initial Sales Charge
Options
If you select Class A or Class D shares, you will pay a sales
charge at the time of purchase.
| Your Investment |
|
As a % of
Offering Price |
|
As a % of
Your Investment* |
|
Dealer
Compensation
as a % of
Offering Price |
|
| Less than $25,000 |
|
5.25% |
|
5.54% |
|
5.00% |
|
$25,000 but less than
$50,000 |
|
4.75% |
|
4.99% |
|
4.50% |
|
$50,000 but less than
$100,000 |
|
4.00% |
|
4.17% |
|
3.75% |
|
$100,000 but less than
$250,000 |
|
3.00% |
|
3.09% |
|
2.75% |
|
$250,000 but less than
$1,000,000 |
|
2.00% |
|
2.04% |
|
1.80% |
|
| $1,000,000 and
over** |
|
0.00% |
|
0.00% |
|
0.00% |
|
*
|
Rounded to
the nearest one-hundredth percent.
|
**
|
If you invest
$1,000,000 or more in Class A or Class D shares, you may not pay an
initial sales charge. However, if you redeem your shares within one
year after purchase, you may be charged a deferred sales charge. This
charge is 1% of the lesser of the original cost of the shares being
redeemed or your redemption proceeds. A sales charge of 0.75% will be
charged on purchases of $1,000,000 or more of Class A or Class D
shares by certain employer sponsored retirement or savings
plans.
|
No initial sales charge applies to Class A or Class D shares that
you buy through reinvestment of dividends.
A reduced or waived sales charge on a purchase of Class A or
Class D shares may apply for:
|
Ÿ
|
Purchases
under a Right of Accumulation or Letter of
Intent
|
|
Ÿ
|
Merrill Lynch
Blueprint
SM
Program participants
|
|
Ÿ
|
Certain
Merrill Lynch investment or central asset accounts
|
|
Ÿ
|
Certain
employer-sponsored retirement or savings plans
|
|
Ÿ
|
Purchases
using proceeds from the sale of certain Merrill Lynch closed-end funds
under certain circumstances
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
15
[GRAPHIC] Your Account
|
Ÿ
|
Certain
investors, including directors or trustees of Merrill Lynch mutual
funds and Merrill Lynch employees
|
|
Ÿ
|
Certain
Merrill Lynch fee-based programs
|
Only certain investors are eligible to buy Class A shares. Your
Merrill Lynch Financial Consultant can help you determine whether you
are eligible to buy Class A shares or to participate in any of these
programs.
If you decide to buy shares under the initial sales charge
alternative and you are eligible to buy both Class A and Class D shares,
you should buy Class A since Class D shares are subject to a 0.25%
account maintenance fee, while Class A shares are not.
If you redeem Class A or Class D shares and within 30 days buy
new shares of the same class, you will not pay a sales charge on the new
purchase amount. The amount eligible for this “Reinstatement
Privilege” may not exceed the amount of your redemption proceeds.
To exercise the privilege, contact your Merrill Lynch Financial
Consultant or the Fund’s Transfer Agent at
1-800-MER-FUND.
Class B and Class C Shares — Deferred Sales
Charge Options
If you select Class B or Class C shares, you do not pay an
initial sales charge at the time of purchase. However, if you redeem
your Class B shares within four years after purchase, or your Class C
shares within one year after purchase, you may be required to pay a
deferred sales charge. You will also pay distribution fees of 0.75% and
account maintenance fees of 0.25% each year under distribution plans
that the Fund has adopted under Rule 12b-1. Because these fees are paid
out of the Fund’s assets on an ongoing basis, over time these fees
increase the cost of your investment and may cost you more than paying
an initial sales charge. The Distributor uses the money that it receives
from the deferred sales charges and the distribution fees to cover the
costs of marketing, advertising and compensating the Merrill Lynch
Financial Consultant or other securities dealer who assists you in
purchasing Fund shares.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
16
Class B Shares
If you redeem Class B shares within four years after purchase,
you may be charged a deferred sales charge. The amount of the charge
gradually decreases as you hold your shares over time, according to the
following schedule:
| Years Since Purchase |
|
Sales Charge* |
|
| 0 –
1 |
|
4.00% |
|
| 1 –
2 |
|
3.00% |
|
| 2 –
3 |
|
2.00% |
|
| 3 –
4 |
|
1.00% |
|
| 4 and thereafter |
|
0.00% |
|
*
|
The
percentage charge will apply to the lesser of the original cost of the
shares being redeemed or the proceeds of your redemption. Shares
acquired through reinvestment of dividends are not subject to a
deferred sales charge. Not all Merrill Lynch funds have identical
deferred sales charge schedules. If you exchange your shares for
shares of another fund, the higher charge will apply.
|
The deferred sales charge relating to Class B shares may be
reduced or waived in certain circumstances, such as:
|
Ÿ
|
Certain
post-retirement withdrawals from an IRA or other retirement plan if
you are over 59 1
/2 years old
|
|
Ÿ
|
Redemption by
certain eligible 401(a) and 401(k) plans, certain related accounts,
group plans participating in the Merrill Lynch Blueprint
SM
Program and certain retirement plan rollovers
|
|
Ÿ
|
Redemption in
connection with participation in certain Merrill Lynch fee-based
programs
|
|
Ÿ
|
Withdrawals
resulting from shareholder death or disability as long as the waiver
request is made within one year of death or disability or, if later,
reasonably promptly following completion of probate, or in connection
with involuntary termination of an account in which Fund shares are
held
|
|
Ÿ
|
Withdrawal
through the Merrill Lynch Systematic Withdrawal Plan of up to 10% per
year of your Class B account value at the time the plan is
established
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
17
[GRAPHIC] Your Account
Your Class B shares convert automatically into Class D shares
approximately eight years after purchase. Any Class B shares received
through reinvestment of dividends paid on converting shares will also
convert at that time. Class D shares are subject to lower annual
expenses than Class B shares. The conversion of Class B to Class D
shares is not a taxable event for Federal income tax
purposes.
Different conversion schedules apply to Class B shares of
different Merrill Lynch mutual funds. For example, Class B shares of a
fixed-income fund typically convert approximately ten years after
purchase compared to approximately eight years for equity funds. If you
acquire your Class B shares in an exchange from another fund with a
shorter conversion schedule, the Fund’s eight year conversion
schedule will apply. If you exchange your Class B shares in the Fund for
Class B shares of a fund with a longer conversion schedule, the other
fund’s conversion schedule will apply. The length of time that you
hold both the original and exchanged Class B shares in both funds will
count toward the conversion schedule. The conversion schedule may be
modified in certain other cases as well.
Class C Shares
If you redeem Class C shares within one year after purchase, you
may be charged a deferred sales charge of 1.00%. The charge will apply
to the lesser of the original cost of the shares being redeemed or the
proceeds of your redemption. You will not be charged a deferred sales
charge when you redeem shares that you acquire through reinvestment of
Fund dividends. The deferred sales charge relating to Class C shares may
be reduced or waived in connection with involuntary termination of an
account in which Fund shares are held and withdrawals through the
Merrill Lynch Systematic Withdrawal Plan.
Class C shares do not offer a conversion privilege.
HOW TO BUY, SELL, TRANSFER AND EXCHANGE SHARES
The chart on the following page summarizes how to buy, sell,
transfer and exchange shares through Merrill Lynch or other securities
dealers. You may also buy shares through the Transfer Agent. To learn
more about buying shares through the Transfer Agent, call
1-800-MER-FUND. Because the selection of a mutual fund involves many
considerations, your Merrill Lynch Financial Consultant may help you
with this decision.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
18
| 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 14. Be sure
to read this prospectus carefully. |
| |
|
| |
|
Next, determine the
amount of your investment |
|
The minimum initial investment for the Fund is
$1,000 for all
accounts except:
Ÿ
$250 for certain Merrill Lynch fee-based programs
Ÿ
$100 for retirement plans |
|
|
|
|
|
|
|
(The minimums for initial investments may be
waived under
certain circumstances.) |
| |
|
| |
|
Have your Merrill Lynch
Financial Consultant or
securities dealer submit
your purchase order |
|
The price of your shares is based on the next
calculation of net
asset value after your order is placed. Any purchase orders placed
prior to the close of business on the New York Stock Exchange
(generally 4:00 p.m. Eastern time) will be priced at the net asset
value determined that day. |
|
|
|
|
|
|
|
Purchase orders placed after that time will be
priced at the net
asset value determined on the next business day. The Fund may
reject any order to buy shares and may suspend the sale of shares
at any time. Merrill Lynch may charge a processing fee to confirm
a purchase. This fee is currently $5.35. |
| |
|
| |
|
Or contact the Transfer
Agent |
|
To purchase shares directly, call the Transfer
Agent at
1-800-MER-FUND and request a purchase order. Mail the
completed purchase order to the Transfer Agent at the address on
the inside back cover of this Prospectus. |
|
Add to Your
Investment |
|
Purchase additional shares |
|
The minimum investment for additional
purchases is generally $50
for all accounts except that retirement plans have a minimum
additional purchase of $1 and certain programs, such as automatic
investment plans, may have higher minimums. |
|
|
|
|
|
|
|
(The minimums for additional purchases may be
waived under
certain circumstances.) |
| |
|
|
|
|
Acquire additional shares
through the automatic
dividend reinvestment plan |
|
All dividends are automatically reinvested
without a sales charge. |
| |
|
| |
|
Participate in the automatic
investment plan |
|
You may invest a specific amount on a periodic
basis through
certain Merrill Lynch investment or central asset accounts. |
|
Transfer Shares to
Another Securities
Dealer |
|
Transfer to a participating
securities dealer |
|
You may transfer your Fund shares only to
another securities
dealer that has entered into an agreement with Merrill Lynch.
Certain shareholder services may not be available for the
transferred shares. You may only purchase additional shares of
funds previously owned before the transfer. All future trading of
these assets must be coordinated by the receiving firm. |
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
19
[GRAPHIC] Your Account
| If You Want to |
|
Your Choices |
|
Information Important for You to
Know |
|
Transfer Shares to
Another Securities
Dealer
(continued) |
|
Transfer to a non-
participating securities
dealer |
|
You must either:
Ÿ
Transfer your shares to an account with the Transfer
Agent; or
Ÿ
Sell your shares, paying any applicable deferred sales
charge. |
|
| 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 to your dealer prior to that day’s close of
business on the New York Stock Exchange (generally 4:00 p.m.
Eastern time). Any redemption request placed after that time will
be priced at the net asset value at the close of business on the
next business day. Dealers must submit redemption requests to the
Fund not more than thirty minutes after the close of business on
the New York Stock Exchange on the day the request was
received. |
| |
| |
|
|
|
Securities dealers, including
Merrill Lynch, may charge a fee to
process a redemption of shares. Merrill Lynch currently charges a
fee of $5.35. No processing fee is charged if you redeem shares
directly through the Transfer Agent. |
| |
| |
|
|
|
The Fund may reject an order
to sell shares under certain
circumstances. |
|
| |
|
Sell through the Transfer
Agent |
|
You may sell shares held at
the Transfer Agent by writing to the
Transfer Agent at the address on the inside back cover of this
prospectus. All shareholders on the account must sign the letter. A
signature guarantee will generally be required but may be waived
in certain limited circumstances. You can obtain a signature
guarantee from a bank, securities dealer, securities broker, credit
union, savings association, national securities exchange and
registered securities association. A notary public seal will not be
acceptable. If you hold stock certificates, return the certificates
with the letter. The Transfer Agent will normally mail redemption
proceeds within seven days following receipt of a properly
completed request. If you make a redemption request before the
Fund has collected payment for the purchase of shares, the Fund
or the Transfer Agent may delay mailing your proceeds. This delay
will usually not exceed ten days. |
| |
| |
|
|
|
If you hold share
certificates, they must be delivered to the
Transfer Agent before they can be converted. Check with the
Transfer Agent or your Merrill Lynch Financial Consultant for
details. |
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
20
| If You Want to |
|
Your Choices |
|
Information Important for You to
Know |
|
Sell Shares
Systematically |
|
Participate in the Fund’s
Systematic Withdrawal Plan |
|
You can choose to receive systematic payments
from your Fund
account either by check or through direct deposit to your bank
account on a monthly or quarterly basis. If you hold your Fund
shares in a Merrill Lynch CMA®, CBA® or Retirement Account you
can arrange for systematic redemptions of a fixed dollar amount
on a monthly, bi-monthly, quarterly, semi-annual or annual basis,
subject to certain conditions. Under either method you must have
dividends automatically reinvested. For Class B and C shares your
total annual withdrawals cannot be more than 10% per year of
the value of your shares at the time your plan is established. The
deferred sales charge is waived for systematic redemptions. Ask
your Merrill Lynch Financial Consultant for details. |
|
|
|
Exchange Your
Shares |
|
Select the fund into which
you want to exchange. Be
sure to read that fund’s
prospectus |
|
You can exchange your shares of the Fund for
shares of many
other Merrill Lynch mutual funds. You must have held the shares
used in the exchange for at least 15 calendar days before you can
exchange to another fund. |
|
|
| |
|
|
|
Each class of Fund shares is generally
exchangeable for shares of
the same class of another fund. If you own Class A shares and wish
to exchange into a fund in which you have no Class A shares (and
are not eligible to purchase Class A shares), you will exchange into
Class D shares. |
|
|
| |
|
|
|
Some of the Merrill Lynch mutual funds impose
a different initial
or deferred sales charge schedule. If you exchange Class A or D
shares for shares of a fund with a higher initial sales charge than
you originally paid, you will be charged the difference at the time
of exchange. If you exchange Class B shares for shares of a fund
with a different deferred sales charge schedule, the higher
schedule will apply. The time you hold Class B or C shares in both
funds will count when determining your holding period for
calculating a deferred sales charge at redemption. If you exchange
Class A or D shares for money market fund shares, you will receive
Class A shares of Summit Cash Reserves Fund. Class B or C shares of
the Fund will be exchanged for Class B shares of Summit. |
|
|
| |
|
|
|
Although there is currently no limit on the
number of exchanges
that you can make, the exchange privilege may be modified or
terminated at any time in the future. |
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
21
[GRAPHIC] Your Account
HOW SHARES ARE PRICED
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 Fund
’s net asset value may change on days when you will not be able to
purchase or redeem the Fund’s shares.
Generally, Class A shares will have the highest net asset value
because that class has the lowest expenses, and Class D shares will have
a higher net asset value than Class B or Class C shares. Also dividends
paid on Class A and Class D shares will generally be higher than
dividends paid on Class B and Class C shares because Class A and Class D
shares have lower expenses.
PARTICIPATION IN MERRILL LYNCH FEE-BASED PROGRAMS
If you participate in certain fee-based programs offered by
Merrill Lynch, you may be able to buy Class A shares at net asset value,
including by exchanges from other share classes. Sales charges on the
shares being exchanged may be reduced or waived under certain
circumstances.
You generally cannot transfer shares held through a fee-based
program into another account. Instead, you will have to redeem your
shares held through the program and purchase shares of another class,
which may be subject to distribution and account maintenance fees. This
may be a taxable event and you will pay any applicable sales
charges.
If you leave one of these programs, your shares may be redeemed
or automatically exchanged into another class of Fund shares or into a
money market fund. The class you receive may be the class you originally
owned when you entered the program, or in certain cases, a different
class. If the exchange is into Class B shares, the period before
conversion to Class D shares may be modified. Any redemption or exchange
will be at net asset value. However, if you participate in the program
for less than a specified period, you may be charged a fee in accordance
with the terms of the program.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
22
Dividends — Ordinary income and capital
gains paid to shareholders. Dividends may be reinvested in additional
Fund shares as they are paid.
“BUYING A DIVIDEND”
Unless your investment is in a tax-deferred account, you may
want to avoid buying shares shortly before the Fund pays a dividend. The
reason? If you buy shares when a fund has realized but not yet
distributed ordinary income or capital gains, you will pay the full
price for the shares and then receive a portion of the price back in the
form of a taxable dividend. Before investing you may want to consult
your tax adviser.
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 at least annually any net investment
income and any net realized long-term capital gains. The Fund may also
pay a special distribution at the end of the calendar year to comply
with Federal tax requirements. If your account is with Merrill Lynch and
you would like to receive dividends in cash, contact your
Merrill Lynch Financial Consultant. If your account is with the Transfer
Agent and you would like to receive dividends in cash, contact the
Transfer Agent. Although this cannot be predicted with any certainty,
the Fund anticipates that the majority of its dividends, if any, will
consist of capital gains.
You will pay tax on dividends from the Fund whether you receive
them in cash or additional shares. If you redeem Fund shares or exchange
them for shares of another fund, any gain on the transaction may be
subject to tax. Capital gain dividends are generally taxed at different
rates than ordinary income dividends.
If you are neither a lawful permanent resident nor a citizen of
the U.S. or if you are a foreign entity, the Fund’s ordinary income
dividends (which include distributions of net short-term capital gains)
will generally be subject to a 30% U.S. withholding tax, unless a lower
treaty rate applies.
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce
or eliminate such taxes.
By law, the Fund must withhold 31% of your dividends and proceeds
if you have not provided a taxpayer identification number or social
security number or if the number you have provided is
incorrect.
This section summarizes some of the consequences under current
Federal tax law of an investment in the Fund. It is not a substitute for
personal tax advice. Consult your personal tax adviser about the
potential tax consequences of an investment in the Fund under all
applicable tax laws.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
23
[GRAPHIC] Management of the Fund
MERRILL LYNCH ASSET MANAGEMENT
Merrill Lynch Asset Management, the Fund’s Manager, manages the Fund
’s investments and its business operations under the overall
supervision of the Fund’s Board of Directors. The Manager has the
responsibility for making all investment decisions for the Fund. The
Manager has a sub-advisory agreement with Merrill Lynch Asset Management
U.K. Limited, an affiliate, under which the Manager may pay a fee for
services it receives. The Fund pays the Manager a fee at the annual rate
of 0.65% of the average daily net assets of the Fund for the first $1
billion, 0.625% of the average daily net assets above $1 billion to $1.5
billion and 0.60% of the average daily net assets above $1.5 billion.
For the fiscal year ended August 31, 1999 the Manager received a
management fee equal to 0.62% of the Fund’s average daily net
assets.
Merrill Lynch Asset Management was organized as an investment
adviser in 1977 and offers investment advisory services to more than 40
registered investment companies. Merrill Lynch Asset Management is part
of the Asset Management Group of ML & Co., which had approximately
$518 billion in investment company and other portfolio assets under
management as of October 31, 1999. This amount includes assets managed
for Merrill Lynch affiliates.
A Note About Year 2000
Many computer systems were designed using only two digits to
designate years. These systems may not be able to distinguish the Year
2000 from the Year 1900 (commonly known as the “Year 2000 Problem
”). The Fund could be adversely affected if the computer systems
used by Fund management or other Fund service providers do not properly
address this problem before January 1, 2000. Fund management expects to
have addressed this problem before then, and does not anticipate that
the services it provides will be adversely affected. The Fund’s
other service providers have told Fund management that they also expect
to resolve the Year 2000 Problem, and Fund management will continue to
monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively
affected. The Year 2000 Problem could also have a negative impact on the
issuers of securities in which the Fund invests. This negative impact
may be greater for smaller companies and companies in foreign markets,
particularly emerging markets, since they may be less prepared for the
Year 2000 Problem than larger domestic companies and markets. If the
companies in which the Fund invests have Year 2000 Problems, the Fund
’s returns could be adversely affected.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
24
The Financial Highlights table is intended to help you understand
the Fund’s financial performance for the past five years. Certain
information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would
have earned on an investment in the Fund (assuming reinvestment of all
dividends). This information has been audited by Ernst & Young
LLP
, whose report, along with the Fund’s financial statements, is
included in the Fund’s annual report to shareholders, which is
available upon request.
|
|
|
Class A†
|
|
Class B†
|
Increase (Decrease)
in |
|
For the Year Ended August
31,
|
|
For the Period
Oct. 21, 1994††
to August 31,
1995 |
|
For the Year Ended August
31,
|
|
For the Period
Oct. 21, 1994††
to August 31,
1995 |
| Net Asset Value: |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
Per Share Operating
Performance: |
|
Net asset value,
beginning of period |
|
$ 16.19 |
|
|
$ 17.37 |
|
|
$ 13.60 |
|
|
$ 11.66 |
|
|
$ 9.99 |
|
|
$
15.39 |
|
|
$ 16.69 |
|
$ 13.14 |
|
|
$ 11.40 |
|
|
$ 9.85 |
|
|
Investment income
(loss) — net |
|
.13 |
|
|
.07 |
|
|
.07 |
|
|
.07 |
|
|
— |
## |
|
(.08 |
) |
|
(.11) |
|
(.09 |
) |
|
(.07 |
) |
|
(.09 |
) |
|
Realized and
unrealized gain on
investments and
foreign currency
transactions — net |
|
6.37 |
|
|
1.09 |
|
|
4.95 |
|
|
2.13 |
|
|
1.98 |
|
|
6.05 |
|
|
1.05 |
|
4.79 |
|
|
2.07 |
|
|
1.95 |
|
|
Total from investment
operations |
|
6.50 |
|
|
1.16 |
|
|
5.02 |
|
|
2.20 |
|
|
1.98 |
|
|
5.97 |
|
|
.94 |
|
4.70 |
|
|
2.00 |
|
|
1.86 |
|
|
Less distributions from
realized gain on
investments — net |
|
(.70 |
) |
|
(2.34 |
) |
|
(1.25 |
) |
|
(.26 |
) |
|
(.31 |
) |
|
(.61 |
) |
|
(2.24) |
|
(1.15 |
) |
|
(.26 |
) |
|
(.31 |
) |
|
Net asset value,
end of period |
|
$ 21.99 |
|
|
$ 16.19 |
|
|
$ 17.37 |
|
|
$ 13.60 |
|
|
$ 11.66 |
|
|
$
20.75 |
|
|
$ 15.39 |
|
$ 16.69 |
|
|
$ 13.14 |
|
|
$ 11.40 |
|
|
Total Investment
Return:** |
|
Based on net asset
value
per share |
|
41.08 |
% |
|
6.37 |
% |
|
39.24 |
% |
|
19.02 |
% |
|
20.55 |
%# |
|
39.58 |
% |
|
5.21% |
|
37.95 |
% |
|
17.68 |
% |
|
19.60 |
%# |
|
Ratios to Average Net
Assets: |
|
| Expenses |
|
.81 |
% |
|
.87 |
% |
|
.99 |
% |
|
1.12 |
% |
|
1.46 |
%* |
|
1.83 |
% |
|
1.88% |
|
2.02 |
% |
|
2.16 |
% |
|
2.48 |
%* |
|
Investment income
(loss) — net |
|
.60 |
% |
|
.37 |
% |
|
.47 |
% |
|
.51 |
% |
|
.02 |
%* |
|
(.41) |
% |
|
(.64)% |
|
(.59 |
)% |
|
(.54 |
)% |
|
(.95 |
)%* |
|
| Supplemental Data: |
|
Net assets, end of
period
(in thousands) |
|
$472,464 |
|
|
$167,133 |
|
|
$62,049 |
|
|
$47,048 |
|
|
$21,288 |
|
|
$2,000,535 |
|
|
$641,688 |
|
$216,636 |
|
|
$116,641 |
|
|
$63,748 |
|
|
| Portfolio turnover |
|
52.72 |
% |
|
40.27 |
% |
|
94.38 |
% |
|
82.10 |
% |
|
80.41 |
% |
|
52.72 |
% |
|
40.27% |
|
94.38 |
% |
|
82.10 |
% |
|
80.41 |
% |
|
**
|
Total
investment returns exclude the effects of sales charges.
|
†
|
Based on
average shares outstanding.
|
†
†
|
Commencement
of operations.
|
#
|
Aggregate
total investment return.
|
##
|
Amount is
less than $.01 per share.
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
25
[GRAPHIC] Management of the Fund
FINANCIAL HIGHLIGHTS (concluded)
| |
|
Class C
†
|
|
Class D
†
|
| Increase (Decrease) in |
|
For the Year Ended August
31,
|
|
For the Year Ended August
31,
|
| Net Asset Value: |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
Per Share Operating
Performance: |
|
Net asset value,
beginning of year |
|
$ 15.45 |
|
|
$ 16.72 |
|
|
$ 13.14 |
|
|
$ 11.40 |
|
|
$ 9.96 |
|
|
$ 16.06 |
|
|
$ 17.27 |
|
|
$ 13.54 |
|
|
$ 11.64 |
|
|
$ 10.09 |
|
|
Investment income
(loss) — net |
|
(.09 |
) |
|
(.11 |
) |
|
(.09 |
) |
|
(.07 |
) |
|
(.09 |
) |
|
.08 |
|
|
.02 |
|
|
.03 |
|
|
.03 |
|
|
(.01 |
) |
|
Realized and unrealized gain on
investments and foreign currency
transactions — net |
|
6.10 |
|
|
1.05 |
|
|
4.79 |
|
|
2.07 |
|
|
1.84 |
|
|
6.31 |
|
|
1.09 |
|
|
4.93 |
|
|
2.13 |
|
|
1.87 |
|
|
Total from investment
operations |
|
6.01 |
|
|
.94 |
|
|
4.70 |
|
|
2.00 |
|
|
1.75 |
|
|
6.39 |
|
|
1.11 |
|
|
4.96 |
|
|
2.16 |
|
|
1.86 |
|
|
Less distributions from
realized
gain on investments — net |
|
(.58 |
) |
|
(2.21 |
) |
|
(1.12 |
) |
|
(.26 |
) |
|
(.31 |
) |
|
(.68 |
) |
|
(2.32 |
) |
|
(1.23 |
) |
|
(.26 |
) |
|
(.31 |
) |
|
Net asset value,
end of year |
|
$ 20.88 |
|
|
$ 15.45 |
|
|
$ 16.72 |
|
|
$ 13.14 |
|
|
$ 11.40 |
|
|
$ 21.77 |
|
|
$ 16.06 |
|
|
$ 17.27 |
|
|
$ 13.54 |
|
|
$ 11.64 |
|
|
| Total Investment
Return:* |
|
Based on net asset value
per share |
|
39.65 |
% |
|
5.19 |
% |
|
37.90 |
% |
|
17.68 |
% |
|
18.28 |
% |
|
40.67 |
% |
|
6.08 |
% |
|
38.90 |
% |
|
18.70 |
% |
|
19.15 |
% |
|
| Ratios to Average Net
Assets: |
|
| Expenses |
|
1.83 |
% |
|
1.89 |
% |
|
2.02 |
% |
|
2.15 |
% |
|
2.44 |
% |
|
1.05 |
% |
|
1.11 |
% |
|
1.24 |
% |
|
1.37 |
% |
|
1.65 |
% |
|
Investment income
(loss) — net |
|
(.43 |
)% |
|
(.63 |
)% |
|
(.58 |
)% |
|
(.57 |
)% |
|
(.88 |
)% |
|
.36 |
% |
|
.12 |
% |
|
.17 |
% |
|
.24 |
% |
|
(.10 |
)% |
|
| Supplemental
Data: |
|
Net assets, end of year
(in thousands) |
|
$307,988 |
|
|
$130,652 |
|
|
$74,732 |
|
|
$54,052 |
|
|
$44,220 |
|
|
$795,607 |
|
|
$157,899 |
|
|
$53,101 |
|
|
$22,892 |
|
|
$13,231 |
|
|
| Portfolio turnover |
|
52.72 |
% |
|
40.27 |
% |
|
94.38 |
% |
|
82.10 |
% |
|
80.41 |
% |
|
52.72 |
% |
|
40.27 |
% |
|
94.38 |
% |
|
82.10 |
% |
|
80.41 |
% |
|
*
|
Total
investment returns exclude the effects of sales charges.
|
†
|
Based on
average shares outstanding.
|
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
26
POTENTIAL
INVESTORS
Open an account (two options).
|
___________________________|_______________________
| |
1 2
\|/ \|/
MERRILL LYNCH TRANSFER AGENT
FINANCIAL CONSULTANT Financial Data Services, Inc.
OR SECURITIES DEALER
ADMINISTRATIVE OFFICES
Advises shareholders on 4800 Deer Lake Drive East
their Fund investments. Jacksonville, Florida 32246-6484
/|\
| MAILING ADDRESS
| P.O. Box 45289
| Jacksonville, Florida 32232-5289
|
| Performs shareholder recordkeeping and
| reporting services.
| /|\
| |
| |
| |
| |
| |
| DISTRIBUTOR |
| Merrill Lynch Funds Distributor, |
| a division of Princeton Funds Distributor, Inc.|
|__\ P.O. Box 9081 /__|
/ Princeton, New Jersey 08543-9081 \
Arranges for the sale of Fund shares.
|
|
COUNSEL \|/
Brown & Wood LLP THE FUND CUSTODIAN
One World Trade Center The Board of Directors The Chase Manhattan Bank
New York, New York oversees the Fund. Global Securities Services
10048-0557 /|\ Chase MetroTech Center
| 18th Floor
Provides legal advice ______________\|/____________ Brooklyn, New York 11245
to the Fund. /|\
| Holds the Fund's assets
| for safekeeping.
|
_________________________\|/________________________
| / \ |
INDEPENDENT AUDITORS THE MANAGER
Ernst & Young LLP Merrill Lynch Asset Management, L.P.
99 Wood Avenue South
Iselin, New Jersey 08830-0471 ADMINISTRATIVE OFFICES
800 Scudders Mill Road
Audits the financial Plainsboro, New Jersey 08536
statements of the Fund on behalf of
the shareholders. MAILING ADDRESS
P.O. Box 9011
Princeton, New Jersey 08543-9011
TELEPHONE NUMBER
1-800-MER-FUND
Manages the Fund's
day-to-day activities.
MERRILL LYNCH FUNDAMENTAL GROWTH FUND, INC.
[GRAPHIC] For More Information
Additional information about the Fund’s investments is
available in the Fund’s annual and semi-annual reports to
shareholders. In the Fund’s annual report you will find a
discussion of the market conditions and investment strategies that
significantly affected the Fund’s performance during its last
fiscal year. You may obtain these reports at no cost by calling
1-800-MER-FUND.
The Fund will send you one copy of each shareholder report
and certain other mailings, regardless of the number of Fund accounts
you have. To receive separate shareholder reports for each account, call
your Merrill Lynch Financial Consultant or write to the Transfer Agent
at its mailing address. Include your name, address, tax identification
number and Merrill Lynch brokerage or mutual fund account number. If you
have any questions, please call your Merrill Lynch Financial Consultant
or the Transfer Agent at 1-800-MER-FUND.
Statement of Additional Information
The Fund’s Statement of Additional Information contains
further information about the Fund and is incorporated by reference
(legally considered to be part of this prospectus). You may request a
free copy by writing the Fund at Financial Data Services, Inc., P.O. Box
45289, Jacksonville, Florida 32232-5289 or by calling
1-800-MER-FUND.
Contact your Merrill Lynch Financial Consultant or the Fund,
at the telephone number or address indicated above, if you have any
questions.
Information about the Fund (including the Statement of
Additional Information) can be reviewed and copied at the SEC’s
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the public reference room. This
information is also available on the SEC’s Internet site at
http://www.sec.gov and copies may be obtained upon payment of a
duplicating fee by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
You should rely only on the information contained in this
Prospectus. No one is authorized to provide you with information that is
different from the information contained in this
Prospectus.
Investment Company Act file #811-6669
Code #16463-12-99
©Merrill Lynch Asset Management, L.P.
P
r o s p e c t u s
[LOGO] Merrill Lynch
STATEMENT OF ADDITIONAL INFORMATION
Merrill Lynch Fundamental Growth Fund,
Inc.
P.O. Box 9011, Princeton, New Jersey 08543-9011
Ÿ Phone No. (609) 282-2800
Merrill Lynch
Fundamental Growth Fund, Inc. (the “Fund”) is a mutual fund
that seeks to provide shareholders with long-term growth of capital. The
Fund will seek to achieve its investment objective by investing in a
diversified portfolio of equity securities placing particular emphasis
on companies that have exhibited above-average growth rates in earnings.
There can be no assurance that the investment objective of the Fund will
be realized. For more information on the Fund’s investment
objectives and policies, see “Investment Objective and Policies.
”
Pursuant to the
Merrill Lynch Select Pricing
SM
System, the Fund offers four classes of shares, each with a
different combination of sales charges, ongoing fees and other features.
The Merrill Lynch Select Pricing
SM
System permits an investor to choose the method of purchasing
shares that the investor believes is most beneficial given the amount of
the purchase, the length of time the investor expects to hold the shares
and other relevant circumstances. See “Purchase of Shares.
”
This Statement of
Additional Information of the Fund is not a prospectus and should be
read in conjunction with the Prospectus of the Fund, dated December 1,
1999 (the “Prospectus”), which has been filed with the
Securities and Exchange Commission (the “Commission”) and can
be obtained, without charge, by calling 1-800-MER-FUND or by writing the
Fund at the above address. The Prospectus is incorporated by reference
into this Statement of Additional Information, and this Statement of
Additional Information is incorporated by reference into the Prospectus.
The Fund’s audited financial statements are incorporated in this
Statement of Additional Information by reference to its 1999 annual
report to shareholders. You may request a copy of the annual report at
no charge by calling (800) 456-4587, ext. 789 between 8:00 a.m. and 8:00
p.m. on any business day.
Merrill Lynch Asset Management —
Manager
Merrill Lynch Funds Distributor —
Distributor
The date of this Statement of Additional Information is
December 1, 1999.
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES
The
investment objective of the Fund is to seek long-term growth of capital.
The Fund will seek to achieve its investment objective by investing in a
diversified portfolio of equity securities placing particular emphasis
on companies that have exhibited above-average growth rates in earnings.
There can be no assurance that the investment objective of the Fund will
be realized. The investment objective of the Fund set forth in the first
sentence of this paragraph is a fundamental policy of the Fund which may
not be changed without a vote of a majority of its outstanding shares as
defined below. Reference is made to “How the Fund Invests” and
“Investment Risks” in the Prospectus. The Fund is classified
as a diversified fund under the Investment Company Act of 1940, as
amended (the “Investment Company Act”).
The Fund
will give particular emphasis to companies that have exhibited
above-average growth rates in earnings, resulting from a variety of
factors including — but not limited to —
above-average growth rates in sales, profit margin improvement,
proprietary or niche products or services, leading market shares, and
underlying strong industry growth. Merrill Lynch Asset Management, L.P.,
the Fund’s investment manager (“MLAM” or the “Manager
”) believes that companies which possess above-average earnings
growth frequently provide the prospect of above-average stock market
returns, although such companies tend to have higher relative stock
market valuations. Emphasis also will be given to companies having
medium to large stock market capitalizations ($500 million or more).
Investment in companies with lower market capitalizations, especially
those under $1 billion, may involve special risks including limited
product lines, market or financial resources or a limited management
group. In addition, many smaller company stocks trade less frequently
and in smaller volume, and may be subject to more abrupt or erratic
price movements or more sensitive to market fluctuations, than stocks of
larger companies.
Investment emphasis is on equities, primarily common stock and, to
a lesser extent, securities convertible into common stock and rights to
subscribe for common stock. The Fund will maintain at least 65% of its
total assets invested in equity securities except during defensive
periods. The Fund reserves the right as a defensive measure and to
provide for redemptions to hold other types of securities, including
non-convertible preferred stocks and debt securities rated investment
grade by a nationally recognized statistical ratings organization,
Government and money market securities, including repurchase agreements,
or cash, in such proportions as, in the opinion of management,
prevailing market or economic conditions warrant.
The Fund
may invest up to 10% of its total assets in equity securities of foreign
issuers with the foregoing characteristics. (Purchases of American
Depositary Receipts (“ADRs”), however, are not subject to this
restriction.) Investments in securities of foreign entities and
securities denominated in foreign currencies involve risks not typically
involved in domestic investment, including fluctuations in foreign
exchange rates, future foreign political and economic developments, and
the possible imposition of exchange controls or other foreign or United
States governmental laws or restrictions applicable to such investments.
Since the Fund may invest in securities denominated or quoted in
currencies other than the United States dollar, changes in foreign
currency exchange rates may affect the value of investments in the
portfolio and the unrealized appreciation or depreciation of investments
insofar as the United States investors are concerned. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S.
dollar value of the Fund’s assets denominated in that currency and
the Fund’s yield on such assets. Foreign currency exchange rates
are determined by forces of supply and demand on the foreign exchange
markets. These forces are, in turn, affected by the international
balance of payments and other economic and financial conditions,
government intervention, speculation and other factors. Moreover,
individual foreign economies may differ favorably or unfavorably from
the United States economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
With
respect to certain foreign countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments which could affect investment in
those countries. There may be less publicly available information about
a foreign financial instrument than about a United States instrument,
and foreign entities may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those of
United States entities. In addition, certain foreign investments may be
subject to foreign withholding taxes. Foreign financial markets, while
growing in volume, have, for the most part, substantially less volume
than United States markets, and securities of many foreign companies are
less liquid and
their prices more volatile than securities of comparable domestic
companies. The foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays
in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The ability of the Fund
to make intended security purchases due to settlement problems could
cause the Fund to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result
either in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell
the security, could result in possible liability to the purchaser. Costs
associated with transactions in foreign securities are generally higher
than with transactions in United States securities. There is generally
less government supervision and regulation of exchanges, financial
institutions and issuers in foreign countries than there is in the
United States.
The Fund
may invest in the securities of foreign issuers in the form of 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 an
American bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are receipts issued in
Europe which 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. The Fund may invest
in unsponsored ADRs. The issuers of unsponsored ADRs are not obligated
to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market
value of such ADRs.
European Economic and Monetary Union.
For a number of years, certain European countries have been
seeking economic unification that would, among other things, reduce
barriers between countries, increase competition among companies, reduce
government subsidies in certain industries, and reduce or eliminate
currency fluctuations among these European countries. The Treaty on
European Union (the “Maastricht Treaty”) set out a framework
for the European Economic and Monetary Union (“EMU”) among the
countries that comprise the European Union (“EU”). EMU
established a single common European currency (the “euro”)
that was introduced on January 1, 1999 and is expected to replace the
existing national currencies of all EMU participants by July 1, 2002.
EMU took effect for the initial EMU participants on January 1, 1999.
Certain securities issued in participating EU countries (beginning with
government and corporate bonds) will be redenominated in the euro, and
are listed, traded and make dividend and other payments only in
euros.
No
assurance can be given that EMU will take effect, that the changes
planned for the EU can be successfully implemented, or that these
changes will result in the economic and monetary unity and stability
intended. There is a possibility that EMU will not be completed, or will
be completed but then partially or completely unwound. Because any
participating country may opt out of EMU within the first three years,
it is also possible that a significant participant could choose to
abandon EMU, which would diminish its credibility and influence. Any of
these occurrences could have adverse effects on the markets of both
participating and non-participating countries, including sharp
appreciation or depreciation of the participants’ national
currencies and a significant increase in exchange rate volatility, a
resurgence in economic protectionism, an undermining of confidence in
the European markets, an undermining of European economic stability, the
collapse or slowdown of the drive toward European economic unity, and/or
reversion of the attempts to lower government debt and inflation rates
that were introduced in anticipation of EMU. Also, withdrawal from EMU
by an initial participant could cause disruption of the financial
markets as securities redenominated in euros are transferred back into
that country’s national currency, particularly if the withdrawing
country is a major economic power. Such developments could have an
adverse impact on the Fund’s investments in Europe generally or in
specific countries participating in EMU. Gains or losses resulting from
the euro conversion may be taxable to Fund shareholders under foreign
or, in certain limited circumstances, U.S. tax laws.
Convertible securities entitle the holder to receive interest
payments paid on corporate debt securities or the dividend preference on
a preferred stock until such time as the convertible security matures or
is redeemed or
until the holder elects to exercise the conversion privilege. Synthetic
convertible securities may be either (i) a debt security or preferred
stock that may be convertible only under certain contingent
circumstances or that may pay the holder a cash amount based on the
value of shares of underlying common stock partly or wholly in lieu of a
conversion right (a “Cash-Settled Convertible”) or (ii) a
combination of separate securities chosen by the Manager in order to
create the economic characteristics of a convertible security, i.e., a
fixed income security paired with a security with equity conversion
features, such as an option or warrant (a “Manufactured Convertible
”).
The
characteristics of convertible securities make them appropriate
investments for an investment company seeking a high total return from
capital appreciation and investment income. These characteristics
include the potential for capital appreciation as the value of the
underlying common stock increases, the relatively high yield received
from dividend or interest payments as compared to common stock dividends
and decreased risks of decline in value relative to the underlying
common stock due to their fixed-income nature. As a result of the
conversion feature, however, the interest rate or dividend preference on
a convertible security is generally less than would be the case if the
securities were issued in nonconvertible form.
In
analyzing convertible securities, the Manager will consider both the
yield on the convertible security and the potential capital appreciation
that is offered by the underlying common stock.
Convertible securities are issued and traded in a number of
securities markets. For the past several years, the principal markets
have been the United States, the Euromarket and Japan. Issuers during
this period have included major corporations domiciled in the United
States, Japan, France, Switzerland, Canada and the United Kingdom. Even
in cases where a substantial portion of the convertible securities held
by the Fund are denominated in United States dollars, the underlying
equity securities may be quoted in the currency of the country where the
issuer is domiciled. With respect to convertible securities denominated
in a currency different from that of the underlying equity securities,
the conversion price may be based on a fixed exchange rate established
at the time the security is issued. As a result, fluctuations in the
exchange rate between the currency in which the debt security is
denominated and the currency in which the share price is quoted will
affect the value of the convertible security. As described below, the
Fund is authorized to enter into foreign currency hedging transactions
in which it may seek to reduce the effect of such
fluctuations.
Apart
from currency considerations, the value of convertible securities is
influenced by both the yield of nonconvertible securities of comparable
issuers and by the value of the underlying common stock. The value of a
convertible security viewed without regard to its conversion feature
(i.e., strictly on the basis of its yield) is sometimes referred
to as its “investment value.” To the extent interest rates
change, the investment value of the convertible security typically will
fluctuate. However, at the same time, the value of the convertible
security will be influenced by its “conversion value,” which
is the market value of the underlying common stock that would be
obtained if the convertible security were converted. Conversion value
fluctuates directly with the price of the underlying common stock. If,
because of a low price of the common stock the conversion value is
substantially below the investment value of the convertible security,
the price of the convertible security is governed principally by its
investment value.
To the
extent the conversion value of a convertible security increases to a
point that approximates or exceeds its investment value, the price of
the convertible security will be influenced principally by its
conversion value. A convertible security will sell at a premium over the
conversion value to the extent investors place value on the right to
acquire the underlying common stock while holding a fixed-income
security. The yield and conversion premium of convertible securities
issued in Japan and the Euromarket are frequently determined at levels
that cause the conversion value to affect their market value more than
the securities’ investment value.
Holders
of convertible securities generally have a claim on the assets of the
issuer prior to the common stockholders but may be subordinated to other
debt securities of the same issuer. A convertible security may be
subject to redemption at the option of the issuer at a price established
in the charter provision, indenture or other governing instrument
pursuant to which the convertible security was issued. If a convertible
security held by the Fund is called for redemption, the Fund will be
required to redeem the security, convert it into the underlying common
stock or sell it to a third party. Certain convertible debt securities
may provide a put option to the holder which entitles the holder to
cause the security to be redeemed by the issuer at a premium over the
stated principal amount of the debt security under certain
circumstances.
As indicated above,
synthetic convertible securities may include either Cash-Settled
Convertibles or Manufactured Convertibles. Cash-Settled Convertibles are
instruments that are created by the issuer and have the economic
characteristics of traditional convertible securities but may not
actually permit conversion into the underlying equity securities in all
circumstances. As an example, a private company may issue a Cash-Settled
Convertible that is convertible into common stock only if the company
successfully completes a public offering of its common stock prior to
maturity and otherwise pays a cash amount to reflect any equity
appreciation. Manufactured Convertibles are created by the Manager by
combining separate securities that possess one of the two principal
characteristics of a convertible security, i.e., fixed income (
“fixed income component”) or a right to acquire equity
securities (“convertible component”). The fixed income
component is achieved by investing in nonconvertible fixed income
securities, such as nonconvertible bonds, preferred stocks and money
market instruments. The convertibility component is achieved by
investing in call options, warrants, Long Term Equity Appreciation
Participation Securities (“LEAPS”), or other securities with
equity conversion features (“equity features”) granting the
holder the right to purchase a specified quantity of the underlying
stocks within a specified period of time at a specified price or, in the
case of a stock index option, the right to receive a cash payment based
on the value of the underlying stock index.
A
Manufactured Convertible differs from traditional convertible securities
in several respects. Unlike a traditional convertible security, which is
a single security having a unitary market value, a Manufactured
Convertible is comprised of two or more separate securities, each with
its own market value. Therefore, the total “market value” of
such a Manufactured Convertible is the sum of the values of its
fixed-income component and its convertibility component.
More
flexibility is possible in the creation of a Manufactured Convertible
than in the purchase of a traditional convertible security. Because many
corporations have not issued convertible securities, the Manager may
combine a fixed income instrument and an equity feature with respect to
the stock of the issuer of the fixed income instrument to create a
synthetic convertible security otherwise unavailable in the market. The
Manager may also combine a fixed income instrument of an issuer with an
equity feature with respect to the stock of a different issuer when the
Manager believes such a Manufactured Convertible would better promote
the Fund’s objective than alternative investments. For example, the
Manager may combine an equity feature with respect to an issuer’s
stock with a fixed income security of a different issuer in the same
industry to diversify the Fund’s credit exposure, or with a U.S.
Treasury instrument to create a Manufactured Convertible with a higher
credit profile than a traditional convertible security issued by that
issuer. A Manufactured Convertible also is a more flexible investment in
that its two components may be purchased separately and, upon purchasing
the separate securities, “combined” to create a Manufactured
Convertible. For example, the Fund may purchase a warrant for eventual
inclusion in a Manufactured Convertible while postponing the purchase of
a suitable bond to pair with the warrant pending development of more
favorable market conditions.
The value
of a Manufactured Convertible may respond differently to certain market
fluctuations than would a traditional convertible security with similar
characteristics. For example, in the event the Fund created a
Manufactured Convertible by combining a short-term U.S. Treasury
instrument and a call option on a stock, the Manufactured Convertible
would likely outperform a traditional convertible of similar maturity
and which is convertible into that stock during periods when Treasury
instruments outperform corporate fixed income securities and
underperform during periods when corporate fixed-income securities
outperform Treasury instruments.
Buying a
warrant does not make the Fund a shareholder of the underlying stock.
The warrant holder has no right to dividends or votes on the underlying
stock. A warrant does not carry any right to assets of the issuer, and
for this reason investment in warrants may be more speculative than
other equity-based investments.
Portfolio Strategies Involving Options and Futures
The Fund
may seek to hedge its portfolio against adverse movements in the equity
markets, interest rates and exchange rates between currencies. The Fund
has authority to write (i.e., sell) covered put and call options
on its portfolio securities, purchase put and call options on securities
and engage in transactions in stock index options,
stock index futures and stock futures and financial futures, and related
options on such futures. The Fund may also deal in forward foreign
exchange transactions, foreign currency options and futures and related
options on such futures. The Fund may engage in transactions in options
on securities or securities indices on exchanges and in the
over-the-counter (“OTC”) markets. In general, exchange-traded
options have standardized exercise prices and expiration dates and
require the parties to post margin against their obligations, and the
performance of the parties’ obligations in connection with such
options is guaranteed by the exchange or a related clearing corporation.
OTC options have more flexible terms negotiated between the buyer and
the seller, but generally do not require the parties to post margin and
are subject to greater risk of counterparty default. See
“Additional Risk Factors of OTC Transactions” below. While the
Fund’s use of hedging strategies is intended to reduce the
volatility of the net asset value of Fund shares, the Fund’s net
asset value will fluctuate. There can be no assurance that the Fund
’s hedging transactions will be effective. Furthermore, the Fund
will only engage in hedging activities from time to time and may not
necessarily be engaging in hedging activities where movements on the
equity markets, interest rates or currency exchange rates occur. The
following is further information relating to portfolio strategies
involving options and futures the Fund may utilize.
Writing Covered Options. The Fund is
authorized to write (i.e., sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. A covered call
option is an option where the Fund, in return for a premium, gives
another party a right to buy specified securities owned by the Fund at a
specified future date and price set at the time of the contract. The
principal reason for writing call options is to attempt to realize,
through the receipt of premiums, a greater return than would be realized
on the securities alone. By writing covered call options, the Fund gives
up the opportunity, while the option is in effect, to profit from any
price increase in the underlying security above the option price. In
addition, the Fund’s ability to sell the underlying security will
be limited while the option is in effect unless the Fund effects a
closing purchase transaction. A closing purchase transaction cancels out
the Fund’s position as the writer of an option by means of an
offsetting purchase of an identical option prior to the expiration of
the option it has written. Covered call options serve as a particular
hedge against the price of the underlying security
declining.
The
writer of a covered call option has no control over when he may be
required to sell his securities since he may be assigned an exercise
notice at any time prior to the termination of his obligation as a
writer. If an option expires unexercised, the writer realizes a gain in
the amount of the premium. Such a gain, of course, may be offset by a
decline in the market value of the underlying security during the option
period. If a call option is exercised, the writer realizes a gain or
loss from the sale of the underlying security.
The Fund
also may write put options which give the holder of the option the right
to sell the underlying security to the Fund at the stated exercise
price. The Fund will receive a premium for writing a put option which
increases the Fund’s return. The Fund writes only covered put
options which means that so long as the Fund is obligated as the writer
of the option it will, through its custodian, have deposited and
maintained cash, cash equivalents, U.S. Government securities or other
high grade liquid debt securities denominated in U.S. dollars or
non-U.S. currencies with a securities depository with a value equal to
or greater than the exercise price of the underlying securities. By
writing a put, the Fund will be obligated to purchase the underlying
security at a price that may be higher than the market value of that
security at the time of the exercise for as long as the option is
outstanding. The Fund may engage in closing transactions in order to
terminate put options that it has written. The Fund will not write put
options if the aggregate value of the obligations underlying the put
options shall exceed 50% of the Fund’s net assets.
Options
referred to herein may be options traded on foreign securities
exchanges. An options position may be closed only on an exchange which
provides a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to effect
closing transactions in particular options, with the result, in the case
of a covered call option, that the Fund will not be able to sell the
underlying security until the option expires or it delivers the
underlying security upon exercise. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may
be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series
of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing Corporation (the
“Clearing Corporation”) may not, at all
times, be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options on that exchange that had
been issued by the Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their
terms.
The staff
of the Commission has taken the position that OTC options and the assets
used as cover for written OTC options are illiquid
securities.
Purchasing Options. The Fund may
purchase put options to hedge against a decline in the market value of
its equity holdings. By buying a put, the Fund has a right to sell the
underlying security at the exercise price, thus limiting the Fund’s
risk of loss through a decline in the market value of the security until
the put option expires. The amount of any appreciation in the value of
the underlying security will be offset partially by the amount of the
premium paid for the put option and any related transaction costs. Prior
to its expiration, a put option may be sold in a closing sale
transaction; profit or loss from the sale will depend on whether the
amount received is more or less than the premium paid for the put option
plus the related transaction cost. A closing sale transaction cancels
out the Fund’s position as the purchaser of an option by means of
an offsetting sale of an identical option prior to the expiration of the
option it has purchased. In certain circumstances, the Fund may purchase
call options on securities held in its portfolio on which it has written
call options or on securities which it intends to purchase. The Fund may
purchase either exchange-traded options or OTC options. The Fund will
not purchase options on securities (including stock index options
discussed below) if as a result of such purchase, the aggregate cost of
all outstanding options on securities held by the Fund would exceed 5%
of the market value of the Fund’s total assets.
Stock
Index Options and Futures and Financial Futures.
The Fund is authorized to engage in transactions in stock
index options and futures and financial futures, and related options on
such futures. Set forth below is further information concerning futures
transactions.
A futures
contract is an agreement between two parties to buy and sell a security,
or, in the case of an index-based futures contract, to make and accept a
cash settlement for a set price on a future date. A majority of
transactions in futures contracts, however, do not result in the actual
delivery of the underlying instrument or cash settlement, but are
settled through liquidation, i.e., by entering into an offsetting
transaction.
The
purchase or sale of a futures contract differs from the purchase or sale
of a security in that no price or premium is paid or received. Instead,
an amount of cash or securities acceptable to the broker and the
relevant contract market, which varies, but is generally about 5% of the
contract amount, must be deposited with the broker. This amount is known
as “initial margin” and represents a “good faith”
deposit assuring the performance of both the purchaser and seller under
the futures contract. Subsequent payments to and from the broker, called
“variation margin”, are required to be made on a daily basis
as the price of the futures contract fluctuates, making the long and
short positions in the futures contract more or less valuable, a process
known as “mark to the market”. At any time prior to the
settlement date of the futures contract, the position may be closed out
by taking an opposite position which will operate to terminate the
position in the futures contract. A final determination of variation
margin is then made, additional cash is required to be paid to or
released by the broker, and the purchaser realizes a loss or gain. In
addition, a nominal commission is paid on each completed sale
transaction.
The sale
of a futures contract limits the Fund’s risk of loss through a
decline in the market value of portfolio holdings correlated with the
futures contract prior to the futures contract’s expiration date.
In the event the market value of the portfolio holdings correlated with
the futures contract increases rather than decreases, however, the Fund
will realize a loss on the futures position and a lower return on the
portfolio holdings than would have been realized without the purchase of
the futures contract.
The
purchase of a futures contract may protect the Fund from having to pay
more for securities as a consequence of increases in the market value
for such securities during a period when the Fund was attempting to
identify specific securities in which to invest in a market the Fund
believes to be attractive. In the event that such securities decline in
value or the Fund determines not to complete an anticipatory hedge
transaction relating to a futures contract, however, the Fund may
realize a loss relating to the futures position.
The Fund will limit
transactions in futures and options on futures to financial futures
contracts (i.e., contracts for which the underlying commodity is
a currency or securities or interest rate index) purchased or sold for
hedging purposes (including anticipatory hedges). The Fund will further
limit transactions in futures and options on futures to the extent
necessary to prevent the Fund from being deemed a “commodity pool
” under regulations of the Commodity Futures Trading
Commission.
An order
has been obtained from the Commission exempting the Fund from the
provisions of Section 17(f) and Section 18(f) of the Investment Company
Act of 1940 (the “Investment Company Act”) in connection with
its strategy of investing in futures contracts. Section 17(f) relates to
the custody of securities and other assets of an investment company and
may be deemed to prohibit certain arrangements between the Fund and
commodities brokers with respect to initial and variation margin.
Section 18(f) of the Investment Company Act prohibits an open-end
investment company such as the Fund from issuing a “senior security
” other than a borrowing from a bank. The staff of the Commission
has in the past indicated that a futures contract may be a “senior
security” under the Investment Company Act.
Risk
Factors in Options, Futures and Currency Transactions.
Utilization of futures transactions involves the risk of
imperfect correlation in movements in the prices of options and futures
and movements in the prices of the securities and currencies which are
the subject of the hedge. If the prices of the options and futures move
more or less than the prices of the hedged securities or currencies, the
Fund will experience a gain or loss which will not be completely offset
by movements in the prices of the securities and currencies which are
the subject of the hedge. The successful use of options, futures and
currency transactions also depends on the Manager’s ability to
predict correctly price movements in the market involved in a particular
options or futures transaction.
Prior to
exercise or expiration, an exchange-traded option or futures position
can only be terminated by entering into a closing purchase or sale
transaction. This requires a secondary market on an exchange for call or
put options of the same series. The Fund will enter into options or
futures transactions on an exchange only if there appears to be a liquid
secondary market for such options or futures. However, there can be no
assurance that a liquid secondary market will exist for any particular
call or put option or futures contract at any specific time. Thus, it
may not be possible to close an option or futures position. The Fund
will acquire only OTC options for which management believes the Fund can
receive on each business day at least two independent bids or offers. In
the case of a futures position or an option on a futures position
written by the Fund in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation
margin. In such situations, if the Fund has insufficient cash, it may
have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to take or make delivery of the
security underlying futures contracts it holds. The inability to close
options and futures positions also could have an adverse impact on the
Fund’s ability to effectively hedge its portfolio. There is also
the risk of loss by the Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a
futures contract or related option. The risk of loss from investing in
futures transactions is theoretically unlimited.
The
exchanges on which the Fund intends to conduct options transactions
generally have established limitations governing the maximum number of
call or put options on the same underlying security or currency (whether
or not covered) which may be written by a single investor, whether
acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or
written on one or more accounts or through one or more brokers).
“Trading limits” are imposed on the maximum number of
contracts which any person may trade on a particular trading day. An
exchange may order the liquidation of positions found to be in violation
of these limits and it may impose other sanctions or restrictions. The
Manager does not believe that these trading and positions limits will
have any adverse impact on the portfolio strategies for hedging the Fund
’s portfolio.
Transactions in certain instruments (e.g., futures
transactions, sales of put options) and other types of transactions in
which the Fund may engage (e.g., delayed delivery transactions,
discussed below) may expose the Fund to potential losses which exceed
the amount originally invested by the Fund in such instruments. When the
Fund engages in such a transaction, the Fund will deposit in a
segregated account at its custodian liquid securities with a value at
least equal to the Fund’s exposure, on a 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
Options
Certain
instruments traded in OTC markets, including 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 quotation from only one dealer is
available, in which case that dealer’s quotation may be
used.
Because
instruments traded in OTC markets are not guaranteed by an exchange or
clearing corporation and generally do not require payment of margin, to
the extent that the Fund has unrealized gains in such instruments or has
deposited collateral with its counterpart in the Fund is at risk that
its counterpart will become bankrupt or otherwise fail to honor its
obligations by engaging in transactions in instruments traded in OTC
markets only with financial institutions which have substantial capital
or which have provided the Fund with a third-party guaranty or other
credit enhancement.
Additional Limitations on the Use of Options and Futures
The Fund may not
use any options or futures to gain exposure to an asset or type or class
of assets that it would be prohibited by its investment restrictions
from purchasing directly.
Other Investment Policies and Practices
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 a primary
dealer in U.S. Government securities or an affiliate thereof. Under such
agreements, the bank or primary dealer or an affiliate thereof agrees,
on 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. Such agreements usually
cover short periods, such as under a week. 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 a default by the seller,
the Fund ordinarily will retain ownership of the securities underlying
the repurchase agreement, and instead of a contractually fixed rate of
return, the rate of return to the Fund shall be dependent upon
intervening fluctuations of the market value of such securities and the
accrued interest on the securities. 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 suffer time delays and incur costs or
possible losses in connection with the disposition of the securities
underlying a repurchase agreement in the event of the counterparty
’s default. From time to time the Fund also may invest in
securities pursuant to purchase and sale contracts. While purchase and
sale contracts are similar to repurchase agreements, purchase and sale
contracts are structured so as to be in substance more like a purchase
and sale of the underlying security than is the case with repurchase
agreements.
When Issued
Securities and Delayed Delivery Transactions.
The Fund may purchase or sell securities on a delayed delivery
basis or a when-issued basis at fixed purchase terms. These transactions
arise when securities are purchased or sold by the Fund with payment and
delivery taking place in the future. The purchase will be recorded on
the date the Fund enters into the commitment and the value of the
obligation will thereafter be reflected in the calculation of the Fund
’s net asset value. The value of the obligation on the delivery
date may be more or less than its purchase price. A separate account of
the Fund will be established with its custodian consisting of cash,
cash equivalents or high grade, liquid debt securities having a market
value at all times at least equal to the amount of the forward
commitment.
Illiquid or Restricted Securities. The
Fund may invest up to 15% of its net assets in securities that lack an
established secondary trading market or otherwise are considered
illiquid. Liquidity of a security relates to the ability to dispose
easily of the security and the price to be obtained upon disposition of
the security, which may be less than would be obtained for a comparable
more liquid security. Illiquid securities may trade at a discount from
comparable, more liquid investments. Investment of the Fund’s
assets in illiquid securities may restrict the ability of the Fund to
dispose of its investments in a timely fashion and for a fair price as
well as its ability to take advantage of market opportunities. The risks
associated with illiquidity will be particularly acute where the Fund
’s operations require cash, such as when the Fund redeems shares or
pays dividends, and could result in the Fund borrowing to meet
short-term cash requirements or incurring capital losses on the sale of
illiquid investments.
The Fund
may invest in securities that are “restricted securities.”
Restricted securities have contractual or legal restrictions on their
resale and include “private placement” securities that the
Fund may buy directly from the issuer. Restricted securities may be sold
in private placement transactions between issuers and their purchasers
and may be neither listed on an exchange nor traded in other established
markets. In many cases, privately placed securities may not be freely
transferable under the laws of the applicable jurisdiction or due to
contractual restrictions on resale. As a result of the absence of a
public trading market, privately placed securities may be less liquid
and more difficult to value than publicly traded securities. To the
extent that privately placed securities may be resold in privately
negotiated transactions, the prices realized from the sales, due to
illiquidity, could be less than those originally paid by the Fund or
less than their fair market value. In addition, issuers whose securities
are not publicly traded may not be subject to the disclosure and other
investor protection requirements that may be applicable if their
securities were publicly traded. If any privately placed securities held
by the Fund are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required
to bear the expenses of registration. Certain of the Fund’s
investments in private placements may consist of direct investments and
may include investments in smaller, less-seasoned issuers, which may
involve greater risks. These issuers may have limited product lines,
markets or financial resources, or they may be dependent on a limited
management group. In making investments in such securities, the Fund may
obtain access to material non-public information which may restrict the
Fund’s ability to conduct portfolio transactions in such
securities.
144A
Securities. The Fund may purchase restricted
securities that can be offered and sold to “qualified institutional
buyers” under Rule 144A under the Securities Act. The Board of
Directors has determined to treat as liquid Rule 144A securities that
are either freely tradable in their primary markets offshore or have
been determined to be liquid in accordance with the policies and
procedures adopted by the Fund’s Board. The Board of Directors has
adopted guidelines and delegated to the Investment Adviser the daily
function of determining and monitoring liquidity of restricted
securities. The Board of Directors, 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 assume to
develop, the Board of Directors will carefully monitor the Fund’s
investments in these securities. This investment practice could have the
effect of increasing the level of illiquidity in the Fund to the extent
that qualified institutional buyers become for a time uninterested in
purchasing these securities.
In
addition to the investment restrictions set forth in the Prospectus, the
Fund has adopted a number of fundamental and non-fundamental investment
policies and restrictions. The fundamental policies and restrictions set
forth below may not be changed without the approval of the holders of a
majority of the Fund’s outstanding voting securities (which for
this purpose means the lesser of (i) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented
or (ii) more than 50% of the outstanding shares). Unless otherwise
provided, all references to the assets of the Fund below are in terms of
current market value. The Fund may not:
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1. Make any investment
inconsistent with the Fund’s classification as a diversified
company under the Investment Company Act.
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2. Invest more than 25%
of its assets, taken at market value, in the securities of issuers in
any particular industry (excluding the U.S. Government and its
agencies and instrumentalities).
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3. Make investments for
the purpose of exercising control or management.
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4. Purchase or sell
real estate, except that, to the extent permitted by applicable law,
the Fund may invest in securities directly or indirectly secured by
real estate or interests therein or issued by companies which invest
in real estate or interests therein.
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5. Make loans to other
persons, except that the acquisition of bonds, debentures or other
corporate debt securities and investment in government obligations,
commercial paper, pass-through instruments, certificates of deposit,
bankers acceptances, repurchase agreements or any similar instruments
shall not be deemed to be the making of a loan, and except further
that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund’s
Prospectus and Statement of Additional Information, as they may be
amended from time to time.
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6. Issue senior
securities to the extent such issuance would violate applicable
law.
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7. Borrow money, except
that (i) the Fund may borrow from banks (as defined in the Investment
Company Act) in amounts up to 33 1
/3% of its total assets (including the amount borrowed), (ii) the
Fund may borrow up to an additional 5% of its total assets for
temporary purposes, (iii) the Fund may obtain such short-term credit
as may be necessary for the clearance of purchases and sales of
portfolio securities and (iv) the Fund may purchase securities on
margin to the extent permitted by applicable law. The Fund may not
pledge its assets other than to secure such borrowings or, to the
extent permitted by the Fund’s investment policies as set forth
in its Prospectus and Statement of Additional Information, as they may
be amended from time to time, in connection with hedging transactions,
short sales, when-issued and forward commitment transactions and
similar investment strategies.
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8. Underwrite
securities of other issuers except insofar as the Fund technically may
be deemed an underwriter under the Securities Act of 1933, as amended
(the “Securities Act”) in selling portfolio
securities.
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9. Purchase or sell
commodities or contracts on commodities, except to the extent that the
Fund may do so in accordance with applicable law and the Fund’s
Prospectus and Statement of Additional Information, as they may be
amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
|
Notwithstanding fundamental investment restriction (7) above, the
Fund currently does not intend to borrow amounts in excess of
33 1
/3% of its total assets, taken at market value, and then only from
banks as a temporary measure for extraordinary or emergency purposes
such as the redemption of Fund shares. In addition, the Fund will not
purchase securities while borrowings are outstanding.
The Fund
has also adopted non-fundamental investment restrictions, which may be
changed by the Board of Directors without shareholder approval. Under
the non-fundamental 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 its shares are owned by another investment
company that is part of the same group of investment companies as the
Fund.
|
|
b. Make short sales of
securities or maintain a short position, except to the extent
permitted by applicable law. The Fund currently does not intend to
engage in short sales, except short sales “against the box.
”
|
|
c. Invest in securities
which cannot be readily resold because of legal or contractual
restrictions or which cannot otherwise be marketed, redeemed or put to
the issuer or a third party, if at the time of acquisition more than
15% of its total assets would be invested in such securities. This
restriction shall not apply to
securities which mature within seven days or securities which the Board
of Directors of the Fund have otherwise determined to be liquid
pursuant to applicable law.
|
|
d. Notwithstanding
fundamental investment restriction (7) above, borrow amounts in excess
of 20% of its total assets, taken at market value, and then only from
banks as a temporary measure for extraordinary or emergency purposes
such as the redemption of Fund shares.
|
Securities Lending. Subject to
investment restriction (5) above, the Fund may from time to time lend
securities from its portfolio to brokers, dealers and financial
institutions and receive collateral in cash or securities issued or
guaranteed by the United States Government which will be maintained at
all times in an amount equal to at least 100% of the current market
value of the loaned securities. Such cash collateral will be invested in
short-term securities, which will increase the current income of the
Fund. Such loans will be terminable at any time. The Fund will have the
right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights
to dividends, interest or other distributions. The Fund may pay
reasonable fees to persons unaffiliated with the Fund for services in
arranging such loans. With respect to the lending of portfolio
securities, there is the risk of failure by the borrower to return the
securities involved in such transactions.
The staff
of the Commission has taken the position that purchased OTC options and
the assets used as cover for written OTC options are illiquid
securities. Therefore, the Fund has adopted an investment policy
pursuant to which it will not purchase or sell OTC options if, as a
result of such transactions, the sum of the market value of OTC options
currently outstanding which are held by the Fund, the market value of
the underlying securities covered by OTC call options currently
outstanding which were sold by the Fund and margin deposits on the Fund
’s existing OTC options on futures contracts exceed 15% of the net
assets of the Fund, taken at market value, together with all other
assets of the Fund which are illiquid or are not otherwise readily
marketable. However, if an OTC option is sold by the Fund to a primary
U.S. Government securities dealer recognized by the Federal Reserve Bank
of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price,
then the Fund will treat as illiquid such amount of the underlying
securities as is equal to the repurchase price less the amount by which
the option is “in-the-money” (i.e., current market
value of the underlying securities minus the option’s strike
price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium
received for the option, plus the amount by which the option is
“in-the-money.” This policy as to OTC options is not a
fundamental policy of the Fund and may be amended by the Board of
Directors of the Fund without the approval of the Fund’s
shareholders. However, the Fund will not change or modify this policy
prior to the change or modification by the Commission staff of its
position.
Because
of the affiliation of Merrill Lynch with the Manager, the Fund is
prohibited from engaging in certain transactions involving Merrill Lynch
or its affiliates except for brokerage transactions permitted under the
Investment Company Act involving only usual and customary commissions or
transactions pursuant to an exemptive order under the Investment Company
Act. See “Portfolio Transactions and Brokerage.” Without such
an exemptive order the Fund would be prohibited from engaging in
portfolio transactions with Merrill Lynch or any of its affiliates
acting as principal.
While the
Fund generally does not expect to engage in trading for short-term
gains, it will effect portfolio transactions without regard to a holding
period if, in its management’s judgment, such transactions are
advisable in light of a change in circumstances of a particular company
or within a particular industry or in general market, economic or
financial conditions. Higher portfolio turnover involves tax
consequences for investors and correspondingly greater transaction costs
in the form of the dealer spreads and brokerage commissions, which are
borne directly by the Fund.
The
Directors of the Fund consist of seven individuals, five of whom are not
“interested persons” of the Fund as defined in the Investment
Company Act (the “non-interested Directors”). The Directors
are responsible for the overall supervision of the operations of the
Fund and perform the various duties imposed on the directors of
investment companies by the Investment Company Act.
Information about the Directors, executive officers and the
portfolio manager of the Fund, including their ages and their principal
occupations for at least the last five years, is set forth below. Unless
otherwise noted, the address of each Director, executive officer and the
portfolio manager is P.O. Box 9011, Princeton, New Jersey
08543-9011.
TERRY
K. GLENN
(59) — President and Director(1)(2) —
Executive Vice President of the Manager and Fund Asset Management,
L.P. (“FAM”) (which terms as used herein include their
corporate predecessors) since 1983; Executive Vice President and
Director of Princeton Services Inc. (“Princeton Services”)
since 1993; President of Princeton Funds Distributor, Inc. (“PFD
”) since 1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.
JOE
GRILLS
(64) — Director(2)(3) — P.O. Box 98,
Rapidan, Virginia 22733. Member of the Committee of Investment of
Employee Benefit Assets of the Financial Executives Institute (
“CIEBA”) since 1986; Member of CIEBA’s Executive
Committee since 1988 and its Chairman from 1991 to 1992; Assistant
Treasurer of International Business Machines Incorporated (“IBM
”) and Chief Investment Officer of IBM Retirement Funds from 1986
until 1993; Member of the Investment Advisory Committees of the State of
New York Common Retirement Fund and the Howard Hughes Medical Institute
since 1997; Director, Duke Management Company since 1992 and elected
Vice Chairman in May 1998; Director, LaSalle Street Fund since 1995;
Director, Hotchkis and Wiley Mutual Funds since 1996; Director, Kimco
Realty Corporation since January 1997; Member of the Investment Advisory
Committee of the Virginia Retirement System since 1998; Director,
Montpelier Foundation since 1998.
WALTER
MINTZ
(70) — Director(2)(3) — 1114 Avenue
of the Americas, New York, New York 10036. Special Limited Partner of
Cumberland Associates (investment partnership) since 1982.
ROBERT
S. SALOMON
, JR
. (63) — Director(2)(3) — 106 Dolphin
Cove Quay, Stamford, Connecticut 06902. Principal of STI Management
(investment adviser) since 1994; Trustee, The Common Fund since 1980;
Chairman and CEO of Salomon Brothers Asset Management from 1992 until
1995; Chairman of Salomon Brothers equity mutual funds from 1992 until
1995; Monthly columnist with Forbes magazine since 1992; Director
of Stock Research and U.S. Equity Strategist at Salomon Brothers from
1975 until 1991.
MELVIN
R. SEIDEN
(69) — Director(2)(3) — 780 Third
Avenue, Suite 2502, New York, New York 10017. Director of Silbanc
Properties, Ltd. (real estate, investment and consulting) since 1987;
Chairman and President of Seiden & de Cuevas, Inc. (private
investment firm) from 1964 to 1987.
STEPHEN
B. SWENSRUD
(66) — Director(2)(3) — 24 Federal
Street, Suite 400, Boston, Massachusetts 02110. Chairman of Fernwood
Advisors (investment adviser) since 1996; Principal, Fernwood Associates
(financial consultant) since 1975; Chairman of Manufacturing, RPP
Corporation since 1978; Director of Telecommunications, International
Mobile Communications, Inc. since 1998.
ARTHUR
ZEIKEL
(67) — Director(1)(2) — 300 Woodland
Avenue, Westfield, New Jersey 07090. Chairman of the Manager and FAM
from 1997 to 1999; President of the Manager and FAM from 1977 to 1997;
Chairman of Princeton Services, Inc. (“Princeton Services”)
from 1997 to 1999; and Director thereof from 1993 to 1999; President of
Princeton Services from 1993 to 1997; Executive Vice President of
Merrill Lynch & Co., Inc. (“ML & Co.”) from 1990 to
1999.
ROBERT
C. DOLL
(45) — Senior Vice President(1)(2) —
Senior Vice President of the Manager and FAM since 1999; Senior
Vice President of Princeton Services since 1999; Chief Investment
Officer of Oppenheimer Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
LAWRENCE
R. FULLER
(58) — Senior Vice President(1) —
First Vice President of the Manager since 1997 and Vice President
of the Manager from 1992 to 1997.
DONALD
C. BURKE
(39) — Vice President and Treasurer(1)(2) —
Senior Vice President and Treasurer of the Manager and FAM since
1999; Senior Vice President and Treasurer of Princeton Services since
1999; First Vice President of the Manager since 1997; Vice President of
the Manager from 1990 to 1997; Director of Taxation of the Manager since
1990.
BARBARA
G. FRASER
(55) — Secretary(1)(2) — First Vice
President of the Manager since 1996; Vice President of the Manager from
1994 to 1996.
(1)
|
Interested
Person, as defined in the Investment Company Act, of the
Fund.
|
(2)
|
Such Director
or officer is a director, trustee or officer of one or more investment
companies for which the Manager, or its affiliate FAM, acts as
investment adviser or manager.
|
(3)
|
Member of the
Fund’s Audit and Nominating Committee, which is responsible for
the selection of the independent auditors and the selection and
nomination of non-interested Directors.
|
As of
November 1, 1999, the Directors and officers of the Fund as a group (11
persons) owned an aggregate of less than 1% of the outstanding shares of
the Fund. At such date, Mr. Zeikel, a Director of the Fund, Mr. Glenn, a
Director and an officer of the Fund, and the other officers of the Fund
owned an aggregate of less than 1% of the outstanding shares of common
stock of ML & Co.
Compensation of Directors
The Fund
pays each non-interested Director a fee of $6,000 per year plus $1,000
per meeting attended. The Fund also compensates each member of the Audit
and Nominating Committee (the “Committee”), which consists of
all the non-interested Directors, at a rate of $6,000 per year plus
$1,000 for each Committee meeting attended. The Fund reimburses each
non-interested Director for his out-of-pocket expenses relating to
attendance at Board and Committee meetings.
The
following table shows the compensation earned by the non-interested
Directors for the fiscal year ended August 31, 1999 and the aggregate
compensation paid to them from all registered investment companies
advised by the Manager and its affiliate, FAM (“MLAM/FAM-advised
funds”), for the calendar year ended December 31, 1998.
Name
|
|
Position with
Fund
|
|
Compensation
From Fund
|
|
Pension or
Retirement Benefits
Accrued as Part of
Fund Expense
|
|
Estimated
Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation from
Fund and Other
MLAM/FAM-
Advised Funds(1)
|
| Joe Grills |
|
Director |
|
$9,500 |
|
None |
|
None |
|
$198,333 |
| Walter Mintz |
|
Director |
|
$9,500 |
|
None |
|
None |
|
$178,583 |
| Robert S. Salomon, Jr |
|
Director |
|
$9,500 |
|
None |
|
None |
|
$178,583 |
| Melvin R. Seiden |
|
Director |
|
$9,500 |
|
None |
|
None |
|
$178,583 |
| Stephen B. Swensrud |
|
Director |
|
$9,500 |
|
None |
|
None |
|
$195,583 |
(1)
|
The Directors
serve on the boards of MLAM/FAM-advised funds as follows: Joe Grills
(23 registered investment companies consisting of 55 portfolios),
Walter Mintz (21 registered investment companies consisting of 42
portfolios), Robert S. Salomon, Jr. (21 registered investment
companies consisting of 42 portfolios), Melvin R. Seiden (21
registered investment companies consisting of 42 portfolios), Stephen
B. Swensrud (25 registered investment companies consisting of 58
portfolios).
|
Directors
of the Fund may purchase Class A shares of the Fund at net asset value.
See “Purchase of Shares —Initial Sales Charge Alternatives
— Class A and Class D Shares — Reduced
Initial Sales Charge — Purchase Privilege of Certain
Persons.”
Management and Advisory Arrangements
Management Services. The Manager
provides the Fund with investment advisory and management services.
Subject to the supervision of the Directors, the Manager is responsible
for the actual management of the Fund’s portfolio and constantly
reviews the Fund’s holdings in light of its own research analysis
and that from other relevant sources. The responsibility for making
decisions to buy, sell or hold a particular security rests with the
Manager. The Manager performs certain of the other administrative
services and provides all the office space, facilities, equipment and
necessary personnel for management of the Fund.
Management Fee. The Fund has entered
into an investment management agreement with the Manager (the
“Management Agreement”), pursuant to which the Manager
receives for its services to the Fund monthly compensation at the annual
rate of 0.65% of the average daily net assets of the Fund not exceeding
$1 billion, 0.625% of the average daily net assets in excess of $1
billion but not exceeding $1.5 billion and 0.60% of the average daily
net assets in excess of $1.5 billion. The table below sets forth
information about the total investment advisory fees paid by the Fund to
the Manager for the periods indicated.
Fiscal Year Ended August
31,
|
|
Investment Advisory
Fee
|
| 1999 |
|
$16,601,840 |
| 1998 |
|
$ 4,761,601 |
| 1997 |
|
$ 1,986,602 |
The
Manager has entered into a sub-advisory agreement with Merrill Lynch
Asset Management U.K. Limited (“MLAM U.K.”) pursuant to which
MLAM U.K. provides investment advisory services to the Manager with
respect to the Fund. For the fiscal years ended August 31, 1999, 1998
and 1997, the Manager paid no fees to MLAM U.K. pursuant to this
agreement.
Payment of Fund Expenses. The
Management Agreement obligates the Manager to provide investment
advisory services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as
well as the fees of all Directors of the Fund who are affiliated persons
of the Manager. The Fund pays all other expenses incurred in the
operation of the Fund, including among other things: taxes, expenses for
legal and auditing services, costs of printing proxies, stock
certificates, shareholder reports, prospectuses and statements of
additional information, except to the extent paid by Merrill Lynch Funds
Distributor, a division of PFD (the “Distributor”); charges of
the custodian and sub-custodian, and the transfer agent; expenses of
redemption of shares; Commission fees; expenses of registering the
shares under Federal, state or foreign laws; fees and expenses of
non-interested Directors; accounting and pricing costs (including the
daily calculations of net asset value); insurance; interest; brokerage
costs; litigation and other extraordinary or non-recurring expenses; and
other expenses properly payable by the Fund. Accounting services are
provided for the Fund by the Manager and the Fund reimburses the Manager
for its costs in connection with such services. The Distributor will pay
certain promotional expenses of the Fund incurred in connection with the
offering of shares of the Fund. Certain expenses will be financed by the
Fund pursuant to distribution plans in compliance with Rule 12b-1 under
the Investment Company Act. See “Purchase of Shares —
Distribution Plans.”
Organization of the Manager. The
Manager is a limited partnership, the partners of which are ML &
Co., a financial services holding company and the parent of Merrill
Lynch, and Princeton Services. ML & Co. and Princeton Services are
“controlling persons” of the Manager as defined under the
Investment Company Act because of their ownership of its voting
securities or their power to exercise a controlling influence over its
management or policies.
The
following entities may be considered “controlling persons” of
MLAM U.K.: Merrill Lynch Europe PLC (MLAM U.K.’s parent), a
subsidiary of Merrill Lynch International Holdings, Inc., a subsidiary
of Merrill Lynch International, Inc., a subsidiary of ML &
Co.
Duration and Termination. Unless
earlier terminated as described herein, the Management Agreement and
Sub-Advisory Agreement will continue in effect from year to year if
approved annually (a) by the Directors of the Fund or by a majority of
the outstanding shares of the Fund and (b) by a majority of the
Directors who are not
parties to such contract or interested persons (as defined in the
Investment Company Act) of any such party. Such contracts are not
assignable and may be terminated without penalty on 60 days’
written notice at the option of either party or by vote of the
shareholders of the Fund.
Transfer Agency Services. Financial
Data Services, Inc. (the “Transfer Agent”), a subsidiary of ML
& Co., acts as the Fund’s Transfer Agent pursuant to a Transfer
Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement (the “Transfer Agency Agreement”). Pursuant to the
Transfer Agency Agreement, the Transfer Agent is responsible for the
issuance, transfer and redemption of shares and the opening and
maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreement, the Transfer Agent receives a fee of $11.00 per Class A or
Class D account and $14.00 per Class B or Class C account and is
entitled to reimbursement for certain transaction charges and
out-of-pocket expenses incurred by the Transfer Agent under the Transfer
Agency Agreement. Additionally, a $.20 monthly closed account charge
will be assessed on all accounts which close during the calendar year.
Application of this fee will commence the month following the month the
account is closed. At the end of the calendar year, no further fees will
be due. For purposes of the Transfer Agency Agreement, the term
“account” includes a shareholder account maintained directly
by the Transfer Agent and any other account representing the beneficial
interest of a person in the relevant share class on a recordkeeping
system, provided the recordkeeping system is maintained by a subsidiary
of ML & Co.
Distribution Expenses. The Fund has
entered into four separate distribution agreements with the Distributor
in connection with the continuous offering of each class of shares of
the Fund (the “Distribution Agreements”). The Distribution
Agreements obligate the Distributor to pay certain expenses in
connection with the offering of each class of shares of the Fund. After
the prospectuses, statements of additional information and periodic
reports have been prepared, set in type and mailed to shareholders, the
Distributor pays for the printing and distribution of copies thereof
used in connection with the offering to dealers and investors. The
Distributor also pays for other supplementary sales literature and
advertising costs. The Distribution Agreements are subject to the same
renewal requirements and termination provisions as the Management
Agreement described above.
The Board
of Directors of the Fund has adopted a Code of Ethics under Rule 17j-1
of the Investment Company Act which incorporates the Code of Ethics of
the Manager (together, the “Codes”). The Codes significantly
restrict the personal investing activities of all employees of the
Manager and, as described below, impose additional, more onerous,
restrictions on fund investment personnel.
The Codes
require that all employees of the Manager pre-clear any personal
securities investment (with limited exceptions, such as government
securities). The pre-clearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation
applicable to the proposed investment. The substantive restrictions
applicable to all employees of the Manager include a ban on acquiring
any securities in a “hot” initial public offering and a
prohibition from profiting on short-term trading in securities. In
addition, no employee may purchase or sell any security that at the time
is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund
advised by the Manager. Furthermore, the Codes provide for trading
“blackout periods” which prohibit trading by investment
personnel of the Fund within periods of trading by the Fund in the same
(or equivalent) security (15 or 30 days depending upon the
transaction).
Reference
is made to “How to Buy, Sell, Transfer and Exchange Shares” in
the Prospectus.
The Fund
offers four classes of shares under the Merrill Lynch Select
Pricing
SM
System: shares of Class A and Class D are sold to investors
choosing the initial sales charge alternatives and shares of Class B and
Class C are sold to investors choosing the deferred sales charge
alternatives. Each Class A, Class B, Class C or Class D share of the
Fund represents an identical interest in the investment portfolio of the
Fund and has the same rights, except that Class B, Class C and Class D
shares bear the expenses of the ongoing account maintenance fees (also
known as service fees) and Class B and Class C shares bear the expenses
of the ongoing distribution fees and the
additional incremental transfer agency costs resulting from the deferred
sales charge arrangements. The contingent deferred sales charges (
“CDSCs”), distribution fees and account maintenance fees that
are imposed on Class B and Class C shares, as well as the account
maintenance fees that are imposed on Class D shares, are imposed
directly against those classes and not against all assets of the Fund
and, accordingly, such charges do not affect the net asset value of any
other class or have any impact on investors choosing another sales
charge option. Dividends paid by the Fund for each class of shares are
calculated in the same manner at the same time and differ only to the
extent that account maintenance and distribution fees and any
incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Each class has different exchange
privileges. See “Shareholder Services — Exchange
Privilege.”
Investors
should understand that the purpose and function of the initial sales
charges with respect to the Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and
Class C shares in that the sales charges and distribution fees
applicable to each class provide for the financing of the distribution
of the shares of the Fund. The distribution-related revenues paid with
respect to a class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different
compensation for selling different classes of shares.
The
Merrill Lynch Select Pricing
SM
System is used by more than 50 registered investment companies
advised by MLAM or FAM. Funds advised by MLAM or FAM that utilize the
Merrill Lynch Select Pricing
SM
System are referred to herein as “Select Pricing Funds.
”
The Fund
or the Distributor may suspend the continuous offering of the Fund
’s shares of any class at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering
from time to time. Any order may be rejected by the Fund or the
Distributor. Neither the Distributor nor the dealers are permitted to
withhold placing orders to benefit themselves by a price change. Merrill
Lynch may charge its customers a processing fee (presently $5.35) to
confirm a sale of shares to such customers. Purchases made directly
through the Transfer Agent are not subject to the processing
fee.
Initial Sales Charge Alternatives — Class A and Class D
Shares
Investors
who prefer an initial sales charge alternative may elect to purchase
Class D shares or, if an eligible investor, Class A shares. Investors
choosing the initial sales charge alternative who are eligible to
purchase Class A shares should purchase Class A shares rather than Class
D shares because there is an account maintenance fee imposed on Class D
shares. Investors qualifying for significantly reduced initial sales
charges may find the initial sales charge alternative particularly
attractive because similar sales charge reductions are not available
with respect to the deferred sales charges imposed in connection with
purchases of Class B or Class C shares. Investors not qualifying for
reduced initial sales charges who expect to maintain their investment
for an extended period of time also may elect to purchase Class A or
Class D shares, because over time the accumulated ongoing account
maintenance and distribution fees on Class B or Class C shares may
exceed the initial sales charge and, in the case of Class D shares, the
account maintenance fee. Although some investors who previously
purchased Class A shares may no longer be eligible to purchase Class A
shares of other Select Pricing Funds, those previously purchased Class A
shares, together with Class B, Class C and Class D share holdings, will
count toward a right of accumulation which may qualify the investor for
reduced initial sales charge on new initial sales charge purchases. In
addition, the ongoing Class B and Class C account maintenance and
distribution fees will cause Class B and Class C shares to have higher
expense ratios, pay lower dividends and have lower total returns than
the initial sales charge shares. The ongoing Class D account maintenance
fees will cause Class D shares to have a higher expense ratio, pay lower
dividends and have a lower total return than Class A shares.
The term
“purchase,” as used in the Prospectus and this Statement of
Additional Information in connection with an investment in Class A and
Class D shares of the Fund, refers to a single purchase by an individual
or to concurrent purchases, which in the aggregate are at least equal to
the prescribed amounts, by an individual, his or her spouse and their
children under the age of 21 years purchasing shares for his, her or
their own account and to single purchases by a trustee or other
fiduciary purchasing shares for a single trust estate or single
fiduciary account although more than one beneficiary is involved. The
term “purchase” also includes purchases by any “company,
” as that term is defined in the Investment Company Act, but does
not include purchases by any such
company that has not been in existence for at least six months or which
has no purpose other than the purchase of shares of the Fund or shares
of other registered investment companies at a discount; provided,
however, that it shall not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein are
credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment
adviser.
Eligible Class A Investors
Class A
shares are offered to a limited group of investors and also will be
issued upon reinvestment of dividends on outstanding Class A shares.
Investors who currently own Class A shares in a shareholder account,
including participants in the Merrill Lynch Blueprint
SM
Program, are entitled to purchase additional Class A shares of
the Fund in that account. Certain employer-sponsored retirement or
savings plans, including eligible 401(k) plans, may purchase Class A
shares at net asset value provided such plans meet the required minimum
number of eligible employees or required amount of assets advised by
MLAM or any of its affiliates. Class A shares are available at net asset
value to corporate warranty insurance reserve fund programs and U.S.
branches of foreign banking institutions provided that the program has
$3 million or more initially invested in Select Pricing Funds. Also
eligible to purchase Class A shares at net asset value are participants
in certain investment programs including TMA
SM
Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services, collective investment trusts for which
Merrill Lynch Trust Company serves as trustee and certain purchases made
in connection with certain fee-based programs. In addition, Class A
shares are offered at net asset value to ML & Co. and its
subsidiaries and their directors and employees and to members of the
Boards of MLAM/FAM-advised investment companies. Certain persons who
acquired shares of certain MLAM/FAM-advised closed-end funds in their
initial offerings who wish to reinvest the net proceeds from a sale of
their closed-end fund shares of common stock in shares of the Fund also
may purchase Class A shares of the Fund if certain conditions are met.
In addition, Class A shares of the Fund and certain other Select Pricing
Funds are offered at net asset value to shareholders of Merrill Lynch
Senior Floating Rate Fund, Inc. and, if certain conditions are met, to
shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and Merrill
Lynch High Income Municipal Bond Fund, Inc. who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock pursuant
to a tender offer conducted by such funds in shares of the Fund and
certain other Select Pricing Funds.
Class A and Class D Sales Charge Information
Class A Shares
For the Fiscal Year
Ended
August 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received on
Redemption of
Load-Waived Shares
|
|
1999 |
|
$ 7,247 |
|
$ 871 |
|
$ 6,376 |
|
$0 |
|
1998 |
|
$14,787 |
|
$1,019 |
|
$13,768 |
|
$0 |
|
1997 |
|
$ 8,133 |
|
$ 671 |
|
$ 7,462 |
|
$0 |
Class D Shares
For the Fiscal Year
Ended
August 31,
|
|
Gross Sales
Charges
Collected
|
|
Sales Charges
Retained by
Distributor
|
|
Sales Charges
Paid to
Merrill Lynch
|
|
CDSCs Received on
Redemption of
Load-Waived Shares
|
|
1999 |
|
$1,046,275 |
|
$67,018 |
|
$979,257 |
|
$0 |
|
1998 |
|
$ 660,062 |
|
$43,898 |
|
$616,164 |
|
$0 |
|
1997 |
|
$ 276,456 |
|
$19,739 |
|
$256,717 |
|
$0 |
The
Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the
entire sales charge to such dealers. Since securities dealers selling
Class A and Class D shares of the Fund will receive a concession equal
to most of the sales charge, they may be deemed to be underwriters under
the Securities Act.
Reduced Initial Sales Charges
Reductions in or exemptions from the imposition of a sales charge
are due to the nature of the investors and/or the reduced sales efforts
that will be needed to obtain such investments.
Reinvested Dividends. No initial sales
charges are imposed upon Class A and Class D shares issued as a result
of the automatic reinvestment of dividends.
Right
of Accumulation. Reduced sales charges are
applicable through a right of accumulation under which eligible
investors are permitted to purchase shares of the Fund subject to an
initial sales charge at the offering price applicable to the total of
(a) the public offering price of the shares then being purchased plus
(b) an amount equal to the then current net asset value or cost,
whichever is higher, of the purchaser’s combined holdings of all
classes of shares of the Fund and of any other Select Pricing Funds. For
any such right of accumulation to be made available, the Distributor
must be provided at the time of purchase, by the purchaser or the
purchaser’s securities dealer, with sufficient information to
permit confirmation of qualification. Acceptance of the purchase order
is subject to such confirmation. The right of accumulation may be
amended or terminated at any time. Shares held in the name of a nominee
or custodian under pension, profit-sharing or other employee benefit
plans may not be combined with other shares to qualify for the right of
accumulation.
Letter
of Intent. Reduced sales charges are
applicable to purchases aggregating $25,000 or more of the Class A or
Class D shares of the Fund or any Select Pricing Funds made within a
13-month period starting with the first purchase pursuant to a Letter of
Intent. The Letter of Intent is available only to investors whose
accounts are established and maintained at the Fund’s Transfer
Agent. The Letter of Intent is not available to employee benefit plans
for which Merrill Lynch provides plan participant recordkeeping
services. The Letter of Intent is not a binding obligation to purchase
any amount of Class A or Class D shares; however, its execution will
result in the purchaser paying a lower sales charge at the appropriate
quantity purchase level. A purchase not originally made pursuant to a
Letter of Intent may be included under a subsequent Letter of Intent
executed within 90 days of such purchase if the Distributor is informed
in writing of this intent within such 90-day period. The value of Class
A and Class D shares of the Fund and of other Select Pricing Funds
presently held, at cost or maximum offering price (whichever is higher),
on the date of the first purchase under the Letter of Intent, may be
included as a credit toward the completion of such Letter, but the
reduced sales charge applicable to the amount covered by such Letter
will be applied only to new purchases. If the total amount of shares
does not equal the amount stated in the Letter of Intent (minimum of
$25,000), the investor will be notified and must pay, within 20 days of
the expiration of such Letter, the difference between the sales charge
on the Class A or Class D shares purchased at the reduced rate and the
sales charge applicable to the shares actually purchased through the
Letter. Class A or Class D shares equal to at least 5.0% of the intended
amount will be held in escrow during the 13-month period (while
remaining registered in the name of the purchaser) for this purpose. The
first purchase under the Letter of Intent must be at least 5.0% of the
dollar amount of such Letter. If a purchase during the term of such
Letter would otherwise be subject to a further reduced sales charge
based on the right of accumulation, the purchaser will be entitled on
that purchase and subsequent purchases to the further reduced percentage
sales charge that would be applicable to a single purchase equal to the
total dollar value of the Class A or Class D shares then being purchased
under such Letter, but there will be no retroactive reduction of the
sales charge on any previous purchase.
The value
of any shares redeemed or otherwise disposed of by the purchaser prior
to termination or completion of the Letter of Intent will be deducted
from the total purchases made under such Letter. An exchange from the
Summit Cash Reserves Fund into the Fund that creates a sales charge will
count toward completing a new or existing Letter of Intent from the
Fund.
Merrill Lynch Blueprint
SM
Program. Class D shares of
the Fund are offered to participants in the Merrill Lynch
Blueprint
SM
Program (“Blueprint”). In addition, participants in
Blueprint who own Class A shares of the Fund may purchase additional
Class A shares of the Fund through Blueprint. 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 up to $5,000 at 3.25% plus $3, and
$5,000.01 or more at the standard sales charge rates disclosed in the
Prospectus). In addition, Class A or Class D shares of the Fund are
being offered at net asset value plus a sales charge of 0.50% of 1% for
corporate or group IRA programs placing orders to purchase their Class A
or Class D shares through Blueprint. Services, including the exchange
privilege, available to Class A and Class D investors through Blueprint,
however, may differ from those available to other investors in Class A
or Class D shares.
Class A
and Class D shares are offered at net asset value to participants in
Blueprint through the Merrill Lynch Directed IRA Rollover Program (the
“IRA Rollover Program”) available from Merrill Lynch Business
Financial Services, a business unit of Merrill Lynch. The IRA Rollover
Program is available to custodian rollover assets from
employer-sponsored retirement and savings plans (as defined below) whose
trustee and/or plan sponsor has entered into a Merrill Lynch Directed
IRA Rollover Program Service Agreement.
Orders
for purchases and redemptions of Class A or Class D shares of the Fund
may be grouped for execution purposes which, in some circumstances, may
involve the execution of such orders two business days following the day
such orders are placed. The minimum initial purchase price is $100, with
a $50 minimum for subsequent purchases through Blueprint. There are no
minimum initial or subsequent purchase requirements for participants who
are part of an automatic investment plan. Additional information
concerning purchases through Blueprint, including any annual fees and
transaction charges, is available from Merrill Lynch, Pierce, Fenner
& Smith Incorporated, The Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
TMA
SM
Managed Trusts. Class A shares are
offered at net asset value to TMA
SM
Managed Trusts to which Merrill Lynch Trust Company provides
discretionary trustee services.
Employee Access
SM
Accounts. Provided applicable
threshold requirements are met, either Class A or Class D shares are
offered at net asset value to Employee Access
SM
Accounts available through authorized employers. The initial
minimum investment for such accounts is $500, except that the initial
minimum investment for shares purchased for such accounts pursuant to
the Automatic Investment Program is $50.
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored
retirement or savings plans and certain other arrangements may purchase
Class A or Class D shares at net asset value, based on the number of
employees or number of employees eligible to participate in the plan,
the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Additional
information regarding purchases by employer-sponsored retirement or
savings plans and certain other arrangements is available toll-free from
Merrill Lynch Business Financial Services at 1-800-237-7777.
Purchase Privilege of Certain Persons.
Directors of the Fund, members of the Boards of other
MLAM/FAM-advised investment companies, ML & Co. and its subsidiaries
(the term “subsidiaries,” when used herein with respect to ML
& Co., includes MLAM, FAM and certain other entities directly or
indirectly wholly owned and controlled by ML & Co.) and their
directors and employees, and any trust, pension, profit-sharing or other
benefit plan for such persons, may purchase Class A shares of the Fund
at net asset value. The Fund realizes economies of scale and reduction
of sales-related expenses by virtue of the familiarity of these persons
with the Fund. Employees and directors or trustees wishing to purchase
shares of the Fund must satisfy the Fund’s suitability
standards.
Class D
shares of the Fund are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within
six months prior to the date of purchase by such investor, if the
following conditions are satisfied: first, the investor must advise
Merrill Lynch that it will purchase Class D shares of the Fund with
proceeds from a redemption of shares of a mutual fund that was sponsored
by the Financial Consultant’s previous firm and was subject to a
sales charge either at the time of purchase or on a deferred basis; and,
second, the investor must establish that such redemption had been made
within 60 days prior to the investment in the Fund and the proceeds from
the redemption had been maintained in the interim in cash or a money
market fund.
Class D
shares of the Fund are also offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Merrill
Lynch Financial Consultant and that has invested in a mutual fund
sponsored
by a non-Merrill Lynch company for which Merrill Lynch has served as a
selected dealer and where Merrill Lynch has either received or given
notice that such arrangement will be terminated (“notice”) if
the following conditions are satisfied: first, the investor must
purchase Class D shares of the Fund with proceeds from a redemption of
shares of such other mutual fund and the shares of such other fund were
subject to a sales charge either at the time of purchase or on a
deferred basis; and, second, such purchase of Class D shares must be
made within 90 days after such notice.
Class D
shares of the Fund are offered at net asset value, without a sales
charge, to an investor that has a business relationship with a Merrill
Lynch Financial Consultant and that has invested in a mutual fund for
which Merrill Lynch has not served as a selected dealer if the following
conditions are satisfied: first, the investor must advise Merrill Lynch
that it will purchase Class D shares of the Fund with proceeds from the
redemption of shares of such other mutual fund and that such shares have
been outstanding for a period of no less than six months; and, second,
such purchase of Class D shares must be made within 60 days after the
redemption and the proceeds from the redemption must be maintained in
the interim in cash or a money market fund.
Closed-End Fund Investment Option.
Class A shares of the Fund and certain other Select Pricing
Funds (“Eligible Class A Shares”) are offered at net asset
value to shareholders of certain closed-end funds advised by FAM or MLAM
who purchased such closed-end fund shares prior to October 21, 1994 (the
date the Merrill Lynch Select Pricing
SM
System commenced operations) and wish to reinvest the net
proceeds from a sale of their closed-end fund shares of common stock in
Eligible Class A Shares, if the conditions set forth below are
satisfied. Alternatively, closed-end fund shareholders who purchased
such shares on or after October 21, 1994 and wish to reinvest the net
proceeds from a sale of their closed-end fund shares are offered Class A
shares (if eligible to buy Class A shares) or Class D shares of the Fund
and other Select Pricing Funds (“Eligible Class D Shares”), if
the following conditions are met. First, the sale of closed-end fund
shares must be made through Merrill Lynch, and the net proceeds
therefrom must be immediately reinvested in Eligible Class A or Eligible
Class D Shares. Second, the closed-end fund shares must either have been
acquired in the initial public offering or be shares representing
dividends from shares of common stock acquired in such offering. Third,
the closed-end fund shares must have been continuously maintained in a
Merrill Lynch securities account. Fourth, there must be a minimum
purchase of $250 to be eligible for the investment option.
Shareholders of certain MLAM/FAM-advised continuously offered
closed-end funds may reinvest at net asset value the net proceeds from a
sale of certain shares of common stock of such funds in shares of the
Fund. Upon exercise of this investment option, shareholders of Merrill
Lynch Senior Floating Rate Fund, Inc. will receive Class A shares of the
Fund and shareholders of Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch High Income Municipal Bond Fund, Inc. will receive Class D
shares of the Fund, except that shareholders already owning Class A
shares of the Fund will be eligible to purchase additional Class A
shares pursuant to this option, if such additional Class A shares will
be held in the same account as the existing Class A shares and the other
requirements pertaining to the reinvestment privilege are met. In order
to exercise this investment option, a shareholder of one of the
above-referenced continuously offered closed-end funds (an
“eligible fund”) must sell his or her shares of common stock
of the eligible fund (the “eligible shares”) back to the
eligible fund in connection with a tender offer conducted by the
eligible fund and reinvest the proceeds immediately in the designated
class of shares of the Fund. This investment option is available only
with respect to eligible shares as to which no Early Withdrawal Charge
or CDSC (each as defined in the eligible fund’s prospectus) is
applicable. Purchase orders from eligible fund shareholders wishing to
exercise this investment option will be accepted only on the day that
the related tender offer terminates and will be effected at the net
asset value of the designated class of the Fund on such day.
Acquisition of Certain Investment Companies.
Class D shares may be offered at net asset value in connection
with the acquisition of the assets of or merger or consolidation with a
personal holding company or a public or private investment
company.
Deferred Sales Charge Alternatives — Class B and Class C
Shares
Investors
choosing the deferred sales charge alternatives should consider Class B
shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time
they intend to hold their assets in Select Pricing Funds.
Because
no initial sales charges are deducted at the time of the purchase, Class
B and Class C shares provide the benefit of putting all of the investor
’s dollars to work from the time the investment is made. The
deferred sales charge alternatives may be particularly appealing to
investors that do not qualify for the reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution fees potentially may be offset to the
extent any return is realized on the additional funds initially invested
in Class B or Class C shares. In addition, Class B shares will be
converted into Class D shares of the Fund after a conversion period of
approximately eight years, and thereafter investors will be subject to
lower ongoing fees.
The
public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined
net asset value per share without the imposition of a sales charge at
the time of purchase. See “Pricing of Shares —
Determination of Net Asset Value” below.
Contingent Deferred Sales Charges — Class B
Shares
Class B
shares that are redeemed within four years of purchase may be subject to
a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. In determining whether a CDSC is
applicable to a redemption, the calculation will be determined in the
manner that results in the lowest applicable rate being charged. The
charge will be assessed on an amount equal to the lesser of the proceeds
of redemption or the cost of the shares being redeemed. Accordingly, no
CDSC will be imposed on increases in net asset value above the initial
purchase price. In addition, no CDSC will be assessed on shares derived
from reinvestment of dividends. It will be assumed that the redemption
is first of shares held for over four years or shares acquired pursuant
to reinvestment of dividends and then of shares held longest during the
four-year period. A transfer of shares from a shareholder’s account
to another account will be assumed to be made in the same order as a
redemption.
The
following table sets forth the Class B CDSC:
Year Since Purchase
Payment Made
|
|
CDSC as a Percentage
of Dollar Amount
Subject to Charge
|
| 0–1 |
|
4.0% |
| 1–2 |
|
3.0% |
| 2–3 |
|
2.0% |
| 3–4 |
|
1.0% |
| 4 and
thereafter |
|
None |
To
provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the third year after purchase, the
net asset value per share is $12 and, during such time, the investor has
acquired 10 additional shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 50 shares
(proceeds of $600), 10 shares will not be subject to a CDSC because of
dividend reinvestment. With respect to the remaining 40 shares, the
charge is applied only to the original cost of $10 per share and not to
the increase in net asset value of $2 per share. Therefore, $400 of the
$600 redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the third year after purchase).
The Class
B CDSC may be waived on redemptions of shares in connection with certain
post-retirement withdrawals from an Individual Retirement Account (
“IRA”) or other retirement plan or following the death or
disability (as defined in the Internal Revenue Code of 1986, as amended)
of a shareholder (including one who owns the Class B shares as joint
tenant with his or her spouse), provided the redemption is requested
within one year of the death or initial determination of disability or,
if later, reasonably promptly following completion of probate. The Class
B CDSC also may be waived on redemptions of shares by certain eligible
401(a) and eligible 401(k) plans. The CDSC may also be waived for any
Class B shares that are purchased by eligible 401(k) or eligible 401(a)
plans that are rolled over into a Merrill Lynch or Merrill Lynch Trust
Company custodied IRA and held in such account at the time of
redemption. The Class B CDSC may also be waived for any Class B shares
that are purchased by a Merrill Lynch rollover IRA that was funded by a
rollover from a terminated 401(k) plan managed by the MLAM Private
Portfolio Group and held in such account at the time of redemption. The
Class B
CDSC may also be waived or its terms may be modified in connection with
certain fee-based programs. The Class B CDSC may also be waived in
connection with involuntary termination of an account in which Fund
shares are held or for withdrawals through the Merrill Lynch Systematic
Withdrawal Plan. See “Shareholder Services —
Fee-Based Programs” and “— Systematic
Withdrawal Plan.”
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements. Certain employer-sponsored
retirement or savings plans and certain other arrangements may purchase
Class B shares with a waiver of the CDSC upon redemption, based on the
number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified
investments and/or the services provided by Merrill Lynch to the plan.
Such Class B shares will convert into Class D shares approximately ten
years after the plan purchases the first share of any Select Pricing
Fund. Minimum purchase requirements may be waived or varied for such
plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available
toll-free from Merrill Lynch Business Financial Services at
1-800-237-7777.
Merrill Lynch Blueprint
SM
Program. Class B shares
are offered to certain participants in Blueprint. Blueprint is directed
to small investors, group IRAs and participants in certain affinity
groups such as trade associations and credit unions. Class B shares of
the Fund are offered through Blueprint only to members of certain
affinity groups. The CDSC is waived in connection with purchase orders
placed through Blueprint. Services, including the exchange privilege,
available to Class B investors through Blueprint, however, may differ
from those available to other Class B investors. Orders for purchases
and redemptions of Class B shares of the Fund will be grouped for
execution purposes which, in some circumstances, may involve the
execution of such orders two business days following the day such orders
are placed. The minimum initial purchase price is $100, with a $50
minimum for subsequent purchases through Blueprint. There is no minimum
initial or subsequent purchase requirement for investors who are part of
a Blueprint automatic investment plan. Additional information concerning
these Blueprint programs, including any annual fees or transaction
charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The Blueprint
SM
Program, P.O. Box 30441, New Brunswick, New Jersey
08989-0441.
Conversion of Class B Shares to Class D Shares.
After approximately eight years (the “Conversion Period
”), Class B shares will be converted automatically into Class D
shares of the Fund. Class D shares are subject to an ongoing account
maintenance fee of 0.25% of average daily net assets but are not subject
to the distribution fee that is borne by Class B shares. Automatic
conversion of Class B shares into Class D shares will occur at least
once each month (on the “Conversion Date”) on the basis of the
relative net asset value of the shares of the two classes on the
Conversion Date, without the imposition of any sales load, fee or other
charge. Conversion of Class B shares to Class D shares will not be
deemed a purchase or sale of the shares for Federal income tax
purposes.
In
addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion
Date for dividend reinvestment shares will be calculated taking into
account the length of time the shares underlying such dividend
reinvestment shares were outstanding. If at the Conversion Date the
conversion of Class B shares to Class D shares of the Fund in a single
account will result in less than $50 worth of Class B shares being left
in the account, all of the Class B shares of the Fund held in the
account on the Conversion Date will be converted to Class D shares of
the Fund.
In
general, Class B shares of equity Select Pricing Funds will convert
approximately eight years after initial purchase and Class B shares of
taxable and tax-exempt fixed income Select Pricing Funds will convert
approximately ten years after initial purchase. If, during the
Conversion Period, a shareholder exchanges Class B shares with an
eight-year Conversion Period for Class B shares with a ten-year
Conversion Period, or vice versa, the Conversion Period applicable to
the Class B shares acquired in the exchange will apply and the holding
period for the shares exchanged will be tacked on to the holding period
for the shares acquired. The Conversion Period also may be modified for
investors that participate in certain fee-based programs. See
“Shareholder Services — Fee-Based Programs.
”
Class B
shareholders of the Fund exercising the exchange privilege described
under “Shareholder Services —Exchange Privilege”
will continue to be subject to the Fund’s CDSC schedule if such
schedule is higher than the CDSC schedule relating to the Class B shares
acquired as a result of the exchange.
Share
certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the
Conversion Date applicable to those shares. In the event such
certificates are not received by the Transfer Agent at least one week
prior to the Conversion Date, the related Class B shares will convert to
Class D shares on the next scheduled Conversion Date after such
certificates are delivered.
Contingent Deferred Sales Charges — Class C
Shares
Class C
shares that are redeemed within one year of purchase may be subject to a
1.0% CDSC charged as a percentage of the dollar amount subject thereto.
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. The charge will be assessed on an amount
equal to the lesser of the proceeds of redemption or the cost of the
shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In
addition, no Class C CDSC will be assessed on shares derived from
reinvestment of dividends. It will be assumed that the redemption is
first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends and then of shares held longest during the
one-year period. A transfer of shares from a shareholder’s account
to another account will be assumed to be made in the same order as a
redemption. The Class C CDSC may be waived in connection with
involuntary termination of an account in which Fund shares are held and
withdrawals through the Merrill Lynch Systematic Withdrawal Plan. See
“Shareholder Services — Fee-Based Programs
— Systematic Withdrawal Plan.” The Class C CDSC of the
Fund and certain other MLAM/FAM-advised mutual funds may be waived with
respect to Class C shares purchased by an investor with the net proceeds
of a tender offer made by certain MLAM/FAM-advised closed-end funds,
including Merrill Lynch Senior Floating Rate II, Inc. Such waiver is
subject to the requirement that the tendered shares shall have been held
by the investor for a minimum of one year and to such other conditions
as are set forth in the prospectus for the related closed-end
fund.
Class B and Class C Sales Charge Information
Class B
Shares*
|
For the Fiscal Year
Ended August 31,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
|
1999 |
|
$1,984,060 |
|
$1,984,060 |
|
1998 |
|
$ 509,105 |
|
$ 509,105 |
|
1997 |
|
$ 440,446 |
|
$ 440,446 |
|
*
|
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 August 31,
|
|
CDSCs Received
by Distributor
|
|
CDSCs Paid to
Merrill Lynch
|
|
1999 |
|
$ 72,553 |
|
$ 72,553 |
|
1998 |
|
$ 22,666 |
|
$ 22,666 |
|
1997 |
|
$ 11,505 |
|
$ 11,505 |
Merrill
Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. Proceeds from
the CDSC and the distribution fee are paid to the Distributor and are
used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing
distribution-related services to the Fund in connection with the sale of
the Class B and Class C shares, such as the payment of compensation to
financial consultants for selling Class B and Class C shares from the
dealer’s own funds. The combination of the CDSC and the ongoing
distribution fee facilitates the ability of the
Fund to sell the Class B and Class C shares without a sales charge being
deducted at the time of purchase. See “Distribution Plans”
below. Imposition of the CDSC and the distribution fee on Class B and
Class C shares is limited by the National Association of Securities
Dealers, Inc. (“NASD”) asset-based sales charge rule. See
“Limitations on the Payment of Deferred Sales Charges”
below.
Reference
is made to “Fees and Expenses” in the Prospectus for certain
information with respect to the separate distribution plans for Class B,
Class C and Class D shares pursuant to Rule 12b-1 under the Investment
Company Act (each a “Distribution Plan”) with respect to the
account maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.
The
Distribution Plans for Class B, Class C and Class D shares each provides
that the Fund pays the Distributor an account maintenance fee relating
to the shares of the relevant class, accrued daily and paid monthly, at
the annual rate of 0.25% of the average daily net assets of the Fund
attributable to shares of the relevant class in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) in
connection with account maintenance activities with respect to Class B,
Class C and Class D shares. Each of those classes has exclusive voting
rights with respect to the Distribution Plan adopted with respect to
such class pursuant to which account maintenance and/or distribution
fees are paid (except that Class B shareholders may vote upon any
material changes to expenses charged under the Class D Distribution
Plan).
The
Distribution Plans for Class B and Class C shares each provides that the
Fund also pays the Distributor a distribution fee relating to the shares
of the relevant class, accrued daily and paid monthly, at the annual
rate of 0.75% of the average daily net assets of the Fund attributable
to the shares of the relevant class in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) for
providing shareholder and distribution services and bearing certain
distribution-related expenses of the Fund, including payments to
financial consultants for selling Class B and Class C shares of the
Fund. The Distribution Plans relating to Class B and Class C shares are
designed to permit an investor to purchase Class B and Class C shares
through dealers without the assessment of an initial sales charge and at
the same time permit the dealer to compensate its financial consultants
in connection with the sale of the Class B and Class C
shares.
The Fund
’s Distribution Plans are subject to the provisions of Rule 12b-1
under the Investment Company Act. In their consideration of each
Distribution Plan, the Directors must consider all factors they deem
relevant, including information as to the benefits of the Distribution
Plan to the Fund and each related class of shareholders. Each
Distribution Plan further provides that, so long as the Distribution
Plan remains in effect, the selection and nomination of non-interested
Directors shall be committed to the discretion of the non-interested
Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the non-interested Directors concluded that
there is reasonable likelihood that each Distribution Plan will benefit
the Fund and its related class of shareholders. Each Distribution Plan
can be terminated at any time, without penalty, by the vote of a
majority of the non-interested Directors or by the vote of the holders
of a majority of the outstanding related class of voting securities of
the Fund. A Distribution Plan cannot be amended to increase materially
the amount to be spent by the Fund without the approval of the related
class of shareholders and all material amendments are required to be
approved by the vote of Directors, including a majority of the
non-interested Directors who have no direct or indirect financial
interest in the Distribution Plan, cast in person at a meeting called
for that purpose. Rule 12b-1 further requires that the Fund preserve
copies of the Distribution Plan and any report made pursuant to such
plan for a period of not less than six years from the date of the
Distribution Plan or such report, the first two years in an easily
accessible place.
Among
other things, each Distribution Plan provides that the Distributor shall
provide and the Directors shall review quarterly reports of the
disbursement of the account maintenance and/or distribution fees paid to
the Distributor. Payments under the Distribution Plans are based on a
percentage of average daily net assets attributable to the shares
regardless of the amount of expenses incurred and, accordingly,
distribution-related revenues from the Distribution Plans may be more or
less than distribution-related expenses. Information with respect to the
distribution-related revenues and expenses is presented to the Directors
for their consideration in connection with their deliberations as to the
continuance of the Class B and Class C Distribution Plans annually,
as of December 31 of each year, on a “fully allocated accrual”
basis and quarterly on a “direct expense and revenue/cash”
basis. On the fully allocated accrual basis, revenues consist of the
account maintenance fees, distribution fees, the CDSCs and certain other
related revenues, and expenses consist of financial consultant
compensation, branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion and
marketing expenses, corporate overhead and interest expense. On the
direct expense and revenue/cash basis, revenues consist of the account
maintenance fees, distribution fees and CDSCs and the expenses consist
of financial consultant compensation.
As of
December 31, 1998, the fully allocated accrual revenues of the
Distributor and Merrill Lynch for the period since the commencement of
operations of Class B shares exceeded fully allocated accrual expenses
by approximately $10,647,000 (.96% of Class B net assets at that date).
As of August 31, 1999, direct cash revenues for the period since the
commencement of operations of Class B shares exceeded direct cash
expenses by $62,703,424 (3.13% of Class B net assets at that date). As
of December 31, 1998, the fully allocated accrual expenses of the
Distributor and Merrill Lynch for the period since the commencement of
operations of Class C shares exceeded the fully allocated accrual
revenues by approximately $(5,000) (.002% of Class C net assets at that
date). As of August 31, 1999, direct cash revenues for the period since
the commencement of operations of Class C shares exceeded direct cash
expenses by $3,737,029 (1.21% of Class C net assets at that
date).
For the
fiscal year ended August 31, 1999, the Fund paid the Distributor
$14,704,773 pursuant to the Class B Distribution Plan (based on average
daily net assets subject to such Class B Distribution Plan of
approximately $1.5 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
August 31, 1999, the Fund paid the Distributor $2,424,280 pursuant to
the Class C Distribution Plan (based on average daily net assets subject
to such Class C Distribution Plan of approximately $242.4 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 August 31, 1999, the Fund paid the
Distributor $1,465,704 pursuant to the Class D Distribution Plan (based
on average daily net assets subject to such Class D Distribution Plan of
approximately $586.3 million), all of which was paid to Merrill Lynch
for providing account maintenance activities in connection with Class D
shares.
Limitations on the Payment of Deferred Sales Charges
The
maximum sales charge rule in the Conduct Rules of the NASD imposes a
limitation on certain asset-based sales charges such as the distribution
fee and the CDSC borne by the Class B and Class C shares but not the
account maintenance fee. The maximum sales charge rule is applied
separately to each class. As applicable to the Fund, the maximum sales
charge rule limits the aggregate of distribution fee payments and CDSCs
payable by the Fund to (1) 6.25% of eligible gross sales of Class B
shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus
(2) interest on the unpaid balance for the respective class, computed
separately, at the prime rate plus 1% (the unpaid balance being the
maximum amount payable minus amounts received from the payment of the
distribution fee and the CDSC). In connection with the Class B shares,
the Distributor has voluntarily agreed to waive interest charges on the
unpaid balance in excess of 0.50% of eligible gross sales. Consequently,
the maximum amount payable to the Distributor (referred to as the
“voluntary maximum”) in connection with the Class B shares is
6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charges at any time. To the extent payments would
exceed the voluntary maximum, the Fund will not make further payments of
the distribution fee with respect to Class B shares and any CDSCs will
be paid to the Fund rather than to the Distributor; however, the Fund
will continue to make payments of the account maintenance fee. In
certain circumstances the amount payable pursuant to the voluntary
maximum may exceed the amount payable under the NASD formula. In such
circumstances payment in excess of the amount payable under the NASD
formula will not be made.
The
following table sets forth comparative information as of August 31, 1999
with respect to the Class B and Class C shares of the Fund indicating
the maximum allowable payments that can be made under the NASD maximum
sales charge rule and, with respect to the Class B shares, the
Distributor’s voluntary maximum.
|
|
|
Data Calculated as
of August 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
October 21, 1994
(commencement of operations) to
August 31, 1999 |
| Under NASD Rule as Adopted |
|
$1,893,437 |
|
$119,626 |
|
$80,018 |
|
$199,644 |
|
$76,978 |
|
$122,666 |
|
$15,004 |
Under Distributor’s Voluntary
Waiver |
|
$1,893,437 |
|
$118,340 |
|
$ 9,467 |
|
$127,807 |
|
$76,978 |
|
$ 50,829 |
|
$15,004 |
| |
Class C Shares for the period
December 24, 1992
(commencement of operations) to
August 31, 1999 |
| Under NASD Rule as Adopted |
|
$
193,806 |
|
$ 12,257 |
|
$ 1,929 |
|
$ 14,186 |
|
$ 4,324 |
|
$
9,862 |
|
$ 2,310 |
(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 Fund’s fees and expenses?
” in the Prospectus. This figure may include CDSCs that were
deferred when a shareholder redeemed shares prior to the expiration of
the applicable CDSC period and invested the proceeds, without the
imposition of a sales charge, in Class A shares in conjunction with
the shareholder’s participation in the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFA
SM
) Program (the “MFA Program”). The CDSC is booked as
a contingent obligation that may be payable if the shareholder
terminates participation in the MFA Program.
|
(5)
|
Provided to
illustrate the extent to which the current level of distribution fee
payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution
fee will reach either the voluntary maximum (with respect to Class B
shares) or the NASD maximum (with respect to Class B and Class C
shares).
|
Reference
is made to “How to Buy, Sell, Transfer and Exchange Shares” in
the Prospectus.
The Fund
is required to redeem for cash all shares of the Fund upon receipt of a
written request in proper form. The redemption price is the net asset
value per share next determined after the initial receipt of proper
notice of redemption. Except for any CDSC that may be applicable, there
will be no charge for redemption if the redemption request is sent
directly to the Transfer Agent. Shareholders liquidating their holdings
will receive upon redemption all dividends reinvested through the date
of redemption.
The right
to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for any period
during which trading on the New York Stock Exchange (“NYSE”)
is restricted as determined by the Commission or the NYSE is closed
(other than customary weekend and holiday closings), for any period
during which an emergency exists as defined by the Commission as a
result of which disposal of portfolio securities or determination of the
net asset value of the Fund is not reasonably practicable, and for such
other periods as the Commission may by order permit for the protection
of shareholders of the Fund.
The
value of shares at the time of redemption may be more or less than the
shareholder’s cost, depending in part on the market value of the
securities held by the Fund at such time.
A
shareholder wishing to redeem shares held with the Transfer Agent may do
so without charge by tendering the shares directly to the Transfer Agent
at Financial Data Services, Inc., P.O. Box 45289, Jacksonville, Florida
32232-5289. Redemption requests delivered other than by mail should be
delivered to Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484. Proper notice of redemption in the
case of shares deposited with the Transfer Agent may be accomplished by
a written letter requesting redemption. Proper notice of redemption in
the case of shares for which certificates have been issued may be
accomplished by a written letter as noted above accompanied by
certificates for the shares to be redeemed. Redemption requests should
not be sent to the Fund. The redemption request in either event requires
the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as such name(s) appear(s) on the Transfer
Agent’s register. The signature(s) on the redemption requests may
require a guarantee by an “eligible guarantor institution” as
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 (the
“Exchange Act”), the existence and validity of which may be
verified by the Transfer Agent through the use of industry publications.
In the event a signature guarantee is required, notarized signatures are
not sufficient. In general, signature guarantees are waived on
redemptions of less than $50,000 as long as the following requirements
are met: (i) all requests require the signature(s) of all persons in
whose name(s) shares are recorded on the Transfer Agent’s register;
(ii) all checks must be mailed to the stencil address of record on the
Transfer Agent’s register and (iii) the stencil address must not
have changed within 30 days. Certain rules may apply regarding certain
account types such as but not limited to UGMA/UTMA accounts, Joint
Tenancies With Rights of Survivorship, contra broker transactions, and
institutional accounts. In certain instances, the Transfer Agent may
require additional documents such as, but not limited to, trust
instruments, death certificates, appointments as executor or
administrator, or certificates of corporate authority. For shareholders
redeeming directly with the Transfer Agent, payments will be mailed
within seven days of receipt of a proper notice of
redemption.
At
various times the Fund may be requested to redeem shares for which it
has not yet received good payment (e.g., cash, Federal funds or
certified check drawn on a U.S. bank). The Fund may delay or cause to be
delayed the mailing of a redemption check until such time as it has
assured itself that good payment (e.g., cash, Federal funds or
certified check drawn on a U.S. bank) has been collected for the
purchase of such Fund shares, which will usually not exceed 10
days.
The Fund
also will repurchase Fund shares through a shareholder’s listed
securities dealer. The Fund normally will accept orders to repurchase
Fund shares by wire or telephone from dealers for their customers at the
net asset value next computed after the order is placed. Shares will be
priced at the net asset value calculated on the day the request is
received, provided that the request for repurchase is submitted to the
dealer within fifteen minutes after the regular close of business on the
NYSE (generally, the NYSE closes at 4:00 p.m., Eastern time) on the day
received, and such request is received by the Fund from such dealer not
later than 30 minutes after the close of business on the NYSE on the
same day. Dealers have the responsibility of submitting such repurchase
requests to the Fund not later than 30 minutes after the close of
business on the NYSE, in order to obtain that day’s closing
price.
The
foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any
applicable CDSC). Securities firms that do not have selected dealer
agreements with the Distributor, however, may impose a transaction
charge on the shareholder for transmitting the notice of repurchase to
the Fund. Merrill Lynch may charge its customers a processing fee
(presently $5.35) to confirm a repurchase of shares to such customers.
Repurchases made directly through the Transfer Agent on accounts held at
the Transfer Agent are not subject to the processing fee. The Fund
reserves the right to reject any order for repurchase, which right of
rejection might adversely affect shareholders seeking redemption through
the
repurchase procedure. However, a shareholder whose order for repurchase is
rejected by the Fund may redeem Fund shares as set forth
above.
Reinstatement Privilege — Class A and Class D Shares
Shareholders who have redeemed their Class A or Class D shares of
the Fund have a privilege to reinstate their accounts by purchasing
Class A or Class D shares, as the case may be, of the Fund at net asset
value without a sales charge up to the dollar amount redeemed. The
reinstatement privilege may be exercised by sending a notice of exercise
along with a check for the amount to be reinstated to the Transfer Agent
within 30 days after the date the request for redemption was accepted by
the Transfer Agent or the Distributor. Alternatively, the reinstatement
privilege may be exercised through the investor’s Merrill Lynch
Financial Consultant within 30 days after the date the request for
redemption was accepted by the Transfer Agent or the Distributor. The
reinstatement will be made at the net asset value per share next
determined after the notice of reinstatement is received and cannot
exceed the amount of the redemption proceeds.
Determination of Net Asset Value
Reference
is made to “How Shares are Priced” in the
Prospectus.
The net
asset value of the shares of all classes of the Fund is determined once
daily Monday through Friday after the close of business on the NYSE on
each day the NYSE is open for trading. The NYSE generally closes at 4:00
p.m., Eastern time. Any assets or liabilities initially expressed in
terms of non-U.S. dollar currencies are translated into U.S. dollars at
the prevailing market rates as quoted by one or more banks or dealers on
the day of valuation. The NYSE is not open for trading on New Year
’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Net asset
value is computed by dividing the value of the securities held by the
Fund plus any cash or other assets (including interest and dividends
accrued but not yet received) minus all liabilities (including accrued
expenses) by the total number of shares outstanding at such time,
rounded to the nearest cent. Expenses, including the fees payable to the
Manager and Distributor, are accrued daily.
The per
share net asset value of Class B, Class C and Class D shares generally
will be lower than the per share net asset value of Class A shares,
reflecting the daily expense accruals of the account maintenance,
distribution and higher transfer agency fees applicable with respect to
Class B and Class C shares, and the daily expense accruals of the
account maintenance fees applicable with respect to the Class D shares;
moreover, the per share net asset value of the Class B and Class C
shares generally will be lower than the per share net asset value of
Class D shares reflecting the daily expense accruals of the distribution
fees and higher transfer agency fees applicable with respect to Class B
and Class C shares of the Fund. It is expected, however, that the per
share net asset value of the four classes will tend to converge
(although not necessarily meet) immediately after the payment of
dividends 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 Directors as the primary market. Long positions in
securities traded in the OTC market are valued at the last available bid
price in the OTC market prior to the time of valuation. Short positions
in securities traded in the OTC market are valued at the last available
ask price in the OTC market prior to the time of valuation. Portfolio
securities that are traded both in the OTC market and on a stock
exchange are valued according to the broadest and most representative
market. When the Fund writes an option, the amount of the premium
received is recorded on the books of the Fund as an asset and an
equivalent liability. The amount of the liability is subsequently valued
to reflect the current market value of the option written, based upon
the last
sale price in the case of exchange-traded options or, in the case of
options traded in the OTC market, the last asked price. Options
purchased by the Fund are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Other investments, including financial
futures contracts and related options, are stated at market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Directors of the Fund. Such valuations and
procedures will be reviewed periodically by the Directors.
Generally, trading in non-U.S. securities, as well as U.S.
Government securities and money market instruments, is substantially
completed each day at various times prior to the close of business on
the NYSE. The values of such securities used in computing the net asset
value of the Fund’s shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close
of business on the NYSE. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at
which they are determined and the close of business on the NYSE that
will not be reflected in the computation of the Fund’s net asset
value.
Computation of Offering Price Per Share
An
illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund based on the value of the Fund
’s net assets and number of shares outstanding on August 31, 1999
is set forth below.
|
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class D
|
| Net Assets |
|
$472,464,457 |
|
$2,000,535,125 |
|
$307,987,490 |
|
$795,606,821 |
| |
|
|
|
|
|
|
|
|
| Number of Shares
Outstanding |
|
21,490,246 |
|
96,412,066 |
|
14,751,077 |
|
36,548,352 |
| |
|
|
|
|
|
|
|
|
Net Asset Value Per Share (net assets
divided
by number of shares
outstanding) |
|
$
21.99 |
|
$
20.75 |
|
$
20.88 |
|
$
21.77 |
Sales Charge (for Class A and Class D
shares:
5.25% of offering price; 5.54% of net asset
value per share)* |
|
1.22 |
|
** |
|
** |
|
1.21 |
| |
|
|
|
|
|
|
|
|
| Offering Price |
|
$
23.21 |
|
$
20.75 |
|
$
20.88 |
|
$
22.98 |
| |
|
|
|
|
|
|
|
|
*
|
Rounded to
the nearest one-hundredth percent; assumes maximum sales charge is
applicable.
|
**
|
Class B and
Class C shares are not subject to an initial sales charge but may be
subject to a CDSC on redemption of shares. See “Purchase of Shares
— Deferred Sales Charge Alternatives —
Class B and Class C Shares” herein.
|
PORTFOLIO TRANSACTIONS AND BROKERAGE
Transactions in Portfolio Securities
Subject
to policies established by the Board of Directors of the Fund, the
Manager is primarily responsible for the execution of the Fund’s
portfolio transactions and the allocation of brokerage. The Fund has no
obligation to deal with any dealer or group of dealers in the execution
of transactions in portfolio securities of the Fund and does not use any
particular broker or dealer. In executing transactions with brokers and
dealers, the Manager seeks to obtain the best results for the Fund,
taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of
execution and operations facilities of the firm and the firm’s risk
in positioning a block of securities. While the Manager generally seeks
reasonably competitive commission rates, the Fund will not necessarily
be paying the lowest spread or commission available. In addition,
consistent with the Conduct Rules of the NASD and policies established
by the Directors of the Fund, the Manager may consider sales of shares
of the Fund as a factor in the selection of brokers or dealers to
execute portfolio transactions for the Fund; however, whether or not a
particular broker or dealer sells shares of the Fund neither qualifies
nor disqualifies such broker or dealer to execute transactions for the
Fund. Transactions with respect to the securities of small and emerging
growth companies in which the Fund may invest may involve specialized
services on the part of the broker or dealer and thereby entail higher
commissions or spreads than would be the case with transactions
involving more widely traded securities.
Subject to obtaining the
best net results, brokers who provide supplemental investment research
services to the Manager may receive orders for transactions by the Fund.
Such supplemental research services ordinarily consist of assessments
and analyses of the business or prospects of a company, industry or
economic sector. Information so received will be in addition to and not
in lieu of the services required to be performed by the Manager under
its Management Agreement, and the expense of the Manager will not
necessarily be reduced as a result of the receipt of such supplemental
information. If in the judgment of the Manager the Fund will benefit
from supplemental research services, the Manager is authorized to pay
brokerage commissions to a broker furnishing such services that are in
excess of commissions that another broker may have charged for effecting
the same transaction. Certain supplemental research services may
primarily benefit one or more other investment companies or other
accounts for which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of the supplemental
research services received as a result of portfolio transactions
effected for such other accounts or investment companies.
The Fund
anticipates that its brokerage transactions involving securities of
issuers domiciled in countries other than the United States generally
will be conducted primarily on the principal stock exchanges of such
countries. Brokerage commissions and other transactions costs on foreign
stock exchange transactions generally are higher than in the United
States, although the Fund will endeavor to achieve the best net results
in effecting its portfolio transactions. There generally is less
government supervision and regulation of foreign stock exchanges and
brokers than in the United States.
Information about the brokerage commissions paid by the Fund,
including commissions paid to Merrill Lynch, is set forth in the
following table:
Fiscal Year Ended August
31,
|
|
Brokerage Commissions
Paid
|
|
Commissions Paid
to Merrill Lynch
|
| 1999 |
|
$3,725,747 |
|
$336,235 |
| 1998 |
|
$ 843,807 |
|
$ 55,594 |
| 1997 |
|
$ 554,589 |
|
$ 8,520 |
For the
fiscal year ended August 31, 1999, the brokerage commissions paid to
Merrill Lynch represented 9.02% of the aggregate brokerage commissions
paid and involved 8.84% of the Fund’s dollar amount of transactions
involving payment of brokerage commissions.
The Fund
may invest in certain securities traded in the OTC market and intends to
deal directly with the dealers who make a market in securities involved,
except in those circumstances in which better prices and execution are
available elsewhere. Under the Investment Company Act, persons
affiliated with the Fund and persons who are affiliated with such
affiliated persons are prohibited from dealing with the Fund as
principal in the purchase and sale of securities unless a permissive
order allowing such transactions is obtained from the Commission. Since
transactions in the OTC market usually involve transactions with the
dealers acting as principal for their own accounts, the Fund will not
deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions. However, an affiliated
person of the Fund may serve as its broker in OTC transactions conducted
on an agency basis provided that, among other things, the fee or
commission received by such affiliated broker is reasonable and fair
compared to the fee or commission received by non-affiliated brokers in
connection with comparable transactions. In addition, the Fund may not
purchase securities during the existence of any underwriting syndicate
for such securities of which Merrill Lynch is a member or in a private
placement in which Merrill Lynch serves as placement agent except
pursuant to procedures approved by the Board of Directors of the Fund
that either comply with rules adopted by the Commission or with
interpretations of the Commission staff. See “Investment Objective
and Policies — Investment Restrictions.”
Section
11(a) of the Exchange Act generally prohibits members of the 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.
The Board
of Directors of the Fund has considered the possibility of seeking to
recapture for the benefit of the Fund brokerage commissions and other
expenses of possible portfolio transactions by conducting portfolio
transactions through affiliated entities. For example, brokerage
commissions received by affiliated brokers could be offset against the
advisory fee paid by the Fund to the Manager. After considering all
factors deemed relevant, the Board of Directors made a determination not
to seek such recapture. The Board will reconsider this matter from time
to time.
Because
of different objectives or other factors, a particular security may be
bought for one or more clients of the Manager or an affiliate when one
or more clients of the Manager or an affiliate are selling the same
security. If purchases or sales of securities arise for consideration at
or about the same time that would involve the Fund or other clients or
funds for which the Manager or an affiliate acts as manager,
transactions in such securities will be made, insofar as feasible, for
the respective funds and clients in a manner deemed equitable to all. To
the extent that transactions on behalf of more than one client of the
Manager or an affiliate during the same period may increase the demand
for securities being purchased or the supply of securities being sold,
there may be an adverse effect on price.
The Fund
offers a number of shareholder services and investment plans described
below that are designed to facilitate investment in shares of the Fund.
Full details as to each of such services, copies of the various plans
and instructions as to how to participate in the various services or
plans, or how to change options with respect thereto, can be obtained
from the Fund, by calling the telephone number on the cover page hereof,
or from the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors and certain of these services are not
available to investors who place orders through the Merrill Lynch
Blueprint
SM
Program.
Each
shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from
the Transfer Agent. These statements will serve as transaction
confirmations for automatic investment purchases and the reinvestment of
dividends. The statements will also show any other activity in the
account since the preceding statement. Shareholders will also receive
separate confirmations for each purchase or sale transaction other than
automatic investment purchases and the reinvestment of dividends. A
shareholder with an account held at the Transfer Agent may make
additions to his or her Investment Account at any time by mailing a
check directly to the Transfer Agent. A shareholder may also maintain an
account through Merrill Lynch. Upon the transfer of shares out of a
Merrill Lynch brokerage account, an Investment Account in the
transferring shareholder’s name may be opened automatically at the
Transfer Agent.
Share
certificates are issued only for full shares and only upon the specific
request of a shareholder who has an Investment Account. Issuance of
certificates representing all or only part of the full shares in an
Investment Account may be requested by a shareholder directly from the
Transfer Agent.
Shareholders may transfer their Fund shares from Merrill Lynch to
another securities dealer that has entered into a selected dealer
agreement with Merrill Lynch. Certain shareholder services may not be
available for the transferred shares. After the transfer, the
shareholder may purchase additional shares of funds owned before the
transfer and all future trading of these assets must be coordinated by
the new firm. If a shareholder wishes to transfer his or her shares to a
securities dealer that has not entered into a selected dealer agreement
with Merrill Lynch, the shareholder must either (i) redeem his or her
shares, paying any applicable CDSC or (ii) continue to maintain an
Investment Account at the Transfer Agent for those shares. The
shareholder may also request the new securities dealer to maintain the
shares in an account at the Transfer Agent registered in the name of the
securities dealer for the benefit of the shareholder whether the
securities dealer has entered into a selected dealer agreement or
not.
Shareholders considering
transferring a tax-deferred retirement account, such as an individual
retirement account, from Merrill Lynch to another securities dealer
should be aware that, if the firm to which the retirement account is to
be transferred will not take delivery of shares of the Fund, a
shareholder must either redeem the shares, paying any applicable CDSC,
so that the cash proceeds can be transferred to the account at the new
firm, or such shareholder must continue to maintain a retirement account
at Merrill Lynch for those shares.
U.S.
shareholders of each class of shares of the Fund have an exchange
privilege with certain other Select Pricing Funds and Summit Cash
Reserves Fund (“Summit”), a series of Financial Institutions
Series Trust, which is a Merrill Lynch-sponsored money market fund
specifically designated as available for exchange by holders of Class A,
Class B, Class C and Class D shares of Select Pricing Funds. Shares with
a net asset value of at least $100 are required to qualify for the
exchange privilege and any shares utilized in an exchange must have been
held by the shareholder for at least 15 days. Before effecting an
exchange, shareholders should obtain a currently effective prospectus of
the fund into which the exchange is to be made. Exercise of the exchange
privilege is treated as a sale of the exchanged shares and a purchase of
the acquired shares for Federal income tax purposes.
Exchanges of Class A and Class D Shares.
Class A shareholders may exchange Class A shares of the Fund
for Class A shares of a second Select Pricing Fund if the shareholder
holds any Class A shares of the second fund in the account in which the
exchange is made at the time of the exchange or is otherwise eligible to
purchase Class A shares of the second fund. If the Class A shareholder
wants to exchange Class A shares for shares of a second Select Pricing
Fund, but does not hold Class A shares of the second fund in his or her
account at the time of the exchange and is not otherwise eligible to
acquire Class A shares of the second fund, the shareholder will receive
Class D shares of the second fund as a result of the exchange. Class D
shares also may be exchanged for Class A shares of a second Select
Pricing Fund at any time as long as, at the time of the exchange, the
shareholder holds Class A shares of the second fund in the account in
which the exchange is made or is otherwise eligible to purchase Class A
shares of the second fund. Class D shares are exchangeable with shares
of the same class of other Select Pricing Funds.
Exchanges
of Class A or Class D shares outstanding (“outstanding Class A or
Class D shares”) for Class A or Class D shares of other Select
Pricing Funds or for Class A shares of Summit (“new Class A or
Class D shares”) are transacted on the basis of relative net asset
value per Class A or Class D share, respectively, plus an amount equal
to the difference, if any, between the sales charge previously paid on
the outstanding Class A or Class D shares and the sales charge payable
at the time of the exchange on the new Class A or Class D shares. With
respect to outstanding Class A or Class D shares as to which previous
exchanges have taken place, the “sales charge previously paid”
shall include the aggregate of the sales charges paid with respect to
such Class A or Class D shares in the initial purchase and any
subsequent exchange. Class A or Class D shares issued pursuant to
dividend reinvestment are sold on a no-load basis in each of the funds
offering Class A or Class D shares. For purposes of the exchange
privilege, Class A or Class D shares acquired through dividend
reinvestment shall be deemed to have been sold with a sales charge equal
to the sales charge previously paid on the Class A or Class D shares on
which the dividend was paid. Based on this formula, Class A and Class D
shares generally may be exchanged into the Class A or Class D shares,
respectively, of the other funds with a reduced sales charge or without
a sales charge.
Exchanges of Class B and Class C Shares.
Certain Select Pricing Funds with Class B or Class C shares
outstanding (“outstanding Class B or Class C shares”) offer to
exchange their Class B or Class C shares for Class B or Class C shares,
respectively, of certain other Select Pricing Funds or for Class B
shares of Summit (“new Class B or Class C shares”) on the
basis of relative net asset value per Class B or Class C share, without
the payment of any CDSC that might otherwise be due on redemption of the
outstanding shares. Class B shareholders of the Fund exercising the
exchange privilege will continue to be subject to the Fund’s CDSC
schedule if such schedule is higher than the CDSC schedule relating to
the new Class B shares acquired through use of the exchange privilege.
In addition, Class B shares of the Fund acquired through use of the
exchange privilege will be subject to the Fund’s CDSC schedule if
such schedule is higher than the CDSC schedule relating to the Class B
shares of the fund from which the exchange has been made. For purposes
of computing the CDSC that may be
payable on a disposition of the new Class B or Class C shares, the holding
period for the outstanding Class B or Class C shares is “tacked
” to the holding period of the new Class B or Class C shares. For
example, an investor may exchange Class B shares of the Fund for those
of Merrill Lynch Special Value Fund, Inc. (“Special Value Fund
”) after having held the Fund’s Class B shares for two and a
half years. The 2% CDSC that generally would apply to a redemption would
not apply to the exchange. Three years later the investor may decide to
redeem the Class B shares of Special Value Fund and receive cash. There
will be no CDSC due on this redemption, since by “tacking” the
two and a half year holding period of Fund Class B shares to the
three-year holding period for the Special Value Fund Class B shares, the
investor will be deemed to have held the Special Value Fund Class B
shares for more than five years.
Exchanges for Shares of a Money Market Fund.
Class A and Class D shares are exchangeable for Class A shares
of Summit and Class B and Class C shares are exchangeable for Class B
shares of Summit. Class A shares of Summit have an exchange privilege
back into Class A or Class D shares of Select Pricing Funds; Class B
shares of Summit have an exchange privilege back into Class B or Class C
shares of Select Pricing Funds and, in the event of such an exchange,
the period of time that Class B shares of Summit are held will count
toward satisfaction of the holding period requirement for purposes of
reducing any CDSC and toward satisfaction of any Conversion Period with
respect to Class B shares. Class B shares of Summit will be subject to a
distribution fee at an annual rate of 0.75% of average daily net assets
of such Class B shares. This exchange privilege does not apply with
respect to certain Merrill Lynch fee-based programs for which
alternative exchange arrangements may exist. Please see your Merrill
Lynch Financial Consultant for further information.
Prior to
October 12, 1998, exchanges from the Fund and other Select Pricing Funds
into a money market fund were directed to certain Merrill
Lynch-sponsored money market funds other than Summit. Shareholders who
exchanged Select Pricing Fund shares for 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 those 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 Select Pricing Fund
shares for purposes of reducing the CDSC or satisfying the Conversion
Period.
Exchanges by Participants in the MFA Program.
The exchange privilege is modified with respect to certain
retirement plans which participate in the MFA Program. Such retirement
plans may exchange Class B, Class C or Class D shares that have been
held for at least one year for Class A shares of the same fund on the
basis of relative net asset values in connection with the commencement
of participation in the MFA Program, i.e., no CDSC will apply.
The one year holding period does not apply to shares acquired through
reinvestment of dividends. Upon termination of participation in the MFA
Program, Class A shares will be re-exchanged for the class of shares
originally held. For purposes of computing any CDSC that may be payable
upon redemption of Class B or Class C shares so reacquired, or the
Conversion Period for Class B shares so reacquired, the holding period
for the Class A shares will be “tacked” to the holding period
for the Class B or Class C shares originally held. The Fund’s
exchange privilege is also modified with respect to purchases of Class A
and Class D shares by non-retirement plan investors under the MFA
Program. First, the initial allocation of assets is made under the MFA
Program. Then, any subsequent exchange under the MFA Program of Class A
or Class D shares of a Select Pricing Fund for Class A or Class D shares
of the Fund will be made solely on the basis of the relative net asset
values of the shares being exchanged. Therefore, there will not be a
charge for any difference between the sales charge previously paid on
the shares of the other Select Pricing Fund and the sales charge payable
on the shares of the Fund being acquired in the exchange under the MFA
Program.
Exercise of the Exchange Privilege. To
exercise the exchange privilege, a shareholder should contact his or her
Merrill Lynch Financial Consultant, who will advise the Fund of the
exchange. Shareholders of the Fund, and shareholders of the other Select
Pricing Funds with shares for which certificates have not been issued,
may exercise the exchange privilege by wire through their securities
dealers. The Fund reserves the right to require a properly completed
Exchange Application. This exchange privilege may be modified or
terminated in accordance with the rules of the Commission. The Fund
reserves the right to limit the number of times an investor may exercise
the exchange privilege. Certain funds may suspend the continuous
offering of their shares to the general
public at any time and may thereafter resume such offering from time to
time. The exchange privilege is available only to U.S. shareholders in
states where the exchange legally may be made. It is contemplated that
the exchange privilege may be applicable to other new mutual funds whose
shares may be distributed by the Distributor.
Certain
Merrill Lynch fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a
“Program”), may permit the purchase of Class A shares at net
asset value. Under specified circumstances, participants in certain
Programs may deposit other classes of shares which will be exchanged for
Class A shares. Initial or deferred sales charges otherwise due in
connection with such exchanges may be waived or modified, as may the
Conversion Period applicable to the deposited shares. Termination of
participation in a Program may result in the redemption of shares held
therein or the automatic exchange thereof to another class at net asset
value, which may be shares of a money market fund. In addition, upon
termination of participation in a Program, shares that have been held
for less than specified periods within such Program may be subject to a
fee based upon the current value of such shares. These Programs also
generally prohibit such shares from being transferred to another account
at Merrill Lynch, to another broker-dealer or to the Transfer Agent.
Except in limited circumstances (which may also involve an exchange as
described above), such shares must be redeemed and another class of
shares purchased (which may involve the imposition of initial or
deferred sales charges and distribution and account maintenance fees) in
order for the investment not to be subject to Program fees. Additional
information regarding a specific Program (including charges and
limitations on transferability applicable to shares that may be held in
such Program) is available in such Program’s client agreement and
from the Transfer Agent at 1-800-MER-FUND
(1-(800)-637-3863).
Retirement and Education Savings Plans
Individual retirement accounts and other retirement and education
savings plans are available from Merrill Lynch. Under these plans,
investments may be made in the Fund and certain of the other mutual
funds sponsored by Merrill Lynch as well as in other securities. Merrill
Lynch may charge an initial establishment fee and an annual custodial
fee for each account. Information with respect to these plans is
available on request from Merrill Lynch.
Dividends
received in each of the plans referred to above are exempt from Federal
taxation until distributed from the plans. Different tax rules apply to
Roth IRA plans and education savings plans. Investors considering
participation in any retirement or education savings plan should review
specific tax laws relating thereto and should consult their attorneys or
tax advisers with respect to the establishment and maintenance of any
such plan.
Automatic Investment Plans
A
shareholder may make additions to an Investment Account at any time by
purchasing Class A shares (if he or she is an eligible Class A investor)
or Class B, Class C or Class D shares at the applicable public offering
price. These purchases may be made either through the shareholder’s
securities dealer, or by mail directly to the Transfer Agent, acting as
agent for such securities dealer. Voluntary accumulation also can be
made through a service known as the Fund’s Automatic Investment
Plan. The Fund would be authorized, on a regular basis, to provide
systematic additions to the Investment Account of such shareholder
through charges of $50 or more to the regular bank account of the
shareholder by either pre-authorized checks or automated clearing house
debits. For investors who buy shares of the Fund through Blueprint, no
minimum charge to the investor’s bank account is required.
Alternatively, an investor that maintains a CMA® or CBA® Account
may arrange to have periodic investments made in the Fund in amounts of
$100 ($1 or more for retirement accounts) or more through the CMA®
or CBA® Automated Investment Program.
Automatic Dividend Reinvestment Plan
Unless
specific instructions are given as to the method of payment, dividends
will be automatically reinvested, without sales charge, in additional
full and fractional shares of the Fund. Such reinvestment will be at the
net
asset value of shares of the Fund determined after the close of business
on the NYSE on the monthly payment date for such dividends. No CDSC will
be imposed upon redemption of shares issued as a result of the automatic
reinvestment of dividends.
Shareholders may, at any time, by written notification to Merrill
Lynch if their account is maintained with Merrill Lynch, or by written
notification or by telephone (1-800-MER-FUND) to the Transfer Agent, if
their account is maintained with the Transfer Agent, elect to have
subsequent dividends or both dividends and capital gains distributions,
paid in cash, rather than reinvested in shares of the Fund or vice versa
(provided that, in the event that a payment on an account maintained at
the Transfer Agent would amount to $10.00 or less, a shareholder will
not receive such payment in cash and such payment will automatically be
reinvested in additional shares). Commencing ten days after the receipt
by the Transfer Agent of such notice, those instructions will be
effected. The Fund is not responsible for any failure of delivery to the
shareholder’s address of record and no interest will accrue on
amounts represented by uncashed dividend checks. Cash payments can also
be directly deposited to the shareholder’s bank
account.
Systematic Withdrawal Plan
A
shareholder may elect to receive systematic withdrawals from his or her
Investment Account by check or through automatic payment by direct
deposit to his or her bank account on either a monthly or quarterly
basis as provided below. Quarterly withdrawals are available for
shareholders that have acquired shares of the Fund having a value, based
on cost or the current offering price, of $5,000 or more, and monthly
withdrawals are available for shareholders with shares having a value of
$10,000 or more.
At the
time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder’s account to provide the
withdrawal payment specified by the shareholder. The shareholder may
specify the dollar amount and the class of shares to be redeemed.
Redemptions will be made at net asset value as determined fifteen
minutes after the close of business on the NYSE (generally, the NYSE
closes at 4:00 p.m., Eastern time) on the 24th day of each month or the
24th day of the last month of each quarter, whichever is applicable. If
the NYSE is not open for business on such date, the shares will be
redeemed at the net asset value determined after the close of business
on the 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 shareholder’s Systematic Withdrawal
Plan may be terminated at any time, without charge or penalty, by the
shareholder, the Fund, the Transfer Agent or the
Distributor.
With
respect to redemptions of Class B or Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C
shares that can be redeemed from an account annually shall not exceed
10% of the value of shares of such class in that account at the time the
election to join the systematic withdrawal plan was made. Any CDSC that
otherwise might be due on such redemption of Class B or Class C shares
will be waived. Shares redeemed pursuant to a systematic withdrawal plan
will be redeemed in the same order as Class B or Class C shares are
otherwise redeemed. See “Purchase of Shares —
Deferred Sales Charge Alternatives — Contingent
Deferred Sales Charges — 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. See
“Purchase of Shares — Deferred Sales Charge
Alternatives — Conversion of Class B Shares to Class D
Shares.” If an investor wishes to change the amount being withdrawn
in a systematic withdrawal plan the investor should contact his or her
Merrill Lynch Financial Consultant.
Withdrawal payments should not be considered as dividends. Each
withdrawal is a taxable event. If periodic withdrawals continuously
exceed reinvested dividends, the shareholder’s original investment
may be reduced correspondingly. Purchases of additional shares
concurrent with withdrawals are ordinarily disadvantageous to the
shareholder because of sales charges and tax liabilities. The Fund will
not knowingly accept purchase orders for shares of the Fund from
investors that maintain a Systematic Withdrawal Plan unless such
purchase is equal to at
least one year’s scheduled withdrawals or $1,200, whichever is
greater. Automatic investments may not be made into an Investment
Account in which the shareholder has elected to make systematic
withdrawals.
Alternatively, a shareholder whose shares are held within a CMA
® or CBA® Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the CMA
® or CBA® Systematic Redemption Program. The minimum fixed
dollar amount redeemable is $50. The proceeds of systematic redemptions
will be posted to the shareholder’s account three business days
after the date the shares are redeemed. All redemptions are made at net
asset value. A shareholder may elect to have his or her shares redeemed
on the first, second, third or fourth Monday of each month, in the case
of monthly redemptions, or of every other month, in the case of
bimonthly redemptions. For quarterly, semiannual or annual redemptions,
the shareholder may select the month in which the shares are to be
redeemed and may designate whether the redemption is to be made on the
first, second, third or fourth Monday of the month. If the Monday
selected is not a business day, the redemption will be processed at net
asset value on the next business day. The CMA® or CBA®
Systematic Redemption Program is not available if Fund shares are being
purchased within the account pursuant to the Automated Investment
Program. For more information on the CMA® or CBA® Systematic
Redemption Program, eligible shareholders should contact their Merrill
Lynch Financial Consultant.
The Fund
intends to distribute substantially all of its net investment income, if
any. Dividends from such investment income will be paid at least
annually. All net realized capital gains, if any, are distributed to the
Fund’s shareholders at least annually. Premiums from expired call
options written by the Fund and net gains from closing purchase
transactions are treated as short-term capital gains for Federal income
tax purposes. Shareholders may elect in writing to receive any such
dividends in cash.
See
“Shareholder Services — Automatic Dividend
Reinvestment Plan” for information concerning the manner in which
dividends may be reinvested automatically in shares of the Fund.
Dividends are taxable to shareholders, as described below, whether they
are invested in shares of the Fund or received in cash. The per share
dividends on Class B and Class C shares will be lower than the per share
dividends on Class A and Class D shares as a result of the account
maintenance, distribution and higher transfer agency fees applicable
with respect to the Class B and Class C shares; similarly, the per share
dividends on Class D shares will be lower than the per share dividends
on Class A shares as a result of the account maintenance fees applicable
with respect to the Class D shares. See “Pricing of Shares
— Determination of Net Asset Value.”
The Fund
intends to continue to qualify for the special tax treatment afforded
regulated investment companies (“RICs”) under the Internal
Revenue Code of 1986, as amended (the “Code”). As long as the
Fund so qualifies, the Fund (but not its shareholders) will not be
subject to Federal income tax on the part of its net ordinary income and
net realized capital gains that it distributes to Class A, Class B,
Class C and Class D shareholders (together, the “shareholders
”). The Fund intends to distribute substantially all of such
income.
The Code
requires a RIC to pay a nondeductible 4% excise tax to the extent the
RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital
gains, determined, in general on an October 31 year end, plus certain
undistributed amounts from previous years. While the Fund intends to
distribute its income and capital gains in the manner necessary to
minimize imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of the Fund’s taxable income and capital gains
will be distributed to avoid entirely the imposition of the tax. In such
event, the Fund will be liable for the tax only on the amount by which
it does not meet the foregoing distribution requirements.
Dividends
paid by the Fund from its ordinary income or from an excess of net
short-term capital gains over net long-term capital losses (together
referred to hereafter as “ordinary income dividends”) are
taxable to
shareholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including
gains or losses from certain transactions in options, futures and
warrants) (“capital gain dividends”) are taxable to
shareholders as long-term gains, regardless of the length of time the
shareholder has owned Fund shares. Any loss upon the sale or exchange of
Fund shares held for six months or less will be treated as long-term
capital loss to the extent of any capital gain dividends received by the
shareholder. Distributions in excess of the Fund’s earnings and
profits will first reduce the adjusted tax basis of a holder’s
shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are held as
a capital asset). Certain categories of capital gains are taxable at
different rates. Generally not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written
notice designating the amounts of any capital gains dividends, as well
as any amount of capital gains dividends in the different categories of
capital gain referred to above.
Dividends
are taxable to shareholders even though they are reinvested in
additional shares of the Fund. A portion of the Fund’s ordinary
income dividends may be eligible for the dividends received deduction
allowed to corporations under the Code, if certain requirements are met.
For this purpose, the Fund will allocate dividends eligible for the
dividends received deduction among the Class A, Class B, Class C and
Class D shareholders according to a method (which it believes is
consistent with the Commission rule permitting the issuance and sale of
multiple classes of stock) that is based on the gross income allocable
to Class A, Class B, Class C and Class D shareholders during the taxable
year, or such other method as the Internal Revenue Service may
prescribe. If the Fund pays a dividend in January that was declared in
the previous October, November or December to shareholders of record on
a specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was
declared.
No gain
or loss will be recognized by Class B shareholders on the conversion of
their Class B shares into Class D shares. A shareholder’s basis in
the Class D shares acquired will be the same as such shareholder’s
basis in the Class B shares converted, and the holding period of the
acquired Class D shares will include the holding period of the converted
Class B shares.
If a
shareholder exercises an exchange privilege within 90 days of acquiring
the shares, then the loss the shareholder can recognize on the exchange
will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund reduces any sales charge the shareholder would have
owed upon the purchase of the new shares in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid
for the new shares.
A loss
realized on a sale or exchange of shares of the Fund will be disallowed
if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning
30 days before and ending 30 days after the date that the shares are
disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss.
Ordinary
income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% U.S. withholding tax under
existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption
is provided under applicable treaty law. Nonresident shareholders are
urged to consult their own tax advisers concerning applicability of the
U.S. withholding tax.
Under
certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments (“backup withholding”). Generally,
shareholders subject to backup withholding will be those for whom no
certified taxpayer identification number is on file with the Fund or
who, to the Fund’s knowledge, have furnished an incorrect number.
When establishing an account, an investor must certify under penalty of
perjury that such number is correct and that such investor is not
otherwise subject to backup withholding.
Dividends and interest
received by the Fund may give rise to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries
and the United States may reduce or eliminate such taxes.
Tax Treatment of Options and Futures Transactions
The Fund
may write, purchase or sell options, futures and forward foreign
exchange contracts. Options and futures that are “Section 1256
contracts” will be “marked to market” for Federal income
tax purposes at the end of each taxable year, i.e., each such option or
futures contract will be treated as sold for its fair market value on
the last day of the taxable year. Unless such contract is a forward
foreign exchange contract, or is a non-equity option or a regulated
futures contract for a non-U.S. currency for which the Fund elects to
have gain or loss treated as ordinary gain or loss under Code Section
988 (as described below), gain or loss from Section 1256 contracts will
be 60% long-term and 40% short-term capital gain or loss. Application of
these rules to Section 1256 contracts held by the Fund may alter the
timing and character of distributions to shareholders. The
mark-to-market rules outlined above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of
changes in price or interest rates with respect to its
investments.
A forward
foreign exchange contract that is a Section 1256 contract will be marked
to market, as described above. However, the character of gain or loss
from such a contract will generally be ordinary under Code Section 988.
The Fund may, nonetheless, elect to treat the gain or loss from certain
forward foreign exchange contracts as capital. In this case, gain or
loss realized in connection with a forward foreign exchange contract
that is a Section 1256 contract will be characterized as 60% long-term
and 40% short-term capital gain or loss.
Code
Section 1092, which applies to certain “straddles,” may affect
the taxation of the Fund’s sales of securities and transactions in
options, futures and forward foreign exchange contracts. Under Section
1092, the Fund may be required to postpone recognition for tax purposes
of losses incurred in certain sales of securities and closing
transactions in options, futures and forward foreign exchange
contracts.
Special Rules for Certain Foreign Currency Transactions
In
general, gains from “foreign currencies” and from foreign
currency options, foreign currency futures and forward foreign exchange
contracts relating to investments in stock, securities or foreign
currencies will be qualifying income for purposes of determining whether
the Fund qualifies as a RIC. It is currently unclear, however, who will
be treated as the issuer of a foreign currency instrument or how foreign
currency options, foreign currency futures and forward foreign exchange
contracts will be valued for purposes of the RIC diversification
requirements applicable to the Fund.
Under
Code Section 988, special rules are provided for certain transactions in
a currency other than the taxpayer’s functional currency (i.e.,
unless certain special rules apply, currencies other than the U.S.
dollar). In general, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from future contracts that
are not “regulated futures contracts” and from unlisted
options will be treated as ordinary income or loss under Code Section
988. In certain circumstances, the Fund may elect capital gain or loss
treatment for such transactions. Regulated futures contracts, as
described above, will be taxed under Code Section 1256 unless
application of Section 988 is elected by the Fund. In general, however,
Code Section 988 gains or losses will increase or decrease the amount of
the Fund’s investment company taxable income available to be
distributed to shareholders as ordinary income. Additionally, if Code
Section 988 losses exceed other investment company taxable income during
a taxable year, the Fund would not be able to make any ordinary income
dividend distributions, and all or a portion of distributions made
before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing
the basis of each shareholder’s Fund shares and resulting in a
capital gain for any shareholder who received a distribution greater
than such shareholder’s basis in Fund shares (assuming the shares
were held as a capital asset). These rules and the mark-to-market rules
described above, however, will not apply to certain transactions entered
into by the Fund solely to reduce the risk of currency fluctuations with
respect to its investments.
The
foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For
the complete provisions, reference should be made to the pertinent Code
sections and the Treasury regulations promulgated thereunder. The Code and
the Treasury regulations are subject to change by legislative, judicial
or administrative action either prospectively or
retroactively.
Ordinary
income and capital gain dividends may also be subject to state and local
taxes.
Certain
states exempt from state income taxation dividends paid by RICs which
are derived from interest on United States Government obligations. State
law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
Shareholders are urged to consult their tax advisers regarding
specific questions as to Federal, foreign, state or local taxes. Foreign
investors should consider applicable foreign taxes in their evaluation
of investment in the Fund.
From time
to time the Fund may include its average annual total return and other
total return data in advertisements or information furnished to present
or prospective shareholders. Total return figures are based on the Fund
’s historical performance and are not intended to indicate future
performance. Average annual total return is determined separately for
Class A, Class B, Class C and Class D shares in accordance with formulas
specified by the Commission.
Average
annual total return quotations for the specified periods are computed by
finding the average annual compounded rates of return (based on net
investment income and any realized and unrealized capital gains or
losses on portfolio investments over such periods) that would equate the
initial amount invested to the redeemable value of such investment at
the end of each period. Average annual total return is computed assuming
all dividends and distributions are reinvested and taking into account
all applicable recurring and nonrecurring expenses, including the
maximum sales charge in the case of Class A and Class D shares and the
CDSC that would be applicable to a complete redemption of the investment
at the end of the specified period as in the case of Class B and Class C
shares and the maximum sales charge in the case of Class A and Class D
shares. Dividends paid by the Fund with respect to all shares, to the
extent any dividends are paid, will be calculated in the same manner at
the same time on the same day and will be in the same amount, except
that account maintenance and distribution charges and any incremental
transfer agency costs relating to each class of shares will be borne
exclusively by that class. The Fund will include performance data for
all classes of shares of the Fund in any advertisement or information
including performance data of the Fund.
The Fund
also may quote annual, average annual and annualized total return and
aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various
periods other than those noted below. Such data will be computed as
described above, except that (1) as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather than
average annual data, may be quoted and (2) the maximum applicable sales
charges will not be included with respect to annual or annualized rates
of return calculations. Aside from the impact on the performance data
calculations of including or excluding the maximum applicable sales
charges, actual annual or annualized total return data generally will be
lower than average annual total return data since the average rates of
return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of
time. 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 August
31, 1999 |
|
33.67 |
% |
|
$1,336.70 |
|
35.58 |
% |
|
$1,355.80 |
Inception (October 21,
1994) to
August 31, 1999 |
|
23.96 |
% |
|
$2,840.50 |
|
24.06 |
% |
|
$2,851.10 |
|
| |
|
Annual Total
Return |
| |
|
(excluding
maximum applicable sales charges) |
| Year Ended August
31, |
|
|
|
|
|
|
|
|
|
|
| 1999 |
|
41.08 |
% |
|
$1,410.80 |
|
39.58 |
% |
|
$1,395.80 |
| 1998 |
|
6.37 |
% |
|
$1,063.70 |
|
5.21 |
% |
|
$1,052.10 |
| 1997 |
|
39.24 |
% |
|
$1,392.40 |
|
37.95 |
% |
|
$1,379.50 |
| 1996 |
|
19.02 |
% |
|
$1,190.20 |
|
17.68 |
% |
|
$1,176.80 |
Inception (October 21,
1994) to
August 31, 1995 |
|
20.55 |
% |
|
$1,205.50 |
|
19.60 |
% |
|
$1,196.00 |
|
| |
|
Aggregate Total
Return |
| |
|
(including
maximum applicable sales charges) |
Inception (October 21,
1994) to
August 31, 1999 |
|
184.05 |
% |
|
$2,840.50 |
|
185.11 |
% |
|
$2,851.10 |
|
| |
|
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 August
31, 1999 |
|
38.65 |
% |
|
$1,386.50 |
|
33.28 |
% |
|
$1,332.80 |
| Five Years Ended
August 31, 1999 |
|
23.04 |
% |
|
$2,819.40 |
|
22.67 |
% |
|
$2,777.60 |
Inception (December
24, 1992) to
August 31, 1999 |
|
16.70 |
% |
|
$2,808.10 |
|
16.67 |
% |
|
$2,802.60 |
|
| |
|
Annual Total
Return |
| |
|
(excluding
maximum applicable sales charges) |
| Year Ended August
31, |
|
|
|
|
|
|
|
|
|
|
| 1999 |
|
39.65 |
% |
|
$1,396.50 |
|
40.67 |
% |
|
$1,406.70 |
| 1998 |
|
5.19 |
% |
|
$1,051.90 |
|
6.08 |
% |
|
$1,060.80 |
| 1997 |
|
37.90 |
% |
|
$1,379.00 |
|
38.90 |
% |
|
$1,389.00 |
| 1996 |
|
17.68 |
% |
|
$1,176.80 |
|
18.70 |
% |
|
$1,187.00 |
| 1995 |
|
18.28 |
% |
|
$1,182.80 |
|
19.15 |
% |
|
$1,191.50 |
| 1994 |
|
1.01 |
% |
|
$1,010.10 |
|
1.82 |
% |
|
$1,018.20 |
Inception (December
24, 1992) to
August 31, 1993 |
|
(1.40) |
% |
|
$
986.00 |
|
(0.90) |
% |
|
$
991.00 |
|
| |
|
Aggregate Total
Return |
| |
|
(including
maximum applicable sales charges) |
Inception (December
24, 1992) to
August 31, 1999 |
|
180.81 |
% |
|
$2,808.10 |
|
180.26 |
% |
|
$2,802.60 |
In order to reflect the
reduced sales charges in the case of Class A or Class D shares, or the
waiver of the CDSC in the case of Class B or Class C shares applicable
to certain investors, as described under “Purchase of Shares,”
the total return data quoted by the Fund in advertisements directed to
such investors may take into account the reduced, and not the maximum,
sales charge or may not take into account the CDSC, and therefore may
reflect greater total return since, due to the reduced sales charges or
the waiver of CDSCs, a lower amount of expenses may be
deducted.
On occasion, the
Fund may compare its performance to various indices, including the
Standard & Poor’s 500 Index, the Dow Jones Industrial Average,
or performance data published by Lipper Analytical Services, Inc.,
Morningstar Publications, Inc., (“Morningstar”), CDA
Investment Technology, Inc., Money Magazine, U.S. News &
World Report, Business Week, Forbes Magazine 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. In addition, from time to time the Fund may
include the Fund’s Morningstar risk-adjusted performance ratings in
advertisements or supplemental sales literature. As with other
performance data, performance comparisons should not be considered
indicative of the Fund’s relative performance for any future
period.
Total return
figures are based on the Fund’s historical performance and are not
intended to indicate future performance. The Fund’s total return
will vary depending on market conditions, the securities comprising the
Fund’s portfolio, the Fund’s operating expenses and the amount
of realized and unrealized net capital gains or losses during the
period. The value of an investment in the Fund will fluctuate and an
investor’s shares, when redeemed, may be worth more or less than
their original cost.
The Fund was
incorporated under Maryland law on April 30, 1992. It has an authorized
capital of 550,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C
and Class D Common Stock, each of which consists of 100,000,000 shares,
except Class B Common Stock, which consists of 250,000,000 shares. Class
A, Class B, Class C and Class D Common Stock represent an interest in
the same assets of the Fund and are identical in all respects except
that the Class B, Class C and Class D shares bear certain expenses
related to the account maintenance and/or distribution of such shares
and have exclusive voting rights with respect to matters relating to
such account maintenance and/or distribution expenditures, (except that
Class B shares have certain voting rights with respect to Class B share
expenditures). The Board of Directors of the Fund may classify and
reclassify the shares of the Fund into additional classes of Common
Stock at a future date.
Shareholders are
entitled to one vote for each share held and fractional votes for
fractional shares held and will vote on the election of Directors and
any other matter submitted to a shareholder vote. The Fund does not
intend to hold annual meetings of shareholders in any year in which the
Investment Company Act does not require shareholders to elect Directors.
Also, the by-laws of the Fund require that a special meeting of
stockholders be held upon the written request of at least 10% of the
outstanding shares of the Fund entitled to vote at such meeting, if they
comply with applicable Maryland law. Voting rights for Directors are not
cumulative. Shares issued are fully paid and non-assessable and have no
preemptive rights. Redemption and conversion rights are discussed
elsewhere herein and in the Prospectus. Each share of Class A, Class B,
Class C and Class D Common Stock is entitled to participate equally in
dividends and distributions declared by the Fund and in the net assets
of the Fund upon liquidation or dissolution after satisfaction of
outstanding liabilities, except that expenses related to the
distribution of the shares within a class will be borne solely by such
class. Stock certificates are issued by the Transfer Agent only on
specific request. Certificates for fractional shares are not issued in
any case.
Ernst & Young
LLP
, 99 Wood Avenue South, Iselin, New Jersey 08830-0471, has been selected
as the independent auditors of the Fund. The selection of independent
auditors is subject to approval by the non-interested Directors of the
Fund. The independent auditors are responsible for auditing the annual
financial statements of the Fund.
The Chase
Manhattan Bank (the “Custodian”), Global Securities Services,
Chase MetroTech Center, 18th Floor, Brooklyn, New York 11245, acts as
the Custodian of the Fund’s assets. Under its contract with the
Fund, the Custodian is authorized to establish separate accounts in
foreign currencies and to cause foreign securities owned by the Fund to
be held in its offices outside the United States and with certain
foreign banks and securities depositories. The Custodian is responsible
for safeguarding and controlling the Fund’s cash and securities,
handling the receipt and delivery of securities and collecting interest
and dividends on the Fund’s investments.
Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484, acts as the Fund’s transfer agent (the “Transfer
Agent”). The Transfer Agent is responsible for the issuance,
transfer and redemption of shares and the opening, maintenance and
servicing of shareholder accounts. See “Management of the Fund
— Transfer Agency Services” in the
Prospectus.
Brown & Wood
LLP
, One World Trade Center, New York, New York 10048-0557, is counsel for
the Fund.
The fiscal year
of the Fund ends on August 31 of each year. The Fund sends to its
shareholders at least semi-annually reports showing the Fund’s
portfolio and other information. An annual report, containing financial
statements audited by independent auditors, is sent to shareholders each
year. After the end of each year, shareholders will receive Federal
income tax information regarding dividends and capital gains
distributions.
Shareholder
inquiries may be addressed to the Fund at the address or telephone
number set forth on the cover page of this Statement of Additional
Information.
The Prospectus
and this Statement of Additional Information do not contain all the
information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act and the
Investment Company Act, to which reference is hereby made.
Under a separate
agreement, ML & Co. has granted the Fund the right to use the
“Merrill Lynch” name and has reserved the right to withdraw
its consent to the use of such name by the Fund at any time or to grant
the use of such name to any other company, and the Fund has granted ML
& Co. under certain conditions, the use of any other name it might
assume in the future, with respect to any corporation organized by ML
& Co.
To the knowledge
of the Fund, the following persons or entities owned beneficially 5% or
more of a class of the Fund’s shares as of November 1,
1999:
Name
|
|
Address
|
|
Percent
and Class
|
Merrill Lynch Trust
Company
(1)
Trustee FBO MLSIP
Investment Account
Att: Robert Arimenta Jr. |
|
P.O. Box 30532
New Brunswick, NJ 08989 |
|
13.97% Class A |
(1)
|
Merrill Lynch
Trust Company is the record holder on behalf of certain employee
retirement, personal trust or savings plan accounts for which it acts
as trustee.
|
The Fund
’s audited financial statements are incorporated in this Statement
of Additional Information by reference to its 1999 annual report to
shareholders. You may request a copy of the annual report at no charge
by calling 1-800-456-4587 ext. 789 between 8:00 a.m. and 8:00 p.m. on
any business day.
[This page intentionally left blank]
Code #16464-12-99
PART C. OTHER INFORMATION
Item 23.
Exhibits.
Exhibit
Number
|
|
|
|
|
| 1(a) |
|
— |
|
Articles of
Incorporation of the Registrant, dated April 29, 1992.(a) |
| (b) |
|
— |
|
Articles of Amendment,
dated July 7, 1992, to the Articles of Incorporation of the
Registrant.(a) |
| (c) |
|
— |
|
Articles of Amendment,
dated October 17, 1994, to the Articles of Incorporation of the
Registrant.(a) |
| (d) |
|
— |
|
Articles
Supplementary, dated October 17, 1994, to the Articles of
Incorporation of the Registrant.(a) |
| (e) |
|
— |
|
Articles
Supplementary, dated October 17, 1994, to the Articles of
Incorporation of the Registrant.(a) |
| (f) |
|
— |
|
Articles
Supplementary, dated November 17, 1999, to the Articles of
Incorporation of the Registrant. |
| 2
|
|
— |
|
By-Laws of the
Registrant.(a) |
| 3(a) |
|
— |
|
Portions of the
Articles of Incorporation, as amended and supplemented, and By-Laws of
the Registrant
defining the rights of holders of shares of common stock of the
Registrant.(b) |
| 4(a) |
|
— |
|
Management Agreement,
as amended, between the Registrant and MLAM. |
| (b) |
|
— |
|
Form of Sub-Advisory
Agreement between MLAM and Merrill Lynch Asset Management U.K.
Limited.(e) |
| 5(a) |
|
— |
|
Form of Revised Class
A Distribution Agreement between the Registrant and Merrill Lynch Funds
Distributor, Inc. (now known as Princeton Funds Distributor, Inc.)(the
“Distributor”)(including Form
of Selected Dealers Agreement).(c) |
| (b) |
|
— |
|
Class B Distribution
Agreement between the Registrant and the Distributor.(c) |
| (c) |
|
— |
|
Form of Class C
Distribution Agreement between the Registrant and the Distributor
(including Form
of Selected Dealers Agreement).(c) |
| (d) |
|
— |
|
Form of Class D
Distribution Agreement between the Registrant and the Distributor
(including Form
of Selected Dealers Agreement).(c) |
| 6
|
|
— |
|
None. |
| 7
|
|
— |
|
Custody Agreement
between the Registrant and The Chase Manhattan Bank.(a) |
| 8(a) |
|
— |
|
Transfer Agency,
Dividend Disbursing Agency and Shareholder Servicing Agency Agreement
between
the Registrant and Merrill Lynch Financial Data Services, Inc. (now
known as Financial Data Services,
Inc.)(a) |
| (b) |
|
— |
|
Agreement between
Merrill Lynch & Co., Inc. and Registrant relating to Registrant
’s use of Merrill
Lynch name.(a) |
| 9
|
|
— |
|
Opinion of Brown &
Wood LLP
, counsel to the Registrant.(a) |
| 10 |
|
— |
|
Consent of Ernst &
Young LLP
, independent auditors for the Registrant. |
| 11 |
|
— |
|
None. |
| 12 |
|
— |
|
Certificate of Merrill
Lynch Asset Management, L.P.(a) |
| 13(a) |
|
— |
|
Form of Class B
Distribution Plan of the Registrant and Class B Distribution Plan
Sub-Agreement.(c) |
| (b) |
|
— |
|
Form of Class C
Distribution Plan of the Registrant and Class C Distribution Plan
Sub-Agreement.(c) |
| (c) |
|
— |
|
Form of Class D
Distribution Plan of the Registrant and Class D Distribution Plan
Sub-Agreement.(c) |
| 14 |
|
— |
|
None. |
| 15 |
|
— |
|
Merrill Lynch Select
Pricing
SM
System Plan pursuant to Rule 18f-3.(d) — |
(a)
|
Previously
filed on October 1, 1992, as an exhibit to Pre-Effective Amendment No.
1 to the Registrant’s Registration Statement on Form N-1A (the
“Registration Statement”) and refiled pursuant to the
Electronic Data Gathering, Analysis and Retrieval (“EDGAR”)
phase-in requirements.
|
(b)
|
Reference is
made to Article II, Article IV, Article V (sections 2, 3, 4 and 6),
Article VI, Article VII and Article IX of the Registrant’s
Articles of Incorporation, previously filed as Exhibit (1), to the
Registration Statement, and to Article II, Article III (sections 1, 3,
5, 6 and 17), Article VI, Article VII, Article XII, Article XIII and
Article XIV of the Registrant’s By-Laws previously filed as
Exhibit (2) to the Registration Statement.
|
(c)
|
Filed on
October 13, 1994 as an exhibit to Post-Effective Amendment No. 3 to
Registrant’s Registration Statement.
|
(d)
|
Incorporated
by reference to Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A of Merrill Lynch New York Municipal Bond Fund
of Merrill Lynch Multi-State Municipal Series Trust filed on January
25, 1996.
|
(e)
|
Filed on
December 23, 1996 as an exhibit to Post-Effective Amendment No. 5 to
the Registrant’s Registration Statement.
|
Item 24. Persons Controlled by or
under Common Control with Registrant.
The
Registrant is not controlled by or under common control with any other
person.
Item 25.
Indemnification.
Reference
is made to Article VI of the Registrant’s Articles of
Incorporation, Article VI of the Registrant’s By-Laws, Section
2-418 of the Maryland General Corporation Law and Section 9 of the Class
A, Class B, Class C and Class D Distribution Agreements.
Insofar
as the conditional advancing of indemnification moneys for actions based
on the Investment Company Act of 1940, as amended (the “1940 Act
”) may be concerned, Article VI of the Registrant’s By-Laws
provides that such payments will be made only on the following
conditions: (i) advances may be made only on receipt of a written
affirmation of such person’s good faith belief that the standard of
conduct necessary for indemnification has been met and a written
undertaking to repay any such advance if it is ultimately determined
that the standard of conduct has not been met; and (ii) (a) such promise
must be secured by a security for the undertaking in form and amount
acceptable to the Registrant, (b) the Registrant is insured against
losses arising by receipt by the advance, or (c) a majority of a quorum
of the Registrant’s disinterested non-party Directors, or an
independent legal counsel in a written opinion, shall determine, based
upon a review of readily available facts, that at the time the advance
is proposed to be made, there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
In
Section 9 of the Class A, Class B, Class C and Class D Shares
Distribution Agreements relating to the securities being offered hereby,
the Registrant agrees to indemnify the Distributor and each person, if
any, who controls the Distributor within the meaning of the Securities
Act of 1933, as amended (the “1933 Act”), against certain
types of civil liabilities arising in connection with the Registration
Statement or Prospectus and Statement of Additional
Information.
Insofar
as indemnification for liabilities arising under the 1933 Act may be
permitted to Directors, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, officer, or controlling person of the
Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by
such Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
Item 26. Business and Other
Connections of the Manager.
Merrill
Lynch Asset Management, L.P. (“MLAM” or “Manager”),
acts as the investment adviser for the following open-end registered
investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset
Builder Program, Inc., Merrill Lynch Asset Growth
Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Capital
Fund, Inc., Merrill Lynch Convertible Fund, Inc., Merrill Lynch
Developing Capital Markets Fund, Inc., Merrill Lynch Disciplined Equity
Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch EuroFund,
Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc.,
Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value
Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund,
Inc., Merrill Lynch Index Funds, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity Fund, Merrill
Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund,
Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real Estate Fund,
Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund,
Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch
Strategic Dividend Fund, Merrill Lynch U.S. Treasury Money Fund, Merrill
Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income Fund,
Inc. 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 the Manager,
acts as the investment manager for the following open-end registered
investment companies: CBA Money Fund, CMA Government Securities Fund,
CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt
Fund, CMA Treasury Fund, The Corporate Fund Accumulation Program, Inc.,
Financial Institutions Series Trust, Merrill Lynch Basic Value Fund,
Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund,
Inc., Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal
Securities Trust, Merrill Lynch Funds for Institutions Series, Merrill
Lynch Global Financial Services Fund, Inc., Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State
Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill
Lynch Phoenix Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch World Income Fund, Inc., and The Municipal Fund
Accumulation Program, Inc.; and for the following closed-end registered
investment companies: Apex Municipal Fund, Inc., Corporate High Yield
Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield
Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal
Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc.,
MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings
California Insured Fund, Inc., MuniHoldings California Insured Fund II,
Inc., MuniHoldings California Insured Fund III, Inc., MuniHoldings
California Insured Fund IV, Inc., MuniHoldings California Insured Fund
V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured
Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings Florida
Insured Fund IV, MuniHoldings Florida Insured Fund V, MuniHoldings
Insured Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings
Insured Fund III, Inc., MuniHoldings Insured Fund IV, Inc., MuniHoldings
Michigan Insured Fund, Inc., MuniHoldings Michigan Insured Fund II,
Inc., MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New
Jersey Insured Fund II, Inc., MuniHoldings New Jersey Insured Fund III,
Inc., MuniHoldings New Jersey Insured Fund IV, Inc., MuniHoldings New
York Fund, Inc., MuniHoldings New York Insured Fund, Inc., MuniHoldings
New York Insured Fund II, Inc., MuniHoldings New York Insured Fund III,
Inc., MuniHoldings New York Insured Fund IV, Inc., MuniHoldings
Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest Fund, Inc.,
MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania
Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California Fund,
Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured
Fund, MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield
New Jersey Fund, Inc., MuniYield New Jersey Insured Fund, Inc.,
MuniYield New York Insured Fund, Inc., MuniYield New York Insured Fund
II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc. and
Worldwide DollarVest Fund, Inc.
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 FAM, MLAM, Princeton Services,
Inc. (“Princeton Services”) and Princeton Administrators, L.P.
(“Princeton Administrators”) is also P.O. Box 9011, Princeton,
New Jersey 08543-9011. The address of Princeton Funds Distributor, Inc. (
“PFD”) and of Merrill Lynch Funds Distributor (“MLFD
”) is P.O. Box 9081, Princeton, New Jersey 08543-9081. The address
of Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill
Lynch”) and Merrill Lynch & Co., Inc. (“ML & Co.
”) is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281-1201. The address of the Fund’s transfer
agent, Financial Data Services, Inc. (“FDS”), is 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below
is a list of each executive officer and partner of the 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 1, 1997 for his, her or its own account or in the
capacity of director, officer, partner or trustee. In addition, Mr.
Glenn is President and Mr. Burke is Vice President and Treasurer of all
or substantially all of the investment companies described in the first
two paragraphs of this Item 26, and Messrs. Doll, Giordano and Monagle
are officers of one or more of such companies.
Name
|
|
Position(s) with
the Manager
|
|
Other Substantial
Business,
Profession, Vocation or Employment
|
| ML & Co |
|
Limited Partner |
|
Financial Services Holding Company;
Limited Partner of FAM |
| Princeton
Services |
|
General Partner |
|
General Partner of FAM |
| Jeffrey M.
Peek |
|
President |
|
President of FAM; President and
Director of Princeton Services;
Executive Vice President of ML & Co.;
Managing Director and Co-Head of the
Investment Banking Division of Merrill
Lynch since 1997 |
| Terry K.
Glenn |
|
Executive Vice President |
|
Executive Vice President of FAM;
Executive Vice President and Director of
Princeton Services; President and
Director of PFD; Director of FDS;
President of Princeton Administrators |
| Gregory A.
Bundy |
|
Managing Director and
Chief Operating Officer |
|
Managing Director and Chief Operating
Officer of FAM; Managing Director and
Chief Operating Officer of Princeton
Services; Co-CEO of Merrill Lynch
Australia from 1997 to 1999; Managing
Director of Merrill Lynch from 1992 to
1996 |
| Donald C.
Burke |
|
Senior Vice President,
Treasurer and Director of
Taxation |
|
Senior Vice President and Treasurer of
FAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President of PFD; First Vice President of
FAM from 1997 to 1999; Vice President
of FAM from 1990 to 1997 |
| Michael G.
Clark |
|
Senior Vice President |
|
Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Treasurer and Director of PFD; First
Vice President of FAM from 1997 to
1999; Vice President of FAM from 1996
to 1997 |
Name
|
|
Position(s) with
the Manager
|
|
Other Substantial
Business,
Profession, Vocation or Employment
|
| Robert C. Doll |
|
Senior Vice President |
|
Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Chief Investment Officer of
Oppenheimer Funds, Inc. in 1999 and
Executive Vice President thereof from
1991 to 1999 |
| Linda L. Federici |
|
Senior Vice President |
|
Senior Vice President of FAM
Senior Vice President of Princeton
Services |
| Vincent R. Giordano |
|
Senior Vice President |
|
Senior Vice President of FAM;
Senior Vice President of Princeton
Services |
| 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 |
| Debra W. Landsman-Yaros |
|
Senior Vice President |
|
Senior Vice President of FAM; Senior
Vice President of Princeton Services;
Vice President of PFD |
| Stephen M. M. Miller |
|
Senior Vice President |
|
Executive Vice President of Princeton
Administrators; Senior Vice President of
Princeton Services |
| Joseph T. Monagle, Jr. |
|
Senior Vice President |
|
Senior Vice President of FAM;
Senior Vice President of Princeton
Services |
| Brian A. Murdock |
|
Senior Vice President |
|
Senior Vice President of FAM;
Senior Vice President of Princeton
Services |
| Gregory D. Upah |
|
Senior Vice President |
|
Senior Vice President of FAM;
Senior Vice President of Princeton
Services |
Merrill
Lynch Asset Management U.K. Limited (“MLAM U.K.”) acts as
sub-adviser for the following registered investment companies: The
Corporate Fund Accumulation Program, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III,
Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Debt
Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc., Income
Opportunities Fund 2000, Inc., Merrill Lynch Americas Income Fund, Inc.,
Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset Growth
Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch Basic
Value Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch
Consults International Portfolio, Merrill Lynch Convertible Fund, Inc.,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High
Yield Fund, Inc., Merrill Lynch Developing Capital Markets, 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 Fund For Tomorrow,
Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global
Bond Fund for Investment and Retirement, Merrill Lynch Global Growth
Fund, Inc., Merrill Lynch Global Holdings, Inc., Merrill Lynch Global
Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch
Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill
Lynch Healthcare Fund, Inc., Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa
Fund, Inc., Merrill Lynch Pacific Fund, Inc., Merrill Lynch Phoenix Fund,
Inc., Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Series Fund,
Inc., Merrill Lynch Senior Floating Rate Fund, Inc., Merrill Lynch Senior
Floating Rate Fund
II, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill
Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series Funds,
Inc., Merrill Lynch World Income Fund, Inc., The Municipal Fund
Accumulation Program, Inc. and Worldwide DollarVest Fund, Inc. The
address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011. The address of MLAM U.K. is 33
King William Street, London EC4R 9AS, England.
Set forth
below is a list of each executive officer and director of MLAM U.K.
indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since July
1, 1997, for his or her own account or in the capacity of director,
officer, partner or trustee. In addition, Messrs. Glenn, Burke and Albert
are officers of one or more of the registered investment companies listed
in the first two paragraphs of this Item 26:
Name
|
|
Positions with MLAM
U.K.
|
|
Other Substantial Business,
Profession, Vocation or Employment
|
| Terry K. Glenn |
|
Director and Chairman |
|
Executive Vice President of FAM and
MLAM; Executive Vice President and
Director of Princeton Services; President
and Director of PFD; President of
Princeton Administrators |
| Alan J. Albert |
|
Senior Managing Director |
|
Vice President of MLAM |
| Nicholas C.D. Hall |
|
Director |
|
Director of Merrill Lynch Europe PLC;
General Counsel of Merrill Lynch
International Private Banking Group |
| Donald C. Burke |
|
Treasurer |
|
Senior Vice President and Treasurer of
MLAM and FAM; Director of Taxation
of MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President of PFD; First Vice President of
MLAM from 1997 to 1999; Vice
President of MLAM from 1990 to 1997 |
| Carol Ann Langham |
|
Company Secretary |
|
None |
| Debra Anne Searle |
|
Assistant Company
Secretary |
|
None |
Item 27. PRINCIPAL
UNDERWRITERS.
(a) MLFD,
a division of PFD, acts as the principal underwriter for the Registrant
and for each of the open-end registered investment companies referred to
in the first two paragraphs of Item 26 except CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc. and The Municipal Fund Accumulation Program,
Inc.; MLFD also acts as the principal underwriter for the following
closed-end registered investment companies: Merrill Lynch High Income
Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund, Inc.,
Merrill Lynch Senior Floating Rate Fund, Inc. and Merrill Lynch Senior
Floating Rate Fund II, Inc. A separate division of PFD acts as the
principal underwriter of a number of other investment
companies.
(b) Set
forth below is information concerning each director and officer of PFD.
The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs.
Breen, Crook, Fatseas and Wasel is One Financial Center, 23rd Floor,
Boston, Massachusetts 02111-2665.
Name
|
|
Position(s) and Office(s)
with PFD
|
|
Position(s) and Office(s)
with Registrant
|
| Terry K. Glenn |
|
President and Director |
|
President and Director |
| Michael G. Clark |
|
Treasurer and Director |
|
None |
| Thomas J. Verage |
|
Director |
|
None |
| Robert W. Crook |
|
Senior Vice President |
|
None |
| Michael J. Brady |
|
Vice President |
|
None |
| William M. Breen |
|
Vice President |
|
None |
| Donald C. Burke |
|
Vice President |
|
Vice President and Treasurer |
| James T. Fatseas |
|
Vice President |
|
None |
| Debra W. Landsman-Yaros |
|
Vice President |
|
None |
| Michelle T. Lau |
|
Vice President |
|
None |
| Salvatore Venezia |
|
Vice President |
|
None |
| William Wasel |
|
Vice President |
|
None |
| Robert Harris |
|
Secretary |
|
None |
(c) Not
applicable.
Item 28. Location of Accounts and
Records.
All
accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the rules thereunder are maintained at the
offices of the Registrant (800 Scudders Mill Road, Plainsboro, New Jersey
08536), and its transfer agent, Financial Data Services, Inc. (4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484).
Item 29. Management
Services.
Other than
as set forth under the caption “Management of the Fund —
Merrill Lynch Asset Management” in the Prospectus constituting
Part A of the Registration Statement and under “Management of the
Fund —Management and Advisory Arrangements” in the
Statement of Additional Information constituting Part B of the
Registration Statement, the Registrant is not a party to any
management-related service contract.
Item 30.
Undertakings.
Not
applicable.
SIGNATURES
Pursuant to the
requirements of the Securities Act and the Investment Company Act, the
registrant certifies that it meets all of the requirements for
effectiveness of this registration statement under Rule 485(b) under the
Securities Act and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the Township of Plainsboro, and State of New Jersey, on the 1st day of
December 1999.
|
MERRILL
LYNCH
FUNDAMENTAL
GROWTH
FUND
, INC
.
|
|
(Donald C.
Burke, Vice President and Treasurer)
|
Pursuant to the
requirements of the Securities Act, this registration statement has been
signed below by the following person in the capacities and on the date
indicated.
Signatures
|
|
Title
|
|
Date
|
|
|
TERRY
K. GLENN
*
(Terry K. Glenn) |
|
President (Principal Executive
Officer) and Director |
|
|
|
|
DONALD
C. BURKE
*
(Donald C. Burke) |
|
Vice President and Treasurer
(Principal Financial and
Accounting Officer) |
|
|
|
|
JOE
GRILLS
*
(Joe Grills) |
|
Director |
|
|
|
|
WALTER
MINTZ
*
(Walter Mintz) |
|
Director |
|
|
|
|
ROBERT
S. SALOMON
, JR
.*
(Robert S. Salomon, Jr.) |
|
Director |
|
|
|
|
MELVIN
R. SEIDEN
*
(Melvin R. Seiden) |
|
Director |
|
|
|
|
STEPHEN
B. SWENSRUD
*
(Stephen B. Swensrud) |
|
Director |
|
|
|
|
ARTHUR
ZEIKEL
*
(Arthur Zeikel) |
|
Director |
|
|
|
|
/S
/ DONALD
C. BURKE
*By:
(Donald C. Burke, Attorney-in-Fact) |
|
|
|
December 1,
1999 |
POWER OF ATTORNEY
The undersigned, the Directors/Trustees and the officers
of each of the registered investment companies listed below,
hereby authorize Terry K. Glenn, Donald C. Burke and Joseph T.
Monagle, Jr. or any of them, as attorney-in-fact, to sign on his
behalf in the capacities indicated any Registration Statement or
amendment thereto (including post-effective amendments) for each
of the following registered investment companies and to file the
same, with all exhibits thereto, with the Securities and
Exchange Commission: Merrill Lynch Adjustable Rate Securities
Fund, Inc.; Apex Municipal Fund, Inc.; Merrill Lynch Asset
Builder Program, Inc.; Corporate High Yield Fund, Inc.;
Corporate High Yield Fund II, Inc.; Corporate High Yield Fund
III, Inc.; Merrill Lynch Federal Securities Trust; Merrill Lynch
Fundamental Growth Fund, Inc.; Income Opportunities Fund 1999,
Inc.; Income Opportunities Fund 2000, Inc.: MuniHoldings Insured
Fund II, Inc.; MuniHoldings Insured Fund III, Inc.; MuniInsured
Fund, Inc.; MuniYield Insured Fund, Inc.; Merrill Lynch Phoenix
Fund, Inc.; Merrill Lynch Real Estate Fund, Inc.; Merrill Lynch
Retirement Reserves Money Fund of Merrill Lynch Retirement
Series Trust and Summit Cash Reserves Fund of Financial
Institution Series Trust.
Signature
|
|
Title
|
|
Date
|
|
| |
/s/
TERRY
K. GLENN
(Terry K. Glenn) |
|
President
(Principal Executive
Officer), Director and Trustee |
|
April 13,
1999 |
|
|
/s/
DONALD
C. BURKE
(Donald C. Burke) |
|
Vice President
and Treasurer
(Principal Financial and
Accounting Officer) |
|
April 13,
1999 |
|
|
/s/
JOE
GRILLS
(Joe Grills) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
WALTER
MINTZ
(Walter Mintz) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
ROBERT
S. SALOMON
, JR
.
(Robert S. Salomon, Jr.) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
MELVIN
R. SEIDEN
(Melvin R. Seiden) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
STEPHEN
B. SWENSRUD
(Stephen B. Swensrud) |
|
Director/Trustee |
|
April 13,
1999 |
|
|
/s/
ARTHUR
ZEIKEL
(Arthur Zeikel) |
|
Director/Trustee |
|
April 13,
1999 |
INDEX TO EXHIBITS
Exhibit
Number
|
|
Description
|
| 1 |
(f) |
|
Articles Supplementary, dated November 17, 1999 to the
Articles of Incorporation of the Registrant. |
|
4 |
(a) |
|
Management Agreement, as amended, between Registrant
and MLAM. |
|
9 |
|
|
Opinion of Brown & Wood LLP
, counsel to the Registrant. |
| 10 |
|
|
Consent of Ernst & Young LLP
, independent auditors for the Registrant. |
|
|
|
|
